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 --> 00:00:28,200 Speaker 1: independent advisor dot com. Yeah, Welcome to the Bloomberg Surveillance Podcast. 5 00:00:28,600 --> 00:00:32,280 Speaker 1: I'm Tom Keene with David Gura. Daily we bring you 6 00:00:32,360 --> 00:00:37,360 Speaker 1: insight from the best in economics, finance, investment, and international relations. 7 00:00:37,800 --> 00:00:42,360 Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and 8 00:00:42,440 --> 00:00:48,960 Speaker 1: of course on the Bloomberg. Um, we're gonna speak with 9 00:00:49,000 --> 00:00:52,080 Speaker 1: the Nobel Prize winner we begin this hour. We're speaking 10 00:00:52,080 --> 00:00:56,200 Speaker 1: to someone who um is a Nobel Prize winner in football. 11 00:00:56,240 --> 00:01:00,880 Speaker 1: When the NC State Wolfpack do it to Trade Dome, 12 00:01:01,840 --> 00:01:06,400 Speaker 1: that gets your attention. One Dennis Gartman joins us. He's 13 00:01:06,400 --> 00:01:09,720 Speaker 1: footballed out with his NC State. Mr Gartman, good morning, 14 00:01:10,400 --> 00:01:13,080 Speaker 1: Good morning, And we did indeed beat not tre Dome 15 00:01:13,080 --> 00:01:16,080 Speaker 1: and we are two and now against the Golden Domers. 16 00:01:16,160 --> 00:01:17,720 Speaker 1: And then let's let's hear it for the wolf Pack 17 00:01:17,880 --> 00:01:19,800 Speaker 1: and it's four and one. Is this a better than 18 00:01:19,840 --> 00:01:22,840 Speaker 1: good season or you know it's like easy games that 19 00:01:22,880 --> 00:01:25,679 Speaker 1: you're gonna get crushed later on? Which is it's been 20 00:01:25,680 --> 00:01:27,600 Speaker 1: easy games, and we're gonna get crushed later. We have 21 00:01:27,720 --> 00:01:30,480 Speaker 1: we will and Clemson coming, so it's it's not pretty. 22 00:01:30,520 --> 00:01:32,640 Speaker 1: So we're we're happy to be four and one, but 23 00:01:33,480 --> 00:01:37,960 Speaker 1: logically we're at three. One of those one of those years, Dennis, 24 00:01:38,120 --> 00:01:42,559 Speaker 1: speaking of crushed, Let's talk about trading in a range 25 00:01:42,600 --> 00:01:46,640 Speaker 1: bound market. It is a contact sport, isn't it. Yeah, 26 00:01:46,640 --> 00:01:50,400 Speaker 1: it really is. I mean, it's interesting whether one talks 27 00:01:50,440 --> 00:01:53,280 Speaker 1: about the the the S and P, the NASDAC, whether 28 00:01:53,280 --> 00:01:55,480 Speaker 1: one talks about the Russell, or whether one talks about 29 00:01:55,520 --> 00:01:59,480 Speaker 1: the Dow Jones International Index itself. We have been in 30 00:01:59,520 --> 00:02:02,680 Speaker 1: a trade range for the past months and one half. 31 00:02:02,720 --> 00:02:04,480 Speaker 1: It looks like it breaks up to the upside, the 32 00:02:04,520 --> 00:02:07,080 Speaker 1: next day it break it moves lower, and then one 33 00:02:07,120 --> 00:02:09,120 Speaker 1: day it looks like it's breaking to the downside, and 34 00:02:09,160 --> 00:02:11,680 Speaker 1: the next day it moves higher. You get stopped into 35 00:02:11,720 --> 00:02:14,120 Speaker 1: long positions and taken out, You get stopped into short 36 00:02:14,120 --> 00:02:16,919 Speaker 1: positions and taken out, and at the end of two 37 00:02:16,960 --> 00:02:18,840 Speaker 1: weeks you've gone nowhere, and you've been stopped in and 38 00:02:18,840 --> 00:02:20,799 Speaker 1: out four or five times. It's one of those periods 39 00:02:20,800 --> 00:02:23,000 Speaker 1: that make it very difficult to be any kind of 40 00:02:23,000 --> 00:02:26,079 Speaker 1: an investor or. A trader. This UH, This U n C. 41 00:02:26,240 --> 00:02:28,720 Speaker 1: Tar Heel is looking forward to the day after Thanksgiving 42 00:02:28,720 --> 00:02:31,040 Speaker 1: when my heels take on the wolf pack, but will 43 00:02:31,120 --> 00:02:37,839 Speaker 1: leave it. It was it was very politely mute during 44 00:02:37,880 --> 00:02:40,640 Speaker 1: that top of the UH. Dennis, let me ask you 45 00:02:40,639 --> 00:02:42,520 Speaker 1: about oil. We have had all of this news out 46 00:02:42,560 --> 00:02:45,280 Speaker 1: of oil as this congress is underway in Istanbul. It 47 00:02:45,280 --> 00:02:48,040 Speaker 1: seems like there was there were signs here that that 48 00:02:48,280 --> 00:02:51,160 Speaker 1: agreement in principle was going to become a real agreement. 49 00:02:51,160 --> 00:02:52,880 Speaker 1: And then you have the CEO of Russia's biggest oil 50 00:02:52,919 --> 00:02:56,000 Speaker 1: company saying he doesn't intend to cut production. So here 51 00:02:56,040 --> 00:02:58,320 Speaker 1: we are a few weeks away from, yes, the the 52 00:02:58,320 --> 00:03:00,320 Speaker 1: tar Heels versus wolf Pack game. But all so that 53 00:03:00,400 --> 00:03:02,760 Speaker 1: meeting in Vienna, what are the odds here that that 54 00:03:02,919 --> 00:03:06,000 Speaker 1: something goes on to scuttlet before then? I think there's 55 00:03:06,000 --> 00:03:08,920 Speaker 1: a lot that to say for the this agreement to 56 00:03:08,960 --> 00:03:11,519 Speaker 1: be scuttled, And I think that not enough importance is 57 00:03:11,560 --> 00:03:14,760 Speaker 1: being put on Mr Secheon's comments this morning. Secon is 58 00:03:14,760 --> 00:03:17,280 Speaker 1: a fellow that most Americans, I would say one in 59 00:03:17,360 --> 00:03:20,480 Speaker 1: a thousand Americans know who he is. But born sechion 60 00:03:20,639 --> 00:03:23,320 Speaker 1: Is is the head of ross Neft. He is a 61 00:03:23,360 --> 00:03:26,520 Speaker 1: former KGB agent, has been a very close friend of 62 00:03:26,639 --> 00:03:30,440 Speaker 1: Mr Putin's, and as I've always said, once KGB, always KGB. 63 00:03:30,639 --> 00:03:35,440 Speaker 1: This is a very savvy but I think the disturbing gentleman. 64 00:03:35,880 --> 00:03:38,840 Speaker 1: And when Mr Secheon said that he has no intention, 65 00:03:39,160 --> 00:03:43,640 Speaker 1: why should he of cutting production? If Russia's largest producer 66 00:03:43,680 --> 00:03:46,240 Speaker 1: of crude oil has no intention of cutting production, no 67 00:03:46,280 --> 00:03:48,560 Speaker 1: one else shell either. I think that it's always been 68 00:03:49,240 --> 00:03:52,840 Speaker 1: a tenuous idea to think that OPEC could put forth 69 00:03:52,920 --> 00:03:56,160 Speaker 1: and agree upon and then follow through on an agreement 70 00:03:56,200 --> 00:03:58,800 Speaker 1: to curtail production. Sechion has simply put a top to it. 71 00:03:59,040 --> 00:04:03,200 Speaker 1: Given that closeness between him and Vladimir Putin, professional closeness, 72 00:04:03,480 --> 00:04:06,400 Speaker 1: how do you explain the dissonance there between what he 73 00:04:06,400 --> 00:04:08,640 Speaker 1: said today and what Vladimir Putin said in his stumblom 74 00:04:08,680 --> 00:04:10,840 Speaker 1: yesterday saying that that he saw a freeze as as 75 00:04:10,840 --> 00:04:14,480 Speaker 1: the only way forward here. It's been interesting because until 76 00:04:14,480 --> 00:04:17,640 Speaker 1: about a year ago, what Suction said, Putin said, and 77 00:04:17,680 --> 00:04:20,840 Speaker 1: what Putin said Section said, But for all of a 78 00:04:20,839 --> 00:04:23,040 Speaker 1: sudden in the course of the past year, it's as 79 00:04:23,080 --> 00:04:27,320 Speaker 1: if they have become demonstrably less friendly. Now one has 80 00:04:27,360 --> 00:04:29,440 Speaker 1: to be a reader of Russian tea leaves to be 81 00:04:29,520 --> 00:04:32,600 Speaker 1: certain that that's true. But no longer can one say 82 00:04:32,600 --> 00:04:35,360 Speaker 1: that as goes such and so so goes Putin. There 83 00:04:35,360 --> 00:04:38,480 Speaker 1: has been a seeming divorce between the two. Maybe I'm wrong, 84 00:04:38,520 --> 00:04:40,320 Speaker 1: but that's what I have read, or that's what I 85 00:04:40,360 --> 00:04:43,880 Speaker 1: read in the comments of following both these gentlemen over 86 00:04:43,920 --> 00:04:45,840 Speaker 1: the course of the past year. So I think there 87 00:04:45,920 --> 00:04:48,719 Speaker 1: is some sort of dichotomy, some sort of divorce that 88 00:04:49,000 --> 00:04:52,480 Speaker 1: has occurred. And I put the credence in what suchtion 89 00:04:52,560 --> 00:04:55,680 Speaker 1: has said. He has no intention as the president of 90 00:04:55,760 --> 00:04:58,520 Speaker 1: ross Enuf to curtail production. Dennis, let me get the 91 00:04:58,560 --> 00:05:00,800 Speaker 1: two trays. We'll come back and talk about gold. You've 92 00:05:00,839 --> 00:05:04,479 Speaker 1: gone long corn. Corn has been ugly, ugly, ugly. I'm 93 00:05:04,520 --> 00:05:06,640 Speaker 1: looking at the chart right now. Give me the y. 94 00:05:06,839 --> 00:05:09,760 Speaker 1: How do you go stochastic on corn? You don't have 95 00:05:09,800 --> 00:05:12,840 Speaker 1: a trend. It's ben down, it's been flat since July. 96 00:05:13,560 --> 00:05:17,520 Speaker 1: How can you go long corn? What do you see if? 97 00:05:17,640 --> 00:05:20,680 Speaker 1: If for no other reason, corn refuses or has at 98 00:05:20,720 --> 00:05:23,640 Speaker 1: least not made a new low in the course of 99 00:05:23,640 --> 00:05:25,760 Speaker 1: the past month and a half. Yes, the chart. If 100 00:05:25,760 --> 00:05:27,560 Speaker 1: you put the chart on the wall, walk twenty five 101 00:05:27,600 --> 00:05:30,159 Speaker 1: ft away from it and were asked what is that doing, 102 00:05:30,200 --> 00:05:32,280 Speaker 1: you would say, my word, it's moving O my word, 103 00:05:32,640 --> 00:05:35,880 Speaker 1: my strategy. Yeah, it's from the upper left to the 104 00:05:35,880 --> 00:05:38,640 Speaker 1: lower right. But it has failed to go to new 105 00:05:38,680 --> 00:05:41,240 Speaker 1: lows even as the size of the crop has gotten 106 00:05:41,360 --> 00:05:44,080 Speaker 1: egregiously large. I mean, this is a record crop. Whether 107 00:05:44,120 --> 00:05:47,040 Speaker 1: it's fifteen point one or fifteen point two or fifteen 108 00:05:47,040 --> 00:05:51,000 Speaker 1: point three billion books. Everybody everywhere knows that fact, and 109 00:05:51,040 --> 00:05:52,960 Speaker 1: I have to think that that's fairly well discounted in 110 00:05:53,000 --> 00:05:56,000 Speaker 1: the market. Is that a structural record crop or is 111 00:05:56,040 --> 00:05:58,840 Speaker 1: it a one off? That's a critical question. I think 112 00:05:59,040 --> 00:06:03,560 Speaker 1: West listeners, well, I think it's a a structural record 113 00:06:03,600 --> 00:06:06,760 Speaker 1: crop every year, every year year, except for except for that, 114 00:06:06,839 --> 00:06:09,760 Speaker 1: you know, except for usually after outs. One of the 115 00:06:09,800 --> 00:06:11,400 Speaker 1: things that you can count upon is that we are 116 00:06:11,400 --> 00:06:14,560 Speaker 1: going to produce more and more corn, more and more soybeans, 117 00:06:14,600 --> 00:06:18,360 Speaker 1: more and more cotton, more and more wheat on less acreage. 118 00:06:18,440 --> 00:06:20,240 Speaker 1: We just are very good at what we do. Our 119 00:06:20,279 --> 00:06:23,360 Speaker 1: con farmers are extraordinary. So yeah, I think it is structural. 120 00:06:23,440 --> 00:06:25,680 Speaker 1: The Dennis Gartment, you're where I am, which is yeah, 121 00:06:25,720 --> 00:06:29,640 Speaker 1: Sterling's down, folks. It's brutal. It's what on a curve 122 00:06:29,720 --> 00:06:34,160 Speaker 1: basis is called log quadratic brutal electric says, and nobody's 123 00:06:34,200 --> 00:06:38,120 Speaker 1: paying attention to Euro one tense seventy eight. Are you 124 00:06:38,200 --> 00:06:41,400 Speaker 1: there yet, um Dennis, where you can short euro? And 125 00:06:41,520 --> 00:06:44,520 Speaker 1: is it a short through parody? Oh? I think it's 126 00:06:44,520 --> 00:06:46,760 Speaker 1: a short towards parody. As I said in my news 127 00:06:46,839 --> 00:06:49,160 Speaker 1: letter this morning, we've broken through one eleven fifty, we've 128 00:06:49,200 --> 00:06:52,560 Speaker 1: broken through one eleven. Now we're about to break through one. 129 00:06:52,560 --> 00:06:55,200 Speaker 1: And as I said, under one O nine fifty there 130 00:06:55,240 --> 00:06:57,799 Speaker 1: be monsters, as they used to say on the old 131 00:06:58,040 --> 00:07:03,600 Speaker 1: Mariners maps, under one nine then that is critical. That 132 00:07:03,680 --> 00:07:06,800 Speaker 1: leads to dollar strength. Is it at a dollar strength 133 00:07:07,200 --> 00:07:12,200 Speaker 1: that impinges the American corporate system? It makes it we 134 00:07:12,520 --> 00:07:15,000 Speaker 1: are going to continue to see a dollar strength. I 135 00:07:15,000 --> 00:07:17,320 Speaker 1: don't think there's any question about that fact. And it 136 00:07:17,400 --> 00:07:19,520 Speaker 1: does make it difficult, especially if you want to be 137 00:07:19,560 --> 00:07:22,000 Speaker 1: bullish of corn, which I want to be to allow 138 00:07:22,120 --> 00:07:25,520 Speaker 1: for exports of American agriculture. I mean, that does make 139 00:07:25,560 --> 00:07:28,240 Speaker 1: the game that much more difficult. It also makes us 140 00:07:28,280 --> 00:07:31,360 Speaker 1: that much more we we become more competitive because the 141 00:07:31,360 --> 00:07:33,680 Speaker 1: dollar is getting stronger and it's likely to continue to 142 00:07:33,680 --> 00:07:36,440 Speaker 1: get stronger. Can can the euro trade the parity, Well, 143 00:07:36,480 --> 00:07:38,320 Speaker 1: I think it's over the course of the next year 144 00:07:38,400 --> 00:07:40,960 Speaker 1: or two. I think that's a given the political circumstances, 145 00:07:41,000 --> 00:07:45,040 Speaker 1: of the economic circumstances, the technical circumstances of the psychology 146 00:07:45,480 --> 00:07:48,560 Speaker 1: mandate a stronger dollar a much weaker euro, And if 147 00:07:48,600 --> 00:07:50,680 Speaker 1: you have to pick on one currency, I think that's 148 00:07:50,720 --> 00:07:52,760 Speaker 1: the one to continue to pick on. Real quick, here 149 00:07:53,080 --> 00:07:55,440 Speaker 1: you were talking fifteen point three billion bushels of corn. 150 00:07:55,440 --> 00:07:59,240 Speaker 1: Where's that corn going? To have this conversation about about exports? 151 00:07:59,280 --> 00:08:04,240 Speaker 1: Where where farmers sending that corn to? Uh tigs, cattle, livestock. 152 00:08:04,280 --> 00:08:07,320 Speaker 1: Of course, ethanol, which I'm not, I've never been and 153 00:08:07,360 --> 00:08:09,480 Speaker 1: never shall be a great proponent of ethanol, but it's 154 00:08:09,480 --> 00:08:12,320 Speaker 1: bill in ethanol production and it goes into exports trade. 155 00:08:12,320 --> 00:08:14,760 Speaker 1: I mean is that we are now at a point 156 00:08:14,760 --> 00:08:17,520 Speaker 1: where the supply of of corn is not that is 157 00:08:17,560 --> 00:08:20,360 Speaker 1: not the determining factor. It's the demand for corn which 158 00:08:20,400 --> 00:08:22,440 Speaker 1: will be the determining factor. And the problem shall be 159 00:08:22,920 --> 00:08:25,680 Speaker 1: A strong dollar makes the exports, of course, that much 160 00:08:25,680 --> 00:08:28,400 Speaker 1: more difficult. One thing Dennis Gartment and I have talked about, 161 00:08:28,440 --> 00:08:32,000 Speaker 1: folks and speaking engagements we've done is what I call 162 00:08:32,160 --> 00:08:36,400 Speaker 1: position sizing. Actually Van Thorpe callset position sizing. I call 163 00:08:36,480 --> 00:08:40,240 Speaker 1: it the how much idnus. Mr Gartman recently learned about 164 00:08:40,320 --> 00:08:43,880 Speaker 1: the how much idness of being in gold. I know 165 00:08:43,920 --> 00:08:46,240 Speaker 1: that Tom is very eager to ask about gold. That 166 00:08:46,320 --> 00:08:48,840 Speaker 1: just indulge me a second before before we get to that. 167 00:08:48,880 --> 00:08:52,040 Speaker 1: I wanted to ask you about the Sterling flash crash 168 00:08:52,120 --> 00:08:54,600 Speaker 1: that we saw last week, and you said it's taking 169 00:08:54,640 --> 00:08:56,199 Speaker 1: up far more of our time than we think it merits. 170 00:08:56,240 --> 00:08:58,160 Speaker 1: But indulge me a bit here. And if you peg 171 00:08:58,200 --> 00:09:02,240 Speaker 1: this to sort of temporal liquidity, are you worried it 172 00:09:02,240 --> 00:09:03,920 Speaker 1: could happen again? I mean this this is something that 173 00:09:03,920 --> 00:09:06,960 Speaker 1: would be recurring. Then well, I'm woray that can happen 174 00:09:07,000 --> 00:09:08,719 Speaker 1: in the bond market. I'm woray that can happen in 175 00:09:08,840 --> 00:09:11,120 Speaker 1: in the grain markets. I'm worried it can happen again 176 00:09:11,160 --> 00:09:14,720 Speaker 1: in the equities markets. We have the markets seem not 177 00:09:14,760 --> 00:09:16,800 Speaker 1: to be nearly as liquid as they used to be. 178 00:09:17,520 --> 00:09:20,160 Speaker 1: Graham Dot I think has had a great impact taking 179 00:09:20,280 --> 00:09:22,440 Speaker 1: any large number of banks out of the markets that 180 00:09:22,559 --> 00:09:24,680 Speaker 1: used to be able to make markets on both sides. 181 00:09:25,080 --> 00:09:29,559 Speaker 1: I fear flash crash is happening on a rather consistent 182 00:09:29,640 --> 00:09:33,480 Speaker 1: basis in any number of commodities, uh, in any number 183 00:09:33,520 --> 00:09:36,480 Speaker 1: of markets. So I was not surprised that it happened. 184 00:09:36,960 --> 00:09:39,200 Speaker 1: I was surprised it happened in the forex market, however, 185 00:09:39,200 --> 00:09:42,120 Speaker 1: where there usually is greater liquidity than any place. Out 186 00:09:42,280 --> 00:09:45,000 Speaker 1: Come on, you're the next or ocean made a fortune? 187 00:09:45,360 --> 00:09:48,200 Speaker 1: And now Dennis Gartman on the one way bet or 188 00:09:48,240 --> 00:09:51,640 Speaker 1: the one trick bet. Dennis, You're in gold? And boy, 189 00:09:51,640 --> 00:09:54,600 Speaker 1: who has it been an ugly number of weeks? How 190 00:09:54,640 --> 00:09:57,280 Speaker 1: did you know? First of all, you know what's your 191 00:09:57,280 --> 00:10:02,920 Speaker 1: biggest percentage exposure at any time? Uh? And I probably 192 00:10:02,960 --> 00:10:05,520 Speaker 1: am there in gold and should not have been no question. 193 00:10:06,040 --> 00:10:09,520 Speaker 1: How does one respond well after one stops throwing up? Uh? Well, 194 00:10:10,200 --> 00:10:14,240 Speaker 1: one one gets smaller. One hasn't any choice. Thankfully, at 195 00:10:14,360 --> 00:10:16,920 Speaker 1: least I was not long of gold solely in US 196 00:10:17,000 --> 00:10:19,720 Speaker 1: dollar terms. In fact, I don't own any golden dollar terms, 197 00:10:20,080 --> 00:10:22,880 Speaker 1: at least somewhat. The the loss was mitigated by the 198 00:10:22,880 --> 00:10:25,640 Speaker 1: fact that I own golden euro terms, which is down 199 00:10:25,720 --> 00:10:28,959 Speaker 1: the down, demonstrating less than golden dollars. Let's let's be honest, 200 00:10:29,000 --> 00:10:31,920 Speaker 1: but was it Has it been fun? It was fun 201 00:10:31,960 --> 00:10:33,560 Speaker 1: early in the year. Has it been fun in the 202 00:10:33,559 --> 00:10:36,400 Speaker 1: past within a half. Oh lord, No. If it's range 203 00:10:36,440 --> 00:10:39,160 Speaker 1: bound and you go down two point one or two 204 00:10:39,240 --> 00:10:44,320 Speaker 1: point two standard deviations, do you rationalize regression to the mean? 205 00:10:44,960 --> 00:10:48,880 Speaker 1: Do you go to cash? How do you reframe it 206 00:10:49,040 --> 00:10:53,240 Speaker 1: down to standard deviations? You get smaller, you reduce the 207 00:10:53,280 --> 00:10:56,520 Speaker 1: size of your trade. You have no choice. That's what 208 00:10:56,640 --> 00:10:59,480 Speaker 1: pros do. That's how you have to respond. You may 209 00:10:59,840 --> 00:11:02,160 Speaker 1: you may come back and and own it again later, 210 00:11:02,200 --> 00:11:04,840 Speaker 1: But the first thing that one does is one gets smaller. 211 00:11:04,840 --> 00:11:07,600 Speaker 1: And that's exactly what I did. I got smaller. Do 212 00:11:07,640 --> 00:11:10,800 Speaker 1: I wish that I had gotten smaller before we had 213 00:11:10,840 --> 00:11:13,760 Speaker 1: the the collapse in gold prices in dollar terms two 214 00:11:13,760 --> 00:11:16,920 Speaker 1: weeks ago? Of course I do. Have I increased my 215 00:11:16,960 --> 00:11:19,480 Speaker 1: position since then? No? I have not. I am I 216 00:11:19,559 --> 00:11:23,800 Speaker 1: interested again? Yes, because suddenly golden in euro terms, I 217 00:11:23,800 --> 00:11:25,960 Speaker 1: see the euro getting weaker and gold in the course 218 00:11:26,000 --> 00:11:27,959 Speaker 1: of the past forty eight hours has begun to show 219 00:11:27,960 --> 00:11:31,480 Speaker 1: signs of strength. But is my confidence level high enough 220 00:11:31,480 --> 00:11:33,080 Speaker 1: to say let's go back and do it again? No? 221 00:11:33,200 --> 00:11:35,320 Speaker 1: Not yet. So where do we go from here? We 222 00:11:35,320 --> 00:11:39,560 Speaker 1: we broke that twelve fifty barrier, if fleetingly on on Friday, 223 00:11:39,559 --> 00:11:42,360 Speaker 1: when you're looking at gold, what's what's your path forward 224 00:11:43,360 --> 00:11:45,400 Speaker 1: in order for its turn for the better. And in gold, 225 00:11:45,400 --> 00:11:47,839 Speaker 1: I think has become solely a technical circumstance, not a 226 00:11:47,880 --> 00:11:51,600 Speaker 1: fundamental circumstance, because let's be honest, in dollar terms, it's 227 00:11:51,640 --> 00:11:54,800 Speaker 1: still up for the year rather markedly. In Euro terms 228 00:11:54,800 --> 00:11:57,559 Speaker 1: it's up for the year very markedly. But I need 229 00:11:57,600 --> 00:12:00,319 Speaker 1: to see gold trading above twelve seventy to say that 230 00:12:00,320 --> 00:12:02,800 Speaker 1: that the low has been seen. The fact that we 231 00:12:02,920 --> 00:12:06,640 Speaker 1: broke under twelve fifty and saw no real new selling, 232 00:12:06,960 --> 00:12:09,160 Speaker 1: uh there. And I think most of the selling that 233 00:12:09,160 --> 00:12:10,800 Speaker 1: occurred a week and a half ago or two weeks 234 00:12:10,840 --> 00:12:14,400 Speaker 1: ago was predicated on one, maybe two large funds being 235 00:12:14,440 --> 00:12:17,400 Speaker 1: taken out by their own margin clerks. If we get 236 00:12:17,440 --> 00:12:19,480 Speaker 1: about twelve seventy, I think you've started. I think you 237 00:12:19,480 --> 00:12:22,120 Speaker 1: will have been able to say twelve forty eight was 238 00:12:22,200 --> 00:12:25,280 Speaker 1: the low. Time shall tell. But this is this goes 239 00:12:25,440 --> 00:12:30,000 Speaker 1: also separately to the idea of trying to be informed 240 00:12:30,000 --> 00:12:33,200 Speaker 1: and in place in the markets. But you're in a range, 241 00:12:33,840 --> 00:12:37,679 Speaker 1: is you know range dissipates capital? How does Dallas gartment 242 00:12:37,840 --> 00:12:43,040 Speaker 1: adjust when it's an obvious dollar range, oil range, gold range. 243 00:12:43,920 --> 00:12:47,000 Speaker 1: You get smaller, you get smaller, you get smaller and 244 00:12:47,040 --> 00:12:49,120 Speaker 1: you get smaller. There's really I wish there were some 245 00:12:49,200 --> 00:12:52,480 Speaker 1: secret that that I I could grant and say this 246 00:12:52,559 --> 00:12:54,040 Speaker 1: is how one does it. But I think the only 247 00:12:54,040 --> 00:12:56,680 Speaker 1: thing one knows how to do is get smaller and weight. 248 00:12:56,920 --> 00:12:59,960 Speaker 1: That's that's what one does. And I can't emphasize enough 249 00:13:00,040 --> 00:13:07,120 Speaker 1: folks of reading the literature on trend based mathematics dynamics 250 00:13:07,720 --> 00:13:10,640 Speaker 1: to know what to do in critically, to know what 251 00:13:10,880 --> 00:13:14,480 Speaker 1: not to do. That is half the battle. Dennis Gartman 252 00:13:14,480 --> 00:13:17,120 Speaker 1: has always thank you so much, love having you on. 253 00:13:17,240 --> 00:13:19,959 Speaker 1: I will remind people that, unlike most in the game, 254 00:13:20,480 --> 00:13:24,600 Speaker 1: Mr Gartman on a daily basis puts the gold in 255 00:13:24,679 --> 00:13:27,840 Speaker 1: the gore of his trades in the back of his newsletter. 256 00:13:28,559 --> 00:13:32,800 Speaker 1: That's our point. A very few people do that. Dennis 257 00:13:32,800 --> 00:13:51,960 Speaker 1: Gartment Gartman UH letter joining us and there's like eight 258 00:13:52,000 --> 00:13:55,679 Speaker 1: ways to go here, including the Nobel Prize on contracts. 259 00:13:55,720 --> 00:13:58,400 Speaker 1: Man holds them to join us. In the next hour 260 00:13:58,520 --> 00:14:02,840 Speaker 1: from the Massachusetts Institute, Technology Professor Stephen Ratner joins us 261 00:14:03,280 --> 00:14:07,800 Speaker 1: and will it uh advisors and professor, I've got to go. 262 00:14:08,920 --> 00:14:12,840 Speaker 1: Your cards are and even your most largest critics would 263 00:14:12,920 --> 00:14:18,320 Speaker 1: like you to be. Debates are or politicals are with 264 00:14:18,440 --> 00:14:22,360 Speaker 1: your broad reaching skills. I'm trying to make it up 265 00:14:22,360 --> 00:14:25,840 Speaker 1: as we go. What would you do to our broken 266 00:14:25,880 --> 00:14:29,960 Speaker 1: political process? Do we just get beyond the first Tuesday 267 00:14:29,960 --> 00:14:33,720 Speaker 1: of November? I think we at this point, certainly for 268 00:14:33,760 --> 00:14:36,160 Speaker 1: this cycle, we get past the first Tuesday in November. 269 00:14:36,360 --> 00:14:39,680 Speaker 1: There's uh, whatever momentary thoughts people might have had that 270 00:14:39,720 --> 00:14:42,800 Speaker 1: there would be a different Republican nominee are certainly by 271 00:14:42,840 --> 00:14:45,200 Speaker 1: the boards. Mr Trump is going to finish this race. 272 00:14:45,280 --> 00:14:49,040 Speaker 1: Hillary Clinton is going to finish this race. Presumably Hillary 273 00:14:49,080 --> 00:14:50,840 Speaker 1: Clinton is going to win. That's what all the polls 274 00:14:50,840 --> 00:14:54,040 Speaker 1: seemed to say. And the Republican Party will have a 275 00:14:54,080 --> 00:14:58,200 Speaker 1: lot of soul searching to do with within this is 276 00:14:58,720 --> 00:15:02,800 Speaker 1: we just mentioned with the nf I report, the angst 277 00:15:03,000 --> 00:15:06,040 Speaker 1: over a type of economy. Did you hear any policy 278 00:15:06,120 --> 00:15:10,960 Speaker 1: and debate uno or debate dose about economic policy and 279 00:15:11,000 --> 00:15:15,640 Speaker 1: placing the nation on a better track or vector? Shockingly 280 00:15:15,720 --> 00:15:18,360 Speaker 1: little this has been. This has been like like a 281 00:15:18,360 --> 00:15:20,640 Speaker 1: smoke free zone. This has been a policy free zone 282 00:15:20,800 --> 00:15:23,840 Speaker 1: this campaign. There were two questions really in the in 283 00:15:23,880 --> 00:15:26,640 Speaker 1: the second debate that we're pretty directly on policy and 284 00:15:26,680 --> 00:15:28,240 Speaker 1: then a few others have touched on it. One was 285 00:15:28,280 --> 00:15:30,320 Speaker 1: of course, about Obamba Acare and the debate they in, 286 00:15:30,360 --> 00:15:32,960 Speaker 1: the discussion they had about whether to keep it uh 287 00:15:33,040 --> 00:15:36,160 Speaker 1: and and and the second one was about taxes and 288 00:15:36,720 --> 00:15:39,120 Speaker 1: what to do about taxes and the difference between their 289 00:15:39,120 --> 00:15:41,640 Speaker 1: two approaches. And then there was some happy talk about 290 00:15:41,680 --> 00:15:43,560 Speaker 1: how we have to get the country moving again. And 291 00:15:43,960 --> 00:15:47,160 Speaker 1: Trump would talk about unleashing regulation and and and letting 292 00:15:47,160 --> 00:15:50,040 Speaker 1: the free enterprise system work. Hillary Clinton will talk about 293 00:15:50,040 --> 00:15:52,440 Speaker 1: programs to help those left behind and retrain them, to 294 00:15:52,440 --> 00:15:55,280 Speaker 1: get them back in the workforce, to invest in infrastructures. 295 00:15:55,280 --> 00:15:57,480 Speaker 1: A little bit of that around the edges. But for 296 00:15:57,520 --> 00:15:59,720 Speaker 1: somebody as who's a policy guy as opposed to a 297 00:15:59,720 --> 00:16:03,480 Speaker 1: polite local guy, these debates are are are not are 298 00:16:03,480 --> 00:16:06,120 Speaker 1: not very satisfying. It was back in made that you wrote, 299 00:16:06,160 --> 00:16:08,960 Speaker 1: I'll bet there's plenty to learn about Donald Trump's taxes. 300 00:16:09,000 --> 00:16:11,280 Speaker 1: Since then, the New York Times obtained the first three 301 00:16:11,280 --> 00:16:14,760 Speaker 1: pages of his return that came up at the debate. 302 00:16:15,160 --> 00:16:17,680 Speaker 1: He commented on it, what have what have we learned since? 303 00:16:17,760 --> 00:16:21,400 Speaker 1: And in that broader conversation about taxation where it might 304 00:16:21,400 --> 00:16:23,880 Speaker 1: head under a president Trump for President Clinton, where do 305 00:16:23,920 --> 00:16:26,360 Speaker 1: we stand? I think Trump has done a pretty good 306 00:16:26,440 --> 00:16:29,640 Speaker 1: job I have to give him credit of of having 307 00:16:29,720 --> 00:16:32,320 Speaker 1: a line of response on his tax returns, which is 308 00:16:32,360 --> 00:16:34,720 Speaker 1: to simply say, of course, I used all my DIDI wouldn't, 309 00:16:34,760 --> 00:16:38,040 Speaker 1: don't you. Does anybody in this room not use their deductions? 310 00:16:38,040 --> 00:16:40,760 Speaker 1: I do. Then he goes on to say, but I'm 311 00:16:40,880 --> 00:16:43,080 Speaker 1: so therefore I'm the only one who can fix it. 312 00:16:43,440 --> 00:16:45,600 Speaker 1: But if you look at Trump's tax plan, it would 313 00:16:45,600 --> 00:16:48,479 Speaker 1: not fix it. It would make it worse. He's proposing 314 00:16:48,600 --> 00:16:51,680 Speaker 1: a five point a trillion dollar tax cut over ten years, 315 00:16:52,000 --> 00:16:56,200 Speaker 1: which would vastly disproportionately go to the wealthy, including potentially, 316 00:16:56,200 --> 00:16:58,560 Speaker 1: though they haven't really clarified it, giving the so called 317 00:16:58,560 --> 00:17:01,760 Speaker 1: passed through the LLCs that many businessmen hedge funds, everybody 318 00:17:01,760 --> 00:17:06,399 Speaker 1: operates through tax rate, and so, in fact, you make 319 00:17:06,440 --> 00:17:09,639 Speaker 1: it worse. Now, what's interesting about the two candidates is 320 00:17:09,680 --> 00:17:13,080 Speaker 1: that neither of them has actually proposed tax reform. Hillary 321 00:17:13,080 --> 00:17:15,520 Speaker 1: Clinton has proposed raising taxes on the wealthiest to pay 322 00:17:15,520 --> 00:17:19,080 Speaker 1: for her programs. Donald Trump has proposed this massive tax cut, 323 00:17:19,440 --> 00:17:22,480 Speaker 1: but nobody's actually talking. With some small exceptions, Hillary Clinton's 324 00:17:22,520 --> 00:17:24,320 Speaker 1: for the Buffett rule. They both want to get rid 325 00:17:24,320 --> 00:17:26,399 Speaker 1: of the carried interests for private equity, which is kind 326 00:17:26,440 --> 00:17:29,000 Speaker 1: of a small dollar amount, but in terms of fun 327 00:17:29,200 --> 00:17:32,240 Speaker 1: the kind of in terms of fundamental reform to prevent 328 00:17:32,320 --> 00:17:34,520 Speaker 1: people like Donald Trump from doing what they did, nobody's 329 00:17:34,520 --> 00:17:36,600 Speaker 1: talking about it. Could I say that maybe giving them 330 00:17:36,600 --> 00:17:39,440 Speaker 1: benefits doubt here that's because they have some awareness of 331 00:17:39,480 --> 00:17:41,520 Speaker 1: the fact that Congress has not been working in concert 332 00:17:41,520 --> 00:17:44,160 Speaker 1: with the administration for for some time. Here, I wanted 333 00:17:44,200 --> 00:17:47,840 Speaker 1: looking ahead to to whomever is elected president, what's going 334 00:17:47,880 --> 00:17:50,120 Speaker 1: to make that relationship between the White House and Congress 335 00:17:50,160 --> 00:17:53,680 Speaker 1: measurably better? That is the absolutely most important question. Everybody 336 00:17:53,760 --> 00:17:56,760 Speaker 1: is focused on this election, and not very many people 337 00:17:56,800 --> 00:17:59,080 Speaker 1: are focused on what's going to happen after the election, 338 00:17:59,119 --> 00:18:01,200 Speaker 1: which is at someone going to have to try to govern, 339 00:18:01,680 --> 00:18:04,879 Speaker 1: and you're almost certainly going to have divided government regardless 340 00:18:04,920 --> 00:18:07,320 Speaker 1: of which one wins. You're nobody's going to have sixty 341 00:18:07,359 --> 00:18:10,320 Speaker 1: votes in the Senate, which means that filibusters can occur. 342 00:18:10,960 --> 00:18:13,120 Speaker 1: Paul Ryan is still going to have his hard heart 343 00:18:13,240 --> 00:18:16,880 Speaker 1: right caucus that won't pass anything. Uh, And it's going 344 00:18:16,920 --> 00:18:19,280 Speaker 1: to be really, really tough for who's ever president. And 345 00:18:19,320 --> 00:18:21,240 Speaker 1: that's the most scary part of this. How did you 346 00:18:21,280 --> 00:18:25,439 Speaker 1: respond when Secretary Clinton cited Spielberg and Lincoln in uh, 347 00:18:26,520 --> 00:18:29,240 Speaker 1: the the Amazing Congress at that time. I'm sure you 348 00:18:29,280 --> 00:18:31,399 Speaker 1: saw what I saw the movie. And what she what 349 00:18:31,560 --> 00:18:34,880 Speaker 1: she didn't say, is that the way that Lincoln got 350 00:18:34,920 --> 00:18:38,240 Speaker 1: that amendment passed was by doing stuff that today is illegal. 351 00:18:38,800 --> 00:18:41,119 Speaker 1: You cannot appoint your brother in law, whoever it was 352 00:18:41,200 --> 00:18:43,480 Speaker 1: the friend of the brother in law, to be postmaster 353 00:18:43,600 --> 00:18:46,000 Speaker 1: general in Ohio. You just can't. You can't hire two 354 00:18:46,040 --> 00:18:48,000 Speaker 1: bag men from all mony to go around with bags 355 00:18:48,040 --> 00:18:52,960 Speaker 1: of cash to persuade people who results. But but, but 356 00:18:53,040 --> 00:18:55,120 Speaker 1: the important point here is there are many people who 357 00:18:55,160 --> 00:18:58,160 Speaker 1: feel that changes in the procedure up there that were 358 00:18:58,200 --> 00:19:00,439 Speaker 1: meant to cleanse it, like getting rid of your marks, 359 00:19:00,840 --> 00:19:03,080 Speaker 1: actually may have made the problem worse because now the 360 00:19:03,200 --> 00:19:06,560 Speaker 1: leadership has no way to reward people who actually do 361 00:19:06,640 --> 00:19:08,840 Speaker 1: what they want them to do. And this is actually 362 00:19:08,880 --> 00:19:11,720 Speaker 1: contributed to the gridlock. So what what Hillary Clinton was 363 00:19:11,720 --> 00:19:14,080 Speaker 1: saying was interesting, But there's no way to go and 364 00:19:14,119 --> 00:19:17,199 Speaker 1: be linked anymore. It doesn't work. Stephen Ratner with us 365 00:19:17,200 --> 00:19:20,040 Speaker 1: with willowed advisors, as we look at any number of 366 00:19:20,080 --> 00:19:23,400 Speaker 1: linkages here, Stephen, within the equity market, you've always made 367 00:19:23,440 --> 00:19:26,280 Speaker 1: clear you want to find good companies and hold them 368 00:19:26,320 --> 00:19:29,840 Speaker 1: if they're working with a new terminal value that's lower, 369 00:19:29,880 --> 00:19:33,280 Speaker 1: if they're working with lower nominal GDP, if they're working 370 00:19:33,320 --> 00:19:36,840 Speaker 1: with lower revenue growth. Is there loads of room to 371 00:19:36,880 --> 00:19:40,600 Speaker 1: go down the income statement and cut costs to get 372 00:19:40,640 --> 00:19:43,560 Speaker 1: to better margins even in a low single digit world. 373 00:19:44,640 --> 00:19:47,359 Speaker 1: I'm not sure that there is. As you know, corporate 374 00:19:47,400 --> 00:19:49,879 Speaker 1: profit margins peaked a year or two ago and then 375 00:19:49,920 --> 00:19:52,639 Speaker 1: i've been coming down, obviously heavily driven by energy, but 376 00:19:52,760 --> 00:19:55,440 Speaker 1: other sectors as well. And if you look at corporate 377 00:19:55,440 --> 00:19:57,560 Speaker 1: profits as a share of GDP, if you look at 378 00:19:57,600 --> 00:20:00,959 Speaker 1: corporate profit margins, none of it's suggests that there's a 379 00:20:00,960 --> 00:20:04,040 Speaker 1: lot of room, a lot of room at this point. 380 00:20:04,119 --> 00:20:06,360 Speaker 1: And so we think, we think our view has been 381 00:20:06,520 --> 00:20:09,480 Speaker 1: and we've we've acted on this, that the equity markets 382 00:20:09,920 --> 00:20:12,720 Speaker 1: are very fully valued, that what is mostly propelling the 383 00:20:12,800 --> 00:20:16,360 Speaker 1: US equity market anyway has been lower interest rates. As 384 00:20:16,400 --> 00:20:19,800 Speaker 1: and when that reverses itself, we think that the US 385 00:20:19,840 --> 00:20:22,560 Speaker 1: equity markets are going to be challenged, and so we 386 00:20:22,640 --> 00:20:26,680 Speaker 1: have been actually reducing our exposure to US equity markets. 387 00:20:26,720 --> 00:20:30,560 Speaker 1: You mentioned energy, and we've had a whirl of interest 388 00:20:30,640 --> 00:20:32,520 Speaker 1: here in a production freeze over the last couple of 389 00:20:32,520 --> 00:20:35,199 Speaker 1: weeks from OPEC participants and and and talk that that 390 00:20:35,280 --> 00:20:37,119 Speaker 1: might be formalized at the meeting in Vienna at the 391 00:20:37,200 --> 00:20:40,280 Speaker 1: end of of November. What effect is that going to 392 00:20:40,320 --> 00:20:42,360 Speaker 1: have on equities do you think here in the next 393 00:20:42,359 --> 00:20:45,639 Speaker 1: couple quarters. Well, you can see already obviously in the 394 00:20:45,760 --> 00:20:47,879 Speaker 1: in the energy markets that the price of crewed has 395 00:20:47,920 --> 00:20:50,520 Speaker 1: now gone up above fifty uh I think for the 396 00:20:50,520 --> 00:20:52,840 Speaker 1: first time at least certainly for the most sustained time 397 00:20:52,960 --> 00:20:56,000 Speaker 1: since since the whole collapse and in prices, and it 398 00:20:56,080 --> 00:20:58,560 Speaker 1: hasn't really had any delaterious effects so far on the 399 00:20:58,600 --> 00:21:01,240 Speaker 1: equity markets. I think what would hurt the equity markets 400 00:21:01,320 --> 00:21:03,920 Speaker 1: would be if it appeared that there was some dramatic 401 00:21:04,040 --> 00:21:07,520 Speaker 1: escalation energy prices. But you still do have a supply 402 00:21:07,640 --> 00:21:10,440 Speaker 1: demand imbalance in favor of supply in terms of what's 403 00:21:10,440 --> 00:21:13,040 Speaker 1: being produced every day. Maybe they'll succeed in cutting that, 404 00:21:13,359 --> 00:21:16,320 Speaker 1: but after that you have huge inventories and and those 405 00:21:16,400 --> 00:21:18,199 Speaker 1: have to be worked down before they can really be 406 00:21:19,280 --> 00:21:22,200 Speaker 1: a major impact on price. We're talking with Katherine Man 407 00:21:22,240 --> 00:21:25,199 Speaker 1: of the o E c D about economic participation, the 408 00:21:25,240 --> 00:21:27,720 Speaker 1: degree to which people in the global economy feel left 409 00:21:27,760 --> 00:21:30,880 Speaker 1: out by what gains we have seen. Let me try 410 00:21:30,920 --> 00:21:33,280 Speaker 1: to devetail this with with politics a little bit. A 411 00:21:33,280 --> 00:21:36,080 Speaker 1: few weeks back, there was polling indicating that Donald Trump 412 00:21:36,160 --> 00:21:41,200 Speaker 1: was doing well with voters in places like Ohio, Pennsylvania. Uh, 413 00:21:41,240 --> 00:21:43,840 Speaker 1: I wonder what you make of that in your experience 414 00:21:43,840 --> 00:21:47,359 Speaker 1: with the auto industry. These are places where that continues 415 00:21:47,359 --> 00:21:51,119 Speaker 1: to play a large role. What more could Hillary Clinton, 416 00:21:51,119 --> 00:21:53,160 Speaker 1: your candidate, due to to speak to those voters. Why 417 00:21:53,160 --> 00:21:54,720 Speaker 1: has she been able to reach them? Why has Donald 418 00:21:54,720 --> 00:21:57,600 Speaker 1: Trump been able to get those voters on the matter 419 00:21:57,640 --> 00:22:02,280 Speaker 1: of participation highlighting the fact that there's been some exclusion here. Look, 420 00:22:02,680 --> 00:22:04,720 Speaker 1: one of the one of the most shocking things to 421 00:22:04,760 --> 00:22:07,120 Speaker 1: me from my experience in autos was to find out 422 00:22:07,160 --> 00:22:09,440 Speaker 1: what was going on in Ohio, what was going in Michigan, 423 00:22:09,520 --> 00:22:11,239 Speaker 1: what was going on in Indiana, What was going on 424 00:22:11,280 --> 00:22:13,840 Speaker 1: in these states with these workers, and what's happened to 425 00:22:13,880 --> 00:22:16,680 Speaker 1: their standard of living, What's happened to their real incomes 426 00:22:16,760 --> 00:22:19,600 Speaker 1: as as auto companies have closed or moved jobs out 427 00:22:19,600 --> 00:22:22,360 Speaker 1: of the country and so forth, and so the effect 428 00:22:22,440 --> 00:22:25,440 Speaker 1: is real. And the question for these auto workers and 429 00:22:25,560 --> 00:22:27,560 Speaker 1: former auto workers are for all the people down there 430 00:22:27,560 --> 00:22:30,880 Speaker 1: who are suffering, is which which candidate do you think 431 00:22:30,920 --> 00:22:32,720 Speaker 1: is most equipped to help you. Do you think closing 432 00:22:32,760 --> 00:22:36,800 Speaker 1: the borders, putting thirty five percent tariffs on imports and 433 00:22:36,840 --> 00:22:38,520 Speaker 1: so on and so forth is the way to solve 434 00:22:38,560 --> 00:22:40,919 Speaker 1: the problem or do or do you think we simply 435 00:22:40,960 --> 00:22:44,040 Speaker 1: need to invest in the economy, invest in infrastructure, retrain 436 00:22:44,119 --> 00:22:46,720 Speaker 1: these workers, and get the country moving again. That's the 437 00:22:46,800 --> 00:22:49,520 Speaker 1: choice that's in front of the American people right the second, Steve, 438 00:22:49,560 --> 00:22:51,040 Speaker 1: I know you like to paint, and you know you've 439 00:22:51,080 --> 00:22:54,600 Speaker 1: painted your apartment like fourteen times. Um, if you want 440 00:22:54,600 --> 00:22:57,720 Speaker 1: to watch paint dry, go to the I I F meetings, 441 00:22:57,720 --> 00:23:01,359 Speaker 1: at the I M F meetings. Is that enough alphabetical soup? 442 00:23:01,359 --> 00:23:03,359 Speaker 1: But as you know, Steve, all the bankers get together 443 00:23:03,920 --> 00:23:07,920 Speaker 1: in wax philosophical that happened this weekend. Mr Diamond and 444 00:23:08,000 --> 00:23:13,720 Speaker 1: Mr Gorman, among others, said, Okay, London's challenged. The assumption 445 00:23:13,840 --> 00:23:17,240 Speaker 1: is we moved to continental Europe or we moved to Dublin. 446 00:23:17,640 --> 00:23:20,879 Speaker 1: Wait a minute, we Jason may move back to New York. 447 00:23:21,600 --> 00:23:27,200 Speaker 1: Kid New York compete for London's business against Frankfurt and 448 00:23:27,359 --> 00:23:32,120 Speaker 1: other Paris and other European destinations. Look, I think there's 449 00:23:32,119 --> 00:23:34,960 Speaker 1: a couple of questions here. The first, I'm not convinced 450 00:23:34,960 --> 00:23:38,439 Speaker 1: they're leaving Britain self fast agree full disclosure. Okay, so 451 00:23:38,480 --> 00:23:41,960 Speaker 1: there we are. This is yet yet unresolved. Secondly, I'm 452 00:23:42,000 --> 00:23:44,240 Speaker 1: not an export on the so called passporting and where 453 00:23:44,240 --> 00:23:45,960 Speaker 1: these banks can operate from. But I would not have 454 00:23:46,000 --> 00:23:47,639 Speaker 1: guessed that they could operate from New York for the 455 00:23:47,680 --> 00:23:49,960 Speaker 1: same reason they won't be able to operate from Britain 456 00:23:50,000 --> 00:23:54,520 Speaker 1: if they don't pertain that passport part of the basic 457 00:23:54,600 --> 00:23:58,199 Speaker 1: idea of future growth. Okay, but if you passporting is 458 00:23:58,240 --> 00:24:00,640 Speaker 1: not a problem, then why would they leave the UK 459 00:24:00,760 --> 00:24:03,560 Speaker 1: in the first place. I I don't disagree, but I 460 00:24:03,600 --> 00:24:06,680 Speaker 1: just thought it was an idea of saying New York 461 00:24:06,840 --> 00:24:12,159 Speaker 1: can compete within the the philosophical capitalism of Europe, I 462 00:24:12,200 --> 00:24:14,600 Speaker 1: would say. I would say as a former banker, it 463 00:24:14,720 --> 00:24:18,240 Speaker 1: is hard, and it's not hard necessary because of philosophical issues. 464 00:24:18,280 --> 00:24:21,000 Speaker 1: It's hard because it is a It is a basic 465 00:24:21,119 --> 00:24:23,399 Speaker 1: rule of banking and my experience that the closer you 466 00:24:23,440 --> 00:24:25,720 Speaker 1: are to the client physically, even in the modern world 467 00:24:25,720 --> 00:24:28,800 Speaker 1: of technology, the better the better job you can do. 468 00:24:28,880 --> 00:24:32,000 Speaker 1: Retaining can you do a better job in Helsinki from London? 469 00:24:32,960 --> 00:24:40,000 Speaker 1: Or from US. I don't I'm just Amsterdam or Brussels 470 00:24:40,320 --> 00:24:42,679 Speaker 1: or someplace that has good train service all over the 471 00:24:42,720 --> 00:24:44,200 Speaker 1: rest of Europe. I don't know where they're going. I 472 00:24:44,200 --> 00:24:46,280 Speaker 1: don't think they know where they're going. Well, come out this. 473 00:24:46,560 --> 00:24:51,320 Speaker 1: The train service New York City can't compete. It's a 474 00:24:51,320 --> 00:24:54,480 Speaker 1: long way across the Atlantic in the train. David, ing 475 00:24:54,560 --> 00:24:55,920 Speaker 1: back to what we heard from from the O E 476 00:24:56,000 --> 00:24:58,560 Speaker 1: c D. The fact that the fallout from that breakit 477 00:24:58,600 --> 00:25:00,199 Speaker 1: vote has not been as great as man you head 478 00:25:00,200 --> 00:25:03,159 Speaker 1: for fear, Let's talk about the psychological followed from what 479 00:25:03,160 --> 00:25:07,159 Speaker 1: it says about the notion of globalization going forward to 480 00:25:07,200 --> 00:25:10,360 Speaker 1: fallout on the pound has been pretty signature. Um, look 481 00:25:10,640 --> 00:25:13,600 Speaker 1: the Brexit vote and what got people scared here until 482 00:25:13,680 --> 00:25:18,440 Speaker 1: Donald Trump began his self immolation campaign. What scared people 483 00:25:18,480 --> 00:25:21,720 Speaker 1: here is there clearly is whether it's in Columbia, South America, 484 00:25:21,880 --> 00:25:23,800 Speaker 1: or in Britain, or in the US, or or in 485 00:25:23,880 --> 00:25:27,240 Speaker 1: France where you have ms Lapen you know, doing very 486 00:25:27,240 --> 00:25:30,159 Speaker 1: well on from the left, there is an undercurrent of 487 00:25:30,160 --> 00:25:32,920 Speaker 1: people who are being left behind in the in the 488 00:25:33,040 --> 00:25:35,600 Speaker 1: in the course of globalization. That's a fact. You can't 489 00:25:35,800 --> 00:25:38,639 Speaker 1: you can't get around that. And so the question is, 490 00:25:38,720 --> 00:25:40,960 Speaker 1: are are saying people are going to offer a better 491 00:25:41,000 --> 00:25:45,679 Speaker 1: alternative to avoid having people who are less stable implementing 492 00:25:45,720 --> 00:25:49,439 Speaker 1: solutions that are almost certainly going to be disastrous. Stephen 493 00:25:49,880 --> 00:25:59,240 Speaker 1: thanks always always been Have you here? Who you put 494 00:25:59,280 --> 00:26:03,040 Speaker 1: your trust in? Matters. Investors have put their trust in 495 00:26:03,160 --> 00:26:07,440 Speaker 1: independent registered investment advisors to the tune of four trillion dollars. 496 00:26:08,119 --> 00:26:11,960 Speaker 1: Why they see their role is to serve, not sell. 497 00:26:12,800 --> 00:26:15,159 Speaker 1: That's why Charles Schwab is committed to the success of 498 00:26:15,200 --> 00:26:20,400 Speaker 1: over seven thousand independent financial advisors who passionately dedicate themselves 499 00:26:20,680 --> 00:26:24,560 Speaker 1: to helping people achieve their financial goals. Learn more and 500 00:26:24,720 --> 00:26:36,240 Speaker 1: find your independent advisor dot com. It is not often, Tom, 501 00:26:36,280 --> 00:26:38,560 Speaker 1: you talk to a chief investment strategist who is a 502 00:26:39,320 --> 00:26:42,760 Speaker 1: classics major Magicum law of graduate of Princeton University. We're 503 00:26:42,760 --> 00:26:45,760 Speaker 1: talking about Scott Clemens, chief investment strategist Crivate Wealth Management, 504 00:26:45,880 --> 00:26:50,320 Speaker 1: Brown Brothers Harivan Eager to talk about that biographical trajectory 505 00:26:50,800 --> 00:26:52,840 Speaker 1: if we can, Scott, but let me start with with 506 00:26:52,920 --> 00:26:56,639 Speaker 1: the foot see one hundred today, reaching an intra day record. That's, 507 00:26:56,680 --> 00:26:59,479 Speaker 1: of course, on concerns about the government's approach to to Brexit. 508 00:26:59,520 --> 00:27:02,600 Speaker 1: What we've seen in the pound as well, a sign 509 00:27:02,600 --> 00:27:04,840 Speaker 1: of more to come. Do you think I think it is. 510 00:27:04,920 --> 00:27:08,720 Speaker 1: It reminds us that Brexit is a process, not an event, 511 00:27:09,080 --> 00:27:11,199 Speaker 1: and it's a process that's going to unfold in very 512 00:27:11,280 --> 00:27:14,240 Speaker 1: unpredictable ways for the next couple of years. You know, 513 00:27:14,320 --> 00:27:17,560 Speaker 1: the background Britain is not yet triggered Article fifty, which 514 00:27:17,600 --> 00:27:21,520 Speaker 1: starts the two year clock to negotiate what Brexit actually means. 515 00:27:21,960 --> 00:27:24,160 Speaker 1: As that happens, it's going to create more disruption along 516 00:27:24,160 --> 00:27:26,240 Speaker 1: the way. I think, you know, I think I think 517 00:27:26,280 --> 00:27:30,199 Speaker 1: about the conversation surrounding the Brexit referendum. It was about immigration, 518 00:27:30,640 --> 00:27:33,840 Speaker 1: certainly was about the economy and regulation. As you begin 519 00:27:33,920 --> 00:27:37,520 Speaker 1: to see these market focuses, market factories in play here, 520 00:27:37,600 --> 00:27:40,520 Speaker 1: I wonder how that has shifted the conversation as you've 521 00:27:40,560 --> 00:27:42,879 Speaker 1: as you've observed it in the UK, seeing the kind 522 00:27:42,920 --> 00:27:45,840 Speaker 1: of reaction we've seen in the pound recently, well, it's 523 00:27:45,880 --> 00:27:50,040 Speaker 1: certainly it raises the prospect of disruption. The uncertainty alone 524 00:27:50,119 --> 00:27:53,879 Speaker 1: raises the prospect of disruption and reminds us once again 525 00:27:53,920 --> 00:27:57,240 Speaker 1: that that risk as investors, as our stock and trade 526 00:27:57,280 --> 00:27:59,120 Speaker 1: no pun intended, it's our bread and but a risk 527 00:27:59,200 --> 00:28:02,040 Speaker 1: is analyzable. Risk is something that we can measure and 528 00:28:02,320 --> 00:28:05,359 Speaker 1: deal with. Uncertainty is a different creature and because there's 529 00:28:05,440 --> 00:28:09,480 Speaker 1: no precedent for what Britain has embarked upon, that uncertainty 530 00:28:09,520 --> 00:28:11,920 Speaker 1: alone is going to create a lot of disruption. Having 531 00:28:11,920 --> 00:28:15,960 Speaker 1: said that, for a disciplined investor, particularly a value driven investor, 532 00:28:16,080 --> 00:28:19,960 Speaker 1: disruption creates opportunity. UH, it's certainly something we're watching for 533 00:28:20,160 --> 00:28:22,840 Speaker 1: in in UH in the UK markets. We haven't acted 534 00:28:22,880 --> 00:28:24,800 Speaker 1: on it yet again because I think this process has 535 00:28:24,800 --> 00:28:26,800 Speaker 1: got a while to play out, but I think it 536 00:28:26,840 --> 00:28:29,120 Speaker 1: will create some opportunities. There will be winners, there will 537 00:28:29,160 --> 00:28:31,960 Speaker 1: be losers, and valuations will give us the opportunity to 538 00:28:31,960 --> 00:28:34,920 Speaker 1: take advantage of that. Where are you on international investment 539 00:28:35,000 --> 00:28:38,320 Speaker 1: right now, whether it's blue chip investment or something more 540 00:28:38,320 --> 00:28:41,240 Speaker 1: obscure and e M like it's been a debate on 541 00:28:41,360 --> 00:28:48,760 Speaker 1: surveillance about the the amount in the further amount that 542 00:28:48,800 --> 00:28:51,320 Speaker 1: should be put into international Where are you on that 543 00:28:51,400 --> 00:28:55,760 Speaker 1: scot You know, Tom, we've we've there aren't any low 544 00:28:55,800 --> 00:29:01,280 Speaker 1: hanging fruit opportunities and equity markets worldwide. Where we are 545 00:29:01,400 --> 00:29:05,720 Speaker 1: finding them is in select emerging markets. And you guys 546 00:29:05,760 --> 00:29:08,680 Speaker 1: know this. Emerging markets is the broadest of all possible 547 00:29:08,720 --> 00:29:11,040 Speaker 1: brushes to paint with. It's a paintbrush we should have 548 00:29:11,040 --> 00:29:13,480 Speaker 1: put down because those markets could not be more different. 549 00:29:13,800 --> 00:29:17,000 Speaker 1: But where we are finding opportunities selectively in emerging markets 550 00:29:17,040 --> 00:29:20,560 Speaker 1: rallocating capital there for the time being, the single largest 551 00:29:20,560 --> 00:29:23,720 Speaker 1: equity exposure we have remains the US market for reasons 552 00:29:23,760 --> 00:29:27,240 Speaker 1: related not only uh to to currency, but related to 553 00:29:27,280 --> 00:29:31,240 Speaker 1: just the opportunity set on offers. You mentioned your holding, 554 00:29:32,200 --> 00:29:34,920 Speaker 1: you're holding fire in the UK until something happens. Is 555 00:29:34,960 --> 00:29:38,080 Speaker 1: that when Article fifty is triggered? What what's the what's 556 00:29:38,120 --> 00:29:40,480 Speaker 1: the point at which you're going to be comfortable making 557 00:29:40,480 --> 00:29:42,640 Speaker 1: a move there in the UK and maybe a bigger 558 00:29:42,640 --> 00:29:45,560 Speaker 1: move in Europe well, So, to be precise, we have 559 00:29:45,640 --> 00:29:48,360 Speaker 1: some exposure to the UK and Europe already. What we 560 00:29:48,440 --> 00:29:52,080 Speaker 1: would like to see in order to raise that exposure 561 00:29:52,600 --> 00:29:56,240 Speaker 1: is disruption that comes from possibly a misstep in in 562 00:29:56,240 --> 00:29:59,760 Speaker 1: in government decisions or something that hits the pound even 563 00:29:59,760 --> 00:30:01,840 Speaker 1: for of than it's already been hit. I'm not entirely 564 00:30:01,880 --> 00:30:05,120 Speaker 1: sure what that would look like, but it would express itself. 565 00:30:05,720 --> 00:30:09,000 Speaker 1: We're very much fundamental bottom up investors who would expressed 566 00:30:09,000 --> 00:30:12,440 Speaker 1: itself in a broader set of companies trading in a 567 00:30:12,480 --> 00:30:14,640 Speaker 1: discount what we believe to be the fundamental value of 568 00:30:14,640 --> 00:30:16,959 Speaker 1: the intrinsic value of the business. So it's really more 569 00:30:17,000 --> 00:30:20,080 Speaker 1: of a bottom up indicator that we are anticipating than 570 00:30:20,120 --> 00:30:22,520 Speaker 1: it is some macro effect that's going to show up 571 00:30:22,520 --> 00:30:26,240 Speaker 1: on the calendar. You've got a great chart in your research, 572 00:30:26,280 --> 00:30:29,200 Speaker 1: and folks, I can't say enough about the density of 573 00:30:29,200 --> 00:30:32,960 Speaker 1: the research from Brown Brothers Harriman. We protect their copyright, 574 00:30:33,000 --> 00:30:36,320 Speaker 1: don't email us for it. But with that said, the 575 00:30:36,560 --> 00:30:40,680 Speaker 1: chart is extraordinary. How this is not the nifty fifties, 576 00:30:41,280 --> 00:30:44,920 Speaker 1: We're almost beyond that. Some people say, no, it's not 577 00:30:44,960 --> 00:30:48,920 Speaker 1: the valuations we saw. Then you've got equity pe ratios 578 00:30:49,000 --> 00:30:52,320 Speaker 1: just after World War two. Two now wanted to standard 579 00:30:52,320 --> 00:30:59,760 Speaker 1: deviations and we're basically there, Scott, aren't we? Yeah, Thomas, 580 00:31:00,120 --> 00:31:06,240 Speaker 1: things that you can do a one one, even if 581 00:31:06,240 --> 00:31:11,760 Speaker 1: it's radio um. The two things that worry me about 582 00:31:11,760 --> 00:31:14,440 Speaker 1: the market right now is the combination of sluggish earnings 583 00:31:14,440 --> 00:31:20,240 Speaker 1: growth and lofty valuations. The valuation concern is mitigated somewhat 584 00:31:20,720 --> 00:31:23,240 Speaker 1: by low inflation and low interest rates, but I think 585 00:31:23,240 --> 00:31:26,400 Speaker 1: the low interest rates are somewhat artificially driven by Fed policy, 586 00:31:27,000 --> 00:31:29,280 Speaker 1: and I'm not sure I trust the low inflation numbers either. 587 00:31:29,760 --> 00:31:32,000 Speaker 1: So from a top down perspective, it concerns us. The 588 00:31:32,040 --> 00:31:34,120 Speaker 1: bottom up perspective, I think one of the graphs you're 589 00:31:34,120 --> 00:31:38,360 Speaker 1: referring to points to the narrow leadership of the market, 590 00:31:38,400 --> 00:31:42,040 Speaker 1: which indicates that there are a wide variety of companies 591 00:31:42,040 --> 00:31:44,640 Speaker 1: that are not trading at lofty valuations that do have 592 00:31:44,680 --> 00:31:48,760 Speaker 1: earnings growth. I think this is that cliche stock pickers market. 593 00:31:49,400 --> 00:31:52,360 Speaker 1: Uh and uh. It's uncomfortable, to be sure, and the 594 00:31:52,360 --> 00:31:54,400 Speaker 1: opportunities are not a stick on the ground as they 595 00:31:54,400 --> 00:31:57,280 Speaker 1: were three, five and seven years ago, but they're still there. Scott, 596 00:31:57,320 --> 00:32:01,000 Speaker 1: I want to crowbar out of you one really important topic. 597 00:32:01,680 --> 00:32:05,880 Speaker 1: You're married to a music teacher, and how do you 598 00:32:05,960 --> 00:32:08,800 Speaker 1: get how do you need kids to do the instrument? 599 00:32:09,360 --> 00:32:14,000 Speaker 1: What's the what's the secret sauce of getting offspring to 600 00:32:14,160 --> 00:32:19,160 Speaker 1: actually do the given instrument? You have to model it 601 00:32:19,240 --> 00:32:23,080 Speaker 1: for them. They have to see you play in practice 602 00:32:23,200 --> 00:32:26,640 Speaker 1: and struggle and succeed and enjoy, and that will be 603 00:32:26,680 --> 00:32:30,959 Speaker 1: infectious and they'll get it to Scott clements with us 604 00:32:30,960 --> 00:32:35,000 Speaker 1: with Brown Brothers Harriman who writes just a terrific, terrific 605 00:32:35,160 --> 00:32:39,680 Speaker 1: thoughtful equity piece across all market. Scott, help me with 606 00:32:39,760 --> 00:32:43,040 Speaker 1: the banks and the presumed cash flow. When we talk 607 00:32:43,120 --> 00:32:46,680 Speaker 1: to the cullth side, whatever their nuances of this bank 608 00:32:46,800 --> 00:32:49,960 Speaker 1: or that bank, there's a general idea that the cash 609 00:32:49,960 --> 00:32:55,200 Speaker 1: flows spigot opens X months out after penalties, etcetera, etcetera, 610 00:32:55,600 --> 00:33:01,240 Speaker 1: and it is a nirvana for banking. Do you agree? Uh, well, 611 00:33:01,240 --> 00:33:03,800 Speaker 1: that's that's a subtle question. But if I had to 612 00:33:03,880 --> 00:33:06,200 Speaker 1: answer in a binary way, I would say no. I 613 00:33:06,240 --> 00:33:08,880 Speaker 1: think the banks and again we'll be picking up a 614 00:33:08,880 --> 00:33:12,160 Speaker 1: broad brush to paint with. The banks are still struggling 615 00:33:12,920 --> 00:33:16,360 Speaker 1: to figure out what regulatory environment they're operating and we're 616 00:33:16,360 --> 00:33:18,160 Speaker 1: not going back to the pre two thousand and eight 617 00:33:18,200 --> 00:33:22,320 Speaker 1: type environment. That's still a process that's unfolding. And um, 618 00:33:23,080 --> 00:33:24,800 Speaker 1: I think it's still unfolding. So I don't think it's 619 00:33:24,800 --> 00:33:27,440 Speaker 1: as easy as just now that the penalties are done, 620 00:33:27,480 --> 00:33:30,520 Speaker 1: the cash flow is back on. So it's it's an 621 00:33:30,520 --> 00:33:34,000 Speaker 1: area where they're selective opportunities, but nothing, nothing wholesale that 622 00:33:34,080 --> 00:33:36,479 Speaker 1: we see as terms the tide coming in. David, you 623 00:33:36,520 --> 00:33:40,280 Speaker 1: understand that Mr Clemens didn't understand. It's binary Tuesday here. 624 00:33:40,760 --> 00:33:43,080 Speaker 1: That's what we do on Tuesday zero and was very 625 00:33:46,680 --> 00:33:49,280 Speaker 1: let me ask you here, didn't get that memo. Here 626 00:33:49,320 --> 00:33:51,320 Speaker 1: we are, you know, at the beginning of of the 627 00:33:51,360 --> 00:33:53,680 Speaker 1: courtly artic season, and in your most recent note you 628 00:33:53,680 --> 00:33:56,360 Speaker 1: said the ultimate fuel for equity markets as corporate profits, 629 00:33:56,360 --> 00:33:59,000 Speaker 1: and the fuel is running low. Give us your outlook 630 00:33:59,040 --> 00:34:01,320 Speaker 1: here for these next few weeks. As these earnings reports 631 00:34:01,320 --> 00:34:04,440 Speaker 1: start to roll in, well, I think we're going to 632 00:34:04,520 --> 00:34:07,440 Speaker 1: get yet another quarter of year over year declines UH 633 00:34:07,600 --> 00:34:10,520 Speaker 1: in earnings, which by by our numbers, will be the 634 00:34:10,600 --> 00:34:14,840 Speaker 1: sixth quarter in a row, which is unprecedented in the 635 00:34:14,880 --> 00:34:18,520 Speaker 1: absence of an economic downturn. There are reasons why we're 636 00:34:18,600 --> 00:34:23,160 Speaker 1: late in economic cycle. Corporations have exhausted the easy cost 637 00:34:23,200 --> 00:34:27,120 Speaker 1: cutting exercises. It's very difficult to grow your unit volumes 638 00:34:27,160 --> 00:34:30,680 Speaker 1: when the economy is modestly expanding. It's very difficult to 639 00:34:30,719 --> 00:34:33,120 Speaker 1: increase your prices when there's not a whole lot of 640 00:34:33,120 --> 00:34:38,520 Speaker 1: inflationary environment. So the the the next boost to earnings growth, 641 00:34:38,600 --> 00:34:42,200 Speaker 1: in my opinion, comes from the top line from corporate revenues. 642 00:34:42,800 --> 00:34:46,040 Speaker 1: And that's why I think the linkage to UH to 643 00:34:46,280 --> 00:34:49,880 Speaker 1: an economic variable is really important. Wage growth is probably 644 00:34:49,920 --> 00:34:53,279 Speaker 1: the single most important economic variable to watch over the 645 00:34:53,280 --> 00:34:59,760 Speaker 1: next twelve to eighteen months, I think you'll start to increase. 646 00:34:59,800 --> 00:35:02,640 Speaker 1: And one of the big conundra of this economic cycle 647 00:35:02,800 --> 00:35:05,319 Speaker 1: is as and as unemployment has fallen down to four 648 00:35:05,400 --> 00:35:08,879 Speaker 1: point nine, as we're adding jobs a pretty healthy clip, 649 00:35:08,920 --> 00:35:12,000 Speaker 1: you haven't seen any wage acceleration, almost as if the 650 00:35:12,080 --> 00:35:15,359 Speaker 1: laws of supply and demand have been repealed. I just think, 651 00:35:15,400 --> 00:35:18,879 Speaker 1: like so many other dynamics in this economic cycle that's 652 00:35:18,880 --> 00:35:21,719 Speaker 1: been protracted and delayed and prolonged, I think we're on 653 00:35:21,760 --> 00:35:24,120 Speaker 1: the verge of beginning to see it. We may already be. 654 00:35:24,239 --> 00:35:26,680 Speaker 1: Wage growth is up to two point seven percent. That 655 00:35:26,680 --> 00:35:29,040 Speaker 1: doesn't sound like a very big number, but it's the 656 00:35:29,080 --> 00:35:31,479 Speaker 1: highest year over year number since two thousand and ten. 657 00:35:32,120 --> 00:35:35,240 Speaker 1: So as long as we get a modest acceleration in wages, 658 00:35:35,320 --> 00:35:38,920 Speaker 1: the psychological benefit to consumer spending will be good for 659 00:35:38,920 --> 00:35:41,439 Speaker 1: the economy. That will be good for corporate earnings as well. 660 00:35:41,600 --> 00:35:43,239 Speaker 1: I think that's what's going to unfold over the next 661 00:35:43,280 --> 00:35:45,640 Speaker 1: twelve eighteen months. That modest ray is something that we 662 00:35:45,640 --> 00:35:49,799 Speaker 1: were definitely talking about the last monthly employment report. Uh. 663 00:35:50,840 --> 00:35:54,440 Speaker 1: I'm I'm wondering how this all plays into what the 664 00:35:54,440 --> 00:35:56,240 Speaker 1: FETE is thinking to degree was you were thinking about 665 00:35:56,239 --> 00:35:58,799 Speaker 1: what the vet is is thinking about. At this point, 666 00:35:58,800 --> 00:36:01,480 Speaker 1: we we've been consumed with central patent right, And I 667 00:36:01,480 --> 00:36:04,680 Speaker 1: think the growth is important is a wage growth is 668 00:36:04,719 --> 00:36:07,279 Speaker 1: important as an influence on FED decisions as well for 669 00:36:07,320 --> 00:36:10,640 Speaker 1: two reasons. One, I think they would read accelerating wages 670 00:36:10,800 --> 00:36:15,560 Speaker 1: as proof positive of tighter labor market conditions and success 671 00:36:15,600 --> 00:36:18,279 Speaker 1: on the labor market front. And they would also see 672 00:36:18,320 --> 00:36:22,080 Speaker 1: in it hints of future inflation. And I think those 673 00:36:22,080 --> 00:36:25,640 Speaker 1: two things together would push them to raise interest rates 674 00:36:25,640 --> 00:36:27,480 Speaker 1: at a more rapid pace than they have been, which 675 00:36:27,480 --> 00:36:29,759 Speaker 1: isn't saying much, by the way. As I look at 676 00:36:29,760 --> 00:36:33,440 Speaker 1: the FED funds market this morning, the futures markets putting 677 00:36:33,440 --> 00:36:37,000 Speaker 1: about a sixty eight percent probability on a hike in December, 678 00:36:37,320 --> 00:36:39,160 Speaker 1: I think that's likely to happen. I think the FED 679 00:36:39,200 --> 00:36:42,040 Speaker 1: would like to raise interest rates. You saw at the 680 00:36:42,120 --> 00:36:44,680 Speaker 1: last the September meeting of the f O m C 681 00:36:45,400 --> 00:36:48,319 Speaker 1: a vote of seven to three to keep interest rates 682 00:36:48,320 --> 00:36:51,000 Speaker 1: stables of three voting members wanted to raise interest rates 683 00:36:51,000 --> 00:36:53,200 Speaker 1: in September. So I think you're going to see higher 684 00:36:53,200 --> 00:36:58,000 Speaker 1: interest rates over the course of I'm sorry, And accelerating 685 00:36:58,000 --> 00:37:01,239 Speaker 1: wage growth will give the FED the rash Chanel to 686 00:37:01,320 --> 00:37:04,880 Speaker 1: warrant those those hikes. It's fascinating to me. And this 687 00:37:04,960 --> 00:37:09,399 Speaker 1: is Scott with with your with your great experience with this. 688 00:37:09,680 --> 00:37:14,480 Speaker 1: How our audience with rising rates are good or bad 689 00:37:14,520 --> 00:37:18,840 Speaker 1: for stocks? That's as basic as it. Guess how does 690 00:37:19,360 --> 00:37:23,680 Speaker 1: it depends it? Historically, the answer to that question depends 691 00:37:23,800 --> 00:37:28,120 Speaker 1: on why rates are rising. So, if rates are rising 692 00:37:28,320 --> 00:37:31,759 Speaker 1: because the FED is increasingly confident in the stability of 693 00:37:31,800 --> 00:37:35,520 Speaker 1: economic activity, that's usually good for corporate earnings. That's usually 694 00:37:35,520 --> 00:37:37,960 Speaker 1: good for stocks. Stocks tend to rise in that environment. 695 00:37:38,000 --> 00:37:41,799 Speaker 1: I believe that's the environment which we're likely to be If, 696 00:37:41,840 --> 00:37:44,480 Speaker 1: on the other hand, rates are rising because the market 697 00:37:44,520 --> 00:37:47,840 Speaker 1: has concluded that the FED is behind the curve on inflation, 698 00:37:47,920 --> 00:37:50,960 Speaker 1: the FED has lost its handle on on the inflation 699 00:37:51,000 --> 00:37:53,960 Speaker 1: part of the picture, that tends to be bad for stocks. 700 00:37:54,000 --> 00:37:56,759 Speaker 1: I think we're more likely in the former environment there's 701 00:37:56,760 --> 00:37:59,640 Speaker 1: not a whole lot of overt inflationary pressure, there is 702 00:37:59,719 --> 00:38:02,719 Speaker 1: sign of economic stability, there is rationale for the FED 703 00:38:02,760 --> 00:38:05,200 Speaker 1: to raise rates. I think the market will interpret that 704 00:38:05,239 --> 00:38:07,239 Speaker 1: positively and that will be that'll be a tail win 705 00:38:07,320 --> 00:38:10,399 Speaker 1: for it for equities. When when you're when you look 706 00:38:10,440 --> 00:38:13,160 Speaker 1: at the cycle. Where we are in the cycle right now, 707 00:38:13,360 --> 00:38:15,960 Speaker 1: Position us and give us your sense of of where 708 00:38:15,960 --> 00:38:21,360 Speaker 1: we're headed next. Well, typically equity, usually the equity market cycle, David, 709 00:38:21,440 --> 00:38:25,800 Speaker 1: or the economic cycle equity, I mean, typically the first 710 00:38:25,880 --> 00:38:28,440 Speaker 1: stage of an equity market cycle. And they're all different 711 00:38:28,440 --> 00:38:31,040 Speaker 1: than details. But the first stage is driven by by 712 00:38:31,400 --> 00:38:35,080 Speaker 1: lower interest rates. We we've and that we've been through that, 713 00:38:35,120 --> 00:38:37,840 Speaker 1: I mean, that's that's been again very protracted in this cycle. 714 00:38:38,239 --> 00:38:40,359 Speaker 1: The second stage of the cycle is one in which 715 00:38:40,440 --> 00:38:42,960 Speaker 1: the market is more driven by rising earnings, even in 716 00:38:42,960 --> 00:38:46,120 Speaker 1: an environment which interest rates begin to tick upwards. We're 717 00:38:46,160 --> 00:38:49,160 Speaker 1: poised right now between those two cycles who interest rates 718 00:38:49,160 --> 00:38:50,719 Speaker 1: are fall and fall and fall, and they've risen the 719 00:38:50,760 --> 00:38:54,600 Speaker 1: tiniest bit with the FED rate high class December. What 720 00:38:54,680 --> 00:38:57,440 Speaker 1: we desperately need to see is that acceleration and earnings 721 00:38:57,480 --> 00:39:00,680 Speaker 1: growth to power the next leg of this equity cycle. 722 00:39:00,920 --> 00:39:03,640 Speaker 1: I expect that one fold over the next twelve day months. 723 00:39:03,680 --> 00:39:06,359 Speaker 1: That's what I'm watching very carefully, and I think the 724 00:39:06,440 --> 00:39:09,200 Speaker 1: primary driver of that is going to be this acceleration 725 00:39:09,280 --> 00:39:12,040 Speaker 1: in wages that I'm anticipating. Wonderful. We love to have 726 00:39:12,080 --> 00:39:14,160 Speaker 1: you back, Scott Clemens. Thank you so much with Brown 727 00:39:14,200 --> 00:39:32,200 Speaker 1: Brothers Harriman greatly appreciated today. David Gura and Tom Keene 728 00:39:32,280 --> 00:39:36,040 Speaker 1: in New York. Um, David. Some years the Nobel Prize 729 00:39:36,080 --> 00:39:39,960 Speaker 1: is given in economics, and it sounds wonderfully accessible. I 730 00:39:40,040 --> 00:39:43,759 Speaker 1: find it hilarious that Paul Krugman one year took the 731 00:39:43,800 --> 00:39:49,080 Speaker 1: Nobel Prize and most people didn't realize what it was for. Yeah, 732 00:39:49,440 --> 00:39:53,280 Speaker 1: his first work with Donald Trump. No. Um, the Professor 733 00:39:53,360 --> 00:39:58,359 Speaker 1: Krugman redefined so much of our international economics and the 734 00:39:58,400 --> 00:40:03,040 Speaker 1: discussion of it. Or some year maybe somebody far more accessible, 735 00:40:03,360 --> 00:40:08,040 Speaker 1: like Robert Schiller of Yale University, who has an esteemed 736 00:40:08,080 --> 00:40:11,080 Speaker 1: career but of course is acclaimed not only for the 737 00:40:11,160 --> 00:40:15,560 Speaker 1: case Shiller real estates issues, but also of course irrational 738 00:40:15,640 --> 00:40:21,000 Speaker 1: exuberance and gaming cycles and behavioral economics. We are honored 739 00:40:21,000 --> 00:40:24,120 Speaker 1: to bring to you now worldwide. Bank Holstrom of the 740 00:40:24,160 --> 00:40:28,920 Speaker 1: Massachusetts Institute of Technology, Professor good morning and congratulations to 741 00:40:29,000 --> 00:40:33,400 Speaker 1: you and Professor Hart of Harvard. I loved the Nobel 742 00:40:33,560 --> 00:40:37,520 Speaker 1: Price summary of contract theory and what was so great 743 00:40:37,520 --> 00:40:40,480 Speaker 1: about it, and folks I highly recommended. I'll mention this 744 00:40:41,000 --> 00:40:44,880 Speaker 1: in our time here this morning. The Tyler Cowen op 745 00:40:45,000 --> 00:40:49,040 Speaker 1: ed for Bloomberg View is lovely in explaining the importance 746 00:40:49,040 --> 00:40:53,239 Speaker 1: of this award. To me, Professor Holstrom, what's so important 747 00:40:53,320 --> 00:40:58,480 Speaker 1: here is the exhausted state of America's workforce. We have 748 00:40:58,520 --> 00:41:05,480 Speaker 1: a contract with employers around something you speak of incentive intensity. 749 00:41:05,760 --> 00:41:11,799 Speaker 1: His digital technology is the modern workplace changed our contract 750 00:41:12,000 --> 00:41:16,799 Speaker 1: with our employers. His digital technology changed your work of 751 00:41:17,000 --> 00:41:21,000 Speaker 1: thirty years ago. To the first question, I would answer 752 00:41:21,160 --> 00:41:29,400 Speaker 1: yes to the second question. No, you know the second question. 753 00:41:30,320 --> 00:41:33,800 Speaker 1: I believe that the workplace is changing dramatically, and that 754 00:41:34,000 --> 00:41:38,759 Speaker 1: that the old style contracts that have prevailed arounder a 755 00:41:38,840 --> 00:41:43,799 Speaker 1: lot of pressure in a number of professions. So but 756 00:41:44,400 --> 00:41:48,680 Speaker 1: the book I did, audios ago have have have actually 757 00:41:48,719 --> 00:41:51,239 Speaker 1: they are explicit contracts, as we call them, and and 758 00:41:51,320 --> 00:41:54,319 Speaker 1: so they are incentive contracts and and their relevance may 759 00:41:54,360 --> 00:41:57,879 Speaker 1: be actually increasing now within this in folks, this goes 760 00:41:57,920 --> 00:42:03,000 Speaker 1: back to Holstrom Milgram of nineteen needed seven permeate simplicity. 761 00:42:03,080 --> 00:42:05,839 Speaker 1: What I love about your work. And we've been making 762 00:42:05,920 --> 00:42:09,400 Speaker 1: jokes this morning, Professor about thie beta equals f plus 763 00:42:09,480 --> 00:42:13,840 Speaker 1: cape beta is Sanford Grossman is involved with your work 764 00:42:14,320 --> 00:42:18,120 Speaker 1: with Professor Hart of Harvard, with Joe Stiglets, of Columbia 765 00:42:18,560 --> 00:42:23,080 Speaker 1: with with Joe Stiglets great work. Simplicity is everything. What 766 00:42:23,320 --> 00:42:28,040 Speaker 1: is the simple message of contract theory that our audience 767 00:42:28,160 --> 00:42:34,279 Speaker 1: needs to know? I think the simplest messages that that 768 00:42:34,760 --> 00:42:38,919 Speaker 1: narrow incentives can be very damaging, and sometimes no incentives, 769 00:42:39,360 --> 00:42:45,239 Speaker 1: that's financial incentives shouldn't be used because there are a 770 00:42:45,280 --> 00:42:50,760 Speaker 1: lot of other mechanisms for incentivizing people and motivating them, 771 00:42:51,200 --> 00:42:56,520 Speaker 1: having relationships, uh, just observing them and making judgment and 772 00:42:56,600 --> 00:43:00,200 Speaker 1: moving them, promoting them and designing their jobs. And so 773 00:43:01,320 --> 00:43:05,080 Speaker 1: one of the things I think has been my contribution, 774 00:43:05,120 --> 00:43:09,439 Speaker 1: mainly be Paul Milgram, actually has been to explain things 775 00:43:09,520 --> 00:43:12,680 Speaker 1: in terms of a systemic approach to incentives as opposed 776 00:43:12,719 --> 00:43:15,400 Speaker 1: to a single this rate or something like that. Is 777 00:43:15,440 --> 00:43:19,880 Speaker 1: your work been forever changed because of the consultant based 778 00:43:20,120 --> 00:43:26,600 Speaker 1: madness of corporate CEO con uh consulting and lawyers and 779 00:43:26,680 --> 00:43:31,640 Speaker 1: management people. They've taken your simple original theories and trust 780 00:43:31,800 --> 00:43:35,520 Speaker 1: and principle and agent and turned it into a cottage industry. 781 00:43:35,840 --> 00:43:38,839 Speaker 1: Is that a problem? It is a problem what they 782 00:43:38,840 --> 00:43:42,279 Speaker 1: are doing, But I don't see it as them. They 783 00:43:42,360 --> 00:43:45,360 Speaker 1: may be having paid that much attention to my book 784 00:43:46,360 --> 00:43:49,400 Speaker 1: and and and they certainly have not paid attention to 785 00:43:49,480 --> 00:43:54,959 Speaker 1: the basic flaw in the incentives games that prevailed after 786 00:43:55,280 --> 00:43:58,799 Speaker 1: Ron Endron, you know, Andron revealed already, which was that 787 00:43:58,880 --> 00:44:02,200 Speaker 1: they were just too shortly vested, that you should vest 788 00:44:02,239 --> 00:44:06,640 Speaker 1: them for a longer period. Instead, they started tampering with options, 789 00:44:06,680 --> 00:44:10,320 Speaker 1: and they blamed options and not understanding that the stock 790 00:44:10,440 --> 00:44:15,279 Speaker 1: is actually an option itself. So so so you know, 791 00:44:15,440 --> 00:44:19,000 Speaker 1: they didn't either read it or misread it or whatever 792 00:44:19,080 --> 00:44:23,759 Speaker 1: it is. But the CEO compensation as I knew it 793 00:44:23,880 --> 00:44:27,600 Speaker 1: in two thousand and twelve, and I I left left, 794 00:44:28,200 --> 00:44:33,880 Speaker 1: you know, boards corporate boards, that it was a sorry state. Well, 795 00:44:33,960 --> 00:44:36,279 Speaker 1: let's let me bring in my colleague David Girl with 796 00:44:36,320 --> 00:44:39,440 Speaker 1: the Laura ben Holstrom tome of m I T. Tom. 797 00:44:39,480 --> 00:44:41,480 Speaker 1: I'm looking at the front page of the Boston Globe 798 00:44:41,480 --> 00:44:43,920 Speaker 1: this morning. It is a pantheon of hometown heroes. You 799 00:44:43,960 --> 00:44:46,440 Speaker 1: have bets and orties on the upper left, and just 800 00:44:46,480 --> 00:44:50,200 Speaker 1: below that you have heart and homes of smiling. More broadly, 801 00:44:50,239 --> 00:44:52,480 Speaker 1: I think, than than the other two. You know something 802 00:44:52,520 --> 00:44:54,600 Speaker 1: that that Tyler Cowen flagged in the column that Tom 803 00:44:54,640 --> 00:44:57,120 Speaker 1: mentioned a moment ago, Professor, is that you have built 804 00:44:57,120 --> 00:45:00,560 Speaker 1: a technical framework for other researchers to oilled on. You 805 00:45:00,600 --> 00:45:03,040 Speaker 1: have been at the vanguard here of contractory. When you 806 00:45:03,080 --> 00:45:05,120 Speaker 1: look at your colleagues, when you look at your students 807 00:45:05,120 --> 00:45:07,280 Speaker 1: and what they're doing, what are you most excited about 808 00:45:07,520 --> 00:45:12,359 Speaker 1: in this field going forward? I think the dynamic incentives 809 00:45:12,360 --> 00:45:15,200 Speaker 1: that people are studying now the young Clowd that that 810 00:45:15,400 --> 00:45:22,000 Speaker 1: analyzing you know, even more techniquely complicated, but ultimately simpler mechanisms. 811 00:45:23,239 --> 00:45:28,320 Speaker 1: I think that's the interesting book. And then applications of 812 00:45:28,320 --> 00:45:31,640 Speaker 1: of this what we call multitasking understanding that you know, 813 00:45:31,960 --> 00:45:35,160 Speaker 1: the job portfolio that people have greatly determined what you 814 00:45:35,200 --> 00:45:39,680 Speaker 1: can do with the explicit incentives. Professor one final question 815 00:45:39,719 --> 00:45:42,640 Speaker 1: and we'll let you go. You are of Sweden and 816 00:45:42,719 --> 00:45:46,560 Speaker 1: particularly of Finland. What did you learn from the challenges 817 00:45:46,640 --> 00:45:52,799 Speaker 1: of Nokia and Ericsson? I learned that technology companies are 818 00:45:52,880 --> 00:45:59,040 Speaker 1: vulnerable to change. Well, we'll leave it their Professor Holmestrom, congratulations, 819 00:45:59,080 --> 00:46:02,879 Speaker 1: greatly appreciate where the Massachusetts I Institute of Technology. We'll 820 00:46:02,880 --> 00:46:05,279 Speaker 1: do a lot more on this. I'll send some articles out. 821 00:46:05,280 --> 00:46:07,960 Speaker 1: I just sent out the It's forty nine pages, David, 822 00:46:08,000 --> 00:46:12,400 Speaker 1: and it's a absolutely spectacular walk through of how we 823 00:46:12,560 --> 00:46:16,560 Speaker 1: got from early heart and early Holmestrom and even Robert B. 824 00:46:16,680 --> 00:46:21,840 Speaker 1: Wilson who was at Stanford Ages before Holmestrom. How we 825 00:46:21,920 --> 00:46:24,680 Speaker 1: got to where we are today, which is John Tucker's 826 00:46:25,040 --> 00:46:27,680 Speaker 1: five hour work week? And was it eighty two last 827 00:46:27,719 --> 00:46:32,200 Speaker 1: week or five? It's it's going on in the contracted 828 00:46:32,239 --> 00:46:37,040 Speaker 1: in the the the incentive intensity. Clickton went about Wednesday 829 00:46:37,280 --> 00:46:42,239 Speaker 1: before that to click in. And that's interesting what the 830 00:46:42,239 --> 00:46:44,480 Speaker 1: professor said there. I mean, this is a huge deal. 831 00:46:45,000 --> 00:46:48,759 Speaker 1: Not the work weeks of all Americans, but a subset 832 00:46:48,840 --> 00:46:53,520 Speaker 1: of Americans working John Tucker hours, the hardest working man 833 00:46:53,520 --> 00:46:57,799 Speaker 1: at Bloomberg Radio. I think I'm I'm gonna fight him 834 00:46:57,800 --> 00:47:02,040 Speaker 1: for that. But you're you're all. Indeed, you're very good 835 00:47:02,360 --> 00:47:05,319 Speaker 1: Time Tucker, thank you so much for opining after our 836 00:47:05,360 --> 00:47:09,800 Speaker 1: conversation with Holmstrom of m I t the Nobel Laureate. 837 00:47:16,440 --> 00:47:20,759 Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and 838 00:47:20,880 --> 00:47:25,920 Speaker 1: listen to interviews on iTunes, SoundCloud, or whichever podcast platform 839 00:47:26,080 --> 00:47:29,600 Speaker 1: you prefer. I'm out on Twitter at Tom Keene. David 840 00:47:29,640 --> 00:47:33,319 Speaker 1: Gura is at David Gura. Before the podcast, you can 841 00:47:33,440 --> 00:47:49,879 Speaker 1: always catch us worldwide. I'm Bloomberg Radio. Who you put 842 00:47:49,920 --> 00:47:53,640 Speaker 1: your trust in matters. Investors have put their trust in 843 00:47:53,800 --> 00:47:58,080 Speaker 1: independent registered investment advisors to the tune of four trillion dollars. 844 00:47:58,480 --> 00:48:02,439 Speaker 1: Why learn more or and find your independent advisor dot 845 00:48:02,480 --> 00:48:05,160 Speaker 1: com