WEBVTT - Amazon/Whole Foods Deal Is a 'Net-Net Win,' Kantor Says 0:00:09.720 --> 0:00:12.880 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene with 0:00:13.560 --> 0:00:16.520 David Gura. Daily we bring you insight from the best 0:00:16.560 --> 0:00:22.279 of economics, finance, investment, and international relations. Find Bloomberg Surveillance 0:00:22.320 --> 0:00:27.000 on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course 0:00:27.320 --> 0:00:34.280 on the Bloomberg Turning us first in our Bloomberg eleven 0:00:34.280 --> 0:00:36.720 three year studios Charles Cantor, he's the founder and senior 0:00:36.760 --> 0:00:39.519 portfolio manager in New Burger Berman and Charles Kinder. Great, great, 0:00:39.600 --> 0:00:41.880 have you with us here in our studios in New York. 0:00:42.320 --> 0:00:44.120 Let me start by just having you take a look 0:00:44.120 --> 0:00:45.960 at the lay of the land here again, we have 0:00:46.120 --> 0:00:49.840 this close above twenty thou yesterday. There's a symbolism there 0:00:49.840 --> 0:00:51.559 in and all of that. But what's your sense of 0:00:51.880 --> 0:00:54.160 how the equity markets are doing at this point? I 0:00:54.200 --> 0:00:58.400 think the equity markets um a story around the the 0:00:58.960 --> 0:01:02.560 earn easy trumps the rhetoric, and and as you think 0:01:02.560 --> 0:01:06.160 about the environment today, it looks very similar to that 0:01:06.280 --> 0:01:08.400 of about two years ago and three years ago. The 0:01:08.760 --> 0:01:14.560 narrative around UM nice nice earnings growth, low inflation, low, 0:01:14.840 --> 0:01:19.280 low corporate brand yields, um tight credit spreads or recently 0:01:19.319 --> 0:01:22.880 typed credit spreads. It's just it's been a really really 0:01:22.920 --> 0:01:27.480 good environment. UM. And and it should should should remain so, UM, 0:01:27.640 --> 0:01:32.319 no doubt. UM. There's been a shift in tone around 0:01:32.760 --> 0:01:39.639 what we thought Washington could deliver um to to the market. UM. 0:01:39.760 --> 0:01:43.360 I think as you think about the rhetoric after the 0:01:43.400 --> 0:01:47.480 general election, there was tremendous hope that fiscal policy could 0:01:47.480 --> 0:01:52.120 deliver lots of tail winds to the financial markets. UM. 0:01:52.160 --> 0:01:55.520 That pieceis, of course, has not yet played out and 0:01:55.520 --> 0:01:59.120 and certainly been pushed back a good amount. And I'd 0:01:59.160 --> 0:02:03.720 say the financial markets today believe, unlike they did three 0:02:03.760 --> 0:02:06.480 or four or five six months ago, that Washington will 0:02:06.560 --> 0:02:10.400 deliver them almost nothing in terms of of of tail 0:02:10.440 --> 0:02:15.720 winds to to to profits, earnings and financial securities. So 0:02:15.800 --> 0:02:20.200 if your view, controversially maybe is one where you will 0:02:20.280 --> 0:02:25.000 actually get something productive out of Washington eventually, whether that 0:02:25.160 --> 0:02:29.320 be lower taxes, a tax holiday, to to bring back 0:02:29.320 --> 0:02:34.480 all our capital that's tied overseas, whether that be um UM, 0:02:34.520 --> 0:02:39.040 even more discussions around regulations and more friendly business conditions. 0:02:39.280 --> 0:02:42.680 If you believe that, UM, and you you would be 0:02:42.720 --> 0:02:46.640 in the minority today. And therein possibly lies lies the opportunity. 0:02:46.680 --> 0:02:49.359 I'm not suggesting you'll get that. I don't have a 0:02:49.400 --> 0:02:53.079 strong view on that, but it would be important, um 0:02:53.120 --> 0:02:56.120 as we enter twenty eighteen that we get a little 0:02:56.160 --> 0:03:00.160 bit of of of of push from from from from 0:03:00.160 --> 0:03:02.280 our leadership. I'm just gonna ask you, if you're if 0:03:02.320 --> 0:03:04.840 you're a believer, if you're you're holding that controversial view, 0:03:04.880 --> 0:03:06.720 do you do you retain some optimism here that that's 0:03:06.760 --> 0:03:10.359 going to happen. Look, I think it's not that popular 0:03:10.480 --> 0:03:13.919 for for the politicians, but but our financial markets in 0:03:14.040 --> 0:03:20.200 aggregate UM are stronger than than than leadership over long 0:03:20.240 --> 0:03:23.840 periods of time. It's not to suggest that clarity around 0:03:23.880 --> 0:03:28.120 regulation and rules of the game UM and certainty around 0:03:28.160 --> 0:03:32.080 that isn't a vital ingredient for making investment decisions, whether 0:03:32.120 --> 0:03:35.080 you're a corporate CEO or an asset manager UM, and 0:03:35.120 --> 0:03:38.680 so clarity there is is always helpful. We haven't had 0:03:38.720 --> 0:03:42.240 a lot of clarity UM for a good amount of time, 0:03:42.600 --> 0:03:45.000 and and and if we're to get some clarity that 0:03:45.040 --> 0:03:48.760 would be that would be terrific. The market is just 0:03:48.920 --> 0:03:54.200 fine because underpending the market earnings depending on where you 0:03:54.240 --> 0:03:57.480 want to start, has been the story this year. It 0:03:57.640 --> 0:03:59.880 wasn't the story last year. The story last year was 0:03:59.880 --> 0:04:04.040 a about multiple expansion. The story this series about earnings 0:04:04.160 --> 0:04:06.840 um and and the pick up in the global economies 0:04:06.880 --> 0:04:11.120 that started UM well before a new president was sworn 0:04:11.120 --> 0:04:14.720 into office. Um and As goes those things, so go 0:04:14.840 --> 0:04:17.880 the markets. And and I wouldn't bet against that for now, 0:04:18.400 --> 0:04:21.840 even though it's popular to do so. Charles Cancer with 0:04:21.960 --> 0:04:24.400 us with Newer Berman, really special for Global Wall Street 0:04:24.440 --> 0:04:27.200 to open, UH this hour with him. It's a little 0:04:27.200 --> 0:04:30.159 bit of stagflation out of the BOE announcement, really really 0:04:30.240 --> 0:04:34.599 interesting tape on at six or two vote uh, David Gura. 0:04:34.640 --> 0:04:38.640 The idea here truly of a modeled higher inflation and 0:04:38.640 --> 0:04:42.520 with a real stag element to growth into wage growth 0:04:43.240 --> 0:04:47.360 as well. Sterling really gives up the one thirty two 0:04:47.400 --> 0:04:51.000 ghosts weaker Sterling. Over the last ten minutes, I've been 0:04:51.120 --> 0:04:53.400 dying to ask you this question. We're on the edge 0:04:53.400 --> 0:04:57.000 of Jack Welch. All of a sudden, everybody's talking about 0:04:57.040 --> 0:05:00.960 a lack of pricing power. You basically arbitrage. You look 0:05:01.000 --> 0:05:03.720 for value, you look for stocks and aren't work And 0:05:04.080 --> 0:05:08.080 at the revenue line is price and quantity, price and volume. 0:05:08.440 --> 0:05:11.680 How does a lack of pricing power diminished P at 0:05:11.720 --> 0:05:14.120 the revenue line? How does it fold into your work? 0:05:14.200 --> 0:05:17.279 Is that a good thing or a bad thing? In aggregate, 0:05:17.320 --> 0:05:20.359 it's a bad thing um. UM. And one of the 0:05:20.400 --> 0:05:23.880 things we've we've noticed UM saying the industrial sector, because 0:05:23.880 --> 0:05:28.839 we had any number of companies in the industrial segments 0:05:28.880 --> 0:05:33.200 reporting over the last ten days or so, is UM 0:05:33.240 --> 0:05:37.400 despite the the the uptick in certain commodities which would 0:05:37.440 --> 0:05:43.160 generally which our input costs foremost industrial companies, generally those 0:05:43.200 --> 0:05:47.479 things get passed along in higher prices and over time 0:05:47.560 --> 0:05:51.880 reflect themselves in in more a more stable margin profile 0:05:51.920 --> 0:05:55.200 for the underlying company UM and and for the inaggregate. 0:05:55.200 --> 0:05:58.520 Again a broad generalization, but in aggregate, the industrial companies 0:05:58.839 --> 0:06:05.400 showed very good volume UM, but didn't raise price UM 0:06:05.440 --> 0:06:11.200 to offset the rising raw material casts. UM. We're not. 0:06:11.560 --> 0:06:14.880 We find that curious. UM. It would seem for now 0:06:15.720 --> 0:06:19.800 UM either the CEOs in aggregate are unwilling to to 0:06:19.960 --> 0:06:23.760 unsettle the apple card. Maybe they haven't seen an environment 0:06:23.760 --> 0:06:26.200 where they've had commodity input prices go up and a 0:06:26.360 --> 0:06:32.640 nervous to raise prices worried about UM losing market share. UM. 0:06:32.680 --> 0:06:37.760 But But but these are CEOs need to start tilting 0:06:37.839 --> 0:06:41.719 to to two more of being the investor unless of 0:06:41.760 --> 0:06:45.919 being the productivity manager financial engineering maybe said it's vogue, David. 0:06:46.200 --> 0:06:48.560 What can we can we learn about consumer staples with 0:06:48.600 --> 0:06:50.560 what's happened with that with Whole Foods here over these 0:06:50.640 --> 0:06:52.120 last couple of months. I know that you were agitating 0:06:52.160 --> 0:06:54.839 for Whole Foods to do more to to to improve 0:06:54.839 --> 0:06:58.240 its business. We're doing immigration earlier, David on television, we're 0:06:58.279 --> 0:07:04.400 mentioning the immigration in stocking produce like your blessed organic 0:07:05.440 --> 0:07:11.040 like organic. I don't two to one vote. Uh what what? 0:07:11.040 --> 0:07:12.440 What can we learn about the sector as a whole 0:07:12.440 --> 0:07:13.840 from what we've seen the Whole Foods go through and 0:07:13.880 --> 0:07:18.680 do here? Look, I mean as there's a lot to learn. 0:07:19.040 --> 0:07:23.000 Um specifically over to your question, I think it speaks 0:07:23.040 --> 0:07:26.680 to the power of the brand and brands in general 0:07:27.040 --> 0:07:30.800 and what folks will pay for brands. Um and and 0:07:30.880 --> 0:07:34.160 brands means something more than just price. Brands means an 0:07:34.240 --> 0:07:38.680 emotional connection to the thing or the company that you're 0:07:38.720 --> 0:07:42.400 engaging with. And I think you'll find UM and you 0:07:42.480 --> 0:07:46.080 have seen in the consumer staples sector more broadly that 0:07:46.240 --> 0:07:50.600 those companies that have created unique brands are selling at 0:07:50.800 --> 0:07:56.480 astronomically high prices UM as measured by say um you know, 0:07:56.600 --> 0:08:00.280 ibadad to enterprise value, and so I think there will 0:08:00.320 --> 0:08:03.560 always be room for the innovators, for the brand builders, 0:08:03.600 --> 0:08:07.960 for people that that build an emotional connection UM with 0:08:08.000 --> 0:08:12.400 their customers, and and those that maybe potentially the larger, 0:08:12.680 --> 0:08:15.680 larger consumer staple companies, or those that are looking to 0:08:15.800 --> 0:08:19.600 both scale with with their with their you know, with 0:08:19.680 --> 0:08:22.760 their wholesale base. They will always be looking to to 0:08:23.040 --> 0:08:27.560 to buy the attractive consumer staple bands brands in the 0:08:27.600 --> 0:08:30.160 hope of winning more shell space, in the hope of 0:08:30.200 --> 0:08:34.480 engaging the customer. More so so despite all the technology 0:08:34.880 --> 0:08:37.440 UM and and and the idea that there isn't pricing 0:08:37.480 --> 0:08:41.320 power UM, I think investing in a brand and and 0:08:41.360 --> 0:08:43.480 getting it right, it's it's easy to say invest in 0:08:43.520 --> 0:08:45.319 the brand, It's a lot harder to get it right 0:08:45.320 --> 0:08:48.800 over time. But I think you'll find you'll continue to 0:08:48.840 --> 0:08:52.520 see very attractive prices for for those that have both 0:08:52.559 --> 0:08:56.760 brands and have reached a certain scale we spoke to 0:08:56.800 --> 0:08:59.240 in the last are really important interview. Look for that 0:08:59.440 --> 0:09:02.319 on bloomber Digital is well. Charles character with us here 0:09:02.320 --> 0:09:05.040 found at Citior Portfolio Manager in New Berger Berman. Uh, 0:09:05.160 --> 0:09:07.440 let me ask you maybe a broad question here about 0:09:07.440 --> 0:09:09.720 what you're enthusiastic about in the markets right now when 0:09:09.760 --> 0:09:12.000 it comes to sectors, when it comes to types of companies, 0:09:12.000 --> 0:09:14.320 What's what's attractive to you here? Halfway through a two 0:09:14.360 --> 0:09:19.040 thousand seventeen look, I think companies that can produce um 0:09:19.160 --> 0:09:25.079 believable growth UM evaluations that on nosebleed remained very attractive 0:09:25.120 --> 0:09:28.160 to us. I think we're in an environment where where 0:09:28.720 --> 0:09:32.120 where gross difficult to come by um and if you can, 0:09:32.200 --> 0:09:34.959 and I'm not talking about double digits organic growth, I'm 0:09:35.040 --> 0:09:37.680 kind of talking about three or four or five basis 0:09:37.679 --> 0:09:41.080 points above, you know, where treasury yields are so so 0:09:41.200 --> 0:09:45.640 called mid single digit types of things. We love those businesses. 0:09:45.760 --> 0:09:48.600 We love those businesses they come with with less capital 0:09:48.640 --> 0:09:53.200 intensity versus more. We actually love businesses candidly that look 0:09:53.280 --> 0:09:56.800 like Bloomberg, where where you're creating data sets, create them 0:09:56.800 --> 0:09:59.760 once and use them many times. We own companies like 0:10:00.080 --> 0:10:02.920 Various and and an I H. S Market that that 0:10:03.000 --> 0:10:06.480 would fit that type of building. Lots of you know, 0:10:06.520 --> 0:10:09.559 the Google to look like look like that. We love 0:10:09.559 --> 0:10:12.640 those types of businesses. And then because of where where 0:10:12.679 --> 0:10:17.640 aggregate tenure treasuries are, we've always liked capital intensive businesses 0:10:17.640 --> 0:10:22.040 that produce stable and growing streams of income. Um. The 0:10:22.360 --> 0:10:24.240 key there, though, is is to make sure that their 0:10:24.240 --> 0:10:27.280 returns on equity are reasonably stable over time. What what 0:10:27.559 --> 0:10:30.199 tends to allow that on average to happen more than 0:10:30.280 --> 0:10:34.880 often more often than not? Is there in regulated businesses UM. 0:10:34.960 --> 0:10:37.440 So these are very capital intensive businesses that make a 0:10:37.480 --> 0:10:40.880 small spread versus their cost of equity, positive spread versus 0:10:40.880 --> 0:10:44.160 their class of equity because the regulators asked them to 0:10:44.280 --> 0:10:47.520 take on the risk of bringing large infrastructure projects to 0:10:47.679 --> 0:10:51.240 market on time and under budget, so the company takes 0:10:51.240 --> 0:10:53.680 on that risk. So those those are kind of be 0:10:53.720 --> 0:10:56.880 the cornerstone of how we're thinking about investing. It's been 0:10:56.920 --> 0:10:59.120 the cornerstone of how we thought of investing for a 0:10:59.120 --> 0:11:03.280 long time. Then occasionally we'll we'll find something that that 0:11:03.280 --> 0:11:07.280 that just feels like there's a shift in in in 0:11:06.760 --> 0:11:11.000 in how the boil and management will allocate capital on 0:11:11.040 --> 0:11:13.680 a go forward basis. And generally what we're looking for 0:11:13.960 --> 0:11:18.720 is is more capital rationalizations doing more with less not popular, 0:11:19.040 --> 0:11:22.640 but but so those are the three broad elements of 0:11:22.679 --> 0:11:25.040 what we find attractive. Let's use the industrial test. If 0:11:25.080 --> 0:11:28.439 you mentioned industrials, are Mr Flaherty at General Electric? Can 0:11:28.440 --> 0:11:31.440 you get on board Generous Electric now knowing that Flatty 0:11:31.480 --> 0:11:33.760 is going to cut costs and do a better capital 0:11:33.760 --> 0:11:37.120 allocation than the trias that Jeff Amal had to do. 0:11:38.160 --> 0:11:42.559 I think we increasingly finding companies UM that are fit 0:11:42.679 --> 0:11:47.520 and focus very attractive. We actually want businesses to to 0:11:47.520 --> 0:11:52.120 to to separate their best assets and to allow guys 0:11:52.160 --> 0:11:55.800 like us, and and and and our female competitors the opportunity, 0:11:56.320 --> 0:11:58.680 you know, to value those assets. I mean, in example, 0:11:58.760 --> 0:12:03.120 last night were the resorts announced earnings and they're splitting 0:12:03.160 --> 0:12:05.880 up their time share business from their branded business. We 0:12:06.000 --> 0:12:10.200 think that strategy, if it can be done tax effectively 0:12:10.240 --> 0:12:14.200 to shareholders, is very favorable. UM. And I think one 0:12:14.240 --> 0:12:17.640 of the listen, EMMO, did a really good job of 0:12:17.640 --> 0:12:20.240 of of setting as many financial assets as you could. 0:12:20.640 --> 0:12:25.840 He was he was dealta a very difficult hand, I think, UM. 0:12:25.880 --> 0:12:28.920 But the challenge will be if there's certain assets there 0:12:28.920 --> 0:12:32.520 that are meaningfully menifically under value because they carry the 0:12:32.559 --> 0:12:36.240 conglomerate discount UM, those businesses should probably be put in 0:12:36.280 --> 0:12:40.199 the public markets. Independently and let let the great talent 0:12:40.320 --> 0:12:43.319 and the Nietzsche run those businesses. Thank you so much 0:12:43.360 --> 0:12:46.520 for starting to Do you get do you whenever I 0:12:46.559 --> 0:12:49.320 go to whole Foods or out of broccoli? Do you 0:12:49.360 --> 0:12:51.439 like broccoli? Do you have a special cond to it 0:12:51.559 --> 0:12:55.280 for broccoli? We we in the Caunter household, driven by 0:12:55.320 --> 0:13:00.320 my daughter Abigail, are huge consumers of broccoli. She can Bailey, 0:13:00.440 --> 0:13:04.640 I know it's without it. It's probably my wife freezer. 0:13:04.760 --> 0:13:07.960 It's a cantor daughter. She's doing a daughters buying apple. 0:13:08.080 --> 0:13:11.080 The broccoli the crown by the crowd. Very good tru 0:13:12.679 --> 0:13:15.679 advice on broccoli. It's way and it's like makeup. It's 0:13:15.679 --> 0:13:18.120 way in the back corner. They make you walk through 0:13:18.480 --> 0:13:20.920 and to get to the broccoli, so farthest thing from 0:13:20.920 --> 0:13:27.240 the front door. Evil. Yes, thank you so much. We continue. 0:13:27.320 --> 0:13:40.800 This is Bloomberg Pleasure. How to be joined by Peter 0:13:40.840 --> 0:13:43.960 west Away. He's our chief chief European economist at Vanguard. Peter, 0:13:44.080 --> 0:13:46.000 let me just start with your your broadest takeaway from 0:13:46.040 --> 0:13:49.160 what we learned today, from the inflation forecast, from the 0:13:49.200 --> 0:13:52.480 policy decision itself. This was a six to two decision. 0:13:52.520 --> 0:13:54.520 I'm struck by the degree to which Brexit is is 0:13:54.760 --> 0:13:56.760 weighing on all of this. Again, I shouldn't be surprised 0:13:57.160 --> 0:13:59.280 saying that, but clear from the questions and answers at 0:13:59.320 --> 0:14:00.959 least that this is front and center for the Bank 0:14:01.000 --> 0:14:04.160 of England. Yeah, it's it's from incenter for the Bank 0:14:04.200 --> 0:14:06.959 of England. It's from a center for those of us 0:14:06.960 --> 0:14:09.040 that they're thinking about what's going to happen next in 0:14:09.080 --> 0:14:13.360 the UK economy. And while some members of the Policy 0:14:13.440 --> 0:14:18.680 Committee had been and actually still are thinking about the 0:14:18.679 --> 0:14:22.640 the worries about inflation headline inflation picking up, it seems 0:14:22.680 --> 0:14:25.200 a very odd time to be thinking about raising rates 0:14:25.760 --> 0:14:28.920 with with the data coming out week, and with all 0:14:28.920 --> 0:14:32.640 of these uncertainties around Brexit. So really the slightly dovish 0:14:32.800 --> 0:14:34.960 message that the Bank of England have sense seems to 0:14:34.960 --> 0:14:38.360 me to be completely appropriate. Slightly devish. Help me understand 0:14:38.400 --> 0:14:41.560 what changed at that ECB forum in Portugal a few 0:14:42.040 --> 0:14:43.840 weeks back, of course, the Governor of the Bank of 0:14:43.840 --> 0:14:46.480 England speaking, they're talking about the potential here to to 0:14:46.520 --> 0:14:50.080 remove some monetary stimulus. Uh, if the trade off facing 0:14:50.120 --> 0:14:52.960 the NBC continues to less than the policy decision Accordingly, 0:14:53.000 --> 0:14:56.560 becomes more conventional. What changed at that forum with regard 0:14:56.560 --> 0:14:58.720 to the conversation about central banking, both in the UK 0:14:58.840 --> 0:15:04.720 and Europe. I think what was happening was that, maybe 0:15:04.720 --> 0:15:08.640 in a slightly ham fisted way, central bankers were trying 0:15:08.680 --> 0:15:14.040 to signal that these this period of exceptional monetary accommodation 0:15:14.320 --> 0:15:16.840 wasn't forever, and so they were trying to soften the 0:15:16.880 --> 0:15:20.360 market up to a removal of policy stimulats in the 0:15:20.360 --> 0:15:25.440 case of the UK, tapering of the asset purchases in Europe, 0:15:25.440 --> 0:15:28.160 which remember is still adding to stimulus, is just doing 0:15:28.160 --> 0:15:30.800 it at the slower rate, and I think that's a 0:15:30.880 --> 0:15:33.680 lesson that the market does need to take on board. 0:15:34.160 --> 0:15:36.840 But I think maybe, especially in the case of the 0:15:36.840 --> 0:15:39.040 e c B, it was overinterpreted and I think that 0:15:39.080 --> 0:15:41.800 we've then seen a lot of rowing backwards from the 0:15:41.800 --> 0:15:44.880 ECB um a little bit different with the Bank of 0:15:44.920 --> 0:15:46.800 England because I think the data has changed. I think 0:15:46.840 --> 0:15:51.680 we've seen more information about than the economy that that's 0:15:51.720 --> 0:15:54.200 happening here. It is a good thing to have Mr 0:15:54.280 --> 0:15:57.600 Peter west Away on because he has a twisted sense 0:15:57.640 --> 0:16:02.640 of economics. We now got a line your quadratic Gaussian economics, 0:16:02.680 --> 0:16:06.880 as we can only do with Peter Westwood. Peter, Peter, 0:16:07.040 --> 0:16:09.200 I look at the mathiness of your work out of 0:16:09.320 --> 0:16:12.240 York and out of Cambridge with great respect, and it 0:16:12.320 --> 0:16:15.680 goes to the glib comments made by all suits and 0:16:15.760 --> 0:16:21.840 ties of reaction functions. Do we have a clue the 0:16:21.960 --> 0:16:27.680 linear straight line or quadratic curved reaction functions to come? 0:16:28.160 --> 0:16:32.520 Is there anything orthodox? Now? Are we on new linear 0:16:32.680 --> 0:16:37.120 quadratic Gaussian territory? I do like it when people take 0:16:37.160 --> 0:16:39.200 me back to my my early days and then you 0:16:39.280 --> 0:16:42.160 just dimly remember those those things that I used to do. 0:16:42.240 --> 0:16:44.920 Got that right on over the square root of two pie. 0:16:45.040 --> 0:16:47.800 That's all I read. Don't test me on it again. 0:16:48.080 --> 0:16:51.360 But but I mean you're making a serious point to 0:16:51.520 --> 0:16:54.680 which is a relative to a simple world. Just before 0:16:54.720 --> 0:16:59.640 the financial crisis, when frankly, Central mantas myself included, thought 0:16:59.680 --> 0:17:02.640 that understood the way the world worked. We knew that 0:17:02.680 --> 0:17:05.080 we had to control inflation. We cut interest rates up 0:17:05.080 --> 0:17:07.440 and down, and that was really it. I think we're 0:17:07.440 --> 0:17:11.439 now in this much more complicated world where balance sheets 0:17:11.440 --> 0:17:14.600 of banks are also coming into play. Constitutive easing, which 0:17:14.600 --> 0:17:17.800 we thought had been confined to the textbooks, the textbooks 0:17:17.840 --> 0:17:20.280 of history, and now right back front and center. So 0:17:20.520 --> 0:17:24.040 all of these things are now making life very complicated. 0:17:24.280 --> 0:17:26.879 And why that makes it really complicated looking forward for 0:17:26.920 --> 0:17:28.359 those of us that are trying to work out what 0:17:28.359 --> 0:17:32.440 happens next, is that the reaction function of central banks 0:17:32.520 --> 0:17:35.800 is quite hard to predict because they don't really know 0:17:36.320 --> 0:17:37.879 how things are going to playut because this is new 0:17:38.000 --> 0:17:41.280 territory for them, this is completely uncharted territory, and so 0:17:41.440 --> 0:17:43.879 there's going to be a lot, a lot of trial 0:17:43.960 --> 0:17:47.320 and error in the way they withdraw the stimulus. You know. 0:17:47.400 --> 0:17:50.800 So as the Fed starts to wind down their balance sheets, 0:17:50.840 --> 0:17:54.120 everybody expects that will start pushing yield kids up, curves up. 0:17:54.400 --> 0:17:56.000 But we don't know whether it's going to happen all 0:17:56.000 --> 0:17:59.440 in one day or whether it's going to So that's 0:17:59.440 --> 0:18:02.320 what makes this complicated for polity magors and the rest 0:18:02.320 --> 0:18:04.560 of us trying to predict it. You keep us employed, 0:18:04.600 --> 0:18:07.959 Peter West you, thank you, thank you, thank you, thank you. 0:18:08.720 --> 0:18:25.480 This morning with Vangor greatly appreciate um the David Dura 0:18:25.600 --> 0:18:27.760 and Tom Keen in our Bloomberg eleven three oh studios 0:18:28.000 --> 0:18:31.040 in New York. John Kelly spending his first week as 0:18:31.080 --> 0:18:32.800 Chief of Staff at the White House. Of course, he 0:18:32.880 --> 0:18:35.760 was formerly the Secretary of the Department of Homeland Security. 0:18:35.800 --> 0:18:38.480 Someone else who had that role as Michael Chertoff. He's 0:18:38.520 --> 0:18:40.760 the former U S Secretary of Homeland Security, co founder 0:18:40.800 --> 0:18:42.800 and executive chairman of the Church Tough Group. He joins 0:18:42.880 --> 0:18:44.639 us now on our phone line. Great to speak with 0:18:44.640 --> 0:18:46.840 you once again, Mr Secretary, And yesterday we had the 0:18:46.840 --> 0:18:50.040 privilege of talking with Adael James Steuvrita's about what makes 0:18:50.040 --> 0:18:52.320 a good chief of staff in the White House. Let 0:18:52.320 --> 0:18:54.480 me turn things around a little bit to ask you 0:18:54.680 --> 0:18:57.200 about what makes someone well equipped for the job that 0:18:57.280 --> 0:19:00.280 John Kelly is now vacating. You were the second in 0:19:00.280 --> 0:19:03.080 that position. I imagine still learning your way around what 0:19:03.160 --> 0:19:06.040 was still a very new job at that point. What 0:19:06.200 --> 0:19:11.200 equips someone well to be U S Secretary of Homeland Security. Well, 0:19:11.240 --> 0:19:14.359 I think it's useful to have a perspective on where 0:19:14.400 --> 0:19:17.680 global threats are, and not just threats that are man made, 0:19:17.720 --> 0:19:21.159 but also a natural threats, because one of the remarkable 0:19:21.200 --> 0:19:24.720 things about Secretary of Homeland Security is that you have 0:19:24.840 --> 0:19:30.520 responsibility for a wider range of risks, whether it's hurricanes 0:19:30.600 --> 0:19:33.159 or earthquakes, you can be terrorist attacks, it would be 0:19:33.800 --> 0:19:37.480 even playing a role with respect to a massive epidemic 0:19:37.560 --> 0:19:45.120 or pandemics. Um steadiness and a kind of a wide perspective, 0:19:45.240 --> 0:19:48.479 I think are the qualifications for that job. It struck 0:19:48.520 --> 0:19:50.679 me when I interviewed John Kelly when he was a 0:19:50.760 --> 0:19:54.119 secretary of that department, how heavily the responsibilities of the 0:19:54.200 --> 0:19:56.280 job way on somebody in it. And I wonder if 0:19:56.280 --> 0:19:59.560 you could talk a little bit about that. I think, 0:20:00.040 --> 0:20:01.680 what so far as to say, it's difficult to sleep, 0:20:01.720 --> 0:20:04.280 but knowing that something could happen, how do you deal 0:20:04.359 --> 0:20:08.639 with that, the weight of uncertainty. Well, of course I 0:20:09.280 --> 0:20:12.400 came into this having had the experience of being into 0:20:12.400 --> 0:20:15.560 the farm prossstive sense of tender eleventh, two thousand one, 0:20:16.400 --> 0:20:19.680 and so I ardly remember the way in which we 0:20:19.920 --> 0:20:22.800 were anticipating what the next attack might be, and it 0:20:22.960 --> 0:20:26.359 was really an oil, hands on deck effort to stave 0:20:26.480 --> 0:20:29.520 off what might be round two or around three of 0:20:29.600 --> 0:20:32.920 al Qaeda attacks. So I came into the job with 0:20:33.080 --> 0:20:36.080 that experience. I think one of the things that is 0:20:36.160 --> 0:20:39.760 comforting though, in the job of Secretary of Home and 0:20:39.840 --> 0:20:43.000 Security is you're working with a superb team of people. 0:20:43.440 --> 0:20:46.840 It really is not an individual effort, but it is 0:20:46.880 --> 0:20:49.080 a team effort. So you have the people who are 0:20:49.160 --> 0:20:50.840 on the board, and you have the people who are 0:20:51.440 --> 0:20:55.040 monitoring and screening what goes on in aviation, and you 0:20:55.119 --> 0:20:59.120 have your partners in other departments as well. Uh, that's 0:20:59.119 --> 0:21:01.760 your secretary. One of want to speak to again, Uh, Michael, 0:21:01.800 --> 0:21:05.920 turnoff with us, folks. You have the incredible privilege of 0:21:06.119 --> 0:21:10.600 working with John hard Eli years ago, one of the 0:21:10.760 --> 0:21:14.600 giants of American law, and he would be It's tragic 0:21:14.680 --> 0:21:16.840 he died so young, and he would be a perfect 0:21:16.960 --> 0:21:21.760 voice of wisdom now across all politics. With the certitude 0:21:21.840 --> 0:21:24.520 that's going on right now. John hard Eli fought every 0:21:24.600 --> 0:21:28.359 day against the certitude of this is m or that 0:21:28.800 --> 0:21:32.080 is um. Are we drowning in certitude right now? Both 0:21:32.160 --> 0:21:36.280 on the right and both on the left. Well, I 0:21:36.400 --> 0:21:39.480 think maybe where you're asking me is are we having 0:21:39.560 --> 0:21:41.840 more opinion now than fact? And I do think to 0:21:41.960 --> 0:21:45.360 touch a change who I mean John Hue who I'm 0:21:45.680 --> 0:21:49.320 when I was back quite a while, was a believer 0:21:49.480 --> 0:21:53.400 in a healthy skepticism and that our institutions were built 0:21:53.400 --> 0:21:56.240 to learn the idea that nobody has a monopoly on wisdom, 0:21:56.880 --> 0:21:59.120 and we want to have checks and balances in order 0:21:59.200 --> 0:22:01.760 to be a will to modify our opinions in the 0:22:01.920 --> 0:22:04.960 light of experience, and I think we need to recover 0:22:05.119 --> 0:22:09.560 some of that now. It's just fascinating. I mean, I 0:22:09.600 --> 0:22:11.879 mean the prescriptionary first of all, is there an opening 0:22:12.000 --> 0:22:15.560 it Homeland Security? Do you want to serve again as 0:22:15.600 --> 0:22:18.480 Secretary of Homeland Security with that work? For Michael? Turn 0:22:18.520 --> 0:22:25.240 off my four years enough and look to be honest, meat, 0:22:25.320 --> 0:22:28.360 fresh blood. I think one of the things has musical 0:22:28.440 --> 0:22:31.000 about our system is we do get turned over, and 0:22:31.080 --> 0:22:34.760 no matter how good you wanted a job, after several years, 0:22:35.240 --> 0:22:37.000 it's good to have a fresh pair of life. And 0:22:37.040 --> 0:22:39.960 I think that's useful. And how much security as well? 0:22:40.200 --> 0:22:42.080 Secretary turt Off. A few weeks ago, I was having 0:22:42.119 --> 0:22:44.159 a conversation with Sir Martin Soil of w p P. 0:22:44.800 --> 0:22:46.720 Of course, that company among others that were hit by 0:22:46.920 --> 0:22:50.320 a cyber attack of a very large scale, maybe just 0:22:50.440 --> 0:22:52.000 over a month ago now, and we talked about the 0:22:52.040 --> 0:22:54.720 way his company's dealt with that, and I moved toward 0:22:54.800 --> 0:22:59.880 more coordination or conversation among companies. What do big come 0:23:00.000 --> 0:23:04.560 pennies yet understand about the threat of cybersecurity. Well, I 0:23:04.640 --> 0:23:07.680 think everybody realizes now that it is one of the 0:23:07.760 --> 0:23:11.600 big risks any big company faces. And just as you 0:23:11.880 --> 0:23:15.640 are concerned about your financial position or your core business assets, 0:23:16.119 --> 0:23:18.439 you have to be concerned about your I T system 0:23:18.480 --> 0:23:22.159 and your cyber particularly because there's not just a lot 0:23:22.240 --> 0:23:24.800 of information that can be hacked if somebody gets into 0:23:24.840 --> 0:23:28.320 your network, but it can actually interfere with your operations. 0:23:28.440 --> 0:23:31.960 And that's what we saw with the exploits that was 0:23:32.600 --> 0:23:35.640 part of the attack on w PP but also went 0:23:35.720 --> 0:23:38.760 around the world and did everything from shut down the 0:23:39.280 --> 0:23:44.600 National Health Service in Britain to affecting MURSK shipping. When 0:23:44.640 --> 0:23:46.159 you when you look at that attack, what does it 0:23:46.280 --> 0:23:48.520 portend to you? And are we going to see more 0:23:48.520 --> 0:23:51.240 attacks like this? What can companies like w PP, like 0:23:51.400 --> 0:23:54.560 Morisk due to prepare for attacks like this one? Imagine 0:23:54.560 --> 0:23:57.800 of course, this is seven job fending off attacks like these. 0:23:57.840 --> 0:24:00.320