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

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Speaker 1: Jay Ley. 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 Brian

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Speaker 1: Weezer right now with Pivotal Research, PIM, PIM, PIM, John Rich.

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Speaker 1: I'm gonna do this. Every time I called John PIM,

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Speaker 1: I got to give Anthony from New Jersey a five

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Speaker 1: dollar bill. What's that about? I mean, you know who

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Speaker 1: made that rule up? PIM. Um. Let let me ask you,

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Speaker 1: do you want to start with Facebook, Google, PIM or

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Speaker 1: do you want to go over to Fox Disney. Actually,

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Speaker 1: we're actually waiting for PIM to to join us. Do

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Speaker 1: you want me to want something? Person is going to

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Speaker 1: be PIM and John. I think you know the number

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Speaker 1: one question for Brian is of all the companies that

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Speaker 1: he covers at the moment, what's the effective tax rate

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Speaker 1: that they pay? Already it's twenty percent. What's the line

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Speaker 1: nobody pays that? Um? So yeah, no, I I looked

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Speaker 1: at this um recently and over the last five years

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Speaker 1: of the sixteen companies. I cover the median tax rate

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Speaker 1: over those five years for all of my companies was

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Speaker 1: per company. So if they maintain the alternative minimum tax

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Speaker 1: as he is in the Senate plan, nobody's getting a

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Speaker 1: tax cut out of all the I'm not saying that,

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Speaker 1: but it's just to say that nobody pays. See Tom,

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Speaker 1: this is fascinating. We're all talking about tax cuts and

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Speaker 1: what this means for markets. Brian Weis is sitting there

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Speaker 1: plugging it through his spreadsheets, and he doesn't say a

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Speaker 1: tax cut. Well, but the companies are the highest value

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Speaker 1: in your world, like Amazon, Netflix and the others don't

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Speaker 1: even work by normal financial But the CBS only pays,

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Speaker 1: I don't know, eighteen percent on our CBS, CBS the broadcaster. Okay,

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Speaker 1: but within that is the view to two thousand eighteen.

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Speaker 1: Does the digital world in the fang world, does it

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Speaker 1: finally come back? We's got Galloway with it yesterday. Thanks

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Speaker 1: professor Galloway. If you're listening my book of the year,

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Speaker 1: The Four Do the digital people finally get their Brian

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Speaker 1: Weezer come up and and come back to being mere mortals? No,

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Speaker 1: I'm not saying that, um, but it is to say

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Speaker 1: that like, if your Europe is not going to allow

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Speaker 1: uh those companies to continue to pay effectively no tax

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Speaker 1: um or Australia or other countries around the world where

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Speaker 1: they aren't paying taxes. Um I think that that's the

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Speaker 1: biggest regulatory risk that they face, the most tangible one.

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Speaker 1: So Brian I called it a vicious rotation. Maybe that's

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Speaker 1: a bit of hyperbole, but let's sort of step back

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Speaker 1: and see what we saw yesterday, which was a rotation

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Speaker 1: away from the low tax paying stocks to the high

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Speaker 1: tax paying stocks. Does that make sense for you? Does

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Speaker 1: that rotation beneath the SMP Well, I mean it's it's understandable. UM.

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Speaker 1: I think the big are issues that you have a

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Speaker 1: lot of investors made a lot of money on Facebook

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Speaker 1: and in particular among companies that cover and U. Arguably

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Speaker 1: they've been there seeing the Discoveries and the CBS is

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Speaker 1: of the world as maybe too cheap and maybe there

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Speaker 1: is some tax upside that they think will happen. And

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Speaker 1: on top of that, you have M and A considerations

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Speaker 1: with back to Fox and Disney and what that means, well,

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Speaker 1: the scouts to FOLKX in Disney, what is it about

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Speaker 1: the regime, the current regime that's pushing these two companies

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Speaker 1: to Mica Dale. I don't buy political regime. I don't.

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Speaker 1: I don't really see that as being a factor. I

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Speaker 1: do see there's more id Us and crowd Egg. It's

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Speaker 1: that Disney needs to find growth engines. They see over

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Speaker 1: the top solutions, whether it's Hulu or whether it's what

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Speaker 1: Sky is doing outside of the UK in particular UM

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Speaker 1: and the economy scale that can come with UH adding

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Speaker 1: some of the Fox assets under consideration. So it's very

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Speaker 1: individual and by the way, they might also get a

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Speaker 1: CEO out of it. James Murdock goes with it, but

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Speaker 1: he's he's something I'm thinking about him. We'll get to

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Speaker 1: James Murdoch right now. Who's driving this? Is it Murdoch

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Speaker 1: at the top or is it one of the suns below?

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Speaker 1: You know? I wish I knew. I I someone came

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Speaker 1: up with a good idea and got it in front

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Speaker 1: of the Murdocks and they listened, is my guests. And

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Speaker 1: I don't know if it was a banker, if it

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Speaker 1: was Disney or something else, because if five years ago

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Speaker 1: we were talking about consolidation in this space, I'd be

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Speaker 1: thinking about one thing. Twenty one century, folks was going

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Speaker 1: to get bigger, not smaller. One month ago, I would

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Speaker 1: have said that, So, so what's changed? Have you got

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Speaker 1: to handle on what's changed? Until no, Well we don't

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Speaker 1: know why that. And that's where like the mystery that

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Speaker 1: we have to unwrap here is I don't think that

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Speaker 1: James Murdoch in particular has changed its views about how

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Speaker 1: the world should evolve. In other words, the bigger is

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Speaker 1: better idea. And that's why the only logical solution I

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Speaker 1: could come up with is did they pits that James

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Speaker 1: would take over Disney to like it? Otherwise it's still

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Speaker 1: mystified out on you actually think that's the possibility. But

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Speaker 1: James can take over Disney, I think it might be

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Speaker 1: a consideration. Why who, come on, burd Baker is gonna

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Speaker 1: let James murder Murdoch. I'm trying to figure the mystery here.

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Speaker 1: Why would news Court, why would the Murdoch family otherwise

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Speaker 1: be considering this? I'm asking it's the best answer of

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Speaker 1: Rich Truman. Do you know why they want anybody else?

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Speaker 1: No one in the control room now? Tom Okay, look

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Speaker 1: from an integration standpoint, Bobygus steps down at least that's

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Speaker 1: the guy that's he's giving us. Does it make sense

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Speaker 1: that someone from the other side of the trade, perhaps

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Speaker 1: this one bed In? Can you point to anyone else

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Speaker 1: who could take over? I don't know. I would assume

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Speaker 1: there's somebody in Disney, but to keep and John help

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Speaker 1: us here with your London after this Good Morning Radio London.

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Speaker 1: This discussion of Fox and Disney doesn't include Sean Hannity, right,

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Speaker 1: does it include Sky in Europe? We we don't know. John,

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Speaker 1: Would you explain to our American audience this morning this

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Speaker 1: uproar over Sky in the United Kingdom. It is foreign

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Speaker 1: to America. It is the jewel and it really hits

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Speaker 1: the jewel in the Murdock's crown. They want it. They

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Speaker 1: want it big time, and they've been after it for

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Speaker 1: a while. They want the remaining share of Sky in

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Speaker 1: the United Kingdom. The regulators in the UK have embracing themselves.

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Speaker 1: They're a little bit nervous about having too much Murdock

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Speaker 1: influence in UK media there. They won't let them take

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Speaker 1: Sky because they don't like Fox News Channel and Disney.

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Speaker 1: And that's the thing. They do not want Sky to

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Speaker 1: become Fox News. So Brian, So, Brian, how does this help?

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Speaker 1: How does this help get them? Make them get the

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Speaker 1: sky deal of it all? Because they'll get the equity investment,

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Speaker 1: if you will, because they would get a large chunk

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Speaker 1: of Disney. It's as simple as that. I don't know.

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Speaker 1: I mean, we're speculating here because we don't know. Okay,

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Speaker 1: they're thinking, I want to speculate two minutes on Facebook,

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Speaker 1: Google it is a one way bet that they will

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Speaker 1: continue their ascendency in the next year. Do you buy

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Speaker 1: it or where's the distinction that you see it may

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Speaker 1: get us away from Google? Facebook certitude? Well, I think

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Speaker 1: the top line, yes, it is certain. However, it's the

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Speaker 1: bottom line. It's margin the profitability of Facebook. And so

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Speaker 1: does investing in things like making sure that there's not

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Speaker 1: a lot of suicides, are making sure that there's a

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Speaker 1: little bit less foreign involvement in election different countries? Does

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Speaker 1: that curtail a profit just because the time? Do you

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Speaker 1: see any evidence that we watch videos on the internet?

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Speaker 1: Who watches videos? Cats? Cats? You know, I'm serious? Who

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Speaker 1: watches people John Tucker's biscuit bis and then cats are

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Speaker 1: watching cat videos? And then it gets people watch video

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Speaker 1: on their handheld devices on their tablets, on the computers.

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Speaker 1: Most video consumption occurs on a TV set, though twenty seconds.

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Speaker 1: Is the NFL dead? No, but it's declining. It's declining.

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Speaker 1: But could it still make a bazillion gazillion dollars a year? Yes,

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Speaker 1: because there will be increasing competition for the rights and

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Speaker 1: Facebook Amazon Quiet, you think there's Amazon's specifically, or Amazon

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Speaker 1: and Google and Facebook as bidders. Yes, Brian Wiser, thank

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Speaker 1: you so much. We do we This is different, John,

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Speaker 1: this is you're in hardball, okay, right now with us.

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Speaker 1: Christopher Varone, he works with Jason Trennant over its frtigos

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Speaker 1: and he is wicked, awesome, good at trends. The trend

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Speaker 1: is your friend. Thank you Marty's wag for that phrase.

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Speaker 1: Chris Arne. The trend this year is twelve months trailing

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Speaker 1: up twenty percent for the SPX. By definition, we revert

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Speaker 1: to the mean? Do we do we revert to the mean?

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Speaker 1: Or by definition do we overshoot into some ugliness? I

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Speaker 1: think we shoot. It's hard to imagine that the third

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Speaker 1: greatest bullmarket ever would end without a blowoff. We saw

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Speaker 1: a blow off in ninety nine. We saw a blow

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Speaker 1: off in sixty six. I would be very surprised if

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Speaker 1: this one did not end with similar type of price action,

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Speaker 1: with the type of euphoria that has often characterized the tops.

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Speaker 1: With John and I have seen in all the bars

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Speaker 1: we go into, and that means more fairer than me.

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Speaker 1: But when you go to any when you when you

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Speaker 1: go into any bar in this city, the topic in

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Speaker 1: any wall street bar is how much is a correction?

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Speaker 1: How much is a bear market? If a correction is

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Speaker 1: ten percent, what's the new correction level? Well, I think

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Speaker 1: what's interesting about sen The biggest draw down has been

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Speaker 1: about three It's been the most benign years since. So

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Speaker 1: is it out of place to say next year will

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Speaker 1: be more difficult than seen? Was? Probably not, But I

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Speaker 1: don't want to confuse a three four five percent consolidation

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Speaker 1: with the change in the broader trend. We still think

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Speaker 1: the broader trend remains intact. Here. This has been a

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Speaker 1: look witty driven market, So I think we need to

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Speaker 1: watch measures of liquidity for a sense on how healthy

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Speaker 1: the trend is. Stuff like the spread between the two

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Speaker 1: yield and the Fed funds rate. Stuff like high yield

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Speaker 1: spreads are still largely supportive of the trend in stocks

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Speaker 1: right now? Chris, what does the melt up actually look like?

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Speaker 1: How do I know when I see one, You'll know.

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Speaker 1: I think it'll be fun. Um. When we look back

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Speaker 1: at uh call it late into the persistency and the

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Speaker 1: speed with which the market went up was recognizable. I'm

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Speaker 1: not sure where they're quite yet. What's interesting here? We

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Speaker 1: can make a case that maybe the underlying pieces of

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Speaker 1: this bull market, though, are starting to change. We're obviously

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Speaker 1: seeing technology take a bit of a break here. While

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Speaker 1: financials reaccel right, consumer gets better, energy gets better, so

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Speaker 1: small caps take over? Yeah, you know, they tried to

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Speaker 1: sell small caps twice in the last three months. They

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Speaker 1: failed both times. They tried in September they couldn't keep

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Speaker 1: them down, and they tried in November they couldn't keep

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Speaker 1: them down. I think there's a reasonable case to be

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Speaker 1: made that small caps are in a position to reassume

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Speaker 1: some leadership here. I want to touch on some of

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Speaker 1: the commodity complex, some of the moving parts. That is

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Speaker 1: it time to cover your energy shorts? I think it

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Speaker 1: is um. What's interesting about the energy sector for the

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Speaker 1: last two or three years. If you put ten charts

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Speaker 1: in front of me. You couldn't really tell the difference

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Speaker 1: between Chevron or x ON or x IN or e

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Speaker 1: o G. They're all starting to look different now. So

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Speaker 1: it tells me investors are actually starting to discriminate amongst

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Speaker 1: docks and what White Christ just be more specific on

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Speaker 1: some are going up, some are going down exactly. It

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Speaker 1: is not this highly correlated trade anymore. Investors are making

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Speaker 1: rational decisions about what stocks should go up and what

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Speaker 1: stocks should go down. That's an incremental improvement for the

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Speaker 1: sector compared to twelve months ago or two years ago,

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Speaker 1: three years is it classic late cycle behavior to start

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Speaker 1: covering energy shorts and get long. To be honest, I'm

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Speaker 1: a little bit skeptical of any analysis right now that

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Speaker 1: tries to zone in or focus too much on where

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Speaker 1: we are in this business cycle, because it has not

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Speaker 1: been a traditional business cycle. It's been a liquidity cycle,

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Speaker 1: not a is the thrust of your research. Note, folks, again,

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Speaker 1: we protect the copyright of all of our guests. We're

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Speaker 1: not going to send you up. Chris. You wouldn't believe

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Speaker 1: how many people can you just send us his deck? No,

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Speaker 1: we don't. It's their livelihood, it's how they pay for

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Speaker 1: the child to come, Mr Varone, When when when you

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Speaker 1: look at the heart of your research, note it's about

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Speaker 1: my waistline and expanding market. Yeah, I know what expanding is, John,

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Speaker 1: expanding my waistline and doing a good job, Right, John,

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Speaker 1: that's very good. What is an expanding market? I don't

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Speaker 1: know that term. I think what's been frustrating for a

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Speaker 1: lot of the bears is right when one group starts

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Speaker 1: to falter, another group or another two groups steps in

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Speaker 1: and fills the void. And that's what we've seen over

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Speaker 1: the last several weeks, just as tech begins to stumble,

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Speaker 1: financials re accelerate, small caps re accelerate, consumer re accelerates.

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Speaker 1: That I think is a definition of an expanding market

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Speaker 1: where participation is getting water, not narrower. Okay, Christophron, thank

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Speaker 1: you so much for the brief exay love it with fatigos,

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Speaker 1: not research with a really optimus stick tone within the

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Speaker 1: great bull market that we're in, John Farren, time can

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Speaker 1: joining saw Megan Green with workout of Oxford in a

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Speaker 1: school that wears orange and New Jersey as well. I

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Speaker 1: want to get back to basics, which is, for our listeners,

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Speaker 1: where's the wage growth at every level. Everything now is

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Speaker 1: about tax cuts and brackets and how much I'm gonna

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Speaker 1: take home. But the solution is wage growth, John, am

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Speaker 1: I right, it ain't there. It's not there at the

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Speaker 1: time when you think it would be. That with unemployment

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Speaker 1: is love it as it is, Megan. Yeah, So I

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Speaker 1: think the relationship between unemployment and inflation just isn't the

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Speaker 1: same as it used to be. It's definitely there. So

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Speaker 1: at a certain level of unemployment you might see where

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Speaker 1: you just start to kick in. But I think much

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Speaker 1: bigger global drivers are causing this lack of a growth.

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Speaker 1: So things like all of a sudden, you know what

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Speaker 1: we consume our services and services producing sectors are really

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Speaker 1: low wage sectors. Who are adding most of our new

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Speaker 1: jobs in low wage sectors. So do you buy the

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Speaker 1: zero edge angle that all we're doing is employing bartenders

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Speaker 1: and waitresses. No. A piece of it certainly is the

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Speaker 1: gig economy though, so that's not being captured very well

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Speaker 1: in the wage data, maybe through U six data, so

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Speaker 1: under employed people and that's been stubbornly high. Um. But

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Speaker 1: also you have to stick the US within the bigger

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Speaker 1: globalized world and recognize that companies don't have to hire

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Speaker 1: within the US is boundaries anymore. And so if you

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Speaker 1: have a massive glut of cheap labor globally, that also

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Speaker 1: keeps up for pressure off of inflation and wages. And

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Speaker 1: so we're not seeing much wage growth because of that,

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Speaker 1: and that trends not going anywhere. So it started with

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Speaker 1: the industrialization and urbanization of China. Now we have India,

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Speaker 1: and next it's to the Middle East. Then subs are

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Speaker 1: in Africa, so this has ages to round. Could we

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Speaker 1: see US unemployment test the low threes from four point

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Speaker 1: one where it sat right now? Yeah, I think we could.

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Speaker 1: And when I think when it gets to the low threes,

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Speaker 1: we might start to see some more wage inflation creep

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Speaker 1: in um. But a lot will happen, A lot will

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Speaker 1: depend on what happens with the economy. So if you

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Speaker 1: believe that this tax bill, for example, is going to

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Speaker 1: boost growth, then you think we'll get there sooner than later.

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Speaker 1: I don't think it will fundamentally shift our potential GDP

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Speaker 1: much at all, So I'm more skeptical. Well, Megan, we'll

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Speaker 1: spend a little bit of time talking about that in

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Speaker 1: a moment. But for unemployment, can we take a step

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Speaker 1: back and realize how wrong the Federal Reserve has got

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Speaker 1: this over the last couple of years. A while ago,

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Speaker 1: we had forward guidance from the FED and they told

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Speaker 1: us six and a half percent. Once unemployment goes through

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Speaker 1: six and a half, we'll think about raise and interest rates,

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Speaker 1: because they thought that could be the bite point for

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Speaker 1: wage growth and inflation. And here we are down at

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Speaker 1: four point one percent. Is that a moving target? Now? Look,

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Speaker 1: it was always more of an art than a science

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Speaker 1: measuring NEHRU or the full level of employment. The FEDS

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Speaker 1: have to head to revise their forecast for this a

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Speaker 1: number of times, um. But it's it's it's not a

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Speaker 1: perfect mad sure, and so it is a bit of

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Speaker 1: a moving target. And the Fed's is not the only

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Speaker 1: one who's gotten this wrong, by the way. It's it's

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Speaker 1: this phenomenon is across the developed world, um, but including

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Speaker 1: in the US. And I just don't see this phenomenon

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Speaker 1: shifting much anywhere in the developed world. So let's talk

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Speaker 1: about what you don't think the tax plan changes this?

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Speaker 1: Why not? So? I think in terms of growth, I

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Speaker 1: mean there are two ways to fundamentally boost our productivity

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Speaker 1: growth in the US or elsewhere. One is to boost productivity.

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Speaker 1: So this tax bill could do that if it encouraged

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Speaker 1: a whole bunch of investment in capital expenditure. There's very

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Speaker 1: little that I see in the tax bill that would

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Speaker 1: do that. The expensing piece actually sunsets after about five years.

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Speaker 1: It looks like based on what we have so far,

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Speaker 1: um and that won't change companies capital deployment strategies. UM.

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Speaker 1: So we don't see we'll get a huge boost to

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Speaker 1: productivity growth. The second way is to fundamentally increase your

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Speaker 1: labor supplan and it's called the Tax and Jobs Act,

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Speaker 1: but it's very little that suggests that we'll actually get

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Speaker 1: a boost and employment. One thing we would need to see,

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Speaker 1: I think is um and earning income tax credits. And

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Speaker 1: this is really important to John's really good question. This

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Speaker 1: is really important. John said, it's unimaginable, John, for anybody

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Speaker 1: of my ILK to go under four percent unemployment rate.

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Speaker 1: It's like Gary Shilling and deflation good and bad. Deflation

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Speaker 1: is a three point six percent unemployment rate, a good

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Speaker 1: or bad unemployment rate. So I don't think you can

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Speaker 1: make that judgment. I think you need to look at

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Speaker 1: what kinds of jobs were creating, and the reality is

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Speaker 1: kind of more than half the jobs we're creating for

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Speaker 1: the past years have been in low wage, low hour sectors.

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Speaker 1: So we're mainly creating services producing jobs, not goods producing jobs.

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Speaker 1: And that's partly because our consumption patterns have shifted. But

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Speaker 1: I don't see that going anywhere anytime. So, so, Megan,

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Speaker 1: something I'm trying to figure out as we go forward,

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Speaker 1: are these cyclical issues in the labor market or structural issues,

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Speaker 1: Because if we're waiting for for unemployment to plunge into

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Speaker 1: the low threes to get wage growth, it kind of

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Speaker 1: tells me that actually there's a lot of m there's

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Speaker 1: a lot of specapacity out there, there's a lot of

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Speaker 1: room to go in the labor market, that maybe some

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Speaker 1: of this is still cyclical. Um, So I think it

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Speaker 1: is more structural. Actually, I think it's underpinned by these

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Speaker 1: big global drivers that are going to be the case

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Speaker 1: for the next five bicken years. So I think it's

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Speaker 1: much less cynical. I dare I say at this time,

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Speaker 1: I think is a bit different. You follow the United

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Speaker 1: Kingdom with your wandering by Oxford a few years ago,

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Speaker 1: what what do you see beneath the headline news? There

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Speaker 1: with Brexit. I mean to me, it's total cast. John

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Speaker 1: and I were mentioning the Telegraph this morning it's like

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Speaker 1: a TV show. I mean, John, am I right? It

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Speaker 1: was like almost like a you know, a movie, a theater.

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Speaker 1: It's a slow train crash. And now whether you think

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Speaker 1: the UK comes out the other side better or worse off,

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Speaker 1: this kind of in between the way that negotiated this

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Speaker 1: has just been a and I would say Brexiteers and

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Speaker 1: remainers would both agree that the negotiation process has been shocking. Megan,

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Speaker 1: it's true. And you know they spent a lot of

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Speaker 1: time talking to the German government and some of them

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Speaker 1: had said to me, look, the UK can't decide what

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Speaker 1: they want, so at the end of this, we're gonna

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Speaker 1: end up hand them a piece of paper and saying

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Speaker 1: like this is our offer. You can take it or

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Speaker 1: leave it. And there there is a risk that that

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Speaker 1: could happen, given how much in fighting there is within

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Speaker 1: the UK government, the fact that the DUP could derail

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Speaker 1: these talks so massively. You know they have ten seats,

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Speaker 1: but that makes all the difference. The thing we learned

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Speaker 1: yesterday is like the previous seat holder Mr Farrell doesn't

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Speaker 1: know who Bucky den is? Can you please explain Bucky

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Speaker 1: Dent to John Farrell Enter from the Yankees and a

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Speaker 1: few years ago? Yeah, so I actually can, but I

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Speaker 1: have to assume this is a Red Sox Yankees reference,

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Speaker 1: and failing, failing, you don't know who Bucky f den

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Speaker 1: is either. I don't what am I am? I like McKinnon,

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Speaker 1: how old am I? He was the start sing short

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Speaker 1: stop for the New York Pharaoh reading. I'm reading it

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Speaker 1: a little bit for it broke our hearts years ago?

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Speaker 1: Ken Pruitt understood this, like right, Ken Prue, I think

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Speaker 1: I've probably just blocked it from you did. Probably I

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Speaker 1: could understand that is as well the buoyancy that this

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Speaker 1: nation needs. Are we going to get it back? The

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Speaker 1: President talks about make America grade again. Do you see

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Speaker 1: three percent plus real GDP um? I don't see sustainable

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Speaker 1: three percent plus GDP? I could see a few quarters um.

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Speaker 1: We might pull some investment um at forward. That's probably

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Speaker 1: the best we're going to do, But I don't see

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Speaker 1: potential GDP growth rising that much. How did we get

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Speaker 1: from Brexit to Bucky Dent? We do that. It's surveillance.

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Speaker 1: It's where it's allowed to do that. It's just so

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Speaker 1: I know. I'm just gonna make another there's no script

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Speaker 1: and we just go. Megan is Megan once came in

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Speaker 1: with the red Sox like sneakers on. She didn't, did you? Wow?

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Speaker 1: She never did that for me once eight Marvin good

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Speaker 1: Friend at the FED. Very quickly here Marvin good for

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Speaker 1: what an interesting choice at the Fed. He's an interesting choice,

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Speaker 1: and some would argue that he's more hawkish than most

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Speaker 1: people in the f O m C. I actually don't

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Speaker 1: necessarily agree with that. I think it's hard to guess

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Speaker 1: whether he's Devish or Hawkins. Megan. Thank you so much

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Speaker 1: for Megan Green with Emanuel Life and the Johnny Hancock

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Speaker 1: Company of Boston and Montreal. We greatly I appreciate it.

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Speaker 1: Today where she is a chief economist and a wide

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Speaker 1: ranging discussion. I want to talk to Jonathan Golub, chief

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Speaker 1: US equity Strategists a credit Swiss Securities. John always great

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Speaker 1: to catch up with. You talk to me about that

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Speaker 1: rotation and what's fueling it and if it's got any

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Speaker 1: longevity as we approach your end. Yeah, I think that

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Speaker 1: there's a ton of longevity on on this rotation trade.

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Speaker 1: What's interesting is that the market would seem like it

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Speaker 1: didn't do very much, but in reality, the market has

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Speaker 1: been digesting the fact that we're likely to get the

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Speaker 1: taxing for for probably a week or maybe even longer.

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Speaker 1: But now you have investors looking at who are the

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Speaker 1: big beneficiary areas? And I say big as because there

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Speaker 1: are smaller beneficiaries. But it's those companies that are paying

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Speaker 1: low taxes that you want to be moving away from

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Speaker 1: and those companies paying high taxes that benefit from this.

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Speaker 1: And there's this this massive revaluing of what every single

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Speaker 1: company in the SMP is worth. So every single company

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Speaker 1: is in play right now. John, Can I just mention

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Speaker 1: that John Gollub has been one of the few who

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Speaker 1: has been consistently stay courageous in this unlovable market. Yeah.

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Speaker 1: And it's not like one big research paper. It's every

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Speaker 1: ninety days saying just shut up and be in this market.

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Speaker 1: You know, you know the line about forecasting bad forecasters

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Speaker 1: forecast often. Jonathan Golub does not forecast often. You sort

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Speaker 1: of stayed resolute with this bull market, John, and I

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Speaker 1: just wondrous we make that rotation. Is it more than

427
00:22:53,680 --> 00:22:56,760
Speaker 1: just about low tax to high tax. Is there something

428
00:22:56,960 --> 00:22:59,920
Speaker 1: in there in terms of growth to value as well? Well,

429
00:23:01,160 --> 00:23:03,760
Speaker 1: it's it's all about taxes. But however, if you look

430
00:23:03,800 --> 00:23:07,880
Speaker 1: at the companies that benefit the most in groups like tech,

431
00:23:07,960 --> 00:23:11,119
Speaker 1: which are growthy, which gets hurt the most, financials or

432
00:23:11,160 --> 00:23:15,520
Speaker 1: a winner, retails are a winner, and so it looks

433
00:23:15,600 --> 00:23:19,680
Speaker 1: like the value guys are generally much bigger winners on

434
00:23:19,760 --> 00:23:22,400
Speaker 1: this trade. So if you said to me one year,

435
00:23:22,480 --> 00:23:26,520
Speaker 1: two year outlook, do I like growth socks over value? Absolutely?

436
00:23:26,720 --> 00:23:29,800
Speaker 1: Over the next six weeks or three months, I think

437
00:23:29,800 --> 00:23:33,240
Speaker 1: there's no way that that value can't win because there's

438
00:23:33,240 --> 00:23:35,679
Speaker 1: such a big beneficiary by this train. I imagine if

439
00:23:35,680 --> 00:23:38,000
Speaker 1: we took a pole of questions from our listens right now,

440
00:23:38,119 --> 00:23:41,560
Speaker 1: near the top would be why now, John, Why now?

441
00:23:41,640 --> 00:23:45,840
Speaker 1: John Tucker? So hold on, this is important, John Tucker.

442
00:23:45,880 --> 00:23:50,239
Speaker 1: Does John Fair understand we only have twenties three listeners?

443
00:23:49,280 --> 00:23:54,840
Speaker 1: You can't leaders now that he's here. I thought we

444
00:23:54,840 --> 00:23:57,520
Speaker 1: were taking some of my listeners from TV and bringing

445
00:23:57,520 --> 00:24:02,960
Speaker 1: them the whole continue. We've gone worldwide and added next

446
00:24:02,960 --> 00:24:06,560
Speaker 1: to five Jonathan, Seriously, though, why now? I mean the

447
00:24:06,560 --> 00:24:09,320
Speaker 1: market is meant to be the most efficient discounting machine

448
00:24:09,359 --> 00:24:11,560
Speaker 1: on the planet. It's looked like we get in this

449
00:24:11,640 --> 00:24:13,840
Speaker 1: for weeks and that all of a sudden snap we

450
00:24:13,840 --> 00:24:16,480
Speaker 1: stopped pivoting away from the low tank guys to the

451
00:24:16,560 --> 00:24:20,520
Speaker 1: high tax guys. Well, there's there's there's doubt all along

452
00:24:20,600 --> 00:24:23,360
Speaker 1: the way that this thing is gonna I mean, maybe

453
00:24:23,400 --> 00:24:26,560
Speaker 1: put it differently. The first the focus of the market

454
00:24:26,600 --> 00:24:28,159
Speaker 1: has been are we going to get this? Aren't we

455
00:24:28,200 --> 00:24:30,679
Speaker 1: gonna get this? And what's in it? Now? With with

456
00:24:30,800 --> 00:24:34,200
Speaker 1: the House plan and the Senate plan for this tax change,

457
00:24:34,320 --> 00:24:37,200
Speaker 1: almost identical, the market is saying, is this thing is

458
00:24:37,240 --> 00:24:39,679
Speaker 1: a done deal? Now we're gonna Now we move on

459
00:24:39,720 --> 00:24:43,400
Speaker 1: to the second question is exactly who's wonder how much

460
00:24:43,400 --> 00:24:45,399
Speaker 1: more or less is ex on mobile worth? How do

461
00:24:45,440 --> 00:24:48,480
Speaker 1: we revalue that every single individual stock? Jonathan go with

462
00:24:48,600 --> 00:24:50,439
Speaker 1: us with the Swiss Bank credit suite, so you can

463
00:24:50,480 --> 00:24:52,720
Speaker 1: talk about bank stocks in the US a little better

464
00:24:52,720 --> 00:24:55,680
Speaker 1: than other strategists. We had a previous guest this morning

465
00:24:55,720 --> 00:24:57,560
Speaker 1: and was all over the big banks as a roll

466
00:24:57,640 --> 00:25:00,639
Speaker 1: of value. He said, forget about kurve flattening. Where do

467
00:25:00,680 --> 00:25:06,240
Speaker 1: you position the big banks? In two? You have to

468
00:25:06,320 --> 00:25:08,080
Speaker 1: like the banks. I mean first, I mean if you

469
00:25:08,119 --> 00:25:09,960
Speaker 1: look at the number one thing that banks do is

470
00:25:10,000 --> 00:25:12,080
Speaker 1: they lend money, and if they get paid back that money,

471
00:25:12,080 --> 00:25:16,000
Speaker 1: they do well. So credit performance, loan performance has been terrific.

472
00:25:16,520 --> 00:25:19,720
Speaker 1: Um the economy is in good shape. This tax change

473
00:25:19,720 --> 00:25:23,240
Speaker 1: incrementally makes it better. The banks are higher taxpayers because

474
00:25:23,240 --> 00:25:27,280
Speaker 1: they're mostly domestic, which means they're a beneficiary on that

475
00:25:27,760 --> 00:25:30,520
Speaker 1: interest rates are likely to rise, which helps them out

476
00:25:30,560 --> 00:25:33,119
Speaker 1: that way. It's it's almost as if everything that the

477
00:25:33,160 --> 00:25:37,280
Speaker 1: banks want to see is all happening right now and

478
00:25:37,520 --> 00:25:40,399
Speaker 1: they're still very reasonably valued. Two things, John, let's deal

479
00:25:40,440 --> 00:25:42,600
Speaker 1: with the first one. The first one is the supply

480
00:25:42,640 --> 00:25:46,240
Speaker 1: of credit. They might be willing to lend more. Consumetism

481
00:25:46,280 --> 00:25:49,160
Speaker 1: business is are they looking to borrow more? Because from

482
00:25:49,200 --> 00:25:51,080
Speaker 1: what I see in the love and growth data right

483
00:25:51,119 --> 00:25:54,520
Speaker 1: now is some softness, not some strength. No, you're you're

484
00:25:54,560 --> 00:25:56,320
Speaker 1: you're on your percent right. And one of the areas

485
00:25:56,359 --> 00:25:58,080
Speaker 1: that's been so disappointing, and one of the areas I

486
00:25:58,119 --> 00:25:59,760
Speaker 1: think on this tax deal that we may miss is

487
00:26:00,160 --> 00:26:02,320
Speaker 1: you've had really low interest rates for a long time,

488
00:26:02,480 --> 00:26:05,040
Speaker 1: and yet there's been a companies have not borrowed nearly

489
00:26:05,080 --> 00:26:07,520
Speaker 1: as much as you would have thought. They are what

490
00:26:07,560 --> 00:26:10,520
Speaker 1: we what we need is confidence. What I'm hearing from

491
00:26:10,560 --> 00:26:14,840
Speaker 1: senior investors is that we might see a pick up

492
00:26:14,960 --> 00:26:19,880
Speaker 1: in business activity and mergers and acquisitions because there's less

493
00:26:20,160 --> 00:26:23,280
Speaker 1: there's much more clarity today on what the out what

494
00:26:23,359 --> 00:26:26,080
Speaker 1: the environment is than there was a few months. If

495
00:26:26,080 --> 00:26:28,840
Speaker 1: you're gonna do a transaction, six months ago, you didn't

496
00:26:28,880 --> 00:26:31,320
Speaker 1: know what the taxes you're gonna pay on that transaction.

497
00:26:31,560 --> 00:26:33,880
Speaker 1: You didn't know what the regulatory environment was that you're

498
00:26:33,920 --> 00:26:36,320
Speaker 1: operating in, and you know in the last week we've

499
00:26:36,320 --> 00:26:39,399
Speaker 1: gotten more clarity. That's the volume of activity for the banks.

500
00:26:39,440 --> 00:26:42,400
Speaker 1: Now let's talk about the price. Conceptually, it's really straightforward.

501
00:26:42,440 --> 00:26:45,920
Speaker 1: Banks borrow short, they lend long, and they look the

502
00:26:45,960 --> 00:26:48,520
Speaker 1: profit in between. And it's as simple as that. So

503
00:26:48,560 --> 00:26:50,320
Speaker 1: when you look at the curve and you know exactly

504
00:26:50,359 --> 00:26:52,280
Speaker 1: where I'm going with this, most people would say, look

505
00:26:52,320 --> 00:26:55,520
Speaker 1: at the tracery curve. It's flat. And for that very reason,

506
00:26:55,760 --> 00:26:57,800
Speaker 1: the bank profits aren't gonna be as big as you expect.

507
00:26:57,840 --> 00:27:00,080
Speaker 1: What you say back to them, John Okay, So, and

508
00:27:00,119 --> 00:27:02,480
Speaker 1: I think that that's partially true. But let's let's look

509
00:27:02,480 --> 00:27:04,680
Speaker 1: at this way. If if interest rates go up to

510
00:27:04,720 --> 00:27:07,320
Speaker 1: the FED raises interest rates by fifty basis points. Do

511
00:27:07,400 --> 00:27:09,480
Speaker 1: I think I'm gonna get fifty basis points more on

512
00:27:09,560 --> 00:27:13,600
Speaker 1: my checking account from JP Morgan or Bank of America.

513
00:27:14,920 --> 00:27:16,680
Speaker 1: So so what you're gonna have is is that they're

514
00:27:16,720 --> 00:27:19,720
Speaker 1: going to be able to lend money at that additional spread,

515
00:27:20,000 --> 00:27:21,800
Speaker 1: and I'm not going to get it as depositor. They're

516
00:27:21,840 --> 00:27:24,919
Speaker 1: gonna benefit on You can't talk about individual stocks, but

517
00:27:25,000 --> 00:27:27,439
Speaker 1: you've got to be quite taken by the CVS at

518
00:27:27,520 --> 00:27:30,320
Speaker 1: Nobel A. There's a lot of you know, good analysis

519
00:27:30,400 --> 00:27:32,800
Speaker 1: out today on this. I don't know what your research

520
00:27:32,840 --> 00:27:34,840
Speaker 1: people have said. If you want to talk about it, great,

521
00:27:35,280 --> 00:27:40,200
Speaker 1: But do you see synergistic, ginormous m and as is

522
00:27:40,320 --> 00:27:43,880
Speaker 1: part of next year because the revenue line isn't there

523
00:27:43,920 --> 00:27:47,720
Speaker 1: for companies? You know, you know, I'm not an m

524
00:27:47,760 --> 00:27:50,879
Speaker 1: and A. I'm not a you know, a specialist in

525
00:27:51,320 --> 00:27:53,840
Speaker 1: EM and activity, but but I think this. I think

526
00:27:53,840 --> 00:27:56,560
Speaker 1: there's two issues here. First is there is some fring

527
00:27:56,640 --> 00:27:59,399
Speaker 1: up of capital that that companies can tap to do

528
00:27:59,520 --> 00:28:02,639
Speaker 1: trans actions. But more importantly, and this is what I'm

529
00:28:02,680 --> 00:28:04,440
Speaker 1: hearing from people who are who are much closer to

530
00:28:04,480 --> 00:28:08,000
Speaker 1: these transactions, is that there's more clarity today than there

531
00:28:08,080 --> 00:28:11,399
Speaker 1: was yesterday. Does that is that driving this individual deal,

532
00:28:11,560 --> 00:28:16,680
Speaker 1: probably not the multiple due to the multiple saying it's

533
00:28:16,680 --> 00:28:19,280
Speaker 1: got to support it, right, you know, I I if

534
00:28:19,320 --> 00:28:22,080
Speaker 1: you if you look at the broad m and A

535
00:28:22,200 --> 00:28:26,680
Speaker 1: or taxes, Yeah, I mean if if M and A happens,

536
00:28:26,680 --> 00:28:29,120
Speaker 1: when there's more confidence, when there's more clarity, and when

537
00:28:29,119 --> 00:28:31,440
Speaker 1: those things happen, stock multiples go higher, there's no question

538
00:28:31,480 --> 00:28:33,159
Speaker 1: about it. Can we just gotta final word on you

539
00:28:33,200 --> 00:28:35,880
Speaker 1: on the alternative minimum tax. A lot of people didn't

540
00:28:35,880 --> 00:28:38,200
Speaker 1: expect that to be maintained in the Senate bill. It's

541
00:28:38,320 --> 00:28:41,760
Speaker 1: in that. It's also does that move the donal on

542
00:28:41,800 --> 00:28:44,040
Speaker 1: this tax story for you on the corporate side, are

543
00:28:44,080 --> 00:28:47,600
Speaker 1: you talking side? Yeah? I mean there's there are there

544
00:28:47,640 --> 00:28:50,680
Speaker 1: are a ton of companies who are paying very very little.

545
00:28:50,720 --> 00:28:52,440
Speaker 1: And what this is going to do is it's gonna

546
00:28:52,560 --> 00:28:54,680
Speaker 1: it's going to take those companies who have been able

547
00:28:54,680 --> 00:28:57,520
Speaker 1: to avoid taxes and bring them, bring them up to

548
00:28:57,640 --> 00:29:00,000
Speaker 1: something that's more fair. And it's gonna on the other hand,

549
00:29:00,000 --> 00:29:03,520
Speaker 1: and give releaf to other companies um and ultimately for

550
00:29:03,600 --> 00:29:06,640
Speaker 1: the whole market in total. This is this is a

551
00:29:06,680 --> 00:29:09,480
Speaker 1: lowering of tax rate. It makes us companies more competitive.

552
00:29:09,760 --> 00:29:12,400
Speaker 1: John Gollubs, thank you, Thank you so much. As well,

553
00:29:12,440 --> 00:29:14,800
Speaker 1: he is with Credit Suite looking at the equity markets,

554
00:29:14,840 --> 00:29:19,120
Speaker 1: and he has been courageous about staying in uh this bloomarket.

555
00:29:29,880 --> 00:29:34,080
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and

556
00:29:34,160 --> 00:29:39,480
Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast

557
00:29:39,520 --> 00:29:43,760
Speaker 1: platform you prefer. I'm on Twitter at Tom Keane before

558
00:29:43,760 --> 00:29:47,600
Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg

559
00:29:47,720 --> 00:29:48,000
Speaker 1: Radio