1 00:00:00,040 --> 00:00:02,640 Speaker 1: Who you put your trust in matters. Investors have put 2 00:00:02,680 --> 00:00:07,000 Speaker 1: their trust and independent registered investment advisors to the two 3 00:00:07,040 --> 00:00:10,680 Speaker 1: and four trillion dollars. Why learn more and find your 4 00:00:10,760 --> 00:00:26,360 Speaker 1: independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:26,760 --> 00:00:30,480 Speaker 1: I'm Tom Keene with David Gura. Daily we bring you 6 00:00:30,520 --> 00:00:35,560 Speaker 1: insight from the best in economics, finance, investment and international relations. 7 00:00:35,960 --> 00:00:40,559 Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and 8 00:00:40,640 --> 00:00:47,960 Speaker 1: of course, on the Bloomberg News. This morning, out of 9 00:00:48,000 --> 00:00:49,920 Speaker 1: London judges ruling there that there has to be a 10 00:00:49,960 --> 00:00:52,600 Speaker 1: vote in Parliament before the UK government can begin the 11 00:00:52,600 --> 00:00:55,280 Speaker 1: two day countdown to your countdown to bregsit. The country's 12 00:00:55,280 --> 00:00:57,680 Speaker 1: Supreme Court has already made room for a December appeal 13 00:00:57,720 --> 00:00:59,960 Speaker 1: on its doc at. Stephanie Flanders of JP Morgan Asset 14 00:01:00,000 --> 00:01:02,600 Speaker 1: Management will join us in just a moment as we 15 00:01:02,640 --> 00:01:05,280 Speaker 1: wait the results of a monetary policy review and new 16 00:01:05,319 --> 00:01:07,920 Speaker 1: inflation projections from the Bank and England. We expect that 17 00:01:08,160 --> 00:01:10,679 Speaker 1: at eight o'clock Wall Street time will bring you bo 18 00:01:10,680 --> 00:01:14,080 Speaker 1: E Governor Mark Carney's comments. Shortly thereafter. In Washington, it 19 00:01:14,200 --> 00:01:16,800 Speaker 1: was as expected, a dead meeting yesterday. The Federal Open 20 00:01:16,840 --> 00:01:20,720 Speaker 1: Market Committee left rates unchanged, hinting they could rise in December. 21 00:01:20,800 --> 00:01:22,320 Speaker 1: Let's get to the latest done Brexit. I want to 22 00:01:22,319 --> 00:01:24,800 Speaker 1: bring in Stephanie Flander's chief market strategist for the UK 23 00:01:25,000 --> 00:01:29,160 Speaker 1: and Europe at JP Morgan Asset Management. Good morning, Stephanie. Morning, 24 00:01:29,200 --> 00:01:32,080 Speaker 1: good to him. Let's let's start with the ruling itself here, 25 00:01:32,120 --> 00:01:34,679 Speaker 1: a panel of judges designing there has to be a vote. 26 00:01:34,680 --> 00:01:37,520 Speaker 1: How big a blow is this to the UK government. Well, 27 00:01:37,560 --> 00:01:39,160 Speaker 1: I think it's it's a blow to the Prime Minister 28 00:01:39,240 --> 00:01:42,160 Speaker 1: Theresa May, who had said very clearly and loudly that 29 00:01:42,200 --> 00:01:44,240 Speaker 1: she didn't want to have this vote. So in that 30 00:01:44,280 --> 00:01:47,760 Speaker 1: sense it's obviously a jolt to her standing and her authority. 31 00:01:48,200 --> 00:01:51,120 Speaker 1: But I would caution those who are sort of seeing 32 00:01:51,160 --> 00:01:54,560 Speaker 1: this as a sign that somehow the UK is not 33 00:01:54,640 --> 00:01:57,040 Speaker 1: going to have not going to leave the EU or 34 00:01:57,120 --> 00:01:59,160 Speaker 1: something that that Article fifty is not going to get 35 00:01:59,160 --> 00:02:02,440 Speaker 1: triggered for member. This is a vote of members of Parliament, 36 00:02:02,960 --> 00:02:07,240 Speaker 1: many of whom have constituencies that voted to leave the 37 00:02:07,240 --> 00:02:10,760 Speaker 1: EU um and certainly even if they didn't, they will 38 00:02:10,800 --> 00:02:13,040 Speaker 1: not want to be seen to be kind of not 39 00:02:13,160 --> 00:02:16,800 Speaker 1: respecting the people's will. We had a majority vote to leave, 40 00:02:16,880 --> 00:02:22,280 Speaker 1: so I think we should be cautious of suggesting that 41 00:02:22,320 --> 00:02:24,240 Speaker 1: this is somehow a sign that we're going to have 42 00:02:24,320 --> 00:02:26,720 Speaker 1: a softer form of Brexit, or that maybe even that 43 00:02:26,760 --> 00:02:30,160 Speaker 1: the UK won't leave the European Union. I think if 44 00:02:30,200 --> 00:02:31,920 Speaker 1: there is a vote, it will be a vote in 45 00:02:32,000 --> 00:02:34,440 Speaker 1: favor of triggering Article fifty, so we may get a 46 00:02:34,440 --> 00:02:38,360 Speaker 1: bit more debate about what, what you know, life outside 47 00:02:38,360 --> 00:02:40,520 Speaker 1: the EU will actually look like for the UK, and 48 00:02:40,560 --> 00:02:43,120 Speaker 1: that would be good perhaps for transparency. Put this in 49 00:02:43,480 --> 00:02:45,359 Speaker 1: some context for us if you would a few days 50 00:02:45,360 --> 00:02:47,520 Speaker 1: ago at a Northern Irish judge rejecting a pair of 51 00:02:47,600 --> 00:02:50,280 Speaker 1: challenges to to the to the Brexit process, how does 52 00:02:50,280 --> 00:02:54,360 Speaker 1: this fit into the panoply of legal challenges we've had. Well, 53 00:02:54,400 --> 00:02:57,400 Speaker 1: as you say we've had, there are lots of different challenges. 54 00:02:57,440 --> 00:02:59,720 Speaker 1: I think this was always the strongest one because there 55 00:02:59,800 --> 00:03:02,520 Speaker 1: was a feeling even among some people who voted for Brexit. 56 00:03:02,560 --> 00:03:04,400 Speaker 1: I think even one of the lawyers involved in this 57 00:03:04,520 --> 00:03:08,600 Speaker 1: challenge of the government that has one today had voted 58 00:03:08,639 --> 00:03:10,880 Speaker 1: for Brexit and just had quite a strong feeling that 59 00:03:10,960 --> 00:03:14,840 Speaker 1: parliament sovereignty should be respected. I think some of the 60 00:03:14,840 --> 00:03:17,960 Speaker 1: other ones that question whether or not the referendum has 61 00:03:18,000 --> 00:03:21,079 Speaker 1: any binding power any of those things. I think they're 62 00:03:21,160 --> 00:03:23,400 Speaker 1: less likely to go anywhere. But this is this is 63 00:03:23,400 --> 00:03:26,320 Speaker 1: always a serious one because many people when they voted 64 00:03:26,360 --> 00:03:28,720 Speaker 1: for to leave that you were actually voting to put 65 00:03:28,760 --> 00:03:32,480 Speaker 1: Parliament back in charge and to give British institutions power 66 00:03:33,280 --> 00:03:36,000 Speaker 1: that some say that they had lost to European institution. 67 00:03:36,080 --> 00:03:37,320 Speaker 1: So it was always a bit odd to say, well, 68 00:03:37,360 --> 00:03:38,440 Speaker 1: we're going to do this, but we're not going to 69 00:03:38,520 --> 00:03:41,120 Speaker 1: let parliament have a say. Remind us who who brought 70 00:03:41,240 --> 00:03:45,800 Speaker 1: this case here? An investor in a hairdresser. Yes, although 71 00:03:45,840 --> 00:03:48,640 Speaker 1: actually it ended up having quite a collection of people 72 00:03:48,680 --> 00:03:51,640 Speaker 1: attached to as I say, because it was considered to 73 00:03:51,680 --> 00:03:56,120 Speaker 1: be quite a good have quite a strong case. Um. 74 00:03:56,480 --> 00:04:00,960 Speaker 1: But as the judges themselves said, it was you know, 75 00:04:01,040 --> 00:04:04,080 Speaker 1: they were very specifically saying, this is not a judgment 76 00:04:04,080 --> 00:04:06,400 Speaker 1: about the rights and wrongs of Brexit or a particular 77 00:04:06,440 --> 00:04:10,520 Speaker 1: model of brexit. This is about the legal process. And 78 00:04:10,680 --> 00:04:13,160 Speaker 1: what they judged was, once you trigger Article fifty, because 79 00:04:13,280 --> 00:04:16,960 Speaker 1: Article fifty says that you have two years then to 80 00:04:17,040 --> 00:04:19,719 Speaker 1: leave the EU and that's going to happen, come what may. 81 00:04:20,760 --> 00:04:25,000 Speaker 1: The view was that that was overriding Parliament's power, because 82 00:04:25,000 --> 00:04:27,440 Speaker 1: even if you had a parliamentary vote somewhere down the way, 83 00:04:27,440 --> 00:04:29,240 Speaker 1: if you were definitely going to leave, you'd never given 84 00:04:29,279 --> 00:04:31,680 Speaker 1: Parliament a choice to say whether they wanted that to happen. 85 00:04:31,920 --> 00:04:34,839 Speaker 1: Theresa made the Prime Minister saying she will appeal this decision, 86 00:04:35,000 --> 00:04:37,840 Speaker 1: and the Supreme Court already has carved out some time 87 00:04:37,839 --> 00:04:41,960 Speaker 1: on the December darket. Yes, and that's obviously an accelerated timetable, 88 00:04:42,400 --> 00:04:45,119 Speaker 1: both you know here and in the US, there's usually 89 00:04:45,120 --> 00:04:46,880 Speaker 1: takes a lot longer for these kind of appeals to 90 00:04:46,920 --> 00:04:50,000 Speaker 1: work through the courts. But they're clearly understand that this 91 00:04:50,040 --> 00:04:51,760 Speaker 1: is something that has to be resolved and they would 92 00:04:52,480 --> 00:04:54,480 Speaker 1: certainly the lawyers involved in the case have said they 93 00:04:54,520 --> 00:04:56,960 Speaker 1: expect this to be resolved one way or another by 94 00:04:56,960 --> 00:04:59,120 Speaker 1: the beginning of the year, So that would clear the 95 00:04:59,160 --> 00:05:01,880 Speaker 1: way for or the Prime Minister to stick to the 96 00:05:01,920 --> 00:05:05,119 Speaker 1: schedule that she suggested, which is to trigger this Article 97 00:05:05,200 --> 00:05:08,880 Speaker 1: fifty process notify the European Union that the UK wants 98 00:05:08,920 --> 00:05:13,159 Speaker 1: to leave formally by February or March. Looking at sterling 99 00:05:13,160 --> 00:05:16,279 Speaker 1: here against the dollar, it's at one forty one a 100 00:05:16,360 --> 00:05:19,160 Speaker 1: three week a three week hi against the dollar. How 101 00:05:19,240 --> 00:05:22,680 Speaker 1: is the market reacted to this, the legal maneuvering that 102 00:05:22,800 --> 00:05:24,719 Speaker 1: this waiting game here to get some clearly on the 103 00:05:24,760 --> 00:05:28,599 Speaker 1: process well to this. This decision obviously was was genuine news, 104 00:05:28,839 --> 00:05:31,080 Speaker 1: and there was a big bounce to sterling that came 105 00:05:31,080 --> 00:05:34,200 Speaker 1: from that, which is largely continued the The equity market 106 00:05:34,680 --> 00:05:37,200 Speaker 1: initially had a positive bounce and then has come back. 107 00:05:37,240 --> 00:05:39,000 Speaker 1: But of course we've seen over the last few months 108 00:05:39,000 --> 00:05:40,880 Speaker 1: that often the pound and the equity market have moved 109 00:05:40,880 --> 00:05:44,640 Speaker 1: in opposite directions because the equity market is so dominated 110 00:05:44,680 --> 00:05:47,760 Speaker 1: by companies with foreign earnings that are that are helped 111 00:05:47,839 --> 00:05:50,920 Speaker 1: by a falling pound. So I wouldn't read too much 112 00:05:50,920 --> 00:05:52,440 Speaker 1: into that. I think the pound move is the most 113 00:05:52,480 --> 00:05:55,000 Speaker 1: significant one. Whether it will last, though, I think it's 114 00:05:55,000 --> 00:05:57,080 Speaker 1: a question mark because, as I say, there's this kind 115 00:05:57,120 --> 00:06:00,360 Speaker 1: of initial a jeep knee jerk reaction to this, which 116 00:06:00,360 --> 00:06:02,760 Speaker 1: is if it's anti treason May and if it's anti government, 117 00:06:02,800 --> 00:06:05,960 Speaker 1: it must be kind of anti Brexit. Um. I'm not 118 00:06:06,000 --> 00:06:08,720 Speaker 1: sure that it does put into into question, you know, 119 00:06:08,760 --> 00:06:11,840 Speaker 1: that fundamental direction of the UK, and if that's that 120 00:06:12,040 --> 00:06:15,000 Speaker 1: leaving of Brexit that's brought the pound down, I think 121 00:06:15,000 --> 00:06:18,400 Speaker 1: the pan could go back down quite easily. Yeah, I am. 122 00:06:18,920 --> 00:06:22,000 Speaker 1: I wonder sort of here in the US, when there's 123 00:06:22,040 --> 00:06:24,000 Speaker 1: a Supreme Court challenge like this, often there will be 124 00:06:24,080 --> 00:06:27,120 Speaker 1: other parties who will sign on. What do we know 125 00:06:27,120 --> 00:06:28,920 Speaker 1: of who might join this case and what it might 126 00:06:28,920 --> 00:06:30,120 Speaker 1: look like. Give us such a sense of how this 127 00:06:30,200 --> 00:06:32,720 Speaker 1: will play out here in December, Yeah, I mean there's not. 128 00:06:32,800 --> 00:06:35,560 Speaker 1: It is a slightly different process, uh, and a lot 129 00:06:35,600 --> 00:06:41,919 Speaker 1: more wigs involved than in the US, So it doesn't 130 00:06:42,040 --> 00:06:44,279 Speaker 1: end up doesn't tend to be the same kind of 131 00:06:44,279 --> 00:06:46,360 Speaker 1: bandwagon that you might see in this kind of very 132 00:06:46,360 --> 00:06:49,719 Speaker 1: politically charged case in in the US. Now that the 133 00:06:49,720 --> 00:06:52,920 Speaker 1: government has actually said they will appeal this decision, there 134 00:06:52,960 --> 00:06:54,960 Speaker 1: was some question about whether they would, but they are 135 00:06:55,000 --> 00:06:58,000 Speaker 1: now going to appeal. Um, it'll be a fairly I 136 00:06:58,040 --> 00:07:02,679 Speaker 1: think the actual legal process will be quite orderly. Of course, 137 00:07:02,720 --> 00:07:04,919 Speaker 1: what you will have and you're already seeing I'm looking 138 00:07:04,920 --> 00:07:06,719 Speaker 1: at my Twitter feed and just the order of the 139 00:07:06,760 --> 00:07:09,840 Speaker 1: comments and the reactions by politicians coming into this vote. 140 00:07:10,240 --> 00:07:13,200 Speaker 1: You will have a battle over the interpretation of this 141 00:07:13,400 --> 00:07:17,240 Speaker 1: ruling and what kind of what that vote would look 142 00:07:17,280 --> 00:07:19,600 Speaker 1: like once we do, if we do indeed have a 143 00:07:19,680 --> 00:07:22,160 Speaker 1: vote in parliament, So all that. There'll be a lot 144 00:07:22,240 --> 00:07:24,720 Speaker 1: of political debate around this, but it won't largely be 145 00:07:24,760 --> 00:07:27,120 Speaker 1: in the in the sort of hallowed courtroom. It will 146 00:07:27,160 --> 00:07:30,240 Speaker 1: be on the airwaves of Bloomberg and everywhere else. What 147 00:07:30,360 --> 00:07:33,400 Speaker 1: did the focus has a lot of other news today 148 00:07:33,400 --> 00:07:36,800 Speaker 1: and out of the United Kingdom a good p M number. 149 00:07:37,160 --> 00:07:42,760 Speaker 1: Stephanie Flair is, what does it signal this resiliency post Brexit. Well, 150 00:07:42,800 --> 00:07:44,760 Speaker 1: I'd be inclined to say partly its signals that we 151 00:07:44,880 --> 00:07:47,280 Speaker 1: haven't left the European Union yet. So all the things 152 00:07:47,280 --> 00:07:48,880 Speaker 1: that one might be worried about in terms of the 153 00:07:48,880 --> 00:07:51,880 Speaker 1: impact of the economy, you know, nothing has actually changed. 154 00:07:51,920 --> 00:07:53,760 Speaker 1: So any effect that you were ever going to see 155 00:07:53,840 --> 00:07:57,480 Speaker 1: was to do with expectations and uncertainty. That hasn't flat 156 00:07:58,480 --> 00:08:01,400 Speaker 1: translated into a falling tumor confidence, which you might have 157 00:08:01,400 --> 00:08:03,920 Speaker 1: thought it might have done. So that's that's showing strength. 158 00:08:04,400 --> 00:08:08,880 Speaker 1: But we've certainly seen it translate into weaker investment intentions 159 00:08:09,120 --> 00:08:12,160 Speaker 1: and concerns around what the trade outlook in the next 160 00:08:12,200 --> 00:08:13,720 Speaker 1: few years is going to be. So, you know, the 161 00:08:13,760 --> 00:08:16,800 Speaker 1: resilience tells us that we haven't had the short term 162 00:08:16,920 --> 00:08:18,840 Speaker 1: hit the confidence we might have had, but we are 163 00:08:18,880 --> 00:08:21,560 Speaker 1: going to have a big hit to consumers coming down 164 00:08:21,560 --> 00:08:23,960 Speaker 1: the track from higher inflation, from the fall in the pound. 165 00:08:24,320 --> 00:08:27,000 Speaker 1: That matters in the economy that is completely dependent at 166 00:08:27,040 --> 00:08:29,960 Speaker 1: the moment for its growth on consumer spending. So watch 167 00:08:30,000 --> 00:08:32,120 Speaker 1: this space. I really don't think that this this the 168 00:08:32,120 --> 00:08:35,000 Speaker 1: impact is going to play out over a long time, Stephanie. 169 00:08:35,080 --> 00:08:37,120 Speaker 1: Thank you so much, Stephanie. Playing as a GP more 170 00:08:37,120 --> 00:08:40,079 Speaker 1: going to set management and most beneficial they've ever run. 171 00:08:52,559 --> 00:08:57,000 Speaker 1: As we got to Charles dooma TSL Research, United Kingdom 172 00:08:57,120 --> 00:09:02,120 Speaker 1: ten year guilts that's their note yield rises six basis 173 00:09:02,160 --> 00:09:07,040 Speaker 1: points to a one point to level. Charles Duma. The 174 00:09:07,080 --> 00:09:10,920 Speaker 1: inflation jump by the BOE. Are you surprised at a 175 00:09:11,000 --> 00:09:14,880 Speaker 1: two point seven percent statistic? Well, I mean, you know 176 00:09:14,920 --> 00:09:21,320 Speaker 1: they have no they have totally poor forecasting record, but 177 00:09:21,679 --> 00:09:26,000 Speaker 1: there's nothing wrong with that number. The latest quarterly, I 178 00:09:26,040 --> 00:09:28,760 Speaker 1: mean just the latest three months, I've seen an annual 179 00:09:28,880 --> 00:09:33,040 Speaker 1: rate of inflation around two and there's very little doubt 180 00:09:33,080 --> 00:09:35,840 Speaker 1: that the target, which is to percent, will be exceeded 181 00:09:35,840 --> 00:09:39,160 Speaker 1: significantly by next year. If you're not by the end 182 00:09:39,200 --> 00:09:42,400 Speaker 1: of this year. So um so that you know they've 183 00:09:42,400 --> 00:09:44,320 Speaker 1: done the right thing. I mean, we're looking at a 184 00:09:44,360 --> 00:09:47,679 Speaker 1: country with a growth rate that's been about potential for 185 00:09:47,720 --> 00:09:52,560 Speaker 1: a while, with full employment, and with a huge devaluation 186 00:09:52,720 --> 00:09:56,320 Speaker 1: and inflation at or above targets. I mean, the only 187 00:09:56,360 --> 00:09:59,160 Speaker 1: thing they can do sooner or later is tighten, not loosen. 188 00:09:59,559 --> 00:10:01,680 Speaker 1: The b he's saying it has a limited tolerance of 189 00:10:01,720 --> 00:10:04,920 Speaker 1: above target inflation. A shift in tone here, saying monetary 190 00:10:04,920 --> 00:10:07,720 Speaker 1: policy can respond quote in either direction to changes in 191 00:10:07,720 --> 00:10:10,640 Speaker 1: the economic outlock. What does that What does that response 192 00:10:10,679 --> 00:10:14,640 Speaker 1: look like? That response looks like softening people up for 193 00:10:14,679 --> 00:10:16,280 Speaker 1: the fact the next move is going to be tightening, 194 00:10:16,320 --> 00:10:21,640 Speaker 1: not not easing. The weight of this court decision, of 195 00:10:21,640 --> 00:10:23,560 Speaker 1: course not not felt in the minutes directly, but it's 196 00:10:23,600 --> 00:10:26,240 Speaker 1: certainly the backdrop to them. The BOE saying there is 197 00:10:26,240 --> 00:10:28,720 Speaker 1: still persistent uncertainty about that EU deal that's going to 198 00:10:28,760 --> 00:10:31,920 Speaker 1: weigh on on the UK economy. I know you've just 199 00:10:31,960 --> 00:10:34,120 Speaker 1: been pouring over the minutes as we are, as we 200 00:10:34,160 --> 00:10:37,839 Speaker 1: have been here, but talk about that weight, how heavy 201 00:10:37,840 --> 00:10:39,760 Speaker 1: that weight is, and how much how long that's going 202 00:10:39,760 --> 00:10:42,800 Speaker 1: to continue to drag on the UK economy. Well, the 203 00:10:42,840 --> 00:10:45,640 Speaker 1: real question is how seriously people choose to take it, 204 00:10:45,720 --> 00:10:49,360 Speaker 1: Because you know, the external carriers as the EU. I've 205 00:10:49,400 --> 00:10:52,040 Speaker 1: seen some people say it's averages sleeps in others that 206 00:10:52,160 --> 00:10:59,120 Speaker 1: is average six whichever that is. The devaluation of vastly 207 00:10:59,160 --> 00:11:02,319 Speaker 1: exceeds at an so that the access have written to 208 00:11:02,360 --> 00:11:06,560 Speaker 1: the to the main markets in the Arizone will will 209 00:11:07,960 --> 00:11:12,360 Speaker 1: be better than it was before Brexit, before the Brexit votes. 210 00:11:12,400 --> 00:11:15,800 Speaker 1: So in that sense, um, it's it's it's not a 211 00:11:15,840 --> 00:11:18,400 Speaker 1: major material factor. But of course as people think it's 212 00:11:18,400 --> 00:11:21,880 Speaker 1: a major material factor, then um, then people will be 213 00:11:21,920 --> 00:11:25,559 Speaker 1: sensitive to the progressive negotiations which are going to take years. 214 00:11:26,400 --> 00:11:28,640 Speaker 1: Well that's the key phrase here, Charles, and this is 215 00:11:28,679 --> 00:11:31,120 Speaker 1: something you've been so good at in your research, is 216 00:11:31,120 --> 00:11:35,120 Speaker 1: the phrase it will take years. The media and David 217 00:11:35,160 --> 00:11:37,280 Speaker 1: and I are is guilty of anybody is trying to 218 00:11:37,320 --> 00:11:40,920 Speaker 1: get to Friday and the US jobs report. You get 219 00:11:40,920 --> 00:11:43,320 Speaker 1: to look you get to look out longer. What is 220 00:11:43,360 --> 00:11:48,520 Speaker 1: the linkage of these market actions to a statistic is simple? 221 00:11:48,720 --> 00:11:52,079 Speaker 1: Is real GDP in the United Kingdom? Are they linked 222 00:11:52,160 --> 00:11:57,480 Speaker 1: or is it over over overweight? Well, I frankly no, 223 00:11:57,720 --> 00:12:01,640 Speaker 1: I think they linked to a view about about Brexit 224 00:12:01,760 --> 00:12:04,480 Speaker 1: which is wrong, name that it's going to be a 225 00:12:04,480 --> 00:12:07,520 Speaker 1: disaster for the British economy um. In fact, my main 226 00:12:07,559 --> 00:12:11,280 Speaker 1: concern is that the British economy actually needs a significantly 227 00:12:11,320 --> 00:12:14,760 Speaker 1: low exchange which is now got um. But of course 228 00:12:14,800 --> 00:12:17,959 Speaker 1: that could easily get unwound if if people reach a 229 00:12:18,040 --> 00:12:21,400 Speaker 1: conclusion that actually things aren't about Yeah, well let's get 230 00:12:21,440 --> 00:12:23,680 Speaker 1: back in. Let's have you be the first one to comment. 231 00:12:23,720 --> 00:12:27,400 Speaker 1: Then Robert sind Jammer's Pierpont completely goes the other way 232 00:12:27,400 --> 00:12:31,160 Speaker 1: from consensus and says, look, I since says I don't 233 00:12:31,240 --> 00:12:35,440 Speaker 1: see bad data, and he doesn't single point forecast, but 234 00:12:35,520 --> 00:12:38,880 Speaker 1: he models a vector to a one thirties sterling. You 235 00:12:38,920 --> 00:12:42,839 Speaker 1: don't think that's outlandish, do you? No, not at all? No, no, no, 236 00:12:42,920 --> 00:12:45,160 Speaker 1: I mean it was one thirty a month ago or so. 237 00:12:45,360 --> 00:12:48,880 Speaker 1: And I'm not sure that they were so wrong. Then So, 238 00:12:49,679 --> 00:12:52,079 Speaker 1: if if we are overestimating here the effects of of 239 00:12:52,440 --> 00:12:56,800 Speaker 1: the brexits, is it because we's because the trading relationship 240 00:12:56,920 --> 00:12:59,480 Speaker 1: is relatively small. And if that is the case, if 241 00:12:59,480 --> 00:13:02,800 Speaker 1: we're Overstan, how long until we get past the psychological 242 00:13:02,840 --> 00:13:06,240 Speaker 1: weight of the vote? Well, I think the trading relationship 243 00:13:06,360 --> 00:13:09,840 Speaker 1: actually is big. It's just that the change in the 244 00:13:09,920 --> 00:13:12,319 Speaker 1: pricing of British goods as a result of that being 245 00:13:12,360 --> 00:13:16,640 Speaker 1: outside rather than inside the EU is relatively small and 246 00:13:16,679 --> 00:13:19,000 Speaker 1: therefore a large quantity of people will be exactly where 247 00:13:19,040 --> 00:13:20,760 Speaker 1: they were before, and in fact some people are better 248 00:13:20,800 --> 00:13:25,160 Speaker 1: off because of the devaluation, which is so it's not 249 00:13:25,200 --> 00:13:27,800 Speaker 1: so much that the training relationship isn't important, it's just 250 00:13:27,920 --> 00:13:31,600 Speaker 1: that the effect on his odd Brexit is being exaggerated. 251 00:13:32,400 --> 00:13:34,400 Speaker 1: To answer your question, how long it will take people, 252 00:13:34,920 --> 00:13:37,080 Speaker 1: you know, I don't think it'll take all that much 253 00:13:37,200 --> 00:13:42,280 Speaker 1: longer of the lack of disastrous numbers for people to 254 00:13:42,280 --> 00:13:46,000 Speaker 1: start saying We'll wait a second. You know, that's unwind 255 00:13:46,120 --> 00:13:50,440 Speaker 1: some of this over excitement. Stephanie Flanders from JP JP 256 00:13:50,480 --> 00:13:52,240 Speaker 1: Morgan asked management at the top of the show, was 257 00:13:52,280 --> 00:13:54,520 Speaker 1: saying the reason the numbers have been good is because 258 00:13:54,640 --> 00:13:56,439 Speaker 1: the UK is still in the European Union. You don't 259 00:13:56,480 --> 00:13:58,839 Speaker 1: you don't buy that argument that that, you know, I 260 00:13:58,920 --> 00:14:01,720 Speaker 1: think things will change once the trigger is pulled. No, 261 00:14:01,840 --> 00:14:04,240 Speaker 1: I don't. I don't think that's relevant at all. I 262 00:14:04,240 --> 00:14:08,120 Speaker 1: think that the relevant point is that is that the 263 00:14:08,160 --> 00:14:10,920 Speaker 1: pound has gone down by much more than the external 264 00:14:10,960 --> 00:14:14,959 Speaker 1: European tariff and so um, you know, in trading terms 265 00:14:14,960 --> 00:14:17,760 Speaker 1: of it not seriously disadvantaged Charles, I want to get 266 00:14:17,760 --> 00:14:19,480 Speaker 1: this and we'll come back and talk about a greater 267 00:14:19,640 --> 00:14:22,760 Speaker 1: US economics in Europe as well, Charles Duma. When you 268 00:14:22,800 --> 00:14:25,800 Speaker 1: look at the current account deficit, that's certainly where everybody 269 00:14:25,880 --> 00:14:29,120 Speaker 1: circles back to. Is the question the level of the 270 00:14:29,160 --> 00:14:32,720 Speaker 1: current account in a hope for a lesser deficit, or 271 00:14:32,880 --> 00:14:37,360 Speaker 1: is the issue the length of time of a substantial deficit? 272 00:14:38,560 --> 00:14:41,600 Speaker 1: I think I think the size is the most important thing, 273 00:14:41,640 --> 00:14:44,640 Speaker 1: and and also the direction, which has been upward. Of course, 274 00:14:44,760 --> 00:14:48,320 Speaker 1: the current account deficit and current account deficits have been 275 00:14:48,320 --> 00:14:51,240 Speaker 1: coming into their own as determinants of foreign exchange. I mean, 276 00:14:51,680 --> 00:14:54,880 Speaker 1: the the end for the last year has been very strong, 277 00:14:54,960 --> 00:14:57,800 Speaker 1: at least partly because the current accounts in large scepters 278 00:14:57,840 --> 00:15:00,800 Speaker 1: and people have lost conviction in RODA in the Bank 279 00:15:00,840 --> 00:15:05,400 Speaker 1: of Japan. Similarly, the Eurozone has a huge current account 280 00:15:05,440 --> 00:15:09,160 Speaker 1: surplus UM and as a result, the hero has failed 281 00:15:09,160 --> 00:15:11,640 Speaker 1: to go down when Mr Drag eases yet more and 282 00:15:11,720 --> 00:15:16,840 Speaker 1: yet more um, contrary to popular expectations. Because the capital 283 00:15:16,840 --> 00:15:20,080 Speaker 1: account is important, but it's no longer quite as important 284 00:15:20,080 --> 00:15:22,840 Speaker 1: as it used to be, because you know, it's entirely 285 00:15:22,880 --> 00:15:26,040 Speaker 1: based on on one's belief in central banks and that 286 00:15:26,240 --> 00:15:31,360 Speaker 1: is weakening. Charles Duma with optimism on the United Kingdom 287 00:15:31,560 --> 00:15:37,080 Speaker 1: economic and I might say political economic experiment with to yourself, Charles, 288 00:15:37,080 --> 00:15:40,920 Speaker 1: do you share the same enthusiasm for the United States 289 00:15:41,040 --> 00:15:46,080 Speaker 1: And is this a fair that is grievously behind? Yes, 290 00:15:46,160 --> 00:15:49,480 Speaker 1: I think so in a way the fits further behind 291 00:15:49,560 --> 00:15:54,480 Speaker 1: than the UK UM and I mean you've got you've 292 00:15:54,480 --> 00:15:56,440 Speaker 1: got an economy. I mean it's not as far behind 293 00:15:56,440 --> 00:15:59,040 Speaker 1: in a way as as the Eurozone, where where they've 294 00:15:59,080 --> 00:16:02,240 Speaker 1: got an economy growing acts and above trend, and it's 295 00:16:02,280 --> 00:16:06,240 Speaker 1: on trend. The inflation rates is very fun it's not 296 00:16:06,360 --> 00:16:09,840 Speaker 1: very far from the target. And they've got massive negative 297 00:16:10,280 --> 00:16:13,680 Speaker 1: interest rates UM, you know, and q E. In the 298 00:16:13,760 --> 00:16:18,960 Speaker 1: US you've got interest rated half percent UM in core 299 00:16:19,040 --> 00:16:22,240 Speaker 1: inflation rate of two percent. The actual inflation rate early 300 00:16:22,280 --> 00:16:24,840 Speaker 1: next year is going to be over two percent because 301 00:16:24,880 --> 00:16:30,480 Speaker 1: the oil price is up from early and you know, 302 00:16:30,520 --> 00:16:33,360 Speaker 1: the economy is going at sort of about two two 303 00:16:33,360 --> 00:16:35,840 Speaker 1: and a half percent, when unfortunately is the trend growth 304 00:16:35,880 --> 00:16:38,600 Speaker 1: rags only one and a half percent. The trouble is 305 00:16:38,640 --> 00:16:41,960 Speaker 1: that that trend growth is so much lower because productivity 306 00:16:41,960 --> 00:16:44,160 Speaker 1: growth is much less than it was and we'll be 307 00:16:44,200 --> 00:16:47,720 Speaker 1: hearing a little bit this afternoon about that. But and 308 00:16:47,800 --> 00:16:50,400 Speaker 1: that this afternoon our time, that is spawning your time. 309 00:16:50,920 --> 00:16:54,040 Speaker 1: What do you make of the growth forecast the revisions 310 00:16:54,080 --> 00:16:57,280 Speaker 1: there again the two se GDP forecasts one point four 311 00:16:57,320 --> 00:17:00,560 Speaker 1: percent versus point eight percent and the cut to one 312 00:17:00,560 --> 00:17:06,479 Speaker 1: point five percent from one in in Britain, yes exactly, 313 00:17:06,480 --> 00:17:12,320 Speaker 1: I mean, yeah, yeah, well, I mean, frankly, these forecasts 314 00:17:12,320 --> 00:17:15,119 Speaker 1: are almost impossible to make. But one the sort the 315 00:17:15,280 --> 00:17:19,639 Speaker 1: sort of numbers are in fact probably at or above 316 00:17:19,720 --> 00:17:23,200 Speaker 1: potential in Britain um. You know, the the labor force, 317 00:17:24,080 --> 00:17:27,320 Speaker 1: certainly if we're going to restrict immigration, is not going 318 00:17:27,400 --> 00:17:29,159 Speaker 1: to be going up as much as in the past, 319 00:17:29,720 --> 00:17:33,080 Speaker 1: and the and and productivity growth has been very small. 320 00:17:33,160 --> 00:17:36,440 Speaker 1: So so I've got to say, you know, it means 321 00:17:36,640 --> 00:17:41,320 Speaker 1: there's more if anything, whatever degree of overheating there is increases. 322 00:17:41,840 --> 00:17:45,600 Speaker 1: And on top of that you get you've got the 323 00:17:45,640 --> 00:17:50,200 Speaker 1: inflation effect of the devaluation. So it all heads towards 324 00:17:50,760 --> 00:17:55,119 Speaker 1: tightening in Britain um. And you know in the US, 325 00:17:55,200 --> 00:17:58,320 Speaker 1: I think the same is true. What's the effect ben 326 00:17:58,400 --> 00:18:02,120 Speaker 1: thus far of of of lower Stirling Again, we've we've 327 00:18:02,160 --> 00:18:05,199 Speaker 1: seen the uptick today, but to what extent is currency 328 00:18:05,240 --> 00:18:07,679 Speaker 1: playing on all of this, Well, I mean it is, 329 00:18:07,840 --> 00:18:13,040 Speaker 1: it is important. The pound is. Sorry, the the inflation 330 00:18:13,119 --> 00:18:17,760 Speaker 1: rate reached one percent in September from much lower levels earlier. 331 00:18:18,080 --> 00:18:21,160 Speaker 1: I slightly exaggerated earlier on when I said it could 332 00:18:21,160 --> 00:18:23,320 Speaker 1: be above the tooth cent target by the end of 333 00:18:23,320 --> 00:18:28,639 Speaker 1: this year, but it should be much closer to that 334 00:18:28,720 --> 00:18:30,960 Speaker 1: too cent target, and it'll be above the top cent 335 00:18:31,080 --> 00:18:35,119 Speaker 1: target pretty early on next year. But you see, until 336 00:18:35,880 --> 00:18:41,159 Speaker 1: until June we were looking at inflation rates about a 337 00:18:41,240 --> 00:18:44,879 Speaker 1: quarter to a half percent. So it's it's it's way out. Well, 338 00:18:45,240 --> 00:18:47,520 Speaker 1: let me circle back then, and to finish up here, 339 00:18:47,600 --> 00:18:50,240 Speaker 1: Charles Duma with what we see from bo E today, 340 00:18:51,040 --> 00:18:54,920 Speaker 1: which is a two two point seven run rate on 341 00:18:55,040 --> 00:19:00,320 Speaker 1: inflation twenty four months. What's where will that inf Asian 342 00:19:00,359 --> 00:19:04,960 Speaker 1: statistic for the United Kingdom? Is it above three percent? No, 343 00:19:05,080 --> 00:19:08,679 Speaker 1: I think that it'll go. It'll go about two on 344 00:19:08,720 --> 00:19:12,600 Speaker 1: an impact effect of the devaluation and that and once 345 00:19:12,640 --> 00:19:15,880 Speaker 1: that moves out of the data, which will be sometime 346 00:19:16,040 --> 00:19:19,760 Speaker 1: late this year, the twelve months data, that is the 347 00:19:19,760 --> 00:19:23,080 Speaker 1: the the growth data, prices will probably start to ease 348 00:19:23,080 --> 00:19:26,800 Speaker 1: back quite quickly because there probably won't be a complete 349 00:19:26,800 --> 00:19:29,879 Speaker 1: follow through in wages, unless, of course they carry on 350 00:19:30,000 --> 00:19:33,879 Speaker 1: staying easy. But it seems more likely than not that 351 00:19:34,320 --> 00:19:38,640 Speaker 1: certainly if the government goes towards an easier fiscal policy 352 00:19:38,640 --> 00:19:42,600 Speaker 1: we talk about that that that the bank thing is 353 00:19:42,640 --> 00:19:45,760 Speaker 1: going to be tightening quite soon. This has been wonderful, Charles, 354 00:19:46,040 --> 00:19:48,639 Speaker 1: I thank you so much. Just the news flaw this 355 00:19:48,720 --> 00:19:53,560 Speaker 1: morning extraordinary and it's great to get his perspective. And again, folks, 356 00:19:53,600 --> 00:19:55,800 Speaker 1: what we try to do on surveillance, David, We've heard 357 00:19:55,840 --> 00:20:00,159 Speaker 1: this all morning. Two starkly different views to star in 358 00:20:00,240 --> 00:20:03,600 Speaker 1: the future of the United Kingdom. Just stunning. Yeah, and 359 00:20:03,720 --> 00:20:06,320 Speaker 1: great to to contrast them with each other. And again 360 00:20:06,760 --> 00:20:10,280 Speaker 1: the new Slat of London in particular today particularly strong 361 00:20:10,359 --> 00:20:12,640 Speaker 1: with that court decision out just before the show kicked 362 00:20:12,680 --> 00:20:15,520 Speaker 1: off this morning that the Parliament would have to vote 363 00:20:15,520 --> 00:20:18,199 Speaker 1: on whether the Government could trigger Article fifty and and 364 00:20:18,560 --> 00:20:22,639 Speaker 1: the reactions subject yes, subject to appeal headed to the 365 00:20:22,640 --> 00:20:34,919 Speaker 1: Supreme Court in the UK in early December. Who you 366 00:20:35,000 --> 00:20:38,400 Speaker 1: put your trust in matters. Investors have put their trust 367 00:20:38,480 --> 00:20:42,040 Speaker 1: in independent registered investment advisors to the two and of 368 00:20:42,119 --> 00:20:45,560 Speaker 1: four trillion dollars. Why they see their roles to serve 369 00:20:45,800 --> 00:20:49,159 Speaker 1: not sell, that's right. Charles Schwab is committed to the 370 00:20:49,240 --> 00:20:55,400 Speaker 1: success over seven thousand independent financial advisors who passionately dedicate 371 00:20:55,440 --> 00:21:00,240 Speaker 1: themselves to helping people achieve their financial goals. Learn more 372 00:21:00,720 --> 00:21:11,080 Speaker 1: and find your independent advisor dot com. David blanche Flower 373 00:21:11,160 --> 00:21:13,359 Speaker 1: joins us now. He was kind enough to be with 374 00:21:13,440 --> 00:21:15,879 Speaker 1: us yesterday for the FED and joins us today with 375 00:21:15,960 --> 00:21:19,320 Speaker 1: the most British perspective as well. David, what you are 376 00:21:19,359 --> 00:21:21,320 Speaker 1: so good at and this goes back to your wage curve. 377 00:21:21,680 --> 00:21:24,879 Speaker 1: Classic is the idea of a nation in the partition 378 00:21:24,960 --> 00:21:29,639 Speaker 1: of its labor. Is London so buoyant, so unique, so 379 00:21:29,880 --> 00:21:34,840 Speaker 1: world class, that the buoyancy of London can support all 380 00:21:34,920 --> 00:21:40,199 Speaker 1: of the United Kingdom towards a lesser inflation, better economic 381 00:21:40,240 --> 00:21:45,679 Speaker 1: growth compared to the gloom, and to a better, stronger sterling. Well, 382 00:21:45,680 --> 00:21:49,560 Speaker 1: obviously it's a big positive and a big help, but 383 00:21:49,640 --> 00:21:53,000 Speaker 1: it can't compensate for what's going on outside London. And 384 00:21:53,160 --> 00:21:56,280 Speaker 1: you only have to look at that house prices. So 385 00:21:56,320 --> 00:22:00,760 Speaker 1: the answer is it clearly helps, but it doesn't help enough. 386 00:22:01,320 --> 00:22:04,520 Speaker 1: And what we've seen this morning are forecasts from the 387 00:22:04,600 --> 00:22:09,520 Speaker 1: MPC which are better in the in two thousands sixteen 388 00:22:09,600 --> 00:22:13,800 Speaker 1: and somewhat worse later. But actually what we're seeing is 389 00:22:14,000 --> 00:22:19,720 Speaker 1: very slow growth, arise in unemployment um and actually quite 390 00:22:19,760 --> 00:22:23,520 Speaker 1: a big pick up in inflation. So the story is 391 00:22:23,560 --> 00:22:27,239 Speaker 1: despite the strength and the resilience of London, it's not 392 00:22:27,320 --> 00:22:30,600 Speaker 1: being able to really kind of deal with the the 393 00:22:30,640 --> 00:22:33,680 Speaker 1: oncoming shock of Brexit. And I always want people to 394 00:22:33,760 --> 00:22:36,840 Speaker 1: keep in their minds that the business cycle rolls, and 395 00:22:36,880 --> 00:22:39,960 Speaker 1: it rolls eight to ten years. We went into recession 396 00:22:40,000 --> 00:22:42,240 Speaker 1: in two thousand and eight, where you canna add eight 397 00:22:42,240 --> 00:22:45,960 Speaker 1: to two thousand and eight, So presumably there's a Brexit shock, 398 00:22:46,240 --> 00:22:49,680 Speaker 1: but also there's a there's a presumably a recession shot 399 00:22:49,720 --> 00:22:52,760 Speaker 1: coming at economies around the world, especially to the UK. 400 00:22:53,000 --> 00:22:56,320 Speaker 1: So these are very tough times. And in some sense 401 00:22:56,400 --> 00:22:59,520 Speaker 1: the ruling in the court this morning, which suggests that 402 00:22:59,560 --> 00:23:03,760 Speaker 1: perhaps the Brexit shop will be less than have been suggested, 403 00:23:04,040 --> 00:23:07,520 Speaker 1: had very positive impact on the pound. So this, I 404 00:23:07,560 --> 00:23:11,399 Speaker 1: think this is big uncertainty. But London ain't enough. Okay, David, 405 00:23:11,400 --> 00:23:15,040 Speaker 1: would you inform the good professor from the Dartmouth bubble 406 00:23:15,119 --> 00:23:20,240 Speaker 1: that I cannot add two thousand eight and just understands 407 00:23:20,280 --> 00:23:23,840 Speaker 1: where you're watching that basic you got that rat baseball 408 00:23:24,160 --> 00:23:26,879 Speaker 1: that baseball game. You know, I don't come on, I 409 00:23:26,880 --> 00:23:29,080 Speaker 1: don't give you grief about Premier Football. Don't give me 410 00:23:29,119 --> 00:23:33,120 Speaker 1: grief about Indians clubs. Danny, you mentioned that court case. 411 00:23:33,200 --> 00:23:35,200 Speaker 1: Mark Karney was just asked about it. He said he 412 00:23:35,480 --> 00:23:37,360 Speaker 1: can't comment on it, but he said it's an example 413 00:23:37,400 --> 00:23:41,120 Speaker 1: of the uncertainty that will characterize this process. What happens 414 00:23:41,200 --> 00:23:44,120 Speaker 1: in this vacuum, the short term vacuum now between now 415 00:23:44,160 --> 00:23:46,240 Speaker 1: and when the Supreme Court takes up this case. The 416 00:23:46,480 --> 00:23:48,960 Speaker 1: bigger vacuum between now and March, when Thereason May says 417 00:23:49,000 --> 00:23:51,440 Speaker 1: she's going to pull the trigger on Brexitt. What happens 418 00:23:51,440 --> 00:23:55,160 Speaker 1: politically and what happens in the monetary policy space. Well, 419 00:23:55,240 --> 00:23:57,240 Speaker 1: obviously the big deal I wrote about it in the 420 00:23:57,240 --> 00:24:00,000 Speaker 1: Guardian this week. The big deal was with the attack 421 00:24:00,000 --> 00:24:02,199 Speaker 1: acts on the independence of the Bank of England this 422 00:24:02,240 --> 00:24:06,120 Speaker 1: week eventually resolved itself by Mark Carney saying yes he'd 423 00:24:06,119 --> 00:24:10,199 Speaker 1: extended by one year, not three. Um. Now what happens 424 00:24:10,240 --> 00:24:13,159 Speaker 1: is the pressure turns to the fiscal authorities and the 425 00:24:13,240 --> 00:24:17,720 Speaker 1: Brexiteers actually started to attack um Hammond. So that's a 426 00:24:17,840 --> 00:24:22,960 Speaker 1: big part of it. UM a great uncertainty. The central 427 00:24:22,960 --> 00:24:26,560 Speaker 1: banks are trying to stand and be stabilizing. I think 428 00:24:26,560 --> 00:24:29,720 Speaker 1: the vote today actually your commentators earlier talked about what 429 00:24:30,240 --> 00:24:32,480 Speaker 1: the decision to day did. I think actually it does 430 00:24:32,560 --> 00:24:36,320 Speaker 1: one thing. It forces the government to actually make much 431 00:24:36,320 --> 00:24:39,879 Speaker 1: more clear what their position is actually going to be, 432 00:24:39,960 --> 00:24:43,320 Speaker 1: what their bargaining position is. They sort of said they're 433 00:24:43,359 --> 00:24:45,119 Speaker 1: not going to tell anybody because that would make it 434 00:24:45,160 --> 00:24:47,120 Speaker 1: be a mistake. I think that was a huge mistake, 435 00:24:47,400 --> 00:24:49,840 Speaker 1: and I think Parliament's going to force them to say, well, 436 00:24:49,880 --> 00:24:53,119 Speaker 1: what is it that you want? So maybe maybe this 437 00:24:53,280 --> 00:24:57,119 Speaker 1: decision will actually force some clarity. But I think the 438 00:24:57,240 --> 00:25:00,800 Speaker 1: really big word is uncertainty. Mark carn clearly would not 439 00:25:00,840 --> 00:25:03,760 Speaker 1: have known the decision because they made the decision in 440 00:25:03,800 --> 00:25:06,560 Speaker 1: the last few days and did their format. So this 441 00:25:06,760 --> 00:25:11,920 Speaker 1: so this move perhaps slows Breaxit perhaps makes the move 442 00:25:12,000 --> 00:25:14,199 Speaker 1: to hard breaksit less, which the markets will like. But 443 00:25:14,240 --> 00:25:16,560 Speaker 1: I don't think it really resolves anything. I just think 444 00:25:16,600 --> 00:25:20,680 Speaker 1: this is a self inflicted wound, an economic tsunami. We're 445 00:25:20,720 --> 00:25:24,400 Speaker 1: looking at the biggest three year overshoot this bank has 446 00:25:24,400 --> 00:25:27,360 Speaker 1: ever predicted when it comes to inflation. Mark Carne acknowledging 447 00:25:27,400 --> 00:25:29,919 Speaker 1: that a few moments ago, what does his acknowledgement of 448 00:25:30,000 --> 00:25:33,960 Speaker 1: that say about Mark Arney, about the Mark Carni bo Well. 449 00:25:34,000 --> 00:25:37,800 Speaker 1: I think what it says is that they've been trying 450 00:25:37,840 --> 00:25:40,000 Speaker 1: to do their job. They've been trying to ride the 451 00:25:40,000 --> 00:25:44,120 Speaker 1: political storm that's been coming at them um and they 452 00:25:44,160 --> 00:25:46,120 Speaker 1: don't have an easy task. I mean, the big thing 453 00:25:46,119 --> 00:25:48,720 Speaker 1: that I look at is that in two thousand and seventeen, 454 00:25:49,600 --> 00:25:52,879 Speaker 1: three months ago, they were forecasting CPI have two. Today 455 00:25:52,920 --> 00:25:55,879 Speaker 1: they're forecasting two point seven. And there's an overshoot in 456 00:25:55,920 --> 00:25:59,920 Speaker 1: two thousand and eighteen as well. So these are tough day. 457 00:26:00,000 --> 00:26:03,720 Speaker 1: These long memories of the great moderation. This is a 458 00:26:03,760 --> 00:26:08,000 Speaker 1: great moderation disappeared. This is a great confusion, I think, Danny, 459 00:26:08,040 --> 00:26:09,919 Speaker 1: I've had the privilege of being in your lectures at 460 00:26:10,000 --> 00:26:12,520 Speaker 1: Dartmouth to watch a room silent as you go on. 461 00:26:13,160 --> 00:26:16,119 Speaker 1: Villain Bowder gave us the great privilege yesterday of a 462 00:26:16,200 --> 00:26:20,679 Speaker 1: dissertation on I S. L M. Hicksie and economics. I 463 00:26:20,720 --> 00:26:23,280 Speaker 1: put the chart out on Twitter. Let me have you 464 00:26:24,000 --> 00:26:27,399 Speaker 1: way in here. Bowder is adamant that we have a 465 00:26:27,440 --> 00:26:31,639 Speaker 1: near horizontal LM curve, which means it's non responsive to 466 00:26:31,720 --> 00:26:34,720 Speaker 1: interest rates. That's not good for chair yelling, and we 467 00:26:34,800 --> 00:26:38,199 Speaker 1: have a vertical near vertical I S curve, which means 468 00:26:38,240 --> 00:26:41,440 Speaker 1: the best we do with our monetary policy, we can't 469 00:26:41,520 --> 00:26:45,040 Speaker 1: goose output and make GDP better. Do you agree with 470 00:26:45,119 --> 00:26:49,800 Speaker 1: Professor Bowder that fiscal is the only solution to slam 471 00:26:49,800 --> 00:26:51,760 Speaker 1: the I S curve to the right? Is that the 472 00:26:51,800 --> 00:26:55,480 Speaker 1: only outlet we have? Well, it's probably not the only one, 473 00:26:55,520 --> 00:26:57,960 Speaker 1: and he's not saying there is nothing that can be done, 474 00:26:57,960 --> 00:27:00,560 Speaker 1: but I I certainly took the view that the greatest 475 00:27:00,600 --> 00:27:03,280 Speaker 1: macro era we've met that was made since two thousands 476 00:27:03,520 --> 00:27:07,439 Speaker 1: nine was actually this dreadful, reckless thing called austerity. And 477 00:27:07,480 --> 00:27:10,040 Speaker 1: I think the reality now is with the interest rates 478 00:27:10,080 --> 00:27:13,199 Speaker 1: so low, with such high levels of asset purchases, and 479 00:27:13,280 --> 00:27:17,920 Speaker 1: shocks coming along, the reality is that the fiscal authority 480 00:27:18,000 --> 00:27:19,679 Speaker 1: is going to have to do something. And it's certainly 481 00:27:19,720 --> 00:27:22,359 Speaker 1: clear in the U in the UK because the next 482 00:27:22,400 --> 00:27:24,920 Speaker 1: three weeks the chance is going to have to move. 483 00:27:24,960 --> 00:27:27,679 Speaker 1: But it's a reality in the United States as well, 484 00:27:28,040 --> 00:27:31,000 Speaker 1: because remember there's a shock coming, you're going to have 485 00:27:31,040 --> 00:27:33,359 Speaker 1: to deal with that. So I do think that the 486 00:27:33,400 --> 00:27:36,400 Speaker 1: fiscal authorities have learned their lesson. Hopefully, I mean I 487 00:27:36,480 --> 00:27:40,000 Speaker 1: hopefully today William and I can clear austerity is dead 488 00:27:40,280 --> 00:27:43,120 Speaker 1: and it's now time for the fiscal folks to take 489 00:27:43,200 --> 00:27:46,359 Speaker 1: over because the central banks have been the only show 490 00:27:46,400 --> 00:27:49,360 Speaker 1: in town and they can't do much anymore. And William's 491 00:27:49,480 --> 00:27:53,399 Speaker 1: right very quickly here, Professor. The critics of David blanche 492 00:27:53,440 --> 00:27:57,200 Speaker 1: Flower will say, we don't trust the government to pull 493 00:27:57,280 --> 00:28:00,359 Speaker 1: back on the fiscal excess when needed. Do you have 494 00:28:00,440 --> 00:28:03,200 Speaker 1: a confidence that, with all we've learned in the last 495 00:28:03,240 --> 00:28:07,240 Speaker 1: eight years, we can be responsible with our fiscal excess 496 00:28:07,520 --> 00:28:12,399 Speaker 1: if we need to provide immediate fiscal stimulus. Well, I 497 00:28:12,440 --> 00:28:15,720 Speaker 1: think that. Obviously the concern would be do you take 498 00:28:15,760 --> 00:28:19,320 Speaker 1: the punch bowl away the appropriate time? But the problem 499 00:28:19,320 --> 00:28:21,800 Speaker 1: has been the punch bowl should have had stuff in it, 500 00:28:21,960 --> 00:28:25,320 Speaker 1: So I think that's really rather the wrong question. Now 501 00:28:25,720 --> 00:28:29,160 Speaker 1: the question is how quickly can they act? Where does 502 00:28:29,200 --> 00:28:33,000 Speaker 1: this go? What's the best way to do? So? Um, 503 00:28:33,040 --> 00:28:35,600 Speaker 1: that's the way to think, and we will we will 504 00:28:35,600 --> 00:28:37,480 Speaker 1: think about what to do to take it away, But 505 00:28:37,720 --> 00:28:41,600 Speaker 1: taking it away with that problems in the first place. David, 506 00:28:41,760 --> 00:28:44,000 Speaker 1: thank you so much for being with us on short notice. 507 00:28:44,200 --> 00:28:46,840 Speaker 1: I promise the next time you and I get together 508 00:28:47,200 --> 00:28:51,719 Speaker 1: we will discuss Ernie Banks Professor Blanche Flower from England. 509 00:28:51,800 --> 00:29:08,880 Speaker 1: From Hanover, this is Bloomberg. David Durry here with Tom Keene. 510 00:29:08,920 --> 00:29:11,240 Speaker 1: A great pleasure to have with us. The pioneer of 511 00:29:11,320 --> 00:29:15,040 Speaker 1: index investing, Jack Bogel, founder of the Vanguard Group, a 512 00:29:15,080 --> 00:29:18,040 Speaker 1: former CEO of Van Guards. Thanks so much for being here. 513 00:29:18,080 --> 00:29:20,520 Speaker 1: Is Mr Bogel old enough to remember the last time 514 00:29:21,520 --> 00:29:23,800 Speaker 1: I'll let you ask that questions? I'll let you ask 515 00:29:24,040 --> 00:29:28,440 Speaker 1: remember like it was yesterday. Good morning, sir. We hope 516 00:29:28,440 --> 00:29:32,720 Speaker 1: you are healthy and proper David to begin to begin 517 00:29:32,800 --> 00:29:36,239 Speaker 1: to chat with I watched the whole Dorn thing last night. 518 00:29:37,120 --> 00:29:39,360 Speaker 1: This morning, there you go. Let me ask you. First 519 00:29:39,360 --> 00:29:41,080 Speaker 1: of all, we we've we've just heard from the Bank 520 00:29:41,080 --> 00:29:44,640 Speaker 1: of England, we heard from the Fed yesterday. As you're investing, 521 00:29:44,640 --> 00:29:46,959 Speaker 1: as you're thinking about investment today, to what degree are 522 00:29:47,000 --> 00:29:50,280 Speaker 1: you weighing what central banks are doing? Well? You have 523 00:29:50,320 --> 00:29:53,400 Speaker 1: to take that obviously, have to take it into account 524 00:29:53,400 --> 00:29:56,280 Speaker 1: as a background for what you're doing. But those, some 525 00:29:56,400 --> 00:29:59,560 Speaker 1: of those, the market is very much to me, the 526 00:29:59,600 --> 00:30:02,840 Speaker 1: financial markets at least are very much on their own. 527 00:30:03,400 --> 00:30:05,840 Speaker 1: The central bank is only part of it. They're a 528 00:30:05,880 --> 00:30:10,920 Speaker 1: good indicator of inter national policy in both cases, Um 529 00:30:11,120 --> 00:30:14,760 Speaker 1: but small changes. I think we should just ignore it. 530 00:30:14,760 --> 00:30:17,000 Speaker 1: To be honest with you, what what to what degree 531 00:30:17,000 --> 00:30:18,880 Speaker 1: do you think they're cognizant what's happening in the in 532 00:30:18,920 --> 00:30:21,080 Speaker 1: the financial markets. Are they paying attention? Are they making 533 00:30:21,120 --> 00:30:24,840 Speaker 1: decisions based on the fear or awareness of reactions in 534 00:30:24,880 --> 00:30:28,560 Speaker 1: the markets. Well, certainly of the Greenspan FED was very 535 00:30:28,600 --> 00:30:32,560 Speaker 1: sensitive to market fluctuations, and I would say that the 536 00:30:33,360 --> 00:30:37,840 Speaker 1: new FED Federal Reserve Board and chairman are somewhat sensitive 537 00:30:37,880 --> 00:30:40,120 Speaker 1: to that. But you almost have to be because the 538 00:30:40,880 --> 00:30:44,000 Speaker 1: stock market, for all its fool foolishness, and the Lord 539 00:30:44,040 --> 00:30:47,240 Speaker 1: knows that there's plenty of That is a one way 540 00:30:47,240 --> 00:30:52,000 Speaker 1: of taking the temperature of how investors feel about the future. Jack, 541 00:30:52,160 --> 00:30:55,040 Speaker 1: We all know the trends of passive verse of active. 542 00:30:55,120 --> 00:30:58,000 Speaker 1: It is. There's no other thing discussed, frankly that I 543 00:30:58,000 --> 00:31:00,720 Speaker 1: can tell the mutual fund business and what it means 544 00:31:00,760 --> 00:31:04,160 Speaker 1: for our listeners and their retirement accounts. Where is the 545 00:31:04,200 --> 00:31:07,720 Speaker 1: world that you invented? Where is it in ten years? 546 00:31:08,120 --> 00:31:11,360 Speaker 1: Where is it in twenty years when the Cubs win again? 547 00:31:12,040 --> 00:31:14,480 Speaker 1: What is the what is the what is the impact 548 00:31:15,000 --> 00:31:18,400 Speaker 1: of what you wrought? Not now, sir, but two decades 549 00:31:18,400 --> 00:31:22,200 Speaker 1: out well, you know, it's it's hard to look ahead, 550 00:31:22,280 --> 00:31:25,320 Speaker 1: but it seems to me that this is a very 551 00:31:25,440 --> 00:31:29,280 Speaker 1: enduring trend. And when people say that that the indexing 552 00:31:29,800 --> 00:31:32,920 Speaker 1: a phenomenon, and the phenomenon, indeed it is is just 553 00:31:33,000 --> 00:31:36,280 Speaker 1: a passing fancy, I say, it's just I think we 554 00:31:36,320 --> 00:31:39,240 Speaker 1: can be certainly using your number, Tom, the twenty years 555 00:31:39,240 --> 00:31:40,960 Speaker 1: from now that we have more cell phones than youth 556 00:31:41,000 --> 00:31:43,080 Speaker 1: around the world than there are today, there will be 557 00:31:43,080 --> 00:31:45,600 Speaker 1: more indexing and youth around the world than twenty years 558 00:31:45,600 --> 00:31:48,960 Speaker 1: from now. It's a very powerful trend. It's built on, 559 00:31:49,120 --> 00:31:52,640 Speaker 1: as you know, and sound economics, and we all have 560 00:31:52,720 --> 00:31:55,920 Speaker 1: finally come to recognize that the market total stock market, 561 00:31:55,960 --> 00:31:59,080 Speaker 1: the value of the market is a is a finite number. 562 00:31:59,600 --> 00:32:03,880 Speaker 1: And the key thing, the returns are generated by businesses 563 00:32:04,400 --> 00:32:07,640 Speaker 1: who earn money, pay dividends, reinvest the rest for growth 564 00:32:07,640 --> 00:32:12,800 Speaker 1: and efficiency. They're competitive and they're efficient, they're innovative, their 565 00:32:12,840 --> 00:32:17,600 Speaker 1: technology oriented, and we we accepted we access that those 566 00:32:17,640 --> 00:32:20,719 Speaker 1: returns through the stock market. It then becomes a question 567 00:32:20,760 --> 00:32:24,760 Speaker 1: of how are the stock market return shared among investors 568 00:32:25,000 --> 00:32:28,640 Speaker 1: and among Wall Wall Street itself, or or maybe how 569 00:32:28,640 --> 00:32:31,040 Speaker 1: are those in return shared between Wall Street and Main 570 00:32:31,120 --> 00:32:35,320 Speaker 1: Street so getting a larger share for the investor is 571 00:32:35,400 --> 00:32:38,640 Speaker 1: clearly good for investors. There's no way around that. And 572 00:32:38,680 --> 00:32:41,680 Speaker 1: it's equally clearly going to make some dramatic changes in 573 00:32:41,680 --> 00:32:45,200 Speaker 1: Wall Street because because the revenues look at down, relative 574 00:32:45,360 --> 00:32:47,720 Speaker 1: revenues are certain to get down. David I just put 575 00:32:47,720 --> 00:32:50,680 Speaker 1: out on Twitter a Bloomberg chart that I'd recalled from 576 00:32:50,720 --> 00:32:54,720 Speaker 1: a year ago, and it is stunning post crisis, the shift. 577 00:32:54,960 --> 00:32:58,360 Speaker 1: It's just just no one would have predicted it, except 578 00:32:58,400 --> 00:33:02,080 Speaker 1: maybe Mr Bold. Jack. Let me ask you about risks 579 00:33:02,120 --> 00:33:04,440 Speaker 1: I've I've read that you like, you like risks that 580 00:33:04,480 --> 00:33:07,880 Speaker 1: you're able to understand when you're looking at the world today. 581 00:33:08,440 --> 00:33:10,240 Speaker 1: What's a risk or what are some risks that you 582 00:33:10,280 --> 00:33:15,480 Speaker 1: have trouble getting your head around? Well, the risk that 583 00:33:15,560 --> 00:33:17,480 Speaker 1: I just don't know how they're going to come out, 584 00:33:17,840 --> 00:33:22,120 Speaker 1: I mean I can understand them pretty well. And tremendous 585 00:33:22,480 --> 00:33:26,600 Speaker 1: uncertainty about the coming administration in in the United States, 586 00:33:26,920 --> 00:33:31,640 Speaker 1: about our coming election. You know, it's pretty clear um 587 00:33:31,760 --> 00:33:35,360 Speaker 1: that there may well be, depending on who wins, greater 588 00:33:35,480 --> 00:33:40,960 Speaker 1: uncertainty about the federal government's role in our economy and 589 00:33:41,800 --> 00:33:44,720 Speaker 1: policies that are out there, that that are proposed to 590 00:33:44,800 --> 00:33:48,720 Speaker 1: impede fair trade, of free trade among nations. That's a 591 00:33:48,720 --> 00:33:53,680 Speaker 1: big negative. Um tax policies that increase through the inequality 592 00:33:53,680 --> 00:33:56,640 Speaker 1: we have in our society, and you know, the lack 593 00:33:56,680 --> 00:34:02,200 Speaker 1: of diminution or a word of NATO and the European 594 00:34:02,280 --> 00:34:05,960 Speaker 1: economic policies increase racial tensions. We can see all that 595 00:34:06,520 --> 00:34:10,120 Speaker 1: in one of the candidates, and every one of these 596 00:34:10,239 --> 00:34:14,840 Speaker 1: major negatives, our major negatives for our society, for our economy, 597 00:34:14,880 --> 00:34:18,560 Speaker 1: and for our financial markets. Sort of sensitive time now. 598 00:34:18,640 --> 00:34:22,600 Speaker 1: That said, and my fellow Princetonian Donald rumset Fell was 599 00:34:22,680 --> 00:34:26,120 Speaker 1: noted for saying, and you know, how how are those 600 00:34:26,680 --> 00:34:29,239 Speaker 1: known unknown is going to be resolved? But what about 601 00:34:29,239 --> 00:34:33,399 Speaker 1: the unknown unknown? And that's a very wise statement. There's 602 00:34:33,440 --> 00:34:35,480 Speaker 1: always something going on that you don't know about out 603 00:34:35,480 --> 00:34:39,000 Speaker 1: there nobody's thinking about. But I I think the markets 604 00:34:39,040 --> 00:34:43,440 Speaker 1: are highly valued, and I don't think substantially so. And 605 00:34:43,520 --> 00:34:46,680 Speaker 1: these things that I just talked about, trade, role of 606 00:34:46,760 --> 00:34:51,879 Speaker 1: the government, income in inequality, racial distentions and those kind 607 00:34:51,880 --> 00:34:55,320 Speaker 1: of things will just make those uncertainties into into real 608 00:34:55,360 --> 00:34:58,160 Speaker 1: problems for our economy and our financial markets. David Grey 609 00:34:58,160 --> 00:35:00,520 Speaker 1: here with Tom King, Jack Bogel joining us, the founder 610 00:35:00,760 --> 00:35:03,560 Speaker 1: of the Vanguard Group former CEO of the Vanguard Group, 611 00:35:03,600 --> 00:35:07,480 Speaker 1: and and Jack bring some comfort to a dad of 612 00:35:07,520 --> 00:35:09,839 Speaker 1: two young kids who's trying so hard not to think 613 00:35:09,880 --> 00:35:14,040 Speaker 1: about college more than more than a decade out here, 614 00:35:14,080 --> 00:35:17,360 Speaker 1: looking at returns, looking at this uh long search for 615 00:35:17,480 --> 00:35:20,440 Speaker 1: yield wherever it may be. What's it gonna look like 616 00:35:20,520 --> 00:35:24,480 Speaker 1: for folks like me ten years out well, you know, 617 00:35:24,560 --> 00:35:29,600 Speaker 1: looking at ten years and and probably beyond, returns will 618 00:35:29,600 --> 00:35:33,840 Speaker 1: be lower than they had on a historical basis and 619 00:35:34,200 --> 00:35:37,080 Speaker 1: not very complicated. You know, the dividend yield in the 620 00:35:37,200 --> 00:35:39,440 Speaker 1: last sixty five years I've been in this business has 621 00:35:39,520 --> 00:35:42,240 Speaker 1: been around four and a half percent. Today it's two, 622 00:35:42,840 --> 00:35:45,200 Speaker 1: and that's a two and a half percent deadweight loss. 623 00:35:46,160 --> 00:35:48,640 Speaker 1: Earnings growth in that period was pretty close to five. 624 00:35:49,480 --> 00:35:52,160 Speaker 1: And with GDP growing at the rate you mentioned earlier, 625 00:35:52,280 --> 00:35:56,640 Speaker 1: something like one or two percent this year, earnings growth 626 00:35:56,719 --> 00:35:59,480 Speaker 1: is not going to be as high. And the market 627 00:35:59,520 --> 00:36:02,680 Speaker 1: is robably highly valued at making a twenty three times 628 00:36:02,680 --> 00:36:06,400 Speaker 1: earnings compared to a norm of seventeen. So I think 629 00:36:06,560 --> 00:36:09,239 Speaker 1: if you're lucky in an equity program, you might be 630 00:36:09,320 --> 00:36:14,480 Speaker 1: able to get five in a balanced program, maybe because 631 00:36:14,480 --> 00:36:16,960 Speaker 1: bondi eiels are also low, so you just have to 632 00:36:17,000 --> 00:36:21,040 Speaker 1: plan for that, and you're saving and not to commercialize. 633 00:36:21,040 --> 00:36:24,080 Speaker 1: You're wonderfully independent program. But by far when you look 634 00:36:24,080 --> 00:36:26,759 Speaker 1: at those returns, you really want to kick across the 635 00:36:26,760 --> 00:36:29,840 Speaker 1: heck out of the equation because those are gross returns 636 00:36:29,880 --> 00:36:33,279 Speaker 1: at the market delivers and investment don't get those gross. 637 00:36:33,320 --> 00:36:35,680 Speaker 1: I would like I would like Mr Gourd to continue 638 00:36:35,760 --> 00:36:39,480 Speaker 1: this naive, serious discussion, and Mr Bogel, you're gonna say 639 00:36:39,600 --> 00:36:43,040 Speaker 1: for not. Look, David, the way you do college planning 640 00:36:43,160 --> 00:36:47,080 Speaker 1: is to go to Blair Academy oh S five. And 641 00:36:47,120 --> 00:36:50,760 Speaker 1: the way you do it you do the college spending beforehand, 642 00:36:51,640 --> 00:36:56,280 Speaker 1: so that you arrive at college broke and Blair Academy, 643 00:36:56,360 --> 00:36:58,320 Speaker 1: where Mr Bogel went a few years ago. It was 644 00:36:58,320 --> 00:37:01,920 Speaker 1: a good place to start for the baseball that's that's 645 00:37:01,960 --> 00:37:04,240 Speaker 1: an even better place to start now. But I should 646 00:37:04,280 --> 00:37:06,840 Speaker 1: say I had scholarships and jobs there we knew not 647 00:37:07,120 --> 00:37:11,040 Speaker 1: student loans, and my family had no money, so I 648 00:37:11,160 --> 00:37:13,800 Speaker 1: got a long way on all I could do together myself, 649 00:37:13,880 --> 00:37:16,680 Speaker 1: but the generosity of others. But seriously, Jack, those days 650 00:37:16,719 --> 00:37:19,680 Speaker 1: are over the idea of working your way through school today? 651 00:37:20,239 --> 00:37:24,319 Speaker 1: Has that become a fiction? No? I don't think sell mean, 652 00:37:24,400 --> 00:37:26,840 Speaker 1: I meet a lot of children, young young men and women, 653 00:37:28,160 --> 00:37:31,160 Speaker 1: but I have done I think a hundred and three 654 00:37:31,200 --> 00:37:34,440 Speaker 1: hundred scholarships and Blair and at Princeton, and they are 655 00:37:34,719 --> 00:37:38,920 Speaker 1: terrific people. I mean, they're very hard working, very international 656 00:37:39,000 --> 00:37:42,600 Speaker 1: in their focus, very unselfish in their focus, very anxious 657 00:37:42,640 --> 00:37:45,279 Speaker 1: to contributes to the community, as smart as all get out. 658 00:37:45,719 --> 00:37:47,680 Speaker 1: And there are hope for the future. And and and 659 00:37:48,360 --> 00:37:51,680 Speaker 1: your kids are the hard hope for the future too, David, 660 00:37:52,920 --> 00:37:56,319 Speaker 1: I appreciate that. Let let me ask you that it's 661 00:37:56,360 --> 00:37:59,200 Speaker 1: getting worried. It may not seem like it now makes 662 00:37:59,320 --> 00:38:01,920 Speaker 1: a while to grow even took me a while to 663 00:38:02,000 --> 00:38:05,200 Speaker 1: grow out. For me. We've seen changes in the in 664 00:38:05,280 --> 00:38:07,520 Speaker 1: the fee structures at hedge funds. Are we going to 665 00:38:07,600 --> 00:38:10,560 Speaker 1: begin to see changes with mutual funds as well? As 666 00:38:10,600 --> 00:38:13,080 Speaker 1: the is the appetite is the acceptance of of fees 667 00:38:13,120 --> 00:38:16,960 Speaker 1: going to start to erode across the board? Well, you 668 00:38:17,040 --> 00:38:20,320 Speaker 1: know the typical active fund manager, and that's what dominates 669 00:38:20,440 --> 00:38:22,919 Speaker 1: the only mutual company in this business, of the course, 670 00:38:22,960 --> 00:38:25,520 Speaker 1: of Vanguard and the rest of them are run for 671 00:38:26,000 --> 00:38:30,040 Speaker 1: their inside shareholders or their public shareholders, or the financial 672 00:38:30,120 --> 00:38:33,759 Speaker 1: conglomerates that own them, and they're gonna they're going to 673 00:38:34,120 --> 00:38:36,120 Speaker 1: hold the line on fees as long as they can. 674 00:38:37,040 --> 00:38:39,239 Speaker 1: You know, when you can operate this place, it maybe 675 00:38:39,360 --> 00:38:41,680 Speaker 1: twelve basis points in the industry is operating at a 676 00:38:41,800 --> 00:38:44,880 Speaker 1: hundred and thirteen. Uh. You know, if if they were 677 00:38:44,920 --> 00:38:47,359 Speaker 1: to cut it their fees in half, take it from 678 00:38:47,400 --> 00:38:51,000 Speaker 1: a hundred and thirteen to say sixty, they'd still be 679 00:38:51,120 --> 00:38:54,240 Speaker 1: five times as expensive. See, you wonder what the utility 680 00:38:54,360 --> 00:38:56,600 Speaker 1: is that so that they're and they're they're they're leaking, 681 00:38:56,640 --> 00:39:00,959 Speaker 1: they're losing money. Active funds lost and in the last 682 00:39:01,000 --> 00:39:04,520 Speaker 1: twelve months over a hundred billion dollars twenty billion dollars, 683 00:39:04,880 --> 00:39:07,239 Speaker 1: and it got even worse in September. Apparently that was 684 00:39:07,520 --> 00:39:10,080 Speaker 1: those last twelve months were Sue, August, and September was 685 00:39:10,280 --> 00:39:14,120 Speaker 1: about apparently a terrible months for them, and I should 686 00:39:14,120 --> 00:39:16,920 Speaker 1: say October was apparently a terrible month for them. And 687 00:39:18,040 --> 00:39:20,520 Speaker 1: so you know, they bet they're enjoying what they've got. 688 00:39:20,640 --> 00:39:24,800 Speaker 1: Now it's gonna be unlikely for the mutual funds to 689 00:39:24,880 --> 00:39:27,840 Speaker 1: cut costs. They couldn't sell a new fund at the 690 00:39:27,880 --> 00:39:30,279 Speaker 1: old cost, so that if they bring out a new one, 691 00:39:30,320 --> 00:39:33,600 Speaker 1: that will be maybe a little a little lower cost, Jack, 692 00:39:33,640 --> 00:39:36,080 Speaker 1: would you look at investing as David said, with those 693 00:39:36,120 --> 00:39:39,839 Speaker 1: serious questions on you know, the actual assumption that were 694 00:39:39,920 --> 00:39:43,400 Speaker 1: add a lot of this is predicated on corporate officers 695 00:39:43,480 --> 00:39:46,080 Speaker 1: behaving in the same way. Do you just assume out 696 00:39:46,680 --> 00:39:49,400 Speaker 1: one year, five years, again, twenty years, as we spoke 697 00:39:49,440 --> 00:39:52,520 Speaker 1: of before, that there will be this religion of deploying 698 00:39:52,680 --> 00:39:56,759 Speaker 1: cash to shareholders and that buybacks and dividend growth will 699 00:39:56,800 --> 00:40:01,719 Speaker 1: still be the backbone of of return. I think of 700 00:40:01,840 --> 00:40:04,040 Speaker 1: the buy back thing is kind of mysterious. Number one 701 00:40:04,080 --> 00:40:06,400 Speaker 1: which people I don't think understand very well come up 702 00:40:07,160 --> 00:40:09,480 Speaker 1: is a large number of those buybacks. We don't have 703 00:40:09,520 --> 00:40:12,040 Speaker 1: good data on this, but a large number is because 704 00:40:12,040 --> 00:40:15,160 Speaker 1: they issue all these options to their executives which dilute 705 00:40:15,160 --> 00:40:17,800 Speaker 1: their earnings, and they buy back to balance the books. 706 00:40:17,800 --> 00:40:22,680 Speaker 1: It's so that so that doesn't do it, That doesn't 707 00:40:22,760 --> 00:40:24,920 Speaker 1: that doesn't improve the earnings per share at all. Just 708 00:40:25,160 --> 00:40:28,080 Speaker 1: hold your word otherwise would have been so. I I 709 00:40:28,280 --> 00:40:30,760 Speaker 1: guess the buy back is kind of a passing fancy 710 00:40:31,840 --> 00:40:35,359 Speaker 1: and there ought to be times. One wonders why these 711 00:40:35,400 --> 00:40:39,560 Speaker 1: companies don't have can't find better opportunities to use their 712 00:40:39,640 --> 00:40:42,520 Speaker 1: cash than buying back their own stuff. But your experience 713 00:40:42,600 --> 00:40:45,160 Speaker 1: a Time Warner and Telephone is a kind of merger 714 00:40:45,239 --> 00:40:49,960 Speaker 1: that can work out. I think bigness is one of 715 00:40:50,040 --> 00:40:54,200 Speaker 1: the curses of our society. And you know, companies lose 716 00:40:54,280 --> 00:40:58,440 Speaker 1: their traditional roots, they lose their interests in human beings 717 00:40:58,560 --> 00:41:02,880 Speaker 1: and go to bureaucracy. They get bigger and bigger, grander 718 00:41:02,960 --> 00:41:07,600 Speaker 1: and grander, and in a cynical way that is, and 719 00:41:08,560 --> 00:41:11,640 Speaker 1: more and more self important. The chief executives are and 720 00:41:11,840 --> 00:41:13,799 Speaker 1: I I don't see much I like in the East 721 00:41:13,800 --> 00:41:17,719 Speaker 1: griant mergers. And the government has traditionally been much more 722 00:41:17,880 --> 00:41:23,319 Speaker 1: kind to what we call horizontal mergers companies entering new businesses. Um, sorry, 723 00:41:23,440 --> 00:41:26,799 Speaker 1: vertical mergers, companies entering new businesses that horizontal buying up 724 00:41:26,840 --> 00:41:30,960 Speaker 1: your competitors. So I think that the Time Warner thing 725 00:41:31,040 --> 00:41:33,239 Speaker 1: may go through with a T and T getting us 726 00:41:33,360 --> 00:41:36,960 Speaker 1: right back to where we are in about nineteen and 727 00:41:37,400 --> 00:41:39,120 Speaker 1: I guess the year A T and T spun off 728 00:41:39,160 --> 00:41:46,160 Speaker 1: originally with maybe um nineteen eighty something like that, and 729 00:41:46,400 --> 00:41:49,480 Speaker 1: we've we've all those telephone companies are now back as 730 00:41:49,560 --> 00:41:54,000 Speaker 1: One's an amazing story. It is an amazing story. Thank 731 00:41:54,040 --> 00:41:56,759 Speaker 1: you so much for being at this wisdom from Jack 732 00:41:56,840 --> 00:41:59,680 Speaker 1: Bold and someone. Whether you are with Van Guard or 733 00:41:59,719 --> 00:42:02,480 Speaker 1: not of Van Guard, he has touched every life within 734 00:42:02,560 --> 00:42:14,560 Speaker 1: the investment community. Thanks for listening to the Bloomberg Surveillance podcast. 735 00:42:14,960 --> 00:42:20,040 Speaker 1: Subscribe and listen to interviews on iTunes, SoundCloud, or whichever 736 00:42:20,200 --> 00:42:24,600 Speaker 1: podcast platform you prefer. I'm out on Twitter at Tom Keene. 737 00:42:24,719 --> 00:42:28,480 Speaker 1: David Gura is at David Gura. Before the podcast, you 738 00:42:28,560 --> 00:42:44,640 Speaker 1: can always catch us worldwide. I'm Bloomberg Radio. Who you 739 00:42:44,760 --> 00:42:47,480 Speaker 1: put your trust in matters? Investors have put their trust 740 00:42:47,880 --> 00:42:51,759 Speaker 1: and independent registered investment advisors to the two and four 741 00:42:51,840 --> 00:42:56,279 Speaker 1: trillion dollars Why Learn more at find your Independent Advisor 742 00:42:56,880 --> 00:42:57,359 Speaker 1: dot com