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Speaker 1: Welcome to the Bloomberg pim L Podcast. I'm pim Fox.

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Speaker 1: Along with my co host Lisa Abramowitz. Each day we

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Speaker 1: bring you the most important, noteworthy, and useful interviews for

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Speaker 1: you and your money, whether at the grocery store or

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Speaker 1: the trading floor. Find the Bloomberg p L Podcast on iTunes,

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Speaker 1: SoundCloud and at Bloomberg dot com. And here in the

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Speaker 1: studio with us is Paul Christopher. He is head of

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Speaker 1: Global market Strategy for Wells Fargo Institute and he joins

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Speaker 1: us now. Paul, thank you very much for being with us.

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Speaker 1: Great to be with you again. Pim um, What has

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Speaker 1: happened in your life since the conclusion of the US

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Speaker 1: presidential election? Give us a little window into the world

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Speaker 1: of a global strategy. You mean besides no sleep. Uh, well,

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Speaker 1: you could add that to the mix as well. How

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Speaker 1: are you handling it? Well? What? What? What we're seeing

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Speaker 1: is a markets really anticipating a lot, extrapolating a lot,

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Speaker 1: and we're still we're still pretty cautious on whether or

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Speaker 1: not those extrapolations and anticipations will be fully realized, especially

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Speaker 1: in the near term. I mean people, right, I mean

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Speaker 1: people are doing all the people are doings or a

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Speaker 1: computer of some kind. But basically, people are are making

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Speaker 1: these decisions, these speculative bets. People are making anticipatory bets

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Speaker 1: on how they think policy will work out, and some

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Speaker 1: of those bets may have to be changed over the

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Speaker 1: coming weeks and months as we see the how the

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Speaker 1: president elect will prioritize the new policy initiatives, and how

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Speaker 1: the Congress will play with the new president going forward. So, Paul,

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Speaker 1: before offline, we were talking about how you're advising clients

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Speaker 1: to not change their investment strategies from before the election,

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Speaker 1: to sort of stay the course. So what were you

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Speaker 1: advising then as far as the proportion of cash people

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Speaker 1: should be holding, the mix of bonds and stocks, our

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Speaker 1: tactical views were, We're really pretty pretty cautious, pretty defensive.

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Speaker 1: We're holding a little bit of cash on the sideline's

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Speaker 1: looking for an opportunity, but we're really oriented towards quality.

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Speaker 1: So we've been overweight US large cap stocks, but we've

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Speaker 1: been underweight US small caps as we get to a

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Speaker 1: point in the cycle where things might not look so

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Speaker 1: good for small caps. We've been underweight emerging market equities

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Speaker 1: and that's hurt a little bit. But we do still

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Speaker 1: see some problems, some real challenges in those places. We've

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Speaker 1: also been underweight the long end of the yield curve

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Speaker 1: and overweight the middle part of the yield curve. Really

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Speaker 1: not wanting to take chances that we'll get sudden changes

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Speaker 1: and yields, and therefore we would prefer to have people

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Speaker 1: position more intermediately. Let's just take a couple of those specifics.

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Speaker 1: I want to ask you about small and mid cap stocks.

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Speaker 1: For example, the Russell two thousand has seen a very

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Speaker 1: good run since the results of the presidential election. The

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Speaker 1: dollar has also strengthened. Would that help small and mid

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Speaker 1: cap companies that mainly do business, let's say in the

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Speaker 1: United States, that don't have that currency risk. Historically that

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Speaker 1: that has been the connection him, But but it may

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Speaker 1: be not quite so so going forward, supposed the administration,

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Speaker 1: for example, where to start working on a lot of

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Speaker 1: trade restrictions. A lot of US companies have supply chains

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Speaker 1: that extend beyond our borders. Uh. You could have a

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Speaker 1: small manufacturer, for example, that imports electric motors from Mexico.

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Speaker 1: If Mexico is targeted for trade sanctions, those motors get

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Speaker 1: more expensive, and all of a sudden earnings get hit

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Speaker 1: or prices have to rise. So it's not necessarily the

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Speaker 1: case going forward that we can rely on on some

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Speaker 1: of those old one on one relationships. Inflation. Before the election,

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Speaker 1: the dominant view before the election, the dominant view was

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Speaker 1: that we were in a slow growth period with some inflation,

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Speaker 1: but nothing that was too too much to write home about. Now,

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Speaker 1: all of a sudden, people are pricing in much higher

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Speaker 1: rates of inflation. Where do you stand on that? Yeah,

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Speaker 1: well you you you. The reason they're doing that is

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Speaker 1: because they're seeing policy promises made on the campaign trail.

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Speaker 1: And remember the campaign trail is subject to hyperbole, so

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Speaker 1: it's it's always possible that we could see some of

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Speaker 1: these promises not quite work out the way they were promised.

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Speaker 1: But on the campaign trail, promises of trade restrictions are

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Speaker 1: themselves inflationary, as well as promises that we're going to

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Speaker 1: cut taxes and increased let's say, infrastructure spending that would

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Speaker 1: also tend to be uh tend to tend to work

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Speaker 1: towards inflation. So whether one looked at one side of

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Speaker 1: the promises or another, inflation seemed to be the result.

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Speaker 1: And that's that that also appears to be the result

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Speaker 1: of the market pricing in the last week or so. Paul,

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Speaker 1: if you love the US Treasury a tenure, for example,

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Speaker 1: and under two percent, do you really really love them

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Speaker 1: now that they're above two Well, some some increase in

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Speaker 1: yields is probably inevitable. The question will be what's going

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Speaker 1: to be the timing. Do we expect to see all

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Speaker 1: of those policies develop inflation all at once, or do

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Speaker 1: we expect the inflation effects to develop over time, or

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Speaker 1: do we expect instead that some of those inflationary effects

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Speaker 1: maybe offsetting to one another. For example, if you had

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Speaker 1: higher yields, that could slow growth and therefore slow inflation.

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Speaker 1: Now I don't understand that, but I'm just wondering. For example,

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Speaker 1: if now you were to buy the US tenure, you

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Speaker 1: would get two point to one percent. If you are

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Speaker 1: long the US tenure at anything less than that, would

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Speaker 1: you recommend people buy it? Well, we want, we want

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Speaker 1: clients to be up to their their they're recommended long

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Speaker 1: term allocations and ten years. But we are over or

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Speaker 1: excuse me, we're underweight, Uh, the long term part of

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Speaker 1: the yield curve again, because there's always that risk volatility

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Speaker 1: out there where sudden increases and yields would damage the portfolio,

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Speaker 1: the bond portfolio. What what's the scariest spot in the

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Speaker 1: market right now? Uh, good question. Scariest spot in the

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Speaker 1: market might be a bet that commodity prices are going

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Speaker 1: to rise here if you're if you're thinking maybe that

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Speaker 1: the Trump administration would boost growth and maybe boost inflation,

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Speaker 1: and therefore the commodity prices would rise in response or

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Speaker 1: rise simultaneously. We think that's a bit of a bit

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Speaker 1: of a stretch. After all, supply and demand in the

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Speaker 1: commodity world still really hasn't been re established convincingly. We

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Speaker 1: still think those commodity prices have some years of bouncing

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Speaker 1: around and ranges to go. Are there any screaming buys

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Speaker 1: and no, not really. Again, we would want we would

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Speaker 1: want clients to mostly be looking to take advantage. Uh.

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Speaker 1: If you, for example, are underweight and treasuries, it might

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Speaker 1: be a good time to start averaging into that market.

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Speaker 1: If you're underweight and equities, we would be averaging into

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Speaker 1: that market right now, just to make sure that you're

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Speaker 1: at the at the recommended long term levels. We'll get

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Speaker 1: more clarity and we can adjust tactical positions later on,

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Speaker 1: once we see again how the president's priority list looks

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Speaker 1: and how the Congress plays with that list. What about

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Speaker 1: corporate earnings. I thought that corporate earnings were a determinant

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Speaker 1: for long term stock performance. Long term stock performance. Yes,

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Speaker 1: tactically we're we're still seeing about a six to seven

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Speaker 1: percent gain and earnings for next year, but possibly some

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Speaker 1: cap on valuations if inflation does surprise to the upside. Why,

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Speaker 1: because you think that investors won't pay more for the

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Speaker 1: same dollar of earnings. You won't get that expansion in

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Speaker 1: the multiple. That's right. Yeah, if you get some expansion, sorry,

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Speaker 1: if you get some expansion and multiples, let's say at midyear,

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Speaker 1: and then inflation starts to surprise on the upside later

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Speaker 1: in the year, you have to start bringing the fedback

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Speaker 1: into the picture, and will they accelerate their rate hikes

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Speaker 1: and that would be a damaging a factor, or at

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Speaker 1: least a speculative factor for bears. Paul, you came in

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Speaker 1: here and you said that you haven't been sleeping very much.

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Speaker 1: What's been keeping you up? What's keeping me up really

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Speaker 1: is what sort of policy mix we're going to see

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Speaker 1: out of the new administration. I'm not so concerned about

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Speaker 1: the fiscal policy mix. I think we'll see something there

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Speaker 1: that will be stimulative, and the deregulatory aspect will be

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Speaker 1: positive for the market. But it's the trade element. How

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Speaker 1: will the new administration handle the promises to be much

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Speaker 1: more restrictive on trade At a point here where inflation

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Speaker 1: is still benign but could get worse if if we

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Speaker 1: restrict trade, and at a point here where global trade

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Speaker 1: itself has has just begun to recover from a big contraction.

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Speaker 1: We really don't need another big restriction in global trade.

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Speaker 1: Paul Christopher, thank you so much for being with Thank

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Speaker 1: you and Paul Christopher had Global market Strategistic well Wells

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Speaker 1: Fargo Investment Institute in St. Louis. And Lisa Brown always

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Speaker 1: here with pim Fox. This is Bloomberg, This is Bloomberg Markets.

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Speaker 1: I'm pim Fox along with Lisa A. Brahma. What's the

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Speaker 1: shares of Apple have fallen about four percent since the

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Speaker 1: results of the U S presidential election? So what is

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Speaker 1: next for apprile? And is it losing its place as

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Speaker 1: the crown jewel of a technology company? Shira Ovid joins

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Speaker 1: US now. She is a technology columnist and a Bloomberg.

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Speaker 1: Gadfly are a fast commentary section of Bloomberg and you

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Speaker 1: can follow her on Twitter at Shira Oda. Sure, thanks

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Speaker 1: very much for being here. Thank you. So what is

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Speaker 1: this about Apple losing its technology? Itch? Yeah, well, I

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Speaker 1: think this has basically been a narrative for Apple really

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Speaker 1: in the last five years under Tim Cook, who, of course,

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Speaker 1: um was the successor to Steve Jobs, the famous co

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Speaker 1: founder and longtime CEO of Apple. And there's been a

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Speaker 1: question basically since Tim Cook took over about whether Apple

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Speaker 1: can sustain its long time position as basically the trendsetter

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Speaker 1: in the technology industry. This is a company that for

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Speaker 1: a long time took niche ideas like smartphones, like digital

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Speaker 1: music players and turn them into basically world changing products

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Speaker 1: and world changing ideas, and it doesn't seem to be

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Speaker 1: able to do that anymore. Okay, Sira, You know, I

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Speaker 1: love it because you sit in my row and we

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Speaker 1: kind of come up with doomsday scenarios and throw them

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Speaker 1: against each other and are perennially perennially pessimistic. So, um,

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Speaker 1: I I read your column and it was like, yes,

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Speaker 1: right right in line with the perennial time exactly um So,

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Speaker 1: Apple Marker and Alex web and in King of blubric

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Speaker 1: Days reported that Apple is weighing an expansion into digital glasses.

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Speaker 1: Um and this you sort of take a look at

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Speaker 1: what they could bring to it that Google failed to

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Speaker 1: bring in two thirteen. What are some of the advancements

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Speaker 1: that they could bring that could potentially be lucrative for them? Yes,

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Speaker 1: so so, as our colleagues reported right at, Apple is

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Speaker 1: kind of working on this idea that may never come

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Speaker 1: to fruition as as all you know, design and research

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Speaker 1: labs and tech companies, sometimes you work on things that

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Speaker 1: don't pan out. But they're working on those kind of

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Speaker 1: digital glasses that aren't dissimilar to if people remember Google Glass,

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Speaker 1: which was a product that Google kind of flopped on

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Speaker 1: a couple of years ago. But this idea of kind

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Speaker 1: of eyewear that combines what you see in the real

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Speaker 1: world with digital images, Like you might be walking down

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Speaker 1: the street and it will show you a digital map

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Speaker 1: of walking directions to the coffee shop that you're going

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Speaker 1: to or things like that. So why now, I mean,

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Speaker 1: is this basically a really high tech version of Pokemon

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Speaker 1: Go that can be made more easy for people. Pretty

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Speaker 1: much yes. I mean the thing that we don't know,

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Speaker 1: of course, and maybe Apple doesn't itself know, is what

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Speaker 1: what does this technology do that will really bring something

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Speaker 1: you know, clever and innovative to our lives. And Google

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Speaker 1: couldn't figure it out, and that's one reason why um

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Speaker 1: it pulled glass from circulation. But there is this kind

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Speaker 1: of emerging technology against sort of mix digital and UH

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Speaker 1: and real life in these kind of wearable gizmos are

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Speaker 1: on your phone, and that's clearly kind of a trend

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Speaker 1: for the future. But the question that I raise is

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Speaker 1: does Apple have a clear vision about this or about

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Speaker 1: anything else uh in terms of what it can do

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Speaker 1: to a technology to make it mainstream and actually world changing.

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Speaker 1: And I don't know the answer to that, but the

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Speaker 1: five year track record of Apple is not great in

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Speaker 1: this regard. Having said that, I just want to oppose

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Speaker 1: to you that this is a company that's doing two

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Speaker 1: d and fifteen billion dollars worth of business a year.

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Speaker 1: The net income is over forty five billion dollars a year.

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Speaker 1: If they just manage that, that will be an amazing feat.

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Speaker 1: And you know, when you talk about trend setting technology, yes,

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Speaker 1: kind of and no, right, because you don't hear anything

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Speaker 1: about virtual reality really from Apple. You don't hear anything

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Speaker 1: about drones. You don't hear anything about new TV monitors.

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Speaker 1: You don't hear anything about Alexis and those home audio

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Speaker 1: assistance that are directly wired to the inventory control system.

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Speaker 1: At Amazon, they've been focused on watches, wearables, write phones, iPads,

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Speaker 1: and mass Yes. So two things. One is you're right.

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Speaker 1: I mean, if if Apple isn't a quote crisis, most

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Speaker 1: companies would love to be in the crisis condition that

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Speaker 1: Apple is in with again enormous profits and enormous sales.

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Speaker 1: But the Apple that that people know is a company

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Speaker 1: that is growing revenue and this Apple is not doing

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Speaker 1: that anymore. So that's what a crisis looks like for Apple.

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Speaker 1: But it's stagnating sales and that's a problem for Apple

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Speaker 1: real quick. Do we have a sense of how much

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Speaker 1: money and Apple is putting into this, No idea, But

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Speaker 1: they've doubled R and D spending over the last three years.

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Speaker 1: So they're cooking up a lot of things and their

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Speaker 1: research labs and hopeful one of them will be a hit.

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Speaker 1: Share overday of Bloomberg Gadfly always always a joy speaking

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Speaker 1: with you. Thank you so much for being with us.

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Speaker 1: Humans are suing Chrysler and this is not going to

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Speaker 1: do wonders for Chrysler shareholders who which have suffered some

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Speaker 1: losses as a result. I want to bring in car

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Speaker 1: Deke Marotra, a Bloomberg News reporter who wrote the story

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Speaker 1: breaking the news about the fact that dodged truck owners,

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Speaker 1: sued Chrysler on Monday, claiming that some engines were rigged

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Speaker 1: to hide emissions as much as fourteen times higher than

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Speaker 1: the law permits. Carter K, thank you so much for

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Speaker 1: joining us. Sure so, UM, can you just give us

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Speaker 1: a little bit more of a sense, a deeper sense

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Speaker 1: of the suit, of what instigated it and how deep

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Speaker 1: this could go. So the allegations are, and they are

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Speaker 1: only allegations right now, are that the Chrysler, before their

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Speaker 1: merger with Fiat UM and their technology, their engine provider

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Speaker 1: come in Sank, had created UH diesel engines to circumvent

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Speaker 1: new UM regulations by the e p A. UH. The

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Speaker 1: EPA had created more stringent laws for diesel based engines,

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Speaker 1: and they thought we could we can beat the market

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Speaker 1: to this. The deadline was two thousand ten. They were

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Speaker 1: a few years ahead and they did beat competitors. And

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Speaker 1: the allegation now is that they beat competitors by creating

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Speaker 1: an engine that leaks emissions and they knew about it.

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Speaker 1: So this is for about half a million Dodge Ram

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Speaker 1: trucks that are on US roads. And now the question

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Speaker 1: that will be up to a district court in Michigan

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Speaker 1: is is whether they did do it, whether they did

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Speaker 1: do it intentionally, and and what damages should be rewarded

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Speaker 1: to two drivers. Carter K, Is there any evidence or

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Speaker 1: any detail that you can offer about these specific engines?

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Speaker 1: Have there been issues in the past for example, Uh,

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Speaker 1: it's a bit up in the air. There have been

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Speaker 1: issues in the past with UM defeat devices as they're

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Speaker 1: known so UM. For example of Volkswagen, right, I mean

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Speaker 1: that was the Volkswagen store, And just to make mention,

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Speaker 1: Volkswagen has agreed to pay what sixteen and a half

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Speaker 1: billion dollars to resolve all the issues about that the

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Speaker 1: two leader diesel cars right right, so far, So that's

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Speaker 1: that's been the most notorious allegation. But even before that

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Speaker 1: UM in the late nineties, a number of carmakers were

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Speaker 1: hauled up by US regulators for UM installing these defeat devices.

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Speaker 1: And actually the Chrysler case precede the Volkswagen. Um. The

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Speaker 1: allegations over their cars are for model years from two

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Speaker 1: thousand seven to two thousand twelve. Well, VW has only

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Speaker 1: started in two thousand nine. Um, So there the question

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Speaker 1: is is this a broader behavior of the auto industry?

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Speaker 1: Um is their accredibility issue when it comes to clean diesel?

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Speaker 1: Um that that's sort of the questions that that these

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Speaker 1: cases and recurring issues do seem to be bringing up,

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Speaker 1: which you know we'll find out over time. Well, card exactly,

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Speaker 1: That's what I was going to ask. I mean, Chrysler

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Speaker 1: is the first US company to be sued for these

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Speaker 1: kinds of emissions rigging scandals. Are you hearing from your

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Speaker 1: sources that are there are other lawsuits pending against other

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Speaker 1: US automakers? It would not surprise me. Um, But we

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Speaker 1: haven't heard of any definitive suits in in the works yet. UM.

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Speaker 1: That said, lawyers like to keep this pretty close to

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Speaker 1: the chess until they're ready to file their suits. UM.

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Speaker 1: So not yet, but that doesn't mean that they won't come.

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Speaker 1: But they're not not coming. Ultimately, is the alleged cheating

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Speaker 1: on this emissions would this then lead what to a

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Speaker 1: discovery process to try to obtain documents or information related

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Speaker 1: to the specific engines over time? Yeah, UM, I think

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Speaker 1: what what we've already heard from Fiat Chrysler uncommons is

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Speaker 1: that they're going to fight the case. UM So unlike

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Speaker 1: Folkswagen who who owned up to it, UM the malfie,

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Speaker 1: isn't uh Fia Chrysler intent on fighting uh the allegations.

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Speaker 1: Uh So, Yes, there will go through the rigorous court process,

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Speaker 1: which will ultimately include going through discovery and and finding

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Speaker 1: out what led to the development of these engines and installation.

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Speaker 1: What did the car company know um at the time

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Speaker 1: that the cars were sold? Real quick? What kinds of

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Speaker 1: legal costs or is Fia Chrysler facing at this point?

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Speaker 1: That's a good question. Um. All the complaints says is

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Speaker 1: that UM, the damage to the car would would be

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Speaker 1: UM up to five thousand dollars, so UM components would

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Speaker 1: be damaged because you had to go through the motions

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Speaker 1: of of fixing the cars. UM. So multiply that by

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Speaker 1: by half a million, you're you're starting to climb a ladder.

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Speaker 1: It's where near sixteen and a half billion yet, but

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Speaker 1: it will cost the company quite a bit, Thank you

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Speaker 1: very much. Carter k Merotra, legal reporter for Bloomberg News.

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Speaker 1: You're listening to Bloomberg Markets. I'm pim Fox along with

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Speaker 1: Lisa Abramowitz. This is Bloomberg. It's time now for us

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Speaker 1: to take a little bit closer look into the U

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Speaker 1: s economy and lots being said about potential inflation, about

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Speaker 1: potential growth, but looking at the numbers, is it showing

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Speaker 1: the same optimism that we're hearing at large? Carl Ricka Donna,

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Speaker 1: Chief US economists for Bloomberg Intelligence, we got some retail

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Speaker 1: sales today. What clues do they give us? Well, the

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Speaker 1: retail sales report was in October report, so well, you

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Speaker 1: had a couple of unusual trends in that report that

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Speaker 1: maybe are making it look like stronger results than what

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Speaker 1: was really the case. First and foremost, that we have

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Speaker 1: an unusual pattern for gasoline prices. Normally in the second

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Speaker 1: half of the year, especially in October, you see price declines.

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Speaker 1: We saw modest price increases, so seasonal adjustment right off

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Speaker 1: the bat throws that for a loop. That being said

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Speaker 1: that when we look a little deeper into the details,

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Speaker 1: don't forget Hurricane Matthew UH made a close swipe and

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Speaker 1: then eventual landfall at a significant portion of the southeast

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Speaker 1: coast at the start of the month. And when we

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Speaker 1: have hurricanes UH impacting the US historically, you see a

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Speaker 1: big surge in grocery sales UH, demand for building supplies,

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Speaker 1: garden equipment, those types of things, UH, and then you

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Speaker 1: see a drop off in things like restaurants sales UH

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Speaker 1: and some of those discretionary categories furniture, electronics and whatnot.

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Speaker 1: And we saw exactly that profile in this report. So

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Speaker 1: it looks like a gangbusters report UH. And it looks

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Speaker 1: like the fourth quarter is starting off with a full

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Speaker 1: head of steam. UH. So to speak, however, we have

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Speaker 1: to remember that the income trend is not justifying this

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Speaker 1: dramatic acceleration. So we'll continue to see fits and starts

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Speaker 1: in the retail data until we see a more pronounced

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Speaker 1: and sustained acceleration and wage and salary income. Carl Kadona

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Speaker 1: business inventories do they matter? Uh? Inventory is not so

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Speaker 1: critical at this point. UH. You know, we saw big

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Speaker 1: liquidation that weighed on growth earlier this year. I think

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Speaker 1: as economic optimism improves, H heading into your end. And

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Speaker 1: also as businesses look ahead to next year UH and

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Speaker 1: lick their chops at the prospect of tax cuts and

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Speaker 1: potentially fiscal stimulus, that you'll see more confidence uh in

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Speaker 1: the business community, leading to a modest, modest inventory restocking

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Speaker 1: and that should support g d P grow. Well tomorrow,

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Speaker 1: I know we're gonna get producer prices correct, plus some

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Speaker 1: mortgage applications, industrial production capacity, utization. What should we be

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Speaker 1: looking for? What do you think is going to guide

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Speaker 1: us to how the economy is performed? Well, I would

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Speaker 1: keep an eye on the industrial production figures more so

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Speaker 1: than for a two tenths of a percent increase exactly.

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Speaker 1: So what again, this is just kind of middling pace

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Speaker 1: of of activity in the factory sector. However, if we

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Speaker 1: look to another report that was out this morning, uh,

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Speaker 1: the New York Empire Manufacturing Survey was what is it down?

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Speaker 1: A modest positive gain? Yes, Well, the I was going

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Speaker 1: to say the survey the estimate was November down two

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Speaker 1: point five two and a half percent, but it actually

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Speaker 1: came in at plus one and a half percent, right,

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Speaker 1: And the reason this is such an important report, this

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Speaker 1: is the first economic data series that basically covers the

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Speaker 1: post election period, So consumer sentiment out last Friday that

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Speaker 1: was basically tallied before the election results were in. Uh

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Speaker 1: and so Empire, which should be just a survey of

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Speaker 1: manufacturing conditions in New York State. Nonetheless, these production surveys

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Speaker 1: often take on a sentiment component to them when there

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Speaker 1: are significant events like hurricanes or elections or or other

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Speaker 1: types of dramatic movements in the markets and whatnot. Uh

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Speaker 1: and so, so you're reading this as a positive. This

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Speaker 1: is a positive, and this is mimicking what we're seeing

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Speaker 1: in both the stock and treasury markets, which is looking

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Speaker 1: for more growth and as a result of more growth,

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Speaker 1: more inflation. Uh in, uh in and beyond. Carl. Yeah,

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Speaker 1: you know, Honestly, if I were, if I were Tom

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Speaker 1: Keena would say, let's rip up the script. Um. But

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Speaker 1: I'm I'm looking. I'm wondering, you know, how do you

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Speaker 1: give any sense uh to your to your economic models

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Speaker 1: when you have this big unknown of Donald Trump's infrastructure

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Speaker 1: spending plans and then you have all of the noise

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Speaker 1: around whether or not they will be effective. Tyler Cowen

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Speaker 1: He's a professor at George Mason University of Economics. He

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Speaker 1: wrote a column from bloom Review talking about how Trump's

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Speaker 1: infrastructure plan is fundamentally flawed because it comes at a

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Speaker 1: time when the economy is expanding and when employment unemployment

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Speaker 1: rates are low, and this is typically not when these

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Speaker 1: plans are most effective. How do you model for this right,

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Speaker 1: So that the big debate is if this is a

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Speaker 1: kingsy and economics plan. So anytime you're borrowing h from

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Speaker 1: the federal government's perspective to finance spending programs, whether it's

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Speaker 1: infrastructure projects or tax cuts or whatnot, that's basically fiscal stimulus.

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Speaker 1: And so we certainly could have used it earlier on

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Speaker 1: in this economic cycle, because that's when we needed that

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Speaker 1: critical lift to growth. So it's a little bit late. Uh. Nonetheless,

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Speaker 1: it is still going to move the needle on GDP

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Speaker 1: growth if we are significantly expanding the budget deficit uh

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Speaker 1: and using that for various projects that will lift GDP.

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Speaker 1: So would the economy have been fine without this, Yes,

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Speaker 1: it would continue to limp on probably two two and

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Speaker 1: a half maybe three GDP growth. With this, it will

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Speaker 1: mean that the economy grows fast stir and therefore that

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Speaker 1: the Fed can normalize policy a bit more aggressively as well.

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Speaker 1: And so you don't think that the increase in debt

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Speaker 1: that we're probably going to incur will drag on growth,

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Speaker 1: UH in equal proportions. Well, there will be a hangover

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Speaker 1: eventually when the bills come due. But for the you know,

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Speaker 1: for the near term, interest rates are low, and the

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Speaker 1: financial markets are basically giving a free pass UH to

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Speaker 1: Congress and the President to embark on fiscal stimulus. Carl,

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Speaker 1: if the if interest rates can we we've got a

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Speaker 1: little bit of a snap back today in the bond market.

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Speaker 1: I mean, you take a look at the thirty year

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Speaker 1: for example, we're under three percent right now, We're I guess,

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Speaker 1: take a look up more than a full point up

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Speaker 1: one and eight thirty seconds right on the on the

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Speaker 1: thirty years. So people buying there. But if yields continue

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Speaker 1: to for to continue to increase, right, people say that

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Speaker 1: I don't want to own these bonds. Will they have

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Speaker 1: done the work of the Federal Reserve for Janet Yellen?

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Speaker 1: Will will that still mean twenty five basis point increase?

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Speaker 1: It depends what the other markets are doing. And so

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Speaker 1: if other markets being Europe, Asia, stock markets and other

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Speaker 1: aspects of the financial markets, so taken by itself. The

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Speaker 1: backup and treasury yields and mortgage rates should be a

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00:25:12,920 --> 00:25:15,440
Speaker 1: tightening of financial conditions. But if you look on the

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Speaker 1: Bloomberg terminal at f con financial conditions, UH, it actually

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Speaker 1: tells you that financial conditions have eased since the election.

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Speaker 1: So people are just focusing on interest rates. You have

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Speaker 1: to keep in mind what's happening to credit spreads, what's

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Speaker 1: happening to the equity markets, etcetera. Uh, And so we're

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Speaker 1: not seeing a tightening of financial conditions that would tell

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Speaker 1: the Fed, oh, the markets are doing the work for us,

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Speaker 1: we can take a pass in December. It's a very

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Speaker 1: very important signal for the Fed to validate the health

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Speaker 1: of the economy by saying, yes, despite everything that's gone on,

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Speaker 1: we still deem it appropriate to take that next step

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Speaker 1: at the December meeting. And we should hear as much

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Speaker 1: from Janet Yellen when she testifies to the j EC

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Speaker 1: on Thursday. She's gonna be uh probably asked a lot

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Speaker 1: of questions having to do with that December rate hike

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Speaker 1: and whether she maybe we'll want to stay on as

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Speaker 1: a FED chair after her term expires in that's certainly

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Speaker 1: become a political issue if the FED wants to be

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Speaker 1: politically independent. Nothing would be more so than her to

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Speaker 1: say she'll stick on regardless. Thank you very much, Carl

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Speaker 1: rick O Donna is our chief US economist for Bloomberg Intelligence.

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Speaker 1: Thanks for listening to the Bloomberg pian L podcast. You

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00:26:32,920 --> 00:26:37,000
Speaker 1: whatever podcast platform you prefer. I'm pim Fox. I'm out

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Speaker 1: there on Twitter at pim Fox. I'm out there on

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00:26:39,880 --> 00:26:43,159
Speaker 1: Twitter at Lisa Abramo. It's one before the podcast. You

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