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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley.

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Speaker 1: We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg. It

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Speaker 1: is my pleasure to be able to introduce Robert Hormatt's

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Speaker 1: associate vice chairman of Kissinger Associates. Bob Hormetts joins us here,

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Speaker 1: always a pleasure, Bob, thank you for coming in. I'm

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Speaker 1: just gonna make you walk down memory lane for just

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Speaker 1: a little bit because I note that you went to

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Speaker 1: the Castle on the Hill. This is in Baltimore. It's

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Speaker 1: called Baltimore City College. It's not really a college, but

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Speaker 1: it prepares you for college. Correct. Okay, So I'm gonna

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Speaker 1: take you back into the time machine just a little

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Speaker 1: bit because in our debate about interest rates and the

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Speaker 1: state of the economy, I keep hearing these two sides.

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Speaker 1: One is nothing's changed the business cycle, the credit cycle

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Speaker 1: remains in place. It doesn't matter whether the world has

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Speaker 1: advanced in terms of technology. And then there's the other camp,

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Speaker 1: which says, no, no, it's all different now. Everybody has

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Speaker 1: access to all kinds of information on an instantaneous basis.

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Speaker 1: You can start a business with nothing more than an

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Speaker 1: idea and a mobile phone and an Internet connection. And

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Speaker 1: as a result, the cost of money should be a

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Speaker 1: lot lower than it used to be because people don't

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Speaker 1: walk around with hundreds of dollars in cash anymore. As

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Speaker 1: someone that participated in a variety of political experiences, whether

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Speaker 1: they be in the administration at the Treasury, tell us

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Speaker 1: from your perspective, are things truly different now when it

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Speaker 1: comes to money in the economy. Well, I think there

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Speaker 1: is a still consistent notion that the business cycle works

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Speaker 1: and kicks in and from time to time we're going

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Speaker 1: to see ups and downs in the market, ups and

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Speaker 1: downs and the economy, and that hasn't been repealed, and

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Speaker 1: we've seen that with greater frequency, in fact, over the

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Speaker 1: last several decades. I think what is different is the following. One,

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Speaker 1: information is much more widely disseminated and much quickerly, more

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Speaker 1: more quickly available than in the past. Second, more people

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Speaker 1: have access to it. Third that goods are more competitive

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Speaker 1: because you can buy and sell things on the internet.

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Speaker 1: So that does hold uh the rate of inflation down.

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Speaker 1: But what's even more important than all this is the

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Speaker 1: the pace of change. And we went from the agricultural

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Speaker 1: revolution to the industrial revolution. It was over a period

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Speaker 1: of many, many decades. We went from the industrial revolution

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Speaker 1: to the UH information or the services revolution. UH. That

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Speaker 1: was a relatively slow process. Now we're seeing the the

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Speaker 1: acceleration of change so that it's much more difficult for

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Speaker 1: people who have jobs on the factory floor to get

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Speaker 1: jobs in the information area. So the degree to which

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Speaker 1: the economy has to adjust and the intensity of the

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Speaker 1: process and the speed of the adjustment process is very difficult.

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Speaker 1: And when you add increased productivity, increased technology, increased globalization,

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Speaker 1: the pace of change is so much more rapid than

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Speaker 1: in the past, and the ability to adjustice so much

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Speaker 1: more difficult for communities and for many individuals. All right, now,

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Speaker 1: I'm wondering if you could apply that same perspective, because

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Speaker 1: you previously with the Vice Airmen of Goldman sax International

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Speaker 1: also Ambassador deputy US Trade Representative, apply that same thinking

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Speaker 1: to the Chinese economy and culture. Because that pace of

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Speaker 1: change that you just described has taken maybe a hundred years.

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Speaker 1: In the United States, it has been compressed into about

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Speaker 1: a dozen years. In China, that's exactly right. In the

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Speaker 1: last couple of trips I've had their really the last

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Speaker 1: three or four weeks, you can just see the pace

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Speaker 1: of innovation accelerating almost before your very eyes, and that

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Speaker 1: creates huge opportunities for China. It also surprises Americans that China,

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Speaker 1: which forty years ago was a very very labor intensive

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Speaker 1: economy producing shoes and apparel, is now producing artificial intelligence,

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Speaker 1: quantum computing, um, very very sophisticated new automobiles, whole range

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Speaker 1: of things that are very competitive to the United States.

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Speaker 1: And this really happened over a very short period time,

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Speaker 1: and it's shocked Americans. And many of these are not

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Speaker 1: just helping the economy to advance, but they have strategic

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Speaker 1: purposes as well understood, But do they also face the

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Speaker 1: same difficult challenges of moving hundreds of thousands of workers

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Speaker 1: that are in factories now that face the same issues

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Speaker 1: magnified that U S workers have been facing. Absolutely, they

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Speaker 1: faced two big demographic issues. One is um the workers

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Speaker 1: have to change from labor intensive, labor intensive economy now

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Speaker 1: to with technology intensive, innovative intention and intensive economy that

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Speaker 1: is very challenging. The other is they face a democratic,

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Speaker 1: a demographic challenge of moving people from cities from countryside

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Speaker 1: into the cities, and they have to build up these

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Speaker 1: new cities, these new high tech cities, and people who

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Speaker 1: are used to growing up in the farms in the

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Speaker 1: rural areas now have to live in a whole different

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Speaker 1: urban environment in apartment buildings. There is a huge sociological

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Speaker 1: disruption to the kind of demographic change that the Chinese

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Speaker 1: are facing. Were you ever part of a government shutdown?

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Speaker 1: Did you enjoy not seeing a paycheck? Um where the

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Speaker 1: shutdowns occurred. When I was in Washington, I was considered

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Speaker 1: to be in a position that was indispensable. Example, I

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Speaker 1: was labeled that. I mean, I'm sure. I was explained

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Speaker 1: to our national audience, what's a shutdown actually? Like in Washington,

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Speaker 1: A lot of people who were expecting to go to

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Speaker 1: work don't go to work. A lot of people who

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Speaker 1: don't go to work, and they don't get paid check.

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Speaker 1: And they did the paycheck. Now there's a lot they

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Speaker 1: do get paid eventually because every but with every shutdown,

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Speaker 1: the Congress has mandated that all pay for furloughed workers

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Speaker 1: would be paid. They do get paid. They get paid

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Speaker 1: with a lag. I think that's the big difference, and

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Speaker 1: there's an uncertain he about it. In the French Shill

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Speaker 1: of Little Rock came out with an immediate note he

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Speaker 1: will not take pay from the government as a congressman

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Speaker 1: because he thinks the whole thing is absurd. And you

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Speaker 1: were one of the annointed few that got a paycheck

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Speaker 1: right well, because I had national security jobs. National security

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Speaker 1: jobs do tend to be paid, and people want you

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Speaker 1: to show up because you've got to deal with issues.

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Speaker 1: But you also were working in the town where a

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Speaker 1: lot of people and I would also add, uh, it's Washington,

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Speaker 1: but there are a lot of people work for the

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Speaker 1: federal government outside of Washington, various parts of the country,

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Speaker 1: and they get paid. But the but the interruption and

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Speaker 1: the uncertainty I think is very troublesome. Moreover, people expect

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Speaker 1: the government to provide certain services to them, and when

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Speaker 1: the government doesn't provide it, people who pay taxes don't

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Speaker 1: get what they expect to get from the government. Thank

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Speaker 1: you so much. Do you have a book this year? No?

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Speaker 1: I do not like you get off the airplane and

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Speaker 1: start writing a book. I think I should do something

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Speaker 1: about there's nothing to write about my parents about Robert Harmess,

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Speaker 1: thank you so much of course, with Kissinger associate, soild

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Speaker 1: to have him in here on this Christmas eve. Bloomberg

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Speaker 1: has one thousand employees or something like that worldwide, and

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Speaker 1: I would suggest the busiest person in the block today

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Speaker 1: is Margaret Tullef. She's our White House correspondent, spearheading our

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Speaker 1: coverage of this original administration. Margaret, I want to give

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Speaker 1: you an open question. You've been with us a number

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Speaker 1: of times today. What will you and your team right

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Speaker 1: about today? You're gonna go into a meeting at the

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Speaker 1: best food court in Bloomberg in Washington, and you're gonna say,

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Speaker 1: what are we going to write about? What is that

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Speaker 1: item that that matters right now? Well, you said the

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Speaker 1: busiest person in Washington might be me, but I think

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Speaker 1: it's certainly Steve Manuchin right now, and I think as

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Speaker 1: we go forward, we're looking at uh these questions about

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Speaker 1: how long is the shutdown gonna last, what's going to happen,

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Speaker 1: But really the question is how is all this going

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Speaker 1: to impact the economy? And that is where the rubber

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Speaker 1: meets the road, right That is why Manuchin is working

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Speaker 1: to calm banks, to these investors, to why the president

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Speaker 1: is trying to UH without actually saying himself that he

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Speaker 1: doesn't want to um get rid of Jay Pally's allowing

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Speaker 1: Mnuchon to go out there and do that for him,

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Speaker 1: because there's an understanding that as long as the shutdown

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Speaker 1: goes on, as long as there is an uncertainty, it

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Speaker 1: may affect um the markets, and it may affect the economy.

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Speaker 1: And for President Trump that is crucial to his ability

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Speaker 1: to govern as he has into the second half of

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Speaker 1: his term with Democrats in control of the House. One

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Speaker 1: of the things that Pim and I are advantage buys.

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Speaker 1: You've got the bloomberg here, the terminals and all the

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Speaker 1: news slow and Margaret. One of the first things I

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Speaker 1: went to in the why are we negative thirteen? Why

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Speaker 1: are yields in etcetera, etcetera, was I I did and

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Speaker 1: I Turkey, which is the Turkish flow out of the Levant,

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Speaker 1: out of Turkey, out of Syria. There's no I want

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Speaker 1: to be clear, folks, I don't see any headlines there,

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Speaker 1: but what's the immediacy of Trump are to one and

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Speaker 1: the focus in the last four to eight hours over

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Speaker 1: the currents it's it's a really interesting question because President

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Speaker 1: Trump did two things when he sort of announced the

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Speaker 1: Syria policy and then the follow up phone call with

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Speaker 1: Ridwana over the last couple of days, and one is

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Speaker 1: to say that he trusts are to Wan to go

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Speaker 1: in there and handle isis. But the other is to

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Speaker 1: talk about how his his desire and new goal now

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Speaker 1: of increased trade with Turkey, and I think you know

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Speaker 1: what we need to see play out here is what

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Speaker 1: the reaction is really going to be after a couple

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Speaker 1: of days to the impact of this. Uh Iredwan has

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Speaker 1: not been the most reliable partner to the United States,

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Speaker 1: but President Trump has put the U S lot in

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Speaker 1: with Turkey now at this point. And on the other

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Speaker 1: balanced side of the equation is um not just Brett McGurk,

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Speaker 1: but of course Jim Mattison's departure and how this is

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Speaker 1: going to act our relationships with France and our relationships

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Speaker 1: with Western allies and the coalition. Does the President have

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Speaker 1: time on his side, specifically when it relates to the shutdown.

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Speaker 1: The President thinks that he does, because the President says

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Speaker 1: that he wants this fight with the Democrats, that he

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Speaker 1: thinks when Nancy Pelosi is in charge of the House. UH,

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Speaker 1: that it will really be the Democrats fault here. But

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Speaker 1: Pelosi and Chuck Schumer understand that if they're willing to

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Speaker 1: buckle down and hold their positions, they'll have much more

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Speaker 1: power when they're actually in power than they do in

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Speaker 1: these last winning days of this outgoing Congress. So I

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Speaker 1: think you know, the president uh, either because he has

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Speaker 1: to look for the silver lining or because he really

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Speaker 1: believes this, UH thinks that he will be acquitted uh

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Speaker 1: once this goes forward. But um, the reality is, once

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Speaker 1: Democrats actually have control of the House, UH, they will

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Speaker 1: have the ability to put the brakes on um on

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Speaker 1: the presidents of Jena more than they do now. Okay,

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Speaker 1: but they'll have that ability twinned with the public's dislike

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Speaker 1: and distaste for the rancorous behavior of both Democrats and Republicans.

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Speaker 1: How will they deal with that? They own the future

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Speaker 1: and they also own the results. That's it, and that's

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Speaker 1: always the nature of a shutdown, right, this game of

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Speaker 1: political chicken and who can hold the posture the best

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Speaker 1: and who is kind of whose argument can prevail. I

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Speaker 1: think that's why we've seen the vice president, even as

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Speaker 1: the President insists on uh, you know, this fuller funding

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Speaker 1: request for his lall project. That's why you've seen the

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Speaker 1: Vice president trying to be up on the hill running

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Speaker 1: interference to try to find a middle ground to compromise.

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Speaker 1: But so far the middle ground that the President is

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Speaker 1: willing to back is further than the middle ground the

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Speaker 1: President the Democrats are willing to yield. Margaret, you've been

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Speaker 1: with us so much today that if you want to

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Speaker 1: come over and watch Home alone, how many times are

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Speaker 1: you going to watch this movie over? And I don't

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Speaker 1: has the original the original of It's a Wonderful Life.

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Speaker 1: We can inflict that on Margaret. Is what's amazing with

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Speaker 1: Margaret toll as I can say that's Jimmy Stewart. You know,

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Speaker 1: It's a Wonderful Life translated into Bulgarian. It's unreal believable

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Speaker 1: with the subtitles. Were the subtitles as well, it really

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Speaker 1: goes Margaret, thank you so much for your work this

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Speaker 1: year and for yoman's duty here on your woman's duty,

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Speaker 1: I should say on Christmas Eve, as all Margaret told

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Speaker 1: is our chief Washington White House correspondent with just terrific

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Speaker 1: perspective as well. The President as everyone knows has publicly

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Speaker 1: criticized actions taken by the Federal Reserve. Indeed, it's even

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Speaker 1: created a bit of a gossip I guess which would

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Speaker 1: call it a gossip network talking about the tenure of

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Speaker 1: the head of the Federal Reserve, Jerome Powell. Here to

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Speaker 1: help us understand the dynamics that exists between the executive,

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Speaker 1: between the legislative and the Federal Reserve is Mark Spindell.

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Speaker 1: He's the head of Potomac River Capital and he is

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Speaker 1: also the co author of the book The Myth of Independence,

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Speaker 1: How Congress Governs the Federal Reserve. Mark Spindell, thank you

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Speaker 1: very much for being with us. Do you believe that

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Speaker 1: someone in the White House has made the case that

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Speaker 1: firing or forcing out Jerome Pale as the head of

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Speaker 1: the Federal Reserve will bring on the very activity when

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Speaker 1: it comes to interest rates and asset prices that the

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Speaker 1: President is upset about and connects to the current action

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Speaker 1: of the Fed. In other words, he'd be bringing on

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Speaker 1: even worse activity by having Mr Powell exit the Federal Reserve.

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Speaker 1: Good morning Tom, Good morning Pim, and happy holidays to

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Speaker 1: both of you and everyone. Thank you again for inviting

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Speaker 1: me this morning, Pim directly, I think your your spot on. UM.

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Speaker 1: I think the rumors of possible uh dismissal of Chair

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Speaker 1: Powell would be devastating in an economic and financial sense,

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Speaker 1: devastating in a political sense, and in a legal and

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Speaker 1: legislative sense. Um. And you know I would point out

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Speaker 1: that the rumors came to a boil Friday and over

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Speaker 1: the weekend. But this has been a year long consistent

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Speaker 1: attack by the President on his hand selected appointed FED cheer.

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Speaker 1: Does the attack that the President make makes is it

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Speaker 1: worth noting that it is about an action rather than

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Speaker 1: about a person. Well, I think, Uh, the consistent attacks

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Speaker 1: all year have come in concert with the Fed's decision

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Speaker 1: to continue normalizing interest rates. Um. You guys both know

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Speaker 1: that there are rarely immaculate tightenings. UM. It's very hard

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Speaker 1: to raise interest rates, and even harder to do it

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Speaker 1: when you have the kind of political cover UM. And

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Speaker 1: I think that's made J. Powell and his colleagues on

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Speaker 1: the OEMC made their job much harder. Do you look

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Speaker 1: at this with your scholarship with Sarah Binder? Do you

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Speaker 1: look at this is one off and that this debate

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Speaker 1: about independence goes away with this unique president, or is

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Speaker 1: there is there something new going on here? We're really

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Speaker 1: going to get back to a protracted debate about the

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Speaker 1: independence of the Central Bank. I think that's a great question, Tom,

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Speaker 1: and I think the myth of independence. The book that

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Speaker 1: Sarah and I wrote really traced the hundred year history.

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Speaker 1: The hundred and fifth birthday was just yesterday of the

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Speaker 1: Federal Reserve. Keep in mind something that Ben Bernanki told

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Speaker 1: Janet Yellen, or gave advice to Janet Yellen on his

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Speaker 1: last press conference. He said, remember incoming Chair yelling, Congress

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Speaker 1: is our boss. I think you you you heard Richard Shelby,

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Speaker 1: former Chair of the Senate Finance Committee, supporting Chair Powell

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Speaker 1: over the weekend. We know through good reporting by your

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Speaker 1: Bloomberg colleagues that j. Powell has spent a lot of time,

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Speaker 1: uh quote, wearing out the carpets on Capitol Hill. Um so,

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Speaker 1: I think he recognizes the really the complexities of what

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Speaker 1: the President seems to have threatened or proffered, the idea

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Speaker 1: of dismissing it. It's not clear that that would be

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Speaker 1: within the law. And Tim back to your point, I

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Speaker 1: think markets markets have listened to the President for the

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Speaker 1: last few months, and I think some of some of

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Speaker 1: the President's criticisms have made it very tricky tour or

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Speaker 1: made it more complicated for the said too to gain

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Speaker 1: that credibility in normalizing rates. Well, just just to sort

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Speaker 1: of continue on that theme, Mark spind Out, the decision

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Speaker 1: to raise interest rates was unanimous. It wasn't just a

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Speaker 1: decision on the part of Jerome pow All of President

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Speaker 1: Donald Trump's Federal Board appointees and also the five Reserve

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Speaker 1: Bank presidents. They all cast a vote in favor of

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Speaker 1: raising rates. Absolutely. I think that unanimity was an important

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Speaker 1: uh uh, full throated support for Chair Powell and their decision. Again,

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Speaker 1: if we look back over two thousand eighteen, most of

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Speaker 1: us in the market expected the Fed expected that they

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Speaker 1: would raise rates four times, and indeed they did. I

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Speaker 1: think what may be happening uh in uh in investors

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Speaker 1: minds is a year ago we were enjoying a monotonic rise. Inequities,

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Speaker 1: volatility was that delation historical? His money was free, real

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Speaker 1: interest rates were zero or lower. Wonderful life. It's a

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Speaker 1: wonderful life. Say why he really wants to do is

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Speaker 1: Jimmy Stewart and impersonation all yours um. I think investors

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Speaker 1: have to wrestle with this normalization, that money is no longer,

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Speaker 1: that volatility is on the wing, and the Fed is

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Speaker 1: going about uh, this course of action very methodically. I'm

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Speaker 1: so glad we had John Mark Spindell, Thank you so much.

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Speaker 1: The Myth of Independence was a very important book when

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Speaker 1: it came out. It goes back. I think it Bremmer's

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Speaker 1: one volume on William mc chesley Martin, but the Myth

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Speaker 1: of Independence really summed it altogether. Mark Spindell writing was

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Speaker 1: Sarah Binder and joins us at this one. Christopher Rohan

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Speaker 1: was interesting in three D. We're in Shrill daff him

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Speaker 1: with us to talk about support and resistance too. Great conundrum.

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Speaker 1: Christopher is always within a bowl market in a rollover.

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Speaker 1: If I look at a monthly chart, I'm still not

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Speaker 1: to support. I guess on standard ports five. Have we

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Speaker 1: broken into a bear market or is it an intermediate

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Speaker 1: bear trend in an overall bull market? Which is it? Yeah,

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Speaker 1: it's a good question. I think that's an intermediate bear trend,

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Speaker 1: a cyclical drawn out a cyclical bear market still in

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Speaker 1: the context of a secular bull move. But that doesn't

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Speaker 1: make it any better. Uh, And any time there's a

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Speaker 1: draw down of this magnitude, it hurts. And I think

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Speaker 1: we've seen that, you know, something like of ball stock

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Speaker 1: and the SMP are already down twenty So it's going

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Speaker 1: a meaningful decline internally, and I think we need to

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Speaker 1: recognize that takes time to repair, That takes time to fix,

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Speaker 1: and that process is still very much in front of us.

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Speaker 1: Into the first part, I would point out pim that

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Speaker 1: this great debate of an intermediate bear market within a

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Speaker 1: bull trend always indicates stress and emotion along the way.

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Speaker 1: Oh yes, a lot of stress, a lot of emotion.

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Speaker 1: Let's get specific with Christopher our own the bank stock bounce.

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Speaker 1: Is it going to happen? Well, I think when we

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Speaker 1: just look broadly, whether it's banks or industrials or the

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Speaker 1: types of stocks that have been penalized to the greatest

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Speaker 1: extent over the last number of months, there are certainly

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Speaker 1: priced extremes that are in place right now that would

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Speaker 1: support some type of relief or some type of bounce

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Speaker 1: as we move into the first part of next year.

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Speaker 1: But we need to remember the context of those bounces

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Speaker 1: are ones in downtrends, and when we're in a downtrend,

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Speaker 1: the bar is simply higher to put in a strategic

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Speaker 1: bottom or adorable low, and that's going to take work

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Speaker 1: in front of us now, Tom, I think you mentioned

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Speaker 1: stress and fear. Those are two important inputs in how

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Speaker 1: we try to characterize what good lows are made of.

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Speaker 1: And I think one of the interesting data points from

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Speaker 1: last week, you actually had some of the highest put

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Speaker 1: call reading, so some of the highest spikes input volume

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Speaker 1: that we've seen in several decades. So finally there is

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Speaker 1: some sense of stress in the system. That's important. Let

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Speaker 1: me let me translate this, Pim. I think it's important

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Speaker 1: puts folks where you be on the market. Self calls

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Speaker 1: it betting on the market North and Mr Brown says

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Speaker 1: there was a preponderance of selfidness to the markets last week. Pimp. Well,

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Speaker 1: you know, just to go back to the bank stock issue,

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Speaker 1: is this mean, based on your work that you should

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Speaker 1: get out, should you start buying or is there something

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Speaker 1: more at work here, because you know, you can talk

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Speaker 1: about putting in a bottom, but you could also make

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Speaker 1: the case that you should sell every rally. Yeah, And

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Speaker 1: I think that's the case that that we're trying to

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Speaker 1: make here. That when you're in the downtrends, rallies, especially

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Speaker 1: the first rallies, are more likely to fail. And while

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Speaker 1: there's certainly some capitulative signals from the banks over the

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Speaker 1: last couple of weeks, last week, for example, we had

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Speaker 1: one of the highest readings of a number of stocks

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Speaker 1: making a fifty two weeks low in the bank sector,

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Speaker 1: those can be initial sign that you're close to some

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Speaker 1: official to phase, but ultimately those first rallies do tend

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Speaker 1: to fail. Now, I think the way the bank's trade

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Speaker 1: here is also indicative that there may be something out

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Speaker 1: there that we just don't know about yet. Is there

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Speaker 1: a leveraged or respective player that's also there a corporate

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Speaker 1: that's it has the ring or the smell of some

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Speaker 1: type of financial event. To tie this then into your

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Speaker 1: reading of short term charts, Mr manutitions on the phone

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Speaker 1: to six bankers. I don't know if he called Jason

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Speaker 1: trentor but but you know, Secretary Manutions out there doing

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Speaker 1: his thing. Do you see within two year paper, etcetera,

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Speaker 1: etcetera charts that indicate the angst that the secretary was

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Speaker 1: calling himpon. Yeah, well, the secretary do call me Tom unfortunately,

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Speaker 1: but here's what we know. We know when we look

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Speaker 1: upon marketing, in particular, particularly credit. The movement over the

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Speaker 1: last week or so, I think is reflective of a

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Speaker 1: leverage player that's been caught off side. And I think

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Speaker 1: I was consequent of that. Um, it's unlikely that works

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Speaker 1: through this period of deleveraging just yet. I would leverage

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Speaker 1: player off sides most of our audience. We're talking about

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Speaker 1: the Chicago Browns, Browns Corporate or there is someone cut

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Speaker 1: on the wrong side of a trade here, uh, And

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Speaker 1: they have to be the feller of kind of last resort.

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Speaker 1: They have to sell what they can, not what they

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Speaker 1: want to. And I think that explains last week they

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Speaker 1: hit the best stocks, the Microsoft, the Adobes, all the

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Speaker 1: names that have been best all year led to the

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Speaker 1: downside last week. That is a sign that people are

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Speaker 1: selling what they can, not what they want to. Selling

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Speaker 1: what you can ye not Christopher on Thank you so much,

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Speaker 1: Mr Tiguez today, that's an incredible insight. Thanks for listening

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Speaker 1: to the Bloomberg Surveillance podcast. Subscribe and listen to interviews

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Speaker 1: on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer.

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Speaker 1: can always catch us worldwide. I'm Bloomberg Radio