Speaker 1: Welcome to the Bloomberg pim L Podcast. I'm pim Fox.
Speaker 1: Along with my co host Lisa Abramowitz. Each day we
Speaker 1: bring you the most important, noteworthy, and useful interviews for
Speaker 1: you and your money, whether at the grocery store or
Speaker 1: the trading floor. Find the Bloomberg p L Podcast on iTunes,
Speaker 1: SoundCloud and at Bloomberg dot com. And here in the
Speaker 1: studio with us is Paul Christopher. He is head of
Speaker 1: Global market Strategy for Wells Fargo Institute and he joins
Speaker 1: us now. Paul, thank you very much for being with us.
Speaker 1: Great to be with you again. Pim um, What has
Speaker 1: happened in your life since the conclusion of the US
Speaker 1: presidential election? Give us a little window into the world
Speaker 1: of a global strategy. You mean besides no sleep. Uh, well,
Speaker 1: you could add that to the mix as well. How
Speaker 1: are you handling it? Well? What? What? What we're seeing
Speaker 1: is a markets really anticipating a lot, extrapolating a lot,
Speaker 1: and we're still we're still pretty cautious on whether or
Speaker 1: not those extrapolations and anticipations will be fully realized, especially
Speaker 1: in the near term. I mean people, right, I mean
Speaker 1: people are doing all the people are doings or a
Speaker 1: computer of some kind. But basically, people are are making
Speaker 1: these decisions, these speculative bets. People are making anticipatory bets
Speaker 1: on how they think policy will work out, and some
Speaker 1: of those bets may have to be changed over the
Speaker 1: coming weeks and months as we see the how the
Speaker 1: president elect will prioritize the new policy initiatives, and how
Speaker 1: the Congress will play with the new president going forward. So, Paul,
Speaker 1: before offline, we were talking about how you're advising clients
Speaker 1: to not change their investment strategies from before the election,
Speaker 1: to sort of stay the course. So what were you
Speaker 1: advising then as far as the proportion of cash people
Speaker 1: should be holding, the mix of bonds and stocks, our
Speaker 1: tactical views were, We're really pretty pretty cautious, pretty defensive.
Speaker 1: We're holding a little bit of cash on the sideline's
Speaker 1: looking for an opportunity, but we're really oriented towards quality.
Speaker 1: So we've been overweight US large cap stocks, but we've
Speaker 1: been underweight US small caps as we get to a
Speaker 1: point in the cycle where things might not look so
Speaker 1: good for small caps. We've been underweight emerging market equities
Speaker 1: and that's hurt a little bit. But we do still
Speaker 1: see some problems, some real challenges in those places. We've
Speaker 1: also been underweight the long end of the yield curve
Speaker 1: and overweight the middle part of the yield curve. Really
Speaker 1: not wanting to take chances that we'll get sudden changes
Speaker 1: and yields, and therefore we would prefer to have people
Speaker 1: position more intermediately. Let's just take a couple of those specifics.
Speaker 1: I want to ask you about small and mid cap stocks.
Speaker 1: For example, the Russell two thousand has seen a very
Speaker 1: good run since the results of the presidential election. The
Speaker 1: dollar has also strengthened. Would that help small and mid
Speaker 1: cap companies that mainly do business, let's say in the
Speaker 1: United States, that don't have that currency risk. Historically that
Speaker 1: that has been the connection him, But but it may
Speaker 1: be not quite so so going forward, supposed the administration,
Speaker 1: for example, where to start working on a lot of
Speaker 1: trade restrictions. A lot of US companies have supply chains
Speaker 1: that extend beyond our borders. Uh. You could have a
Speaker 1: small manufacturer, for example, that imports electric motors from Mexico.
Speaker 1: If Mexico is targeted for trade sanctions, those motors get
Speaker 1: more expensive, and all of a sudden earnings get hit
Speaker 1: or prices have to rise. So it's not necessarily the
Speaker 1: case going forward that we can rely on on some
Speaker 1: of those old one on one relationships. Inflation. Before the election,
Speaker 1: the dominant view before the election, the dominant view was
Speaker 1: that we were in a slow growth period with some inflation,
Speaker 1: but nothing that was too too much to write home about. Now,
Speaker 1: all of a sudden, people are pricing in much higher
Speaker 1: rates of inflation. Where do you stand on that? Yeah,
Speaker 1: well you you you. The reason they're doing that is
Speaker 1: because they're seeing policy promises made on the campaign trail.
Speaker 1: And remember the campaign trail is subject to hyperbole, so
Speaker 1: it's it's always possible that we could see some of
Speaker 1: these promises not quite work out the way they were promised.
Speaker 1: But on the campaign trail, promises of trade restrictions are
Speaker 1: themselves inflationary, as well as promises that we're going to
Speaker 1: cut taxes and increased let's say, infrastructure spending that would
Speaker 1: also tend to be uh tend to tend to work
Speaker 1: towards inflation. So whether one looked at one side of
Speaker 1: the promises or another, inflation seemed to be the result.
Speaker 1: And that's that that also appears to be the result
Speaker 1: of the market pricing in the last week or so. Paul,
Speaker 1: if you love the US Treasury a tenure, for example,
Speaker 1: and under two percent, do you really really love them
Speaker 1: now that they're above two Well, some some increase in
Speaker 1: yields is probably inevitable. The question will be what's going
Speaker 1: to be the timing. Do we expect to see all
Speaker 1: of those policies develop inflation all at once, or do
Speaker 1: we expect the inflation effects to develop over time, or
Speaker 1: do we expect instead that some of those inflationary effects
Speaker 1: maybe offsetting to one another. For example, if you had
Speaker 1: higher yields, that could slow growth and therefore slow inflation.
Speaker 1: Now I don't understand that, but I'm just wondering. For example,
Speaker 1: if now you were to buy the US tenure, you
Speaker 1: would get two point to one percent. If you are
Speaker 1: long the US tenure at anything less than that, would
Speaker 1: you recommend people buy it? Well, we want, we want
Speaker 1: clients to be up to their their they're recommended long
Speaker 1: term allocations and ten years. But we are over or
Speaker 1: excuse me, we're underweight, Uh, the long term part of
Speaker 1: the yield curve again, because there's always that risk volatility
Speaker 1: out there where sudden increases and yields would damage the portfolio,
Speaker 1: the bond portfolio. What what's the scariest spot in the
Speaker 1: market right now? Uh, good question. Scariest spot in the
Speaker 1: market might be a bet that commodity prices are going
Speaker 1: to rise here if you're if you're thinking maybe that
Speaker 1: the Trump administration would boost growth and maybe boost inflation,
Speaker 1: and therefore the commodity prices would rise in response or
Speaker 1: rise simultaneously. We think that's a bit of a bit
Speaker 1: of a stretch. After all, supply and demand in the
Speaker 1: commodity world still really hasn't been re established convincingly. We
Speaker 1: still think those commodity prices have some years of bouncing
Speaker 1: around and ranges to go. Are there any screaming buys
Speaker 1: and no, not really. Again, we would want we would
Speaker 1: want clients to mostly be looking to take advantage. Uh.
Speaker 1: If you, for example, are underweight and treasuries, it might
Speaker 1: be a good time to start averaging into that market.
Speaker 1: If you're underweight and equities, we would be averaging into
Speaker 1: that market right now, just to make sure that you're
Speaker 1: at the at the recommended long term levels. We'll get
Speaker 1: more clarity and we can adjust tactical positions later on,
Speaker 1: once we see again how the president's priority list looks
Speaker 1: and how the Congress plays with that list. What about
Speaker 1: corporate earnings. I thought that corporate earnings were a determinant
Speaker 1: for long term stock performance. Long term stock performance. Yes,
Speaker 1: tactically we're we're still seeing about a six to seven
Speaker 1: percent gain and earnings for next year, but possibly some
Speaker 1: cap on valuations if inflation does surprise to the upside. Why,
Speaker 1: because you think that investors won't pay more for the
Speaker 1: same dollar of earnings. You won't get that expansion in
Speaker 1: the multiple. That's right. Yeah, if you get some expansion, sorry,
Speaker 1: if you get some expansion and multiples, let's say at midyear,
Speaker 1: and then inflation starts to surprise on the upside later
Speaker 1: in the year, you have to start bringing the fedback
Speaker 1: into the picture, and will they accelerate their rate hikes
Speaker 1: and that would be a damaging a factor, or at
Speaker 1: least a speculative factor for bears. Paul, you came in
Speaker 1: here and you said that you haven't been sleeping very much.
Speaker 1: What's been keeping you up? What's keeping me up really
Speaker 1: is what sort of policy mix we're going to see
Speaker 1: out of the new administration. I'm not so concerned about
Speaker 1: the fiscal policy mix. I think we'll see something there
Speaker 1: that will be stimulative, and the deregulatory aspect will be
Speaker 1: positive for the market. But it's the trade element. How
Speaker 1: will the new administration handle the promises to be much
Speaker 1: more restrictive on trade At a point here where inflation
Speaker 1: is still benign but could get worse if if we
Speaker 1: restrict trade, and at a point here where global trade
Speaker 1: itself has has just begun to recover from a big contraction.
Speaker 1: We really don't need another big restriction in global trade.
Speaker 1: Paul Christopher, thank you so much for being with Thank
Speaker 1: you and Paul Christopher had Global market Strategistic well Wells
Speaker 1: Fargo Investment Institute in St. Louis. And Lisa Brown always
Speaker 1: here with pim Fox. This is Bloomberg, This is Bloomberg Markets.
Speaker 1: I'm pim Fox along with Lisa A. Brahma. What's the
Speaker 1: shares of Apple have fallen about four percent since the
Speaker 1: results of the U S presidential election? So what is
Speaker 1: next for apprile? And is it losing its place as
Speaker 1: the crown jewel of a technology company? Shira Ovid joins
Speaker 1: US now. She is a technology columnist and a Bloomberg.
Speaker 1: Gadfly are a fast commentary section of Bloomberg and you
Speaker 1: can follow her on Twitter at Shira Oda. Sure, thanks
Speaker 1: very much for being here. Thank you. So what is
Speaker 1: this about Apple losing its technology? Itch? Yeah, well, I
Speaker 1: think this has basically been a narrative for Apple really
Speaker 1: in the last five years under Tim Cook, who, of course,
Speaker 1: um was the successor to Steve Jobs, the famous co
Speaker 1: founder and longtime CEO of Apple. And there's been a
Speaker 1: question basically since Tim Cook took over about whether Apple
Speaker 1: can sustain its long time position as basically the trendsetter
Speaker 1: in the technology industry. This is a company that for
Speaker 1: a long time took niche ideas like smartphones, like digital
Speaker 1: music players and turn them into basically world changing products
Speaker 1: and world changing ideas, and it doesn't seem to be
Speaker 1: able to do that anymore. Okay, Sira, You know, I
Speaker 1: love it because you sit in my row and we
Speaker 1: kind of come up with doomsday scenarios and throw them
Speaker 1: against each other and are perennially perennially pessimistic. So, um,
Speaker 1: I I read your column and it was like, yes,
Speaker 1: right right in line with the perennial time exactly um So,
Speaker 1: Apple Marker and Alex web and in King of blubric
Speaker 1: Days reported that Apple is weighing an expansion into digital glasses.
Speaker 1: Um and this you sort of take a look at
Speaker 1: what they could bring to it that Google failed to
Speaker 1: bring in two thirteen. What are some of the advancements
Speaker 1: that they could bring that could potentially be lucrative for them? Yes,
Speaker 1: so so, as our colleagues reported right at, Apple is
Speaker 1: kind of working on this idea that may never come
Speaker 1: to fruition as as all you know, design and research
Speaker 1: labs and tech companies, sometimes you work on things that
Speaker 1: don't pan out. But they're working on those kind of
Speaker 1: digital glasses that aren't dissimilar to if people remember Google Glass,
Speaker 1: which was a product that Google kind of flopped on
Speaker 1: a couple of years ago. But this idea of kind
Speaker 1: of eyewear that combines what you see in the real
Speaker 1: world with digital images, Like you might be walking down
Speaker 1: the street and it will show you a digital map
Speaker 1: of walking directions to the coffee shop that you're going
Speaker 1: to or things like that. So why now, I mean,
Speaker 1: is this basically a really high tech version of Pokemon
Speaker 1: Go that can be made more easy for people. Pretty
Speaker 1: much yes. I mean the thing that we don't know,
Speaker 1: of course, and maybe Apple doesn't itself know, is what
Speaker 1: what does this technology do that will really bring something
Speaker 1: you know, clever and innovative to our lives. And Google
Speaker 1: couldn't figure it out, and that's one reason why um
Speaker 1: it pulled glass from circulation. But there is this kind
Speaker 1: of emerging technology against sort of mix digital and UH
Speaker 1: and real life in these kind of wearable gizmos are
Speaker 1: on your phone, and that's clearly kind of a trend
Speaker 1: for the future. But the question that I raise is
Speaker 1: does Apple have a clear vision about this or about
Speaker 1: anything else uh in terms of what it can do
Speaker 1: to a technology to make it mainstream and actually world changing.
Speaker 1: And I don't know the answer to that, but the
Speaker 1: five year track record of Apple is not great in
Speaker 1: this regard. Having said that, I just want to oppose
Speaker 1: to you that this is a company that's doing two
Speaker 1: d and fifteen billion dollars worth of business a year.
Speaker 1: The net income is over forty five billion dollars a year.
Speaker 1: If they just manage that, that will be an amazing feat.
Speaker 1: And you know, when you talk about trend setting technology, yes,
Speaker 1: kind of and no, right, because you don't hear anything
Speaker 1: about virtual reality really from Apple. You don't hear anything
Speaker 1: about drones. You don't hear anything about new TV monitors.
Speaker 1: You don't hear anything about Alexis and those home audio
Speaker 1: assistance that are directly wired to the inventory control system.
Speaker 1: At Amazon, they've been focused on watches, wearables, write phones, iPads,
Speaker 1: and mass Yes. So two things. One is you're right.
Speaker 1: I mean, if if Apple isn't a quote crisis, most
Speaker 1: companies would love to be in the crisis condition that
Speaker 1: Apple is in with again enormous profits and enormous sales.
Speaker 1: But the Apple that that people know is a company
Speaker 1: that is growing revenue and this Apple is not doing
Speaker 1: that anymore. So that's what a crisis looks like for Apple.
Speaker 1: But it's stagnating sales and that's a problem for Apple
Speaker 1: real quick. Do we have a sense of how much
Speaker 1: money and Apple is putting into this, No idea, But
Speaker 1: they've doubled R and D spending over the last three years.
Speaker 1: So they're cooking up a lot of things and their
Speaker 1: research labs and hopeful one of them will be a hit.
Speaker 1: Share overday of Bloomberg Gadfly always always a joy speaking
Speaker 1: with you. Thank you so much for being with us.
Speaker 1: Humans are suing Chrysler and this is not going to
Speaker 1: do wonders for Chrysler shareholders who which have suffered some
Speaker 1: losses as a result. I want to bring in car
Speaker 1: Deke Marotra, a Bloomberg News reporter who wrote the story
Speaker 1: breaking the news about the fact that dodged truck owners,
Speaker 1: sued Chrysler on Monday, claiming that some engines were rigged
Speaker 1: to hide emissions as much as fourteen times higher than
Speaker 1: the law permits. Carter K, thank you so much for
Speaker 1: joining us. Sure so, UM, can you just give us
Speaker 1: a little bit more of a sense, a deeper sense
Speaker 1: of the suit, of what instigated it and how deep
Speaker 1: this could go. So the allegations are, and they are
Speaker 1: only allegations right now, are that the Chrysler, before their
Speaker 1: merger with Fiat UM and their technology, their engine provider
Speaker 1: come in Sank, had created UH diesel engines to circumvent
Speaker 1: new UM regulations by the e p A. UH. The
Speaker 1: EPA had created more stringent laws for diesel based engines,
Speaker 1: and they thought we could we can beat the market
Speaker 1: to this. The deadline was two thousand ten. They were
Speaker 1: a few years ahead and they did beat competitors. And
Speaker 1: the allegation now is that they beat competitors by creating
Speaker 1: an engine that leaks emissions and they knew about it.
Speaker 1: So this is for about half a million Dodge Ram
Speaker 1: trucks that are on US roads. And now the question
Speaker 1: that will be up to a district court in Michigan
Speaker 1: is is whether they did do it, whether they did
Speaker 1: do it intentionally, and and what damages should be rewarded
Speaker 1: to two drivers. Carter K, Is there any evidence or
Speaker 1: any detail that you can offer about these specific engines?
Speaker 1: Have there been issues in the past for example, Uh,
Speaker 1: it's a bit up in the air. There have been
Speaker 1: issues in the past with UM defeat devices as they're
Speaker 1: known so UM. For example of Volkswagen, right, I mean
Speaker 1: that was the Volkswagen store, And just to make mention,
Speaker 1: Volkswagen has agreed to pay what sixteen and a half
Speaker 1: billion dollars to resolve all the issues about that the
Speaker 1: two leader diesel cars right right, so far, So that's
Speaker 1: that's been the most notorious allegation. But even before that
Speaker 1: UM in the late nineties, a number of carmakers were
Speaker 1: hauled up by US regulators for UM installing these defeat devices.
Speaker 1: And actually the Chrysler case precede the Volkswagen. Um. The
Speaker 1: allegations over their cars are for model years from two
Speaker 1: thousand seven to two thousand twelve. Well, VW has only
Speaker 1: started in two thousand nine. Um, So there the question
Speaker 1: is is this a broader behavior of the auto industry?
Speaker 1: Um is their accredibility issue when it comes to clean diesel?
Speaker 1: Um that that's sort of the questions that that these
Speaker 1: cases and recurring issues do seem to be bringing up,
Speaker 1: which you know we'll find out over time. Well, card exactly,
Speaker 1: That's what I was going to ask. I mean, Chrysler
Speaker 1: is the first US company to be sued for these
Speaker 1: kinds of emissions rigging scandals. Are you hearing from your
Speaker 1: sources that are there are other lawsuits pending against other
Speaker 1: US automakers? It would not surprise me. Um, But we
Speaker 1: haven't heard of any definitive suits in in the works yet. UM.
Speaker 1: That said, lawyers like to keep this pretty close to
Speaker 1: the chess until they're ready to file their suits. UM.
Speaker 1: So not yet, but that doesn't mean that they won't come.
Speaker 1: But they're not not coming. Ultimately, is the alleged cheating
Speaker 1: on this emissions would this then lead what to a
Speaker 1: discovery process to try to obtain documents or information related
Speaker 1: to the specific engines over time? Yeah, UM, I think
Speaker 1: what what we've already heard from Fiat Chrysler uncommons is
Speaker 1: that they're going to fight the case. UM So unlike
Speaker 1: Folkswagen who who owned up to it, UM the malfie,
Speaker 1: isn't uh Fia Chrysler intent on fighting uh the allegations.
Speaker 1: Uh So, Yes, there will go through the rigorous court process,
Speaker 1: which will ultimately include going through discovery and and finding
Speaker 1: out what led to the development of these engines and installation.
Speaker 1: What did the car company know um at the time
Speaker 1: that the cars were sold? Real quick? What kinds of
Speaker 1: legal costs or is Fia Chrysler facing at this point?
Speaker 1: That's a good question. Um. All the complaints says is
Speaker 1: that UM, the damage to the car would would be
Speaker 1: UM up to five thousand dollars, so UM components would
Speaker 1: be damaged because you had to go through the motions
Speaker 1: of of fixing the cars. UM. So multiply that by
Speaker 1: by half a million, you're you're starting to climb a ladder.
Speaker 1: It's where near sixteen and a half billion yet, but
Speaker 1: it will cost the company quite a bit, Thank you
Speaker 1: very much. Carter k Merotra, legal reporter for Bloomberg News.
Speaker 1: You're listening to Bloomberg Markets. I'm pim Fox along with
Speaker 1: Lisa Abramowitz. This is Bloomberg. It's time now for us
Speaker 1: to take a little bit closer look into the U
Speaker 1: s economy and lots being said about potential inflation, about
Speaker 1: potential growth, but looking at the numbers, is it showing
Speaker 1: the same optimism that we're hearing at large? Carl Ricka Donna,
Speaker 1: Chief US economists for Bloomberg Intelligence, we got some retail
Speaker 1: sales today. What clues do they give us? Well, the
Speaker 1: retail sales report was in October report, so well, you
Speaker 1: had a couple of unusual trends in that report that
Speaker 1: maybe are making it look like stronger results than what
Speaker 1: was really the case. First and foremost, that we have
Speaker 1: an unusual pattern for gasoline prices. Normally in the second
Speaker 1: half of the year, especially in October, you see price declines.
Speaker 1: We saw modest price increases, so seasonal adjustment right off
Speaker 1: the bat throws that for a loop. That being said
Speaker 1: that when we look a little deeper into the details,
Speaker 1: don't forget Hurricane Matthew UH made a close swipe and
Speaker 1: then eventual landfall at a significant portion of the southeast
Speaker 1: coast at the start of the month. And when we
Speaker 1: have hurricanes UH impacting the US historically, you see a
Speaker 1: big surge in grocery sales UH, demand for building supplies,
Speaker 1: garden equipment, those types of things, UH, and then you
Speaker 1: see a drop off in things like restaurants sales UH
Speaker 1: and some of those discretionary categories furniture, electronics and whatnot.
Speaker 1: And we saw exactly that profile in this report. So
Speaker 1: it looks like a gangbusters report UH. And it looks
Speaker 1: like the fourth quarter is starting off with a full
Speaker 1: head of steam. UH. So to speak, however, we have
Speaker 1: to remember that the income trend is not justifying this
Speaker 1: dramatic acceleration. So we'll continue to see fits and starts
Speaker 1: in the retail data until we see a more pronounced
Speaker 1: and sustained acceleration and wage and salary income. Carl Kadona
Speaker 1: business inventories do they matter? Uh? Inventory is not so
Speaker 1: critical at this point. UH. You know, we saw big
Speaker 1: liquidation that weighed on growth earlier this year. I think
Speaker 1: as economic optimism improves, H heading into your end. And
Speaker 1: also as businesses look ahead to next year UH and
Speaker 1: lick their chops at the prospect of tax cuts and
Speaker 1: potentially fiscal stimulus, that you'll see more confidence uh in
Speaker 1: the business community, leading to a modest, modest inventory restocking
Speaker 1: and that should support g d P grow. Well tomorrow,
Speaker 1: I know we're gonna get producer prices correct, plus some
Speaker 1: mortgage applications, industrial production capacity, utization. What should we be
Speaker 1: looking for? What do you think is going to guide
Speaker 1: us to how the economy is performed? Well, I would
Speaker 1: keep an eye on the industrial production figures more so
Speaker 1: than for a two tenths of a percent increase exactly.
Speaker 1: So what again, this is just kind of middling pace
Speaker 1: of of activity in the factory sector. However, if we
Speaker 1: look to another report that was out this morning, uh,
Speaker 1: the New York Empire Manufacturing Survey was what is it down?
Speaker 1: A modest positive gain? Yes, Well, the I was going
Speaker 1: to say the survey the estimate was November down two
Speaker 1: point five two and a half percent, but it actually
Speaker 1: came in at plus one and a half percent, right,
Speaker 1: And the reason this is such an important report, this
Speaker 1: is the first economic data series that basically covers the
Speaker 1: post election period, So consumer sentiment out last Friday that
Speaker 1: was basically tallied before the election results were in. Uh
Speaker 1: and so Empire, which should be just a survey of
Speaker 1: manufacturing conditions in New York State. Nonetheless, these production surveys
Speaker 1: often take on a sentiment component to them when there
Speaker 1: are significant events like hurricanes or elections or or other
Speaker 1: types of dramatic movements in the markets and whatnot. Uh
Speaker 1: and so, so you're reading this as a positive. This
Speaker 1: is a positive, and this is mimicking what we're seeing
Speaker 1: in both the stock and treasury markets, which is looking
Speaker 1: for more growth and as a result of more growth,
Speaker 1: more inflation. Uh in, uh in and beyond. Carl. Yeah,
Speaker 1: you know, Honestly, if I were, if I were Tom
Speaker 1: Keena would say, let's rip up the script. Um. But
Speaker 1: I'm I'm looking. I'm wondering, you know, how do you
Speaker 1: give any sense uh to your to your economic models
Speaker 1: when you have this big unknown of Donald Trump's infrastructure
Speaker 1: spending plans and then you have all of the noise
Speaker 1: around whether or not they will be effective. Tyler Cowen
Speaker 1: He's a professor at George Mason University of Economics. He
Speaker 1: wrote a column from bloom Review talking about how Trump's
Speaker 1: infrastructure plan is fundamentally flawed because it comes at a
Speaker 1: time when the economy is expanding and when employment unemployment
Speaker 1: rates are low, and this is typically not when these
Speaker 1: plans are most effective. How do you model for this right,
Speaker 1: So that the big debate is if this is a
Speaker 1: kingsy and economics plan. So anytime you're borrowing h from
Speaker 1: the federal government's perspective to finance spending programs, whether it's
Speaker 1: infrastructure projects or tax cuts or whatnot, that's basically fiscal stimulus.
Speaker 1: And so we certainly could have used it earlier on
Speaker 1: in this economic cycle, because that's when we needed that
Speaker 1: critical lift to growth. So it's a little bit late. Uh. Nonetheless,
Speaker 1: it is still going to move the needle on GDP
Speaker 1: growth if we are significantly expanding the budget deficit uh
Speaker 1: and using that for various projects that will lift GDP.
Speaker 1: So would the economy have been fine without this, Yes,
Speaker 1: it would continue to limp on probably two two and
Speaker 1: a half maybe three GDP growth. With this, it will
Speaker 1: mean that the economy grows fast stir and therefore that
Speaker 1: the Fed can normalize policy a bit more aggressively as well.
Speaker 1: And so you don't think that the increase in debt
Speaker 1: that we're probably going to incur will drag on growth,
Speaker 1: UH in equal proportions. Well, there will be a hangover
Speaker 1: eventually when the bills come due. But for the you know,
Speaker 1: for the near term, interest rates are low, and the
Speaker 1: financial markets are basically giving a free pass UH to
Speaker 1: Congress and the President to embark on fiscal stimulus. Carl,
Speaker 1: if the if interest rates can we we've got a
Speaker 1: little bit of a snap back today in the bond market.
Speaker 1: I mean, you take a look at the thirty year
Speaker 1: for example, we're under three percent right now, We're I guess,
Speaker 1: take a look up more than a full point up
Speaker 1: one and eight thirty seconds right on the on the
Speaker 1: thirty years. So people buying there. But if yields continue
Speaker 1: to for to continue to increase, right, people say that
Speaker 1: I don't want to own these bonds. Will they have
Speaker 1: done the work of the Federal Reserve for Janet Yellen?
Speaker 1: Will will that still mean twenty five basis point increase?
Speaker 1: It depends what the other markets are doing. And so
Speaker 1: if other markets being Europe, Asia, stock markets and other
Speaker 1: aspects of the financial markets, so taken by itself. The
Speaker 1: backup and treasury yields and mortgage rates should be a
Speaker 1: tightening of financial conditions. But if you look on the
Speaker 1: Bloomberg terminal at f con financial conditions, UH, it actually
Speaker 1: tells you that financial conditions have eased since the election.
Speaker 1: So people are just focusing on interest rates. You have
Speaker 1: to keep in mind what's happening to credit spreads, what's
Speaker 1: happening to the equity markets, etcetera. Uh, And so we're
Speaker 1: not seeing a tightening of financial conditions that would tell
Speaker 1: the Fed, oh, the markets are doing the work for us,
Speaker 1: we can take a pass in December. It's a very
Speaker 1: very important signal for the Fed to validate the health
Speaker 1: of the economy by saying, yes, despite everything that's gone on,
Speaker 1: we still deem it appropriate to take that next step
Speaker 1: at the December meeting. And we should hear as much
Speaker 1: from Janet Yellen when she testifies to the j EC
Speaker 1: on Thursday. She's gonna be uh probably asked a lot
Speaker 1: of questions having to do with that December rate hike
Speaker 1: and whether she maybe we'll want to stay on as
Speaker 1: a FED chair after her term expires in that's certainly
Speaker 1: become a political issue if the FED wants to be
Speaker 1: politically independent. Nothing would be more so than her to
Speaker 1: say she'll stick on regardless. Thank you very much, Carl
Speaker 1: rick O Donna is our chief US economist for Bloomberg Intelligence.
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