WEBVTT - The U.S. Is and Should Trade at a Premium, Herro Says 0:00:00.080 --> 0:00:13.040 Ye. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane 0:00:13.480 --> 0:00:17.560 Jay Lee. 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 --> 0:00:33.680 Bloomberg dot Com, and of course on the Bloomberg Tom 0:00:33.800 --> 0:00:37.280 Kane joining me in London today, I'm still in New 0:00:37.360 --> 0:00:39.279 York and joining us around a table in New York 0:00:39.360 --> 0:00:42.159 City is yemen On around here is a Bloomberg senior 0:00:42.320 --> 0:00:44.440 writer and he joined us now in the Bank of 0:00:44.479 --> 0:00:47.720 America results, what do we say, yamen? Um? Well, you know, 0:00:47.800 --> 0:00:51.920 we we're all looking at tax numbers. That's what everybody 0:00:51.960 --> 0:00:54.720 is curious about. So they're the one time charged them 0:00:55.120 --> 0:00:58.960 that they took on three billion roughly UM is in 0:00:59.000 --> 0:01:01.040 line with what they said for so that there was 0:01:01.080 --> 0:01:03.320 no surprise there. We you know, there was some concern 0:01:03.400 --> 0:01:05.880 that they could add more stuff because there's you know, 0:01:06.040 --> 0:01:09.080 repatriation tax as well as d T A s UM, 0:01:09.120 --> 0:01:12.040 so there's no surprise there. UM. I couldn't find the 0:01:12.319 --> 0:01:15.720 number for their effective tax rate going forward UM this 0:01:15.880 --> 0:01:18.440 for this year two thousand eighteen. Most of the banks 0:01:18.480 --> 0:01:22.560 have given that number. UH reporting so far, UM maybe 0:01:22.640 --> 0:01:25.640 they will during the call with analysts and and and 0:01:25.720 --> 0:01:28.959 durals later, But I didn't see quickly when I did 0:01:28.959 --> 0:01:30.880 a search for a tax. So so we're looking for 0:01:30.920 --> 0:01:34.400 that number because that's roughly you know, usually around you know, 0:01:34.720 --> 0:01:37.160 effective tax rates for these banks, the biggest banks have 0:01:37.200 --> 0:01:40.440 been around thirty percent. Uh. They pay much higher than 0:01:40.520 --> 0:01:43.640 most other industries, um, because they don't have as many deductions. 0:01:43.840 --> 0:01:46.720 So we're gonna look for that number that I don't 0:01:46.720 --> 0:01:49.400 see it yet. It's going to be ninety one and 0:01:49.600 --> 0:01:52.680 around there. Um, you know, their fixed income number is 0:01:52.720 --> 0:01:55.000 really good. Um, what I'm looking at the numbers now, Yeah, 0:01:55.080 --> 0:01:57.760 at one point seven one billion dollars the estimate with 0:01:57.880 --> 0:02:01.920 one point six five better and estimates right, so you 0:02:01.960 --> 0:02:04.240 know that's one of the area is trading. Trading is 0:02:04.280 --> 0:02:07.720 important for these big big guys and and um they're 0:02:08.000 --> 0:02:11.320 you know, trading has been has been down um this 0:02:11.400 --> 0:02:15.320 year every quarter almost um so. So Bank of America 0:02:15.400 --> 0:02:18.239 seems to have done better than its rivals in that front, 0:02:18.600 --> 0:02:22.480 um not losing as much. You know, trading revenue on 0:02:22.560 --> 0:02:25.520 fixed income is very important. And and equities same thing. 0:02:25.639 --> 0:02:28.880 It's it's uh um unchanged from a year ago. That's 0:02:28.919 --> 0:02:31.840 really that's really good. So they're so they're doing better 0:02:31.840 --> 0:02:34.840 on that. UM. I was looking at their loans. Loans 0:02:34.880 --> 0:02:38.560 are growing still, UM and that's you know, that's very important. 0:02:38.600 --> 0:02:42.920 They growing loans constantly. It's slowed down, it's not as 0:02:43.000 --> 0:02:44.680 fast as it used to be, but but it's growing. 0:02:44.680 --> 0:02:47.680 So they're they're doing and their net income numbers really good. Tom. 0:02:47.680 --> 0:02:50.239 The numbers coming through from Bank America looking pretty solid, 0:02:50.240 --> 0:02:53.800 inline with estimates. Some single name issues stein Off popping 0:02:53.880 --> 0:02:56.040 up once again. But the tanks impact is something that 0:02:56.080 --> 0:02:58.520 we're all kind of sort of trying to filter through 0:02:58.680 --> 0:03:01.720 and understand. Going through into I'd say, to me, it's 0:03:01.720 --> 0:03:03.960 almost old news now. It's like a kitchen sind quarter 0:03:04.040 --> 0:03:06.360 and the unions come out, folks, and trust me, there's 0:03:06.400 --> 0:03:09.800 pages and pages and even a grizzled pro like Yoman 0:03:09.880 --> 0:03:13.000 Honor in his trouble looking at these things. What's the 0:03:13.160 --> 0:03:16.640 plan Yaman for the first, the second, the third in 0:03:16.680 --> 0:03:20.560 the fourth quarter of two thousand eighteen, what's the strategy 0:03:20.680 --> 0:03:25.359 they're strategizing when they strategize at these big banks. I mean, 0:03:25.440 --> 0:03:27.960 I think after the tax informed that they have to 0:03:28.040 --> 0:03:30.080 think about some of the things that that that they've 0:03:30.120 --> 0:03:33.440 been doing, um constantly. What one of them was, they 0:03:33.480 --> 0:03:37.920 had very strict goals for cutting costs. Um, maybe they 0:03:37.920 --> 0:03:39.960 can relax those some You know, there are a lot 0:03:40.000 --> 0:03:41.760 of banks have come out with saying, you know, we're 0:03:41.760 --> 0:03:46.360 gonna give one time increases to our bonuses to our employees, 0:03:46.360 --> 0:03:48.560 the Bank of America being one of them. And you know, 0:03:48.920 --> 0:03:52.360 so maybe they don't have to cut costs as harshly 0:03:52.440 --> 0:03:56.200 because oh, look they have this wonderful tax bonus which 0:03:56.240 --> 0:03:58.320 is going to really help the bottom line. Um. You know, 0:03:58.360 --> 0:04:00.760 as I said, if you go down from twenty nine 0:04:00.800 --> 0:04:04.520 percent effective rate to nineteen percent effect the rate, that's great. 0:04:04.600 --> 0:04:07.000 You know you chopped off one third of your or 0:04:07.400 --> 0:04:10.160 if your tax so you can keep that, which means 0:04:10.360 --> 0:04:13.360 you can you don't have to cut costs as harshly. 0:04:13.400 --> 0:04:16.120 You know, you can actually relax a little bit and say, oh, okay, 0:04:16.160 --> 0:04:19.040 we we you know, we can actually make more profit. Yeah, 0:04:19.200 --> 0:04:20.920 and thank you for telling me to buy shares at 0:04:20.920 --> 0:04:24.200 thirteen dollars. Bank of America moonshot out of this fourth 0:04:24.240 --> 0:04:28.000 of July cash leverage DTS. I am in the double 0:04:28.080 --> 0:04:30.320 leverage all cash from trust me y'a. I'm an honoring 0:04:30.400 --> 0:04:33.640 with us and he will return for Golden Sachs Drama 0:04:33.720 --> 0:04:35.920 at seven thirty this morning, right now in the global 0:04:36.000 --> 0:04:39.600 drama of our global economy, Jennet Henry with us. So 0:04:39.720 --> 0:04:42.359 they just bc joining us in our London studio for 0:04:42.440 --> 0:04:46.360 too short visit house Investment. We were talking about consumption 0:04:46.440 --> 0:04:50.400 earlier in that with the tax legislation in the United States, 0:04:50.480 --> 0:04:53.159 with the effervescence we're seeing out there every day, do 0:04:53.240 --> 0:04:58.600 you actually see capital investment nation to nation? Jenna, We 0:04:58.720 --> 0:05:00.920 do you see some improvement in investment? I mean, there 0:05:00.920 --> 0:05:03.640 has been some pick up already in two thousand and seventeen, 0:05:03.760 --> 0:05:06.280 but it's been a familiar story. It's been energy and 0:05:06.320 --> 0:05:08.960 tech investment. There is a bit more incentive now to 0:05:09.040 --> 0:05:12.360 invest more, both with the repatriation and with the tax cuts, 0:05:13.000 --> 0:05:15.080 but most likely a lot of the games from that 0:05:15.120 --> 0:05:17.320 will as is often the case, I mean, the money's 0:05:17.800 --> 0:05:21.359 shareholders or to M and A UM and any improvement 0:05:21.360 --> 0:05:24.320 and fixed investment is likely to be relatively modest. Janne 0:05:24.360 --> 0:05:26.880 Henry Larry Fink. Running to some of the world's biggest 0:05:26.920 --> 0:05:29.520 CEO is of course to boss over a black rock 0:05:29.640 --> 0:05:33.160 and pushing them to invest more in the future, Can 0:05:33.160 --> 0:05:36.440 the like Selary think, really push these CEOs to do 0:05:36.520 --> 0:05:38.280 something they haven't done in a material way over the 0:05:38.360 --> 0:05:41.599 last couple of years. Uh No. I mean the biggest 0:05:41.640 --> 0:05:45.719 determinant of investment spending is expected future demand. And I 0:05:45.720 --> 0:05:48.400 think also the outlook for investment will depend on what 0:05:48.520 --> 0:05:50.920 happens to labor. Now, you know, we can talk about 0:05:50.920 --> 0:05:53.240 Philip's curve, but the fact is this has been a 0:05:53.320 --> 0:05:56.800 very job rich recovery, arguably because labor has been so cheap. 0:05:57.120 --> 0:05:59.560 If we see some signs that wage growth is picking 0:05:59.640 --> 0:06:01.599 up a little a bit more, if companies are getting 0:06:01.640 --> 0:06:05.280 more confident about the outlook for future demand, that's likely 0:06:05.320 --> 0:06:08.880 to be the bigger driver of future investment spending and 0:06:08.960 --> 0:06:12.320 hopefully stronger productivity growth because we've seen such low investment 0:06:12.360 --> 0:06:16.600 growth rather than being told to invest more or necessarily 0:06:16.640 --> 0:06:19.000 given tax incentives, which may as I say, just go 0:06:19.040 --> 0:06:21.440 into M and A or or ento higher dividends. So, Jannet, 0:06:21.480 --> 0:06:25.360 you raise a really important point. If the investment prospects 0:06:25.440 --> 0:06:29.279 for the CEOs are based on future demand, then what 0:06:29.320 --> 0:06:31.360 does it say about their belief in future demand that 0:06:31.360 --> 0:06:33.760 they've been choosing a buyback stock and increased dividends and 0:06:33.800 --> 0:06:38.120 not invest for the future. World shareholders haven't necessarily punished 0:06:38.160 --> 0:06:41.560 them for that, but for not investing for the longer term. 0:06:41.640 --> 0:06:44.839 And there have been a series of uncertainties over the 0:06:44.880 --> 0:06:48.680 last few years politically, um and you know, in terms 0:06:48.680 --> 0:06:52.880 of monetary tightening and and various other factors around the world. 0:06:53.000 --> 0:06:56.000 But I would argue that the still relatively low level 0:06:56.080 --> 0:06:59.479 of investment growth relative to GDP growth would suggest that 0:06:59.520 --> 0:07:01.960 they are still or just not more confident enough. But 0:07:02.240 --> 0:07:05.120 growth expectations are being revised, which is why we might 0:07:05.160 --> 0:07:09.239 just see a little bit more dove till your HSBC 0:07:09.320 --> 0:07:14.120 economics was Steve Major's hall where he was brilliant for 0:07:14.200 --> 0:07:17.080 two years or so on low interest rates. And we've 0:07:17.120 --> 0:07:19.560 now come up and Steve has always said we could 0:07:19.600 --> 0:07:25.240 come up and yield, but dovetail that HSBC reticence away 0:07:25.280 --> 0:07:28.400 from higher yields. Do you shift that? Are you? In 0:07:28.520 --> 0:07:32.920 Steven speaking terms? How does that work? Steve's view is 0:07:33.040 --> 0:07:36.480 very has very strong foundations in our economic view and 0:07:36.520 --> 0:07:38.760 has for a very long time. Jenny Tom, he's just 0:07:38.760 --> 0:07:42.920 trying to call problems HSBC. Don't worry, no, it's we've 0:07:43.040 --> 0:07:45.200 very much been in the low inflation Camp and we 0:07:45.240 --> 0:07:47.440 think a lot of these influences are structural. I think 0:07:47.440 --> 0:07:50.200 the difficulty with markets is that their mind set is 0:07:50.240 --> 0:07:53.640 still framed in the views of the nineteen seventies, eighties, nineties, 0:07:53.640 --> 0:07:57.800 and two thousands, where it's all about nominal growth and inflation. 0:07:58.080 --> 0:08:02.320 And actually we had extended periods before that when actually 0:08:02.320 --> 0:08:05.000 long term interest rates for little or no relationship to 0:08:05.160 --> 0:08:08.680 nominal GDP growth. We'd only see high yields if we 0:08:08.720 --> 0:08:12.520 saw much much higher in put and potential very quickly, Janet, 0:08:12.520 --> 0:08:15.520 that goes to potential GDP and productivity. As you just said, 0:08:15.640 --> 0:08:20.240 where's potential GDP in the US sub two percent? Right? Yeah, absolutely, 0:08:20.240 --> 0:08:24.120 I think it is sub just amazing, Jennet, never enough time. 0:08:24.160 --> 0:08:27.800 Thank you so much, Henry, thank you. With HSBC today 0:08:27.840 --> 0:08:30.480 they're they're head of Global Economics. Wonderful to ever in 0:08:30.520 --> 0:08:46.880 with us. John Farrell, New York. I'm Tom keenan London. 0:08:46.880 --> 0:08:49.680 Of course, everybody looking at the fourteen different stories coming 0:08:49.679 --> 0:08:54.640 out of Washington. Any number of ways to tackle the 0:08:54.720 --> 0:08:58.360 Wednesday events in Washington. John H. Deck is at Brookings 0:08:58.400 --> 0:09:01.560 Institution where he tackles the bigger picture, the longer picture, 0:09:02.000 --> 0:09:05.520 a really interesting book three or four years ago, Presidential Park, 0:09:05.640 --> 0:09:08.840 just about the actual way that money moves around Washington. 0:09:08.920 --> 0:09:12.520 He's been looking recently at how the two parties are 0:09:12.559 --> 0:09:17.600 responding into two thousand eighteen and two thousand and nineteen. John, 0:09:17.679 --> 0:09:21.400 Let's look back quickly here. How did the Democrats lose 0:09:21.520 --> 0:09:25.760 the demock the traditional Democrat voter in states like Michigan 0:09:26.120 --> 0:09:30.319 in Wisconsin. Well, I think what a lot of voters 0:09:30.480 --> 0:09:34.559 in those rust belt states saw was an economy over 0:09:34.600 --> 0:09:38.160 eight years that was recovering but was largely leaving them behind. 0:09:38.400 --> 0:09:41.360 Either they were not getting new jobs, or they were 0:09:41.360 --> 0:09:44.200 not getting jobs that were paying as well, or was 0:09:44.280 --> 0:09:46.960 the stable as the ones that they lost during the 0:09:47.040 --> 0:09:51.160 Great Recession. And that built up some frustration, um from 0:09:51.200 --> 0:09:54.960 some frustration with the Obama administration and with Democrats. And 0:09:55.080 --> 0:09:58.440 Donald Trump very effectively spoke to those voters and told 0:09:58.480 --> 0:10:01.560 them essentially the old Bill Clinton line, I feel your 0:10:01.600 --> 0:10:03.960 pain and I'm going to help you. Well, where are 0:10:04.000 --> 0:10:06.360 those Democrats now? Are they've been pushed about? I mean, 0:10:06.440 --> 0:10:09.439 I mean to go to the stereotypes. Are the progressive 0:10:09.559 --> 0:10:14.679 eastern left coast? Are progressive ultraliberals? Are they going to 0:10:14.760 --> 0:10:17.520 be in charge or can there be not a new 0:10:17.600 --> 0:10:19.959 Democratic party, but maybe one that looks a little bit 0:10:20.000 --> 0:10:24.400 like it look years ago. Well, it's it's an interesting mix, right. 0:10:24.520 --> 0:10:28.679 So you have obviously a Democratic party that's turning, uh 0:10:28.880 --> 0:10:33.640 strongly toward progressivism, and with that comes some social issues 0:10:33.720 --> 0:10:37.480 that can turn off moderate Democrats. But at the same time, 0:10:38.000 --> 0:10:42.359 these progressive Democrats are also talking about issues like healthcare, 0:10:42.520 --> 0:10:48.359 like uh, increasing the minimum wage, like helping retrain workers 0:10:48.440 --> 0:10:51.960 who have had industries sort of taken out from under them. 0:10:52.320 --> 0:10:55.439 And those are the types of messages that those voters 0:10:55.480 --> 0:10:58.600 want to hear ultimately, and if they can convince uh, 0:10:58.600 --> 0:11:01.200 those voters that they're actually going to do something about it, 0:11:01.240 --> 0:11:03.320 they can win them back. I want to go back 0:11:03.320 --> 0:11:06.840 to your wheelhouse book, Presidential Park. Does this president believe 0:11:06.880 --> 0:11:11.520 in pork? Oh? Absolutely, every president believes in pork, but 0:11:11.720 --> 0:11:15.640 that president does as well. Um, this president does as well. 0:11:15.760 --> 0:11:20.120 So we're seeing this not necessarily in the allocation of funds, 0:11:20.160 --> 0:11:22.760 although there is some evidence of that, but in terms 0:11:22.920 --> 0:11:28.160 of how tax policy is playing out, with issues such 0:11:28.240 --> 0:11:31.960 as where to drill offshore in the United States, the 0:11:31.960 --> 0:11:35.080 president is very sensitive to what swing states want and 0:11:35.120 --> 0:11:38.280 to what Republican States want, Well, what's you're reading on infrastructure? 0:11:38.280 --> 0:11:41.080 Brook insist on great work over the years on transportation 0:11:41.200 --> 0:11:45.560 and infrastructure. Is the infrastructure story of the next ninety 0:11:45.640 --> 0:11:48.560 days maybe days? Is it gonna be the same old, 0:11:48.600 --> 0:11:51.280 same old bridges to nowhere? Or can we actually get 0:11:51.360 --> 0:11:56.480 JFK Terminal one fixed? Well? I think the President is 0:11:56.720 --> 0:11:59.440 well positioned to understand that there are a lot of 0:11:59.480 --> 0:12:02.600 needs in this country and he does want by all accounts, 0:12:02.640 --> 0:12:09.960 a pretty comprehensive infrastructure bill. And John, why can't we 0:12:10.320 --> 0:12:13.440 get that done? I get this everywhere I travel, even 0:12:13.440 --> 0:12:16.880 in London. I get this from people in America. Why 0:12:16.920 --> 0:12:21.040 can't we fix this? I mean, it's totally unacceptable. This 0:12:21.080 --> 0:12:24.640 is a situation in which there are conservatives and Congress 0:12:24.760 --> 0:12:27.760 who do not want to spend government funds UM. They 0:12:27.840 --> 0:12:30.280 don't think that there is going to be an economic 0:12:30.320 --> 0:12:33.479 stimulative effect. They didn't think the stimulus had a stimulative 0:12:33.520 --> 0:12:36.880 effect UM, and they just don't buy that that type 0:12:36.920 --> 0:12:40.920 of economics UM works. And the reality as we know 0:12:41.000 --> 0:12:43.720 it does and we know, regardless of how much money 0:12:43.720 --> 0:12:47.240 it pumps into the economy, we also have a crumbling infrastructure. 0:12:47.320 --> 0:12:49.920 So beyond all of the economic arguments. There's just a 0:12:49.960 --> 0:12:53.320 functional argument that we have here, and I think most 0:12:53.360 --> 0:12:55.840 Americans are going to be up in arms, uh if 0:12:55.880 --> 0:12:58.440 something like that doesn't get past, and frankly the president 0:12:58.480 --> 0:13:02.040 should be too. Is something about our history? Is it? 0:13:02.200 --> 0:13:05.400 Is it a legacy of two hundred years or do 0:13:05.440 --> 0:13:07.600 you do you dated at a certain point. I mean 0:13:07.800 --> 0:13:13.640 Eisenhower built the interstate road system. Yeah, I mean we 0:13:13.840 --> 0:13:18.400 obviously have some historical trends in this country that that uh, 0:13:18.679 --> 0:13:23.200 pressure towards less government intrusion, less government spending. But some 0:13:23.280 --> 0:13:26.200 of our biggest spenders, some of our biggest supporters of 0:13:26.240 --> 0:13:31.040 infrastructure in American history have been Republicans, like you said, Eisenhower, Nixon, 0:13:31.160 --> 0:13:33.839 others like that. Um. And so we're just at a 0:13:34.280 --> 0:13:39.080 crossroads in our politics right now where helping rebuild airports 0:13:39.160 --> 0:13:45.160 and roads in bridges is somehow economically bad and politically nuclear. 0:13:45.280 --> 0:13:48.240 It's it's a bizarre situation. We got to do more 0:13:48.240 --> 0:13:50.400 on this. Love having you on. Thank you so much 0:13:50.400 --> 0:13:53.960 for the Brookie's institution. Really with an interesting remit in 0:13:54.000 --> 0:14:10.760 the think tanks in at Washington, his performance is not flattened. 0:14:10.760 --> 0:14:12.960 If you go to the Bloomberg and you look at 0:14:12.960 --> 0:14:17.880 fancy pants mutual fund managers. Nobody can touch David Harrow 0:14:18.520 --> 0:14:22.120 for performance. Over the last eighteen months, his international stock 0:14:22.160 --> 0:14:26.600 performance has been truly upper decile. He joins US now 0:14:26.640 --> 0:14:30.360 with Harris Associates. David Harrow, can you keep it going? 0:14:31.040 --> 0:14:34.560 How far into the football game the Green Bay Packers 0:14:34.640 --> 0:14:40.000 playoff green Bay Packers super Bowl bound football game? How 0:14:40.080 --> 0:14:43.480 far into it are we with international stocks? Um, we're 0:14:43.480 --> 0:14:45.920 gonna have to wait till next year for the Super Bowl, 0:14:46.240 --> 0:14:49.280 but not for international stocks. Now, I think the good 0:14:49.280 --> 0:14:53.080 news about international stocks there are still decent pockets of value. 0:14:53.080 --> 0:14:55.920 And in particular, if you look at where the European 0:14:56.000 --> 0:14:59.400 equity markets are trading versus the world, you know, there's 0:14:59.440 --> 0:15:02.360 somewhere around thirteen and a half fourteen times next year 0:15:02.480 --> 0:15:04.880 earnings towards and we're towards it. You know, we're just 0:15:04.920 --> 0:15:07.560 coming out of the bottom of the earning cycle, so 0:15:07.840 --> 0:15:12.280 we have rising earnings at relatively low valuations. Um, everywhere 0:15:12.280 --> 0:15:14.520 else it's getting tougher. You just really have to be 0:15:14.640 --> 0:15:18.080 fussy stock by stock by stock. The US of course 0:15:18.120 --> 0:15:21.800 is selling at a premium to the world, but you know, 0:15:21.800 --> 0:15:24.600 I always argue it should trade at some premium to 0:15:24.640 --> 0:15:28.920 the world because it earns the US corporate USA earns 0:15:28.920 --> 0:15:32.840 good returns to our listeners. By Europe, blind I brought 0:15:32.920 --> 0:15:36.280 up Siemens s I e g Y is the euro 0:15:36.360 --> 0:15:40.960 based stock Semens Big Engineering Manufacturing. Maybe it's what Generous 0:15:41.000 --> 0:15:44.520 Electric wants to be. Here's the headline, David Harrowd, I 0:15:44.560 --> 0:15:48.680 got a three percent dividend with minimum dividend growth? Which 0:15:48.680 --> 0:15:50.600 do I want in Europe? Do I want these guys 0:15:50.760 --> 0:15:52.600 to give me more dividend growth or do I just 0:15:52.640 --> 0:15:56.120 take the fat dividend? Well, what we always say about 0:15:56.200 --> 0:15:59.920 capital allocation is we want the management teams to make 0:16:00.080 --> 0:16:03.440 the decision in terms of a capital allocation that leads 0:16:03.680 --> 0:16:06.880 to value creation, and if they can't put the money 0:16:06.920 --> 0:16:10.080 back in their business or make a reasonable acquisition or 0:16:10.080 --> 0:16:12.160 paid on debt, then they should give it back to 0:16:12.200 --> 0:16:14.360 the owners. But they could give it back to the 0:16:14.400 --> 0:16:16.840 owners whether it be in the form of a dividend 0:16:16.960 --> 0:16:20.359 or a stock buy back, depending on the stock valuation. 0:16:21.120 --> 0:16:26.440 UH is really the variable that determines which of those 0:16:26.480 --> 0:16:30.800 to use. So just pain dividends itself isn't good. For instance, 0:16:30.840 --> 0:16:34.800 if the company has a payout ratio, that is, if 0:16:34.840 --> 0:16:37.360 they're paying out more than they earn. Perhaps they shouldn't 0:16:37.400 --> 0:16:41.600 be pain such high dividends. That dividend is unsustainable. So 0:16:41.640 --> 0:16:45.720 there's so many factors, there's so many fascists. John Ferrell, 0:16:45.760 --> 0:16:49.560 BMP Perry Bob Paris has a four point one percent 0:16:49.800 --> 0:16:52.480 yield and the equity is performed well as well. I 0:16:52.480 --> 0:16:55.440 think what strikes me as an incredible um looking at 0:16:55.520 --> 0:16:58.920 David Harrow's portfolio is not just the performance last year, 0:16:59.120 --> 0:17:02.480 but the minimal exposure you have. David tooned States, and 0:17:02.480 --> 0:17:04.040 I want to get fussy with you and talk about 0:17:04.080 --> 0:17:06.720 some some single name issues. You've been in Glencore for 0:17:06.760 --> 0:17:09.800 a long time. You start with Glencore when the stock 0:17:09.880 --> 0:17:12.240 was rolled it over in a really aggressive way. Now 0:17:12.280 --> 0:17:14.879 it's delivered, some people would say that it's still trading 0:17:14.880 --> 0:17:17.720 at a discount versus a b HP and a Rio. 0:17:18.119 --> 0:17:20.120 Why do you think that is? And it's there still 0:17:20.200 --> 0:17:23.359 space for this to rewrite. There is still space for 0:17:23.400 --> 0:17:25.879 glen corter re rate. And really if you look at 0:17:25.920 --> 0:17:29.400 the situation of Glencore today, you know, very very low 0:17:29.480 --> 0:17:33.280 dealt levels. Again, don't forget unlike those other mining companies 0:17:33.320 --> 0:17:37.400 you mentioned, over a third of glen Course profitability comes 0:17:37.440 --> 0:17:41.560 from a very profitable and probably the best commodities trading 0:17:41.640 --> 0:17:44.240 business in the world. And then if you look at 0:17:44.440 --> 0:17:50.280 the extraction the minerals and metals that Glencore extracts and 0:17:50.440 --> 0:17:55.520 minds verse b HP. For instance, UM you see copper 0:17:55.560 --> 0:18:00.359 and nickel and you don't see iron ore UM iron 0:18:00.480 --> 0:18:04.639 or is something with an extremely flat cost curve. So 0:18:04.680 --> 0:18:08.159 if prices go up, supply could expand greatly. This is 0:18:08.200 --> 0:18:10.879 not something you really want to be exposed to. On 0:18:10.960 --> 0:18:14.399 the other hand, b HPS had a very very sour 0:18:14.520 --> 0:18:17.359 record of capital allocation. Now they have a new chairman 0:18:17.400 --> 0:18:20.560 who's quite good, but I mean they really made some 0:18:20.680 --> 0:18:23.760 big mistakes, whether it's being potash or u S energy. 0:18:24.840 --> 0:18:26.560 We've got to leave it there, David Harrow, too short 0:18:26.560 --> 0:18:29.040 of visit today. We look forward to a longer conversation 0:18:29.119 --> 0:18:31.800 with you in London, in New York or at the 0:18:31.800 --> 0:18:34.680 Super Bowl when the Packers play next. David Harrow, So 0:18:34.800 --> 0:18:37.879 the Harris Associates in Chicago. He is a citizen of 0:18:37.960 --> 0:18:56.359 the nation known as Wisconsin. Is the market really inured 0:18:56.600 --> 0:19:00.959 or desensitized to anything negative? Let's find out from our 0:19:01.000 --> 0:19:04.240 next guest, Christina Hooper, is invest goos chief, a global 0:19:04.280 --> 0:19:06.919 market strategist, and she joins us here in our eleven 0:19:06.960 --> 0:19:09.639 three oh studios. Christina, thank you for being here. So 0:19:09.800 --> 0:19:14.439 are the markets completely desensitized to negative news? Well? I 0:19:14.440 --> 0:19:17.600 think they certainly have become desensitized to a certain extent, 0:19:18.040 --> 0:19:21.320 although every now and then a whiff of reality hits 0:19:21.400 --> 0:19:24.399 markets and they react. And we saw that yesterday with 0:19:24.480 --> 0:19:28.080 concerns about a government shutdown. And what about animal spirits? 0:19:28.080 --> 0:19:30.160 Do you think that there's still a lot of excitement 0:19:30.280 --> 0:19:34.119 left over tax reform or tax overhaul and could we 0:19:34.240 --> 0:19:38.040 see some infrastructure spending If we talk about that, maybe 0:19:38.040 --> 0:19:40.560 it will happen and people get excited there too. They're 0:19:40.600 --> 0:19:45.159 definitely animal spirits about tax reform still. Um, I'm surprised 0:19:45.200 --> 0:19:48.360 to see just how excited many companies are, just how 0:19:48.400 --> 0:19:52.360 generous they've been in terms of giveaways to employees either 0:19:52.800 --> 0:19:56.639 increases in in pay, one time bonuses. And I do 0:19:56.760 --> 0:20:01.880 believe that the prospect for infrastructure will keep some level 0:20:01.920 --> 0:20:05.840 of excitement and markets going forward. Christina, we just see 0:20:05.880 --> 0:20:09.159 with the production industrial production number is pretty good. The 0:20:09.200 --> 0:20:11.600 two year yield really break out to new levels almost 0:20:11.600 --> 0:20:14.280 to two point zero four percent up up, We go 0:20:14.400 --> 0:20:17.560 with that yield grinding up, but other yields really not 0:20:17.720 --> 0:20:20.840 participating as much as that center tendency to year yield. 0:20:21.400 --> 0:20:25.480 To an equity person like yourself, what does it signal 0:20:25.520 --> 0:20:27.520 when we see a two year yield have a life 0:20:27.560 --> 0:20:31.320 of its own, Well, what it suggests. I mean, usually 0:20:31.359 --> 0:20:34.760 the two year hughes pretty closely to where we see 0:20:34.840 --> 0:20:38.240 the FED funds rate moving and where a monetary policy 0:20:38.320 --> 0:20:42.160 is going. So, um, what we're likely to see is 0:20:42.160 --> 0:20:45.160 is um, you know, rate hikes in the future, which 0:20:45.200 --> 0:20:49.040 we knew would happen. We're gonna make some news here. 0:20:49.119 --> 0:20:51.639 We're gonna see something January thirty one. I mean, you 0:20:51.680 --> 0:20:53.800 want to surprise as best as you can. That's the 0:20:53.840 --> 0:20:56.280 time to do it. Right. Well, I don't think we'll 0:20:56.320 --> 0:20:59.359 see something January thirty one. We just haven't seen enough 0:20:59.480 --> 0:21:03.000 data that suggests that, um, we're going to see higher 0:21:03.040 --> 0:21:06.760 inflation UM by the time the f O m C meets. 0:21:06.760 --> 0:21:09.480 But having said that, we could certainly see the Fed 0:21:09.600 --> 0:21:13.679 rays rates more than expected in we have an entirely 0:21:13.720 --> 0:21:17.119 new Fed. UM. We also have to be prepared as 0:21:17.119 --> 0:21:21.399 equity investors for the potential for a flattening yield curve 0:21:21.480 --> 0:21:24.399 and all the implications that that has for the stock market. 0:21:25.160 --> 0:21:27.480 Do you assume And this is really interesting, folks, because 0:21:27.520 --> 0:21:30.960 Christina is with invest Goo, an investment house where she's 0:21:31.040 --> 0:21:35.680 not really trying to game the forecasting game day to day. 0:21:35.720 --> 0:21:39.400 But part of your discussion there is a presume good 0:21:39.480 --> 0:21:42.280 g d P? How good is good? I mean, do 0:21:42.320 --> 0:21:44.399 we need to get used to two point four or 0:21:44.440 --> 0:21:47.199 two point six percent is good g d P? Or 0:21:47.240 --> 0:21:49.280 can we actually do a lot better than that is 0:21:49.320 --> 0:21:52.719 indicated by the two year yield? We could certainly see 0:21:52.720 --> 0:21:56.480 three percent GDP. We're an environment of global growth and 0:21:56.520 --> 0:21:59.439 it doesn't look like there will be a slowing of 0:21:59.480 --> 0:22:03.920 that growth based on where we're standing today. Having said that, though, 0:22:04.000 --> 0:22:08.640 our greatest risk, I would argue is central bank tightening 0:22:09.080 --> 0:22:12.520 and the potential for central banks to tighten more than expected. 0:22:12.880 --> 0:22:15.600 We've got the ECB starting to taper, so it's not 0:22:15.680 --> 0:22:17.760 just a FED story, but I think the FED is 0:22:17.840 --> 0:22:23.120 front and center in terms of risks UM for markets. 0:22:23.119 --> 0:22:26.920 In what would cause them to tighten more than expected? 0:22:27.680 --> 0:22:30.560 I think largely it would be based on data that 0:22:30.680 --> 0:22:34.720 suggests higher inflation than expected. The FED is certainly concerned 0:22:34.720 --> 0:22:39.280 about overheating UM, but they're always concerned about overheating, They're 0:22:39.280 --> 0:22:42.919 always concerned about underheating. They're always concerned about something. What 0:22:43.080 --> 0:22:47.080 event would take place or what number or economic metric 0:22:47.480 --> 0:22:50.800 would cause the Federal Reserve to raise interest rates more 0:22:50.840 --> 0:22:53.520 than people have estimated. Well, I think, quite frankly, it's 0:22:53.560 --> 0:22:57.280 a lot to do with what tax reform might mean 0:22:57.480 --> 0:23:01.359 for the economy. So we saw some contemplation about the 0:23:01.440 --> 0:23:05.560 tax reform legislation in the December f O MC minutes, 0:23:05.880 --> 0:23:10.399 and so certainly there's higher sensitivity to um what tax 0:23:10.440 --> 0:23:13.680 reform could do to an economy that's already accelerating. But 0:23:13.840 --> 0:23:16.200 tax reform in terms of what bringing the money back 0:23:16.320 --> 0:23:20.560 overseas or reducing the corporate income tax while the economy 0:23:20.680 --> 0:23:24.320 is three quarters the consumer, Well, I think what we 0:23:24.400 --> 0:23:28.399 may see going forward is that companies shouldering more of 0:23:28.440 --> 0:23:31.400 the growth. We've certainly seen corporate spending that has been 0:23:31.440 --> 0:23:34.960 fairly anemic since the global financial crisis. Now capex spending 0:23:35.040 --> 0:23:37.280 has picked up, but we could see a big boost 0:23:37.280 --> 0:23:41.119 of capex spending because the tax law incentivizes it. You 0:23:41.119 --> 0:23:43.680 don't believe that they will be spending that on dividends 0:23:43.720 --> 0:23:46.840