1 00:00:05,800 --> 00:00:08,720 Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 2 00:00:08,760 --> 00:00:11,520 Speaker 1: Along with my co host Lisa Abramowitz. Each day we 3 00:00:11,600 --> 00:00:15,120 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,200 --> 00:00:17,800 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:17,960 --> 00:00:20,720 Speaker 1: or the trading floor. Find the Bloomberg p m L 6 00:00:20,840 --> 00:00:27,080 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Joining 7 00:00:27,120 --> 00:00:29,880 Speaker 1: me now, Nick Kolas. He is the co founder of 8 00:00:30,040 --> 00:00:33,840 Speaker 1: Data Trek Research. He is also a Bloomberg opinion columnist, 9 00:00:34,400 --> 00:00:36,760 Speaker 1: and he's going to help everybody because he says, he 10 00:00:36,840 --> 00:00:41,600 Speaker 1: has one weird number that explains everything. Nick, it's a 11 00:00:41,640 --> 00:00:44,199 Speaker 1: pleasure to have you here. What is the number and 12 00:00:44,320 --> 00:00:47,559 Speaker 1: what does his What does it explain? Yes, thank you. 13 00:00:47,880 --> 00:00:50,400 Speaker 1: The one weird number isn't so weird, but it is 14 00:00:50,479 --> 00:00:54,160 Speaker 1: kind of sad. It is the twenty year compounded annual 15 00:00:54,200 --> 00:00:57,000 Speaker 1: return on the S and P. This is the number 16 00:00:57,160 --> 00:01:00,240 Speaker 1: that every investor ultimately cares the most about because how 17 00:01:00,280 --> 00:01:02,040 Speaker 1: much money you can make in the market when you 18 00:01:02,120 --> 00:01:05,400 Speaker 1: buy and hold, and sadly, that number is about five 19 00:01:05,480 --> 00:01:08,959 Speaker 1: percent over the last twenty years. In terms of a 20 00:01:09,000 --> 00:01:12,520 Speaker 1: compounded annual growth rates, the average back to twenty eight 21 00:01:12,600 --> 00:01:15,720 Speaker 1: is eleven percent, so more than double that number, and 22 00:01:15,760 --> 00:01:18,560 Speaker 1: we've very rarely seen these kind of five five and 23 00:01:18,560 --> 00:01:22,119 Speaker 1: a half percent to the actual precise number going back 24 00:01:22,160 --> 00:01:24,400 Speaker 1: to the nineteen twenties. A matter of fact, it's just 25 00:01:24,480 --> 00:01:26,680 Speaker 1: as bad as the period right after World War Two 26 00:01:26,720 --> 00:01:29,400 Speaker 1: when the twenty years trailing numbers were about four percent. 27 00:01:29,480 --> 00:01:33,000 Speaker 1: But that includes the Great Depression. So we've had very 28 00:01:33,160 --> 00:01:36,960 Speaker 1: very low returns in US stocks over the last twenty years. 29 00:01:37,200 --> 00:01:40,120 Speaker 1: Does it matter if we then delve a little bit 30 00:01:40,160 --> 00:01:44,120 Speaker 1: deeper and try to find out why? It matters intensely? 31 00:01:44,160 --> 00:01:46,720 Speaker 1: And the simple reason why is we've had two thirty 32 00:01:46,760 --> 00:01:50,400 Speaker 1: five percent corrections in the stock market, one from two 33 00:01:50,440 --> 00:01:53,480 Speaker 1: thousand one to two thousand three, the second and two 34 00:01:53,520 --> 00:01:57,000 Speaker 1: thousand eight obviously, and it's those major pullbacks that have 35 00:01:57,120 --> 00:02:01,240 Speaker 1: really crushed returns. So when you here that you've got 36 00:02:01,280 --> 00:02:03,880 Speaker 1: to stay in the market because no one is good 37 00:02:03,960 --> 00:02:09,240 Speaker 1: at market timing, and that if you miss those higher movements, 38 00:02:09,320 --> 00:02:13,359 Speaker 1: those increases in price and start to worry about just 39 00:02:13,440 --> 00:02:17,240 Speaker 1: as you describe these declines these sell offs, that's not 40 00:02:17,360 --> 00:02:19,440 Speaker 1: really going to work to your advantage. What do you 41 00:02:19,480 --> 00:02:22,400 Speaker 1: think the bottom line is? If you're going to be 42 00:02:22,440 --> 00:02:24,960 Speaker 1: an investor, and an investor with a capital I you 43 00:02:25,120 --> 00:02:27,760 Speaker 1: have to live through these cycles and they are wrenching. 44 00:02:27,800 --> 00:02:31,200 Speaker 1: It is painful to see your returns go down thirty 45 00:02:31,200 --> 00:02:34,320 Speaker 1: plus percent over short periods of time. The good news 46 00:02:34,440 --> 00:02:37,119 Speaker 1: is that the SMP at least has done better than say, 47 00:02:37,200 --> 00:02:40,080 Speaker 1: emerging markets or the EFA stocks. If you look at 48 00:02:40,120 --> 00:02:42,079 Speaker 1: the long term chart on e f A or e 49 00:02:42,280 --> 00:02:44,440 Speaker 1: M the two E T F to track EFA and 50 00:02:44,440 --> 00:02:47,160 Speaker 1: emerging markets, you'll see that they are below their two 51 00:02:47,160 --> 00:02:51,360 Speaker 1: thousand eight highs today by twenty five plus percent. Those 52 00:02:51,400 --> 00:02:54,560 Speaker 1: stocks haven't even had the bull run that the SMP 53 00:02:54,720 --> 00:02:58,640 Speaker 1: had from two thousand eight onwards. So is it is 54 00:02:58,680 --> 00:03:03,359 Speaker 1: it possible to make the case that diversification is a 55 00:03:03,440 --> 00:03:07,600 Speaker 1: great marketing tool but does not get you the kind 56 00:03:07,639 --> 00:03:10,959 Speaker 1: of returns that you think you're going to receive. Well, 57 00:03:11,000 --> 00:03:13,160 Speaker 1: you know it's the old past performance is no indication 58 00:03:13,280 --> 00:03:15,320 Speaker 1: kind of phenomena. The best thing you can say are 59 00:03:15,320 --> 00:03:16,600 Speaker 1: the most act thing you can say is for the 60 00:03:16,680 --> 00:03:19,799 Speaker 1: last decade, they have not done you any favors. Diversifying 61 00:03:19,800 --> 00:03:23,400 Speaker 1: internationally has not worked. The SMP has been the place 62 00:03:23,480 --> 00:03:26,639 Speaker 1: to be, and even this year with these parlos returns, 63 00:03:26,639 --> 00:03:29,240 Speaker 1: it continued to be the place to be. Well. I 64 00:03:29,320 --> 00:03:31,600 Speaker 1: was going to go down the path that if you 65 00:03:31,639 --> 00:03:36,640 Speaker 1: are able to identify an investment, whatever kind it is, 66 00:03:36,680 --> 00:03:39,360 Speaker 1: but let's just use the equity market as an example. 67 00:03:39,760 --> 00:03:43,160 Speaker 1: If you are able to identify and it may be 68 00:03:43,280 --> 00:03:49,040 Speaker 1: more art than science specific companies or a specific company, 69 00:03:49,160 --> 00:03:52,520 Speaker 1: and are able to ride it to a higher price 70 00:03:52,760 --> 00:03:58,240 Speaker 1: while managing losses or downturns in other assets or other stocks, 71 00:03:58,800 --> 00:04:02,120 Speaker 1: that that may be a way to actually produce returns. 72 00:04:02,480 --> 00:04:05,240 Speaker 1: It absolutely is. This goes back to the whole active 73 00:04:05,360 --> 00:04:08,880 Speaker 1: versus passive argument because what you're describing is a selective 74 00:04:09,160 --> 00:04:12,760 Speaker 1: active strategy. And look, something as simple as overweighting the 75 00:04:12,760 --> 00:04:15,640 Speaker 1: text docs for the last five years has been that ticket. 76 00:04:15,720 --> 00:04:17,960 Speaker 1: But it wasn't for the first five years after the 77 00:04:17,960 --> 00:04:21,320 Speaker 1: financial crisis. It was financials and other more prosaic sectors 78 00:04:21,320 --> 00:04:23,640 Speaker 1: that really worked. Tech was a classic mid to late 79 00:04:23,680 --> 00:04:26,880 Speaker 1: cycle play. So even in thinking through that paradigm, you've 80 00:04:26,880 --> 00:04:28,279 Speaker 1: got to think about it in terms of where you 81 00:04:28,320 --> 00:04:30,839 Speaker 1: are on the cycle in order to execute on It's 82 00:04:30,839 --> 00:04:32,960 Speaker 1: something as simple as owning Tesla for the last ten 83 00:04:33,040 --> 00:04:35,440 Speaker 1: years has actually been a reasonable way to app from 84 00:04:35,440 --> 00:04:37,960 Speaker 1: the SMP because it's not even in the SMP. So 85 00:04:38,080 --> 00:04:41,520 Speaker 1: does this beg the question all of the dynamics that 86 00:04:41,600 --> 00:04:45,880 Speaker 1: exists in the marketplace and the various computer programs that 87 00:04:46,000 --> 00:04:50,200 Speaker 1: slice and dice are really all for nought because that 88 00:04:50,360 --> 00:04:55,000 Speaker 1: is more of the selling machine rather than the investing machine. Yeah, 89 00:04:55,000 --> 00:04:57,520 Speaker 1: I would put it as it's more than market making machine. 90 00:04:57,600 --> 00:05:01,440 Speaker 1: It's how basically we arbitrage. Where stocks trade in the US. 91 00:05:01,520 --> 00:05:04,560 Speaker 1: You know, the average stock trades at thirty different venues. 92 00:05:04,960 --> 00:05:07,080 Speaker 1: Someone's got to arb those out a hundred shares at 93 00:05:07,080 --> 00:05:09,600 Speaker 1: a time. And that's what the machine really is reasonably 94 00:05:09,600 --> 00:05:12,800 Speaker 1: good at in a fairly efficient automated fashion. But in 95 00:05:12,920 --> 00:05:16,440 Speaker 1: terms of how society, how the US economy is creating 96 00:05:16,520 --> 00:05:20,400 Speaker 1: value for shareholders, were coming were basically we're coming at 97 00:05:20,080 --> 00:05:23,480 Speaker 1: the end of a really low period of returns. The 98 00:05:23,520 --> 00:05:25,080 Speaker 1: good news it's better than the rest of the world. 99 00:05:25,320 --> 00:05:27,240 Speaker 1: The bad news is it's less than half of what 100 00:05:27,320 --> 00:05:30,159 Speaker 1: we've all been taught. Are the right long term returns 101 00:05:30,200 --> 00:05:35,120 Speaker 1: of ten to eleven. You've been a watcher of markets 102 00:05:35,160 --> 00:05:37,520 Speaker 1: for longer than I'm going to hold you accountable for. 103 00:05:39,000 --> 00:05:44,720 Speaker 1: Is there a psychological change in the investor community now 104 00:05:44,839 --> 00:05:47,680 Speaker 1: versus when you first entered the business. There absolutely is, 105 00:05:47,760 --> 00:05:49,960 Speaker 1: and I would summarize it around the numbers that we're 106 00:05:50,000 --> 00:05:52,919 Speaker 1: talking about, because look at the twenty year trailing returns 107 00:05:52,920 --> 00:05:57,719 Speaker 1: in nine were seventeen point seven percent trailing twenty year returns. 108 00:05:58,040 --> 00:06:01,600 Speaker 1: You were doubling your money every four or years. Now 109 00:06:01,640 --> 00:06:05,200 Speaker 1: it's taking you much longer, and as a result, investors 110 00:06:05,200 --> 00:06:09,039 Speaker 1: are both getting more passive because with low returns comes 111 00:06:09,040 --> 00:06:11,080 Speaker 1: the need to have low fee structures, and that's a 112 00:06:11,200 --> 00:06:14,520 Speaker 1: challenge for active managers. But it also says that people 113 00:06:14,640 --> 00:06:17,760 Speaker 1: have to look much further afield for returns, whether it 114 00:06:17,760 --> 00:06:20,240 Speaker 1: be the retail investor looking at cryptocurrency is trying to 115 00:06:20,360 --> 00:06:23,799 Speaker 1: use returns, or the institutional investor buying into private equity 116 00:06:24,000 --> 00:06:26,120 Speaker 1: and venture capital to try to get their returns. Because 117 00:06:26,160 --> 00:06:29,080 Speaker 1: remember most pension funds have a seven eight percent required 118 00:06:29,160 --> 00:06:32,200 Speaker 1: rate of return or expected rate of return. They physically 119 00:06:32,240 --> 00:06:34,760 Speaker 1: cannot get that inequities they haven't gotten inequities over the 120 00:06:34,800 --> 00:06:37,120 Speaker 1: last twenty years. They have to go into PE, they 121 00:06:37,120 --> 00:06:39,240 Speaker 1: have to go into VC, They have to find ways 122 00:06:39,279 --> 00:06:42,440 Speaker 1: to either leverage or go into early stage companies to 123 00:06:42,480 --> 00:06:45,800 Speaker 1: get the returns they need. So it's a huge change. Nick, 124 00:06:45,839 --> 00:06:48,480 Speaker 1: I want to ask you something about stock buy backs 125 00:06:48,560 --> 00:06:52,360 Speaker 1: and the money that companies spend on stock buy backs. 126 00:06:52,640 --> 00:06:56,359 Speaker 1: Given the five five and a half percent annualized return 127 00:06:56,760 --> 00:07:00,520 Speaker 1: in the SMP five hundred which you have calculated, did 128 00:07:01,240 --> 00:07:04,840 Speaker 1: does it make sense for companies to be buying their 129 00:07:04,880 --> 00:07:07,400 Speaker 1: own stock if they're going to end up with the 130 00:07:07,520 --> 00:07:11,320 Speaker 1: same return that their investors do. Yeah. No, it's a 131 00:07:11,440 --> 00:07:14,480 Speaker 1: great question, and the short answer is no, it does 132 00:07:14,560 --> 00:07:17,160 Speaker 1: not make sense to the same magnitude that we've seen 133 00:07:17,240 --> 00:07:19,480 Speaker 1: buy backs this year, which as we know, is close 134 00:07:19,520 --> 00:07:21,720 Speaker 1: to a trillion dollars when it's all said and done. 135 00:07:22,160 --> 00:07:24,600 Speaker 1: By far the biggest buyers in this market, better bigger 136 00:07:24,600 --> 00:07:27,640 Speaker 1: than passive flows for example, or anything else we can measure. 137 00:07:27,920 --> 00:07:29,880 Speaker 1: And the reason it doesn't make sense is because if 138 00:07:29,880 --> 00:07:32,640 Speaker 1: you think about buying back your stock as an exercise 139 00:07:32,680 --> 00:07:34,720 Speaker 1: and investment, you're only going to earn that five and 140 00:07:34,720 --> 00:07:38,720 Speaker 1: a half percent return. And most corporations likely think their 141 00:07:38,720 --> 00:07:41,240 Speaker 1: cost of capital is ten percent because that's the number 142 00:07:41,280 --> 00:07:43,960 Speaker 1: we've all been trained to think about. So it means 143 00:07:44,000 --> 00:07:46,200 Speaker 1: that there's a whole raft of projects that are going 144 00:07:46,240 --> 00:07:49,440 Speaker 1: to earn perspectively five to ten percent, but these companies 145 00:07:49,480 --> 00:07:52,000 Speaker 1: aren't taking on. Now, look to give the CFOs of 146 00:07:52,000 --> 00:07:55,000 Speaker 1: these companies and boards these companies some credit. They probably 147 00:07:55,000 --> 00:07:56,720 Speaker 1: look at all the volatility that we talked about in 148 00:07:56,720 --> 00:07:59,560 Speaker 1: the prior segment, these thirty five percent draw downs twice 149 00:07:59,600 --> 00:08:01,360 Speaker 1: in the past twenty years, and think, you know what, 150 00:08:01,600 --> 00:08:03,760 Speaker 1: we have to mitigate the volatility of our stock and 151 00:08:03,840 --> 00:08:06,200 Speaker 1: buy backs can help us do that. And so they 152 00:08:06,280 --> 00:08:08,360 Speaker 1: might think of buybacks in the micro is a good 153 00:08:08,360 --> 00:08:11,280 Speaker 1: thing because it minimizes or reduces volatility. But in the 154 00:08:11,320 --> 00:08:13,440 Speaker 1: macro sense, it means that we are not as a 155 00:08:13,480 --> 00:08:16,880 Speaker 1: society allocating capital to its the best possible use. Because 156 00:08:16,880 --> 00:08:19,040 Speaker 1: we're buying back stock at five and a half, we 157 00:08:19,040 --> 00:08:21,560 Speaker 1: should be investing in seven and nine percent return projects, 158 00:08:21,560 --> 00:08:25,560 Speaker 1: but companies aren't doing that. Does that also reflect the 159 00:08:25,680 --> 00:08:30,640 Speaker 1: way in which companies account for their capital expenditures that 160 00:08:30,760 --> 00:08:34,679 Speaker 1: if you spend money on research and development, that almost 161 00:08:34,720 --> 00:08:36,920 Speaker 1: counts against you when you take a look at the 162 00:08:36,960 --> 00:08:39,559 Speaker 1: balance sheet. Yeah, it's a funny thing about R and D. 163 00:08:39,600 --> 00:08:41,560 Speaker 1: I mean R and D in most cases is expensed 164 00:08:41,559 --> 00:08:44,400 Speaker 1: in the current period because it has an uncertain outcome, 165 00:08:44,720 --> 00:08:47,000 Speaker 1: and so it does hit the P and L. So 166 00:08:47,080 --> 00:08:49,199 Speaker 1: if you're looking to make an EPs number, R and 167 00:08:49,280 --> 00:08:51,240 Speaker 1: D is not exactly your friend, and you have to 168 00:08:51,280 --> 00:08:54,640 Speaker 1: budget for it very carefully. And yet those are the 169 00:08:54,679 --> 00:08:57,440 Speaker 1: projects that you want to be focused on because that's 170 00:08:57,440 --> 00:09:01,280 Speaker 1: what's going to produce those future returns exactly right. And 171 00:09:01,640 --> 00:09:02,960 Speaker 1: you know, it's a funny thing about R and D 172 00:09:03,000 --> 00:09:05,520 Speaker 1: and CAT and CAPEX and buy backs because buy backs 173 00:09:05,559 --> 00:09:09,679 Speaker 1: don't really crowd out R and D necessarily, but corporations 174 00:09:09,679 --> 00:09:11,160 Speaker 1: have to think about it in terms of what you 175 00:09:11,240 --> 00:09:14,320 Speaker 1: just said, which is an investment in future growth, And 176 00:09:14,440 --> 00:09:16,960 Speaker 1: if they're looking for more shut things, then you know, 177 00:09:17,040 --> 00:09:20,120 Speaker 1: perspectively riskier things than they will be cutting back on 178 00:09:20,200 --> 00:09:23,240 Speaker 1: R and D. Now does your one number the five 179 00:09:23,280 --> 00:09:26,480 Speaker 1: and a half percent return? Does that also lead you 180 00:09:26,760 --> 00:09:30,600 Speaker 1: to the conclusion that fees when it comes to managing 181 00:09:30,640 --> 00:09:35,560 Speaker 1: money will become even more compressed because people are gonna 182 00:09:35,600 --> 00:09:38,679 Speaker 1: want to eke out whatever gain they can. Yeah, this 183 00:09:38,760 --> 00:09:41,400 Speaker 1: is the most important point for active managers and for 184 00:09:41,440 --> 00:09:44,520 Speaker 1: the money management industry as a whole. And what's happened 185 00:09:44,640 --> 00:09:47,360 Speaker 1: is look that the peak period of Wall Street for brokers, 186 00:09:47,360 --> 00:09:50,280 Speaker 1: for asset managers, for active managers was the nineteen nineties, 187 00:09:50,559 --> 00:09:52,640 Speaker 1: and that was the period where we had these fifteen 188 00:09:52,640 --> 00:09:56,800 Speaker 1: to seventeen percent compounded annual returns, and of course ASCID 189 00:09:56,840 --> 00:09:59,079 Speaker 1: owners are going to be feel fine about paying somebody 190 00:09:59,240 --> 00:10:01,920 Speaker 1: one and a half for two percent active or two 191 00:10:01,960 --> 00:10:04,240 Speaker 1: and twenty as a hedge fund in order to have 192 00:10:04,280 --> 00:10:07,640 Speaker 1: a shot at out performing when you're at five percent. 193 00:10:07,760 --> 00:10:10,400 Speaker 1: Nobody has any patients for high fees. And as a 194 00:10:10,440 --> 00:10:12,400 Speaker 1: matter of fact, we as we know, we see e 195 00:10:12,480 --> 00:10:15,480 Speaker 1: t F basically almost zero fees and that's a direct 196 00:10:15,600 --> 00:10:18,599 Speaker 1: function of these declining returns. And until returns begin to 197 00:10:18,640 --> 00:10:21,880 Speaker 1: improve on a structural basis, asset management will find it 198 00:10:22,080 --> 00:10:24,640 Speaker 1: very hard to charging her mental fees. So what do 199 00:10:24,679 --> 00:10:26,679 Speaker 1: you see for the future when it comes to the 200 00:10:26,800 --> 00:10:32,400 Speaker 1: specific industry dynamics. Fewer participants but bigger participants. Yeah, I mean, 201 00:10:32,440 --> 00:10:34,800 Speaker 1: basically you've seen it for the last ten years. Economies 202 00:10:34,840 --> 00:10:37,840 Speaker 1: of scale at low fee structures is how the industry 203 00:10:37,880 --> 00:10:41,480 Speaker 1: is shaping itself. Also making sure that the entire infrastructure 204 00:10:41,520 --> 00:10:43,800 Speaker 1: of the industry, the trading that we see every day 205 00:10:43,960 --> 00:10:47,120 Speaker 1: happens in an automated, very low cost fashion, and it 206 00:10:47,160 --> 00:10:50,440 Speaker 1: creates some brittleness and markets as we've seen this month. Um, 207 00:10:50,520 --> 00:10:52,600 Speaker 1: you don't want the same away from the recent market 208 00:10:52,640 --> 00:10:56,800 Speaker 1: volatility and these big points swings. Two things. The first is, 209 00:10:56,960 --> 00:10:59,600 Speaker 1: you know, we had a very unusual year because things 210 00:10:59,640 --> 00:11:02,640 Speaker 1: look rate until October, and then Tech rolled over and 211 00:11:02,679 --> 00:11:05,200 Speaker 1: a lot of folks sold tech stocks that they've had 212 00:11:05,360 --> 00:11:08,240 Speaker 1: huge capital gains in. And then in only December, the 213 00:11:08,360 --> 00:11:10,680 Speaker 1: entire market rolled over, and all of a sudden, a 214 00:11:10,720 --> 00:11:13,280 Speaker 1: lot of managers began to realize, we cannot give our 215 00:11:13,320 --> 00:11:16,040 Speaker 1: clients a big tax bill on top of showing them 216 00:11:16,040 --> 00:11:18,440 Speaker 1: that they have negative returns on the year, and so 217 00:11:18,520 --> 00:11:22,480 Speaker 1: you had wholesale selling of tax loss candidates all these 218 00:11:22,480 --> 00:11:25,200 Speaker 1: stocks that have suffered the entire year in order to 219 00:11:25,240 --> 00:11:28,640 Speaker 1: offset those gains managers took in October and November selling tech. 220 00:11:29,080 --> 00:11:32,000 Speaker 1: And that, to me is what just cranked this market 221 00:11:32,040 --> 00:11:36,079 Speaker 1: down in December was profound tax laws selling over this 222 00:11:36,160 --> 00:11:38,640 Speaker 1: issue of not wanting to show taxable gains on top 223 00:11:38,679 --> 00:11:41,440 Speaker 1: of the paper loss for the year. Thankfully, we're almost 224 00:11:41,440 --> 00:11:42,840 Speaker 1: all the way through it, and that's why you've seen 225 00:11:42,880 --> 00:11:46,240 Speaker 1: market stabilize. Well. Thanks very much for sharing your thoughts 226 00:11:46,240 --> 00:11:48,920 Speaker 1: with us, and really a wonderful piece. I encourage everyone 227 00:11:49,000 --> 00:11:51,920 Speaker 1: to read it. Much appreciated. Nick cholis He is the 228 00:11:51,960 --> 00:11:54,600 Speaker 1: co founder of Data Trek Research. He is also a 229 00:11:54,600 --> 00:11:58,199 Speaker 1: Bloomberg opinion columnist, and as he said, he's got one 230 00:11:58,240 --> 00:12:01,840 Speaker 1: weird number that explains well mostly everything. Thanks very much 231 00:12:01,880 --> 00:12:03,880 Speaker 1: for being with us, and just to bring you up 232 00:12:03,920 --> 00:12:07,400 Speaker 1: to date on what's happening in markets right now. Stocks 233 00:12:08,200 --> 00:12:10,679 Speaker 1: they're trading at their lows of the session, the Dow 234 00:12:10,800 --> 00:12:13,640 Speaker 1: Jones Industrial Average down a hundred and thirty six points, 235 00:12:13,840 --> 00:12:21,959 Speaker 1: SMP five hundred, down fourteen, and the NASDAC down. The 236 00:12:22,120 --> 00:12:26,640 Speaker 1: topic now is Brexit and many small businesses in the 237 00:12:26,760 --> 00:12:31,520 Speaker 1: United Kingdom could face a big tax. This could be 238 00:12:31,720 --> 00:12:35,240 Speaker 1: an attacks that would affect them after Britain leaves the 239 00:12:35,280 --> 00:12:40,520 Speaker 1: European Union. Members of Parliament on the EU Scrutiny Committee 240 00:12:40,559 --> 00:12:43,880 Speaker 1: have warned that VAT tax value add attacks will have 241 00:12:43,960 --> 00:12:47,240 Speaker 1: to be paid by small businesses for the first time, 242 00:12:47,720 --> 00:12:50,440 Speaker 1: and that comes at a time when even retail sales 243 00:12:50,480 --> 00:12:53,040 Speaker 1: in the United Kingdom seemed to be suffering from the 244 00:12:53,040 --> 00:12:56,120 Speaker 1: Brexit effect. Here to tell us more about the effects 245 00:12:56,400 --> 00:12:59,400 Speaker 1: of the pull out from the European Union is Dr 246 00:12:59,520 --> 00:13:03,760 Speaker 1: Sam Nahapof. He is the president of Empire Global Ventures. 247 00:13:03,800 --> 00:13:06,920 Speaker 1: He previously served as Senior Advisor to the Governor of 248 00:13:06,960 --> 00:13:09,319 Speaker 1: the State of New York for International Commerce as well 249 00:13:09,360 --> 00:13:12,200 Speaker 1: as Deputy Commissioner of the New York State Department of 250 00:13:12,240 --> 00:13:17,560 Speaker 1: Economic Development for International Development, Dr Natapoff, thank you very 251 00:13:17,640 --> 00:13:21,760 Speaker 1: much for being with us. Maybe just lay out your 252 00:13:21,840 --> 00:13:26,960 Speaker 1: scenario for what happens in Britain after they leave the 253 00:13:27,000 --> 00:13:31,480 Speaker 1: European Union. What does it look like? Okay, okay, First, 254 00:13:31,520 --> 00:13:34,839 Speaker 1: thank you for having me. Second, I think the probability 255 00:13:34,880 --> 00:13:38,200 Speaker 1: now of a no deal brexit, no agreement between Britain 256 00:13:38,200 --> 00:13:41,199 Speaker 1: and the European Union on how this exit is going 257 00:13:41,200 --> 00:13:44,360 Speaker 1: to be handled, is a most likely scenario. So in 258 00:13:44,400 --> 00:13:48,200 Speaker 1: a no deal Brexit, every major economic, social, and political 259 00:13:48,240 --> 00:13:52,120 Speaker 1: institution in Britain is under threat. The British government itself 260 00:13:52,240 --> 00:13:55,800 Speaker 1: estimates that they'll lose ten of their GDP and seven 261 00:13:56,040 --> 00:13:59,120 Speaker 1: fifty thou jobs, or about three percent of all jobs 262 00:13:59,120 --> 00:14:01,840 Speaker 1: in Britain would be a hundred and fifty thousand in 263 00:14:01,880 --> 00:14:05,240 Speaker 1: London alone. The Bank of England says that Britain would 264 00:14:05,240 --> 00:14:10,160 Speaker 1: lose about fifty two trillion dollars in Euro denominated derivative 265 00:14:10,240 --> 00:14:12,960 Speaker 1: contracts based in London which would be at risk in 266 00:14:13,000 --> 00:14:15,600 Speaker 1: a no deal Brexit. And to give you some sense 267 00:14:15,640 --> 00:14:18,600 Speaker 1: of what that means, Britain's entire economy is only two 268 00:14:18,600 --> 00:14:22,080 Speaker 1: point six trillion, So they're putting at risk twenty times 269 00:14:22,080 --> 00:14:25,760 Speaker 1: the size of their own national economy. So the two 270 00:14:25,800 --> 00:14:28,480 Speaker 1: things about Brexit that are important to remember is that 271 00:14:28,560 --> 00:14:33,280 Speaker 1: it's almost completely irrational and it's almost completely unpredictable. Your 272 00:14:33,520 --> 00:14:35,960 Speaker 1: your running talking about what's going to happen with V 273 00:14:36,080 --> 00:14:39,520 Speaker 1: A T. Nobody knows, and that's what's making markets so scared. 274 00:14:40,360 --> 00:14:43,480 Speaker 1: Based on your experience and I know that you have 275 00:14:43,760 --> 00:14:47,320 Speaker 1: contributed your expertise to the U S Department of Commerce, 276 00:14:47,360 --> 00:14:51,640 Speaker 1: the European Central Bank, the German Bundesbank. Based on your 277 00:14:51,680 --> 00:14:55,760 Speaker 1: experience and expertise, do you expect that kind of no 278 00:14:56,000 --> 00:14:59,520 Speaker 1: deal Brexit to take place or will there be some 279 00:14:59,640 --> 00:15:04,600 Speaker 1: kind of accommodation or maybe an extension of a transition period. 280 00:15:07,160 --> 00:15:10,840 Speaker 1: I think that there won't. My personal opinion is there 281 00:15:10,880 --> 00:15:14,280 Speaker 1: won't be a no deal Brexit. They'll extend the transition period, 282 00:15:14,720 --> 00:15:16,520 Speaker 1: and in my gut, I think there will be a 283 00:15:16,560 --> 00:15:19,840 Speaker 1: second referendum in Britain. And do you believe that that 284 00:15:19,960 --> 00:15:24,800 Speaker 1: second referendum will conclude that the British want to stay 285 00:15:24,960 --> 00:15:29,240 Speaker 1: in the European Union. Yes, I think they do, because 286 00:15:30,120 --> 00:15:33,000 Speaker 1: it has never been it was never expressed Brexit was 287 00:15:33,040 --> 00:15:35,800 Speaker 1: never explained to the British people about what they were 288 00:15:35,800 --> 00:15:38,240 Speaker 1: going to lose. It was always told to them about 289 00:15:38,400 --> 00:15:41,920 Speaker 1: what they're going to gain. They've since learned that everything 290 00:15:41,960 --> 00:15:44,920 Speaker 1: they thought they were going to gain wasn't true, and 291 00:15:45,000 --> 00:15:48,520 Speaker 1: everything they were going to lose was true. And the 292 00:15:48,560 --> 00:15:51,360 Speaker 1: British people are pretty good business people in the end, 293 00:15:51,600 --> 00:15:53,880 Speaker 1: so that I think they're going to change their minds. 294 00:15:54,000 --> 00:15:57,000 Speaker 1: There's going to be a second referendum and they're going 295 00:15:57,040 --> 00:15:59,080 Speaker 1: to try and put right this terrible mistake that they've 296 00:15:59,080 --> 00:16:01,880 Speaker 1: been living under for about eighteen months. Do you believe 297 00:16:02,160 --> 00:16:07,520 Speaker 1: that the UK Prime Minister Theresa May will survive this effort? No, 298 00:16:08,000 --> 00:16:11,280 Speaker 1: I don't um. Theresa May, in the next three weeks 299 00:16:11,400 --> 00:16:13,560 Speaker 1: is going to bring her Brexit deal to the floor 300 00:16:13,600 --> 00:16:15,640 Speaker 1: of the House of Commons for a vote on the 301 00:16:15,720 --> 00:16:20,200 Speaker 1: agreement that she negotiated. She will lose that vote. Then 302 00:16:20,240 --> 00:16:24,160 Speaker 1: there's only three possible outcomes. One they manage no deal Brexit, 303 00:16:24,240 --> 00:16:27,800 Speaker 1: which will be an economic and political catastrophe, to a 304 00:16:27,880 --> 00:16:31,920 Speaker 1: second referendum on leaving the EU. Or three a general election, 305 00:16:32,200 --> 00:16:35,160 Speaker 1: which will probably end up with a second referendum if 306 00:16:35,200 --> 00:16:37,600 Speaker 1: she loses that vote. And I think it's quite clear 307 00:16:37,640 --> 00:16:40,720 Speaker 1: that she will either her party will force her to 308 00:16:40,840 --> 00:16:44,680 Speaker 1: resign for leading them down this path, or there'll be 309 00:16:44,680 --> 00:16:47,400 Speaker 1: a general election and Jeremy Corbyn will become prime minister 310 00:16:47,640 --> 00:16:51,800 Speaker 1: the leader of the Labor Party. Let's explore those scenarios. 311 00:16:51,920 --> 00:16:56,960 Speaker 1: If Jeremy Corbyn becomes the prime minister, what kind of 312 00:16:57,200 --> 00:17:03,360 Speaker 1: Brexit or no Brexit will Britain experience. Jeremy Corbyn is 313 00:17:03,400 --> 00:17:07,639 Speaker 1: an unregenerate seventies socialist from Britain's long and distant past. 314 00:17:08,000 --> 00:17:11,119 Speaker 1: He doesn't want to stay in the EU because thirty 315 00:17:11,560 --> 00:17:14,280 Speaker 1: years ago the Labor Party didn't believe in the European Union. 316 00:17:14,840 --> 00:17:18,479 Speaker 1: His problem is his party wants to stay in and 317 00:17:18,600 --> 00:17:22,240 Speaker 1: he will. He will reluctantly, I think, agree to a 318 00:17:22,280 --> 00:17:26,560 Speaker 1: second referendum. And we know this because his Shadow Chancellor, 319 00:17:26,640 --> 00:17:30,440 Speaker 1: John McDonald said that a second referendum was inevitable about 320 00:17:30,480 --> 00:17:33,040 Speaker 1: two weeks ago if Theresa May couldn't get her deal 321 00:17:33,080 --> 00:17:36,639 Speaker 1: through the Commons. So if Labor wins the upcoming general 322 00:17:36,680 --> 00:17:40,439 Speaker 1: election and Jeremy Corbyn becomes Prime minister, I think he 323 00:17:40,480 --> 00:17:43,320 Speaker 1: will reluctantly hold a second referendum, and I think they'll 324 00:17:43,400 --> 00:17:46,720 Speaker 1: vote to remain this time. If it is not Jeremy 325 00:17:46,840 --> 00:17:51,919 Speaker 1: Corbin but another Conservative or Tory Party candidate becomes Prime 326 00:17:51,960 --> 00:17:55,600 Speaker 1: minister without calling a general election, who do you think 327 00:17:55,640 --> 00:17:59,520 Speaker 1: it will be. I'm afraid it will be Boris Johnson. 328 00:18:00,240 --> 00:18:03,520 Speaker 1: Bars Johnson is the former Lord Mayor of London. He's 329 00:18:03,600 --> 00:18:06,159 Speaker 1: part of the reason that we're in this mess to 330 00:18:06,320 --> 00:18:09,400 Speaker 1: this point. But you need to understand Brexit a little 331 00:18:09,400 --> 00:18:11,280 Speaker 1: bit in the same way that in the United States 332 00:18:11,280 --> 00:18:15,879 Speaker 1: we understand Obamacare. The Conservative Party in Britain is split 333 00:18:16,000 --> 00:18:19,239 Speaker 1: down the middle about Brexit. Half of them don't want it, 334 00:18:19,400 --> 00:18:22,679 Speaker 1: but a small group of them, ideologically committed people, they do, 335 00:18:22,760 --> 00:18:25,320 Speaker 1: and they can't agree in the same way that many 336 00:18:25,320 --> 00:18:27,760 Speaker 1: in the Republican Party in the United States wants to 337 00:18:27,920 --> 00:18:31,159 Speaker 1: move on from the Obamacare repeal issue on the Republican Party, 338 00:18:31,359 --> 00:18:34,960 Speaker 1: but a small cadre of ideologically committed people still want 339 00:18:35,000 --> 00:18:37,760 Speaker 1: to repeal it, and that is the problem. The Conservatives 340 00:18:37,800 --> 00:18:40,080 Speaker 1: can't move on from Brexit in the same way that 341 00:18:40,119 --> 00:18:44,359 Speaker 1: the Republicans can't move on from Obamacare. Dr Natapoff, is 342 00:18:44,400 --> 00:18:48,840 Speaker 1: it a lack of an ability to admit that there 343 00:18:48,920 --> 00:18:53,159 Speaker 1: was a mistake made with some way to save face 344 00:18:53,640 --> 00:18:59,600 Speaker 1: that has put the British Conservative Party in this corner. Yes, 345 00:19:01,680 --> 00:19:04,439 Speaker 1: all right, well well done. Is there a way for 346 00:19:04,480 --> 00:19:06,800 Speaker 1: them to do this? Though? I mean, because you know, 347 00:19:06,840 --> 00:19:11,040 Speaker 1: people do make mistakes, Political parties make mistakes. Why is 348 00:19:11,080 --> 00:19:13,440 Speaker 1: it so difficult to admit a mistake and move on? 349 00:19:14,280 --> 00:19:17,840 Speaker 1: The governing philosophy of the British Conservative Party over Brexit 350 00:19:18,240 --> 00:19:21,879 Speaker 1: now seems to be a hundred thousand lemmings. Can't be wrong. 351 00:19:22,440 --> 00:19:25,840 Speaker 1: They would rather leap off a cliff than rethink their position, 352 00:19:26,119 --> 00:19:28,720 Speaker 1: and that's a really bad way for a governing party 353 00:19:28,760 --> 00:19:33,480 Speaker 1: to rule a country. Indeed, yes, all right, well anything more? 354 00:19:33,520 --> 00:19:36,120 Speaker 1: I mean, you've certainly put paid to this to this topic. 355 00:19:36,160 --> 00:19:38,199 Speaker 1: I mean, I just just quickly give you twenty seconds. 356 00:19:38,280 --> 00:19:41,160 Speaker 1: Do you think the European Union is just standing by 357 00:19:41,200 --> 00:19:46,920 Speaker 1: watching with dismay at what the British are doing. It's 358 00:19:46,920 --> 00:19:49,840 Speaker 1: fair to say that the Europeans have never understood the British, 359 00:19:50,240 --> 00:19:53,800 Speaker 1: and today that even more true. Today they're looking and 360 00:19:53,840 --> 00:19:57,680 Speaker 1: think what are you doing? The only two economics um 361 00:19:57,880 --> 00:20:01,320 Speaker 1: economic economic benefits the British shall for the world their 362 00:20:01,359 --> 00:20:05,080 Speaker 1: membership in the European Union and their ownership of Europe's 363 00:20:05,080 --> 00:20:10,240 Speaker 1: financial capital, and Brexit is Britain intentionally giving up both 364 00:20:10,280 --> 00:20:12,840 Speaker 1: of them. No one can understand why they're doing it, 365 00:20:13,200 --> 00:20:16,080 Speaker 1: not even the Conservative Party. Thank you very much. Dr 366 00:20:16,160 --> 00:20:20,440 Speaker 1: Sam Natapoff. He is the president of Empire Global Ventures. 367 00:20:20,600 --> 00:20:25,000 Speaker 1: You can follow him on Twitter at Sam Natapoff. You're 368 00:20:25,000 --> 00:20:33,240 Speaker 1: listening to Bloomberg Markets. I'm pim Fox. This is Bloomberg Radio. Well, 369 00:20:33,280 --> 00:20:37,440 Speaker 1: the partial government shutdown that began last week appears as 370 00:20:37,480 --> 00:20:40,399 Speaker 1: if it will continue into the new year. Here to 371 00:20:40,440 --> 00:20:43,040 Speaker 1: help us understand what is open, what is closed, and 372 00:20:43,080 --> 00:20:46,600 Speaker 1: what the likely resolution will be is Eric Wasson. He 373 00:20:46,720 --> 00:20:50,439 Speaker 1: is a congressional reporter for Bloomberg and he joins us 374 00:20:50,480 --> 00:20:53,800 Speaker 1: now from Washington. Eric, thank you very much for being 375 00:20:53,960 --> 00:20:58,240 Speaker 1: with us. What can you tell us about any negotiations 376 00:20:58,280 --> 00:21:01,919 Speaker 1: that are taking place? Who resolved the shutdown or is 377 00:21:01,960 --> 00:21:05,960 Speaker 1: this now just a public slanging match between the president 378 00:21:06,320 --> 00:21:09,520 Speaker 1: and Democrats in Congress. Yeah, so there were really no 379 00:21:09,640 --> 00:21:13,720 Speaker 1: negotiations going on whatsoever. Democrats have basically decided that their 380 00:21:13,760 --> 00:21:16,960 Speaker 1: hand is strengthened on next Thursday, on January three, when 381 00:21:17,119 --> 00:21:19,760 Speaker 1: Nancy Pelosi will become Speaker of the House and then 382 00:21:19,760 --> 00:21:22,440 Speaker 1: Democrats will take over the lower chamber. At that point 383 00:21:22,520 --> 00:21:24,800 Speaker 1: they're going to just start passing bills to reopen the 384 00:21:24,840 --> 00:21:27,879 Speaker 1: government and to pressure Trump and the Republicans Senate to 385 00:21:28,000 --> 00:21:30,639 Speaker 1: also pass those bills and reopened government. And they feel like, 386 00:21:30,680 --> 00:21:32,480 Speaker 1: you know, once they have the gavel, they can start 387 00:21:32,560 --> 00:21:35,000 Speaker 1: that process. So, you know, there was some show of 388 00:21:35,240 --> 00:21:37,960 Speaker 1: potential talks this week, but it really became clear that, 389 00:21:38,240 --> 00:21:40,479 Speaker 1: you know, after there was a offer from Vice President 390 00:21:40,520 --> 00:21:43,360 Speaker 1: Pence to Chuck Schumer, the Senate Democratic leader, last Saturday, 391 00:21:43,359 --> 00:21:46,280 Speaker 1: there really was no more back and forth negotiations. So 392 00:21:46,320 --> 00:21:48,040 Speaker 1: we were told that Pence went in there and said, 393 00:21:48,040 --> 00:21:50,600 Speaker 1: instead of five billion for the wall, uh, the President 394 00:21:50,600 --> 00:21:53,280 Speaker 1: would accept two point five billion for some kind of barriers. 395 00:21:53,280 --> 00:21:54,880 Speaker 1: You could call it offence, we could call a wall. 396 00:21:54,960 --> 00:21:57,520 Speaker 1: Let's just be done with it. But the thing is 397 00:21:57,560 --> 00:22:01,080 Speaker 1: Trump never publicly embraced that, and the Democrats feel that 398 00:22:01,119 --> 00:22:03,080 Speaker 1: they've been burned before, and they say, you know, Trump, 399 00:22:03,119 --> 00:22:05,840 Speaker 1: when he was a private sector businessman, he often would 400 00:22:05,840 --> 00:22:08,280 Speaker 1: try to get the best deal by ripping up negotiations 401 00:22:08,320 --> 00:22:10,480 Speaker 1: and until Trump comes out and says all except half 402 00:22:10,520 --> 00:22:12,360 Speaker 1: of what I thought about, we're not going to talk 403 00:22:12,359 --> 00:22:14,720 Speaker 1: to you. So that's where things stalled. The capital is 404 00:22:14,720 --> 00:22:17,240 Speaker 1: completely empty this week except for maintenance screws and people 405 00:22:17,240 --> 00:22:20,440 Speaker 1: moving boxes around as lawmakers get into their new offices. 406 00:22:20,600 --> 00:22:23,000 Speaker 1: So uh yeah, right now it's just a public show 407 00:22:23,040 --> 00:22:26,280 Speaker 1: of of mud slinging and no talks. Now, this affects 408 00:22:26,320 --> 00:22:30,200 Speaker 1: more than just let's say, certain areas of the government 409 00:22:30,280 --> 00:22:32,879 Speaker 1: National Park Service and saw on. I mean, it could 410 00:22:32,880 --> 00:22:37,400 Speaker 1: be something as specific as the federal investigation into Facebook 411 00:22:37,880 --> 00:22:41,080 Speaker 1: because the agency, the Federal Trade Commission, is going to 412 00:22:41,160 --> 00:22:46,160 Speaker 1: run out of funding today. Are there any repercussions that 413 00:22:46,400 --> 00:22:50,320 Speaker 1: have not been highlighted that are going to prove very 414 00:22:50,359 --> 00:22:53,399 Speaker 1: detrimental to the public. Well, I think you know, you 415 00:22:53,440 --> 00:22:56,479 Speaker 1: see that there's a diffuse group of agencies and tasks 416 00:22:56,480 --> 00:22:58,760 Speaker 1: that are being affected. Everything from the I R S 417 00:22:58,760 --> 00:23:00,639 Speaker 1: which is furlowed. Most of it's some ployees that was 418 00:23:00,680 --> 00:23:04,239 Speaker 1: attempting to roll out the tax filing season of this 419 00:23:04,320 --> 00:23:07,159 Speaker 1: new tax code that was passed by Congress and semi 420 00:23:07,200 --> 00:23:08,919 Speaker 1: President Trump. And you know they say that they were 421 00:23:08,920 --> 00:23:11,040 Speaker 1: going to be into training or to open up the 422 00:23:11,080 --> 00:23:14,320 Speaker 1: tax season uh next month, and that may be delayed 423 00:23:14,359 --> 00:23:17,240 Speaker 1: the filing season. We're looking at economic reports from the 424 00:23:17,280 --> 00:23:20,199 Speaker 1: Commerce Department that will also be delayed. We're looking at 425 00:23:20,280 --> 00:23:24,399 Speaker 1: sec fraud, securities fraud investigations that are on hold. As 426 00:23:24,440 --> 00:23:27,320 Speaker 1: you mentioned, the Justice Department is also affected. This is 427 00:23:27,359 --> 00:23:30,440 Speaker 1: really a wide range of government activities. You know, most 428 00:23:30,440 --> 00:23:32,840 Speaker 1: of the e p A Is on furlough. Uh. You know, 429 00:23:32,920 --> 00:23:35,320 Speaker 1: it might be hard for the average citizen to feel 430 00:23:35,359 --> 00:23:37,160 Speaker 1: a direct effect unless they're one of the eight hundred 431 00:23:37,200 --> 00:23:40,240 Speaker 1: thousand federal workers who aren't getting paid, but you know 432 00:23:40,280 --> 00:23:42,280 Speaker 1: that the effects are going to start to mount. And 433 00:23:42,280 --> 00:23:44,880 Speaker 1: there's also just the general inefficiencies. You know, the two 434 00:23:45,880 --> 00:23:48,800 Speaker 1: government shutdown costs the economy twenty four billion dollars. This 435 00:23:48,880 --> 00:23:51,480 Speaker 1: is a smaller shutdown, but nonetheless, you know, you've got 436 00:23:51,480 --> 00:23:53,480 Speaker 1: a lot of workers who are sitting at home idle 437 00:23:53,800 --> 00:23:56,520 Speaker 1: and intradition is that those people do get paid eventually, 438 00:23:57,000 --> 00:23:59,600 Speaker 1: but they're being paid for doing nothing. Yes, and also 439 00:23:59,720 --> 00:24:05,640 Speaker 1: to know that about what ent of Coastguard employees could 440 00:24:05,640 --> 00:24:07,879 Speaker 1: be forced to work without pay for the duration of 441 00:24:07,880 --> 00:24:10,520 Speaker 1: the shutdown. Yes, that's right. The Coast Guard is now 442 00:24:10,600 --> 00:24:13,920 Speaker 1: under the Homeland Security Department, which is one of the 443 00:24:13,960 --> 00:24:17,520 Speaker 1: departments that has been affected. We're also looking at border patrol, 444 00:24:17,640 --> 00:24:21,280 Speaker 1: customs and Border protection agents. We're looking at ICE agents. 445 00:24:21,320 --> 00:24:22,880 Speaker 1: And you know, the President did come out and say 446 00:24:22,920 --> 00:24:25,800 Speaker 1: that most the people affected their Democrats. There's really no 447 00:24:25,920 --> 00:24:28,359 Speaker 1: evidence for that, and especially if you look at some 448 00:24:28,400 --> 00:24:31,919 Speaker 1: of these agencies that tend to skew more towards Republican membership, 449 00:24:32,400 --> 00:24:34,080 Speaker 1: you know, you're seeing a wide range of people who 450 00:24:34,119 --> 00:24:36,600 Speaker 1: are affected by this directly. Just go back to what 451 00:24:36,640 --> 00:24:41,359 Speaker 1: you said earlier about the political battle between Democrats and 452 00:24:41,720 --> 00:24:46,679 Speaker 1: President Donald Trump. What do the Democrats and if Nancy 453 00:24:46,680 --> 00:24:50,560 Speaker 1: Pelosi is indeed voted to be the Speaker of the House, 454 00:24:50,960 --> 00:24:54,760 Speaker 1: what do they expect to accomplish. Well, you know, just 455 00:24:54,800 --> 00:24:57,360 Speaker 1: like the Republicans, Democrats are a bit diverse, but certainly 456 00:24:57,400 --> 00:25:00,200 Speaker 1: the left wing of the party really wants to see 457 00:25:00,200 --> 00:25:03,600 Speaker 1: Pelosi go after Trump. They have their voters are very 458 00:25:03,600 --> 00:25:06,159 Speaker 1: frustrated with the president, think he's completely out of control. 459 00:25:06,200 --> 00:25:10,280 Speaker 1: They want to emphasize investigations, oversight, possible impeachment, and they 460 00:25:10,400 --> 00:25:13,320 Speaker 1: view the shutdown battle as you know, one of these, uh, 461 00:25:13,440 --> 00:25:15,240 Speaker 1: you know, things that they must win that there will 462 00:25:15,280 --> 00:25:18,000 Speaker 1: be no compromise. So that's that's a factorness as well. 463 00:25:18,080 --> 00:25:20,520 Speaker 1: On the on the side of the Republicans, you've got 464 00:25:20,520 --> 00:25:23,560 Speaker 1: people who don't like federal government. We have had guests 465 00:25:23,560 --> 00:25:26,200 Speaker 1: here in Bloomberg Radio talking about how, well, maybe these 466 00:25:26,200 --> 00:25:28,800 Speaker 1: federal workers shouldn't be getting paid for these activities that 467 00:25:28,840 --> 00:25:31,440 Speaker 1: are not essential. So that's part of the debate as well. 468 00:25:31,480 --> 00:25:34,240 Speaker 1: But there is there is probably a consensus in the middle, 469 00:25:34,560 --> 00:25:37,560 Speaker 1: a group of rank and file Senate Republicans who don't 470 00:25:37,640 --> 00:25:40,840 Speaker 1: like a months long shutdown, a group of moderate swing 471 00:25:40,920 --> 00:25:44,480 Speaker 1: district Republicans who maybe even be willing to override a 472 00:25:44,520 --> 00:25:46,560 Speaker 1: presidential video in the House. And you know, if this 473 00:25:46,680 --> 00:25:48,840 Speaker 1: drags on into February, you can start to see those 474 00:25:48,880 --> 00:25:52,840 Speaker 1: dynamics come into play where the President would lose leverage. 475 00:25:52,840 --> 00:25:55,600 Speaker 1: I think, what is the role of the Senate in this, 476 00:25:55,760 --> 00:25:58,880 Speaker 1: because of course they are also part of the deliberations. 477 00:25:58,920 --> 00:26:03,840 Speaker 1: But according to Senate Majority Leader Mitch McConnell, uh, he 478 00:26:03,880 --> 00:26:07,840 Speaker 1: has said that in order to preserve maximum flexibility, they'll 479 00:26:07,840 --> 00:26:11,280 Speaker 1: only vote for this procedure if there is a funding 480 00:26:11,280 --> 00:26:13,960 Speaker 1: agreement on the wall. That's right. I think Ms McConnell 481 00:26:14,080 --> 00:26:16,040 Speaker 1: was really put out on a limb by President Trump. 482 00:26:16,119 --> 00:26:17,960 Speaker 1: The Vice President came up and said that Trump was 483 00:26:17,960 --> 00:26:21,200 Speaker 1: willing to sign a stopgap measure till February eight. They 484 00:26:21,200 --> 00:26:23,400 Speaker 1: put on the floor, It passed the Senate, and then 485 00:26:23,440 --> 00:26:25,960 Speaker 1: suddenly Trump changed his mind, and and that makes Mitch 486 00:26:26,000 --> 00:26:29,679 Speaker 1: McConnell very vulnerable to right wing pundits and and radio. 487 00:26:30,080 --> 00:26:33,080 Speaker 1: Uh he's someone who is up for re election in Kentucky, 488 00:26:33,119 --> 00:26:35,560 Speaker 1: a very Trump heavy state. Uh So he's got to 489 00:26:35,600 --> 00:26:38,639 Speaker 1: really look out for that as well. Uh So, his 490 00:26:38,680 --> 00:26:40,440 Speaker 1: current position is we're not putting anything on the floor. 491 00:26:40,520 --> 00:26:42,960 Speaker 1: The President won't sign. We'll see though, if the if 492 00:26:42,960 --> 00:26:45,640 Speaker 1: the shutdown drags on for months. Uh you know, at 493 00:26:45,640 --> 00:26:48,040 Speaker 1: some point that position may change and he may be 494 00:26:48,080 --> 00:26:49,879 Speaker 1: willing to put something on the floor to try to 495 00:26:49,960 --> 00:26:52,800 Speaker 1: provoke an agreement. All right, Thanks very much for the 496 00:26:52,840 --> 00:26:57,399 Speaker 1: detailed analysis. Eric Wasson is our congressional porter for Bloomberg, 497 00:26:57,800 --> 00:27:01,040 Speaker 1: joining us from Washington. D E see where we have 498 00:27:01,400 --> 00:27:06,159 Speaker 1: entered day seven of the partial government shutdown. You're listening 499 00:27:06,160 --> 00:27:09,399 Speaker 1: to Bloomberg Markets. I'm pim Fox, my co host and 500 00:27:09,400 --> 00:27:12,920 Speaker 1: colleague Lisa Bromwitz on holiday. You're listening to Bloomberg Radio. 501 00:27:13,760 --> 00:27:16,320 Speaker 1: Thanks for listening to the Bloomberg P and L podcast. 502 00:27:16,640 --> 00:27:20,560 Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, 503 00:27:20,680 --> 00:27:24,120 Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm 504 00:27:24,160 --> 00:27:27,720 Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa 505 00:27:27,760 --> 00:27:30,879 Speaker 1: abramowits one before the podcast. You can always catch us 506 00:27:30,920 --> 00:27:32,520 Speaker 1: worldwide on Bloomberg Radio