WEBVTT - This One Weird Number Explains Everything: DataTrek's Colas 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Abramowitz. Each day we 0:00:11.600 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.800 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:27.080 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Joining 0:00:27.120 --> 0:00:29.880 me now, Nick Kolas. He is the co founder of 0:00:30.040 --> 0:00:33.840 Data Trek Research. He is also a Bloomberg opinion columnist, 0:00:34.400 --> 0:00:36.760 and he's going to help everybody because he says, he 0:00:36.840 --> 0:00:41.600 has one weird number that explains everything. Nick, it's a 0:00:41.640 --> 0:00:44.199 pleasure to have you here. What is the number and 0:00:44.320 --> 0:00:47.559 what does his What does it explain? Yes, thank you. 0:00:47.880 --> 0:00:50.400 The one weird number isn't so weird, but it is 0:00:50.479 --> 0:00:54.160 kind of sad. It is the twenty year compounded annual 0:00:54.200 --> 0:00:57.000 return on the S and P. This is the number 0:00:57.160 --> 0:01:00.240 that every investor ultimately cares the most about because how 0:01:00.280 --> 0:01:02.040 much money you can make in the market when you 0:01:02.120 --> 0:01:05.400 buy and hold, and sadly, that number is about five 0:01:05.480 --> 0:01:08.959 percent over the last twenty years. In terms of a 0:01:09.000 --> 0:01:12.520 compounded annual growth rates, the average back to twenty eight 0:01:12.600 --> 0:01:15.720 is eleven percent, so more than double that number, and 0:01:15.760 --> 0:01:18.560 we've very rarely seen these kind of five five and 0:01:18.560 --> 0:01:22.119 a half percent to the actual precise number going back 0:01:22.160 --> 0:01:24.400 to the nineteen twenties. A matter of fact, it's just 0:01:24.480 --> 0:01:26.680 as bad as the period right after World War Two 0:01:26.720 --> 0:01:29.400 when the twenty years trailing numbers were about four percent. 0:01:29.480 --> 0:01:33.000 But that includes the Great Depression. So we've had very 0:01:33.160 --> 0:01:36.960 very low returns in US stocks over the last twenty years. 0:01:37.200 --> 0:01:40.120 Does it matter if we then delve a little bit 0:01:40.160 --> 0:01:44.120 deeper and try to find out why? It matters intensely? 0:01:44.160 --> 0:01:46.720 And the simple reason why is we've had two thirty 0:01:46.760 --> 0:01:50.400 five percent corrections in the stock market, one from two 0:01:50.440 --> 0:01:53.480 thousand one to two thousand three, the second and two 0:01:53.520 --> 0:01:57.000 thousand eight obviously, and it's those major pullbacks that have 0:01:57.120 --> 0:02:01.240 really crushed returns. So when you here that you've got 0:02:01.280 --> 0:02:03.880 to stay in the market because no one is good 0:02:03.960 --> 0:02:09.240 at market timing, and that if you miss those higher movements, 0:02:09.320 --> 0:02:13.359 those increases in price and start to worry about just 0:02:13.440 --> 0:02:17.240 as you describe these declines these sell offs, that's not 0:02:17.360 --> 0:02:19.440 really going to work to your advantage. What do you 0:02:19.480 --> 0:02:22.400 think the bottom line is? If you're going to be 0:02:22.440 --> 0:02:24.960 an investor, and an investor with a capital I you 0:02:25.120 --> 0:02:27.760 have to live through these cycles and they are wrenching. 0:02:27.800 --> 0:02:31.200 It is painful to see your returns go down thirty 0:02:31.200 --> 0:02:34.320 plus percent over short periods of time. The good news 0:02:34.440 --> 0:02:37.119 is that the SMP at least has done better than say, 0:02:37.200 --> 0:02:40.080 emerging markets or the EFA stocks. If you look at 0:02:40.120 --> 0:02:42.079 the long term chart on e f A or e 0:02:42.280 --> 0:02:44.440 M the two E T F to track EFA and 0:02:44.440 --> 0:02:47.160 emerging markets, you'll see that they are below their two 0:02:47.160 --> 0:02:51.360 thousand eight highs today by twenty five plus percent. Those 0:02:51.400 --> 0:02:54.560 stocks haven't even had the bull run that the SMP 0:02:54.720 --> 0:02:58.640 had from two thousand eight onwards. So is it is 0:02:58.680 --> 0:03:03.359 it possible to make the case that diversification is a 0:03:03.440 --> 0:03:07.600 great marketing tool but does not get you the kind 0:03:07.639 --> 0:03:10.959 of returns that you think you're going to receive. Well, 0:03:11.000 --> 0:03:13.160 you know it's the old past performance is no indication 0:03:13.280 --> 0:03:15.320 kind of phenomena. The best thing you can say are 0:03:15.320 --> 0:03:16.600 the most act thing you can say is for the 0:03:16.680 --> 0:03:19.799 last decade, they have not done you any favors. Diversifying 0:03:19.800 --> 0:03:23.400 internationally has not worked. The SMP has been the place 0:03:23.480 --> 0:03:26.639 to be, and even this year with these parlos returns, 0:03:26.639 --> 0:03:29.240 it continued to be the place to be. Well. I 0:03:29.320 --> 0:03:31.600 was going to go down the path that if you 0:03:31.639 --> 0:03:36.640 are able to identify an investment, whatever kind it is, 0:03:36.680 --> 0:03:39.360 but let's just use the equity market as an example. 0:03:39.760 --> 0:03:43.160 If you are able to identify and it may be 0:03:43.280 --> 0:03:49.040 more art than science specific companies or a specific company, 0:03:49.160 --> 0:03:52.520 and are able to ride it to a higher price 0:03:52.760 --> 0:03:58.240 while managing losses or downturns in other assets or other stocks, 0:03:58.800 --> 0:04:02.120 that that may be a way to actually produce returns. 0:04:02.480 --> 0:04:05.240 It absolutely is. This goes back to the whole active 0:04:05.360 --> 0:04:08.880 versus passive argument because what you're describing is a selective 0:04:09.160 --> 0:04:12.760 active strategy. And look, something as simple as overweighting the 0:04:12.760 --> 0:04:15.640 text docs for the last five years has been that ticket. 0:04:15.720 --> 0:04:17.960 But it wasn't for the first five years after the 0:04:17.960 --> 0:04:21.320 financial crisis. It was financials and other more prosaic sectors 0:04:21.320 --> 0:04:23.640 that really worked. Tech was a classic mid to late 0:04:23.680 --> 0:04:26.880 cycle play. So even in thinking through that paradigm, you've 0:04:26.880 --> 0:04:28.279 got to think about it in terms of where you 0:04:28.320 --> 0:04:30.839 are on the cycle in order to execute on It's 0:04:30.839 --> 0:04:32.960 something as simple as owning Tesla for the last ten 0:04:33.040 --> 0:04:35.440 years has actually been a reasonable way to app from 0:04:35.440 --> 0:04:37.960 the SMP because it's not even in the SMP. So 0:04:38.080 --> 0:04:41.520 does this beg the question all of the dynamics that 0:04:41.600 --> 0:04:45.880 exists in the marketplace and the various computer programs that 0:04:46.000 --> 0:04:50.200 slice and dice are really all for nought because that 0:04:50.360 --> 0:04:55.000 is more of the selling machine rather than the investing machine. Yeah, 0:04:55.000 --> 0:04:57.520 I would put it as it's more than market making machine. 0:04:57.600 --> 0:05:01.440 It's how basically we arbitrage. Where stocks trade in the US. 0:05:01.520 --> 0:05:04.560 You know, the average stock trades at thirty different venues. 0:05:04.960 --> 0:05:07.080 Someone's got to arb those out a hundred shares at 0:05:07.080 --> 0:05:09.600 a time. And that's what the machine really is reasonably 0:05:09.600 --> 0:05:12.800 good at in a fairly efficient automated fashion. But in 0:05:12.920 --> 0:05:16.440 terms of how society, how the US economy is creating 0:05:16.520 --> 0:05:20.400 value for shareholders, were coming were basically we're coming at 0:05:20.080 --> 0:05:23.480 the end of a really low period of returns. The 0:05:23.520 --> 0:05:25.080 good news it's better than the rest of the world. 0:05:25.320 --> 0:05:27.240 The bad news is it's less than half of what 0:05:27.320 --> 0:05:30.159 we've all been taught. Are the right long term returns 0:05:30.200 --> 0:05:35.120 of ten to eleven. You've been a watcher of markets 0:05:35.160 --> 0:05:37.520 for longer than I'm going to hold you accountable for. 0:05:39.000 --> 0:05:44.720 Is there a psychological change in the investor community now 0:05:44.839 --> 0:05:47.680 versus when you first entered the business. There absolutely is, 0:05:47.760 --> 0:05:49.960 and I would summarize it around the numbers that we're 0:05:50.000 --> 0:05:52.919 talking about, because look at the twenty year trailing returns 0:05:52.920 --> 0:05:57.719 in nine were seventeen point seven percent trailing twenty year returns. 0:05:58.040 --> 0:06:01.600 You were doubling your money every four or years. Now 0:06:01.640 --> 0:06:05.200 it's taking you much longer, and as a result, investors 0:06:05.200 --> 0:06:09.039 are both getting more passive because with low returns comes 0:06:09.040 --> 0:06:11.080 the need to have low fee structures, and that's a 0:06:11.200 --> 0:06:14.520 challenge for active managers. But it also says that people 0:06:14.640 --> 0:06:17.760 have to look much further afield for returns, whether it 0:06:17.760 --> 0:06:20.240 be the retail investor looking at cryptocurrency is trying to 0:06:20.360 --> 0:06:23.799 use returns, or the institutional investor buying into private equity 0:06:24.000 --> 0:06:26.120 and venture capital to try to get their returns. Because 0:06:26.160 --> 0:06:29.080 remember most pension funds have a seven eight percent required 0:06:29.160 --> 0:06:32.200 rate of return or expected rate of return. They physically 0:06:32.240 --> 0:06:34.760 cannot get that inequities they haven't gotten inequities over the 0:06:34.800 --> 0:06:37.120 last twenty years. They have to go into PE, they 0:06:37.120 --> 0:06:39.240 have to go into VC, They have to find ways 0:06:39.279 --> 0:06:42.440 to either leverage or go into early stage companies to 0:06:42.480 --> 0:06:45.800 get the returns they need. So it's a huge change. Nick, 0:06:45.839 --> 0:06:48.480 I want to ask you something about stock buy backs 0:06:48.560 --> 0:06:52.360 and the money that companies spend on stock buy backs. 0:06:52.640 --> 0:06:56.359 Given the five five and a half percent annualized return 0:06:56.760 --> 0:07:00.520 in the SMP five hundred which you have calculated, did 0:07:01.240 --> 0:07:04.840 does it make sense for companies to be buying their 0:07:04.880 --> 0:07:07.400 own stock if they're going to end up with the 0:07:07.520 --> 0:07:11.320 same return that their investors do. Yeah. No, it's a 0:07:11.440 --> 0:07:14.480 great question, and the short answer is no, it does 0:07:14.560 --> 0:07:17.160 not make sense to the same magnitude that we've seen 0:07:17.240 --> 0:07:19.480 buy backs this year, which as we know, is close 0:07:19.520 --> 0:07:21.720 to a trillion dollars when it's all said and done. 0:07:22.160 --> 0:07:24.600 By far the biggest buyers in this market, better bigger 0:07:24.600 --> 0:07:27.640 than passive flows for example, or anything else we can measure. 0:07:27.920 --> 0:07:29.880 And the reason it doesn't make sense is because if 0:07:29.880 --> 0:07:32.640 you think about buying back your stock as an exercise 0:07:32.680 --> 0:07:34.720 and investment, you're only going to earn that five and 0:07:34.720 --> 0:07:38.720 a half percent return. And most corporations likely think their 0:07:38.720 --> 0:07:41.240 cost of capital is ten percent because that's the number 0:07:41.280 --> 0:07:43.960 we've all been trained to think about. So it means 0:07:44.000 --> 0:07:46.200 that there's a whole raft of projects that are going 0:07:46.240 --> 0:07:49.440 to earn perspectively five to ten percent, but these companies 0:07:49.480 --> 0:07:52.000 aren't taking on. Now, look to give the CFOs of 0:07:52.000 --> 0:07:55.000 these companies and boards these companies some credit. They probably 0:07:55.000 --> 0:07:56.720 look at all the volatility that we talked about in 0:07:56.720 --> 0:07:59.560 the prior segment, these thirty five percent draw downs twice 0:07:59.600 --> 0:08:01.360 in the past twenty years, and think, you know what, 0:08:01.600 --> 0:08:03.760 we have to mitigate the volatility of our stock and 0:08:03.840 --> 0:08:06.200 buy backs can help us do that. And so they 0:08:06.280 --> 0:08:08.360 might think of buybacks in the micro is a good 0:08:08.360 --> 0:08:11.280 thing because it minimizes or reduces volatility. But in the 0:08:11.320 --> 0:08:13.440 macro sense, it means that we are not as a 0:08:13.480 --> 0:08:16.880 society allocating capital to its the best possible use. Because 0:08:16.880 --> 0:08:19.040 we're buying back stock at five and a half, we 0:08:19.040 --> 0:08:21.560 should be investing in seven and nine percent return projects, 0:08:21.560 --> 0:08:25.560 but companies aren't doing that. Does that also reflect the 0:08:25.680 --> 0:08:30.640 way in which companies account for their capital expenditures that 0:08:30.760 --> 0:08:34.679 if you spend money on research and development, that almost 0:08:34.720 --> 0:08:36.920 counts against you when you take a look at the 0:08:36.960 --> 0:08:39.559 balance sheet. Yeah, it's a funny thing about R and D. 0:08:39.600 --> 0:08:41.560 I mean R and D in most cases is expensed 0:08:41.559 --> 0:08:44.400 in the current period because it has an uncertain outcome, 0:08:44.720 --> 0:08:47.000 and so it does hit the P and L. So 0:08:47.080 --> 0:08:49.199 if you're looking to make an EPs number, R and 0:08:49.280 --> 0:08:51.240 D is not exactly your friend, and you have to 0:08:51.280 --> 0:08:54.640 budget for it very carefully. And yet those are the 0:08:54.679 --> 0:08:57.440 projects that you want to be focused on because that's 0:08:57.440 --> 0:09:01.280 what's going to produce those future returns exactly right. And 0:09:01.640 --> 0:09:02.960 you know, it's a funny thing about R and D 0:09:03.000 --> 0:09:05.520 and CAT and CAPEX and buy backs because buy backs 0:09:05.559 --> 0:09:09.679 don't really crowd out R and D necessarily, but corporations 0:09:09.679 --> 0:09:11.160 have to think about it in terms of what you 0:09:11.240 --> 0:09:14.320 just said, which is an investment in future growth, And 0:09:14.440 --> 0:09:16.960 if they're looking for more shut things, then you know, 0:09:17.040 --> 0:09:20.120 perspectively riskier things than they will be cutting back on 0:09:20.200 --> 0:09:23.240 R and D. Now does your one number the five 0:09:23.280 --> 0:09:26.480 and a half percent return? Does that also lead you 0:09:26.760 --> 0:09:30.600 to the conclusion that fees when it comes to managing 0:09:30.640 --> 0:09:35.560 money will become even more compressed because people are gonna 0:09:35.600 --> 0:09:38.679 want to eke out whatever gain they can. Yeah, this 0:09:38.760 --> 0:09:41.400 is the most important point for active managers and for 0:09:41.440 --> 0:09:44.520 the money management industry as a whole. And what's happened 0:09:44.640 --> 0:09:47.360 is look that the peak period of Wall Street for brokers, 0:09:47.360 --> 0:09:50.280 for asset managers, for active managers was the nineteen nineties, 0:09:50.559 --> 0:09:52.640 and that was the period where we had these fifteen 0:09:52.640 --> 0:09:56.800 to seventeen percent compounded annual returns, and of course ASCID 0:09:56.840 --> 0:09:59.079 owners are going to be feel fine about paying somebody 0:09:59.240 --> 0:10:01.920 one and a half for two percent active or two 0:10:01.960 --> 0:10:04.240 and twenty as a hedge fund in order to have 0:10:04.280 --> 0:10:07.640 a shot at out performing when you're at five percent. 0:10:07.760 --> 0:10:10.400 Nobody has any patients for high fees. And as a 0:10:10.440 --> 0:10:12.400 matter of fact, we as we know, we see e 0:10:12.480 --> 0:10:15.480 t F basically almost zero fees and that's a direct 0:10:15.600 --> 0:10:18.599 function of these declining returns. And until returns begin to 0:10:18.640 --> 0:10:21.880 improve on a structural basis, asset management will find it 0:10:22.080 --> 0:10:24.640 very hard to charging her mental fees. So what do 0:10:24.679 --> 0:10:26.679 you see for the future when it comes to the 0:10:26.800 --> 0:10:32.400 specific industry dynamics. Fewer participants but bigger participants. Yeah, I mean, 0:10:32.440 --> 0:10:34.800 basically you've seen it for the last ten years. Economies 0:10:34.840 --> 0:10:37.840 of scale at low fee structures is how the industry 0:10:37.880 --> 0:10:41.480 is shaping itself. Also making sure that the entire infrastructure 0:10:41.520 --> 0:10:43.800 of the industry, the trading that we see every day 0:10:43.960 --> 0:10:47.120 happens in an automated, very low cost fashion, and it 0:10:47.160 --> 0:10:50.440 creates some brittleness and markets as we've seen this month. Um, 0:10:50.520 --> 0:10:52.600 you don't want the same away from the recent market 0:10:52.640 --> 0:10:56.800 volatility and these big points swings. Two things. The first is, 0:10:56.960 --> 0:10:59.600 you know, we had a very unusual year because things 0:10:59.640 --> 0:11:02.640 look rate until October, and then Tech rolled over and 0:11:02.679 --> 0:11:05.200 a lot of folks sold tech stocks that they've had 0:11:05.360 --> 0:11:08.240 huge capital gains in. And then in only December, the 0:11:08.360 --> 0:11:10.680 entire market rolled over, and all of a sudden, a 0:11:10.720 --> 0:11:13.280 lot of managers began to realize, we cannot give our 0:11:13.320 --> 0:11:16.040 clients a big tax bill on top of showing them 0:11:16.040 --> 0:11:18.440 that they have negative returns on the year, and so 0:11:18.520 --> 0:11:22.480 you had wholesale selling of tax loss candidates all these 0:11:22.480 --> 0:11:25.200 stocks that have suffered the entire year in order to 0:11:25.240 --> 0:11:28.640 offset those gains managers took in October and November selling tech. 0:11:29.080 --> 0:11:32.000 And that, to me is what just cranked this market 0:11:32.040 --> 0:11:36.079 down in December was profound tax laws selling over this 0:11:36.160 --> 0:11:38.640 issue of not wanting to show taxable gains on top 0:11:38.679 --> 0:11:41.440 of the paper loss for the year. Thankfully, we're almost 0:11:41.440 --> 0:11:42.840 all the way through it, and that's why you've seen 0:11:42.880 --> 0:11:46.240 market stabilize. Well. Thanks very much for sharing your thoughts 0:11:46.240 --> 0:11:48.920 with us, and really a wonderful piece. I encourage everyone 0:11:49.000 --> 0:11:51.920 to read it. Much appreciated. Nick cholis He is the 0:11:51.960 --> 0:11:54.600 co founder of Data Trek Research. He is also a 0:11:54.600 --> 0:11:58.199 Bloomberg opinion columnist, and as he said, he's got one 0:11:58.240 --> 0:12:01.840 weird number that explains well mostly everything. Thanks very much 0:12:01.880 --> 0:12:03.880 for being with us, and just to bring you up 0:12:03.920 --> 0:12:07.400 to date on what's happening in markets right now. Stocks 0:12:08.200 --> 0:12:10.679 they're trading at their lows of the session, the Dow 0:12:10.800 --> 0:12:13.640 Jones Industrial Average down a hundred and thirty six points, 0:12:13.840 --> 0:12:21.959 SMP five hundred, down fourteen, and the NASDAC down. The 0:12:22.120 --> 0:12:26.640 topic now is Brexit and many small businesses in the 0:12:26.760 --> 0:12:31.520 United Kingdom could face a big tax. This could be 0:12:31.720 --> 0:12:35.240 an attacks that would affect them after Britain leaves the 0:12:35.280 --> 0:12:40.520 European Union. Members of Parliament on the EU Scrutiny Committee 0:12:40.559 --> 0:12:43.880 have warned that VAT tax value add attacks will have 0:12:43.960 --> 0:12:47.240 to be paid by small businesses for the first time, 0:12:47.720 --> 0:12:50.440 and that comes at a time when even retail sales 0:12:50.480 --> 0:12:53.040 in the United Kingdom seemed to be suffering from the 0:12:53.040 --> 0:12:56.120 Brexit effect. Here to tell us more about the effects 0:12:56.400 --> 0:12:59.400 of the pull out from the European Union is Dr 0:12:59.520 --> 0:13:03.760 Sam Nahapof. He is the president of Empire Global Ventures. 0:13:03.800 --> 0:13:06.920 He previously served as Senior Advisor to the Governor of 0:13:06.960 --> 0:13:09.319 the State of New York for International Commerce as well 0:13:09.360 --> 0:13:12.200 as Deputy Commissioner of the New York State Department of 0:13:12.240 --> 0:13:17.560 Economic Development for International Development, Dr Natapoff, thank you very 0:13:17.640 --> 0:13:21.760 much for being with us. Maybe just lay out your 0:13:21.840 --> 0:13:26.960 scenario for what happens in Britain after they leave the 0:13:27.000 --> 0:13:31.480 European Union. What does it look like? Okay, okay, First, 0:13:31.520 --> 0:13:34.839 thank you for having me. Second, I think the probability 0:13:34.880 --> 0:13:38.200 now of a no deal brexit, no agreement between Britain 0:13:38.200 --> 0:13:41.199 and the European Union on how this exit is going 0:13:41.200 --> 0:13:44.360 to be handled, is a most likely scenario. So in 0:13:44.400 --> 0:13:48.200 a no deal Brexit, every major economic, social, and political 0:13:48.240 --> 0:13:52.120 institution in Britain is under threat. The British government itself 0:13:52.240 --> 0:13:55.800 estimates that they'll lose ten of their GDP and seven 0:13:56.040 --> 0:13:59.120 fifty thou jobs, or about three percent of all jobs 0:13:59.120 --> 0:14:01.840 in Britain would be a hundred and fifty thousand in 0:14:01.880 --> 0:14:05.240 London alone. The Bank of England says that Britain would 0:14:05.240 --> 0:14:10.160 lose about fifty two trillion dollars in Euro denominated derivative 0:14:10.240 --> 0:14:12.960 contracts based in London which would be at risk in 0:14:13.000 --> 0:14:15.600 a no deal Brexit. And to give you some sense 0:14:15.640 --> 0:14:18.600 of what that means, Britain's entire economy is only two 0:14:18.600 --> 0:14:22.080 point six trillion, So they're putting at risk twenty times 0:14:22.080 --> 0:14:25.760 the size of their own national economy. So the two 0:14:25.800 --> 0:14:28.480 things about Brexit that are important to remember is that 0:14:28.560 --> 0:14:33.280 it's almost completely irrational and it's almost completely unpredictable. Your 0:14:33.520 --> 0:14:35.960 your running talking about what's going to happen with V 0:14:36.080 --> 0:14:39.520 A T. Nobody knows, and that's what's making markets so scared. 0:14:40.360 --> 0:14:43.480 Based on your experience and I know that you have 0:14:43.760 --> 0:14:47.320 contributed your expertise to the U S Department of Commerce, 0:14:47.360 --> 0:14:51.640 the European Central Bank, the German Bundesbank. Based on your 0:14:51.680 --> 0:14:55.760 experience and expertise, do you expect that kind of no 0:14:56.000 --> 0:14:59.520 deal Brexit to take place or will there be some 0:14:59.640 --> 0:15:04.600 kind of accommodation or maybe an extension of a transition period. 0:15:07.160 --> 0:15:10.840 I think that there won't. My personal opinion is there 0:15:10.880 --> 0:15:14.280 won't be a no deal Brexit. They'll extend the transition period, 0:15:14.720 --> 0:15:16.520 and in my gut, I think there will be a 0:15:16.560 --> 0:15:19.840 second referendum in Britain. And do you believe that that 0:15:19.960 --> 0:15:24.800 second referendum will conclude that the British want to stay 0:15:24.960 --> 0:15:29.240 in the European Union. Yes, I think they do, because 0:15:30.120 --> 0:15:33.000 it has never been it was never expressed Brexit was 0:15:33.040 --> 0:15:35.800 never explained to the British people about what they were 0:15:35.800 --> 0:15:38.240 going to lose. It was always told to them about 0:15:38.400 --> 0:15:41.920 what they're going to gain. They've since learned that everything 0:15:41.960 --> 0:15:44.920 they thought they were going to gain wasn't true, and 0:15:45.000 --> 0:15:48.520 everything they were going to lose was true. And the 0:15:48.560 --> 0:15:51.360 British people are pretty good business people in the end, 0:15:51.600 --> 0:15:53.880 so that I think they're going to change their minds. 0:15:54.000 --> 0:15:57.000 There's going to be a second referendum and they're going 0:15:57.040 --> 0:15:59.080 to try and put right this terrible mistake that they've 0:15:59.080 --> 0:16:01.880 been living under for about eighteen months. Do you believe 0:16:02.160 --> 0:16:07.520 that the UK Prime Minister Theresa May will survive this effort? No, 0:16:08.000 --> 0:16:11.280 I don't um. Theresa May, in the next three weeks 0:16:11.400 --> 0:16:13.560 is going to bring her Brexit deal to the floor 0:16:13.600 --> 0:16:15.640 of the House of Commons for a vote on the 0:16:15.720 --> 0:16:20.200 agreement that she negotiated. She will lose that vote. Then 0:16:20.240 --> 0:16:24.160 there's only three possible outcomes. One they manage no deal Brexit, 0:16:24.240 --> 0:16:27.800 which will be an economic and political catastrophe, to a 0:16:27.880 --> 0:16:31.920 second referendum on leaving the EU. Or three a general election, 0:16:32.200 --> 0:16:35.160 which will probably end up with a second referendum if 0:16:35.200 --> 0:16:37.600 she loses that vote. And I think it's quite clear 0:16:37.640 --> 0:16:40.720 that she will either her party will force her to 0:16:40.840 --> 0:16:44.680 resign for leading them down this path, or there'll be 0:16:44.680 --> 0:16:47.400 a general election and Jeremy Corbyn will become prime minister 0:16:47.640 --> 0:16:51.800 the leader of the Labor Party. Let's explore those scenarios. 0:16:51.920 --> 0:16:56.960 If Jeremy Corbyn becomes the prime minister, what kind of 0:16:57.200 --> 0:17:03.360 Brexit or no Brexit will Britain experience. Jeremy Corbyn is 0:17:03.400 --> 0:17:07.639 an unregenerate seventies socialist from Britain's long and distant past. 0:17:08.000 --> 0:17:11.119 He doesn't want to stay in the EU because thirty 0:17:11.560 --> 0:17:14.280 years ago the Labor Party didn't believe in the European Union. 0:17:14.840 --> 0:17:18.479 His problem is his party wants to stay in and 0:17:18.600 --> 0:17:22.240 he will. He will reluctantly, I think, agree to a 0:17:22.280 --> 0:17:26.560 second referendum. And we know this because his Shadow Chancellor, 0:17:26.640 --> 0:17:30.440 John McDonald said that a second referendum was inevitable about 0:17:30.480 --> 0:17:33.040 two weeks ago if Theresa May couldn't get her deal 0:17:33.080 --> 0:17:36.639 through the Commons. So if Labor wins the upcoming general 0:17:36.680 --> 0:17:40.439 election and Jeremy Corbyn becomes Prime minister, I think he 0:17:40.480 --> 0:17:43.320 will reluctantly hold a second referendum, and I think they'll 0:17:43.400 --> 0:17:46.720 vote to remain this time. If it is not Jeremy 0:17:46.840 --> 0:17:51.919 Corbin but another Conservative or Tory Party candidate becomes Prime 0:17:51.960 --> 0:17:55.600 minister without calling a general election, who do you think 0:17:55.640 --> 0:17:59.520 it will be. I'm afraid it will be Boris Johnson. 0:18:00.240 --> 0:18:03.520 Bars Johnson is the former Lord Mayor of London. He's 0:18:03.600 --> 0:18:06.159 part of the reason that we're in this mess to 0:18:06.320 --> 0:18:09.400 this point. But you need to understand Brexit a little 0:18:09.400 --> 0:18:11.280 bit in the same way that in the United States 0:18:11.280 --> 0:18:15.879 we understand Obamacare. The Conservative Party in Britain is split 0:18:16.000 --> 0:18:19.239 down the middle about Brexit. Half of them don't want it, 0:18:19.400 --> 0:18:22.679 but a small group of them, ideologically committed people, they do, 0:18:22.760 --> 0:18:25.320 and they can't agree in the same way that many 0:18:25.320 --> 0:18:27.760 in the Republican Party in the United States wants to 0:18:27.920 --> 0:18:31.159 move on from the Obamacare repeal issue on the Republican Party, 0:18:31.359 --> 0:18:34.960 but a small cadre of ideologically committed people still want 0:18:35.000 --> 0:18:37.760 to repeal it, and that is the problem. The Conservatives 0:18:37.800 --> 0:18:40.080 can't move on from Brexit in the same way that 0:18:40.119 --> 0:18:44.359 the Republicans can't move on from Obamacare. Dr Natapoff, is 0:18:44.400 --> 0:18:48.840 it a lack of an ability to admit that there 0:18:48.920 --> 0:18:53.159 was a mistake made with some way to save face 0:18:53.640 --> 0:18:59.600 that has put the British Conservative Party in this corner. Yes, 0:19:01.680 --> 0:19:04.439 all right, well well done. Is there a way for 0:19:04.480 --> 0:19:06.800 them to do this? Though? I mean, because you know, 0:19:06.840 --> 0:19:11.040 people do make mistakes, Political parties make mistakes. Why is 0:19:11.080 --> 0:19:13.440 it so difficult to admit a mistake and move on? 0:19:14.280 --> 0:19:17.840 The governing philosophy of the British Conservative Party over Brexit 0:19:18.240 --> 0:19:21.879 now seems to be a hundred thousand lemmings. Can't be wrong. 0:19:22.440 --> 0:19:25.840 They would rather leap off a cliff than rethink their position, 0:19:26.119 --> 0:19:28.720 and that's a really bad way for a governing party 0:19:28.760 --> 0:19:33.480 to rule a country. Indeed, yes, all right, well anything more? 0:19:33.520 --> 0:19:36.120 I mean, you've certainly put paid to this to this topic. 0:19:36.160 --> 0:19:38.199 I mean, I just just quickly give you twenty seconds. 0:19:38.280 --> 0:19:41.160 Do you think the European Union is just standing by 0:19:41.200 --> 0:19:46.920 watching with dismay at what the British are doing. It's 0:19:46.920 --> 0:19:49.840 fair to say that the Europeans have never understood the British, 0:19:50.240 --> 0:19:53.800 and today that even more true. Today they're looking and 0:19:53.840 --> 0:19:57.680 think what are you doing? The only two economics um 0:19:57.880 --> 0:20:01.320 economic economic benefits the British shall for the world their 0:20:01.359 --> 0:20:05.080 membership in the European Union and their ownership of Europe's 0:20:05.080 --> 0:20:10.240 financial capital, and Brexit is Britain intentionally giving up both 0:20:10.280 --> 0:20:12.840 of them. No one can understand why they're doing it, 0:20:13.200 --> 0:20:16.080 not even the Conservative Party. Thank you very much. Dr 0:20:16.160 --> 0:20:20.440 Sam Natapoff. He is the president of Empire Global Ventures. 0:20:20.600 --> 0:20:25.000 You can follow him on Twitter at Sam Natapoff. You're 0:20:25.000 --> 0:20:33.240 listening to Bloomberg Markets. I'm pim Fox. This is Bloomberg Radio. Well, 0:20:33.280 --> 0:20:37.440 the partial government shutdown that began last week appears as 0:20:37.480 --> 0:20:40.399 if it will continue into the new year. Here to 0:20:40.440 --> 0:20:43.040 help us understand what is open, what is closed, and 0:20:43.080 --> 0:20:46.600 what the likely resolution will be is Eric Wasson. He 0:20:46.720 --> 0:20:50.439 is a congressional reporter for Bloomberg and he joins us 0:20:50.480 --> 0:20:53.800 now from Washington. Eric, thank you very much for being 0:20:53.960 --> 0:20:58.240 with us. What can you tell us about any negotiations 0:20:58.280 --> 0:21:01.919 that are taking place? Who resolved the shutdown or is 0:21:01.960 --> 0:21:05.960 this now just a public slanging match between the president 0:21:06.320 --> 0:21:09.520 and Democrats in Congress. Yeah, so there were really no 0:21:09.640 --> 0:21:13.720 negotiations going on whatsoever. Democrats have basically decided that their 0:21:13.760 --> 0:21:16.960 hand is strengthened on next Thursday, on January three, when 0:21:17.119 --> 0:21:19.760 Nancy Pelosi will become Speaker of the House and then 0:21:19.760 --> 0:21:22.440 Democrats will take over the lower chamber. At that point 0:21:22.520 --> 0:21:24.800 they're going to just start passing bills to reopen the 0:21:24.840 --> 0:21:27.879 government and to pressure Trump and the Republicans Senate to 0:21:28.000 --> 0:21:30.639 also pass those bills and reopened government. And they feel like, 0:21:30.680 --> 0:21:32.480 you know, once they have the gavel, they can start 0:21:32.560 --> 0:21:35.000 that process. So, you know, there was some show of 0:21:35.240 --> 0:21:37.960 potential talks this week, but it really became clear that, 0:21:38.240 --> 0:21:40.479 you know, after there was a offer from Vice President 0:21:40.520 --> 0:21:43.360 Pence to Chuck Schumer, the Senate Democratic leader, last Saturday, 0:21:43.359 --> 0:21:46.280 there really was no more back and forth negotiations. So 0:21:46.320 --> 0:21:48.040 we were told that Pence went in there and said, 0:21:48.040 --> 0:21:50.600 instead of five billion for the wall, uh, the President 0:21:50.600 --> 0:21:53.280 would accept two point five billion for some kind of barriers. 0:21:53.280 --> 0:21:54.880 You could call it offence, we could call a wall. 0:21:54.960 --> 0:21:57.520 Let's just be done with it. But the thing is 0:21:57.560 --> 0:22:01.080 Trump never publicly embraced that, and the Democrats feel that 0:22:01.119 --> 0:22:03.080 they've been burned before, and they say, you know, Trump, 0:22:03.119 --> 0:22:05.840 when he was a private sector businessman, he often would 0:22:05.840 --> 0:22:08.280 try to get the best deal by ripping up negotiations 0:22:08.320 --> 0:22:10.480