Speaker 1: Who you put your trust in matters. Investors have put
Speaker 1: their trust and independent registered investment advisors to the two
Speaker 1: and four trillion dollars. Why learn more and find your
Speaker 1: independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast.
Speaker 1: I'm Tom Keene with David Gura. Daily we bring you
Speaker 1: insight from the best in economics, finance, investment and international relations.
Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and
Speaker 1: of course on the Bloomberg. This is really a joy.
Speaker 1: We're gonna talk markets here in the correlations that we
Speaker 1: see right now. With two people totally unqualified to strategize
Speaker 1: on the markets, that's always a good thing. On surveillance.
Speaker 1: Michael Spence as a laureate from n y U. He
Speaker 1: has more than qualified to talk about information within our
Speaker 1: society and systems. And Richard Haas has a most interesting
Speaker 1: uh CV and bio on political economics and international relations.
Speaker 1: I want to begin with you, ambassador, if I could
Speaker 1: you have a fabulous moment in your new book on
Speaker 1: the World Order. You go from Henry Kissinger's World Order
Speaker 1: onto whatever the new world order is, and you have
Speaker 1: a phrase as if the tide goes out, we shift
Speaker 1: from World War Two, and we're how our markets adapting
Speaker 1: to this subtle chronic shift. You see as the tide
Speaker 1: goes out, well, the short answers they're having trouble. You
Speaker 1: used to have certain structures and rules in the world.
Speaker 1: We had, for example, all the discipline of the of
Speaker 1: the Cold War, and when that ended, we found ourselves
Speaker 1: somewhat lacking and the other institutions really weren't quite up
Speaker 1: to it. And I think we're at a moment in
Speaker 1: history where globalization and virtually every one of its manifestations
Speaker 1: or dimensions is moving at a faster, more robust pace
Speaker 1: than politics can catch shops. So we see gaps of
Speaker 1: for example, take one cyber that's probably the largest gap
Speaker 1: where the technologies are at one end really really rapidly
Speaker 1: and profound effects. And the rules it's like the wild West.
Speaker 1: The world hasn't begun to set rules. Plus there's no
Speaker 1: sheriff if in one various actors violate what rules there are.
Speaker 1: In Professor spent, you have prodigious mathematical abilities here. And
Speaker 1: when I hear Haws to talk about speed, I look
Speaker 1: at from an electrical engineering standpoint to slew rates, the
Speaker 1: abrupt changes within any system and circuitry. From where you sit,
Speaker 1: our our markets able to keep up with the modern
Speaker 1: slew rates of globalization. Yeah, the markets can keep up
Speaker 1: with it, but the the economy can't. Uh. And so
Speaker 1: I think what you're getting out of Trump is something
Speaker 1: quite interesting. Basically, we have lived in the world in
Speaker 1: which we in America were took the lead in creating
Speaker 1: this sort of global system, and then we said, we
Speaker 1: can't touch that system because it yields huge benefits. And
Speaker 1: it does, and so we did. So take the labor markets,
Speaker 1: you know, the demand side moves around because of technology
Speaker 1: and globalization, and we're supposed to adapt. And Trump is saying, no,
Speaker 1: I'm reversing those priorities. Right, We're gonna do what it
Speaker 1: takes to make our economy function in a way that
Speaker 1: satisfactory to the citizens. And then adults can negotiate mutually
Speaker 1: beneficial arrangements. So he's going to interfere, you know, with
Speaker 1: a whole lot of things that used to be untouchable before,
Speaker 1: so that Donald Trump satisfies Americans. For how long I
Speaker 1: was speaking to in the Rothschild and she was talking
Speaker 1: about inclusive capitalism. It was on Friday in Rome, and
Speaker 1: she reminded me there are three million truck drivers in America.
Speaker 1: When we start having driverless cars, it could be three years,
Speaker 1: four years, five years away. Then those people will lose
Speaker 1: their jobs at the end of the day. So if
Speaker 1: you refocus on manufacturing, how long can you how long
Speaker 1: can you basically reflight the economy for and keep people happy? Well,
Speaker 1: in fairness, I mean, I don't think um President elect
Speaker 1: Trump is relying on manufacturing only to reflate the economy.
Speaker 1: What he's concerned about is getting on with the process
Speaker 1: of of having the economy and our labor force and
Speaker 1: our human capital adapt to this new world. But what
Speaker 1: he is saying in part is if we can't adapt
Speaker 1: fast enough, we'll change the rate at which we have
Speaker 1: to adapt. But can I pick up on some sequence
Speaker 1: and said, there's a mismatch. The cause of most of
Speaker 1: the job dislocation is technological innovation, and the essence of
Speaker 1: the polar response is to pin the tail on the
Speaker 1: donkey of either trade or offshoring. And there's a mismatch.
Speaker 1: So even if the so called cures being put forward
Speaker 1: now by the political process go forward, it won't cure
Speaker 1: the problem, and millions of Americans will still face job
Speaker 1: dis place But we haven't begun a serious debate in
Speaker 1: this country about what to do about robotics and artificial
Speaker 1: intelligence and driverless vehicles and how we're going to cope
Speaker 1: With a spirited conversation with Michael Spence, the Lord from
Speaker 1: New York University and Ambassador House of the Consul and formulations,
Speaker 1: what an honor to have the two of you here
Speaker 1: with all that's going on in the distill And really, folks,
Speaker 1: we were talking about this on the break, about the
Speaker 1: old in the new ambassador has, how Reagan has. There's
Speaker 1: so many articles I want to be like Reagan. I'm
Speaker 1: like Reagan, Come on, you can't mean it's not the
Speaker 1: same world as President Reagan had. First of all, it's
Speaker 1: not the same person as Ronald Reagan. Ronald Reagan came
Speaker 1: into office with a really developed philosophy. He may have
Speaker 1: been underestimated by a lot of the pundits, but they
Speaker 1: missed it. He had written those letters and articles for years,
Speaker 1: given hundreds and hundreds of policy speeches. Plus politics were
Speaker 1: different when Reagan was there. Washington was a much more malleable, functional,
Speaker 1: place now because the funding reforms and other reforms about
Speaker 1: how politics are conducted, how the society has changed. It's
Speaker 1: much harder to to garner concentrated political power, so that
Speaker 1: the parallels to Reagan, I think are not going to
Speaker 1: But there is something, and Michael called it animal spirits,
Speaker 1: there is a sense of with with where we are economically,
Speaker 1: that this is a moment where we're gonna go from
Speaker 1: probably an under two percent pro long rate of growth
Speaker 1: to something much higher with some sort of combination of
Speaker 1: corporate tax reform, individual tax reform, and finally some fiscal spending.
Speaker 1: It's almost as if we're saying the era in which
Speaker 1: the only game in town was monetary power and what
Speaker 1: the central bankers can do is over and now we
Speaker 1: finally have something larger going on in Washington, right, Richard,
Speaker 1: two questions on that, So recon reconomics, you you know, right,
Speaker 1: we point out the differences, the differences, but actually he
Speaker 1: did produce large fiscal deficits and the ultra strong dollar
Speaker 1: if we do see the same thing from Donald Trump.
Speaker 1: But also may mean that actually Europe it becomes a
Speaker 1: lot more competitive because the euro goes down. So you
Speaker 1: could argue that Donald Trump. At the end of the day,
Speaker 1: we'll save the Eurozone. That you've now discovered the hidden
Speaker 1: agenda of the of the Trump of presidency is to
Speaker 1: save the ears. Well, I thought it was a secret
Speaker 1: that was only between us. I think it'll take a
Speaker 1: little bit more than that, but it could have some
Speaker 1: effects that, yes, are advantageous for for European uh, for Europeans.
Speaker 1: But let's not kid ourselves. What Europeans doing don't do
Speaker 1: is gonna have a fight far greater impact on their
Speaker 1: own future. No about Lauriate Michael Spence at the Stern
Speaker 1: School of Business at n y U and Ambassador Richard Hass,
Speaker 1: President of the Council and Form Relations, author of A
Speaker 1: World in Disarray, American Foreign Policy and the Crisis of
Speaker 1: the Old Order, out just in time for inauguration. Penguin
Speaker 1: Press schedule to publish that book on January the tenth,
Speaker 1: and Richard host let's start there. Let's start with the
Speaker 1: Old Order and what comes next. We've heard Donald Trump
Speaker 1: fulminating on his set his thank you tour across the
Speaker 1: country in Faietville, North Carolina, last night. Are we any
Speaker 1: closer here to getting a sense of what what his
Speaker 1: brand of foreign policy is the short answer is no,
Speaker 1: most of the team is not in place. We obviously
Speaker 1: still don't have a Secretary of State. And even after
Speaker 1: you staff up, usually the first few months of any
Speaker 1: administrations are consumed by interagency reviews of pretty much everything
Speaker 1: you've got, from crisis to standing UH situations. So my
Speaker 1: my senses, we're not going to have a developed view
Speaker 1: probably till late spring. But in the meantime we are
Speaker 1: getting some specifics, the fact that t PP, the Transpacific
Speaker 1: Trade Agreement is essentially no longer, the questioning of the
Speaker 1: One China policy after several UH decades. We had certain
Speaker 1: statements in the campaign made which again raise at least
Speaker 1: the some questions about the long term standing of some
Speaker 1: tradish traditional features of American foreign policy. So there will
Speaker 1: be elements of change or disruption. I think the the
Speaker 1: honest answer, though, is we don't quite know what the
Speaker 1: balances between UH, the old order and the new, and
Speaker 1: what exactly a new order or disorder might look like.
Speaker 1: Prefensi respub struck by how much of foreign policy right
Speaker 1: now is being driven by economics, and when when you
Speaker 1: look at recent history, how new a thing is that,
Speaker 1: How novel is that that we are seeing so much.
Speaker 1: Be it the relationship with China and Taiwan, be what
Speaker 1: we saw in Italy earlier this week. It's economics that's
Speaker 1: the driving force. Well, it is because you know, for
Speaker 1: a long time we had deteriorating uh, you know, distributional
Speaker 1: aspects of growth patterns. But they have now burst on
Speaker 1: the scene. So it's impossible to ignore it any longer politically,
Speaker 1: and that is spilling over into you know, the way
Speaker 1: we formulate how we deal with the rest of the world. Now,
Speaker 1: we may over emphasize globalization and under emphasized technology as
Speaker 1: part of the political process. But but the simple fact
Speaker 1: is that that the what has come to be called
Speaker 1: job and income polarization in the middle class element is
Speaker 1: just too large to be set aside politically anymore in
Speaker 1: any system. You and I last spoke before that referendum
Speaker 1: in Italy, and you spend a lot of time in
Speaker 1: that country. We talked about the referendum. Then looking at
Speaker 1: what happened on Sunday, what's the best prism through which
Speaker 1: to see what happened there? Can we draw a broader
Speaker 1: conclusion about populace sentiment in Europe largely globally or was
Speaker 1: this a domestic domestic vote. Yeah, it's a Sorry, it's
Speaker 1: a mixed case. So you what you would not want
Speaker 1: to mean. Popular sentiment is gaining ground in Europe uh
Speaker 1: as well as here. So that's a general trend. Uh,
Speaker 1: But that trend is not yet strong enough to have determined,
Speaker 1: you know, a sixty forty loss for the So there's
Speaker 1: idiosyncratic factors. Uh, there's a political system that people benefit
Speaker 1: from that somewhat corrupted much of the country that was
Speaker 1: going to be challenged if the referendum passed. So that
Speaker 1: you've you've got a whole set of other people voting
Speaker 1: no for different reasons, you know, not just the nationalist
Speaker 1: populist ones. That's your hots going into that referendum. Uh.
Speaker 1: Looking at the banks now, a lot of people said,
Speaker 1: look to Greece as an example, uh, an illustrative example
Speaker 1: of what might be happen in Italy. What countries are
Speaker 1: watching what's unfolding Italy now in light of that referendum. Well,
Speaker 1: the Germans are watching us. They're wondering how much of
Speaker 1: their wallet is going to get back to UH to
Speaker 1: pay for it. I think that's probably number one and
Speaker 1: the Greece there also going to look at to see
Speaker 1: what's the latest mood in Europe to to bail out
Speaker 1: the who are who are weak. And I assume people
Speaker 1: like Mr drag Or spending really fairly long hours at
Speaker 1: the office figuring out exactly what they're gonna have to do.
Speaker 1: And again it highlights the the precarious balance between national
Speaker 1: economic performance and what Brussels and It is meant to do.
Speaker 1: And the and the problem is you can't discipline national
Speaker 1: economic performance in some ways because people are scared to
Speaker 1: see that through its tent end because it might mean
Speaker 1: certain countries have to exit. So you're always there a
Speaker 1: little bit as the banker of last resort, which destroys
Speaker 1: a lot of the discipline. So you've got the EU
Speaker 1: on this. It's kind of addicted to a degree of
Speaker 1: external help and a failure to really discipline things as
Speaker 1: much as you might want to. Impurely economic Let's I
Speaker 1: want to go there the proverbial can. How do you
Speaker 1: say kick the can down the road in Italian? I
Speaker 1: don't know, we won't make it up. But wait, that's
Speaker 1: how I got through foreign language at school. Uh Richard
Speaker 1: asked with this Michael Spence this morning. Good morning, It
Speaker 1: has been an interesting morning of conversation here at Bloomberg Surveillance.
Speaker 1: It has been Professor spends one considered and continuous can
Speaker 1: down the road. How do you break that? And allahyak,
Speaker 1: how do you clear markets? It's crisis every time, isn't No.
Speaker 1: I actually think it's simple if you take the the
Speaker 1: Europe or the Eurozone's entire capacity, uh, to sort of
Speaker 1: do what Trump is saying he's going to do, admitting
Speaker 1: there's uncertainty, use fiscal measures to make it easier to
Speaker 1: do the structural reforms. They could change the growth pattern.
Speaker 1: Now cynics will say that's not very likely, but it's not.
Speaker 1: It's not very hard, uh to see what path. You know,
Speaker 1: if you started going down that path, Roggy could raise
Speaker 1: the interest rates. Then they'd start the restructuring that that
Speaker 1: Richard talked about. You know, Italy couldn't sit there with
Speaker 1: a sovereign debt, the GDP ratio of a D thirty
Speaker 1: five per cent and a whole lot of good things
Speaker 1: they're painful with start to happen. But right now it's
Speaker 1: sort of locked in its current configuration. Lockton's current configuration
Speaker 1: and Ambassador Hasse I wonder when you when you look
Speaker 1: at Europe today, at the economic underpinnings and the security underpinnings,
Speaker 1: which is stronger, What what's the most compelling case here
Speaker 1: for the European project at this point, the security case
Speaker 1: is the most compelling. People take for granted the extraordinary
Speaker 1: contribution again of what's happened in Europe over the last
Speaker 1: what seventy odd years the world. You had World War
Speaker 1: One on World War Two in Europe, and the whole
Speaker 1: idea of what began as the Coal and Steel community
Speaker 1: was to knit together and integrate Europe so much the
Speaker 1: war would become literally unthinkable and undoable, and it's succeeded.
Speaker 1: The fact that Western Europe has been as geopolitically stable
Speaker 1: as it's been now for three quarters of a century.
Speaker 1: It's a little bit like oxygen. You take it for granted,
Speaker 1: but when you look back and you compare the last
Speaker 1: seventy five years but the fifty years that preceded it,
Speaker 1: it is it is one of the world's great great accomplishments.
Speaker 1: And what worries me is so many of these votes
Speaker 1: and so many of these political decisions, from Gregxit to
Speaker 1: what have you are being made on really narrow calculus
Speaker 1: is of of the trading arrangement or the economics. How
Speaker 1: much money is going back and forth between Brussels, and
Speaker 1: no one seems to be considering this larger geopolitical historical thing.
Speaker 1: It's at stake, but no one seems to be taking
Speaker 1: it into account. It's the shortsightedness and narrowness of the
Speaker 1: European political votes right now that frightened me. Looking Inbastador,
Speaker 1: Springs have multi ladderism here, and I guess we could
Speaker 1: say we are multi ladderism light of what we saw
Speaker 1: here in the US and what we saw perhaps in
Speaker 1: the United Kingdom before that. Are we at a point
Speaker 1: where our trade policy investors Professor's fenses is, is going
Speaker 1: to be purely bilateral. We're gonna have a patchwork quilt
Speaker 1: here of trade deals. Well, it certainly sounds like we're
Speaker 1: going in that direction. I mean, it doesn't have to
Speaker 1: be all bilateral, but it's certainly not going to be
Speaker 1: multi multilateral. I think that's stalled. And one of the
Speaker 1: reason installed is that in in the in the framework
Speaker 1: where you negotiate with adults, you know and find where
Speaker 1: your mutual interests overlap. You can't do the multilateral thing
Speaker 1: because the multilateral thing survived because America was willing to
Speaker 1: absorb more of the burden of providing the public goods.
Speaker 1: And if we find it impossible or we are unwilling
Speaker 1: to do that anymore, I think that just kicks the
Speaker 1: foundations out from underneath the multilateral system. Because Richard Hass
Speaker 1: and Michael Spence h Professor Hass the Ambassador has a
Speaker 1: book coming out, The World in Disarray, which I think
Speaker 1: we can all agree with, and and part of that
Speaker 1: is this shifting foreign policy, and let's call it from
Speaker 1: a traditional world order maybe Dr Kissinger's world order of
Speaker 1: a Westphalian system, to maybe for Red Zakaria's post American
Speaker 1: world and maybe to a new isolationism. What you're so
Speaker 1: good at is not what we observe, but what is
Speaker 1: not there. What will be the that hume if we
Speaker 1: don't participate in the world economy and in international relations. Well,
Speaker 1: there's a whole set of what you might tom you
Speaker 1: might call public goods. I mean, you know that range
Speaker 1: from stability to providing the currency that supports the sort
Speaker 1: of global system. And the United States has had an
Speaker 1: absolutely central role in that in the entire post war period.
Speaker 1: So I think the vacuum is the public goods that
Speaker 1: support the international system, those public goods, Ambassador Hastening, And
Speaker 1: this goes to the certitude. I mean, just on the
Speaker 1: Boeing discussion yesterday from the President elect, how can the
Speaker 1: president frame his popular certitude and keep us in the
Speaker 1: consul and foreign relations game? Uh? Not going to be easy?
Speaker 1: And Professor Spencers exactly right. You know, we have provided
Speaker 1: a lot of public goods. Americans at times she more
Speaker 1: aware of the costs than they do of the benefits,
Speaker 1: partially extremined people of the benefits, the extraordinnary stability in
Speaker 1: the world, the extraordinary economic growth that we have benefited
Speaker 1: uh from it it, all things being equal, as as
Speaker 1: as decades and most of centuries go, the post World
Speaker 1: War two era has been extraordinarily generous and favorable, uh
Speaker 1: to to the United States. And I think when people
Speaker 1: look at it, they need to look at both sides
Speaker 1: of the ledger. And sure we've made mistakes, and sure
Speaker 1: some things have cost but actually the biggest mistakes were
Speaker 1: nothing were what what we're Vietnam and the Iraq War,
Speaker 1: those were bell Those were both self generated self inflicted.
Speaker 1: But most of what we were done, the alliance systems
Speaker 1: in Asia and Europe have kept stability the Great Trading
Speaker 1: and other economic institutional arrangements. Yes, we've we've made them possible,
Speaker 1: but we have in some ways been the greatest beneficiary.
Speaker 1: I want to ask you about some some tweets in particular.
Speaker 1: That's how we're talking about foreign policy these days. We
Speaker 1: we saw the tweets about China. We heard about the
Speaker 1: phone call with the president of Taiwan. You've recently returned
Speaker 1: from China. Know what do what do the people that
Speaker 1: you talk to their make of the the outcome of
Speaker 1: that election and the prospects for this presidency going forward.
Speaker 1: You see the adversarial nous in the nature of those tweets,
Speaker 1: in the nature of the rhetoric. What's their sense of
Speaker 1: what's to come? Well, when I was there, which was
Speaker 1: just before all this hit the fan, the general view
Speaker 1: was uncertainty of as to what to expect. Virtually all
Speaker 1: my meetings with high ranking Chinese officials was to ask
Speaker 1: me to basically translate Donald Trump into Mandarin. There was
Speaker 1: a clear desire for the job in that I think
Speaker 1: there was a clear desire for continued positive US Chinese relations,
Speaker 1: which have been quite good over over the years, and
Speaker 1: now this has come in. What I think this has
Speaker 1: done is put into play uncertainty about the One China
Speaker 1: policy and just more broadly, what will be the tenor
Speaker 1: of US China relations under this new presidency. And the
Speaker 1: Chinese haven't quite figured out how to react that. They
Speaker 1: don't want this to escalate. They do want to still
Speaker 1: have a stable relationship with stable regions, but they are
Speaker 1: genuinely concerned. If you read it, the tenor of their
Speaker 1: pub the comments has gotten successively tougher if you look
Speaker 1: at their initial kind of let's we're not going to
Speaker 1: overreact to the phone call, to what the People's Daily
Speaker 1: has said in subsequent editorials. They are generally concerned about
Speaker 1: the thrust of US policy. David notices Richard Hass Mr
Speaker 1: Trump will up here with NBC's Today's Show. Here in
Speaker 1: a bit, what is the question you would ask the
Speaker 1: President elect right now? Well, I would get him to
Speaker 1: specifically react to the One China policy and his view
Speaker 1: about the importance of China and US Chinese relations to
Speaker 1: to the world, to basically get him to take a
Speaker 1: step back from some of the smallness of fuel relative
Speaker 1: smallness of the Taiwan issue, to get a sense of
Speaker 1: whether he buys into this larger structure that has has
Speaker 1: been the status quo now for several decades. Professor Suspencer,
Speaker 1: your question to the President elect, I would ask him
Speaker 1: how he's going to negotiate with China. My view is that, um,
Speaker 1: the relationship so much the same as Richard has no
Speaker 1: I mean, I mean he's already asked quite why challenge
Speaker 1: them on the one thing that's a non negotiable I mean,
Speaker 1: it doesn't make any sense to me, uh, whereas all
Speaker 1: the other things are negotiable. So I'd ask them, you know, well,
Speaker 1: what about the rest of the agenda? How are we
Speaker 1: going to deal with trade? How are we going to
Speaker 1: deal with financial flows, etcetera. And the biggest issue could
Speaker 1: be likely North Korea. The biggest geopolitical issue facing this
Speaker 1: administration over the next four years is likely to be
Speaker 1: the advance of North Korean missile in nuclear capability. I
Speaker 1: was gonna say traffic on, but I guess that's why
Speaker 1: that's that's beyond that's impossible. Who you put your trust
Speaker 1: in matters. Investors have put their trust in independent registered
Speaker 1: investment advisors to the tune of four trillion dollars. Why
Speaker 1: they see their roles to serve, not sell. That's why
Speaker 1: Charles Schwab is committed to the success over seven thousand
Speaker 1: independent financial advisors who passionately dedicate themselves to helping people
Speaker 1: achieve their financial goals. Learn more at find your independent
Speaker 1: advisor dot com. It's another time of year, David Gura,
Speaker 1: he would show up with to go from the Portland
Speaker 1: lobster coming. Unfortunately it's the dead of December. They're not
Speaker 1: even open, Jurd Cassidy are they know? They're not shut down.
Speaker 1: They shut down because it's a strange thing called winter.
Speaker 1: Showed up. Lobster taste is better in cold water, like
Speaker 1: oysters do they Is lobster better now? I would say
Speaker 1: not so much better, but the heart shells are more plentiful,
Speaker 1: so they tend to be better than the soft shelves.
Speaker 1: There we go our lobsters science and it must mean
Speaker 1: Gerard Cassidy is dark in the door with OURBC Capital
Speaker 1: Markets decades of experience and looking at our banks. Let
Speaker 1: me start with a broader question before we kill you
Speaker 1: with the mergers and acquisition ants. What drives you nuts
Speaker 1: about the zeitgeist now on American banks? You're such an
Speaker 1: observer of the certitude of people on our financial system.
Speaker 1: What are we most getting wrong? I would say today,
Speaker 1: I think the bank stock says, you know, since the election,
Speaker 1: have been just a great place to be Tom, and
Speaker 1: I think free standard deviation move off monthly Church, It's
Speaker 1: it's incredible. And I think what people are now anticipating
Speaker 1: is that there will be regulatory reform, higher interest rates
Speaker 1: in a stronger economy. And what people are nervous about is,
Speaker 1: because of the way the stocks have acted in the
Speaker 1: last eighteen months, that this won't last. So what do
Speaker 1: you do this morning? Are you buy? Are you hold?
Speaker 1: Can you? I know you're not gonna say sell, but
Speaker 1: are do you? What's the mood by hold? Cell? I
Speaker 1: think the mood is many investors are waiting for a
Speaker 1: pullback to buy, which suggests to us that they won't
Speaker 1: be a pullback because people are buying the dips. So
Speaker 1: you buy if you really believe that we're going to
Speaker 1: see higher interest rates and regulatory reform, Earnings estimates over
Speaker 1: the next two years will rise meaningfully, not five or
Speaker 1: ten percent, but upwards the fifty percent over the next
Speaker 1: two years because of these potential changes help us with
Speaker 1: the the art of measuring interest rate sensitivity. You say
Speaker 1: it is more art than than science. How do you
Speaker 1: go about doing it, David? You put your thumb on it.
Speaker 1: It is where artors art artists when it comes to
Speaker 1: and just rate forecasts. And I would suggest that it's
Speaker 1: not a perfect science. Generally speaking, the banks give us
Speaker 1: some information in their public filings to suggest if they're
Speaker 1: going to benefit from rising rates, but sometimes rates move
Speaker 1: too fast and they don't benefit as much. So what
Speaker 1: we look at it both to short and long rates.
Speaker 1: Most importantly, too, is the steepness of the yield curve,
Speaker 1: and right now all of that's moving in favor of
Speaker 1: the banks. Tough to do, I imagine, just because the
Speaker 1: information that you're getting is by no means standards standardized.
Speaker 1: That's correct, and I would suggest to you that the
Speaker 1: banks themselves, they have these very sophisticated models, but the
Speaker 1: data they put in there is based on assumptions, and
Speaker 1: if those assumptions don't come true, then the data is
Speaker 1: not that good. Bank of America's on the edge of
Speaker 1: a double I know you told me to buy it
Speaker 1: at twelve. I didn't. I didn't load the boat. Gerard Cassidy,
Speaker 1: is that still your single best too Big to Fail by?
Speaker 1: I think it is time. I think that is the name.
Speaker 1: This company is finally on a turnaround. The company presented
Speaker 1: up at Boston. I happen to me, the president of
Speaker 1: the Boston Distinct. Don't get that shameless. What was the
Speaker 1: distinctive feature there? This is the feature. This company housed
Speaker 1: a dinner and brought up twenty of its senior executives.
Speaker 1: Brian Mornahan hit the ball out of the park in
Speaker 1: connecting to investors. They are going on the offensive after
Speaker 1: being in what governance? Did he clear your worries about
Speaker 1: governance Bank of America? Absolutely? They have turned this company
Speaker 1: around and now they're moving forward. Can I state and
Speaker 1: with will you support me that everybody, including at Bloomberg
Speaker 1: twelve and in Boston will cheer when they retire Mr
Speaker 1: Jeter's jersey. I think that's the most deserving Yankee jersey
Speaker 1: to be retired since the gentleman of many decades ago.
Speaker 1: I think they will absolutely that they have an interesting
Speaker 1: relationship with very quickly or so, Guru has got something
Speaker 1: to talk about when come back. What's your single best buy?
Speaker 1: A small banks right now? Small Western Alliance w A,
Speaker 1: Western Alliance w A L w A L And they're
Speaker 1: out of UH Phoenix slash Las Vegas. They cover the
Speaker 1: southwestern part of the United States, and they've done a
Speaker 1: moonshot like Fortress Point Anne as well. Oh, this company
Speaker 1: of the sarber of the CEO has done a great
Speaker 1: job in turning this company around. They're one of the
Speaker 1: few companies that actually earns fifteen percent return on equity. Well,
Speaker 1: that's enough to get our attention, fifteen undred employees. How
Speaker 1: do you pronounce that? Phoenix? Is that? How you say that?
Speaker 1: David Phoenix, Arizona? Good morning all of Western Alliance Bank Corps.
Speaker 1: The headlines off the today's show interview with the President elect. UM,
Speaker 1: I mean he goes after Alec Baldwin and Friday Night
Speaker 1: Live and the usual I love Twitter is a quote
Speaker 1: modern day form of communication. He is correct on that
Speaker 1: it's changed the cadence. He says, also, the corporate world
Speaker 1: is not, in his words, unnerved by what he's been doing.
Speaker 1: The stock marketing points at an all time record, and
Speaker 1: UH also says that he does not intend to order
Speaker 1: any air Force ones if the price does not come
Speaker 1: down from from what we Well, we have the same
Speaker 1: problem with the surveillance golf stream and we sent that
Speaker 1: budget back three times. Gerard Cassidy with us RBC Capital Markets,
Speaker 1: and I didn't realize the profitability of w A L.
Speaker 1: Western Alliance Corps. They take fifty two cents down to
Speaker 1: the operating income line and then they dash down to
Speaker 1: a thirty eight percent net income margin. That brings us
Speaker 1: to the reason we're thrilled your on, which is to
Speaker 1: explain M and A activity in the small banks. How
Speaker 1: jackson Ian are we gonna be in two thousand seventeen?
Speaker 1: Is there going to be a mergers and acquisition frenzy
Speaker 1: for fifty two cents on the dollar operating income in
Speaker 1: your world? Tom, Yes, I think the mergers and acquisitions
Speaker 1: are going to pick up. I'm not convinced it will
Speaker 1: accelerate in seventeen, but eighteen when all of the changes
Speaker 1: by then will be in place, the you know, the
Speaker 1: peel back of some of the Don Frank legislation, as
Speaker 1: well as increased profitability. That's when we see M and A.
Speaker 1: What will be the form of M N a Secretary
Speaker 1: of Commerce Designate Wilburt Ross is very good at roll
Speaker 1: ups and other fancy phrases. What will be the nature
Speaker 1: of M and A and small banks? I think what
Speaker 1: you'll see is just outright purchases of banks, both small
Speaker 1: and large. And the reason being is that the cost
Speaker 1: savings that can be achieved in an acquisition oftentimes run
Speaker 1: up the fort of the target's expenses. The example I
Speaker 1: can give you recently is Key Corps acquisition of First
Speaker 1: Niagara up in Buffalo, New York, and they expect to
Speaker 1: achieve at least cost savings in that deal. To what
Speaker 1: extent has to what extent has has regular lation, has
Speaker 1: Dodd Frank and all the rest been a hindrance to
Speaker 1: this happening. In other words, if if Donald Trump makes
Speaker 1: good on his promise here to rip up Dodd Frank, uh,
Speaker 1: the floodgates open up. Absolutely. When you look back since
Speaker 1: the crisis, we haven't seen a single big deal yet.
Speaker 1: Prior to the crisis, we saw a big deal when
Speaker 1: we were a bit younger, Tom and I. That's when
Speaker 1: we saw a really the craziness in the M and
Speaker 1: A market. That's when you might recall cities sold out,
Speaker 1: the Travelers Bank America sold out the Nation's bank. We
Speaker 1: could see that kind of frenzy again. Not next year,
Speaker 1: but once everything is set in eighteen. Do we edge
Speaker 1: on being Canadian if we do that, That's an interesting
Speaker 1: question because currently now if you look at our top
Speaker 1: ten banks and you look at the amount of assets
Speaker 1: that they control relative to the entire banking system, it's
Speaker 1: a very significant amount. So I don't think we head
Speaker 1: the way the Canadians run their banking operations with essentially
Speaker 1: five banks controlling the banking market up there will always
Speaker 1: have a barbell in this country will have plenty of
Speaker 1: community banks, but at the other end of the barbel
Speaker 1: some very large banks. Uh. In all likelihood, they're not
Speaker 1: going to rip up Dodd Frank. Some of this stuff
Speaker 1: is going to stick around. What has worked. And when
Speaker 1: you look at the President Elex plans, when you look
Speaker 1: at the plans from Congress over the last however many
Speaker 1: years since Dodd Frank was put into law, what do
Speaker 1: you think we'll stick Yep, No, you're you're absolutely right.
Speaker 1: There are some very good parts of Dodd Frank and
Speaker 1: they should be congratulated on getting it done. The one
Speaker 1: in probably the most important part is forcing the banks
Speaker 1: to carry higher levels of capital and also higher levels
Speaker 1: of liquidity. The second part of Dodd Frank that was
Speaker 1: very effective are the so called stress tests. The stress
Speaker 1: tests happened once a year is for the largest banks,
Speaker 1: and the bank over fifty billions in assets goes through it.
Speaker 1: But that's going to be one of the changes. The
Speaker 1: banks under two hundred and fifty billion in assets will
Speaker 1: see the most relief, in our opinion, from changes to
Speaker 1: Dodd Frank. Our biggest banks will see the least amount
Speaker 1: of changes. How do you forecast what this will mean
Speaker 1: for performance going forward? Other ways, when you when you
Speaker 1: look at the erosion of regulation, that changes to regulation,
Speaker 1: how do you predict what that's going to mean for
Speaker 1: the bottom line. I think what we have to do
Speaker 1: is we're not expecting a significant reduction in costs. There
Speaker 1: will be some reduction clients departments correct, but that we
Speaker 1: anticipate those moneys will be moved over the revenue producing activities,
Speaker 1: so they go from compliance to revenue producing. But where
Speaker 1: we're going to see the benefit is from the fact
Speaker 1: that the banks will start to be able to merge
Speaker 1: one another more successfully, and that will bring down costs
Speaker 1: to increase the bottom line. When you look at these
Speaker 1: banks and how they're they're approaching the future, let's move
Speaker 1: away from from regulation just to talk about fintech and
Speaker 1: and where things are headed in that in that department,
Speaker 1: Are you seeing more progressiveness at the smaller level than
Speaker 1: you are seeing from the bigger banks? Are small banks
Speaker 1: approaching that wisely? Yep? I would say small banks actually
Speaker 1: lagging a little bit. The biggest banks are the ones
Speaker 1: that are spending the most money. Now, you know, for
Speaker 1: the folks like my self that have iPhones and we
Speaker 1: do occasionally use our for banking, there is a new
Speaker 1: app coming starting in January the banks and putting out
Speaker 1: called Zell. I'm sorry Gazelle, and what it's gonna be.
Speaker 1: It's going to be a P two P payment mechanism
Speaker 1: that the banks don't have currently on a real time basis.
Speaker 1: So if I need to transfer it to Tom fifty dollars,
Speaker 1: I could get his cell phone number transferred over and
Speaker 1: by the end of the day it will be in
Speaker 1: his account. That's going right after Venmo, which is part
Speaker 1: of PayPal. So the biggest banks are moving very aggressively
Speaker 1: for the fintech space. Well, we talked about bricks and
Speaker 1: mortar with the Amazon. Where's the bricks and mortar future?
Speaker 1: I mean, David, I don't know about where David lives
Speaker 1: east of New York, far east across Berg calls Brooklyn.
Speaker 1: No one there goes into banks. It's all cyber. They
Speaker 1: have kale juice shakes. Well, they do digital banking in
Speaker 1: the real world, Mr Cassidy, like Portland, Maine. What will
Speaker 1: happen to branch banks? Yes, I think what we're going
Speaker 1: to see, Tom, And it really is quite interesting that
Speaker 1: when the Apple iPhone was introduced, the number of branches
Speaker 1: in the United States peaked, So we are actually seeing
Speaker 1: a decline in a number of branches. So over the
Speaker 1: next ten years, what we expect is fewer branches and
Speaker 1: smaller branches, and the branches of the future will have
Speaker 1: less people in them. It will be more machines. If
Speaker 1: you get a chance on fifth and fifty third here
Speaker 1: in the City, um City Bank, or fifth and fifty second,
Speaker 1: I should say, City Bank has a wonderful, brand new
Speaker 1: branch of the future, and it looks almost like an
Speaker 1: Apple store, believe it or not. If I'm playing matchmaker here,
Speaker 1: looking at what's complementary about two different small banks. What
Speaker 1: am I looking for is it is it purely based
Speaker 1: on geography or when you see these mere just what's
Speaker 1: what's driving them? Two factors and you identified one of them,
Speaker 1: which is geography. The second is the age of management,
Speaker 1: And believe it or not, it goes back to that
Speaker 1: issue of is the is the management team ready to
Speaker 1: retire and do they control the decision on whether to
Speaker 1: keep the bank independent or not? And so I think
Speaker 1: what we'll see is managements reach peak or management's age,
Speaker 1: but their banks reach peak profitability, that's when they're gonna
Speaker 1: look to hit the bid. Maybe, Okay, walk me through
Speaker 1: a merger. You mentioned synergy savings for First Niagara taken
Speaker 1: out by Keycorps on a given merger. What's the normal
Speaker 1: synergy take out to people benefit from when it's an
Speaker 1: intra market deal where there's a lot of overlap. Thirty
Speaker 1: is not uncommon and some have even gone as high
Speaker 1: as forty five. What will it do for r o
Speaker 1: E if two smart people decided to get together, the
Speaker 1: r o E in this particular case was going to
Speaker 1: increase by over two hundred basis points in this trus
Speaker 1: they'll go from ten to twelve or eight to ten,
Speaker 1: whatever the exactly. And that's really the underlying tone for mergers.
Speaker 1: Does the government want mergers to occur? Even though they'll
Speaker 1: never say it, I do believe at some assets sized
Speaker 1: they are very supportive of consolidation because they believe there
Speaker 1: will be a sturdier banking system. But they will not
Speaker 1: allow the top banks to do deals because they don't
Speaker 1: want another to make to fail bank. When David gern
Speaker 1: I do our remote in Portland, Maine for Bloomberg Boston,
Speaker 1: is there snow Memorial Day or can we go Memorial
Speaker 1: Dare we have to for to be fifty degrees fourth
Speaker 1: of July. You're gonna keep your LLL bean boots on
Speaker 1: the lined version and it will be warm, but it
Speaker 1: won't be a woman. So I can wear suit and
Speaker 1: bow ties in the LLL being brown LLL bean boots
Speaker 1: that go right up to just below your knee. Yeah, absolutely,
Speaker 1: those are those are the keepers Stared Cassidy. What's sick
Speaker 1: is Gura actually has you got TRD Cassidy, thank you
Speaker 1: so much. With RBC Capital Markets and uh within that
Speaker 1: some serious discussion, I will be restrained as I tweet
Speaker 1: out on Twitter today about Gerard Cassidy, our president elect.
Speaker 1: With NBC today, Mr Trump asked about tweets, quote, I
Speaker 1: think I am very restrained. We'll let you interpret that
Speaker 1: as you choose. He is the junior senator from the
Speaker 1: state of Utah share of the Subcommittee on Antitrust, Competition Policy,
Speaker 1: and Consumer Rights where all the action is going to
Speaker 1: be today on Capitol Hill is Randall Stevenson, the CEO
Speaker 1: of A T and T, joins Jeff Bucas, Mark Cuban
Speaker 1: and others to testify on the A. T. And T
Speaker 1: Time Warner deal proposed a couple of months ago. The
Speaker 1: first public airing of that deal on Capitol Hill. Senator Lee,
Speaker 1: great to have you with us. It's going to tell
Speaker 1: us a bit about what you're hoping to to get
Speaker 1: out of these executives today they've made their case on
Speaker 1: television in public to investors. What do you want to
Speaker 1: here today? Well, hard goal is to talk about the
Speaker 1: svential benefits and downsides of the deal so that regulators
Speaker 1: in the public are thinking about the issue the right
Speaker 1: way are Our subcommittee doesn't make a formal ruling, uh,
Speaker 1: It rather has a public airing of various discussion points
Speaker 1: in order to find out more about the deal. And
Speaker 1: you know there's some potential anti competitive concerns with the
Speaker 1: deal and it will be investigating those as you prepared
Speaker 1: for the hearing today. What did you look to for Preston,
Speaker 1: how much are you looking back at the Comcast deal. Look,
Speaker 1: this is a different kind of deal. This is um
Speaker 1: uh not one that you can look to out of
Speaker 1: the box for any ready precedent. But there are a
Speaker 1: couple of potential concerns, you know. One involves whether the
Speaker 1: merged company could raise prices for Time Warner content content
Speaker 1: on HBO, t n T, TBS and so forth on
Speaker 1: existing rival TV distributors. And another concern relates to whether
Speaker 1: the merged company could withhold Time Warner content in order
Speaker 1: to promote its new television livestream service, Direct tv Now,
Speaker 1: at the expense of other new competitors like Sling and
Speaker 1: PlayStation View. But on the other hand, you know that
Speaker 1: I think we will hear um that Direct tv Now
Speaker 1: could provide a real alternative to the traditional cable bundle
Speaker 1: and make consumers less dependent on wired networks. Certainly, you
Speaker 1: know extremely well you lived it. How Washington can change.
Speaker 1: Your father served in the Attorney General's office a million
Speaker 1: years ago, you grew up down the street from Uh.
Speaker 1: Senator read of Nevada, and um, you know you were
Speaker 1: in the Washington millieu as a kid. Things change. Is
Speaker 1: the whole goal here of these corporations to delay until
Speaker 1: they get a Trump Washington. Look, I don't know. I
Speaker 1: don't speak for the companies. I don't think that, Uh,
Speaker 1: I'm not aware of them having that as their end
Speaker 1: goal is to just delay that until then, that that
Speaker 1: is coming soon enough anyway, and that this proposed merger
Speaker 1: won't be up for review until then anyway. But what
Speaker 1: I do know is that we've got regulators that we're
Speaker 1: going to take a close look at this and are
Speaker 1: hearing today, is going to ask a bunch of questions
Speaker 1: that I think will help frame that in the time
Speaker 1: that we've got left to the Senator. I was really
Speaker 1: taken by almost the domestic struggle of our unique Utah
Speaker 1: is they faced this election. What did you learn about
Speaker 1: the people of Utah? Is they chose between Secretary Clinton
Speaker 1: and the President elect. Well, look, the first of all,
Speaker 1: it's important to remember that Utah hasn't voted for a
Speaker 1: Democrat in a presidential election since nineteen there's only like
Speaker 1: twelve Democrats, right, Well, there are a few more than that,
Speaker 1: they're they're generally not enough, at least they haven't been
Speaker 1: enough since nineteen sixty four to vote for a Democrat.
Speaker 1: So uh Utah's did break with that tradition this year.
Speaker 1: That was not a surprise, and people throughout the country
Speaker 1: were ready for a change and they wanted to see
Speaker 1: a different kind of government. They were not prepared for
Speaker 1: a third term of Barack Obama. When you when you
Speaker 1: look ahead to January and beyond, how do you see
Speaker 1: the relationship taking shape between the Congress and the White House?
Speaker 1: That that stretch, that one and a half mile stretched
Speaker 1: their Pennsylvania Avenue between the two institutions is not that
Speaker 1: far geographically, but the divide has been vast. How are
Speaker 1: you going to improve that relationship going forward? Well, I
Speaker 1: wrote in an article that appeared about ten days ago
Speaker 1: a National Review, talking about how you can tread a needle.
Speaker 1: You can draw a strate line between many of the
Speaker 1: things that Donald Trump said as a candidate and things
Speaker 1: that he could do to govern as a constitutional conservative
Speaker 1: as president. My hope is that they'll do that, And
Speaker 1: in so far as he does that, he'll have no stronger, louder,
Speaker 1: more vociferous cheerleader than me uh In in the U. S. Senate.
Speaker 1: And I think there are a number of things he
Speaker 1: could pursue to help restore constitutionally limited government. This has
Speaker 1: been a focus of mine. It's been important to me,
Speaker 1: and as I explained in a book I wrote called
Speaker 1: Our Lost Constitution, we've lost some of our structural protections
Speaker 1: in the Constitution. I think Donald Trump could do a
Speaker 1: lot to help restore those. That would be a new
Speaker 1: role for you to take on, to be a vociferous cheerleader.
Speaker 1: As you said during the campaign, you called upon the
Speaker 1: now present elected to step aside and allow someone else
Speaker 1: to be the nominee for the party. You had some
Speaker 1: serious concerns about the president elect's character. If you were
Speaker 1: to talk to him, if you would have a one
Speaker 1: on one conversation with him, what would you say about
Speaker 1: how he comports himself now that he is the president elect,
Speaker 1: now that he's going to be the president of the
Speaker 1: United States. Well, look, he doesn't need advice for me
Speaker 1: on that point. He is now the person who will
Speaker 1: be in charge of that um uh and looked at
Speaker 1: was then this is now. I had some doubts as
Speaker 1: to his electability at the time, I was concerned that
Speaker 1: he couldn't be elected. I was mistaken in that regard.
Speaker 1: What's important now is that moving forward, um I think
Speaker 1: we need to focus on restoring constitutional protections that have
Speaker 1: been lost, and I hope and expect that he will
Speaker 1: do precisely that. What does tim View High School, Provo, Utah?
Speaker 1: What does Tim View High School, Provo, Utah need from
Speaker 1: the new Secretary of Education? It will be a different
Speaker 1: secretary of Education. How will that affect public schools in Utah? Well,
Speaker 1: I hope and expect that the federal government will acknowledge
Speaker 1: that its role in primary and secondary education should be
Speaker 1: limited at at at at most, I mean, primary and
Speaker 1: secondary education needs to be handled at the most local
Speaker 1: level possible. It needs to be uh managed by teachers
Speaker 1: and parents and consultation with local school officials, and certainly
Speaker 1: shouldn't be run from Washington, d C. Educational needs differ
Speaker 1: from one part of the country rate to another, and
Speaker 1: the strategies that will be pursued in the public education
Speaker 1: system will be different from one community is compared to another.
Speaker 1: Last thing we need is a single national decision maker
Speaker 1: when it comes to curriculum, when it comes to teaching
Speaker 1: in the public primary and secondary education arena from Provo
Speaker 1: Utah Senator Lee, the junior senator from the state of
Speaker 1: You talk, Mike Lee, David, you know, just we we
Speaker 1: don't do this enough. We gotta we gotta talk to
Speaker 1: senators from across this great land. Yeah. And obviously the
Speaker 1: point of focus for him today that hearing. But as
Speaker 1: as I hope we we brought out there in that conversation,
Speaker 1: he's been somebody who is really reckoning with with this
Speaker 1: change administration, and I think very interesting to hear sort
Speaker 1: of how he moves forward from the criticisms he had
Speaker 1: on the campaign trail. Yeah. And you wonder where the
Speaker 1: hearing will be in three months or six months or
Speaker 1: such as we migrate to January. Uh and uh. Thanks
Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen
Speaker 1: to interviews on iTunes, SoundCloud, or whichever podcast platform you prefer.
Speaker 1: I'm out on Twitter at Tom Keene. David Gura is
Speaker 1: at David Gura. Before the podcast, you can always catch
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