WEBVTT - Surveillance: I Want Openness & Sunlight On The Fed, Moore Says 0:00:00.080 --> 0:00:12.960 Ye. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane 0:00:13.480 --> 0:00:17.560 jay Ley. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:28.760 Bloomberg dot Com, and of course on the Bloomberg Troy 0:00:28.760 --> 0:00:30.200 Guy ask you you want to us in the studio 0:00:30.280 --> 0:00:33.680 here in New York, Chief investment officer at Skybridge Capital. 0:00:33.720 --> 0:00:36.239 Great to see you, Troy. Let's talk about that the 0:00:36.240 --> 0:00:39.400 Federal Reserve. Everyone seems to view the fetes Sometimes there's 0:00:39.479 --> 0:00:42.040 this pockets of market participants that always bring it up. 0:00:42.120 --> 0:00:44.519 Does the FETE know something we don't know looking at 0:00:44.560 --> 0:00:48.080 those minutes yesterday? They know nothing that we know. No, no, 0:00:48.280 --> 0:00:50.640 I mean, at the end of the day, their data dependent. 0:00:50.680 --> 0:00:53.559 They've been articulating that for quite some time. You know. 0:00:53.600 --> 0:00:56.760 Obviously last year, like most market participants thought growth would 0:00:56.800 --> 0:01:00.160 stay stronger in Q four and the impact from monetary 0:01:00.200 --> 0:01:03.160 tightening would not be as dramatic. And you know, the 0:01:03.160 --> 0:01:05.640 beauty of where we are today now that financial conditions 0:01:05.640 --> 0:01:10.039 have loosened off the extreme tights of December is every 0:01:10.120 --> 0:01:12.640 investor knows it's just as much as the Fed. You 0:01:12.680 --> 0:01:15.360 can look at the data's rolls rolls in and make 0:01:15.400 --> 0:01:18.000 your own informed decisions of whether you're being paid enough 0:01:18.040 --> 0:01:20.200 to take that risk. And you know, one of the 0:01:20.200 --> 0:01:23.240 things that surprised us recently is that markets have been 0:01:23.280 --> 0:01:26.040 so sure that the next move is a cut. You know, 0:01:26.120 --> 0:01:28.720 when you talk to policy makers or economists or just 0:01:28.760 --> 0:01:32.080 look at the data yourselves, there's a non zero probability 0:01:32.120 --> 0:01:34.360 that we have one of two more hikes this cycle, right, 0:01:34.360 --> 0:01:36.720 But there's also a reasonable probability the next move is 0:01:36.720 --> 0:01:40.199 a cut in and and that's been unusual the last 0:01:40.200 --> 0:01:43.280 six years because two years ago it was either one hike, 0:01:43.360 --> 0:01:45.840 two hikes, three hikes, and there was no probability of 0:01:45.840 --> 0:01:48.160 a cut. And obviously in the in the crisis, it 0:01:48.240 --> 0:01:50.520 was cutting rates to zero as fast as possible. Just 0:01:50.560 --> 0:01:51.880 to put you on the spot a little bit. Do 0:01:51.920 --> 0:01:54.040 you think the barber is higher for a hike or 0:01:54.120 --> 0:01:56.080 is the bar hi for a cut at this point? 0:01:56.240 --> 0:01:57.600 You know, I think the bar is higher for a 0:01:57.680 --> 0:01:59.520 hike at this point because if you look at the 0:01:59.520 --> 0:02:02.240 weakness growth overseas and the natural slowing in the U. 0:02:02.240 --> 0:02:04.320 S economy. You know, we've talked about this before, where 0:02:04.360 --> 0:02:07.160 last year was peak cyclical growth. Uh, this year, we 0:02:07.280 --> 0:02:09.079 expected somewhere between two to two and a half, but 0:02:09.120 --> 0:02:11.600 it could be slightly lower given how Europe's really fallen 0:02:11.600 --> 0:02:14.880 off a cliff um and you go into and you're 0:02:14.880 --> 0:02:17.400 looking at one and a half to two. So given 0:02:17.520 --> 0:02:20.560 that inflations rolled over, given his slow his growth has 0:02:20.560 --> 0:02:23.000 been overseas, given the fact that we're much later in 0:02:23.040 --> 0:02:25.639 the cycle and there's no way consumption growth or business 0:02:25.639 --> 0:02:28.120 fixed investment gives to be high this year in twenties 0:02:28.200 --> 0:02:30.360 they were last year. You know, that would lead us 0:02:30.360 --> 0:02:33.120 to think that there's a higher probability of a cut, 0:02:33.360 --> 0:02:36.640 But you can't completely discount the one to two more 0:02:36.720 --> 0:02:39.040 hikes in this cycle if growth picks back up. Troy, 0:02:39.040 --> 0:02:41.239 good morning. I know in December twenty six you told 0:02:41.240 --> 0:02:44.640 your Massachusetts Institute of Technology to load the boat and 0:02:44.680 --> 0:02:46.959 they did double leverage up or up twelve percent of 0:02:47.000 --> 0:02:52.200 the Dow in the spent of the Nasdack composite. How 0:02:52.280 --> 0:02:56.480 far behind his institutional Wall Street in the equity markets 0:02:56.560 --> 0:03:00.120 right now? Uh? Well, I would say anyone that all 0:03:00.240 --> 0:03:03.440 is ascid allocation is behind always behind equities, right, So 0:03:03.480 --> 0:03:06.440 if you're not, this cycle has been really reminisced of 0:03:06.480 --> 0:03:08.799 the nineties. As you guys know right where, you know, 0:03:08.840 --> 0:03:10.720 the only way to keep up with equities is to 0:03:10.720 --> 0:03:12.720 be a percent long equities, and the only way to 0:03:12.880 --> 0:03:15.440 perform equities has been to be levered long, right, But 0:03:15.880 --> 0:03:18.560 no one does that, right. The question is how much 0:03:18.600 --> 0:03:21.120 of your equity capital you peel off into fixed income? 0:03:21.360 --> 0:03:23.720 You know, and for defined benefit plans, it's not such 0:03:23.720 --> 0:03:26.320 a bad idea because you know, it helps provide cash 0:03:26.320 --> 0:03:29.920 flow um. When you look at the average investor compared 0:03:29.960 --> 0:03:32.080 to the late nineties, when it was all equities all 0:03:32.120 --> 0:03:35.160 the time, they own more fixed income, more alternative investments, 0:03:35.600 --> 0:03:39.520 and so as you've seen the embrace of acid allocation 0:03:39.560 --> 0:03:42.840 by not only institutions behind it worths. What that obviously 0:03:42.920 --> 0:03:46.000 leads to is less upside when things are fantastic, like 0:03:46.080 --> 0:03:48.800 we've really been through the last four years, but also 0:03:48.920 --> 0:03:52.240 far less downside when things turn south. And so yeah, 0:03:52.400 --> 0:03:54.520 I mean, so that's why we look at it. If 0:03:54.560 --> 0:03:57.120 you believe in asaid allocation, embrace it, it leads to 0:03:57.160 --> 0:04:02.800 more continuous, constant return streams and dramatically less volatility um. 0:04:02.840 --> 0:04:05.160 But that being said, in cycles like this or the 0:04:05.240 --> 0:04:09.000 late nineties, you obviously would be better off long equities. 0:04:09.080 --> 0:04:13.320 Are you positioned for higher equity prices? You know, we're so. 0:04:13.400 --> 0:04:15.760 Our job is to make high single digit tim with 0:04:15.840 --> 0:04:19.000 as little downside and correlation in bated equities as possible. 0:04:19.520 --> 0:04:22.440 So when you have that mandate, particularly at the late 0:04:22.520 --> 0:04:24.920 stage of a cycle, when when there's been so little 0:04:24.960 --> 0:04:27.359 alpha and the equity part of the capital structure, you know, 0:04:27.400 --> 0:04:29.599 we've been focused more on cash flows tied to the 0:04:29.640 --> 0:04:33.480 U S consumer UH, commercial real estate UM, whether it's 0:04:33.520 --> 0:04:37.280 government sponsored plans like Freddie Max freddie k Plan or 0:04:37.400 --> 0:04:40.720 SBL plan UM, you know, tied to the regional community 0:04:40.720 --> 0:04:43.080 banking system. So we look at that as we can 0:04:43.120 --> 0:04:46.120 provide high single digit returns but have far less upside 0:04:46.120 --> 0:04:49.479 if things go south. Obviously that's disappointing in quarters like 0:04:49.560 --> 0:04:52.719 Q one or or in two thousand and seventeen. But 0:04:52.800 --> 0:04:55.000 if we can hit high schnole digit returns and be 0:04:55.120 --> 0:04:57.280 up in years like last year, which we in a 0:04:57.279 --> 0:04:59.920 handful of others were, you know, that's the consistent which 0:05:00.000 --> 0:05:02.000 own stream at least that our investors are looking for. 0:05:02.200 --> 0:05:05.400 So let's talk about that high single digit returns with 0:05:05.520 --> 0:05:08.080 low beta to equity, don't you end up with a 0:05:08.160 --> 0:05:12.839 really concentrated portfolio here in the United States. Well, look 0:05:12.880 --> 0:05:17.200 there the consumer credit sectors vast, right, I mean, there's 0:05:17.320 --> 0:05:21.039 r n B s, there's legacy student loans, um, there's 0:05:21.080 --> 0:05:24.400 some uh you might be surprised with some attractive auto loans, 0:05:24.440 --> 0:05:26.760 auto receivables these days. You know, if you look at 0:05:26.760 --> 0:05:29.599 the c MBS market, their vast uh. You know, the 0:05:29.640 --> 0:05:32.360 banking system the US is vast. So you know, from 0:05:32.400 --> 0:05:35.200 our standpoint, you always have to pick one or two 0:05:35.279 --> 0:05:39.200 or maybe three high conviction themes um which are certainly 0:05:39.440 --> 0:05:42.440 uh no, more concentrated than being long equities because at 0:05:42.440 --> 0:05:44.600 the end of for long equities, you know, it's all 0:05:44.600 --> 0:05:48.080 about beta. But how do you bomp out that just quickly? Troy? Yeah, Well, 0:05:48.120 --> 0:05:52.160 again we were thinking of any individual investment theme. We're 0:05:52.160 --> 0:05:55.240 shooting for high single digits with much less downside than equities. 0:05:55.279 --> 0:05:58.040 So that's the bar it needs to clear. Now any 0:05:58.080 --> 0:06:00.880 given time, certain ones have more condact city like coming 0:06:00.920 --> 0:06:03.840 off the Trump election, obviously bank credit quality was going 0:06:03.880 --> 0:06:06.960 to expand dramatically and improve. Um. Right now, we're looking 0:06:06.960 --> 0:06:10.240 more at multifamily uh, certain plans that are sponsored by 0:06:10.279 --> 0:06:13.120 the government where you have slightly better upside less downside. 0:06:13.480 --> 0:06:16.239 So so there's no classic barbelling like from an ASDA 0:06:16.240 --> 0:06:18.919 allocation standpoint of hey, we're long equities that gives us 0:06:18.960 --> 0:06:21.159 the juice, and there were also long bonds which gives 0:06:21.200 --> 0:06:25.520 us downside protection. Were more linear thinkers, Tom and looking 0:06:25.520 --> 0:06:28.080 for positive convexity and that every theme has to stand 0:06:28.120 --> 0:06:31.919 on its own interesting and hopefully provide some downside and 0:06:32.000 --> 0:06:35.520 correlation benefits with others or downside protection. But we're not 0:06:35.520 --> 0:06:37.520 gonna add something that can make two to three percent 0:06:37.880 --> 0:06:40.599 just because it'll be you know, uh down a little 0:06:40.680 --> 0:06:42.840 less if things go south. Troy right to catch out 0:06:42.839 --> 0:06:44.720 with you. I'm not going to run Troy Gusky that 0:06:44.760 --> 0:07:04.039 Chief Investment Alfasa at Skybridge Capital. Our next guest is 0:07:04.080 --> 0:07:07.320 truly expert on the courage it took to clear markets 0:07:07.360 --> 0:07:11.400 in the US, but Johnny can't convey how it. Davos, 0:07:11.520 --> 0:07:17.920 this was the and only backstory Clear cleared the banking 0:07:17.960 --> 0:07:21.760 Systetcy grazijoining US now head of Banks and Diversified Finance 0:07:21.800 --> 0:07:25.280 Research Morgan Stanley, Betsy has always a privilege to get 0:07:25.280 --> 0:07:28.880 your thoughts, to read your research, help us prepare for 0:07:28.920 --> 0:07:32.360 the bank running season that begins later this week, Yes, tomorrow, 0:07:32.360 --> 0:07:35.600 we're going to kick off with Wells and JP uh P, 0:07:35.800 --> 0:07:39.520 n C, Bright and Early. Our expectation is that, look, 0:07:39.520 --> 0:07:41.000 the numbers are going to be a little bit weak. 0:07:41.040 --> 0:07:43.240 They're gonna be down year on year in trading and 0:07:43.560 --> 0:07:47.280 an advisory. We believe that's more than in the price 0:07:47.600 --> 0:07:51.360 right because it's expected given the fact that we had 0:07:51.560 --> 0:07:53.760 the government shutdown, so we should be prepared for that. 0:07:53.880 --> 0:07:57.440 Our our estimates are still a little bit below the street, um, 0:07:57.480 --> 0:07:59.480 and I think that's just you know, people being a 0:07:59.520 --> 0:08:01.840 little late to update their numbers for what we know. 0:08:02.160 --> 0:08:04.480 I read one of your recent notes pricing the right cut. 0:08:04.720 --> 0:08:07.000 The fear of the right cut seems to be driving everything, 0:08:07.040 --> 0:08:09.560 particularly the back end of last year and into this year. 0:08:09.880 --> 0:08:12.960 Have we priced that into we believe. So now look, 0:08:13.040 --> 0:08:16.080 let me explain what that means. To your point, fear 0:08:16.120 --> 0:08:18.960 of recession seems to be priced into the bank stocks 0:08:19.080 --> 0:08:21.160 and nowhere else in the SMP. When we look at 0:08:21.160 --> 0:08:24.239 the SMP, the pe is you know, close to close 0:08:24.280 --> 0:08:28.280 to highs and the relative pe of the banking sector 0:08:28.320 --> 0:08:33.320 today that I cover is bumping around cycle lows. So 0:08:33.760 --> 0:08:37.040 you know, I kind of asked myself, why is that? Um, 0:08:37.120 --> 0:08:39.360 And it's it's hard for me to to understand why 0:08:39.400 --> 0:08:42.000 people think there's you know, recession coming in the near term. 0:08:42.120 --> 0:08:43.840 It's right where I wanted to go. But first, Betsy, 0:08:43.880 --> 0:08:46.480 it's really important. How did James Gorman do yesterday in 0:08:46.520 --> 0:08:49.280 the LoveFest and Washington? Are you trying to get Bessie 0:08:49.280 --> 0:08:52.240 in trouble? Are you trying to get Bessie in trouvel? Oh? 0:08:52.320 --> 0:08:55.040 We could talk and get her into so much trouble. 0:08:55.320 --> 0:08:58.600 I had a lot of meetings on my calendar already. Yeah, 0:08:59.640 --> 0:09:03.480 I didn't. And watch the Betsy. To your point on 0:09:03.559 --> 0:09:07.439 the mystery of bank valuations, do the banks goose that 0:09:07.640 --> 0:09:11.240 with financial engineering or do they just have to wait 0:09:11.600 --> 0:09:14.880 to find a better value? You know, I think that 0:09:14.960 --> 0:09:17.760 what has happened is we need to crank through the 0:09:17.760 --> 0:09:23.040 next several quarters here and our expectation is that we 0:09:23.200 --> 0:09:26.680 have solid economy and that you know, our are my 0:09:26.760 --> 0:09:30.560 colleague Allen Center, who you know well uh is looking 0:09:30.600 --> 0:09:33.400 for a pickup in g d P over you know, 0:09:33.480 --> 0:09:36.720 two q three q UM from what is expected to 0:09:36.760 --> 0:09:39.480 be a low point in one queue due to government shutdown. 0:09:39.520 --> 0:09:42.520 Another reasons the banks that I just happened to review 0:09:42.600 --> 0:09:46.760 City Group yesterday, picking randomly among the gathered. The operating 0:09:46.920 --> 0:09:53.199 income build at these ginormous institutions is extraordinary yesterday, did 0:09:53.240 --> 0:09:57.400 Washington or our listeners or myself or John do we 0:09:57.440 --> 0:10:01.800 actually understand how big the big banks are? Oh? Me, Oh, 0:10:01.840 --> 0:10:04.600 that's a question for me. Um. You know, yeah, I 0:10:04.679 --> 0:10:07.840 do expect that you know, people understand that the the 0:10:08.280 --> 0:10:11.400 you know, top five banks have depending on the asset class, 0:10:11.440 --> 0:10:15.880 fifties sixty percent of you know the market. Um. Importantly, 0:10:16.880 --> 0:10:21.000 that's in part because they've been investing in their plant 0:10:21.000 --> 0:10:25.120 and equipment, investing in their technology, UM, investing in you know, 0:10:25.200 --> 0:10:28.560 branch refreshes, et cetera. And not that other institutions haven't either, 0:10:28.679 --> 0:10:35.160 But brand matters, advertising matters, national reach matters, and these 0:10:35.160 --> 0:10:38.040 are things that are you know, working to the advantage 0:10:38.080 --> 0:10:40.040 of some of the larger institutions. But can you just 0:10:40.080 --> 0:10:41.600 give us a hand to help us out with something 0:10:41.600 --> 0:10:44.600 that a lot of people find difficult to understand, and 0:10:44.640 --> 0:10:48.000 that's the relationship between treasury yields and what should and 0:10:48.040 --> 0:10:50.880 shouldn't happen with bank stocks. What we've seen over the 0:10:50.960 --> 0:10:53.920 last year or so, is this the yield curve narrows, 0:10:53.920 --> 0:10:57.640 flattens bank stocks roll over, But at the same time, 0:10:57.840 --> 0:11:00.440 net interest margins are not getting narrow that they've been 0:11:00.440 --> 0:11:04.960 getting wider. We misunderstanding the relationship and how that's evolved 0:11:04.960 --> 0:11:06.800 over the last ten years between what happens with the 0:11:06.880 --> 0:11:09.959 yield curve and what happens with bank profitability. Well, it's 0:11:09.960 --> 0:11:11.800 a great question, and I think one of the things 0:11:11.800 --> 0:11:14.280 that's happened over the past decade or so is that, 0:11:14.360 --> 0:11:18.840 you know, bank um business mix has widened out a 0:11:18.880 --> 0:11:20.880 little bit, right. I mean, you go back ten years 0:11:20.880 --> 0:11:25.280 ago and you had companies that were just broker dealers 0:11:25.400 --> 0:11:29.080 or companies that were very heavily skewed towards you know, 0:11:29.200 --> 0:11:32.040 corporate or consumer, and now you've got more of a mix. 0:11:32.480 --> 0:11:37.880 In an addition, you do have a bigger portion of 0:11:37.960 --> 0:11:42.920 the deposits in some organizations coming from consumer deposits. And 0:11:42.960 --> 0:11:46.000 then the last thing I would highlight is the yield 0:11:46.040 --> 0:11:50.640 curve flattens that that does pressure certain parts of their business. 0:11:50.679 --> 0:11:54.840 But what I think the market forgets is that banks 0:11:55.120 --> 0:11:59.200 benefit from non interest bearing deposits, and noninterestparing deposits are 0:11:59.240 --> 0:12:03.280 as much as about of your average earning assets. So 0:12:03.800 --> 0:12:05.959 you know, really the not only the shape of the 0:12:06.000 --> 0:12:08.280 curve matters, but the absolute level of rates. And when 0:12:08.320 --> 0:12:10.640 the front end of the curve is at two forty, 0:12:11.080 --> 0:12:14.000 you have and you have twenty of your your average 0:12:14.000 --> 0:12:18.000 earning assets funded by zero percent cost of funds. I 0:12:18.040 --> 0:12:20.640 think that's the piece that the market forgots so deposit 0:12:20.640 --> 0:12:23.320 by the restate really low and we have this essentially, 0:12:23.360 --> 0:12:25.160 we have this free funding and you can then lend 0:12:25.200 --> 0:12:27.440 it out. And making this sound very simplistic, but you 0:12:27.440 --> 0:12:28.800 can make a lot of money that way. And I'm 0:12:28.840 --> 0:12:31.440 just wondering whether the sensitivity to the yield curve has 0:12:31.520 --> 0:12:33.480 changed quite radically over the last ten years. To what 0:12:33.559 --> 0:12:35.880 degree is that true? But say, I think on a 0:12:35.920 --> 0:12:40.120 bank by bank basis, there's some evidence of that. UM 0:12:40.160 --> 0:12:43.960 As a system overall, what we've seen is as these 0:12:44.040 --> 0:12:48.680 rate cycles UM you know, continue, you get you actually 0:12:48.679 --> 0:12:50.640 have had a build up over the last ten years 0:12:50.679 --> 0:12:54.680 in liquidity, and that liquidity is relatively cheap for banks. 0:12:54.679 --> 0:12:58.040 So that's my answer to your question. Let's see, thank 0:12:58.080 --> 0:13:15.080 you really appreciated one of our joys. There's guests that 0:13:15.120 --> 0:13:17.080 we see every spring meeting of the I Am of 0:13:17.160 --> 0:13:20.839 Jacob Frankel, with us tomorrow, among others, Catherine Man of 0:13:20.960 --> 0:13:23.400 City Group we are thrilled to have with us now, 0:13:23.440 --> 0:13:26.600 William Lee with the Milken Institute, with City Group for years, 0:13:26.640 --> 0:13:30.000 and of course is public service at the International Monetary 0:13:30.040 --> 0:13:32.640 Fund as well. Bill, I want to go back to 0:13:32.679 --> 0:13:35.000 first principles, and we saw it a bit overnight with 0:13:35.040 --> 0:13:39.320 President Trump tweeting on the evil trade of Europe as well. 0:13:39.720 --> 0:13:44.720 Exactly how mercantilist, How seventeenth century are these I m 0:13:44.800 --> 0:13:47.000 F meetings. The I m F meetings is like a 0:13:47.040 --> 0:13:49.240 gathering of the masters of economists. And I think one 0:13:49.240 --> 0:13:52.400 of the differences between golf and economics is that here 0:13:52.520 --> 0:13:55.440 we have a bipolar world. The International Entrey Fund is 0:13:55.480 --> 0:14:01.080 a edifice of multilateralism. And so we are all at 0:14:01.080 --> 0:14:03.040 the I m F worried about why it is that 0:14:03.120 --> 0:14:06.120 President Trump is so bilateral, but the domestic economists here 0:14:06.120 --> 0:14:08.240 in the US are getting more and more bilattle, and 0:14:08.280 --> 0:14:10.760 President Trump is saying to the world, you know, I'm 0:14:10.760 --> 0:14:13.520 gonna bash down the bilateral deficit with China. They're gonna 0:14:13.559 --> 0:14:16.000 bash down the bilattal deficit with the EU, and and 0:14:16.080 --> 0:14:19.080 this kind of bashing down to bilateral deficits and and 0:14:19.080 --> 0:14:22.760 and surpluses is doing nothing but just keeping that aggregate 0:14:23.040 --> 0:14:25.640 common account deficit as big as it always was. So 0:14:25.640 --> 0:14:27.720 so it's a it's a full game in part. But 0:14:27.840 --> 0:14:30.200 I think President Trump has got onto something because he's 0:14:30.200 --> 0:14:33.000 trying to say, we need to restructure our economy so 0:14:33.040 --> 0:14:36.480 that we can compete with our biggest competitors, China and 0:14:36.560 --> 0:14:41.760 the EU. But do we overestimate our fear of their wealth, 0:14:42.080 --> 0:14:46.040 our fear of their growing incomes. Do we overestimate the 0:14:46.080 --> 0:14:51.360 demographic economics of China? Absolutely, Tom, Just as we overestimated 0:14:51.960 --> 0:14:54.400 the Soviet Union and what a huge power it was 0:14:54.440 --> 0:14:56.240 supposed to be and it turned out that they were not. 0:14:56.880 --> 0:14:58.960 China may well be that. But one thing we know 0:14:59.000 --> 0:15:03.200 about China is that their intellectual powerhouse, their intellectual capital, 0:15:03.280 --> 0:15:05.840 was trained at might Teach, Health Tech and Stanford and 0:15:05.840 --> 0:15:07.720 and these are the places that that we have a 0:15:07.760 --> 0:15:10.520 handle on. So we know that China is in fact 0:15:10.600 --> 0:15:13.760 pushing the frontier out and it's up to us to 0:15:13.800 --> 0:15:16.320 develop our own intellectual capital, our own technology is to 0:15:16.360 --> 0:15:19.479 be able to compete. But let's just assume that the 0:15:19.480 --> 0:15:21.800 resolution with China is a positive one, the outcome is 0:15:21.840 --> 0:15:26.440 a good one. Let's move on to Europe. What happens next? Boy, John, 0:15:26.480 --> 0:15:28.440 You know I as an ugly American and as someone 0:15:28.480 --> 0:15:30.280 who was the head of the German desk when I 0:15:30.280 --> 0:15:32.880 was at the I M f uh. They used to say, Bill, 0:15:32.960 --> 0:15:34.960 when you got up Europe, it's like John Wayne walking 0:15:34.960 --> 0:15:37.400 down the Chan's else. And I have to say that 0:15:37.520 --> 0:15:40.880 Europe is such a morass of structural problems that they 0:15:40.920 --> 0:15:43.840 barely can get a one handle on growth. And so 0:15:43.840 --> 0:15:46.280 so when you talk about all these issues of Brexit 0:15:46.400 --> 0:15:50.040 and and continental Europe and the banking system uh at 0:15:50.040 --> 0:15:52.640 Italy going to default, I think this to me, that's 0:15:52.640 --> 0:15:57.320 just characteristic of what you're really is slow growth full stop, 0:15:57.640 --> 0:16:00.880 whereas China and US has still will have the potential 0:16:00.960 --> 0:16:04.280 for high digit growth. That's what I worry about, battle 0:16:04.280 --> 0:16:06.200 that China can respond to a tried dispute with the 0:16:06.280 --> 0:16:08.880 United States. I've really struggle to say how the Europeans 0:16:08.920 --> 0:16:11.720 can the Chinese can inject some stiminus into the economy. 0:16:12.040 --> 0:16:15.920 Monasty policy in Europe looks totally exhausted, Fiscal policy looks 0:16:15.920 --> 0:16:20.920 incredibly constrained. What do they do? The old retort of 0:16:21.080 --> 0:16:24.720 I M F policy prescription, structural change and guess what, 0:16:24.880 --> 0:16:26.640 that's the last thing they ever do. In fact, they 0:16:26.680 --> 0:16:29.440 never get to it. So I I honestly believe that 0:16:29.480 --> 0:16:31.680 if I were a global investor, the last place I've 0:16:31.680 --> 0:16:34.680 been look into Europe. Well, if you're a global investor 0:16:34.880 --> 0:16:37.600 and your name is Prime Minister Mayor David Davies is 0:16:37.800 --> 0:16:40.760 just making headlines right now in the Telegraph. I mean, 0:16:41.000 --> 0:16:43.280 is the United Kingdom wrong to say, you know, we 0:16:43.400 --> 0:16:45.640 just really don't want to go down that road. The 0:16:45.720 --> 0:16:48.600 United Kingdom, in some ways it's very special because London 0:16:48.800 --> 0:16:52.920 is still a global capital market, is global uh place 0:16:52.960 --> 0:16:56.440 where global investors go to allocate their funds, and and 0:16:57.040 --> 0:16:59.200 whether it's tied to Europe but tied to the rest 0:16:59.240 --> 0:17:01.320 of the world in some out of the way Europe, 0:17:01.760 --> 0:17:04.040 the UK is gonna do quite well in and of itself. 0:17:04.160 --> 0:17:07.399 Trouble is, the UK is more than just London, and 0:17:07.400 --> 0:17:10.400 and the other parts of the UK have to start 0:17:10.400 --> 0:17:12.879 to fall in line with the same problems that's facing Europe, 0:17:12.880 --> 0:17:15.960 which is they've got structural problems. The technology, for example, 0:17:15.960 --> 0:17:17.840 in the UK, UK used to be the best air 0:17:18.280 --> 0:17:20.600 jet engine makers in the world with Rose Royce. They 0:17:20.640 --> 0:17:23.480 have lost that edge. But let's talk about a service sector, 0:17:23.480 --> 0:17:25.880 shall we and what's gonna happen next in the UK? 0:17:26.240 --> 0:17:29.320 What has happened with services? I barely have a herit discussed. 0:17:30.400 --> 0:17:33.240 When was the last time you worried about insurance from Lloyd's? 0:17:34.080 --> 0:17:37.320 I mean, you know they again? I think, uh, the 0:17:37.359 --> 0:17:40.399 service sector and everything else in the euro in the 0:17:40.520 --> 0:17:43.480 UK has to modernize. When was the last time a 0:17:43.560 --> 0:17:46.360 hit movie was made in the UK? US right now 0:17:46.480 --> 0:17:50.160 has compared advantage in the export of services. Uh, Marvel 0:17:50.240 --> 0:17:53.160 comic movies and and and and all these these these 0:17:53.200 --> 0:17:57.080 these uh Disney productions. They are flooding the world. And 0:17:57.119 --> 0:17:58.879 I think the UK has got to get up with 0:17:59.720 --> 0:18:02.680 gett and speed with doing exactly that. What has been 0:18:02.720 --> 0:18:05.359 clear Bill over the last few months that Europe is 0:18:05.400 --> 0:18:08.320 incredibly divided about how to deal with the Brexit situation. 0:18:08.680 --> 0:18:11.640 Tom earlier bringing up the example of Emmanuel Macron trying 0:18:11.680 --> 0:18:13.720 to play to the audience back home, trying to hold 0:18:13.760 --> 0:18:16.560 things up. If you can't get the whole of Europe 0:18:16.560 --> 0:18:18.160 to agree, how on earth did we get the whole 0:18:18.160 --> 0:18:20.199 of Europe to agree and to get the UK to 0:18:20.240 --> 0:18:22.960 agree to the same thing. You just repeated exactly what 0:18:23.040 --> 0:18:25.200 we were saying before, which is, uh, He's going to 0:18:25.600 --> 0:18:27.919 Europe as an ugly American. I've got to say, Europe 0:18:27.960 --> 0:18:29.960 is in a thousand year war and it's going to 0:18:30.000 --> 0:18:33.600 continue the next thousand years, I think, battling tribalism. So 0:18:33.640 --> 0:18:35.600 what can Madame Legard do about does? I mean, you know, 0:18:35.600 --> 0:18:39.720 we come down here, happy talk interviews Madame Legarde later today, 0:18:39.720 --> 0:18:43.520 Bill ye. But what can a multilateral institution do given 0:18:43.520 --> 0:18:46.800 these fractured relationships. I think the best we can do 0:18:46.920 --> 0:18:50.040 is to recognize that countries are countries and there are 0:18:50.240 --> 0:18:53.320 national objectives. So does Brussels matter? I mean, this is 0:18:53.400 --> 0:18:57.760 perfect overnight, Charles de Gaulle angel a miracle. They matter, 0:18:58.000 --> 0:19:00.760 Brussels doesn't matter. Brussels has got get out of the way, 0:19:00.800 --> 0:19:02.560 just as Washington's gotta get out of the way. And 0:19:02.600 --> 0:19:05.800 I think get letting, letting an entrepreneurship and private sector 0:19:05.840 --> 0:19:08.439 take hold in Europe is the biggest challenge yet to 0:19:08.840 --> 0:19:10.880 great comments, Billy, thank you so much with the Milk 0:19:10.960 --> 0:19:26.640 and Institute, Johnny, you know, to get to our controversial 0:19:26.720 --> 0:19:30.800 and steam guests here. Now, let me just say that, John, 0:19:31.240 --> 0:19:33.560 about the time claims were back where they were in 0:19:33.600 --> 0:19:36.800 October of sixty nine. The hit that Steve Moore was 0:19:36.840 --> 0:19:41.879 listening to was suspicious minds. What's it it really? And 0:19:41.920 --> 0:19:44.440 what a number it is? As well. I'm really pleased 0:19:44.440 --> 0:19:47.080 to say that Stephen Moore joined us now distinguished Visiting 0:19:47.119 --> 0:19:50.640 Fellow at the Heritage Foundation, and we assume the presuming 0:19:50.680 --> 0:19:54.800 President Trump choice for a seat on the Federal Reserve. Steve, 0:19:54.880 --> 0:19:58.840 did you ever think you'd become this controversial? Well, no, 0:19:59.119 --> 0:20:02.560 I didn't. I I'm sort of surprised by the by 0:20:02.680 --> 0:20:06.680 the resistance by the left to my nomination. But it's 0:20:06.680 --> 0:20:08.760 going fine, and you know, I'm well, I'm doing well 0:20:08.800 --> 0:20:12.680 with the Senators, and so this is going to happen. Um. 0:20:12.720 --> 0:20:15.959 You know, I do have some controversial views I'm in 0:20:16.080 --> 0:20:17.600 terms of what I want to do with the FED. 0:20:17.640 --> 0:20:20.760 I feel very strongly about more transparency at the FED. 0:20:20.880 --> 0:20:23.600 I think there should be more openness and sunlight about 0:20:23.600 --> 0:20:27.200 how the FED operates. Um. I do believe that maybe 0:20:27.200 --> 0:20:30.200 this is controversial, maybe it's not. I believe, as as 0:20:30.480 --> 0:20:33.240 Donald Trump believes and and Larry Cudlow believes, that growth 0:20:33.320 --> 0:20:36.200 does not cause inflation. I'll say that again, growth does 0:20:36.240 --> 0:20:38.320 not cause inflation. I think there are too many people 0:20:38.320 --> 0:20:40.560 at the FED, and too many people find in the 0:20:40.600 --> 0:20:43.200 financial industry who believe that every time we get growth, 0:20:43.280 --> 0:20:45.880 sometimes we have to pull that back because it causes inflation. 0:20:45.880 --> 0:20:48.480 If you have an increase in goods and services, prices fall, 0:20:48.560 --> 0:20:51.320 they don't rise. We'll get to the economics. Just to 0:20:51.320 --> 0:20:55.240 get to the process quickly. Yeah, when does it become official? Well, 0:20:55.280 --> 0:20:58.199 I have to go through an FBI clearance and I 0:20:58.240 --> 0:21:01.480 have to also do a financial disclosure that could take 0:21:02.040 --> 0:21:04.159 I don't know exactly how long it'll take for that 0:21:04.200 --> 0:21:07.040 to be completed, maybe a month. And so the way 0:21:07.119 --> 0:21:10.879 this process works is that you're formally nominated once you've 0:21:11.119 --> 0:21:15.200 gone through the clearance. So what was unusual is that 0:21:14.960 --> 0:21:18.720 that this story kind of got out before. Usually you'd 0:21:18.760 --> 0:21:22.000 go through the clearance first and then be nominated. So 0:21:23.040 --> 0:21:26.480 Steve Moore of the uproar over your candidacy to be 0:21:26.560 --> 0:21:29.879 with the FED is about theory as well. Let us 0:21:29.960 --> 0:21:33.080 begin with the defense of supply side theory. There are 0:21:33.160 --> 0:21:36.280 many that push against it. In much of what they 0:21:36.320 --> 0:21:42.240 say is we don't have tangible evidence that growth doesn't 0:21:42.400 --> 0:21:47.879