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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day

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Speaker 2: for insight from the best in markets, economics, and geopolitics

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Speaker 2: from our global headquarters in New York City. We are

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Speaker 2: live on Bloomberg Television weekday mornings from six to nine

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Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or

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Speaker 2: anywhere else you listen, and as always on the Bloomberg

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Speaker 2: Terminal and the Bloomberg Business app. Eric Friedman of us

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Speaker 2: Mancasset Management right in this we used equity and commodity

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Speaker 2: market weakness in April to add to risk assets and

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Speaker 2: sell bonds, leaving us overweight domestic equities and real assets

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Speaker 2: and underweight sixth income. Eric joins us now for more.

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Speaker 1: Eric.

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Speaker 2: Great to see you, sir. In your words, you've been

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Speaker 2: training up a storm. Can you walk us through what

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Speaker 2: you've been doing and why.

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Speaker 3: Yeah, we've been active, jarthan I think it's been an

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Speaker 3: environment where we've been using price weakness to really bolster

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Speaker 3: our thesis, if you will, that we think corporate earnings

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Speaker 3: will deliver this year we also want to be protected

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Speaker 3: against that we think maybe an incipient inflation environment. So

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Speaker 3: you know, we've looked at equal weight S and P

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Speaker 3: is our more favorite choice right now, just with a

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Speaker 3: viewpoint that we want to stay in large cap we

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Speaker 3: want to stay domestic, but we also want to be

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Speaker 3: more spread out, if you will, from a factor standpoint,

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Speaker 3: so we think EQO WEID S and P is a

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Speaker 3: good way to express that view. Also think that inflation

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Speaker 3: is going to be hanging around. In fact, it could

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Speaker 3: reaccelerate as we get deeper into this year due to

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Speaker 3: both the catalog costs if you will, shelter costs, but

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Speaker 3: also just the considerations around comparable So we think that

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Speaker 3: those are two spots. We're now looking for a shock

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Speaker 3: in awe if you will, owe inflation, but we do

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Speaker 3: think the gradual incremental increase is a risk that we

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Speaker 3: want to make sure we have protection on in portfolios.

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Speaker 2: Your favorite sector is tech, energy, financials, midcaps. I'm putting

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Speaker 2: this all together, Eric, this screen strong nominal GDP. What's

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Speaker 2: your base case for this economy.

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Speaker 3: Yeah, we think the economy is still going to be

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Speaker 3: really in the back of both a consumer which is

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Speaker 3: starting to incrementally slow, but it's still in good shape Jonathan,

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Speaker 3: and also think the corporate capex cycle remains quite robust.

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Speaker 3: That's something that we've seen a lot through this earning season.

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Speaker 3: The themes that you've seen in terms of spend remain, AI,

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Speaker 3: remain cyber, remain big data. So those are things that

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Speaker 3: we think are more durable. To your point on nominal GDP,

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Speaker 3: we are starting to see some participation from across the pond,

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Speaker 3: which is a good thing in terms of the consumer

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Speaker 3: really hanging in their financial is.

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Speaker 4: Also being in relatively good shape. So those are all

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Speaker 4: things that.

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Speaker 3: We think still leave us more with an overweight position bias,

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Speaker 3: if you will, but also a flexible mindset. I think

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Speaker 3: this is an environment Jonathan, where if you don't have

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Speaker 3: tight stops around your views, there's a level of hubris

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Speaker 3: that we prefer not to have in this environment. So

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Speaker 3: we think again more of a constructive bias, but also

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Speaker 3: making sure that we're not risking too much in what's

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Speaker 3: going to be very dynamic back.

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Speaker 4: Half of this year.

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Speaker 5: Perhaps part of that hubrius, Eric is also having protection

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Speaker 5: for when things go wrong, for when your viewpoint doesn't

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Speaker 5: play out, and for an economy that we're still unsure of.

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Speaker 5: But when you look at things like the VIX of

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Speaker 5: the VIX, there's nothing there. There's no one who is

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Speaker 5: willing to go out and buy frankly, these cheap hedges. Eric,

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Speaker 5: So what does work in this environment?

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Speaker 3: Yeah, Danny I worked alongside a Seti Ratchri who developed

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Speaker 3: a VIX many many years ago, and it's something that

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Speaker 3: I think is a great observation. Just because the vall

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Speaker 3: or the volley of ball has been very, very limited.

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Speaker 3: So we think during the following makes sense. Number one

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Speaker 3: is that we're underweight fixed synechemist Jonathan mentioned, but we

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Speaker 3: do own some what we consider a longer duration exposure.

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Speaker 3: In the event that we're wrong. That's something that again

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Speaker 3: we think makes sense. In the event that there is

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Speaker 3: a significant surprise with either the FED or a deflationary pickup,

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Speaker 3: which again we are not forecasting as our base case,

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Speaker 3: we think that makes sense. We also think again that

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Speaker 3: commodity is exposure, which again is not energy related in

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Speaker 3: terms of energy equities, but direct commodity exposure again and

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Speaker 3: that broadening out of inflation risk that you're seeing in

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Speaker 3: everything from wheat to coffee to cocoa. Those are things

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Speaker 3: that we want to make sure that we have in portfolio.

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Speaker 3: So again having a view, having a tight stop around

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Speaker 3: those views, we think that's going to serve investors well

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Speaker 3: in this environment.

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Speaker 5: Well, Eric, you also said one of your views equal

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Speaker 5: weighted S and P this is a market we're over

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Speaker 5: the past decade. If you had said to someone valuations

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Speaker 5: are too high, you shouldn't go, perhaps to a market

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Speaker 5: weighted index, you would have been wrong because the expensive

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Speaker 5: companies could keep getting more expensive. John mentioned this. You

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Speaker 5: look at something like an ARM earnings that is getting punished,

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Speaker 5: and Eric, I wonder how much of that is down

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Speaker 5: to expensiveness, something like ARM twenty seven time sales more

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Speaker 5: expensive than Nvidia. Is this a market that cares once

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Speaker 5: again about valuations.

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Speaker 3: Yeah, Danny, I think that's a really important observation. We

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Speaker 3: think it absolutely is. In fact, one of the reasons

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Speaker 3: why we went more equal weight is because that value factor.

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Speaker 3: Again not that we always invest in factors, if you will,

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Speaker 3: but because of our desire to want to stay large cap,

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Speaker 3: we do think there's a risk of refinancing with small apps,

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Speaker 3: as well as the improfitable nature of about a third

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Speaker 3: of that index. Even though it's certainly lagged. We'd actually

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Speaker 3: prefer to be in a higher quality lagging index like

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Speaker 3: equo weight.

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Speaker 1: S and P.

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Speaker 3: So you are seeing that stand and delivered type of

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Speaker 3: market FROME companies right now. If you do not either

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Speaker 3: have strong guidance or a good reason why you missed,

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Speaker 3: this is a market which is quite punishing.

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Speaker 4: So we think that there's a level of.

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Speaker 3: Margin of safety if you will an equal weight that's

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Speaker 3: certainly not the cheapest we've ever bought, but a space

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Speaker 3: that we think is going to be well represented in

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Speaker 3: a decent earning as climate for the next couple quarters.

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Speaker 5: Well it or gives you the value trade does well

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Speaker 5: in a rate cutting cycle, or at least when we're

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Speaker 5: in that trajectory getting to that trajectory. So how much

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Speaker 5: of that is dependent on the FED actually delivering cuts?

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Speaker 3: Yeah, you know, we think that if there isn't one

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Speaker 3: or at least I think it's been a great phrase

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Speaker 3: that you all used this morning, which is the dubvish pause,

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Speaker 3: if you will, if there isn't more of that dubbish

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Speaker 3: pause type of language, or ultimately we think one cut

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Speaker 3: and at least a signal for a bias towards more

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Speaker 3: this is a market which is a bit more vulnerable, but.

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Speaker 4: Again for us, it's not so much. When do the

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Speaker 4: rate cuts start.

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Speaker 3: We do think the market's starting to pay a lot

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Speaker 3: more attention to the terminal value. And if you look

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Speaker 3: at an expectations out through twenty twenty five, twenty twenty six,

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Speaker 3: again for someone who's nobod who's having for dinner tonight,

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Speaker 3: it's hard to look out that far. But this is

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Speaker 3: an environment where you know the terminal rate, if you will,

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Speaker 3: is becoming more important.

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Speaker 4: So some cuts this year with a signal.

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Speaker 3: And a bias for more than twenty twenty five are important,

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Speaker 3: not necessary.

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Speaker 4: We think the terminal rate is much more important.

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Speaker 3: So again you know that two and three quarters the

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Speaker 3: three in a terminal rate side we think would be

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Speaker 3: a good place to anchor on. Higher than that would

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Speaker 3: be an issue for this market.

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Speaker 2: Yeah, never mind twenty five. I'm starting this guy's beyond

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Speaker 2: next week CPI retail sales. Eric, it's going to hear

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Speaker 2: from you, Eric Friedman, the of US Bank Asset Management

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Speaker 2: wait to the next big data point. Market momentum stalling

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Speaker 2: as investors look ahead to next week's CPI print. Jpmulgan's

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Speaker 2: David Libt's saying this for investors. So long as the

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Speaker 2: Fed remains biased to cut rates at some stage, we

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Speaker 2: think risk assets will remain supported. David joins us Now

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Speaker 2: for more. David goomonnits Yere, How is that the biason?

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Speaker 2: Did it change last week in any way, shape or form.

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Speaker 6: So it's funny because when we think about and when

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Speaker 6: we talk about what happened last week, you know, I

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Speaker 6: would describe the market as almost spastic.

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Speaker 1: Right.

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Speaker 6: We started with a very hot ec I print and

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Speaker 6: that everybody was pricing out cuts. The Fed's not going

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Speaker 6: to be able to go this year. We ended with

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Speaker 6: a non farm payroll report which was effectively goldilocks. So

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Speaker 6: there was something for everybody last week, and you could

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Speaker 6: see that in the way that the market was moving.

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Speaker 6: I think the most important thing was what Pale said

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Speaker 6: during the press conference and when he laid out the

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Speaker 6: potential scenarios for interest rates this year. He didn't really

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Speaker 6: talk about hikes. He talked about staying on hold. He

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Speaker 6: talked about easing policy. And we've actually done some work

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Speaker 6: and looked at whether it's the stock of cuts that

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Speaker 6: the market is expecting or more about the flow.

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Speaker 1: And as long as.

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Speaker 6: The market is continuing to price and cuts over the

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Speaker 6: next twelve months. We think that that's going to keep

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Speaker 6: long term rates in a range and likely leave equity

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Speaker 6: is fairly well supported.

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Speaker 2: So let's stay some scenario. Have analysis. Christian mammani with

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Speaker 2: San Yosi just yesterday and he was saying this two Well,

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Speaker 2: it's this one way the economy's great in the fed

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Speaker 2: con cup and it's basically one way the economy starts

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Speaker 2: to sell f and in the fedcam. Is there a

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Speaker 2: better outcome from malkets?

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Speaker 6: You know, I don't think there is. I think that

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Speaker 6: the latter may be slightly better for the market. The

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Speaker 6: market is clearly getting a little bit twitchy about this

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Speaker 6: very robust pace of nominal growth. And the issue is

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Speaker 6: you're getting the earnings coming through, but you're capped on

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Speaker 6: multiples given the you know, subsequent outlook for rates, and

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Speaker 6: so I actually think a little bit of softening in

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Speaker 6: economic activity, maybe getting the Fed to acknowledge that easier

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Speaker 6: policy really is on the horizon. That could be the

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Speaker 6: ideal scenario, you know very much, going back to a

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Speaker 6: world that feels like the one we were in for

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Speaker 6: the better part of the expansion post GFC, and you.

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Speaker 5: Can feel the market's desired to get back to that.

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Speaker 5: We keep referencing back to that. But I wonder in

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Speaker 5: what you were talking about about Powell laying out all

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Speaker 5: these scenarios where very well could have said that would

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Speaker 5: lead us to hike, he says that would lead us

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Speaker 5: to not cut.

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Speaker 6: Is not the power put I think to.

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Speaker 1: An extent it is.

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Speaker 6: And I also think it's important to recognize what the

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Speaker 6: issue is that they're dealing with. Right so, the Fed

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Speaker 6: has this dual mandate for full employment and price stability.

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Speaker 6: They don't really need to be worried about the employment situation,

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Speaker 6: at least given the data that we've seen, and so

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Speaker 6: inflation remains public enemy number one. And what I think

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Speaker 6: would lead the Fed to become more hawkish is if

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Speaker 6: we saw that reacceleration in inflation, which in our view

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Speaker 6: would be directly tied to a labor market that heats

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Speaker 6: right back up. And so if we see non farm

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Speaker 6: payroll prints go back to three hundred thousand, that could

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Speaker 6: well give us a bit of pause. But it feels

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Speaker 6: like the overall direction of the labor market and the

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Speaker 6: wage data is supportive of some easing later on.

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Speaker 5: This year, and then we have a quiet week. We

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Speaker 5: get some more of that data next week. But here's

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Speaker 5: the thing is, it seems like we're in a bit

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Speaker 5: of a no man's land during that data because earning

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Speaker 5: season will be over, we'll get we won't have all

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Speaker 5: those cues for corporations. Where far our ways out now

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Speaker 5: from the next FED decision. So what does it mean

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Speaker 5: for each of these data points when we're kind of

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Speaker 5: in the middle of nowhere.

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Speaker 6: Well, it's interesting because to your point, it's really the

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Speaker 6: level one data, right, the CPI numbers, the employment numbers

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Speaker 6: that tend to move rates and subsequently equities in particular.

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Speaker 6: You know, I actually think that it's not the worst

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Speaker 6: thing in the world. We have a somewhat quiet week,

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Speaker 6: the market can digest what it learned last week. I mean,

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Speaker 6: we got a lot of data last week in the

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Speaker 6: US around the world. The market can process that, and

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Speaker 6: the market can listen to what FED speakers have been saying. Right,

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Speaker 6: we're seeing, you know, relative balance between those that are

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Speaker 6: continuing to talk about easing later on this year and

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Speaker 6: those that may be a little bit more hawkish, like

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Speaker 6: the mister from the Man from Minnesota and his blog yesterday,

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Speaker 6: and so you know, when we think about what the

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Speaker 6: market is going to do this week, it's going to

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Speaker 6: digest that data. And frankly, you know, the outlook for

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Speaker 6: the economy looks pretty good. Two Q growth is tracking nicely.

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Speaker 6: We may see a bit of a deceleration in the

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Speaker 6: second half of the year. But again back to where

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Speaker 6: we started the conversation, I'm not sure the market would

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Speaker 6: dislike that.

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Speaker 2: But the bar is higher. I'm going to need to talk

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Speaker 2: about that data relative to expectations. So let's take the

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Speaker 2: City Surprise Index. Looking at US economic data incoming relative

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Speaker 2: to what we were expecting. It is no stiffed over

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Speaker 2: the last month. It's turned negative in the last week.

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Speaker 2: Do you think there are better opportunities abroad? Do you

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Speaker 2: think we've reset the bar low enough abroad that we're

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Speaker 2: starting to be expectations at the same time they're starting

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Speaker 2: to deliver rank cuts.

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Speaker 6: So the international story is an interesting one. The thing

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Speaker 6: I will say about the US economy before we move

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Speaker 6: on to the rest of the world is we were

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Speaker 6: thinking about the various kind of pillars of growth as

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Speaker 6: being you know, assets or liabilities or neutral. There's a

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Speaker 6: lot in the neutral bucket today, but that does skew

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Speaker 6: a bit more toward the liability side than the asset side,

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Speaker 6: and I think that that's supportive of slower growth in

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Speaker 6: the US during the back half of the year. Now,

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Speaker 6: the counterpoint to that is the rest of the world

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Speaker 6: is picking up. Right if you look at kind of

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Speaker 6: the edge of the world being Southeast Asia, what's happening

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Speaker 6: with semiconductor activity and overall technology exports. Things have picked

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Speaker 6: up quite nicely. We're seeing some green shoots finally begin

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Speaker 6: to emerge out of Europe, and that makes us constructive

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Speaker 6: on a pickup in the overall global manufacturing in global

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Speaker 6: goods cycle. And you know, frankly, what we need to

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Speaker 6: see is the European consumer come back. Because if the

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Speaker 6: European consumer comes back and that source of demand re emerges,

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Speaker 6: we'll see the inventory cycle pickup, we'll see that manufacturing

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Speaker 6: activity reaccelerate, and we'll see Europe emerge from a relatively

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Speaker 6: soft period of economic growth.

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Speaker 2: What is it about the phrase Europe and grain shades.

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Speaker 2: I feel like you Saype grain shades for like ten years,

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Speaker 2: same story exactly.

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Speaker 6: I think it's definitely become convention. But I think that

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Speaker 6: the reality here is that you've seen an extended period

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Speaker 6: here eighteen to twenty four months where manufacturing activity globally

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Speaker 6: has been soft. You're not only seeing things pick up

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Speaker 6: in Asia, you're seeing things pick up in Europe. You're

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Speaker 6: even seeing things pick up in the US barring that

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Speaker 6: most recent ism manufacturing print.

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Speaker 5: Okay, well, once we get the cuts coming out of Europe,

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Speaker 5: what happens not to the landing, but after the landing.

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Speaker 1: I know you're seeing green shoots, but.

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Speaker 5: Is it enough to get some sort of growth coming

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Speaker 5: back into Europe.

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Speaker 6: So I do think that we can get growth going

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Speaker 6: in Europe again. And I think, you know, one of

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Speaker 6: the bits that we've been really focused on as of

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Speaker 6: late is the response to the pandemic. Right, So, in

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Speaker 6: the US, you had, you know, money dropping from helicopters.

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Speaker 6: People got laid off, but they got a stimulus check

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Speaker 6: in the mail that created too much money chasing too

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Speaker 6: few goods. Europe had a different approach, right, They furloughed

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Speaker 6: their workers, they put them on a percentage of their

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Speaker 6: overall salary. And I think that that led the consumer

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Speaker 6: to just retrench a little bit further. And so as

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Speaker 6: we see consumer confidence begin to pick up, and as

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Speaker 6: we see signs that the labor market is remaining healthy,

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Speaker 6: that does make us more constructive on opportunities in Europe

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Speaker 6: than we have been up until this point. The one

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Speaker 6: thing I will say is that the folks who like

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Speaker 6: to point to well, you know, you can invest in

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Speaker 6: semiconductor producers in Europe and technology in Europe it's as

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Speaker 6: expensive as tech in the US. Right, So that's a

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Speaker 6: completely different conversation. This is more about picking up the

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Speaker 6: cyclical trade and jumping on board as things begin to accelerate.

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Speaker 5: It is so hard to remove the American bias and

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Speaker 5: go overweight. Europe is now that time then.

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Speaker 6: So it's a good question. The thing that's really plagued

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Speaker 6: that trade for the better part of the past decade

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Speaker 6: plus has been the strength of the dollar. And so

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Speaker 6: I think that the way to weigh this and to

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Speaker 6: think about this is if the ECB is easing and

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Speaker 6: the FED needs to stay on hold, what happens to

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Speaker 6: the euro? Right, Because if we can get that euro's

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Speaker 6: strength and then maybe the FED easing as well, that's

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Speaker 6: going to be an additional tailwind for US based investors

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Speaker 6: in European markets. If we've a FED that keeps rates

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Speaker 6: where they are in an ECB that starts easing, I

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Speaker 6: think that even if you see a pickup in local

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Speaker 6: market activity and local currency returns, the dollar may well

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Speaker 6: work against you at.

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Speaker 5: Wait so scare those two former European growth is better

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Speaker 5: go into not just the expensive tech. But at the

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Speaker 5: same time, by all accounts, the FED is not going

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Speaker 5: to cut as soon as the ECB dollar remains strong,

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Speaker 5: which wins out.

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Speaker 6: So I think if the FED is able to ease,

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Speaker 6: and our views that we will get one to two

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Speaker 6: cuts before the end of the year, you will see

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Speaker 6: some of that euro strength begin to come through, and

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Speaker 6: you will be able to participate in a recovery across

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Speaker 6: the bond.

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Speaker 2: And we've got lots of talk back. You're going to

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Speaker 2: be sticking with us stifle if it's that FJP Molkan

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Speaker 2: asset management.

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Speaker 7: John outlined some of these thoughts that you have going

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Speaker 7: into next year, this perfect storm, the debt ceiling, the

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Speaker 7: perennial spending fights that happened in Washington, and also this expiration,

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Speaker 7: the Trump error tax cuts. Whether it's Biden or Trump,

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Speaker 7: how should the next president be thinking about all of

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Speaker 7: this morning?

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Speaker 1: And Marie and so you have to recognize what's been

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Speaker 1: going on politically in DC, which is not making decisions,

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Speaker 1: not really sorting out what to do about spending, about debt,

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Speaker 1: about taxes, and so that's all pushed into twenty five,

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Speaker 1: and that has an impact on businesses they wait to see.

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Speaker 1: So the uncertainty, I think is what's prevailing within the economy.

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Speaker 1: I don't want to invest if there's going to be

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Speaker 1: a big tax increase, but I can't see what they're

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Speaker 1: going to do to avoid it, and so that's the

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Speaker 1: time clock that's going on.

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Speaker 5: Now.

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Speaker 7: I'd like to talk about taxes because Ed Mills was

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Speaker 7: on from Raymond James earlier this morning and he made

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Speaker 7: a great point, which is the fact that yesterday we

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Speaker 7: heard from the House Ways and Means Committee Chair Jason

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Speaker 7: Smith coming out and saying there's actually some Republicans who

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Speaker 7: want to see a higher corporate tax rate. Trump brought

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Speaker 7: it down to twenty one percent from thirty five. Biden

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Speaker 7: has pitched twenty eight.

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Speaker 1: Senator Joe Manchin has.

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Speaker 7: Said maybe twenty five is something we can all agree on.

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Speaker 7: Where do you see Republicans and Democrats potentially having this

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Speaker 7: equilibrium when it comes to the corporate tax rate.

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Speaker 1: It's a bit of a fight in the election itself.

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Speaker 1: You've got a choice of do you want the economy

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Speaker 1: to grow stronger and do you think tax rates matter?

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Speaker 1: I think they really do in terms of the growth rate.

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Speaker 1: If you raise the taxes, there's less investment going on

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Speaker 1: in the corporate sector. We're already seeing it in the

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Speaker 1: small business sector, just very hard for them to make

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Speaker 1: the new investments needed to pull down or to improve

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Speaker 1: the supply chain. So we're seeing this persistent inflation and stagflation.

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Speaker 7: So what do you make of Republicans though, coming out

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Speaker 7: and saying that it should be higher.

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Speaker 1: You know, all through the party, unity is not as

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Speaker 1: much in the Republican Party, So they've got to sort

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Speaker 1: out what is the message of Republicans that you want

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Speaker 1: Washington to be bigger. You know, it'd be fun for

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Speaker 1: a lot of politicians in Washington to have a big

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Speaker 1: debate over which taxes to raise. That pulls in a

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Speaker 1: lot of political contributions. But what we should be looking

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Speaker 1: at is which taxes affect growth the most, and you

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Speaker 1: want to hold those down so that you can have

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Speaker 1: more jobs, more people back to work. After COVID, a

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Speaker 1: lot of people are just staying out of the economy

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Speaker 1: because it's not strong enough to bring them into the

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Speaker 1: labor force.

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Speaker 7: Well, labor participation rate though is pretty high, and unemployment

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Speaker 7: is below four percent. Most people would argue and would say,

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Speaker 7: this is a very healthy labor market under four percent

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Speaker 7: for more than two years.

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Speaker 1: The labor force, though, doesn't include the people that have

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Speaker 1: opted out, and those are people that we need in

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Speaker 1: the economy in order to really be catching up. In

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Speaker 1: the meantime, China's numbers yesterday, they show their trade numbers.

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Speaker 1: They're cleaning up by having a factories running at full speed.

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Speaker 1: I'm from Michigan. What you see is the manufacturing inventories

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Speaker 1: not building. You know, the whole US economy is waiting

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Speaker 1: to see what's going to happen in terms of policy

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Speaker 1: in twenty twenty five. That's this fiscal train wreck, and

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Speaker 1: they want to see how is that going to be

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Speaker 1: resolved by Washington to get Washington out of the way.

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Speaker 1: What we're seeing right now is this regulatory push that's

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Speaker 1: going on. Day by day. You're seeing these massive new

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Speaker 1: regulations come out of Washington as an endpoint to the

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Speaker 1: current administration. Also, the proposals for big tax increases that

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Speaker 1: you're talking about. That, Yes, there's going to be some

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Speaker 1: Republicans who say we need it, but I think the

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Speaker 1: public recognizes if you give more money to Washington, it's

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Speaker 1: just going to be spent. So it's not really going

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Speaker 1: to help on the national debt front.

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Speaker 7: When it comes to the national debt and taxes, the

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Speaker 7: CBO came out yesterday and said, if we were to

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Speaker 7: see you extension the Trump era tax cuts four point

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Speaker 7: six trillion dollars, so fiscally this would be incredibly challenging.

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Speaker 7: How do you think about that? Would the bond market

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Speaker 7: even allow that to happen?

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Speaker 1: This gets into what are the taxes and how do

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Speaker 1: they affect growth. There's this tendency of people to do

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Speaker 1: what's called static modeling, meaning they say, if nobody changes

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Speaker 1: their behavior, then tax cut will just be added to

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Speaker 1: the national debt. But the whole point of taxation is

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Speaker 1: to raise revenue without stopping people from doing what they

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Speaker 1: need to do, small businesses, reinvesting. I think we're over

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Speaker 1: the laugh or curve right now in terms of small

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Speaker 1: business taxation. I don't know if you saw the statistics.

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Speaker 1: As President Biden has proposed these big tax increases on

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Speaker 1: capital gains and also on basis step up. It causes

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Speaker 1: small businesses to just stop investing in their business. They

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Speaker 1: look to sell to somebody big because they can't afford

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Speaker 1: the taxes. So I challenge that for trillion statistic and say, look,

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Speaker 1: you would get more growth out of the economy if

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Speaker 1: you had better tax policies. You don't need to raise

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00:20:15,240 --> 00:20:16,000
Speaker 1: the corporate rate.

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Speaker 7: Okay, well that's going to be definitely day one something,

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Speaker 7: and we already see committees being formed now in Congress

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Speaker 7: to try to map out what this tax.

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Speaker 1: Policy will look like.

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Speaker 7: I want to also ask you about what potentially we

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Speaker 7: could see under Trump two point zero. You were an

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Speaker 7: economic advisor for him when he was campaigning in twenty sixteen,

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Speaker 7: you joined the administration, you ran the World Bank. When

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Speaker 7: the Wall Street Journal comes out with a report and

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Speaker 7: says that Trump potentially wants to put his thumb on

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Speaker 7: the scale when it comes to the FED and questions

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Speaker 7: FED independence, do you think that actually would be happening.

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Speaker 1: I saw that story. There weren't any sources. I don't

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Speaker 1: think that is the policy that would create growth. You know,

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Speaker 1: the FED has I've criticized the FED for being too

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Speaker 1: big for in itself into too many markets. The inner

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00:21:02,640 --> 00:21:05,919
Speaker 1: bank market has gone. Now the trading of FED funds

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Speaker 1: that were so vital to the dynamism of the US economy,

466
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Speaker 1: that's gone. The repoll market has been almost nationalized as

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Speaker 1: you look at the amount that the FED is controlling

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Speaker 1: within that market. So I think we could have a

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Speaker 1: smaller FED, a smaller balance sheet for the FED, and

470
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Speaker 1: that would actually be very positive for growth. The commercial

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00:21:26,400 --> 00:21:30,959
Speaker 1: banks would love to be lending right now to small businesses,

472
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Speaker 1: but the way the regulatory policy works, they can't do it.

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Speaker 1: It's biased against small businesses. And that's true also of

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Speaker 1: the borrowing that's done by Treasury and by the FED.

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Speaker 1: They're borrowing in the short end of the curve, and

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Speaker 1: that's just crowding out small businesses. So I think that's

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Speaker 1: the key dynamic going on.

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Speaker 7: But they're borrowing the short end of the curve because

479
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Speaker 7: everyone thinks, why lock in rates this hiaka long end.

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Speaker 7: We'll do that maybe in two years when they come

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Speaker 7: down right, I mean, isn't that prudent?

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Speaker 1: No, that's not prudent. The yield curve is deeply inverted.

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Speaker 1: So if you if you borrow at the short end,

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Speaker 1: you're you're paying this five point four percent by the FED.

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Speaker 1: They're borrowing every day at five point four percent to

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Speaker 1: own bonds that yield substantially less. That's not prudent. What

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Speaker 1: it does do is helps prop up the stock market

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Speaker 1: for now. I think there's there's some end game going

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Speaker 1: on within the economy where it's part of the kick

490
00:22:30,000 --> 00:22:33,399
Speaker 1: the can is to say, well, let's just borrow short

491
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Speaker 1: term hoping for better in the future. But foreign, the

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Speaker 1: global markets look at that and they're not voting for

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Speaker 1: the United States on that. We're week at home in

494
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Speaker 1: terms of the economy just one point six percent growth

495
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Speaker 1: and CBO's forecasts are for weak growth into the future.

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Speaker 1: And then abroad we've also got that the weakness that's

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Speaker 1: leading to wars, wars and multiple parts of the world.

498
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Speaker 1: And so and they look at the fiscal situation in

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Speaker 1: the US, the inverted yield curve, and say, why would

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Speaker 1: I invest into that highest short term interest rate?

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Speaker 7: Two final quick ones, So one you think under Trump

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Speaker 7: there would be an autonomous FED, and two would you

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Speaker 7: go back into a Trump administration?

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Speaker 1: You know right now that's way premature. The issue is

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Speaker 1: for people to sort out the policy differential. You've got

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Speaker 1: a choice of week versus strong of growth versus stagflation.

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Speaker 1: That's the decision for people to make, and Trump would

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Speaker 1: have a whole array of people that could really implement

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Speaker 1: a growth policy. I think that's quite possible, but it's

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Speaker 1: the election cycle, so let's focus on that.

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00:23:48,520 --> 00:23:51,880
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