WEBVTT - Surveillance: Banks Are Underpriced, Leon Says 0:00:09.840 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.440 Bloomberg dot Com and of course on the Bloomberg Well 0:00:27.480 --> 0:00:29.159 this as well. We're throw to bring you Kenney on 0:00:29.280 --> 0:00:32.360 cf R a course years of experience and looking at 0:00:32.360 --> 0:00:34.360 banks and he's more by hold sale than what else. 0:00:34.440 --> 0:00:37.120 And Williams is doing. Ken what a bang up year 0:00:37.240 --> 0:00:40.600 last year? Can you continue to acquire shares of this 0:00:41.080 --> 0:00:44.120 of these banks this year? We do, but I think 0:00:44.240 --> 0:00:46.840 we're all boats rows in the fourth quarter. With strong 0:00:47.080 --> 0:00:50.000 stock performance for the banks, it's going to be more selective. 0:00:50.400 --> 0:00:53.160 We have an America Fast First plan, which is really 0:00:53.520 --> 0:00:56.000 the banks like Bank of America and JP that are 0:00:56.080 --> 0:00:59.480 highly concentrated in the US. That's driven by the core, 0:00:59.560 --> 0:01:03.520 which is loan growth and deposits. I would not really 0:01:03.560 --> 0:01:07.120 look to the capital markets or the strong reprint for 0:01:07.240 --> 0:01:11.880 fixed income. Last year was a very weak fourth quarter. Sequentially, 0:01:11.920 --> 0:01:14.759 it's flat to down for six from the third quarter 0:01:14.800 --> 0:01:18.039 of two thousand nineteen. So bringing it back um, what 0:01:18.160 --> 0:01:23.800 we're continually seeing as um flat or weakness outside the US. UH. 0:01:23.920 --> 0:01:27.039 The US consumer is just strong. So I think if 0:01:27.040 --> 0:01:30.039 you can drive loan growth that offsets kind of a 0:01:30.160 --> 0:01:35.440 flat environment for rates, and if you're growing accounts by 0:01:35.440 --> 0:01:39.200 expanding into new metropolitan markets like Bank of American JP, 0:01:39.760 --> 0:01:43.280 they are taking markets here from Wells Fargo. Ken, who's 0:01:43.280 --> 0:01:45.319 having success? Get in the volume side of the story 0:01:45.400 --> 0:01:50.440 up who's delivering loan growth? Um, you know clearly it's 0:01:50.560 --> 0:01:54.360 being driven by mortgage auto, but also you know what 0:01:54.520 --> 0:01:58.000 drives the US economy is small business in terms of 0:01:58.040 --> 0:02:02.640 employment growth. We're also seeing households that have pretty good 0:02:02.680 --> 0:02:06.680 balance sheets compared to where we were ten years ago. UH. 0:02:06.840 --> 0:02:09.560 I think there's a surprise on the upside. Bank analysts 0:02:09.560 --> 0:02:14.200 are generally very conservative. They look historically at price to book. 0:02:14.280 --> 0:02:16.960 But if you have the loan growth here, and you 0:02:17.160 --> 0:02:22.280 have very good credit quality via as a strong credit quality, 0:02:22.320 --> 0:02:26.480 and there's no distressed industry on the commercial side, you 0:02:26.520 --> 0:02:30.440 have a pretty good setting for financials, particularly banks, to 0:02:30.560 --> 0:02:33.880 do well in the market because they're under price relative 0:02:33.960 --> 0:02:36.000 to the market. Ken, which bank would you bet on 0:02:36.080 --> 0:02:40.360 most for this year? Well? The by recommendations we have 0:02:40.480 --> 0:02:43.920 as mentioned, our Bank of America and JP Morgan. We 0:02:44.000 --> 0:02:46.600 mentioned it's going to be a stock picking market. We 0:02:46.680 --> 0:02:49.080 have cells on Wealth Fargo and to sell in Goldman, 0:02:49.160 --> 0:02:53.679 Sachs Morgan Stanley as a hold in City as well well. 0:02:53.800 --> 0:02:56.040 Fargo just missed it, and I think Goldman, with the 0:02:56.040 --> 0:03:00.280 core being cyclical, volatile businesses and capital markets, they're going 0:03:00.320 --> 0:03:02.239 to have to have a great show on January twenty 0:03:02.320 --> 0:03:04.960 nine talking about their five year plan. Hey, ken we'll 0:03:05.000 --> 0:03:06.760 talk about that government called a little bit later in 0:03:06.760 --> 0:03:08.680 the program. Ken Ley on a CFL Ray will be 0:03:08.680 --> 0:03:24.840 sticking with us. The good news this morning the United 0:03:24.880 --> 0:03:27.160 States and China a little bit later today in Washington, 0:03:27.240 --> 0:03:29.320 d C. Set to sit around the table and sign 0:03:29.360 --> 0:03:32.200 a phase one trade deal. The bad news for investors 0:03:32.200 --> 0:03:34.519 out there at least is that the tariffs are expected 0:03:34.560 --> 0:03:37.400 to stay in place until after the November election. The 0:03:37.480 --> 0:03:39.440 issue for many of you I know, is that it 0:03:39.520 --> 0:03:42.920 leaves too many issues with China unresolved. Went again on 0:03:42.920 --> 0:03:44.440 this joining us on the phone, and please to say 0:03:44.480 --> 0:03:46.760 is Henry had a trades DA partner's managing partner and 0:03:46.840 --> 0:03:49.760 head of economic policy. Henry had to tell let's talk 0:03:49.800 --> 0:03:52.560 about it. The issues, the outstanding issues for you as 0:03:52.600 --> 0:03:57.400 we await this signing ceremony. Hey, guys, the biggest surprise 0:03:57.520 --> 0:03:59.280 for me. I mean, we've we've known a couple of 0:03:59.360 --> 0:04:01.840 mostly tales for about a month now, but the biggest 0:04:01.840 --> 0:04:05.880 surprise came yesterday with Minu Chin and U str Lifeheiser 0:04:05.880 --> 0:04:08.320 announced that there would be no upward or down or 0:04:08.360 --> 0:04:12.080 well no downward adjustment to taris for more than ten months. 0:04:12.120 --> 0:04:15.200 That's different than what Lifeheiser said about a year ago 0:04:15.280 --> 0:04:18.080 when he walked through the enforcement mechanism on the trade deal. 0:04:18.360 --> 0:04:20.680 He had explained to US a one, a two and 0:04:20.760 --> 0:04:24.000 a six month period of essentially check ins with the 0:04:24.080 --> 0:04:26.760 Chinese to see if they were essentially adhering to the 0:04:26.800 --> 0:04:30.320 Phase one deal. And last night or yesterday afternoon, they announced, 0:04:30.600 --> 0:04:32.400 you know, even if they are complying, we won't be 0:04:32.440 --> 0:04:35.080 reducing tarish for here. And the reason that that's driving 0:04:35.120 --> 0:04:37.720 markets a bit lower yesterday is because investors have this 0:04:37.920 --> 0:04:40.719 very strong sense that the president cares deeply about the 0:04:40.720 --> 0:04:43.919 stock market in particular, not so much macroeconomic data like 0:04:43.960 --> 0:04:47.160 we're used to with earlier and previous administrations and congresses, 0:04:47.400 --> 0:04:49.920 but specifically the stock market. So the hope had been, 0:04:50.240 --> 0:04:53.360 should we get to you know, September October of next year, 0:04:53.400 --> 0:04:55.240 and the president needs a boost to the stock market 0:04:55.240 --> 0:04:57.920 to help carry him over in certain states to win 0:04:58.000 --> 0:05:02.160 the election in he would drop tariffs, announce you know 0:05:02.240 --> 0:05:04.599 something else. All right, all chat doesn't seem likely. Let's 0:05:04.600 --> 0:05:06.600 talk about the numbers. So the US agreed to have 0:05:06.720 --> 0:05:10.520 the duties on twenty billion dollars of imports and delay 0:05:11.400 --> 0:05:15.400 others in return for Chinese promises, particularly on the infrastructure 0:05:15.600 --> 0:05:19.560 subsidies and others. Henrietta, how is that palatable to the 0:05:19.640 --> 0:05:23.400 Chinese government from their perspective politically to not have these 0:05:23.480 --> 0:05:25.839 rolled back in the near future and have its allayed 0:05:25.920 --> 0:05:28.520 for so for so long if it's for such political reasons, 0:05:28.520 --> 0:05:31.880 as you say, my understanding of the Chinese perspective, as 0:05:31.920 --> 0:05:34.800 they got spooked in August that the President was really 0:05:34.880 --> 0:05:38.039 quite serious about escalating tariffs on List one through three 0:05:38.080 --> 0:05:40.760 to thirty percent rates up from twenty five, and then 0:05:40.800 --> 0:05:43.360 also on imposing the List four B tariffs, which would 0:05:43.360 --> 0:05:45.480 have been a hundred and sixty billion dollars worth of 0:05:45.520 --> 0:05:48.719 additional goods shifted in from China. So their primary goal 0:05:48.800 --> 0:05:52.960 shifted away from caring about the political consequences and uh, 0:05:53.839 --> 0:05:56.680 guessing whether Trump would be re elected or not, and onto, 0:05:57.040 --> 0:05:59.680 how can we avoid further tariffs? From here? We need 0:05:59.720 --> 0:06:02.159 to in some aggs. We need some pork, So let's 0:06:02.200 --> 0:06:04.440 just move this along, Henrietta. My chart of the year 0:06:04.560 --> 0:06:07.400 was customs money coming in and it's a hockey stick, 0:06:07.440 --> 0:06:10.040 as you know, about four or five six standard deviations. 0:06:10.400 --> 0:06:15.280 Let's back off from the math. Have tariffs worked? Um, 0:06:15.400 --> 0:06:19.120 Tariffs have worked to essentially do what trade wars do, 0:06:19.240 --> 0:06:22.400 which is forced losers upon everyone. UM. I think one 0:06:22.400 --> 0:06:24.560 of the big reasons why you're not going to see 0:06:24.600 --> 0:06:28.080 a lot of companies clamoring to take part in the 0:06:28.080 --> 0:06:31.560 new sort of injunction and injustice processes in the Phase 0:06:31.600 --> 0:06:33.640 one deal is because at the end of the day, 0:06:33.760 --> 0:06:36.520 if they say that there's a problem in China's not 0:06:36.560 --> 0:06:40.120 adhering to Phase one, what happens, well, those manufacturers importing 0:06:40.120 --> 0:06:42.560 those same goods are going to see their cost rise. 0:06:42.960 --> 0:06:45.960 So UM, I think the tariff data is proving what 0:06:46.200 --> 0:06:48.359 a lot of economists have consistently said, which is that 0:06:48.360 --> 0:06:50.920 nobody wins a trade war. This is the issue, isn't it, Henrietta. 0:06:50.960 --> 0:06:53.080 The worry that this breaks down again? How long before 0:06:53.120 --> 0:06:55.880 the United States sits there realizes that, as they have 0:06:55.960 --> 0:06:58.080 done time and time again, China has agreed to something 0:06:58.120 --> 0:07:00.360 they haven't followed through on. When you look at agreement 0:07:00.440 --> 0:07:02.600 right now, Henrietta, the scarce desetails that we have at 0:07:02.600 --> 0:07:04.839 the moment before the big reveal of the aty six 0:07:04.839 --> 0:07:06.800 page document. If we do and did get it all, 0:07:07.120 --> 0:07:09.240 what is it about this particular deal that you think 0:07:09.240 --> 0:07:12.720 the samaria for some conflict further down the road. I 0:07:12.760 --> 0:07:16.080 think the conflict is helpfully pushed off until after the election. 0:07:16.120 --> 0:07:19.280 The White House has severely lost its appetite for further 0:07:19.360 --> 0:07:23.000 tariffs here. UM. There are once again calls for at 0:07:23.080 --> 0:07:26.440 least essentially as that we had into our recessionary environment 0:07:26.480 --> 0:07:30.680 in the President's largest approval numbers come from his handling 0:07:30.680 --> 0:07:33.240 of the economy. So I would not expect tariffs to 0:07:33.400 --> 0:07:35.960 rise from here, which is probably the best news that 0:07:36.000 --> 0:07:38.240 we have to look forward to. UM. But when it 0:07:38.280 --> 0:07:40.760 comes to what people are looking at the most inbound 0:07:40.800 --> 0:07:43.680 questions I get firm investors, are you know specifics, what 0:07:43.760 --> 0:07:46.400 are going to be the soy commitments? What are the 0:07:46.440 --> 0:07:50.080 purchase commitments for pork? What are the purchase commitments for ethanol? None? 0:07:50.120 --> 0:07:52.200 Of those details are going to be forthcoming and they 0:07:52.200 --> 0:07:54.880 won't ever be released, is my understanding. So the six 0:07:54.920 --> 0:07:57.400 page document is all fine and well, there will be 0:07:57.480 --> 0:08:01.080 some positive points. I will be monitoring what associations say 0:08:01.480 --> 0:08:04.560 in the aftermath praising it or UM, you know, reserving 0:08:04.600 --> 0:08:06.600 their praise for certain parts but not others. And what 0:08:06.680 --> 0:08:10.320 I really want to see is UM farmers and manufacturers 0:08:10.320 --> 0:08:12.600 on the ground saying we are so excited about x 0:08:12.640 --> 0:08:15.840 amount of purchases in whichever sector and get those hard 0:08:15.840 --> 0:08:18.640 and fast data points, because that's where President Trump's challengers 0:08:18.680 --> 0:08:21.440 will be focused, trying to prove essentially the juice was 0:08:21.440 --> 0:08:23.560 not worth a squeeze on this whole trade war and 0:08:23.560 --> 0:08:24.960 the ultimately at the end of the day, we're no 0:08:25.000 --> 0:08:27.720 better off than we were in and those details are 0:08:27.720 --> 0:08:31.200 going to be what's reserved, so that those UM talking 0:08:31.200 --> 0:08:33.920 points will never really materialize and MASSA always got to 0:08:33.920 --> 0:08:35.959 catch up with you. That's the view from Henrietta Trey's 0:08:36.040 --> 0:08:53.560 Vada Pounders, managing Powder and head of economic Policy. I 0:08:53.640 --> 0:08:56.800 do think it's really telling that we have yet another 0:08:56.960 --> 0:09:00.560 consecutive disappointment in inflation data comping in the United States, 0:09:00.600 --> 0:09:02.280 and this is the thing that's really it's a little 0:09:02.360 --> 0:09:05.600 light again. This comes after the little light CP. I 0:09:05.640 --> 0:09:07.480 are we starting to see a trend though where people 0:09:07.480 --> 0:09:10.800 are overestimating already sluggish inflation. And what does it say? 0:09:11.000 --> 0:09:13.319 I mean, John's your point about the rate cut debate 0:09:13.360 --> 0:09:15.800 heating up. I mean this basically edifies the calls for it. 0:09:16.200 --> 0:09:17.800 I mean it to some degree at least the fedge 0:09:17.800 --> 0:09:20.120 certainly is on hold. Let's bring someone in on this, 0:09:20.200 --> 0:09:22.480 and we're very fortunate to have her. Megan Green is 0:09:22.520 --> 0:09:25.000 at the Harvard Kennedy School. We really thought you would 0:09:25.040 --> 0:09:27.920 cancel this morning because she is on the shortlist to 0:09:28.040 --> 0:09:30.679 replace Mr Cora with the Boston Red Sox. She's been 0:09:30.920 --> 0:09:33.600 sitting by the phone, I know, all the morning waiting 0:09:33.640 --> 0:09:36.080 for the call. Mr Cora out at the Red Sox 0:09:36.120 --> 0:09:38.680 and the same idea as the Houston astros uh and 0:09:38.800 --> 0:09:41.760 stealing of signs. Megan Green, give us the signs and 0:09:41.840 --> 0:09:45.960 the FED right now, Lisa Brammo, which mentions a little 0:09:46.040 --> 0:09:49.240 dearth of inflation. Is that enough of a signal to 0:09:49.360 --> 0:09:53.480 the Fed to change ways? No, I don't think so. 0:09:53.600 --> 0:09:55.839 I don't think that this is enough of a mess 0:09:55.840 --> 0:09:58.839 to cause the FED to sink in expectations that are 0:09:58.840 --> 0:10:00.960 becoming on board. This is just more of the same 0:10:01.160 --> 0:10:04.720 we've seen throughout this recovery, where we've just had a 0:10:04.880 --> 0:10:08.839 dearth of inflation and investors might overestimated to do it 0:10:08.920 --> 0:10:11.880 every time, it's still not coming in. So this is 0:10:11.880 --> 0:10:13.120 not a new trend at all. And I think that 0:10:13.200 --> 0:10:15.240 the set is probably going to stay on holes through 0:10:15.280 --> 0:10:18.559 this year unless we get some kind of serious mess. So, yes, 0:10:18.600 --> 0:10:21.000 we've got the p p I slight mess, we've got 0:10:21.000 --> 0:10:25.400 the CPI yesterday slight miss. Meanwhile, Target uh kind of 0:10:25.440 --> 0:10:28.679 really driving action today with their disappointment in terms of 0:10:28.720 --> 0:10:31.360 holiday sales in the November through December period, shares down 0:10:31.400 --> 0:10:33.760 more than seven percent ahead of the market open. And 0:10:34.040 --> 0:10:37.160 I'm trying to understand how much of a signal this 0:10:37.320 --> 0:10:40.200 is that the consumer is losing steam. Can we read 0:10:40.240 --> 0:10:44.000 anything into this? No, I don't think we can read 0:10:44.040 --> 0:10:47.040 anything into you know, one release like that. If we 0:10:47.120 --> 0:10:50.000 started to see a series of releases and retail sales 0:10:50.040 --> 0:10:52.000 really gets then we might start to think that the 0:10:52.040 --> 0:10:56.960 consumer was flagging. The consumer confidences remain pretty high um 0:10:57.200 --> 0:10:59.640 and so I think so far it's too early to 0:10:59.679 --> 0:11:02.360 say that the consumers chuckered out because of course the 0:11:02.400 --> 0:11:05.800 consumers carrying its entire recovery. So once they are chuckered out, 0:11:05.840 --> 0:11:07.720 we need to worry. I just don't think we're there yet. 0:11:07.760 --> 0:11:09.760 And I just want to say, Target, though, is not 0:11:09.880 --> 0:11:12.840 the only one. J C. Penny and Cole's previously had 0:11:12.880 --> 0:11:15.960 some disappointments as well recently, although a lot of people 0:11:16.000 --> 0:11:18.079 just shrug that off because it's j C. Penny and 0:11:18.160 --> 0:11:20.160 Coals and they've been sort of struggling for a while 0:11:20.200 --> 0:11:22.720 and their business models are under attack. But Target has 0:11:22.720 --> 0:11:24.840 been very strong, and it's been growing, and it's been 0:11:24.840 --> 0:11:27.839 investing in their online presence, so you know, an increasing 0:11:27.880 --> 0:11:30.400 amount of this. At what point, I mean, if this 0:11:30.480 --> 0:11:32.640 is not enough, at what point do you start to say, 0:11:32.800 --> 0:11:36.800 wait a second, what does it say about the consumer? Well, 0:11:36.840 --> 0:11:39.880 I think we need to see other indicators of consumer 0:11:39.960 --> 0:11:43.800 demand turn as well. So in addition to the results 0:11:43.840 --> 0:11:46.240 showing it, we need to see retail sales flag, we 0:11:46.280 --> 0:11:49.120 need to see consumer confidence start to fall UM And 0:11:49.160 --> 0:11:52.000 so far there's other data points aren't coming through UM. 0:11:52.200 --> 0:11:54.200 But you know, this could be the beginning of a turn. 0:11:54.200 --> 0:11:57.320 I wouldn't extrapolate too much just yet. After a E 0:11:57.559 --> 0:12:01.319 A been talking to dr pose of the Peterson Institute 0:12:01.360 --> 0:12:06.640 Megan Green about what was accomplished their people talking about theory. 0:12:06.679 --> 0:12:10.240 Are we operating going into two thousand twenty on sound 0:12:10.320 --> 0:12:13.960 economic theory or did everybody making it up as they go? 0:12:14.080 --> 0:12:17.520 What do you teach at Harvard Kennedy on that has 0:12:17.640 --> 0:12:20.000 So I'm actually doing a lot of research into this 0:12:20.240 --> 0:12:22.360 um and my conclusion is that a lot of our 0:12:22.400 --> 0:12:25.199 theory just doesn't work anymore. A lot of the frameworks 0:12:25.200 --> 0:12:28.040 that we learned in ECO one oh one just don't apply. 0:12:28.200 --> 0:12:30.640 And so I thought it a a Actually, you know, 0:12:30.800 --> 0:12:33.800 times were really starting to accept that there was a 0:12:33.880 --> 0:12:38.040 really depressing consensus that we are just stuck with low growth, 0:12:38.080 --> 0:12:41.560 low inflation, and low rates for the future. And and 0:12:41.600 --> 0:12:44.120 that's a new consensus, I think, even though there's been 0:12:44.160 --> 0:12:46.480 plenty of evidence for it for years. Well, to rip 0:12:46.559 --> 0:12:48.280 up the script on this, and folks, this is some 0:12:48.360 --> 0:12:50.760 background and I'll be discussing this, I hope A Davos 0:12:51.679 --> 0:12:55.320 a really wonderful panel. Megan Green. It's really simple. The 0:12:55.400 --> 0:12:58.960 debate was negative rates in their efficacy. What did you 0:12:59.080 --> 0:13:02.280 learn about the negative rate debate? If we're making it 0:13:02.360 --> 0:13:06.520 up as we go amid slow growth. Well, So I 0:13:06.520 --> 0:13:10.880 think generally there's been a negative consensus about negative rates, 0:13:10.880 --> 0:13:13.679 and I think that's probably right that you know, if 0:13:13.720 --> 0:13:16.720 you push rates down that far um, you're actually punishing 0:13:16.800 --> 0:13:20.600 thanks um and you don't see any kind of credit 0:13:21.520 --> 0:13:24.559 demand develop off the back of it. So negative rates 0:13:24.600 --> 0:13:28.520 aren't the answer, I mean, in particularly not in the US. UM. 0:13:28.559 --> 0:13:31.000 There is kind of a consensus now that central banks 0:13:31.000 --> 0:13:33.240 can't be holding the bag for this recovery. And that's 0:13:33.280 --> 0:13:36.880 fairly new as well. So if it's not negative rates 0:13:36.880 --> 0:13:40.199 cutting rates um, you know, maybe it's yield curve control. 0:13:40.520 --> 0:13:43.240 Japan's had some success with it. It could be more QUI. 0:13:43.240 --> 0:13:46.160 Though in academia, I think there's a consensus and QUI 0:13:46.240 --> 0:13:49.040 hasn't really helped a whole lot overall. I think, so 0:13:49.280 --> 0:13:52.400 people are accepting the central banks aren't responsible for the 0:13:52.720 --> 0:13:55.319 this next downturn for combating it, and so we're gonna 0:13:55.320 --> 0:13:58.480 need to see fiscal authorities step in. And there's this 0:13:58.600 --> 0:14:02.520 overwhelming consensus among lots of economists who disagree on lots 0:14:02.520 --> 0:14:05.800 of things, particularly the causes of all this speak to man, 0:14:06.240 --> 0:14:08.400 But the one thing that would help all of the 0:14:08.440 --> 0:14:12.560 potential causes is productive public investment. The problem there is 0:14:12.679 --> 0:14:16.880 just the political support for that isn't necessarily there, particularly 0:14:16.920 --> 0:14:19.000 those who are worried about blowing the budget deficit. But 0:14:19.040 --> 0:14:21.080 you don't have to blow out the budget deficit to 0:14:21.160 --> 0:14:24.800 actually do productive public investment, Megan. The longer that the 0:14:24.800 --> 0:14:27.160 central banks hold the bag, when do we start talking 0:14:27.160 --> 0:14:31.520 about ascid bubbles Again, It's a great question. You know, 0:14:31.600 --> 0:14:34.400 we haven't really seen acid bubbles or merge unless you 0:14:34.400 --> 0:14:37.440 can give it everything the bubble and and and maybe 0:14:37.440 --> 0:14:39.480 you could, um, but I think that where the bubble 0:14:39.600 --> 0:14:42.080 might be starting to crop up is in private markets, 0:14:42.120 --> 0:14:44.760 not in publist markets that we can all see. Um, 0:14:44.800 --> 0:14:48.280 that's possible in terms of leverage, floans, um, you know, 0:14:48.320 --> 0:14:50.120 see a lot of things like that. But we don't 0:14:50.160 --> 0:14:52.000 have a whole lot of ter guaranty on that. And 0:14:52.120 --> 0:14:54.160 I think that could be frosty, but it's hard to 0:14:54.320 --> 0:14:56.840 have any real sense of how to quantify it. Megan 0:14:56.880 --> 0:14:59.360 Green with us at the Harvard Countedy School, And of 0:14:59.360 --> 0:15:02.000 course we can tell talk about the specifics of market economics, 0:15:02.040 --> 0:15:05.040 but we can also talk about bigger, broader themes. Megan. 0:15:05.080 --> 0:15:10.920 This morning we saw target deliver saggy comp sales, traditional sales, 0:15:11.560 --> 0:15:15.240 and their digital sales were up nineteen. What are you 0:15:15.440 --> 0:15:20.760 seeing at Harvard Kennedy about this new technology overlaying all 0:15:20.840 --> 0:15:23.240 of our business? I mean, it's something we're going to 0:15:23.320 --> 0:15:25.720 write about in ten years or twenty years, or even 0:15:25.760 --> 0:15:28.880 half a century out. But what is the effect of 0:15:29.040 --> 0:15:36.840 technology on so much of American business, including consumption? It's well, 0:15:36.880 --> 0:15:40.680 so I think in this example in retails were well, um, 0:15:40.720 --> 0:15:44.320 you know, you see the technology increases transparency and price discovery, 0:15:44.320 --> 0:15:48.000 and so that pushes prices down significantly. That provides a 0:15:48.200 --> 0:15:52.280 disinflationary force in the economy. And generally technology is doing 0:15:52.320 --> 0:15:54.360 that across the board, and so that's one of the 0:15:54.400 --> 0:15:58.440 reasons that we've seen soft inflation data and will continue 0:15:58.480 --> 0:16:01.920 to for the fort Gavel feature, Megan, just to wrap 0:16:01.960 --> 0:16:04.640 things up here, I'm wondering, looking out, where do you 0:16:04.680 --> 0:16:07.560 think we are in terms of a re acceleration or 0:16:07.560 --> 0:16:14.040 a slowdown in the global economy? Just we're looking at 0:16:14.040 --> 0:16:16.920 a slow down, no doubt. Every major economy has been 0:16:16.920 --> 0:16:20.000 growing above potentials um and we shouldn't expect that to 0:16:20.040 --> 0:16:24.160 continue without really significant amounts of monetary or fiscal stimulus. 0:16:24.160 --> 0:16:26.080 And I just don't think that we'll see that this year. 0:16:26.200 --> 0:16:29.320 So we should expect every major economy to continue to 0:16:29.360 --> 0:16:32.440 converge with potential growth, which has been lower than what 0:16:32.560 --> 0:16:34.640 growth has been over the past couple of years. Making 0:16:34.640 --> 0:16:36.720 great to catch up with you making great there, Harvard Kennedy, 0:16:36.800 --> 0:16:38.680 Senior Fellow, joining us on the phone on the latest 0:16:38.720 --> 0:16:41.040 thing economic take to and the next most with central 0:16:41.080 --> 0:16:57.440 banks worldwide. Right now, real question for investors here. You 0:16:57.560 --> 0:17:01.720 had an extraordinary twenty nineteen in terms of market performance. 0:17:02.120 --> 0:17:05.040 What do you do for Jim Paulson Luke old wed In, 0:17:05.119 --> 0:17:08.719 Capital Manager, Chief Investment Strategists, joins us to give us 0:17:08.800 --> 0:17:11.879 his thoughts. So, Jim again, it's you know, the question 0:17:11.920 --> 0:17:14.359 is what have you done for me lately? How are 0:17:14.400 --> 0:17:21.800 you thinking about positioning for Yeah? Probably I think, you know, 0:17:21.840 --> 0:17:25.080 I think that the bowl continue this year, but I 0:17:25.119 --> 0:17:26.760 think it's going to go up, you know, far less 0:17:26.760 --> 0:17:28.679 than it did last year, of course, maybe more like 0:17:29.160 --> 0:17:33.160 ten percent or something overall. Um, And I do think 0:17:33.200 --> 0:17:34.639 I think you hit the nail on the head. I 0:17:34.840 --> 0:17:37.560 think positioning is going to be the bigger issue in 0:17:37.880 --> 0:17:40.680 two thousand and twenty that I was in two thousand nineteen, 0:17:40.760 --> 0:17:43.440 rather than just buy anything around you. I think it's 0:17:43.440 --> 0:17:45.159 going to be what to buy is going to be 0:17:45.200 --> 0:17:47.640 more important. There's going to be I think a bit 0:17:47.680 --> 0:17:50.920 of a leadership shift UH during the year. If the 0:17:50.920 --> 0:17:55.399 if the global if the global recovery does revive here 0:17:55.440 --> 0:17:57.440 a little bit accelerating a little bit, which I think 0:17:57.520 --> 0:18:02.520 is happening, that tends to really change what leads. So 0:18:03.040 --> 0:18:06.720 I think in the past, every time we've recovered or accelerated, 0:18:07.000 --> 0:18:09.920 you've had international markets beat the United States. I think 0:18:09.920 --> 0:18:11.760 that's going to be one of the big themes yet 0:18:11.760 --> 0:18:15.600 this year, both developed and emerging, probably more so in emerging, 0:18:16.640 --> 0:18:18.760 but I think moving away from the US here stopper 0:18:18.800 --> 0:18:22.639 full it makes sense. I also think that cyclical areas 0:18:23.040 --> 0:18:27.000 in general UH have a much better year relative to 0:18:27.040 --> 0:18:32.840 more defensive UH investments, low volatility quality, defensive sectors and 0:18:32.880 --> 0:18:36.640 the like. And then I also think maybe UH, depending 0:18:36.680 --> 0:18:40.040 on how much we recover globally, you're you're going to 0:18:40.160 --> 0:18:43.320 see small caps which have continue to do poorly this year, 0:18:43.359 --> 0:18:45.920 but I think they're gonna maybe finally have a year 0:18:46.480 --> 0:18:52.359 about performance UM overall, and I'm I'm sticking with tech 0:18:53.080 --> 0:18:56.560 UM but but I think that's the one area that 0:18:56.640 --> 0:18:58.879 might continue to do okay, But I think it's I 0:18:58.920 --> 0:19:01.119 think I'd go with this mall cap tech rather than 0:19:01.119 --> 0:19:03.239 a large cap How do you shift to that? I mean, 0:19:03.280 --> 0:19:05.720 are you selling shares of Apple, Amazon and the rest 0:19:05.760 --> 0:19:07.560 of them here to do that? Or is that with 0:19:07.640 --> 0:19:12.160 new cash? I think i'd Uh. I think I definitely 0:19:12.200 --> 0:19:16.960 maybe UH entertained some selling tom. Uh there's you know, 0:19:17.040 --> 0:19:20.200 we've in our gap fund. We've put in uh E 0:19:20.359 --> 0:19:22.440 t F. You can get an e t F for 0:19:22.520 --> 0:19:27.280 the S and P six uh technology, UM, you know, 0:19:27.359 --> 0:19:32.159 sell your SMP five tech. UM. I think if you 0:19:32.240 --> 0:19:35.440 look at that tech, small cap tech and large cap 0:19:35.440 --> 0:19:37.720 tech have done just as well in this recovery since 0:19:37.760 --> 0:19:41.160 two thousand nine. They've had almost identical results, but they've 0:19:41.160 --> 0:19:44.440 had very different leadership. Here ads sometimes large as dominant, 0:19:44.520 --> 0:19:47.760 sometimes small. In the last couple of years, it's been large. 0:19:48.080 --> 0:19:51.720 They're sitting now on a relative basis at the bottom 0:19:51.800 --> 0:19:53.840 end of a trading range they've been in relative to 0:19:53.840 --> 0:19:56.680 the large cap tech back to two thousand two. They're 0:19:56.720 --> 0:19:59.960 they're trading right now at a slight discount p multiple, 0:20:00.080 --> 0:20:02.760 when they've normally traded on average at about an eighteen 0:20:02.800 --> 0:20:06.600 percent premium. They have a much higher long term growth 0:20:06.680 --> 0:20:10.680 rate estimate among SMP six technology than the SMP five 0:20:11.040 --> 0:20:16.800 technology has. They're certainly under owned, unloved, and basically not 0:20:17.000 --> 0:20:20.520 even known. You probably can't name many of them. I 0:20:20.600 --> 0:20:23.480 agree with that. So I mean, and lastly, I think 0:20:23.520 --> 0:20:26.400 that they're not in the They're not in the crosshairs 0:20:26.480 --> 0:20:31.000 of regulators. Um you know regularly, They're just not in 0:20:31.040 --> 0:20:32.800 the cross Here is a regularly and no one's looking 0:20:32.840 --> 0:20:35.879 at small camp Paul Sweeney, what's going to be the 0:20:35.960 --> 0:20:39.080 catalyst to jump these brilliant for digit stock four letter 0:20:39.119 --> 0:20:41.760 stocks and Jim is talking about it, Yeah, it's I 0:20:41.800 --> 0:20:45.040 think it's, you know, some the search for top line growth, 0:20:45.080 --> 0:20:46.760 which is something you always look forward. Tom. I think 0:20:46.760 --> 0:20:50.199 top line growth technology still has it and lots of 0:20:50.200 --> 0:20:52.600 pockets as we do a five G upgrade as the 0:20:52.640 --> 0:20:55.720 cloud continues to grow. Jimmy, I'm interested in your comments 0:20:55.760 --> 0:20:58.840 about emerging markets. Tom and I are hearing more and 0:20:58.880 --> 0:21:03.159 more about emerging market as potential opportunity for you as 0:21:03.200 --> 0:21:07.200 it driven more by maybe a moderating trade tensions globally 0:21:07.600 --> 0:21:11.280 or lower rates or kind of stabilizing economy. What's kind 0:21:11.280 --> 0:21:14.520 of driving your thoughts about emerging markets I think the 0:21:14.520 --> 0:21:18.480 biggest thing is UM is a revival in growth. I mean, 0:21:18.520 --> 0:21:20.879 you're starting to see the O E c D leading 0:21:20.880 --> 0:21:23.800 economic indicator for the global economy just turned up in 0:21:23.840 --> 0:21:26.800 the last two months for the first time since the 0:21:26.920 --> 0:21:31.440 end of two thousand seventeen. The Westpac Global Economic Surprise 0:21:31.440 --> 0:21:34.919 INDEXES has risen dramatically in the last few months. I 0:21:34.960 --> 0:21:37.159 think we're starting to see signs all across the globe 0:21:37.200 --> 0:21:41.040 of a recovery. Every time in this recovery since oh 0:21:41.119 --> 0:21:44.720 nine that you've had a bouncing global growth. Emerging markets 0:21:44.880 --> 0:21:47.960 have outperformed, and I think they will again. They tend 0:21:47.960 --> 0:21:51.760 to be more leveraged to economic acceleration than is the 0:21:52.040 --> 0:21:56.399 service based, tech based United States economy, for example. But 0:21:56.480 --> 0:22:00.159