Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along
Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day
Speaker 1: for insight from the best and economics, geopolitics, finance and investment.
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Speaker 1: the Bloomberg Terminal, and the Bloomberg Business App. William Dudley
Speaker 1: joining us nowt the former New York Fed president and
Speaker 1: Bloomberg opinion columnists Phil I got eight ways to go here.
Speaker 1: I'll stand script on inflation and McKee. I'm sure we'll
Speaker 1: have smarter things to say. Five percent is flat out
Speaker 1: not acceptable. Everyone understands that what inflation rate is that
Speaker 1: moment where Bill Dudley relaxes.
Speaker 2: I think when the Fed gets the inflation rate down
Speaker 2: into the twesday and there's more slack in the labor
Speaker 2: market and wages are rising more like three to four
Speaker 2: percent rather than five to six percent, which.
Speaker 3: They're doing now.
Speaker 2: The Fed is making some progress on the inflation front,
Speaker 2: but they haven't made much progress yet on the labor
Speaker 2: market and on the wage trend. So it's hard to
Speaker 2: see inflation going all the way back to two percent
Speaker 2: where the labor market's tight and wages as high, and.
Speaker 1: Your studies at Berkeley, is it necessary to have unemployment
Speaker 1: go up to bring inflation down? Why can't we just
Speaker 1: move the inflation needle the disinflation needle and keep America employed.
Speaker 3: Well, that'd be the ideal outcome.
Speaker 2: It'd be great if we could operate at a three
Speaker 2: point four percent unemployment rate with two percent inflation.
Speaker 3: But historically that suggests that it's not happened in the past.
Speaker 2: The libor market at that level of tightness generates wage
Speaker 2: gains that are inconsistent with two percent inflation, and the
Speaker 2: Federal Reserve doesn't think that's going to happen. The fether Reserve,
Speaker 2: if you look at their last summary of economic projections,
Speaker 2: expects that they're going to need to push the unemployment
Speaker 2: rate up above four and a half percent to be
Speaker 2: successful and bringing inflation down. So they need to push
Speaker 2: the unemployer rate by more than a full percentage point in.
Speaker 3: Their minds to be successful. And I think that's a
Speaker 3: reasonable forecast.
Speaker 1: Bill.
Speaker 4: It's Mike switching to that Jobs report data. The calculations
Speaker 4: people are making to get to that four and a
Speaker 4: half percent by the end of the year, which the
Speaker 4: Fed has forecast, we need all of a sudden to
Speaker 4: start losing tens of thousands, if not hundreds of thousands
Speaker 4: of jobs a month. Do you see any prospect of that?
Speaker 2: Well, I think it just reiterates the tension between what
Speaker 2: the Fed thinks in terms of how long I have
Speaker 2: to keep greats high versus what the market thinks.
Speaker 3: The FED thinks, this is all going to be a
Speaker 3: very slow process.
Speaker 2: It's going to take many, many months, and I think
Speaker 2: when we get the next summer of economic projections from
Speaker 2: the Fed in June, you'll probably see them being less
Speaker 2: optimistic about how fast they can bring inflation back down
Speaker 2: to two percent, and probably show a slower rise in.
Speaker 3: The unemployer rate. You're absolutely right.
Speaker 2: The labor market's still pretty darn strong, and the Fed
Speaker 2: really hasn't.
Speaker 3: Gotten the progress that they've wanted on that score. They
Speaker 3: need payroll.
Speaker 2: Gains of fifty thousand or less to push the unemployment
Speaker 2: rate up by a meaningful amount, and they haven't gotten
Speaker 2: anything like that yet.
Speaker 4: Is there any way they can accurately forecast what's going
Speaker 4: to happen to wages. Given this post pandemic, weird kind
Speaker 4: of labor market that we have, I.
Speaker 2: Think that they can see what's happening through a broad
Speaker 2: set of wage indicators, and what's happening is not really
Speaker 2: unusual relative to what you would expect, even the tightness
Speaker 2: of the layer market. If you look at the Jolts report,
Speaker 2: the job openings, the labor to turnaments report, that suggests
Speaker 2: that the layer market has eased a little bit, but
Speaker 2: that ratio of unfilled jobs to unemployed workers is still
Speaker 2: really high. Pure Pola said that he needs to get
Speaker 2: that ratio down to about one to one. Right now,
Speaker 2: I think we're operating at one point six to one,
Speaker 2: so we still have quite a bit of ways to go.
Speaker 4: Speaking of a ways to go, which is I guess
Speaker 4: kind of what policymakers are always going to say. Are
Speaker 4: they there in terms of being restrictive enough or is
Speaker 4: there anything in this data or the data that you've
Speaker 4: seen so far since the last meeting that would suggest
Speaker 4: that maybe they need to do more.
Speaker 2: They think they're restrictive enough, And I think one reason
Speaker 2: why they think they're restrictive enough is we're going to
Speaker 2: see some credit constraints from the banking sector because of
Speaker 2: the turmo we've seen in the banking area, So they're
Speaker 2: thinking that credit conditions are going to be tighter as
Speaker 2: banks pull back a bit. One area, though, where you
Speaker 2: have to be a little bit concerned is the housing sector,
Speaker 2: which is really the most interest rate sense of the
Speaker 2: sector of the comic seems to be bottoming out. So
Speaker 2: if entre policy is a really tight and the housing
Speaker 2: market is start to recover again, and that does raise
Speaker 2: a question of whether the FED is sufficiently tight.
Speaker 1: Bill Dudley, I want to go to your latest essay,
Speaker 1: which has a single sentence in it which is not
Speaker 1: an inflammatory, but I think shocking to a lot of people.
Speaker 1: And I'm going to suggest that Bill Dudley, like Stephen Roach,
Speaker 1: who worked at another shop on Wall Street years ago,
Speaker 1: you people are looking for a new FED mandate around
Speaker 1: FED stability. Are you a financial stability Are you advocating
Speaker 1: a three part FED with the responsibility of inflation dynamics,
Speaker 1: jobs dynamics, and find financial stability dynamics.
Speaker 2: Well, I guess I would put it is financial stability
Speaker 2: is a necessary condition for.
Speaker 3: An effective monitoring policy.
Speaker 2: If you don't have financial stability, you lose control of
Speaker 2: monitary policy. So as part of your monetary policy mandate,
Speaker 2: you have to have a great close focus on financial stability.
Speaker 3: And the fact is the FED missed what was going
Speaker 3: to happen in the banking sector.
Speaker 2: If you look back at the November Financial Stability Report,
Speaker 2: there was nothing about the potential funding risk of regional banks.
Speaker 2: There was nothing about the large marked to market losses
Speaker 2: on their balance sheet. There was nothing about the risk
Speaker 2: that uninsured depositors might leave. So the FED really, you know,
Speaker 2: didn't capture that. And I get the FED a lot
Speaker 2: of credit for the report that they published just recently
Speaker 2: on what went wrong with Lacon Valley Bank. I think
Speaker 2: they do recognize their supervisory failures, but that's not sufficient.
Speaker 2: Entre policy also contributed to what happened because the FED
Speaker 2: basically made interest rate very low for a very long time.
Speaker 3: They flooded the banking system with deposits. Some banks took
Speaker 3: those as posits and bought long datad assets that didn't
Speaker 3: work out for them.
Speaker 2: So the FED reserves entre policy did contribute to the
Speaker 2: problems that we've seen in the banking sector.
Speaker 1: Yeah, I looked Mike McKee at this and the dovetail here,
Speaker 1: and it hearkens back to Stephen wrote screaming about a
Speaker 1: new FED with a new mandate within a modern economy,
Speaker 1: and whether it was Roach at Morgan Stanley or Bill
Speaker 1: Dudley at Goldman Sachs years ago, this was the dovetail
Speaker 1: of market economics into the academic discussion that Chairman Powell
Speaker 1: has to face every day, and here we are looking
Speaker 1: at it again. Yeah.
Speaker 4: Bell raises a question of what do you think the
Speaker 4: Fed's reaction function is now given that the new monetary
Speaker 4: policy framework doesn't apply at the moment.
Speaker 5: I think their reaction function is that they want to
Speaker 5: They're going to keep rates at this level or maybe
Speaker 5: a little even a little bit higher until they seekings
Speaker 5: that they're confident that inflation is going to get back
Speaker 5: to two percent.
Speaker 3: And to be confident that inflation is going to get
Speaker 3: back to two.
Speaker 2: Percent, they need to see more softness in the market
Speaker 2: reduction and wage inflation, and.
Speaker 3: More progress on services sector inflation.
Speaker 1: Bill Dudley hotsyus.
Speaker 6: Some M.
Speaker 1: Calvy are online too, and they just want to gustimate
Speaker 1: to you, when do we get under three percent inflation?
Speaker 1: Give us your market economic analysis today? Of the timeline
Speaker 1: to three percent. When do we see it?
Speaker 2: I think I probably see it by before the end
Speaker 2: of the year because housing inflation is going to come
Speaker 2: down pretty dramatically. We've seen that the housing inflation in
Speaker 2: the CPI and in the pc deflator lags a lot
Speaker 2: behind what's actually happening in housing, So that's going to
Speaker 2: start to turn down pretty sharply, I think in the
Speaker 2: second half of the year, and that will help us
Speaker 2: on headline inflation.
Speaker 1: Doctor Doddley, thank you so much for joining us writing
Speaker 1: for Bloomberg Opinions. Superb assay, thought provoking essay for all
Speaker 1: commercial banking here from Bill Dudley on the latest banking
Speaker 1: crisis of financial stability. He is the ultimate bottoms up investor,
Speaker 1: Mario Gabelly cut his teeth on machinery things, as Gartman says,
Speaker 1: following your foot and hurt you. He is a cell
Speaker 1: side analyst who's had a claim with a broader portfolio
Speaker 1: over the years in entertainment and such. Mario, I've got.
Speaker 3: To go to you know.
Speaker 1: I couldn't do it as a diehard Red Sox fan.
Speaker 1: I'm not gonna go along the Atlanta braves. But this
Speaker 1: is textbook Gibelly. It was twenty something now it's on
Speaker 1: the edge of forty. Explain why the Atlanta Braves are
Speaker 1: gonna win the Gabelly World Series this year.
Speaker 7: You know, I'm sorry about the Red Sox losing last night.
Speaker 7: The Braves are doing well. Independent of that. The pitch
Speaker 7: clock is having an impact on baseball by shortening it. Well,
Speaker 7: we'll get the results over time. But in addition to that,
Speaker 7: you have other reasons for attendance, You have other reasons
Speaker 7: for revenues. There's about sixty two million shares of B
Speaker 7: A t R A and B A t R at
Speaker 7: the lower voting stock. Our clients own a significant piece
Speaker 7: of the voting stock, and so as a result of that,
Speaker 7: we are obviously cheerleaders for the Atlanta Braves. And we
Speaker 7: think between Battery Park, that is the area in which
Speaker 7: the stadium is in right, the value of the franchise.
Speaker 7: I think you're going to get it, you know, forty
Speaker 7: five to fifty five dollars a share somewhere in an
Speaker 7: extra vos. That's it. It's a And if you don't
Speaker 7: want to own it because you got emotional dynamics such
Speaker 7: as life, that's your portfolio. But give it that everybody
Speaker 7: listening should get one hundred shares from others day. For
Speaker 7: someone to that they like Mario.
Speaker 1: Gabelli on the Atlanta Braves, putting me in the Gabelli,
Speaker 1: it'll double time out. Chare is well, there will be
Speaker 1: reports on Disney, Mario, I think of you and Gordon
Speaker 1: Crawford and Capitol Guardian Trust as being people that have
Speaker 1: followed as entertainment idiocy. Were you surprised at the streaming
Speaker 1: nonprofit in is Disney the mother of all Gabelli values?
Speaker 7: Well, you've got to look at the amount of money
Speaker 7: being spent on content by the companies. As an example,
Speaker 7: Disney will probably be twenty eight to thirty billion. Netflix
Speaker 7: is trying hard to get up to thirteen or fourteen
Speaker 7: or fifteen billion. Paramounts is higher than that. Then you
Speaker 7: have Apple trying to catch up. But Apple cumulively maybe
Speaker 7: for the last five years, has spent thirteen billion said
Speaker 7: they don't have any content. So where and how do
Speaker 7: you find? You know, I love Lucy, and I love
Speaker 7: Tom Keene, and I love Lisa. Those kind of contents
Speaker 7: are buried in there and they come back. And for
Speaker 7: example of Full Life with Jimmy Stewart. Because of the
Speaker 7: bank run, people are going back and looking at that.
Speaker 7: So how important is the embedded value? What is when
Speaker 7: you do a theatrical box office. You had a forty
Speaker 7: two billion dollar business, but the theater operators get forty
Speaker 7: percent of that or higher. So now you go direct
Speaker 7: to streaming. And unfortunately, because of the regulatory organizations, the
Speaker 7: companies like AT and T and Verizon and T Mobile
Speaker 7: don't get paid for people using the highways on a
Speaker 7: super speed. I go over to George Washington Bridge and
Speaker 7: I pay less than a Class A truck. So Tom,
Speaker 7: from Disney's point of view, yes, you've got a learning curve,
Speaker 7: You've got some dynamic short term you want to go global.
Speaker 7: You know we can't be so the US has only
Speaker 7: got three hundred and fifty million people. The rest of
Speaker 7: the world has seven billion.
Speaker 8: More plus Mari, are you still enthusiastic about Paramount? Do
Speaker 8: you still think that Apple's going to buy them?
Speaker 7: My own reaction is that whatever you have, Barb barersk
Speaker 7: doing a great job running the business. You have good content.
Speaker 7: They're obviously making the tough decisions to give them financial flexibility.
Speaker 7: The Federal Trade Commission turned down an ability for them
Speaker 7: to monetize Simon and Schuster to what they're going to do.
Speaker 7: They're going to do beet They're going to try to
Speaker 7: raise some capital there. But you know, from my point
Speaker 7: of view, a year or two from now, they have
Speaker 7: to sell our spin, which they've done before. They're very good.
Speaker 7: For example, nobody appauded to them when they bought Pluto
Speaker 7: for as New Yorkers would say, buckets, and they basically
Speaker 7: have done a great job on that. Now, independent of that,
Speaker 7: without getting into too much detail, you know, they were
Speaker 7: spending six hundred million dollars a year on cash dividends.
Speaker 7: That's going to be down to you know, twenty cents
Speaker 7: time six fifty do you know a significant amount of less.
Speaker 7: So over the next couple of years, put the foundations
Speaker 7: back in place, accelerate the growth, and execute, and that's
Speaker 7: what they're going to do. And then you ask the
Speaker 7: simple question, Yeah, if you've got a stock selling at
Speaker 7: thirty which is now nineteen, let's call it thirty, and
Speaker 7: you basically multiply that by six hundred and fifty million shares,
Speaker 7: you're talking about a twenty eive billion dollar equity value
Speaker 7: and then you got debt will probably be down to
Speaker 7: eight billion if they do these sale of these assets
Speaker 7: and keep the care flow. So you're talking about a
Speaker 7: tiny little morsel. So if Sherry, who owns thirty of
Speaker 7: the forty million voting shares, decides that you know, hey,
Speaker 7: you know, Apple wants to pay me you know, X
Speaker 7: dollars and it's the minimus for them, and they don't
Speaker 7: have the broadcast stations anymore because they're spin out of
Speaker 7: the process of spending. You know, I love making takes
Speaker 7: place in a variety of ways.
Speaker 8: So Mario, on a broader level, you did just get
Speaker 8: back from Omaha where you were at the Berkshire Hathaway
Speaker 8: Annual Meeting shareholder meeting. Have you ever heard Warren Buffett
Speaker 8: this negative, this gloomy, this pessimistic, unstocked. Did you take
Speaker 8: a message from that that you obviously.
Speaker 7: I disagree with you complete. Warren Buffett basically pounded away
Speaker 7: at the idea that if you believe in the virtues
Speaker 7: of the American system that allowed him for eighty years
Speaker 7: when he first started investing at the age of thirteen
Speaker 7: to make a lot of money, that tailwind continues to flourish.
Speaker 7: So is he practical. Yeah, I mean, you know, he's
Speaker 7: very patient and so as a result of that, he's
Speaker 7: got his cash, he's waiting for it. All of us
Speaker 7: are going to focus on a thirteen f that's coming
Speaker 7: out by Monday and see what he bought, what he's
Speaker 7: selling so wild. You know, he's got smart people working
Speaker 7: for him and Greg he first announced, Greg Abel now
Speaker 7: taking over and a jeep Jane continue to run the
Speaker 7: insurance business. So your management session has been identified.
Speaker 1: Everyone wants to know the value trapped. It's a banks
Speaker 1: and your research note. You say to me that you
Speaker 1: want to buy a Southern bank for acquisition. My theme
Speaker 1: for the year is the great zombie roll up? Are
Speaker 1: the smaller banks one collective zombie? And are we going
Speaker 1: to see a massive bank roll up led by banks
Speaker 1: in the South.
Speaker 7: You know, look, you got all of the right dynamics.
Speaker 7: We have a lot of banks. But you know, let's
Speaker 7: flash back. You and I have been doing this for
Speaker 7: a few years. You had a crisis in nineteen sixty
Speaker 7: seven eight nine where the banks lend money to oil
Speaker 7: tankers or whatever they were. In the seventies, you had
Speaker 7: the Hirshta Bank had a whole bunch kind of og bus.
Speaker 7: You had a hold and the eighties you started one
Speaker 7: thousand banks. Tom went bust in the savings a loan
Speaker 7: association crisis because of that, the account's put in a
Speaker 7: rule called hold to maturity, don't amortize, And then you
Speaker 7: had no interest rates for an extended period of time.
Speaker 7: So somebody says, I got a deposit, I'm going to
Speaker 7: lend it long. It costs me no money. The basic
Speaker 7: bank problem is you borrow short and lend long. You
Speaker 7: got a problem independent of that. You still need to
Speaker 7: have that service for the American public, the American economy.
Speaker 7: And I will get over this notion of how bad
Speaker 7: the office will construct. That's it, Murra.
Speaker 1: We got one Yankees fan. He's down in Florida, and
Speaker 1: this Yankees fan emails it and says, the breadth of
Speaker 1: the market is important. Broad Based rallies have the potential
Speaker 1: to continue, while narrowing rallies are prone to a failure.
Speaker 1: Quoting the great Bob Ferrell and Mari Lynch years ago,
Speaker 1: if you ever seen anything as narrow as what we
Speaker 1: see with Apple Computer and four other stocks, and what
Speaker 1: do we do about it?
Speaker 7: Well, you got a lot of dynamics. If I was
Speaker 7: growing up tom playing World of Warcraft and I'm now
Speaker 7: playing Diablo for on my machines, a very quick I
Speaker 7: learned I want instant results. I want to play momentum clearly,
Speaker 7: you know. And then I get on robin Hood and
Speaker 7: then you get quants, Momo, Algos and Aiole coming together
Speaker 7: to do trading the markets of the markets, okay, the
Speaker 7: values of the values over the next right now. For example,
Speaker 7: even if GDP is down two percent real and inflations,
Speaker 7: you're going to get nominal revenues going in three and
Speaker 7: that's a large basket for you. What you talked about
Speaker 7: before in your show. If company is having growth margins SDNA,
Speaker 7: they're learning how to deal with manufacturing reshoring to the
Speaker 7: United States. Tizan is out. That is the just in
Speaker 7: time inventory. Now you bring it closer and you get
Speaker 7: more efficient, and you do AI and you start doing
Speaker 7: a lot of automation, and you pray for immigration because
Speaker 7: that's where the long term growth of this country is
Speaker 7: coming from.
Speaker 8: Mario, we've talked about how we are seeing an increasing
Speaker 8: number of people go back to stock picking from just
Speaker 8: simply indexing. Do you notice that in the day to day,
Speaker 8: do you notice more people interested in the trade that
Speaker 8: you've always practiced and you continue doing so now, But.
Speaker 7: Go back one giant step. I come from a culture
Speaker 7: where we had Graham Dodd, Roger Murray, Bruce Greenwall and
Speaker 7: now Tolla Santo's teaching value investing. How do you do research?
Speaker 7: What is the value of an enterprise? Who is going
Speaker 7: to buy it is? What a would private equity pay?
Speaker 7: What is the capital structure that they can tolerate? What
Speaker 7: is the tax structure? How good is it? Big? Then
Speaker 7: you cut through all the crap right, How good is
Speaker 7: the business? How good is the management? The values after
Speaker 7: buying of that? Are they well below what you think
Speaker 7: the intrinsic value is? And therefore that discount you know
Speaker 7: we'll go out and that over time you're going to do. Okay.
Speaker 7: I think that the market tom in forty five years
Speaker 7: will be one million under Dow. So you know that's
Speaker 7: seven eight percent returns.
Speaker 1: You're showing your cards. You're showing your Morning Side Heights cards.
Speaker 1: Here in the bottom line is Columbia Business School, and
Speaker 1: you mentioned grab Dott and Coddle, and a guy named
Speaker 1: Buffet went there years ago as well. Do the young
Speaker 1: Turks of Columbia Business School believe in the traditional Warren
Speaker 1: Buffett securities analysis.
Speaker 7: There's a lot of cultures that come in in quotes
Speaker 7: in the financial area. You want to integrate analytics.
Speaker 1: Tom.
Speaker 7: If you and I were around two hundred years ago,
Speaker 7: what we would be talking about today on this was
Speaker 7: that the Rothschild's got a pigeon to tell them who
Speaker 7: won the battle at Waterloo, and that they went down
Speaker 7: and did something on the stock market. We can talk
Speaker 7: about that at other time. Then you used to go
Speaker 7: to have Warren Buffer go down in Washington, DC to
Speaker 7: microfish Data or Graham then you I did it at
Speaker 7: the New York Stock you saints today. I gave a
Speaker 7: speech and I said chat GPT. I got my grandson
Speaker 7: to do it and it was a brilliant speech. I
Speaker 7: and it took him five seconds.
Speaker 9: Yeah.
Speaker 7: So the question is how quickly can we gather data?
Speaker 7: How quickly can we use it? But then when you
Speaker 7: get you got to be with some practical judgment has
Speaker 7: to go in the mix.
Speaker 1: Murr. One more question. Speak to the people out there
Speaker 1: that want to be in the market, but they're scared stiff.
Speaker 1: How do you play? How do you participate.
Speaker 7: Well, first of all, you got to do what Buffett says,
Speaker 7: which is patients long term, don't worry about the short
Speaker 7: term dynamics. You for you know, if I own a
Speaker 7: farm out in Iowa or in the Bronx, so let's
Speaker 7: by farm into Brox. I'm not going to wake up
Speaker 7: every day and figure out what the prices are. I'm
Speaker 7: going to look at it and say what are my
Speaker 7: cash flows and what are my predictability and what can
Speaker 7: I harvest it? Same thing with good businesses. If you
Speaker 7: buy a good bunch of business and you know whether
Speaker 7: I have like the Tagna taxtrawn trade and television my te's,
Speaker 7: you know, we can talk about these things. The stocks
Speaker 7: will go down, they'll go up, but you know, five
Speaker 7: years from now we're to make pers This.
Speaker 1: Has been brilliant. Mario Gabelli, thank you so much for
Speaker 1: particalarly there on banks in the South as well, joining
Speaker 1: us now French Hill of Arkansas. He is a Republican.
Speaker 1: Give me the morality here at Congressman the Hill. It
Speaker 1: is a serious, serious issue no one's talking about. Is
Speaker 1: it immoral to have a debt and deficit in the
Speaker 1: United States? I think it's well.
Speaker 10: First of all, good morning to both of you. I
Speaker 10: missed Bible study this morning, so that was a great
Speaker 10: top of the show reminder. And let me say that
Speaker 10: it is immoral to have a debt and a deficit
Speaker 10: that are not controlled, and that's what we have now.
Speaker 10: We're running a forecast of over one and a half
Speaker 10: trillion dollar deficits a year for the next ten years
Speaker 10: in the President's budget. That's the part that's unsustainable. You
Speaker 10: could argue that's immoral because it's substantially larger than we've
Speaker 10: run in the past, and it doesn't show the kind
Speaker 10: of discipline we should have to go back to a
Speaker 10: balanced budget and not be adding to the debt indiscriminately.
Speaker 1: Congressman, there is a photograph of you and Bush the
Speaker 1: first in your youth, and that was back when we
Speaker 1: had commissions I think of green Span and Social Security
Speaker 1: that actually got something done. I'm still in disbelief that
Speaker 1: Simpson Bulls went down in flames. Why can't we be
Speaker 1: like any good democracy, get a commission to find an
Speaker 1: equal ground to do something about our debt and deficit.
Speaker 10: Well, Tom, you're right, and I do support that idea.
Speaker 10: I thought that was one of the more effective things
Speaker 10: in the first term of President Reagan when he was
Speaker 10: cutting taxes and rebuilding defense. He also puts social Security
Speaker 10: on a stable ground by the Greenspan Commission, which had
Speaker 10: an up or down vote on how to do that.
Speaker 10: I would support a commission like that to tackle mandatory
Speaker 10: spending programs like Social Security, Medicare. Make sure they have
Speaker 10: the stability and funding for the next generation. Because they're
Speaker 10: two thirds of our spending every year, they drive the deficit,
Speaker 10: which in turn obviously drives the debt.
Speaker 8: Congressman, there's a really important conversation to be had about
Speaker 8: what's sustainable and good finance for this nation. There's another
Speaker 8: question around the manner to have it, whether we should
Speaker 8: be having it on a brinks edge, holding the US's
Speaker 8: credit rating hostage. Is this really the appropriate way to
Speaker 8: be discussing this at a time when both parties have
Speaker 8: increased the deficit?
Speaker 1: Right?
Speaker 10: Well, I think that's why on February one, Kevin McCarthy
Speaker 10: met with the President and said, let's meet and have
Speaker 10: a sensible and responsible way to raise the debt ceiling
Speaker 10: and get spending under control. Following the pandemic. They had
Speaker 10: a meeting the President promise to follow up, and one
Speaker 10: hundred days have gone by, and what's happened in the
Speaker 10: interim is only one branch of government, one portion of
Speaker 10: a branch of government has taken action, and that's the House,
Speaker 10: under Kevin McCarthy's leadership, to raise the debt ceiling and
Speaker 10: propose some spending controls and regulatory policies that would make
Speaker 10: us have a better economy and a faster growing economy.
Speaker 8: With all due respect on their former President Trump's administration,
Speaker 8: the deficit rose by seven point eight trillion dollars. It
Speaker 8: brought it to World War two type financing conditions, and
Speaker 8: yet we didn't have a question over the debt ceiling.
Speaker 8: There wasn't this sort of pushback. We weren't brought to
Speaker 8: the brink. Why is it so different now that we
Speaker 8: can't have a discussion more clearly even though we have
Speaker 8: the same kind of debt situation.
Speaker 10: Well, I don't think that's true. First of all, the
Speaker 10: bulk of debt spending was due to bipartisan spending to
Speaker 10: fight the pandemic, over five trillion dollars. Shocking situation, shocking
Speaker 10: reaction by the Congress. If we knew what we know today,
Speaker 10: back in March of twenty twenty, we probably wouldn't have
Speaker 10: spent that much money. But with that said, we did
Speaker 10: have a debt ceiling fight in twenty nineteen, and it
Speaker 10: was President Trump was forced to negotiate with Speaker Pelosi
Speaker 10: because he was not in control of the situation, the
Speaker 10: precise same situation that President Biden finds himself now. And
Speaker 10: that's why Kevin McCarthy went to the President on February
Speaker 10: first and said, let's do a sensible and responsible deal.
Speaker 8: Comrasce Spannet, what would your response be to President Trump
Speaker 8: if he did invoke the fourteenth Amendment to keep paying interest,
Speaker 8: to keep paying principle on the US debt, even if
Speaker 8: we do go over that deadline with respect to this
Speaker 8: debt ceiling.
Speaker 10: Well, Secretary Yellen doesn't believe that's a practical activity. I
Speaker 10: think it's sort of a gimmick. I understand the fourteenth Amendment.
Speaker 10: But we've also got legislation in the House that we've
Speaker 10: passed to continue spending the principal interest payments on the
Speaker 10: treasury and other mandatory spending programs as well. That was
Speaker 10: passed by the House Ways and Means Committee several weeks ago.
Speaker 1: French Hill, September of twenty fifteen. Mister Baynor fell on
Speaker 1: a sword and exited stage right, or maybe exited stage left,
Speaker 1: and that was the problem with the Tea Party at
Speaker 1: the time. Explain to me the challenges Kevin McCarthy has
Speaker 1: here not to do another John Bayner.
Speaker 10: Well, look, I heard this morning earlier that people were
Speaker 10: concerned Kevin McCarthy only has a one person can move
Speaker 10: make a motion to vacate the chair. Well, every speaker
Speaker 10: of the House except for Nancy Pelosi, has faced the
Speaker 10: same procedural motion. It's not a new thing, and it
Speaker 10: can still be a motion that's tabled by two hundred
Speaker 10: and eighteen Republicans. So I don't view that as something
Speaker 10: that Kevin McCarthy's remotely concerned about. What he's concerned about
Speaker 10: is a responsible and sensible way of raising the dead
Speaker 10: ceiling and curtailing spend and going back to our pre
Speaker 10: pandemic priorities.
Speaker 1: Congressman Hill, what do you need from Secretary Yellen? What
Speaker 1: leadership can Janet Yellen provide in the coming days? Excellent question, Tom.
Speaker 10: Janet Yellen could step in right now and say that
Speaker 10: she'll be happy to work with Speaker McCarthy and develop
Speaker 10: a responsible and sensible deal to raise the debt ceiling
Speaker 10: and curtail a spending in the right way. And I
Speaker 10: think it would pass overwhelmingly in the House and Senate,
Speaker 10: and President Biden could sign it into law well ahead
Speaker 10: of any deadline that she has set. And I would say, Look,
Speaker 10: that's precisely what President Trump did with Speaker Pelosi. He
Speaker 10: asked Secretary Steve Manuchin, then the Treasury Secretary, to get
Speaker 10: that deal done, and that's what happened back in twenty nineteen.
Speaker 1: Congressman, thank you so much. The Republicans you've met to
Speaker 1: thank you with us today in a terrific brief. He
Speaker 1: is in London, where he holds Corn's chief global equity
Speaker 1: stretch just a Gold and Sacks. Peter Appeneimer has decades
Speaker 1: of experience of extracting ourselves from the worries of the moment. Peter,
Speaker 1: thank you so much for joining us, and I love
Speaker 1: what you're saying your research note about finding neutrality, a
Speaker 1: neutral view, What do you do in the stock market
Speaker 1: when you have a neutral view?
Speaker 9: Well, Tom, we've had that view really through the last year.
Speaker 3: We've been calling the.
Speaker 9: Market environment fat and flats, relatively flat returns at the
Speaker 9: index level, with quite wide trading bands as the market
Speaker 9: assesses at different points the relative risk between recession and inflation.
Speaker 9: And I think we're at the top of that band
Speaker 9: at the moment. And what we've been arguing is that
Speaker 9: within that so you're going to get quite a lot
Speaker 9: of our for opportunities. Generally, we've been pitching it as
Speaker 9: a balance between some deep value where we think the
Speaker 9: risks of valuations are very low, and quality growth g
Speaker 9: and the combination we think is really where investors should
Speaker 9: be in a relatively flat index environment.
Speaker 8: Peter, over the past ten years, everyone was a macro trader,
Speaker 8: and in the past six months everyone's become a microtrader.
Speaker 8: And I go to Bank of America saying, for the
Speaker 8: first time since the two thousand and eight crisis, there
Speaker 8: is evidence of a stock pickers market, of individuals going
Speaker 8: into stocks over ETFs. Is this something that you think
Speaker 8: is going to be persistent, that we are actually shifting
Speaker 8: away from some of the broad indexes and really meaningfully
Speaker 8: clients looking at specific stocks.
Speaker 3: Yeah, I think that's right.
Speaker 9: Look, in the last decade, really equities and all asset
Speaker 9: classes have been dominated by one thing and one thing only,
Speaker 9: and that's a zero interest rate world, a very low
Speaker 9: cost of capital, and that's really driven an environment where
Speaker 9: valuations of assets have gone up. That's been a major
Speaker 9: driver of returns which were not likely to see again
Speaker 9: to the same degree. But it also generated environment was
Speaker 9: very factor based. Everyone wanted growth because it benefited most
Speaker 9: from that drop of very low cost of.
Speaker 7: Capital, and everyone was neglecting value.
Speaker 9: And I think it's much more nuance now you're seeing
Speaker 9: some really good earnings coming through across different sectors of
Speaker 9: the markets. We're also seeing different leadership geographically as well.
Speaker 9: We've been arguing that Europe woul outform the US, and
Speaker 9: it's been doing rather better in the last year.
Speaker 3: I think that will continue.
Speaker 9: So I think investors need to be a bit more nuanced,
Speaker 9: more diversified across regions, across sectors and factors. And it
Speaker 9: really is I think an environment where stop picking an
Speaker 9: alpha creates a better opportunity for investors relative to just
Speaker 9: beta an index investing. Well.
Speaker 8: That makes sort of a concern around the fragility of
Speaker 8: markets when there is a shock that people are not
Speaker 8: prepared for. And I wonder, for example, today with the
Speaker 8: CPI report, we end up with something that is much
Speaker 8: harder than what people expected. If there is that vulnerability
Speaker 8: even amid all of this sort of malaise around the
Speaker 8: mac or a trade to suddenly say, oh my goodness, I
Speaker 8: need to pay attention again.
Speaker 9: Yeah, I think, look, the macro is going to be
Speaker 9: critically important because we're close to inflection points, and it's
Speaker 9: always an environment where investors become particularly heightened to risks
Speaker 9: or opportunities around margin or macro data. I think, as
Speaker 9: you described in the introduction, we're in an environment where
Speaker 9: inflation is still pretty sticky, well above what the central
Speaker 9: banks really want in terms of their targets, and there
Speaker 9: are some risks still on the downside in terms of
Speaker 9: the economy. At the moment, I think markets are really
Speaker 9: pricing the best possible outcome on markets, pricing rate cuts
Speaker 9: and inflation coming down. The equity markets are pretty much
Speaker 9: pricing a soft landing. That combination is possible, but it's
Speaker 9: really what's priced, and I think that the margin. Our
Speaker 9: view is that interest rate expectations need to adjust to
Speaker 9: being higher for longer to get inflation down.
Speaker 1: Before we get back to inflation, I want to tag
Speaker 1: team you and Jeff Curry together, and this is on hydrocarbons.
Speaker 1: And I look at Shell PLC obviously with a higher
Speaker 1: dividend than what I see with Exceutomobile, Goldman Sex and
Speaker 1: owning big oil on the continent or big oil in America.
Speaker 1: How do you choose?
Speaker 9: Well, We like energy and commodities generally we think that
Speaker 9: prices will rise from a fundamental perspective, as Jeff has
Speaker 9: been arguing. But also these sectors are very very cash generative.
Speaker 9: They're paying dividends and they got free cash flow yields,
Speaker 9: you know, in the mid teens, particularly in Europe, so
Speaker 9: energy and resources were overweight in Europe. We like resources
Speaker 9: in particular in the US. But these areas of the
Speaker 9: market we think have very low valuations. They don't have
Speaker 9: a lot of downside risk in terms of valuation, and
Speaker 9: they've still got an opportunity to I think, accrete returns
Speaker 9: and compound returns for investors over time in a flat market.
Speaker 1: Peter, if you and Jeff Curry are over in New
Speaker 1: York City or were there, or were there in London, whatever,
Speaker 1: we'd love to get both of you on desk with
Speaker 1: us at the same time. That would be just a
Speaker 1: really great moment. Mister Oppenheimer's with Golden Sex.
Speaker 8: Joining us now, Henry to Trace, economic policy research director
Speaker 8: at Veda Partners, really appreciate you joining us, Henrietta, your
Speaker 8: take on the non action, the non development of yesterday's
Speaker 8: meeting and whether any of these meetings will really gild
Speaker 8: any fruit until someone said yesterday the eleventh hour, the
Speaker 8: fifty ninth minute, and the fifty ninth second.
Speaker 11: Yeah, that's exactly right.
Speaker 6: I mean, anybody who's been through this movie before knows
Speaker 6: that they do not get anything done until they have to.
Speaker 6: In DC, we are functionally four weeks away from June first,
Speaker 6: which even Treasury has not been hard and fast on
Speaker 6: the actual deadline. The House has been out of session
Speaker 6: for about ten days since their vote a few weeks back.
Speaker 6: So when they had the meeting yesterday, my base case
Speaker 6: assumption and from speaking with staff, was that nothing was
Speaker 6: going to come a bit. There was going to be
Speaker 6: press availability, they were going to shake hands, get a
Speaker 6: lot of jobs in which we obviously saw from Speaker
Speaker 6: McCarthy sometimes a little bit more aggressively than anybody would
Speaker 6: have anticipated in an ordinary year. But he's really like
Speaker 6: proving what he wants to be and present as speaker,
Speaker 6: and so this is much much more about posturing. You'll
Speaker 6: notice that the biggest takeaway was staff is going to
Speaker 6: get involved. Now that's all I want, as a former staffer,
Speaker 6: is to get staff involved.
Speaker 11: They'll start meeting today at the leadership level.
Speaker 7: One of the.
Speaker 6: Areas to concern I hear most is, Hey, the House
Speaker 6: and Senate are not going to be in session at
Speaker 6: the same time for the next consecutive three weeks. Are
Speaker 6: you concerned? And my answer is no, I don't care
Speaker 6: what break and file members are doing. I really only
Speaker 6: care what staff is doing, and they will be meeting tonight.
Speaker 6: They are free to work through the weekend. They do
Speaker 6: not need to attend every single fundraiser back in the
Speaker 6: district the way that members do. So there really are
Speaker 6: three full weeks to get a resolution here. And the
Speaker 6: way that I would phrase it, just briefly, a good
Speaker 6: rule of thumb here is look at the thursdays for
Speaker 6: the rest of May. Thursday of this week we start
Speaker 6: to get action out of staff. Thursday of next week
Speaker 6: is the earliest I would expect a Senate vote, and
Speaker 6: then Thursday of the following week is withou would expect
Speaker 6: a House vote, So that's plenty of time.
Speaker 8: This is like waiting for smoke signals, right, wait for
Speaker 8: Thursday and we can get some sort of sense of
Speaker 8: what's going on. Yeah, Pastor ket over here this morning, Henrietta.
Speaker 8: I'm curious about this George Santos development in how it
Speaker 8: relates to some of the close margins that Kevin McCarthy
Speaker 8: is working with. The New York Post is reporting the
Speaker 8: GEO representative GOP representative George Santos is going to surrender
Speaker 8: after the indictment that we heard about yesterday. He does
Speaker 8: plan to turn himself in, according to this report. This
Speaker 8: highlights that Kevin McCarthy is working with a five Republican
Speaker 8: margin of error that he has to keep on the rails.
Speaker 8: Does this change the equation at all in your in
Speaker 8: your view, I mean it.
Speaker 11: Really underscores the current equation.
Speaker 6: This is an empty shirt that you're trotting around that
Speaker 6: has no committee assignments and is only there to vote.
Speaker 6: The way to Kevin mc he tells him to vote.
Speaker 6: When we were dealing with the Limit Safe Grow Act,
Speaker 6: initially I thought it was great when Santos came out
Speaker 6: and said he didn't know which way he was going
Speaker 6: to vote. He's going to vote whichever way Kevin McCarthy
Speaker 6: tells him to vote, and that is the requirement in
Speaker 6: order for him to stay in Congress.
Speaker 11: So I think this just underscores how.
Speaker 6: Razor thin as you point out the margins are for
Speaker 6: Speaker McCarthy, that you would keep someone like towards Santas
Speaker 6: and then that the rest of the caucus has to
Speaker 6: explain away and that's the tricky thing for them to do.
Speaker 1: Why can't we get to a commission? Simpson Bulls or
Speaker 1: some flavor of that? Is it, Henrietta, you're expert at this?
Speaker 1: Is it so fractured? We can't even get to a
Speaker 1: commission because these clowns are afraid of the outcome of
Speaker 1: a commission.
Speaker 11: I mean, give it time.
Speaker 6: Alan Simpson is an all time rock star as far
Speaker 6: as I'm concerned. Those were great days when we had
Speaker 6: the Simpson Bulls Commission. We even had the Super Committee
Speaker 6: and around that time, if you'll remember that group of people.
Speaker 6: So to get a serious answer, when I started out yesterday,
Speaker 6: I assumed that there would not be any breakthroughs and
Speaker 6: negotiations at the White House. So my immediate next step
Speaker 6: was to listen for any dog whistles for a fiscal
Speaker 6: year twenty twenty four appropriations process, discussions of the budget,
Speaker 6: discover discussions of actual government spending in those twelve approbe spills.
Speaker 6: That is something that I spent my time with staff
Speaker 6: collecting thoughts on, Hey, what are the odds we kicked
Speaker 6: the can down the road? Just get a short term
Speaker 6: suspension going from June first to September thirtieth, which is
Speaker 6: the end of the fifth year, and see what the
Speaker 6: odds are and whether they're rising for that sort.
Speaker 11: Of four month bridge.
Speaker 6: Okay, that four months period is when you'd see Simpson
Speaker 6: bowls or Supercommittee starts it form.
Speaker 1: Yeah, you've teed up the can like Lucy with Charlie Brown.
Speaker 1: I mean, I know the way this goes. What happens
Speaker 1: the first week of October if we've move us the
Speaker 1: can to September thirty exactly.
Speaker 6: So this is my worst case scenario and has been
Speaker 6: since January, this situation where we never reach a conclusion.
Speaker 6: Why because you know, we only have four vote margin
Speaker 6: in the House and a Democratic Senate. What you start
Speaker 6: seeing that on the risk is that we only do
Speaker 6: these short term punts, and this sword is hanging over
Speaker 6: us for the next two years. That's, in my opinion,
Speaker 6: a very bad outcome, and that could very easily pass.
Speaker 11: It happened in twenty twenty one.
Speaker 6: We had always the federal fiscal year ends on the
Speaker 6: September thirtieth, but at the time we couldn't agree on
Speaker 6: the appropriations bills either, so we passed a three month
Speaker 6: extension of those, called a continuing resolution into December third,
Speaker 6: and then we simultaneously bumped the debt ceiling out that
Speaker 6: same exact period. It was a four hundred and eighty
Speaker 6: billion dollar suspension of specifically designed to get the debt
Speaker 6: ceiling to coincide with the CR expiration, which of course
Speaker 6: had been punted from September.
Speaker 11: So that's a very real risk.
Speaker 1: Henrietta Troce, thank you so much. She is chairman of
Speaker 1: the Alan Simpson Fan Club in Washington with Ada partners
Speaker 1: as well. Subscribe to the Bloomberg Surveillance podcast on Apple,
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