1 00:00:00,080 --> 00:00:12,960 Speaker 1: Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane 2 00:00:13,480 --> 00:00:17,560 Speaker 1: jay Ley. We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,480 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:28,159 Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg We 5 00:00:28,200 --> 00:00:29,840 Speaker 1: have an important guest here. I want to get through 6 00:00:29,840 --> 00:00:32,520 Speaker 1: this quickly so John can get to uh MR short 7 00:00:32,640 --> 00:00:36,519 Speaker 1: term interest rates. The President has put out an exceptionally 8 00:00:36,680 --> 00:00:41,879 Speaker 1: cogent five tweet statement and it literally borders on a 9 00:00:42,000 --> 00:00:47,200 Speaker 1: statement on Turkey on Isis as he puts at the Caliphate. 10 00:00:47,280 --> 00:00:50,440 Speaker 1: I'm not going to go into all five tweets other 11 00:00:50,479 --> 00:00:53,000 Speaker 1: than to say, John, this took some planning. This is 12 00:00:53,080 --> 00:00:56,760 Speaker 1: not a random tweet by the president. It is a 13 00:00:56,840 --> 00:01:01,440 Speaker 1: statement of his belief on the history of this moment 14 00:01:01,960 --> 00:01:04,000 Speaker 1: where we are now, and he touches a little bit 15 00:01:04,520 --> 00:01:08,320 Speaker 1: on the future. Late in the five tweets, he says, 16 00:01:08,400 --> 00:01:11,960 Speaker 1: we are seven thousand miles away and we'll crush Isis 17 00:01:12,040 --> 00:01:14,960 Speaker 1: again if they come anywhere near us exclamation point. We'll 18 00:01:15,040 --> 00:01:17,480 Speaker 1: leave it at that. The smartest commentary from the president 19 00:01:17,600 --> 00:01:20,280 Speaker 1: on the geopolitical situation. Waiting to see his thoughts on 20 00:01:20,319 --> 00:01:22,280 Speaker 1: trade as well. Really please to say that we do 21 00:01:22,360 --> 00:01:24,280 Speaker 1: have Mr Short term interest rates, Tony? Have you ever 22 00:01:24,319 --> 00:01:27,840 Speaker 1: been called that before? Mr? Short Term rate? Tony Chrissenzi. Well, 23 00:01:27,840 --> 00:01:30,600 Speaker 1: I'm sitting next to Tom Keane and he's rather tall, 24 00:01:30,680 --> 00:01:33,320 Speaker 1: so I guess today we could just take your short 25 00:01:33,959 --> 00:01:37,600 Speaker 1: Tony Chrisenzi of PIMCO with us. MR short Is that 26 00:01:37,600 --> 00:01:40,119 Speaker 1: how we introduce it? This is short term rates two year. 27 00:01:40,160 --> 00:01:42,280 Speaker 1: We're gonna start with repo like short short, what do 28 00:01:42,319 --> 00:01:44,240 Speaker 1: you want to do? We're gonna start with their cyclical outlook, 29 00:01:44,319 --> 00:01:46,920 Speaker 1: and I want to start with in the United States 30 00:01:47,080 --> 00:01:52,000 Speaker 1: and one percent GDP tip zero one to one and 31 00:01:52,040 --> 00:01:54,160 Speaker 1: a half percent for the United States, two to two 32 00:01:54,160 --> 00:01:56,200 Speaker 1: and a half percent for the world, And that's a 33 00:01:56,200 --> 00:01:58,360 Speaker 1: lot lower than it normally is. That puts non l 34 00:01:58,440 --> 00:02:00,680 Speaker 1: GDP for the world when you're at about two points. 35 00:02:00,720 --> 00:02:03,360 Speaker 1: And so for inflation in the fours, what the world 36 00:02:03,400 --> 00:02:05,640 Speaker 1: typically sees is somewhere in the mid five near six. 37 00:02:06,120 --> 00:02:09,119 Speaker 1: And that typically coincides with double digit earnings growth, which 38 00:02:09,160 --> 00:02:12,399 Speaker 1: is why you would project of something good for equities. 39 00:02:12,400 --> 00:02:14,959 Speaker 1: But now one could say that economies are moving closer 40 00:02:15,000 --> 00:02:19,040 Speaker 1: to stall speed. Certainly the term that everyone in aviation knows, 41 00:02:19,120 --> 00:02:21,880 Speaker 1: and that means it's risk of tumbling into recession, of 42 00:02:21,960 --> 00:02:30,200 Speaker 1: stalling the world the US has. We know the world 43 00:02:30,320 --> 00:02:33,840 Speaker 1: is indebted, and this requires leaps of faith every day 44 00:02:33,840 --> 00:02:36,480 Speaker 1: by investors to go out each day to buy equities, 45 00:02:36,520 --> 00:02:41,760 Speaker 1: to engage in capital spending, to spend money generally to lend, etcetera, etcetera. 46 00:02:42,280 --> 00:02:45,720 Speaker 1: If it confidence drops, and it does, it can near 47 00:02:45,720 --> 00:02:49,040 Speaker 1: one percent rather than if if it's roaring, then it 48 00:02:49,080 --> 00:02:51,679 Speaker 1: could move towards recession. Simply feed on itself because of 49 00:02:51,760 --> 00:02:55,880 Speaker 1: human nature. It feeds on itself from psychological factors, and 50 00:02:55,919 --> 00:02:57,840 Speaker 1: so that's the force here, and there are other factors. 51 00:02:57,880 --> 00:02:59,760 Speaker 1: Of course, one could go back fifty years and say 52 00:03:00,040 --> 00:03:03,200 Speaker 1: inventories are too high and demand is slowed, so let's 53 00:03:03,200 --> 00:03:06,160 Speaker 1: cut output, and that's what causes recession. Cuts an output 54 00:03:06,200 --> 00:03:09,120 Speaker 1: and employment. That's the main definition from the nb er, 55 00:03:09,400 --> 00:03:12,919 Speaker 1: the group that a science dates for recessions. That's a 56 00:03:12,960 --> 00:03:15,160 Speaker 1: good enough answer. So let's talk about what the committee 57 00:03:15,200 --> 00:03:17,040 Speaker 1: and you guys did over the last couple of months. 58 00:03:17,080 --> 00:03:19,560 Speaker 1: You will get together and you basically try and answer 59 00:03:19,560 --> 00:03:23,560 Speaker 1: the one question window to recovery or recession, which one 60 00:03:23,639 --> 00:03:27,280 Speaker 1: is it? Well, what we write up in the piece 61 00:03:27,400 --> 00:03:29,880 Speaker 1: is that there are fat tails so to speed uh. 62 00:03:29,919 --> 00:03:33,160 Speaker 1: And one could say that the baseline is the tails 63 00:03:33,240 --> 00:03:35,240 Speaker 1: that one of these things is going to happen, meaning 64 00:03:35,360 --> 00:03:37,800 Speaker 1: they will either be a recession because the economy slows 65 00:03:37,920 --> 00:03:41,480 Speaker 1: enough to push it into recession, or it picks up 66 00:03:41,560 --> 00:03:44,040 Speaker 1: due to let's say, an agreement with China or some 67 00:03:44,080 --> 00:03:47,600 Speaker 1: other factor that turns things positive. And so the likelihood 68 00:03:47,640 --> 00:03:50,720 Speaker 1: is it goes in either direction. So positioning wise, we 69 00:03:50,800 --> 00:03:55,000 Speaker 1: want to be cautious in terms of leaving some risk 70 00:03:55,760 --> 00:03:58,760 Speaker 1: in the budget, meaning we could react to a movement 71 00:03:58,760 --> 00:04:01,120 Speaker 1: when we think the momentum is going in one way 72 00:04:01,160 --> 00:04:03,000 Speaker 1: or the other where we have the ability to do that. 73 00:04:03,040 --> 00:04:07,480 Speaker 1: So we want liquidity, resilience and agility in portfolios, and 74 00:04:07,480 --> 00:04:10,400 Speaker 1: are many ways to define that. Does that mean own 75 00:04:10,480 --> 00:04:13,920 Speaker 1: stocks go to cash? Equity data as they say, the 76 00:04:14,120 --> 00:04:22,200 Speaker 1: connect the amount of connection we have in the we 77 00:04:22,520 --> 00:04:25,719 Speaker 1: the amount of So there's always equity. There's equity risk 78 00:04:25,760 --> 00:04:28,440 Speaker 1: in bonds, just like this interest real risk in equities. 79 00:04:29,720 --> 00:04:32,279 Speaker 1: And so you think about the high yield bond which 80 00:04:32,279 --> 00:04:34,640 Speaker 1: we were talking about with John earlier because they didn't 81 00:04:34,680 --> 00:04:37,520 Speaker 1: perform very well. That's actually in the cash market. In 82 00:04:37,320 --> 00:04:42,799 Speaker 1: the market that we're investors go to buy insurance against weakness. 83 00:04:42,800 --> 00:04:45,200 Speaker 1: In the high yield market actually perform well, which suggestive 84 00:04:45,240 --> 00:04:49,520 Speaker 1: was just some sellers, just technical stuff. But in owning equities, 85 00:04:49,560 --> 00:04:53,039 Speaker 1: now it's the amount of beta, the amount of equity 86 00:04:53,040 --> 00:04:54,839 Speaker 1: exposure wants you to have, probably should be a little 87 00:04:54,920 --> 00:04:58,200 Speaker 1: lighter than normal, but we wouldn't say run away. We 88 00:04:58,240 --> 00:05:01,479 Speaker 1: wouldn't want to have what we call a negative carry 89 00:05:01,720 --> 00:05:04,159 Speaker 1: portfolio for bonds. This is another way of saying that. 90 00:05:04,320 --> 00:05:07,080 Speaker 1: Let's say you have a portfolio carlates to what's called 91 00:05:07,080 --> 00:05:09,680 Speaker 1: the Barkley's aggregate. It's the SMP five hundred. In the 92 00:05:09,680 --> 00:05:15,080 Speaker 1: bond world, we'd want the amount of the bloomberries Barkley's 93 00:05:15,080 --> 00:05:19,599 Speaker 1: aggregy I want looking at it every day, but we 94 00:05:19,640 --> 00:05:23,960 Speaker 1: would want the amount of expected return to be above that. 95 00:05:24,600 --> 00:05:26,960 Speaker 1: There may be times if we were expecting recession tomorrow, 96 00:05:27,000 --> 00:05:29,120 Speaker 1: we'd say let's run it. Okay, well, come on, let's 97 00:05:29,120 --> 00:05:31,960 Speaker 1: cut to the chicks making me nothing. I'm making two 98 00:05:32,080 --> 00:05:35,359 Speaker 1: or three, and you want an expected return of nexts 99 00:05:35,800 --> 00:05:39,160 Speaker 1: wait tom is how much is the insurance on your 100 00:05:39,200 --> 00:05:41,640 Speaker 1: car making you today? How much is the insurance on 101 00:05:41,640 --> 00:05:46,640 Speaker 1: your expensive So we'd say you can't try to market 102 00:05:46,720 --> 00:05:49,520 Speaker 1: time that this diversification benefits of bonds, I still will 103 00:05:49,560 --> 00:05:51,200 Speaker 1: be there to help you. This is why the world 104 00:05:51,279 --> 00:05:55,640 Speaker 1: is okay with owning seventeen trillion of negative yielding bonds. 105 00:05:56,279 --> 00:06:00,200 Speaker 1: Something you've touched on something really important. The demand fit you, right, Shan, 106 00:06:00,279 --> 00:06:02,279 Speaker 1: and how sensitive it will be to the yield levels, 107 00:06:02,279 --> 00:06:04,640 Speaker 1: and you explore this in your cyclical outlook, So taught 108 00:06:04,640 --> 00:06:07,320 Speaker 1: to me about that. How strong will that demand be 109 00:06:07,880 --> 00:06:10,719 Speaker 1: regardless of where the yield is for duration? In the 110 00:06:10,760 --> 00:06:13,919 Speaker 1: United States, it will remain potent. The US is the 111 00:06:13,920 --> 00:06:17,320 Speaker 1: most attractive bond market in the world. Of the big 112 00:06:17,360 --> 00:06:20,160 Speaker 1: sovereign bond markets, in the US is the biggest. It's 113 00:06:20,200 --> 00:06:23,360 Speaker 1: still the one that would protect investors against the equities 114 00:06:23,560 --> 00:06:26,400 Speaker 1: they hold, the credit risks they hold, the other assets 115 00:06:26,920 --> 00:06:29,200 Speaker 1: they hold. So we wouldn't want to try to market 116 00:06:29,200 --> 00:06:32,000 Speaker 1: time the diversification benefits by saying, well, rate so low, 117 00:06:32,000 --> 00:06:34,120 Speaker 1: so they're going to write. But we would be careful 118 00:06:34,160 --> 00:06:37,919 Speaker 1: about duration risk too. There is risk of yield rising 119 00:06:38,000 --> 00:06:39,320 Speaker 1: at some point, so you don't want to have a 120 00:06:39,320 --> 00:06:42,680 Speaker 1: lot of that. Simply look for other sources of return 121 00:06:42,720 --> 00:06:44,880 Speaker 1: and in many ways to do that. So we would 122 00:06:44,880 --> 00:06:48,040 Speaker 1: expect to demand for durations, say hi, probably real quick 123 00:06:48,360 --> 00:06:50,880 Speaker 1: that the aging of the world population, the older we get, 124 00:06:50,880 --> 00:06:54,200 Speaker 1: the higher we go in the capital structure, meaning the 125 00:06:54,279 --> 00:06:56,280 Speaker 1: less risk we want to have, the more likely we 126 00:06:56,320 --> 00:06:59,240 Speaker 1: would be in bonds. Holding bonds. Long term treasuries have 127 00:06:59,360 --> 00:07:01,360 Speaker 1: really delivered through the year. I think we're up around 128 00:07:01,360 --> 00:07:04,480 Speaker 1: about for the treasury market at the long end. Some 129 00:07:04,520 --> 00:07:06,839 Speaker 1: people might make the argument, why take the duration risk 130 00:07:06,839 --> 00:07:08,320 Speaker 1: in America when I can just buy a two year 131 00:07:08,360 --> 00:07:10,960 Speaker 1: at one forty On the back of the simple question, 132 00:07:11,360 --> 00:07:12,840 Speaker 1: rates are going to be much lower than they are 133 00:07:12,880 --> 00:07:16,120 Speaker 1: now twelve months eighteen months out, Why don't I just 134 00:07:16,160 --> 00:07:17,960 Speaker 1: sit at the front end? What do you make of that? 135 00:07:18,040 --> 00:07:19,960 Speaker 1: I get the similar yield, and I might get the 136 00:07:20,000 --> 00:07:22,560 Speaker 1: capital returns as well. If the feed starts to come right, 137 00:07:22,640 --> 00:07:26,200 Speaker 1: the amount of protection that one would get against the 138 00:07:26,320 --> 00:07:29,200 Speaker 1: risks in a portfolio so it wouldn't be as great. 139 00:07:29,240 --> 00:07:31,200 Speaker 1: So that would be the one of the key arguments 140 00:07:31,240 --> 00:07:36,440 Speaker 1: for that. For that, what do we do now after 141 00:07:36,560 --> 00:07:38,760 Speaker 1: we've seen the yields comm in. What I've noticed since 142 00:07:38,760 --> 00:07:41,840 Speaker 1: we've seen your last tony is a new embedded view 143 00:07:42,040 --> 00:07:44,960 Speaker 1: of a lower terminal value, which is the PIMCO call, 144 00:07:45,080 --> 00:07:47,960 Speaker 1: I get that, but it's like the there we've been 145 00:07:47,960 --> 00:07:51,600 Speaker 1: talking about for five, six, seven years, that there happened 146 00:07:51,600 --> 00:07:55,080 Speaker 1: in the last sixty days. We're there in terms of 147 00:07:55,080 --> 00:07:58,600 Speaker 1: a new turbinal video. Yes, and in fact, one look 148 00:07:58,640 --> 00:08:01,640 Speaker 1: at the forward curve and I'll explain it is quickly 149 00:08:01,640 --> 00:08:03,920 Speaker 1: in a second and easily hopefully it's on Bloomberg terminal 150 00:08:03,960 --> 00:08:07,400 Speaker 1: for users is f w c M. One could see 151 00:08:07,440 --> 00:08:10,480 Speaker 1: where the market thinks interest rates will be in the future, 152 00:08:10,720 --> 00:08:14,120 Speaker 1: and then in looking at the table, you see that 153 00:08:14,200 --> 00:08:16,800 Speaker 1: in six months the market thinks and people talk a 154 00:08:16,800 --> 00:08:19,920 Speaker 1: lot about the yield curve, the difference in yield between 155 00:08:19,960 --> 00:08:23,760 Speaker 1: long term maturities and short term maturities being inverted, with 156 00:08:23,960 --> 00:08:26,600 Speaker 1: long term rates lower than the short term rates in 157 00:08:26,640 --> 00:08:30,480 Speaker 1: the forward space. As we say, uh, it's not inverted, 158 00:08:30,520 --> 00:08:33,280 Speaker 1: which is to say, the bottom market sees an end 159 00:08:33,559 --> 00:08:37,120 Speaker 1: to the real decline in six months or so that 160 00:08:37,559 --> 00:08:42,400 Speaker 1: the two years I mean, they've only been wrong on that. Well. Uh, 161 00:08:43,360 --> 00:08:46,160 Speaker 1: and again it depends on these fat tails. But we 162 00:08:46,160 --> 00:08:50,679 Speaker 1: would suggest that the market is fully priced for the 163 00:08:50,720 --> 00:08:54,120 Speaker 1: likelihood the likely path of Federal reserve rate cuts, and 164 00:08:54,200 --> 00:08:57,480 Speaker 1: so they probably won't be anymore priced in. But the 165 00:08:57,600 --> 00:09:00,640 Speaker 1: risk is that it's a symmetri rick that it could 166 00:09:00,679 --> 00:09:03,560 Speaker 1: fall sharply to zero very quickly. Her, How do you 167 00:09:03,600 --> 00:09:05,640 Speaker 1: respond to the model of the tenure yield with a 168 00:09:05,760 --> 00:09:10,199 Speaker 1: vector down under one under zero. Well, it's not a forecast, 169 00:09:10,240 --> 00:09:11,840 Speaker 1: but it's a model right in town. The part of 170 00:09:11,880 --> 00:09:15,240 Speaker 1: the pricing of the future is an expectation that that 171 00:09:15,600 --> 00:09:19,440 Speaker 1: tenure and other yields could fall towards zero quickly. Uh. 172 00:09:20,080 --> 00:09:21,800 Speaker 1: Part of the when one looks out and sees that 173 00:09:21,840 --> 00:09:24,240 Speaker 1: one percent funds right in the future, that the market 174 00:09:24,280 --> 00:09:27,320 Speaker 1: saying this chances zero and so so it is. It 175 00:09:27,400 --> 00:09:30,280 Speaker 1: is in the realm of possibilities. Jerome Schneider age because 176 00:09:30,280 --> 00:09:32,319 Speaker 1: of the report. Almos Gray was sitting with him in 177 00:09:32,360 --> 00:09:36,000 Speaker 1: Newport Beach last week and he was sitting in the cafe. 178 00:09:36,240 --> 00:09:42,560 Speaker 1: Based tremendous respect for him. We were so stressed sitting 179 00:09:42,559 --> 00:09:44,720 Speaker 1: there in Newport Beach. Glass when we cover a coffee, 180 00:09:45,160 --> 00:09:49,199 Speaker 1: come on, give me any in particular in February, February, 181 00:09:49,480 --> 00:09:52,120 Speaker 1: We're going I'm there for a few weeks of February 182 00:09:52,520 --> 00:09:56,600 Speaker 1: getting out of New York. Thanks thanks for having me. 183 00:09:57,200 --> 00:10:14,160 Speaker 1: We gotta do this more often. Well, the beautiful thing 184 00:10:14,240 --> 00:10:16,240 Speaker 1: this weekend. This gets us into our next guest. You 185 00:10:16,280 --> 00:10:19,160 Speaker 1: can go to him on this is I'm sorry, the 186 00:10:19,320 --> 00:10:24,640 Speaker 1: prince in boy George living large in the stands Aston 187 00:10:24,840 --> 00:10:27,680 Speaker 1: Villa where they have knowledge or were they at Villa Park? 188 00:10:27,840 --> 00:10:31,599 Speaker 1: Don't know knowledge because I think they're locals. Yeah, but 189 00:10:32,640 --> 00:10:35,920 Speaker 1: in the stands, it's among the people. Enjoin himself with 190 00:10:36,000 --> 00:10:40,440 Speaker 1: Elizabeth Villa taa as well. Perfect introduction to our next 191 00:10:40,480 --> 00:10:43,560 Speaker 1: guest qualified to speak at these matters. Rupert Harrison black Rotten, 192 00:10:43,600 --> 00:10:46,640 Speaker 1: multi Asset Strategy's portfolio manager. I know that George Osborne 193 00:10:46,679 --> 00:10:48,599 Speaker 1: is a Chelsea fan, Rupert, I don't know where that 194 00:10:48,679 --> 00:10:53,520 Speaker 1: positions you. Well, yeah I am. If I'm anything, I'm 195 00:10:53,520 --> 00:10:58,680 Speaker 1: a Chelsea fan. There we go. What's the whole treasury 196 00:10:58,800 --> 00:11:02,160 Speaker 1: Chelsea fans? H No, I'd say there was a bit 197 00:11:02,200 --> 00:11:05,360 Speaker 1: of diversity. Yeah, okay, Rupper, we won't talk about football, 198 00:11:05,400 --> 00:11:07,600 Speaker 1: don't worry. I have a British accent. So what happens 199 00:11:07,640 --> 00:11:09,360 Speaker 1: in America is people come up to speak to me 200 00:11:09,400 --> 00:11:11,439 Speaker 1: and then they asked me how's how's Brexit going? And 201 00:11:11,520 --> 00:11:13,160 Speaker 1: I never have any idea what to tell them because 202 00:11:13,160 --> 00:11:15,760 Speaker 1: I actually don't know how Brexit is going. So Ruper. 203 00:11:15,800 --> 00:11:17,719 Speaker 1: If you came to America and someone asked you that, now, 204 00:11:18,080 --> 00:11:21,800 Speaker 1: what would you tell them? Um, I said, it's going slowly, 205 00:11:22,600 --> 00:11:24,439 Speaker 1: which is the main the main feature. I think most 206 00:11:24,440 --> 00:11:26,560 Speaker 1: British people would just wanted to go away at this point. 207 00:11:26,640 --> 00:11:30,240 Speaker 1: But look, the key thing is that we are heading, 208 00:11:30,400 --> 00:11:32,679 Speaker 1: I think most likely for an election. You know that 209 00:11:32,760 --> 00:11:36,439 Speaker 1: the current system is unable to deliver an outcome. We 210 00:11:36,720 --> 00:11:40,000 Speaker 1: have the Europeans or the European Union and the Irish 211 00:11:40,040 --> 00:11:42,040 Speaker 1: I think have an incentive to wait things out and 212 00:11:42,200 --> 00:11:44,120 Speaker 1: see what in an election delivers, and that is by 213 00:11:44,160 --> 00:11:47,400 Speaker 1: far the most likely next step. You mentioned this earlier, 214 00:11:47,480 --> 00:11:50,040 Speaker 1: Rupert name, seeing it in the news in the last 215 00:11:50,120 --> 00:11:52,720 Speaker 1: I'm going to guess two weeks there's been an assumption 216 00:11:53,559 --> 00:11:59,280 Speaker 1: of improved polling. Is the nation supports Prime Minister Janssen? 217 00:11:59,440 --> 00:12:02,599 Speaker 1: Do I have that right? Yeah? That is right, or 218 00:12:02,600 --> 00:12:04,480 Speaker 1: at least that's you know, if the polls are to 219 00:12:04,559 --> 00:12:07,280 Speaker 1: be believed, then the current strategy is working, and the 220 00:12:07,320 --> 00:12:10,240 Speaker 1: strategy is really Remember you know, for the Conservatives to 221 00:12:10,280 --> 00:12:12,800 Speaker 1: win a majority in the general election, they all they 222 00:12:12,880 --> 00:12:17,120 Speaker 1: need is say thirty eight percent of the vote. Given 223 00:12:17,240 --> 00:12:19,719 Speaker 1: the very weak polling numbers for the Labor Party and 224 00:12:19,840 --> 00:12:22,240 Speaker 1: the way that the support for other parties is very 225 00:12:22,520 --> 00:12:26,280 Speaker 1: broadly distributed, and that that strategy is holding up. It's 226 00:12:26,320 --> 00:12:29,000 Speaker 1: basically the messages you know from Boris Johnson. I am 227 00:12:29,040 --> 00:12:30,880 Speaker 1: the one who's going to deliver on what the people 228 00:12:30,960 --> 00:12:33,480 Speaker 1: voted for in a referendum. I am being prevented from 229 00:12:33,520 --> 00:12:37,120 Speaker 1: doing that by Parliament and the courts and our European partners. 230 00:12:37,760 --> 00:12:39,600 Speaker 1: Vote for me and I'll get it done. And at 231 00:12:39,600 --> 00:12:42,319 Speaker 1: the moment that messages is pretty clear, and yeah, I 232 00:12:42,360 --> 00:12:45,280 Speaker 1: think it's working. One thing that isn't working was securing 233 00:12:45,440 --> 00:12:48,559 Speaker 1: this idea, the prospect of a hard Brexit as some 234 00:12:48,720 --> 00:12:51,520 Speaker 1: kind of credible threat to go at the Europeans with. 235 00:12:52,160 --> 00:12:54,240 Speaker 1: But it just doesn't feel credible at all at the moment, 236 00:12:54,280 --> 00:12:56,920 Speaker 1: does it. Yeah, I think that's right. I think that 237 00:12:57,000 --> 00:12:58,560 Speaker 1: you've got two things coming out of the government at 238 00:12:58,559 --> 00:13:01,800 Speaker 1: the moment. You've got the message to the voters, which 239 00:13:01,920 --> 00:13:03,920 Speaker 1: is we're going to leave on the thirty feet do 240 00:13:04,160 --> 00:13:07,480 Speaker 1: or die. But I think in practice the government excepts 241 00:13:07,520 --> 00:13:09,120 Speaker 1: that in the end they as long as they have 242 00:13:09,280 --> 00:13:12,000 Speaker 1: shown that they have done everything possible that in you know, 243 00:13:12,240 --> 00:13:14,720 Speaker 1: to get out, in the end, they will be forced 244 00:13:14,720 --> 00:13:16,800 Speaker 1: to comply with the law, and I think that that 245 00:13:17,000 --> 00:13:19,560 Speaker 1: is therefore reflected in the attitude from the other side 246 00:13:19,600 --> 00:13:24,160 Speaker 1: of these negotiations. I think that the the Irish and 247 00:13:24,480 --> 00:13:27,320 Speaker 1: the European Union know that they can wait this out, 248 00:13:27,960 --> 00:13:31,080 Speaker 1: that most likely the next outcome will be a general election. 249 00:13:31,440 --> 00:13:34,160 Speaker 1: There is this very small probability even of a second referendum, 250 00:13:34,200 --> 00:13:36,360 Speaker 1: but I think more likely general election. And so why 251 00:13:36,440 --> 00:13:38,800 Speaker 1: would you not wait and see how the cards fall 252 00:13:38,960 --> 00:13:42,000 Speaker 1: after that election and then engage the summit? A big 253 00:13:42,120 --> 00:13:44,720 Speaker 1: leave is around about ten days away, isn't it real? 254 00:13:44,880 --> 00:13:48,520 Speaker 1: Put ten days away? Over in Europe? It is that 255 00:13:48,600 --> 00:13:51,439 Speaker 1: crunch time. Is that crunch time? That summit? Is that 256 00:13:51,520 --> 00:13:53,400 Speaker 1: where something has to happen or can we drag this 257 00:13:53,480 --> 00:13:57,360 Speaker 1: out through the end of the month um? I think 258 00:13:57,480 --> 00:13:59,959 Speaker 1: that it's the kind of immediate crunch. Yes, I think 259 00:14:00,120 --> 00:14:03,679 Speaker 1: that there will there's the possibility of another summit later on, 260 00:14:03,880 --> 00:14:07,760 Speaker 1: maybe on, but most likely that is the crunch moment. 261 00:14:08,200 --> 00:14:10,920 Speaker 1: I think that at the moment it's looking unlikely that 262 00:14:11,080 --> 00:14:14,360 Speaker 1: there will be an agreement at that point. It's not impossible. Again, 263 00:14:14,440 --> 00:14:16,760 Speaker 1: if the UK does make further concessions, but I think 264 00:14:16,840 --> 00:14:20,400 Speaker 1: most likely no agreement, then I suspect the UK government 265 00:14:20,480 --> 00:14:26,080 Speaker 1: will attempt to press on with no deal exit plans. 266 00:14:26,400 --> 00:14:28,600 Speaker 1: I think they want to be taken to the courts 267 00:14:28,840 --> 00:14:31,400 Speaker 1: and I think they want to be dragged kicking and screaming. 268 00:14:31,560 --> 00:14:35,160 Speaker 1: To an extension a tweet from Jeremy Corbyn, football clubs 269 00:14:35,200 --> 00:14:36,760 Speaker 1: are too important to be left in the hands of 270 00:14:36,840 --> 00:14:39,440 Speaker 1: bad owners like Mike Ashley who put their own business 271 00:14:39,480 --> 00:14:42,240 Speaker 1: interests ahead of everything. Couse, Let's take the beautiful game 272 00:14:42,280 --> 00:14:46,000 Speaker 1: away from the billionaires and hand it to the fans instead. 273 00:14:46,840 --> 00:14:49,720 Speaker 1: This is where the politics, this is where the politics 274 00:14:49,800 --> 00:14:52,000 Speaker 1: and business comes together. And Rupert, I think this does 275 00:14:52,120 --> 00:14:54,840 Speaker 1: matter just to the general conversation away from Mike Ashley 276 00:14:54,880 --> 00:14:58,480 Speaker 1: and Newcastle United, who Mr Ian Shepherdson, Tom, it's very 277 00:14:58,520 --> 00:15:01,080 Speaker 1: unhappy with um. We can talk about the prospect of 278 00:15:01,160 --> 00:15:02,960 Speaker 1: Jeremy Corbyn and when I took to talk to people 279 00:15:03,000 --> 00:15:05,720 Speaker 1: in the city still Rouper. Reach out to them, email them, 280 00:15:05,800 --> 00:15:08,440 Speaker 1: call them. What are you worried about heart Brexit or 281 00:15:08,520 --> 00:15:11,760 Speaker 1: Jeremy Corbin. Typically they're more worried about the latter than 282 00:15:11,800 --> 00:15:15,760 Speaker 1: the former. Where do you come down on that one, Rouper, Yeah, 283 00:15:15,800 --> 00:15:17,560 Speaker 1: I think from a market point of view, I think 284 00:15:17,600 --> 00:15:20,120 Speaker 1: there's a lot in that I think that you know, 285 00:15:20,400 --> 00:15:23,360 Speaker 1: the market is still concerned about no deal breaks, but 286 00:15:23,520 --> 00:15:25,880 Speaker 1: a lot of investors in the into the UK are 287 00:15:26,040 --> 00:15:29,880 Speaker 1: very concerned about the longer term implications of the Corbin government. Um. 288 00:15:30,480 --> 00:15:33,240 Speaker 1: I think that there's sort of two levels of concern. 289 00:15:33,400 --> 00:15:35,920 Speaker 1: I think that at the moment it looks very unlikely 290 00:15:36,440 --> 00:15:39,960 Speaker 1: that a labor government would get an overall majority in 291 00:15:39,960 --> 00:15:42,280 Speaker 1: the House of Commons, so therefore you're most likely dealing 292 00:15:42,320 --> 00:15:45,160 Speaker 1: with a The most likely potential would be a Corbin 293 00:15:45,280 --> 00:15:47,680 Speaker 1: led government, but it would be a minority government supported 294 00:15:47,680 --> 00:15:50,360 Speaker 1: by the Scottish Nationalists and the Liberal Democrats. That would 295 00:15:50,360 --> 00:15:53,920 Speaker 1: significantly constrain a lot of the domestic agenda. So you 296 00:15:53,960 --> 00:15:58,480 Speaker 1: would get higher taxes, you would probably get nationalization water utilities, 297 00:15:59,000 --> 00:16:02,320 Speaker 1: but you would not get some the more um extreme 298 00:16:02,400 --> 00:16:05,320 Speaker 1: policies that would be kind of playing with some of 299 00:16:05,400 --> 00:16:07,720 Speaker 1: our institutions. And I think therefore that's a little bit 300 00:16:07,880 --> 00:16:11,080 Speaker 1: more manageable from a market point of view. But this 301 00:16:11,200 --> 00:16:13,320 Speaker 1: goes back to my conversations over the years with the 302 00:16:13,400 --> 00:16:16,520 Speaker 1: author Anthony Selden and his great work and Mr Blair. 303 00:16:17,280 --> 00:16:20,400 Speaker 1: That's not great, but what happens the day Mr Corbin 304 00:16:21,080 --> 00:16:24,160 Speaker 1: leaves or is forced out or exit stage right or 305 00:16:24,240 --> 00:16:28,160 Speaker 1: stage left for that matter. What happens to Labor the 306 00:16:28,280 --> 00:16:34,120 Speaker 1: moment is single individual leaves. I think it's very important 307 00:16:34,120 --> 00:16:37,920 Speaker 1: to understand that that the lift the left woods shift 308 00:16:37,960 --> 00:16:40,560 Speaker 1: in the Labor Party is far more than just Jeremy 309 00:16:40,640 --> 00:16:44,160 Speaker 1: Corby interested in around him. So, you know, they have 310 00:16:44,320 --> 00:16:48,360 Speaker 1: now got this huge new sways of members and affiliated 311 00:16:48,480 --> 00:16:52,320 Speaker 1: members who are very much on the left. A lot 312 00:16:52,360 --> 00:16:55,720 Speaker 1: of them are former socialist workers, former Green Party supporters, 313 00:16:56,280 --> 00:16:58,160 Speaker 1: and those are the people who would choose the next 314 00:16:58,280 --> 00:17:02,120 Speaker 1: leader of the Labor Party. And you've you know, while 315 00:17:02,320 --> 00:17:04,880 Speaker 1: you might not get someone who was quite as extremeist 316 00:17:04,920 --> 00:17:06,959 Speaker 1: Jeremy Corbyn, you would still, I think, get a very 317 00:17:07,040 --> 00:17:10,440 Speaker 1: left wing candidate. So um, I think anyone who is 318 00:17:10,520 --> 00:17:14,119 Speaker 1: hoping for a return of new paper interesting is going 319 00:17:14,200 --> 00:17:17,120 Speaker 1: to be disappointed. Brilliant Rupert Harrison, Thank you so much. 320 00:17:17,200 --> 00:17:20,680 Speaker 1: Next time. Lots of investment talk there because of this 321 00:17:20,920 --> 00:17:39,520 Speaker 1: huge political overwhelming political news flow very lovely with us 322 00:17:39,640 --> 00:17:43,280 Speaker 1: right now of Syracuse University in the Peterson Institute. We 323 00:17:43,359 --> 00:17:46,639 Speaker 1: are thrilled that she could join us. UH today, what 324 00:17:47,119 --> 00:17:50,960 Speaker 1: is Mary the micro economics of the trade war right now, 325 00:17:51,119 --> 00:17:54,800 Speaker 1: not the politics, not the view forward. But right now, 326 00:17:54,960 --> 00:17:58,840 Speaker 1: in October November of this year, what's the supply and 327 00:17:58,920 --> 00:18:03,520 Speaker 1: demand danger amics of this trade war? The Morning Town. 328 00:18:04,600 --> 00:18:07,679 Speaker 1: What we're seeing right now is we're beginning to absorb 329 00:18:07,800 --> 00:18:10,760 Speaker 1: some of the latest tariff rounds, which were primarily on 330 00:18:10,920 --> 00:18:15,240 Speaker 1: clothing and footwear, and that was beginning to trickle through 331 00:18:15,359 --> 00:18:18,440 Speaker 1: to consumers. It will take a while. On the horizon 332 00:18:18,640 --> 00:18:21,560 Speaker 1: is the December fifteenth round, which will fall almost entirely 333 00:18:21,880 --> 00:18:25,280 Speaker 1: on computers and cell phones, and so we have to 334 00:18:25,359 --> 00:18:28,200 Speaker 1: see if the President begins to absorb some of the 335 00:18:28,280 --> 00:18:33,159 Speaker 1: microeconomics of that round, which will clearly hit products that 336 00:18:33,240 --> 00:18:35,920 Speaker 1: are designed and made in American soil to American very 337 00:18:36,040 --> 00:18:38,639 Speaker 1: very hard. It's going to give us Subsidi Cupertino in 338 00:18:38,720 --> 00:18:43,119 Speaker 1: the sixth Silicon Valley better than moving some some of 339 00:18:43,160 --> 00:18:45,399 Speaker 1: the products back, aren't I from what we thought the 340 00:18:45,520 --> 00:18:49,160 Speaker 1: fancy new computer that they're going to sell the Hollywood Mary. 341 00:18:49,480 --> 00:18:53,760 Speaker 1: We are experiencing multi dimensional analysis of one dimension of 342 00:18:53,840 --> 00:18:55,879 Speaker 1: the trade talks, and that one dimension is just the 343 00:18:55,920 --> 00:18:59,720 Speaker 1: President's approach. The multi dimensions are as follows, one being 344 00:18:59,760 --> 00:19:01,760 Speaker 1: the low down in America. What does it mean for 345 00:19:01,840 --> 00:19:04,320 Speaker 1: the President's approach? The other being the impeachment inquiry. What 346 00:19:04,359 --> 00:19:06,520 Speaker 1: does it mean for the president's approach. We need to 347 00:19:06,560 --> 00:19:09,119 Speaker 1: take a more multidimensional view of the whole thing, which is, 348 00:19:09,160 --> 00:19:11,960 Speaker 1: how did the Chinese respond to those things as well? 349 00:19:12,400 --> 00:19:14,800 Speaker 1: When they arrive in America this week, Mary, did they 350 00:19:14,840 --> 00:19:16,880 Speaker 1: get a little bit more leverage than maybe they had 351 00:19:17,240 --> 00:19:20,840 Speaker 1: a month or so Agoige? Well, the Chinese have been 352 00:19:21,000 --> 00:19:23,080 Speaker 1: reluctant for quite a while to do a deal with 353 00:19:23,200 --> 00:19:26,919 Speaker 1: this president. Um. I think they see that the deals 354 00:19:26,960 --> 00:19:30,800 Speaker 1: that this president has struck have been mainly one sided. 355 00:19:30,880 --> 00:19:33,399 Speaker 1: Even the Japan Agreement if you look at it as 356 00:19:33,440 --> 00:19:37,280 Speaker 1: primarily an agreement where Japan make concessions to the United States, 357 00:19:37,359 --> 00:19:39,720 Speaker 1: concessions which I don't think help us in the long run, 358 00:19:40,720 --> 00:19:45,800 Speaker 1: but nevertheless, um our concessions, and so the Chinese say, 359 00:19:45,800 --> 00:19:48,120 Speaker 1: we don't want to go down that road. Let's see 360 00:19:48,280 --> 00:19:50,760 Speaker 1: if this president is actually going to make a deal 361 00:19:50,840 --> 00:19:54,159 Speaker 1: that will stand. Unfortunately, the President's been tweeting that the 362 00:19:54,240 --> 00:19:57,560 Speaker 1: deal has to be for America. It's hard to explain 363 00:19:57,680 --> 00:20:00,200 Speaker 1: how that is a deal for someone you Really a 364 00:20:00,320 --> 00:20:03,000 Speaker 1: deal involves a little bit for both sides. So the 365 00:20:03,119 --> 00:20:05,919 Speaker 1: Chinese are weary, I think of making a deal right 366 00:20:06,000 --> 00:20:09,360 Speaker 1: now and Um, they are looking ahead and seeing where 367 00:20:09,400 --> 00:20:12,600 Speaker 1: will this impeachment go and what will be what will 368 00:20:12,640 --> 00:20:15,520 Speaker 1: we be dealing with in the months ahead. I don't 369 00:20:15,600 --> 00:20:19,200 Speaker 1: think that that has affected Ambassador Lightheiser that much. I 370 00:20:19,320 --> 00:20:22,960 Speaker 1: think he has a pretty clear game plan, but of 371 00:20:23,040 --> 00:20:25,639 Speaker 1: course he reports to the president. Ultimately it will be 372 00:20:25,760 --> 00:20:28,600 Speaker 1: the President's decision. Mary, Ambassador Lighthouse has been very clear. 373 00:20:28,640 --> 00:20:30,600 Speaker 1: The President has certainly stuck to his guns over the 374 00:20:30,680 --> 00:20:32,760 Speaker 1: last month or so, saying that he wants the big deal, 375 00:20:32,840 --> 00:20:34,879 Speaker 1: he wants a broader deal. There was some mention a 376 00:20:34,960 --> 00:20:37,560 Speaker 1: couple of weeks ago of having some kind of interim 377 00:20:37,640 --> 00:20:40,280 Speaker 1: deal that leads to a broader deal. Mary, do you 378 00:20:40,359 --> 00:20:43,280 Speaker 1: think that could be a focus this week and talks. Yes, 379 00:20:43,359 --> 00:20:46,040 Speaker 1: that's certainly how they've pitched the Japanese deal as a 380 00:20:46,119 --> 00:20:48,879 Speaker 1: mini deal that will lead to a bigger deal. Uh. 381 00:20:49,200 --> 00:20:52,800 Speaker 1: So yes, I think there is a possibility there. Uh. 382 00:20:52,920 --> 00:20:54,879 Speaker 1: There's been a lot of talk of how both sides 383 00:20:54,920 --> 00:20:58,479 Speaker 1: could really use and easing in this trade war. Uh. 384 00:20:58,840 --> 00:21:02,119 Speaker 1: Clearly the Chinese would benefit from importing some of our 385 00:21:02,119 --> 00:21:05,479 Speaker 1: agricultural products. Our ex actor could clearly use the relief, 386 00:21:05,600 --> 00:21:08,719 Speaker 1: as could President Trump. Uh. And as I just mentioned 387 00:21:08,800 --> 00:21:11,040 Speaker 1: the next round of tariffs is going to be one 388 00:21:11,119 --> 00:21:14,000 Speaker 1: that will hit our tex sector very hard. Mary have 389 00:21:14,240 --> 00:21:16,600 Speaker 1: kept this quiet because it was under embargo with the 390 00:21:16,640 --> 00:21:22,360 Speaker 1: International Monetary Fund. They moments ago have announced Kristallina Geva, 391 00:21:22,920 --> 00:21:25,439 Speaker 1: the new I m F Managing Director, will give her 392 00:21:25,520 --> 00:21:29,520 Speaker 1: maiden's speech tomorrow in Washington. I am thrilled to announce 393 00:21:30,240 --> 00:21:33,040 Speaker 1: that she and I will be in conversation after her 394 00:21:33,160 --> 00:21:37,840 Speaker 1: important speech. Very lovely. The symbolism of this new managing 395 00:21:37,920 --> 00:21:42,720 Speaker 1: director's extraordinary is it from Bulgaria, the first time from 396 00:21:42,880 --> 00:21:48,840 Speaker 1: an Eastern European nation. It is quite extraordinary, and it also, 397 00:21:49,160 --> 00:21:52,719 Speaker 1: you know, puts front and center again the role of Europe, 398 00:21:52,760 --> 00:21:56,000 Speaker 1: both Western and Eastern Europe, in the global economy. It's 399 00:21:56,040 --> 00:21:58,399 Speaker 1: something that has clearly taken a back seat with this 400 00:21:58,560 --> 00:22:01,480 Speaker 1: focus on the US China trade war. Of course, this 401 00:22:01,600 --> 00:22:05,680 Speaker 1: week we did see the US announcing times UH in 402 00:22:05,840 --> 00:22:10,800 Speaker 1: retaliation for um the Airbus subsidies, something that this time 403 00:22:11,000 --> 00:22:13,679 Speaker 1: was okay by the w t oh so different than 404 00:22:13,760 --> 00:22:16,760 Speaker 1: other rounds, but nevertheless, it continues to put us at 405 00:22:16,760 --> 00:22:19,600 Speaker 1: odds with our European allies. Mary, thank you so much. 406 00:22:20,320 --> 00:22:36,040 Speaker 1: This has been wonderful. Paul's you know, we've done a 407 00:22:36,119 --> 00:22:38,320 Speaker 1: number of interviews over the year, and a Hangar fifty one, 408 00:22:38,600 --> 00:22:40,760 Speaker 1: which is where in the Raiders of the Lost Ark 409 00:22:40,800 --> 00:22:43,360 Speaker 1: they buried the they put the Ark of the Covenant, 410 00:22:43,400 --> 00:22:45,760 Speaker 1: you know, at the end, and it's got some Roswell 411 00:22:45,800 --> 00:22:49,480 Speaker 1: connection as well. There's a hangar fifty one for Aristol 412 00:22:49,600 --> 00:22:53,720 Speaker 1: Law and our next guest right now is calling from 413 00:22:53,760 --> 00:22:59,720 Speaker 1: the hangar pension accounting the law she's buried. It's fourteen stories, 414 00:22:59,800 --> 00:23:02,960 Speaker 1: d been Hanger Sutherland exactly. I'm not sure this is 415 00:23:03,000 --> 00:23:05,680 Speaker 1: what she signed up for. But Brook Southerlin in Bloomberg 416 00:23:05,720 --> 00:23:09,680 Speaker 1: Opinion calumnists covering all things a General Electric and industrial. 417 00:23:10,200 --> 00:23:12,640 Speaker 1: So some big news at a General Electric today, Brooke, 418 00:23:12,680 --> 00:23:14,159 Speaker 1: and I think, if I wake up this morning as 419 00:23:14,200 --> 00:23:17,359 Speaker 1: a retiree, I'm not too happy what's going on. So 420 00:23:17,920 --> 00:23:20,560 Speaker 1: it actually does not affect retirees. But what they're doing 421 00:23:20,760 --> 00:23:25,200 Speaker 1: is they're freezing pension benefits for current employees, so people 422 00:23:25,359 --> 00:23:28,440 Speaker 1: who started the company before two thousand eleven, because remember 423 00:23:28,480 --> 00:23:31,159 Speaker 1: they already captain and said anybody who started after two 424 00:23:31,160 --> 00:23:33,280 Speaker 1: thousand eleven was not going to be added to the 425 00:23:33,359 --> 00:23:36,600 Speaker 1: pension plan. But if you were participating in the pension plan. 426 00:23:36,800 --> 00:23:39,080 Speaker 1: You get to keep the benefits you accrued, you just 427 00:23:39,160 --> 00:23:41,600 Speaker 1: don't get to accrue any more of them during your 428 00:23:41,640 --> 00:23:44,720 Speaker 1: course of employment at GE. So instead you'll be transitioned 429 00:23:44,760 --> 00:23:47,160 Speaker 1: over to a four own K plan. And of course 430 00:23:47,240 --> 00:23:50,600 Speaker 1: that's not necessarily quite as attractive for those employees, which 431 00:23:50,640 --> 00:23:52,920 Speaker 1: is why you do see the bonds of GE rallying 432 00:23:53,359 --> 00:23:55,800 Speaker 1: on that as a sort of taps the liability and 433 00:23:55,880 --> 00:23:58,920 Speaker 1: obligations for the company. So Brooke is is this you know, 434 00:23:59,000 --> 00:24:01,159 Speaker 1: I know they've got this big balance sheet. Is just 435 00:24:01,240 --> 00:24:03,440 Speaker 1: all in an effort to try to save some cash 436 00:24:03,600 --> 00:24:04,960 Speaker 1: that can maybe work a little bit more on the 437 00:24:05,000 --> 00:24:08,320 Speaker 1: balance sheet. It is, I mean the pension, the unfunded 438 00:24:08,359 --> 00:24:11,720 Speaker 1: pension balance was a significant part of g s overall debtload, 439 00:24:11,760 --> 00:24:13,480 Speaker 1: and of course they hadn't been putting the cash in 440 00:24:13,560 --> 00:24:15,359 Speaker 1: that that they should have been, and said they were 441 00:24:15,440 --> 00:24:18,920 Speaker 1: doing ill advised acquisitions like all Stem and Baker Hughes 442 00:24:19,000 --> 00:24:22,040 Speaker 1: and spending billions and billions of dollars on stock buybacks 443 00:24:22,080 --> 00:24:24,720 Speaker 1: that obviously have not done very much to lift the 444 00:24:24,880 --> 00:24:27,120 Speaker 1: stock price, and so you have a huge cash need 445 00:24:27,160 --> 00:24:29,320 Speaker 1: there and what they're trying to do is put a 446 00:24:29,400 --> 00:24:31,520 Speaker 1: little bit of a cap on that that balance is 447 00:24:31,560 --> 00:24:33,760 Speaker 1: subject to swings in interest rates with the plugs that 448 00:24:33,840 --> 00:24:36,359 Speaker 1: was in the past couple of months. That just creates 449 00:24:36,359 --> 00:24:38,800 Speaker 1: a lot of risk there. So they're trying to contain 450 00:24:38,920 --> 00:24:41,400 Speaker 1: that liability to the extent of the can. They're also 451 00:24:41,520 --> 00:24:44,200 Speaker 1: pre funding four to five billion of that to cover 452 00:24:44,320 --> 00:24:49,560 Speaker 1: their minimum obligations in UH so that helps. But again 453 00:24:49,640 --> 00:24:52,200 Speaker 1: that is cash going out the door, and that's cash 454 00:24:52,359 --> 00:24:54,840 Speaker 1: that you know, arguably they do need elsewhere. We know 455 00:24:54,960 --> 00:24:56,760 Speaker 1: we've done a lot of this this morning, Brook, but 456 00:24:56,800 --> 00:24:59,800 Speaker 1: you've got a great industry perspective. This is not just 457 00:25:00,040 --> 00:25:03,760 Speaker 1: about GE. This is everybody else resetting for a new 458 00:25:03,920 --> 00:25:08,080 Speaker 1: terminal interest rate, resetting for a new actual assumption. Are 459 00:25:08,160 --> 00:25:10,439 Speaker 1: they out front? Is everybody else going to catch up 460 00:25:10,480 --> 00:25:14,000 Speaker 1: the GE on a five or four percent actuarial assumption? 461 00:25:14,520 --> 00:25:17,160 Speaker 1: So you've already seen a lot of companies make these changes. 462 00:25:17,480 --> 00:25:19,359 Speaker 1: Boeing is one that comes to mind, and so in 463 00:25:19,480 --> 00:25:22,879 Speaker 1: some ways g E is a little bit behind here. Um, 464 00:25:23,000 --> 00:25:24,880 Speaker 1: I mean they did make changes a couple of years ago, 465 00:25:24,920 --> 00:25:27,200 Speaker 1: like I said, where they said anybody who joins after 466 00:25:27,320 --> 00:25:30,000 Speaker 1: two eleven does not get to participate in the pension. 467 00:25:30,080 --> 00:25:32,720 Speaker 1: So this has been a work in progress and a 468 00:25:32,800 --> 00:25:35,320 Speaker 1: long time coming for the company, and I think, you know, 469 00:25:35,440 --> 00:25:37,080 Speaker 1: one of the reasons why maybe they didn't do it 470 00:25:37,200 --> 00:25:39,879 Speaker 1: sooner is that this is the workforce has has already 471 00:25:39,920 --> 00:25:41,880 Speaker 1: had to deal with a lot when you think about 472 00:25:41,920 --> 00:25:43,800 Speaker 1: the job cuts over the last couple of years, and 473 00:25:43,880 --> 00:25:46,880 Speaker 1: just the morale uh at the company has not been 474 00:25:46,960 --> 00:25:49,480 Speaker 1: great with everything that it's been through, and so I think, 475 00:25:49,600 --> 00:25:52,359 Speaker 1: you know, this is another hit for the employee basic 476 00:25:52,800 --> 00:25:54,840 Speaker 1: was wanting to take. But of course, at the end 477 00:25:54,880 --> 00:25:57,879 Speaker 1: of the day, it's unfortunately necessary just given the deatload 478 00:25:57,920 --> 00:26:00,320 Speaker 1: that it has. What do you see for corporate earnings 479 00:26:00,400 --> 00:26:02,200 Speaker 1: for your edge of the woods, I mean, what do 480 00:26:02,240 --> 00:26:05,520 Speaker 1: you see for these companies coming up? For industrial companies? 481 00:26:05,560 --> 00:26:07,800 Speaker 1: I think it's going to be a rough like organic 482 00:26:08,200 --> 00:26:11,160 Speaker 1: organic revenue growth low lo lo low single digit count. 483 00:26:11,280 --> 00:26:12,880 Speaker 1: I think we're going to see a lot of guidance 484 00:26:12,960 --> 00:26:14,760 Speaker 1: kind of. I think that companies were still sort of 485 00:26:14,880 --> 00:26:17,400 Speaker 1: holding holding out hope in August that maybe they could 486 00:26:17,400 --> 00:26:19,359 Speaker 1: turn this around because so much of their third quarter 487 00:26:19,440 --> 00:26:22,360 Speaker 1: depends on September. But the data that we've seen coming 488 00:26:22,400 --> 00:26:25,520 Speaker 1: in for in the industrial sector has just really been disappointing. 489 00:26:25,560 --> 00:26:27,840 Speaker 1: I think that the whatever boost they were hoping to 490 00:26:27,920 --> 00:26:29,920 Speaker 1: get did not materialize, so I think, I mean, it 491 00:26:30,000 --> 00:26:32,919 Speaker 1: depends on the company. But the shorter cycle industrial companies, 492 00:26:32,920 --> 00:26:35,760 Speaker 1: I think you're going to see organic growth declines, you know, 493 00:26:35,920 --> 00:26:40,360 Speaker 1: probably in the range of like maybe one percent. Not devastating, 494 00:26:40,480 --> 00:26:44,120 Speaker 1: but that's note of all. And then the longer cycle companies, 495 00:26:44,119 --> 00:26:46,679 Speaker 1: I think that's going to be really interesting. UM Aerospace 496 00:26:46,760 --> 00:26:50,560 Speaker 1: has been really sort of a stalwart for these manufacturing companies, 497 00:26:50,600 --> 00:26:52,480 Speaker 1: and I think, you know, if you do start to 498 00:26:52,560 --> 00:26:54,919 Speaker 1: see cracks there, that's going to cause a lot more 499 00:26:55,000 --> 00:26:57,520 Speaker 1: panic than anything you see from the shorter cycle companies. 500 00:26:57,680 --> 00:27:00,399 Speaker 1: UM I don't see any reason to believe that's the 501 00:27:00,480 --> 00:27:02,960 Speaker 1: case so far, but I know, really big watch on him, 502 00:27:03,040 --> 00:27:06,680 Speaker 1: especially as you start to see a slowdown in China's economy. China, 503 00:27:06,720 --> 00:27:08,600 Speaker 1: of course is responsible for a lot of the jet 504 00:27:08,760 --> 00:27:11,520 Speaker 1: orders over the next couple of years, so any slackening 505 00:27:11,560 --> 00:27:14,240 Speaker 1: in demand, they're kind of really seeing gratification thanks to 506 00:27:14,280 --> 00:27:17,879 Speaker 1: the update. Brooks Southerland actual accounting. When she's getting up 507 00:27:17,880 --> 00:27:19,800 Speaker 1: to speed on she was getting her journalism degree, I 508 00:27:19,800 --> 00:27:22,000 Speaker 1: don't think she was. Do you think she'd minored in accounting? 509 00:27:22,240 --> 00:27:39,119 Speaker 1: But Pausanian, Tom Keane. If you're on Global Wall Street, 510 00:27:39,200 --> 00:27:42,800 Speaker 1: this is the conversation of the day. Michael Mayo with us. 511 00:27:42,840 --> 00:27:44,800 Speaker 1: He covers the big banks. Any of you on Wall 512 00:27:44,840 --> 00:27:47,920 Speaker 1: Street know who Mr Mayo is? Uh? Now with a 513 00:27:48,000 --> 00:27:50,840 Speaker 1: shingle lot at Wells Fargo as well. Have you talked 514 00:27:50,840 --> 00:27:52,840 Speaker 1: to your new CEO? You know? Did he was he 515 00:27:52,920 --> 00:27:56,359 Speaker 1: shaking with trepidation when you walked in the room. Well, 516 00:27:56,520 --> 00:27:59,920 Speaker 1: I certainly you knew him before. I've been covering the 517 00:28:00,000 --> 00:28:03,280 Speaker 1: industry thirty years, so I know many executives, as you know, 518 00:28:03,760 --> 00:28:07,159 Speaker 1: will leave it there. Congratulations on the new Wills Fargo. 519 00:28:07,359 --> 00:28:11,200 Speaker 1: I want to talk about retail banking HSBC, and the 520 00:28:11,320 --> 00:28:13,920 Speaker 1: reporting is they're gonna Jettis in their French division and 521 00:28:13,960 --> 00:28:17,119 Speaker 1: they're gonna figure out retail banking in Europe. What is 522 00:28:17,200 --> 00:28:22,320 Speaker 1: the state of real you know, branches retail banking in America? 523 00:28:22,480 --> 00:28:24,959 Speaker 1: Does that? What's the pulse of that right now? Well, 524 00:28:24,960 --> 00:28:26,639 Speaker 1: I'm going to pull the lens out like I do 525 00:28:26,760 --> 00:28:29,960 Speaker 1: with you a lot. This is the worst revenue decade 526 00:28:30,040 --> 00:28:33,600 Speaker 1: for banks in eighty years, eight zero years, so revenues, 527 00:28:33,680 --> 00:28:37,080 Speaker 1: whether it's retail banking or branch banking, it's just not 528 00:28:37,240 --> 00:28:39,280 Speaker 1: the same as it used to be have a period 529 00:28:39,280 --> 00:28:41,959 Speaker 1: of low interest rates. You have a lot more digital banking, 530 00:28:42,680 --> 00:28:45,480 Speaker 1: and the top line at banks just is not that great. 531 00:28:45,560 --> 00:28:48,080 Speaker 1: And so and I'm wearing I have the tech you 532 00:28:48,120 --> 00:28:51,480 Speaker 1: look today, Tommy, you do that. Audience can see I have. 533 00:28:52,800 --> 00:28:55,160 Speaker 1: I have my hoodie on, but that reflect the differences. 534 00:28:55,200 --> 00:28:58,080 Speaker 1: You have the body to wear it, I don't. So. Look, 535 00:28:58,160 --> 00:29:00,120 Speaker 1: we have a new two page report out talk think 536 00:29:00,160 --> 00:29:03,920 Speaker 1: about this is the decade of banking and tech, and 537 00:29:04,160 --> 00:29:07,560 Speaker 1: you're seeing less branches and more digital banking. You're you'll 538 00:29:07,600 --> 00:29:12,520 Speaker 1: see more AI and big data and cloud and electronic payments, 539 00:29:12,720 --> 00:29:17,040 Speaker 1: and that is the overall relationships. Yeah, I have as 540 00:29:17,040 --> 00:29:18,800 Speaker 1: a former Wall Street of spending twenty years, I have 541 00:29:18,840 --> 00:29:21,600 Speaker 1: a big problem with your report because as I read it, 542 00:29:21,720 --> 00:29:24,320 Speaker 1: I just think about head counting. Head count is gonna 543 00:29:24,320 --> 00:29:27,160 Speaker 1: go down. The more technology that comes on to banking 544 00:29:27,240 --> 00:29:29,960 Speaker 1: and financial services, the less the head counts. So is 545 00:29:30,040 --> 00:29:33,160 Speaker 1: this all in an effort to try to drive returns 546 00:29:33,200 --> 00:29:36,720 Speaker 1: for these banks that are facing a lower revenue environment. 547 00:29:37,160 --> 00:29:40,120 Speaker 1: Necessity is the mother of invention, And if you have 548 00:29:40,280 --> 00:29:43,720 Speaker 1: a week top line, you need to control expenses to 549 00:29:44,000 --> 00:29:45,560 Speaker 1: have a good bottom line. And the way you do 550 00:29:45,720 --> 00:29:49,240 Speaker 1: that is you enable technology to be more efficient. Is 551 00:29:49,280 --> 00:29:54,120 Speaker 1: that link to reduce headcom You know what, spend six 552 00:29:54,200 --> 00:29:57,040 Speaker 1: months on this report, used nine of the senior tech 553 00:29:57,080 --> 00:29:59,960 Speaker 1: analyst at Wells Fargo Securities in the research group, spend 554 00:30:00,040 --> 00:30:01,920 Speaker 1: all this time and said, how much are you going 555 00:30:02,000 --> 00:30:06,280 Speaker 1: to save in technology? Wrong question. Half of bank expenses 556 00:30:06,320 --> 00:30:10,960 Speaker 1: are employee costs. So we forecast a reduction in two 557 00:30:11,080 --> 00:30:14,560 Speaker 1: hundred thousand jobs in Wall Street and the US banking 558 00:30:14,600 --> 00:30:17,880 Speaker 1: industry over the next decade. And that's the lever if 559 00:30:17,960 --> 00:30:21,520 Speaker 1: nothing else is working. So look out, my peers. It's 560 00:30:21,560 --> 00:30:24,880 Speaker 1: not getting easier. So you're real popular around the Walls Fargo, 561 00:30:25,160 --> 00:30:28,160 Speaker 1: you know, talking about two jobs going off the street. 562 00:30:28,560 --> 00:30:30,719 Speaker 1: Give us a sense of kind of where returns are 563 00:30:30,800 --> 00:30:33,720 Speaker 1: for the banks that you cover now versus kind of 564 00:30:33,800 --> 00:30:37,680 Speaker 1: pre crisis. Will we ever get back to pre crisis returns? Well, 565 00:30:37,800 --> 00:30:41,440 Speaker 1: yes and no. Um last year most recently you've had 566 00:30:41,520 --> 00:30:46,200 Speaker 1: the best returns since before the financial crisis. But as 567 00:30:46,280 --> 00:30:48,600 Speaker 1: you point out, before the financial crisis, returns were a 568 00:30:48,640 --> 00:30:51,560 Speaker 1: lot higher. What's interesting, we think in two years from now, 569 00:30:52,120 --> 00:30:55,760 Speaker 1: if you adjust the returns for the higher levels of capital, 570 00:30:55,880 --> 00:30:59,080 Speaker 1: or put differently for the much lower level of leverage, 571 00:31:00,000 --> 00:31:02,200 Speaker 1: and you could be at an all time high in three, 572 00:31:02,320 --> 00:31:06,280 Speaker 1: four or five years, once again due to improving efficiency 573 00:31:06,600 --> 00:31:09,960 Speaker 1: that's enabled by technology. So I'd say on a risk 574 00:31:10,000 --> 00:31:13,160 Speaker 1: adjusted basis, you could be at an all time high 575 00:31:13,240 --> 00:31:16,640 Speaker 1: for returns and that makes returns a lot more sustainable. 576 00:31:17,200 --> 00:31:19,920 Speaker 1: All right. So there's a very good Wells Fargo branch 577 00:31:20,360 --> 00:31:22,680 Speaker 1: right on the corner here of Bloomberg. They're very nice 578 00:31:22,680 --> 00:31:25,000 Speaker 1: people when they take care of us. UM, give us 579 00:31:25,040 --> 00:31:28,120 Speaker 1: a sense of number of branches around in the US 580 00:31:28,240 --> 00:31:30,040 Speaker 1: today and where do you think it might be five 581 00:31:30,120 --> 00:31:31,479 Speaker 1: or ten years from now. I mean, like we were 582 00:31:31,480 --> 00:31:33,680 Speaker 1: at a hundred thousand branches a few years ago, down 583 00:31:33,760 --> 00:31:35,960 Speaker 1: to ninety thousand branches. We think that can be cut 584 00:31:36,040 --> 00:31:38,720 Speaker 1: in half over the next ten to fifteen years. So 585 00:31:39,160 --> 00:31:43,200 Speaker 1: you're seeing digital banking replaced branches. Look at Bank of America. 586 00:31:43,600 --> 00:31:48,000 Speaker 1: Bank America has a level of online deposits gathered through 587 00:31:48,360 --> 00:31:52,520 Speaker 1: mobile banking equal to the seventh largest branch network equal 588 00:31:52,560 --> 00:31:56,240 Speaker 1: to bank branches, and that was just started this decade. 589 00:31:56,880 --> 00:31:59,320 Speaker 1: So that's the wave of the future. To give us 590 00:31:59,560 --> 00:32:01,760 Speaker 1: this is important than Mike. If you're gonna take a 591 00:32:01,880 --> 00:32:04,600 Speaker 1: hundred thousand down to ninety thousand, you say it cut half. 592 00:32:04,680 --> 00:32:08,200 Speaker 1: Whatever the math is out x number of years, what 593 00:32:08,480 --> 00:32:11,400 Speaker 1: part of the revenue and or down the income statement 594 00:32:11,520 --> 00:32:16,040 Speaker 1: profits stream? Is that diminution of branches? Is that like 595 00:32:16,200 --> 00:32:19,680 Speaker 1: the core of profits? I would guess not. The the 596 00:32:20,840 --> 00:32:23,680 Speaker 1: lessening of retail branches isn't going to have that much 597 00:32:23,720 --> 00:32:26,360 Speaker 1: effect on the income statement, is it. It's the combination 598 00:32:26,440 --> 00:32:30,600 Speaker 1: of all the technology initiatives. Okay, so it's not that alone. 599 00:32:30,800 --> 00:32:33,800 Speaker 1: So you know, we summarize it as AI, big data, cloud, 600 00:32:34,000 --> 00:32:39,760 Speaker 1: digital banking, electronic payments, faster processing, and importantly the governance 601 00:32:39,840 --> 00:32:43,560 Speaker 1: the people overseeing the process. So technology needs to go 602 00:32:43,760 --> 00:32:47,080 Speaker 1: from the chief information officer to the CEO. You need 603 00:32:47,160 --> 00:32:51,080 Speaker 1: more technologists closer to the CEO at these banks. So 604 00:32:51,200 --> 00:32:53,840 Speaker 1: you change the culture. Look at Goldman Sacks, right, they're 605 00:32:53,920 --> 00:32:56,280 Speaker 1: changing how they dress. It's not just you know, me 606 00:32:56,440 --> 00:33:00,400 Speaker 1: with my hoodie today. You know we're gonna continue in 607 00:33:00,400 --> 00:33:02,600 Speaker 1: the next plot, but let's go there right now with 608 00:33:02,800 --> 00:33:05,920 Speaker 1: their Goldman sex right now. I mean, aren't they the 609 00:33:06,040 --> 00:33:11,080 Speaker 1: lagging of lagging you know major banks right now? Well, look, um, 610 00:33:11,880 --> 00:33:16,280 Speaker 1: you had model lines last century, right, you had countrywide 611 00:33:16,320 --> 00:33:18,560 Speaker 1: and mortgages that didn't turn out. So well, you had 612 00:33:18,640 --> 00:33:21,600 Speaker 1: Bear Stearns and investment banking that didn't turn out so well. 613 00:33:21,760 --> 00:33:24,120 Speaker 1: You had a company called MBNA and credit cards that 614 00:33:24,200 --> 00:33:26,600 Speaker 1: didn't turn out so well, and now you have the brokers. 615 00:33:26,920 --> 00:33:29,719 Speaker 1: You know, look, the idea of one product, one channel 616 00:33:30,400 --> 00:33:35,600 Speaker 1: is so century. So Goldman, you know it's gotten the message. Now, 617 00:33:35,840 --> 00:33:38,320 Speaker 1: I would say later than they should have. And I 618 00:33:38,400 --> 00:33:40,600 Speaker 1: think I was on your show talking about this at 619 00:33:40,640 --> 00:33:42,400 Speaker 1: the first part of this decade. So now you have 620 00:33:42,520 --> 00:33:46,040 Speaker 1: David Solomon saying, hey, let's diversify a little bit more 621 00:33:46,200 --> 00:33:50,600 Speaker 1: into a range of areas smaller, you know, corporations to 622 00:33:50,680 --> 00:33:55,320 Speaker 1: do investment, banking, consumers, mass market, all these other areas. 623 00:33:55,400 --> 00:33:58,360 Speaker 1: So better late than never to a degree, I think 624 00:33:58,400 --> 00:34:02,040 Speaker 1: the jury is out on the degree that they will succeed. So, Mike, 625 00:34:02,080 --> 00:34:05,520 Speaker 1: I'm just gonna Exhibit six of this monster report. These 626 00:34:05,560 --> 00:34:08,160 Speaker 1: technology but budgets are in the billions. How about if 627 00:34:08,160 --> 00:34:10,319 Speaker 1: I'm a smaller midsized bank, I can't can't keep up, 628 00:34:10,400 --> 00:34:14,200 Speaker 1: can I? You know? Uh, what fascinates me is that 629 00:34:14,680 --> 00:34:18,520 Speaker 1: the banking industry spends more in technology than any other 630 00:34:18,560 --> 00:34:21,520 Speaker 1: industry hundred fifty billion dollars a year. So one thing 631 00:34:21,920 --> 00:34:23,880 Speaker 1: you know that we say, is banks better get their 632 00:34:23,920 --> 00:34:27,319 Speaker 1: money's worth otherwise, you know, spend less than that technology, 633 00:34:27,600 --> 00:34:30,719 Speaker 1: or you have a problem with the business model or management. 634 00:34:30,800 --> 00:34:32,560 Speaker 1: But the question that comes up, how do the mid 635 00:34:32,640 --> 00:34:38,680 Speaker 1: sized banks compete? And therefore you probably have Look, there's 636 00:34:38,719 --> 00:34:42,200 Speaker 1: always exceptions, and but this is really happening of the 637 00:34:42,280 --> 00:34:45,480 Speaker 1: last you know, three or four years. Remember the first 638 00:34:45,520 --> 00:34:47,040 Speaker 1: part of this decade, I was saying, break up the 639 00:34:47,080 --> 00:34:50,879 Speaker 1: big banks, right based on performance measures, governments, everything else. 640 00:34:51,160 --> 00:34:53,239 Speaker 1: The last you know, three to five years, you're seeing 641 00:34:53,640 --> 00:34:57,000 Speaker 1: the large bank performance measures get much better. So there 642 00:34:57,080 --> 00:35:00,640 Speaker 1: are some exceptions. You know, performances the best way for success. 643 00:35:00,840 --> 00:35:04,280 Speaker 1: But but look, if you aren't along the largest banks, 644 00:35:04,320 --> 00:35:06,680 Speaker 1: you have to think about consolidation at something. Mike Mayor 645 00:35:06,719 --> 00:35:09,480 Speaker 1: with a stagecoach holding out on Alexic Avenue right now 646 00:35:09,920 --> 00:35:13,840 Speaker 1: when the Wells Fargo. Thanks for listening to the Bloomberg 647 00:35:13,880 --> 00:35:19,799 Speaker 1: Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, 648 00:35:20,200 --> 00:35:24,400 Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at 649 00:35:24,480 --> 00:35:28,680 Speaker 1: Tom Keane. Before the podcast, you can always catch us worldwide. 650 00:35:29,200 --> 00:35:30,240 Speaker 1: I'm Bloomberg Radio