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Speaker 1: Who you put your trust in matters. Investors have put

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Speaker 1: their trust in independent registered investment advisors to the tune

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Speaker 1: of four trillion dollars. Why learn more and find your

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Speaker 1: independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast.

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Speaker 1: I'm Tom Keene with David Gura. Daily we bring you

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Speaker 1: insight from the best in economics, finance, investment, and international relations.

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Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and

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Speaker 1: of course on the Bloomberg and Frank. We start the

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Speaker 1: show with a sad note. Uh former Bundesbank President Hansteep,

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Speaker 1: his last president of the Bundesbank before the ECB, has

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Speaker 1: died at the age of eighty five. I have a

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Speaker 1: statement out from Buddhu's Bank president h Ian Fiedman just

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Speaker 1: a few moments ago. Sad four is still a good life.

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Speaker 1: But you're right, it's sad. And actually usually in the

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Speaker 1: Christmas period we do get a little bit of this

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Speaker 1: always always sad news when it comes to death. Um

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Speaker 1: away from sad news, Mike, and actually I don't know

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Speaker 1: whether it's good news or bad news, but you know,

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Speaker 1: you were talking about the fact that we had a

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Speaker 1: day off yesterday. We're still trying to figure out and

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Speaker 1: actually I urge all of our listeners if you like

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Speaker 1: talking about Brexit. There's a great Brexit quiz on our

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Speaker 1: Bloomberg dot com. But we're seeing as economic uncertainties may

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Speaker 1: actually ratchet up in a lot more people holding cash.

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Speaker 1: So this is according Mike to the British Bankers Association,

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Speaker 1: and it's the first time that we saw that personal

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Speaker 1: deposits growing about five percent in November. I don't know

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Speaker 1: whether it means that that people are just a little

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Speaker 1: bit concerned about their house prices and things like that

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Speaker 1: are inflation, but it's the first time we've seen it

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Speaker 1: in eleven months. And they gotta pay their Christmas bills too,

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Speaker 1: you know, all the money they spent on gifts, all

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Speaker 1: the money you see. I mean when when you say

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Speaker 1: hoarding cash, I think of people putting their um, you know,

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Speaker 1: sterling coins into a tin on the dresser or something

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Speaker 1: like that. Um But you know, we have a new

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Speaker 1: coin in One of the probably most popular cultural stories

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Speaker 1: here is that we have a new sterling coin, which

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Speaker 1: I believe will be unveiled by the Bank of England

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Speaker 1: seventeen March or even April of next year that strangely

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Speaker 1: looks like the euro. It's it's true, I've seen it.

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Speaker 1: Perfect timing. Well, let's ask Mark Chandler about that he

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Speaker 1: had of currency strategy for Brown Brothers hairman and he

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Speaker 1: has migrated over here with us from Bloombergshire. Aillance on

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Speaker 1: television and uh mark um significant the Brits are introducing

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Speaker 1: a new coin this year. Actually, the larger question is

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Speaker 1: what is the pound? What happens to the pound in

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Speaker 1: two thousand seventeen with bragsit in full flower Supreme Court

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Speaker 1: decision coming up, the article fifty trigger theoretically in March,

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Speaker 1: what do you see happening? Yeah, that's a good question.

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Speaker 1: I think that's like. One of the big surprises, of

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Speaker 1: course this year was the Brexit, the refervendum. I still

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Speaker 1: think that such an important decision made by a very

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Speaker 1: small majority of people, less than fifty two percent. So

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Speaker 1: some big changes coming to to the UK, and I

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Speaker 1: think the market is getting frustrated that this idea of

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Speaker 1: a soft Brexit hard Direxit, which is what the market's

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Speaker 1: really been debating about. I think next year that all

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Speaker 1: that changes, And it seems to me these are splitting

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Speaker 1: hair is really it's hard to see how the UK

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Speaker 1: is gonna be able to maintain both access to it

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Speaker 1: to the Common market and control its borders. It's that

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Speaker 1: I think the EU is right that it's not a

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Speaker 1: smortgage board type of opportunity where you just pick and

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Speaker 1: choose what you want. And so I think that until

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Speaker 1: this is resolved, it's hard to see how Sterling has

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Speaker 1: a substantial rally. So I'm looking at sterling still to

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Speaker 1: be falling. I think that next year, as if I've

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Speaker 1: write about the Euro going through parity, I think we

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Speaker 1: could see sterling back down to those loads we saw

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Speaker 1: on the flash crash. Bring this down about one fourteen

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Speaker 1: or so, say a dime from here on the downside,

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Speaker 1: And I'm looking at this new pound coin. Looks like

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Speaker 1: it's a pineapple. I mean, what is that. I think

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Speaker 1: it's a Scottish emblem, but close it's a thistle, it looks,

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Speaker 1: but I think it's a thistle. Um, we'll put it

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Speaker 1: on social media for the for the people that are

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Speaker 1: listening to us, so you can also have a look

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Speaker 1: at the new twelve sided one pound coin being unveiled

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Speaker 1: next year. Mark when you look at currencies, right it's

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Speaker 1: very clear that volatility was largely played out in currencies

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Speaker 1: in because docs just kept on going higher. Do you

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Speaker 1: think we'll follow a similar pattern in now? I think

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Speaker 1: that's good because I think that what we have is

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Speaker 1: that there's this idea that the capital markets that letting

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Speaker 1: the prices of currencies and money in general, like interest

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Speaker 1: rates move be volatile, that means that the real economy

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Speaker 1: doesn't have to be That is that these financial instruments

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Speaker 1: act as a shock absorber, and we see the economy

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Speaker 1: has become more volatile as the financial markets become less volatile.

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Speaker 1: So I personally would rather see more volatility in the

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Speaker 1: financial assets. So that the problem though with volatiling the

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Speaker 1: financial assets that it implies a direction. So we say

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Speaker 1: low volatiling in the stock market, what do we know?

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Speaker 1: We know from some of the charts that Mike's shown

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Speaker 1: before that the VIX tends to go down when the

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Speaker 1: stock market goes up. So we're talking about more volatility.

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Speaker 1: We're talking about lower stock prices, and we're probably talking

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Speaker 1: about lower bond prices. If bond market volatil is going

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Speaker 1: to improve. Currencies are a different story. I think that

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Speaker 1: some currencies tend to be more volatile. I'd say that

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Speaker 1: the dollar, block, Aussie, Canada, Key, we tend to be

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Speaker 1: a bit more volatile than say the Swiss shrink. But

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Speaker 1: I think that in the year ahead, we still have

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Speaker 1: to be careful about the end, which has had this

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Speaker 1: big reversal this year. You know, we began at one

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Speaker 1: five or so, sold off to almost one hundred, and

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Speaker 1: then bounced back here to one eighteen. I'm looking for

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Speaker 1: dollar yend to continue to move higher. I'm looking for

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Speaker 1: this to take place over the course of the first

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Speaker 1: half of the year. But the same thing, I think

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Speaker 1: in the other major currencies, we should be expecting a

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Speaker 1: little bit more volatilitly, not just because of a trend,

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Speaker 1: but really because of these periods of consolidation after these

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Speaker 1: large trends like we've just seen. We started a conversation

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Speaker 1: with the pound, but you told us earlier that it

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Speaker 1: is the euro is your currency of the year for

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Speaker 1: two thousand seventeen, that it's going to really influence what

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Speaker 1: happens to a lot of the markets in the coming year. Yeah.

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Speaker 1: So the way I sort of think of this is

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Speaker 1: that the what's going on. I think that beside this

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Speaker 1: divergence between ECB policy and FED policy. We also have

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Speaker 1: political issues, and I think for me the key the

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Speaker 1: political issues is this wave of populism. Nationalism may began

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Speaker 1: off in Poland, hungry Czech Republic, moved to the UK

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Speaker 1: with the Brexit vote, the US election with the Trump election,

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Speaker 1: and now we have in Europe next year. We have

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Speaker 1: several opportunities for these populist nationalists to show their hand.

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Speaker 1: And I think that this nervousness, this anticipation, it keeps

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Speaker 1: the keeps the Euro on the defensive. And I think

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Speaker 1: that is particularly problematic because Europe has been held together

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Speaker 1: by integration and if we're seeing a wave of nationalism,

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Speaker 1: that eats away at that integration. And so this is

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Speaker 1: an existential challenge for Europe. And I think that's what

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Speaker 1: keeps the Euro. Besides this monetary policy, this wide divergence.

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Speaker 1: Investors get paid over two hundred basis points right now

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Speaker 1: to belong the US dollar over the Euro, thinking about

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Speaker 1: financing through the Germany. This is the key incentive, the

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Speaker 1: key driver for the dollar. But I think that the

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Speaker 1: politics right behind it. But Mark aren't the politics extremely dangerous?

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Speaker 1: And I don't know whether it's because we don't trust

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Speaker 1: the polls, But is there a concern that actually one

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Speaker 1: of the big countries I'm thinking into the fronts could

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Speaker 1: leave the Eurozone the next eighteen months. Oh, I don't

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Speaker 1: know about eighteen months to leave the Eurozone, because here's

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Speaker 1: what it would have to happen, right, I think about

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Speaker 1: next year, we get the Dutch elections at first, most

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Speaker 1: likely the Dutch elections, and the far right party does

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Speaker 1: seem me pulling ahead, but the majority of the Dutch

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Speaker 1: you want to stay in the EU, want to stay

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Speaker 1: in e MU. Then you've got the French action, and

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Speaker 1: there there's a long tradition of the of the center

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Speaker 1: to parties UH combining forces when faced with a UH,

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Speaker 1: faced with challenge from the National Front. Even then, I

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Speaker 1: can't see how it happens in eighteen months. And then

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Speaker 1: of course in Germany where Merkele she might not be

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Speaker 1: as popular as she was before due to her immigration policies,

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Speaker 1: but doesn't look like she has a local rival that

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Speaker 1: could unseat her. So you're right that other elections, like

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Speaker 1: in Italy, it's possible. But even then Italy has a

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Speaker 1: has a constitutional ban on referendums to affect treaties, So

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Speaker 1: I think that people are jumping the gun a little bit.

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Speaker 1: You know, I was around for both of the Greek crisis,

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Speaker 1: and many people thought Greece was going to drop out.

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Speaker 1: I think those uh London bookies were making odds at

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Speaker 1: like a seven to one or twelve to one chance

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Speaker 1: that Greece was going to drop out. And I think

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Speaker 1: that people have underestimated the political will, and that's what's

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Speaker 1: so important about now. The political will is being challenged.

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Speaker 1: I thought Carolin was rounding off, but it really is

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Speaker 1: a dollar four zero zero for the euro, which is

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Speaker 1: Mark Chandler's currency of the Year for two thousand and seventeen.

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Speaker 1: You think it will go down as low as eight

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Speaker 1: two eight one, not next year, but I've got ninety

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Speaker 1: seven by the middle of the year. But the A

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Speaker 1: two and a half is the October two thousand low,

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Speaker 1: and I think we're gonna head there. And during this

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Speaker 1: Obama slash Trump dollar rally. Well, when we last saw

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Speaker 1: the euro that low, the rest of the world stepped

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Speaker 1: in the G twenty intervened to prop it up. Currency

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Speaker 1: intervention has sort of gone the way of the Dodo.

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Speaker 1: But does it come back, Well, it could come back,

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Speaker 1: but I think that depends on what's happening at the time.

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Speaker 1: I mean, right now, it seems to me that the

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Speaker 1: weakness of the euro is a good thing for Europe.

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Speaker 1: It's a good thing for the world economy, because this

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Speaker 1: is how this is how it's supposed to work. The

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Speaker 1: country that's growing quicker, has stronger fundamentals, gets a stronger currency,

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Speaker 1: and those countries that have a weaker economies get a

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Speaker 1: weaker currency that helps stimulate them. But so it depends

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Speaker 1: only what happens when we get those kind of extremes

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Speaker 1: and how fast we get there, right, But market that

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Speaker 1: this is kind of the point that I was thinking about,

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Speaker 1: is that a week or Europe will be welcomed for

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Speaker 1: a lot of the European exporting countries. Is the problem,

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Speaker 1: if you want to call it a problem, is not

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Speaker 1: dollar strength. Yeah so yeah, so exactly. So, I don't

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Speaker 1: think that we had a point yet where the dollar

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Speaker 1: is a is a problem for Europe. I don't think

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Speaker 1: the dollar is yet really a problem for the US

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Speaker 1: as long as the pace that we've seen in recent

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Speaker 1: months does not continue at this pace. So I'm not

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Speaker 1: sure that we're at a point at a point in

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Speaker 1: the foreseeable future, where the G seven will say, we've

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Speaker 1: been telling the Chinese, we've been We've been making these

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Speaker 1: uh high sounding platitudes that G twenty meetings that currency

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Speaker 1: markets ought to determine the value of foreign exchange, and

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Speaker 1: to overcome those comments with saying that, well, this time

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Speaker 1: is different. We need to intervene because the dollar is

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Speaker 1: getting too strong. I think it's a very high hurdle.

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Speaker 1: Bar I don't think we're anywhere close to that. All Right,

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Speaker 1: other big currency of the year, perhaps in two thousand

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Speaker 1: and seventeen, will be the Chinese when because the PRESIDENTI

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Speaker 1: like the United States and City, is going after the

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Speaker 1: Chinese because they unfairly manipulate their currency. They obviously have

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Speaker 1: been manipulating it higher, not lower, as he has suggested,

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Speaker 1: trying to keep a floor under it. But what happens

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Speaker 1: to the UN in two thousand and seventeen. Yeah, So

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Speaker 1: I think that the first thing I say to keep

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Speaker 1: in mind is that when it comes to people, you

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Speaker 1: and I talk, we want to be uh we want

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Speaker 1: to be honest with each other. But I think when

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Speaker 1: politicians talk, they make a distinction between like declaratory policy

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Speaker 1: what they say operational policy, what they do. And oftentimes

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Speaker 1: the US presidential candidates talk tough about China. When they

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Speaker 1: get into office, they realize they get presented with new information,

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Speaker 1: the complexities of the relationship and the nuances of what

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Speaker 1: China is doing. And right now, I fully agree that

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Speaker 1: China is if anything, it's trying to strengthen its currency.

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Speaker 1: It does not want the currency to fall too fast.

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Speaker 1: It's keeping it relatively stable against the basket. But I

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Speaker 1: have to because I have a strong dollar review and

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Speaker 1: I'm bag back on FED raising interest rates, strength of

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Speaker 1: the US economy while the Chinese economy likely to slow

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Speaker 1: and if anything, some more monetary stimulus from China. I've

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Speaker 1: got the dollar R and B, which now you stay

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Speaker 1: is right below seven, going about seven twenty next year. Okay,

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Speaker 1: you're suggesting Mark that when the facts change, or the

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Speaker 1: facts presented to the president like change, he will change.

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Speaker 1: What will it take for Trump's trade advisor, Peter Navarro,

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Speaker 1: who has written books called, for example, The Death of China,

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Speaker 1: who has clearly on the show, also said he believes

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Speaker 1: China's cheating because they have a surplus. Yeah, this is

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Speaker 1: uh is a good point you raise, and for me,

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Speaker 1: the challenge as an observer is really is really trying

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Speaker 1: to figure out which of these voices within the Trump

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Speaker 1: administration are really going to carry the day. I first

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Speaker 1: got involved in politics when Henry Kissinger was a National

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Speaker 1: Securities adviser, and I think Will Rogers was at the

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Speaker 1: Secretary of State, and yet it was Henry Kissinger that

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Speaker 1: was really running the show. So it really depends not

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Speaker 1: just on who the formal appointments are, but where that

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Speaker 1: power really lies. And if it's not clear to me,

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Speaker 1: where's how it's going to play out. One thing, though,

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Speaker 1: is clear to me, And even though Trump's has said

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Speaker 1: that he'll declare China currency manipulator on day one in office,

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Speaker 1: I would out hold your breath for that. That is

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Speaker 1: to say that the Treasury Department has a has a

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Speaker 1: quantitative list of factors and they say that China only

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Speaker 1: meets one of those three factors. And so whatever brush

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Speaker 1: the Trump administration says that China is a currency market manipulator,

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Speaker 1: that same brush could be could be used to tar

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Speaker 1: many other countries, perhaps including Japan. Well, very quickly, what

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Speaker 1: does it mean if they designate them a currency manipulator? Yeah,

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Speaker 1: So there's to two parts of it. One is China

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Speaker 1: would have to whoever we cited the currency manipulator would

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Speaker 1: have to have negotiations with the US. But more importantly

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Speaker 1: how it affects like equity investors is that US companies

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Speaker 1: could then sue China to get for their grievances that

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Speaker 1: try to try to manipulate the currency. Take an X

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Speaker 1: percentage dollars from them. How do they respond? They can

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Speaker 1: sue them, And so I think that it just opens

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Speaker 1: up that World Trade Organization. I think they might be

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Speaker 1: even separate judicial like tribunal set up for this. I

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Speaker 1: don't think it's fully just at the w t O.

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Speaker 1: All right, Mark Chandler for Brown Brothers Herman, thanks for

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Speaker 1: joining us this morning here on Bloomberg Surveillance. Tony Kristenzi,

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Speaker 1: pimco's Markets TRGY portfolio manager. He's come home for Christmas,

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Speaker 1: all the way from Newport Beach to Brooklyn and UH

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Speaker 1: and points here in Manhattan. We thank you for stopping

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Speaker 1: by this poinning. Your latest note intrigued me because um,

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Speaker 1: everybody talked about the taper tantrum. It was a huge

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Speaker 1: impact on the markets when the Fed suggested it might

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Speaker 1: raise rates and did not. UH might taper and did not.

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Speaker 1: Now you're calling what we're seeing in the bontom markets

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Speaker 1: a Trump tantrum. But when you use those words is

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Speaker 1: it's not the same effect. It's a lot different. On

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Speaker 1: two thirteen, there was this fear of withdrawal of stimulus,

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Speaker 1: the ending of quantitative easing, the bond buying that the

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Speaker 1: Fed had engaged in several trillion dollars of securities. This

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Speaker 1: tantrum is a little different released a Trump and omics

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Speaker 1: and more traditional factors that affect the bond markets, such

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Speaker 1: as growth and inflation. The markets think that growth, which

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Speaker 1: had has been subdued at around two percent or so,

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Speaker 1: inflation also subdued, would might pick up towards the old normal.

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Speaker 1: I mean, the new normal for growth had been around

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Speaker 1: two percent. But the markets think that it could pick up.

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Speaker 1: The question is whether it will pick up permanently in

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Speaker 1: the trajectory move up towards the old normal where suspect

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Speaker 1: and the bottom market in fact is while many are

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Speaker 1: talking about the all the optimism, look at where the

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Speaker 1: bond markets priced for yields in the year. Looking at

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Speaker 1: short term instruments difficult for anyone to the average person

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Speaker 1: to to see, but we in the bond market. Know

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Speaker 1: that the market participants or priced for the Federal funds rate,

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Speaker 1: the FEDS policy rate, which is today at about a

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Speaker 1: half percent to move up to just two percent in

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Speaker 1: that's about half of what is normal for a neutral rate,

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Speaker 1: where the fit's either pressing on the gas of the

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Speaker 1: brakes historically, so the markets still believe that growth will

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Speaker 1: be subdued over the long run. So while there has

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Speaker 1: been a Trump tantrum, it's been relatively subdued in the

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Speaker 1: sense that the markets are still priced for a very benign,

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Speaker 1: shallow path on interest rates. Looking forward, Tony. First of all,

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Speaker 1: congratulations on your greeting. Hi, Tony Um. I wanted to

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Speaker 1: send you a Bloomberg message through the terminal and as

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Speaker 1: a greeting I have. You are only as good as

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Speaker 1: your lost trade. I love that. I've used that since

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Speaker 1: the nineteen nineties on my Bloomberg terminal and it served

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Speaker 1: you well. So what is your best trade for well? Uh.

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Speaker 1: For one, it's great news that bond yields have increased

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Speaker 1: for bond investors because starting yield is the major determinant

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Speaker 1: of future returns. The yield on the Barkley's aggregate, which

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Speaker 1: for those who don't know. It's similar to were watching

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Speaker 1: these SMP five hundreds, the main barometer by which many

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Speaker 1: bond managers are judged against, although there are a lot

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Speaker 1: of them these days, the Bockley's aggregate is yielding about

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Speaker 1: two and three quarters percent. That's upper percentage point from

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Speaker 1: about six weeks ago. In other words, investors, as I said,

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Speaker 1: uh can now expect with the idea that starting yield

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Speaker 1: is the major determine at the future returns about two

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Speaker 1: and three quarters in a passive strategy. But bond managers

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Speaker 1: like PIMCO historically earned alpha and earned something above that,

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Speaker 1: and we historically have learned about a hundred basis points

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Speaker 1: more than that. So bond investors are looking at returns

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Speaker 1: in the high threes now and even near four on

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Speaker 1: average going forward. So staying invested in bonds is one

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Speaker 1: of the important points. It's many are worried about rising yields,

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Speaker 1: but as I as I said, higher yields are good

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Speaker 1: for one and secondly, one can't try to mock at

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Speaker 1: time the diversification benefits of bonds. It's like getting in

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Speaker 1: a car and saying, well today I don't need car insurance.

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Speaker 1: I'll take the risk. Uh, it's not a wise thing

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Speaker 1: to do. So if investors want to buy equities, if

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Speaker 1: they want to take more risks because they feel the

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Speaker 1: economic outlook is better than it was. Uh, owning bonds,

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Speaker 1: of course enables them to get in the car and

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Speaker 1: drive and take those risks. So it's good to have

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Speaker 1: that anchor. So staying investation and bonds being overweight on

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Speaker 1: credit and also being but but by being somewhat cautious

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Speaker 1: and leaving some dry powders another factor, and also by

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Speaker 1: um simply uh small staying investor is probably the biggest snack.

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Speaker 1: I say, there's a lot of little details. Talk too

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Speaker 1: long about things, things to buy. But we can talk

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Speaker 1: about that if you will. Well, I have to follow up,

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Speaker 1: by the way, John Tucker points out, it's the Bloomberg

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Speaker 1: Barclays index, So we have to do our own shoots.

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Speaker 1: Plug here. So Tony's writing that down. He won't make

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Speaker 1: that mistake never again. But how do I know? I mean,

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Speaker 1: you don't have to go in to every detail of

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Speaker 1: every bottom. But okay, you say I should have bonds,

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Speaker 1: you sell bonds, Um, how do I know what kind

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Speaker 1: of bonds I want to buy? In the whole universe

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Speaker 1: to offer myself protection at time when even if Trump

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Speaker 1: produced zero additional growth, growth has picked up enough to

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Speaker 1: justify the higher rates that we're seeing right now. Right well,

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Speaker 1: um in terms of the types of on course strategies,

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Speaker 1: for one of the anchor that I mentioned, the insurance

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Speaker 1: that investors tend to need at the vertification benefits the

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Speaker 1: type of thing to stick with because investors these days

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Speaker 1: want to take more risks, and equities have moved up

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Speaker 1: significantly and they want to stay in the car and

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Speaker 1: drive and take additional risks. Probably is good to be

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Speaker 1: in core strategies, but they're also good income strategies. That

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Speaker 1: depends on investments in UH liquid and complex instruments. UH.

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Speaker 1: These include non agency mortgages subprime mortgages, for example. We

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Speaker 1: would expect returns in those, and we've been investing heavily

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Speaker 1: in them to stay in the mid single digits called

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Speaker 1: five so on a loss of justice laws adjusted whole

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Speaker 1: to maturity basis. Second security of high interest to US

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Speaker 1: is a bank capital. Banks in Europe they're getting safer

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Speaker 1: and safer, maybe not those in Italy, but in general

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Speaker 1: banks are sharing up the capital levels and that's good

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Speaker 1: for capital securities which are yielding between seven and nine

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Speaker 1: in Europe, so we like those. And being overweight credit

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Speaker 1: is a general concept, but leave some dry prowd. If

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Speaker 1: we had to put it on the scale of szewould

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Speaker 1: attend how in terms of the overweight on credit, we'd

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Speaker 1: probably place it around five or so because markets are

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Speaker 1: somewhat fully priced for a good scenario, and they'll be

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Speaker 1: ups and downs naturally in markets in tween and beyond

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Speaker 1: that one will want to take advantage of so, so

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Speaker 1: of course strategies number one income strategies UH. Secondly, complexity

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Speaker 1: I liquidity good things. Taking advantage of volatility UH is

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Speaker 1: something to do in the bond market in as an investor. Really,

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Speaker 1: and Tony, does that change given what you've just said

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Speaker 1: in terms of the investment landscape? Does it change if

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Speaker 1: the US enter as a trade war or something goes

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Speaker 1: not to plant. I don't know if it's terriffs, I

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Speaker 1: don't know if it's renegotiating messy renegotiations. Francine As you

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Speaker 1: mentioned that the idea of the negative side of the

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Speaker 1: Trump trade that markets don't seem to be thinking about.

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Speaker 1: And this is why when we say stay overweight on credit,

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Speaker 1: but leave dry powder. We are thinking about the possibility

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Speaker 1: of volatility in as markets now and then look at

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Speaker 1: the negative side of or the risks I should say,

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Speaker 1: the left tail risks for the Trump administration. And so

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Speaker 1: those are things that can affect the market negatively and

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Speaker 1: would add to volatility. And we'll have to wait and

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Speaker 1: see how the Trump administration reacts to that volatility and

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Speaker 1: markets and to any impact it may have on economies

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Speaker 1: with policies like that. And it suffice it to say

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Speaker 1: that it will take many months to sort this all out.

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Speaker 1: UH tax legislation, for example, may not be passed till

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Speaker 1: next summer and will take a while before markets are

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Speaker 1: sure about the future for the economic growth in terms

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Speaker 1: of not just eighteen but the trajectory. Will it will

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Speaker 1: us growth will permanently move higher or will it be

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Speaker 1: a Trump bump? The markets will be more interested in

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Speaker 1: in what a permanent increase in growth, and the only

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Speaker 1: way to get there is through high quality spending, high

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Speaker 1: quality policies that encourage investments, unalization, educational attainment and plants, equipment,

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Speaker 1: software and things that over the long run produce economic

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Speaker 1: growth and proven to be growth producers. Just seconds we

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Speaker 1: got the move index measure of altility going down. I

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Speaker 1: mean it peak on election day and it's been going

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Speaker 1: down since well. End of of course, Historically the declines

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Speaker 1: in volatility or something to be worried about. And always

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Speaker 1: I always say beware quiet markets. One never knows what

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Speaker 1: will be next. But the main goal of central bank

431
00:23:10,920 --> 00:23:14,280
Speaker 1: policy you know we're wrapping up, has been to suppress volatility.

432
00:23:14,320 --> 00:23:17,680
Speaker 1: And one has to question whether central banks can continue

433
00:23:17,720 --> 00:23:19,680
Speaker 1: to do that because there has been a shift from

434
00:23:19,680 --> 00:23:23,080
Speaker 1: central bank dominance to fiscal dominance. Now all right, Well

435
00:23:23,760 --> 00:23:28,639
Speaker 1: as who is the guy in Buck's money, um the

436
00:23:28,720 --> 00:23:32,680
Speaker 1: Hunter Elbow Fund would say markets of VOI voy quiet.

437
00:23:34,000 --> 00:23:39,880
Speaker 1: Not a lot of good quote as uh, we get

438
00:23:39,880 --> 00:23:43,280
Speaker 1: through this holiday week between Christmas and New Year's a

439
00:23:43,280 --> 00:23:46,639
Speaker 1: lot of people on vacation, but we are seeing markets higher.

440
00:23:46,840 --> 00:23:50,840
Speaker 1: Do you get more movement off when you have volatility

441
00:23:50,960 --> 00:23:52,800
Speaker 1: elevated because there are a few of people trading, but

442
00:23:52,840 --> 00:23:55,240
Speaker 1: we're not seeing that so far in the market. Tony

443
00:23:55,280 --> 00:23:58,639
Speaker 1: Kristenzi is with us. He's a PIP called Market Strategistic

444
00:23:58,720 --> 00:24:02,320
Speaker 1: Portfolio Manage, which means he's all about bonds. I want

445
00:24:02,320 --> 00:24:06,280
Speaker 1: to go back to something You've started our conversation with

446
00:24:06,400 --> 00:24:09,480
Speaker 1: earlier about how when you look at the forward curve

447
00:24:09,560 --> 00:24:13,919
Speaker 1: for the bond markets UH, you are not seeing the

448
00:24:14,119 --> 00:24:18,239
Speaker 1: enthusiasm in fixed income for trump pomics that you are

449
00:24:18,280 --> 00:24:22,600
Speaker 1: seeing in equity. I'm looking at the dot plot of

450
00:24:22,640 --> 00:24:25,119
Speaker 1: the FED, which, if you go to dots go on

451
00:24:25,160 --> 00:24:27,920
Speaker 1: the Bloomberg not only gives you the dot plot where

452
00:24:27,920 --> 00:24:32,399
Speaker 1: the Fed essentially sees the proper setting of the various

453
00:24:32,440 --> 00:24:34,040
Speaker 1: members of the open market. If you see the proper

454
00:24:34,040 --> 00:24:36,840
Speaker 1: setting rates, but you see what the market, the overnight

455
00:24:36,920 --> 00:24:40,800
Speaker 1: index swaps price out UH interest rates for the next

456
00:24:40,800 --> 00:24:46,760
Speaker 1: couple of years. And you're right, there's no real enthusiasm

457
00:24:47,160 --> 00:24:52,240
Speaker 1: for Trump boosting growth significantly over where we are right now.

458
00:24:52,560 --> 00:24:56,320
Speaker 1: Markets are quite familiar with the story on US economic growth,

459
00:24:56,359 --> 00:25:00,200
Speaker 1: which is to say, they're very strong headwinds sti ILL

460
00:25:00,359 --> 00:25:03,720
Speaker 1: and even with the perspective changes in legislation, and there's

461
00:25:03,800 --> 00:25:07,680
Speaker 1: doubts about what these legislative actions will do for growth

462
00:25:07,760 --> 00:25:13,080
Speaker 1: on a permanent faisis basis. Consider demographics. UM, that's a

463
00:25:13,240 --> 00:25:17,320
Speaker 1: major force in shaping the economic growth globally. It's empirically

464
00:25:17,400 --> 00:25:21,560
Speaker 1: shown that it can affect growth in a nation considered Japan,

465
00:25:21,640 --> 00:25:25,160
Speaker 1: which last year sor decline in the number of persons

466
00:25:25,200 --> 00:25:28,240
Speaker 1: about a million in the population from a hundred twenty

467
00:25:28,320 --> 00:25:31,360
Speaker 1: six million, and the population is expected to continue contracting

468
00:25:31,359 --> 00:25:34,879
Speaker 1: about a half million per year and m until it

469
00:25:35,000 --> 00:25:37,560
Speaker 1: goes to under one hundred million and twenty fifty. It's

470
00:25:37,600 --> 00:25:40,639
Speaker 1: difficult for a nation to grow when there are fewer

471
00:25:40,680 --> 00:25:43,640
Speaker 1: people to produce goods and services. In the United States,

472
00:25:44,240 --> 00:25:47,399
Speaker 1: the baby boom is born people born between nineteen forty

473
00:25:47,440 --> 00:25:49,879
Speaker 1: six and sixty four began turning sixty five. Of course,

474
00:25:49,920 --> 00:25:53,600
Speaker 1: that means in eleven UH it's a contingent of forty

475
00:25:53,880 --> 00:25:56,000
Speaker 1: million people today that will grow to seventy five million

476
00:25:57,480 --> 00:26:00,920
Speaker 1: when the last baby boomer that includes me UH will

477
00:26:01,000 --> 00:26:03,159
Speaker 1: turn sixty five. And so the use doesn't have as

478
00:26:03,200 --> 00:26:06,080
Speaker 1: many people entering the labor force to produce goods and

479
00:26:06,119 --> 00:26:08,359
Speaker 1: services as it used to. So when the bond markets

480
00:26:08,400 --> 00:26:13,119
Speaker 1: thinking about growth prospects, it's thinking about demographic influences on growth.

481
00:26:13,160 --> 00:26:16,000
Speaker 1: That's one thing. The second influence would be credit growth.

482
00:26:16,520 --> 00:26:18,919
Speaker 1: Does the US banking system produce the same sort of

483
00:26:19,440 --> 00:26:22,119
Speaker 1: loan loan growth that it used to know, So this

484
00:26:22,160 --> 00:26:25,720
Speaker 1: means the impulse to growth from credit won't be as

485
00:26:25,760 --> 00:26:28,840
Speaker 1: strong here in Japan and Europe as it used to

486
00:26:28,840 --> 00:26:32,320
Speaker 1: be in Europe that had negative growth in loans through

487
00:26:32,400 --> 00:26:34,440
Speaker 1: last year. Now it's up just one and a half

488
00:26:34,680 --> 00:26:36,760
Speaker 1: per cent or so year over year. It used to

489
00:26:36,800 --> 00:26:39,119
Speaker 1: grow in the high single digits. So the credit story

490
00:26:39,680 --> 00:26:44,600
Speaker 1: isn't as favorable. But the biggest thing is productivity. Companies

491
00:26:45,000 --> 00:26:49,080
Speaker 1: government haven't been investing in people and in stuff. The

492
00:26:49,119 --> 00:26:53,520
Speaker 1: sources of productivities are three. It's people human capital skills

493
00:26:53,560 --> 00:26:58,800
Speaker 1: that people bring to the table. Secondly, it's stuff it's plants, equipment, software, infrastructure.

494
00:26:58,800 --> 00:27:01,880
Speaker 1: And third to total factor productivity. They call it how

495
00:27:01,920 --> 00:27:04,040
Speaker 1: it all gets used? How do we use this stuff

496
00:27:04,040 --> 00:27:07,560
Speaker 1: and people's skills in The data shows that the middle part,

497
00:27:07,800 --> 00:27:11,360
Speaker 1: capital intensity it is called the stuff part, has declined

498
00:27:11,359 --> 00:27:12,960
Speaker 1: on a year of year basis for the first time

499
00:27:12,960 --> 00:27:17,159
Speaker 1: in over sixty years. In other words, companies have fewer

500
00:27:17,200 --> 00:27:20,240
Speaker 1: things in place per unit of labor and the nation

501
00:27:20,280 --> 00:27:22,280
Speaker 1: as a holder. So a company of five years ago

502
00:27:22,320 --> 00:27:25,960
Speaker 1: that had one hundred employees and fifty computers today may

503
00:27:25,960 --> 00:27:29,600
Speaker 1: have based on these data, first decline in over sixty years,

504
00:27:30,119 --> 00:27:33,080
Speaker 1: a hundred people and forty eight computers, fewer things in

505
00:27:33,160 --> 00:27:35,760
Speaker 1: place per unit of labor and so markets to the

506
00:27:35,760 --> 00:27:39,160
Speaker 1: boer market saying that until these things, until that changes,

507
00:27:39,560 --> 00:27:42,199
Speaker 1: it can't overwhelm these other headwinds. And so why not

508
00:27:42,359 --> 00:27:46,800
Speaker 1: then pricing at lower than historical federal funds rate policy

509
00:27:46,920 --> 00:27:49,200
Speaker 1: rate for the Fed and markets the price for Mike

510
00:27:49,240 --> 00:27:51,879
Speaker 1: you said, they looked at the dot plot and o

511
00:27:52,040 --> 00:27:54,200
Speaker 1: I S as it's called, the market the price for

512
00:27:54,240 --> 00:27:58,399
Speaker 1: a two percent policy rate in the year historically the

513
00:27:58,720 --> 00:28:01,120
Speaker 1: neutral rate where the it's neither pressing on the games

514
00:28:01,160 --> 00:28:03,200
Speaker 1: of the brakes is four and a quarters as well,

515
00:28:03,200 --> 00:28:06,400
Speaker 1: below normal for neutral rate. It's not even a tight rate.

516
00:28:06,560 --> 00:28:09,320
Speaker 1: Remember the Fed raised the funds rate to five and

517
00:28:09,359 --> 00:28:11,800
Speaker 1: a quarter the last time around, and when it raised

518
00:28:11,920 --> 00:28:14,760
Speaker 1: rates from two thousand four two thousand and six. Is

519
00:28:14,800 --> 00:28:18,119
Speaker 1: this is a very subdued picture on growth in the

520
00:28:18,119 --> 00:28:21,439
Speaker 1: bond market. So when you think, take a look at

521
00:28:21,440 --> 00:28:23,440
Speaker 1: the bond market and west price for a few years,

522
00:28:23,440 --> 00:28:26,560
Speaker 1: hence Tony, if you look at the spread, for example,

523
00:28:26,680 --> 00:28:31,159
Speaker 1: between let's say the tenure bund and treasury yields, right,

524
00:28:31,200 --> 00:28:34,440
Speaker 1: so that spread has peaked for the moment, I think

525
00:28:34,720 --> 00:28:37,600
Speaker 1: it wind in. I'm looking December to a record two

526
00:28:38,000 --> 00:28:41,840
Speaker 1: thirty five basis points can that spread become bigger next year?

527
00:28:42,640 --> 00:28:46,600
Speaker 1: It could widen, but we wouldn't expect to widen by much.

528
00:28:46,720 --> 00:28:49,640
Speaker 1: And it much depends on the viewpoint on US growth

529
00:28:49,680 --> 00:28:52,000
Speaker 1: and whether the view on the path for rates in

530
00:28:52,000 --> 00:28:54,720
Speaker 1: the United States changes, And it depends in part on

531
00:28:54,800 --> 00:28:57,920
Speaker 1: the toughness that the Fed shows towards inflation. When the

532
00:28:58,000 --> 00:29:00,840
Speaker 1: sphere in the streets of the bondmark, the bond market

533
00:29:00,920 --> 00:29:02,680
Speaker 1: needs a cop on the beat, and that cop on

534
00:29:02,680 --> 00:29:06,520
Speaker 1: the beat is Janet yelling and the Fed. Otherwise bondmarket

535
00:29:06,640 --> 00:29:10,800
Speaker 1: vigilantes emerge, which is to say, bond investors take matches

536
00:29:10,840 --> 00:29:13,400
Speaker 1: into their own hands and tighten policy for the FED

537
00:29:13,440 --> 00:29:16,040
Speaker 1: by raising rates higher than otherwise. So the Fed is

538
00:29:16,280 --> 00:29:22,200
Speaker 1: vigilant in seventeen and addresses the inflation fears developing in

539
00:29:22,240 --> 00:29:25,520
Speaker 1: the bond market. That will limit the spread between US

540
00:29:25,640 --> 00:29:28,480
Speaker 1: yields and foreign yields. And the Feed is tough on inflation.

541
00:29:28,520 --> 00:29:31,360
Speaker 1: If it keeps controls the view on the path for

542
00:29:31,520 --> 00:29:34,760
Speaker 1: rates the destination point, which is that two percent level

543
00:29:35,160 --> 00:29:39,000
Speaker 1: for twenty, then uh, the spread will be kept low.

544
00:29:39,040 --> 00:29:42,200
Speaker 1: And remember, investors globally, we know this. PIMCO has offices

545
00:29:42,800 --> 00:29:47,400
Speaker 1: thirteen countries visited many of them UM investors. They are

546
00:29:47,520 --> 00:29:52,360
Speaker 1: very very keen and interested in and buying bonds that

547
00:29:52,400 --> 00:29:55,880
Speaker 1: are harder yielding than those in their country, and so

548
00:29:56,400 --> 00:29:58,960
Speaker 1: UH investors in Japan and Europe will be looking to

549
00:29:59,000 --> 00:30:02,719
Speaker 1: the n s to invest tire if yields spreads widen.

550
00:30:02,840 --> 00:30:07,240
Speaker 1: And one final point for the Japanese investor yields at

551
00:30:07,280 --> 00:30:09,320
Speaker 1: the start of the year switching from a tenure j

552
00:30:09,440 --> 00:30:12,600
Speaker 1: GB Japanese government on to the tenure treasury UH that

553
00:30:12,680 --> 00:30:14,720
Speaker 1: they pick up was about a hundred basis points after

554
00:30:14,760 --> 00:30:19,160
Speaker 1: including hedging costs to the Japanese investor to hedge there

555
00:30:19,960 --> 00:30:23,320
Speaker 1: yen back into the dollars they buy back into the end.

556
00:30:23,640 --> 00:30:25,360
Speaker 1: It went to zero in the summer, is probably the

557
00:30:25,360 --> 00:30:27,480
Speaker 1: reason why US treasure yields arose. But now it's back

558
00:30:27,560 --> 00:30:29,720
Speaker 1: up to about eight nine basis points, so they can

559
00:30:29,760 --> 00:30:34,440
Speaker 1: pick up additional incremental yield now and so it's probably

560
00:30:34,440 --> 00:30:38,040
Speaker 1: the reason for the stability and yields after the big

561
00:30:38,160 --> 00:30:40,760
Speaker 1: jump in yields recently, is that the yields after hedging

562
00:30:40,800 --> 00:30:44,040
Speaker 1: costs are considered for foreign investors look better, and so

563
00:30:44,080 --> 00:30:49,000
Speaker 1: we see we're seeing again their interests develop. What happens

564
00:30:49,120 --> 00:30:52,760
Speaker 1: for the corporate market in two thousand seventeen, with the

565
00:30:52,840 --> 00:30:57,600
Speaker 1: rates rising UH, we're going to see borrowers step back.

566
00:30:58,520 --> 00:31:02,480
Speaker 1: You correct, my in fact key factor we consider in

567
00:31:02,800 --> 00:31:07,000
Speaker 1: UH the outlook for corporate bonds. These technical factors, and

568
00:31:07,080 --> 00:31:12,120
Speaker 1: because yields have increased, and because companies had been expecting

569
00:31:12,240 --> 00:31:16,200
Speaker 1: the possibility of a yield increase UH and took advantage

570
00:31:16,200 --> 00:31:18,600
Speaker 1: of it by barring more heavily in twenty than they

571
00:31:18,640 --> 00:31:22,120
Speaker 1: otherwise would have. This means the amount of supply of

572
00:31:22,160 --> 00:31:28,760
Speaker 1: corporate bonds in may decline relative to in terms of

573
00:31:28,840 --> 00:31:32,600
Speaker 1: new issuance. A technical factor will be very beneficial to

574
00:31:32,720 --> 00:31:35,560
Speaker 1: a corporate bond market that is of keen interest to

575
00:31:35,840 --> 00:31:40,040
Speaker 1: foreign investors, and so it's one reason to stay optimistic

576
00:31:40,080 --> 00:31:44,080
Speaker 1: about credit and be overweight on credit in SEN is

577
00:31:44,120 --> 00:31:47,400
Speaker 1: this technical force and will remain a technical technical force

578
00:31:47,480 --> 00:31:49,920
Speaker 1: as yields mars. One other point in the high yield

579
00:31:49,920 --> 00:31:53,960
Speaker 1: bond market, very very few bonds mature. It's a very

580
00:31:54,000 --> 00:31:56,560
Speaker 1: positive technical In the next three years, under ten percent

581
00:31:56,600 --> 00:32:00,320
Speaker 1: of the entire universe of how yield bonds mature because

582
00:32:00,320 --> 00:32:04,240
Speaker 1: many companies have turned out the debt pushed the debt

583
00:32:04,240 --> 00:32:07,720
Speaker 1: will maturity far out into about and so that's a

584
00:32:07,760 --> 00:32:12,640
Speaker 1: positive technical that makes short dated how yield very attractive. Tony,

585
00:32:12,720 --> 00:32:15,600
Speaker 1: Is there something so we talk a lot about creating jobs,

586
00:32:15,680 --> 00:32:19,920
Speaker 1: reflating spending on infrastructure, is there anything that President leg

587
00:32:19,960 --> 00:32:22,960
Speaker 1: Donald Trump can do to actually make the US more

588
00:32:22,960 --> 00:32:25,040
Speaker 1: productive or at least, you know, try and fix that

589
00:32:25,080 --> 00:32:30,280
Speaker 1: productivity puzzle. Yes, for one, encouraged give provide incentives to

590
00:32:30,360 --> 00:32:35,120
Speaker 1: companies to invest in capital equipment that over the long

591
00:32:35,200 --> 00:32:40,720
Speaker 1: run will mean more output per hour. But secondly, the

592
00:32:40,760 --> 00:32:44,880
Speaker 1: spending that the u. S engages in directly rather than

593
00:32:44,920 --> 00:32:47,840
Speaker 1: through private sources is going to be need be of

594
00:32:47,920 --> 00:32:50,920
Speaker 1: high quality. So investors should focus on not just the

595
00:32:51,000 --> 00:32:53,840
Speaker 1: quantity of money that is set to be spent on infrastructure,

596
00:32:53,840 --> 00:32:56,880
Speaker 1: about the quality. In two thousand nine, fifty billion was

597
00:32:56,920 --> 00:33:01,200
Speaker 1: spent on infrastructure in the American carvering the Investment Act.

598
00:33:01,680 --> 00:33:04,520
Speaker 1: It was felt that it was of low quality when

599
00:33:04,560 --> 00:33:07,680
Speaker 1: toward making roads a nicer but didn't really provide for

600
00:33:07,720 --> 00:33:10,960
Speaker 1: more output. And also money was that was spent states

601
00:33:10,960 --> 00:33:12,920
Speaker 1: would otherwise have spent, so it was merely a was

602
00:33:12,960 --> 00:33:16,760
Speaker 1: a substitution effect there, And so the it's a very

603
00:33:16,800 --> 00:33:20,200
Speaker 1: big challenge for the Trump administration to produce high quality spending.

604
00:33:20,280 --> 00:33:23,360
Speaker 1: Someone is going to have to watch over how the

605
00:33:23,400 --> 00:33:26,440
Speaker 1: money is spent rather than how much. And that's the

606
00:33:26,560 --> 00:33:30,560
Speaker 1: key to the outlook for productivity and growth and even

607
00:33:30,600 --> 00:33:35,080
Speaker 1: interest rates U in the future. Tony Kristenzi, thanks for

608
00:33:35,080 --> 00:33:37,000
Speaker 1: stopping in this morning. I know you're here to get

609
00:33:37,320 --> 00:33:40,000
Speaker 1: some good Brooklyn pizza. Hope you are able to do

610
00:33:40,080 --> 00:33:45,800
Speaker 1: that your travels. This is Bloomberg Surveillance on Bloomberg Radio.

611
00:33:49,600 --> 00:33:53,440
Speaker 1: Who you put your trust in matters. Investors have put

612
00:33:53,480 --> 00:33:56,880
Speaker 1: their trust in independent registered investment advisors to the tune

613
00:33:56,920 --> 00:34:01,280
Speaker 1: of four trillion dollars. Why they see their role is

614
00:34:01,400 --> 00:34:05,400
Speaker 1: to serve, not sell. That's why Charles Schwab is committed

615
00:34:05,440 --> 00:34:09,120
Speaker 1: to the success of over seven thousand independent financial advisors

616
00:34:09,440 --> 00:34:13,840
Speaker 1: who passionately dedicate themselves to helping people achieve their financial goals.

617
00:34:14,560 --> 00:34:26,200
Speaker 1: Learn more and find your independent advisor dot com. All right,

618
00:34:26,520 --> 00:34:30,080
Speaker 1: and now onto the tweet, because we're always on tweet.

619
00:34:30,080 --> 00:34:33,359
Speaker 1: Watch right, Mike, especially when it comes to the President electness.

620
00:34:33,400 --> 00:34:36,320
Speaker 1: This is his latest one. He talks about Princed Obama.

621
00:34:36,360 --> 00:34:38,840
Speaker 1: This is after I guess it started on Sunday. It

622
00:34:38,880 --> 00:34:41,600
Speaker 1: was a Sunday Mike where President Obama was talking about

623
00:34:41,600 --> 00:34:44,400
Speaker 1: the fact that that had he been running instead of

624
00:34:44,480 --> 00:34:47,919
Speaker 1: Hillary Clinton, he probably would have won. Again, I went

625
00:34:47,960 --> 00:34:50,000
Speaker 1: back and listened to the interview twice. It was actually

626
00:34:50,520 --> 00:34:53,440
Speaker 1: more thoughtful than a lot of the media portrayed it

627
00:34:53,480 --> 00:34:58,200
Speaker 1: to me. Anyways, the latest Donald Trump tweet says this.

628
00:34:58,520 --> 00:35:01,120
Speaker 1: It was posted a couple of minutes ago. He says,

629
00:35:01,160 --> 00:35:05,240
Speaker 1: doing my best to disregard the many inflammatory president oh

630
00:35:05,320 --> 00:35:09,200
Speaker 1: so President Obama's statements and roadblocks. I thought it was

631
00:35:09,280 --> 00:35:13,880
Speaker 1: going to be a smooth transition. Not that's in capital letters,

632
00:35:14,040 --> 00:35:19,400
Speaker 1: exclamation mark this again. My concern in this, Mike is

633
00:35:19,400 --> 00:35:22,560
Speaker 1: that this does not seem like a president that is

634
00:35:22,560 --> 00:35:25,200
Speaker 1: trying to unify the country. Right. We were talking to

635
00:35:25,280 --> 00:35:27,280
Speaker 1: a guest a little bit earlier on saying we should

636
00:35:27,320 --> 00:35:30,520
Speaker 1: ignore wall Street, should not take too much notice of

637
00:35:30,600 --> 00:35:33,400
Speaker 1: his tweets. But he is someone that has to at

638
00:35:33,400 --> 00:35:36,680
Speaker 1: the end of the day, govern um and govern well

639
00:35:37,200 --> 00:35:41,400
Speaker 1: many different political factions, and he seems at the moment

640
00:35:41,400 --> 00:35:45,400
Speaker 1: a little bit thin skinned. A little bit he seems

641
00:35:46,120 --> 00:35:49,919
Speaker 1: rather thin skinned, and he continues tweets. Another one coming

642
00:35:49,960 --> 00:35:55,719
Speaker 1: out now complaining about the president and his abstention on

643
00:35:55,800 --> 00:35:59,400
Speaker 1: the Israel U n vote the other day. So Um,

644
00:35:59,560 --> 00:36:02,480
Speaker 1: you want to follow the president elect, you gotta get

645
00:36:02,480 --> 00:36:05,399
Speaker 1: yourself a Twitter account. I guess one of the things

646
00:36:05,400 --> 00:36:08,880
Speaker 1: that Donald Trump has made very clear is that he

647
00:36:08,920 --> 00:36:12,520
Speaker 1: thinks the U. S. Intelligence community is not worth dealing with.

648
00:36:12,600 --> 00:36:15,839
Speaker 1: He doesn't want the presidential briefings, and he says he

649
00:36:15,880 --> 00:36:18,799
Speaker 1: does not trust the c i A, the d i A,

650
00:36:19,360 --> 00:36:23,239
Speaker 1: and the other elements of our national security um and

651
00:36:23,400 --> 00:36:28,400
Speaker 1: national intelligence operations. John Nixon is a former CIA senior

652
00:36:28,440 --> 00:36:32,520
Speaker 1: analyst who says, uh that maybe Mr Trump has a point.

653
00:36:32,560 --> 00:36:35,279
Speaker 1: He's written a new book called Debriefing the President The

654
00:36:35,280 --> 00:36:40,400
Speaker 1: Interrogation of Saddam Hussein. Mr Nixon was basically the CIA's

655
00:36:41,000 --> 00:36:44,319
Speaker 1: Hussein expert, and when they captured the man, he sent

656
00:36:44,440 --> 00:36:47,279
Speaker 1: him in to interrogate him, and he found that much

657
00:36:47,320 --> 00:36:50,239
Speaker 1: of what the agency was telling the President of the

658
00:36:50,320 --> 00:36:55,280
Speaker 1: United States was wrong. Welcome to surveillance, Mr Nixon. Um,

659
00:36:55,400 --> 00:37:00,839
Speaker 1: you describe that does not do a particularly good job,

660
00:37:00,920 --> 00:37:06,440
Speaker 1: or at least did not around that issue. Yes, Um,

661
00:37:06,480 --> 00:37:10,040
Speaker 1: you know, working on a rock, we were constrained by

662
00:37:10,120 --> 00:37:15,480
Speaker 1: sometimes we're having very bad sources of information. Overall, we

663
00:37:15,640 --> 00:37:19,359
Speaker 1: understood the sort of general arc of Saddam's career in

664
00:37:19,400 --> 00:37:22,000
Speaker 1: his life and what he had done. But there were

665
00:37:22,040 --> 00:37:24,680
Speaker 1: many of the sort of granular details that we were

666
00:37:24,719 --> 00:37:28,560
Speaker 1: in a dark about and uh, it was pretty shopping

667
00:37:28,920 --> 00:37:31,040
Speaker 1: when I started to be briefed him to learn some

668
00:37:31,120 --> 00:37:35,480
Speaker 1: of these. Do you think John, this has changed. Has

669
00:37:35,520 --> 00:37:38,040
Speaker 1: it changed? Has either the the you know, the operatives

670
00:37:38,120 --> 00:37:46,680
Speaker 1: or the way that communication between CIA and the president changed? Well? Um, Unfortunately,

671
00:37:46,719 --> 00:37:50,200
Speaker 1: I would say no. I think that there are still

672
00:37:50,560 --> 00:37:54,480
Speaker 1: problems in terms of analysis and in collection, and some

673
00:37:54,640 --> 00:37:58,719
Speaker 1: of it is not the CIA's fault. For example, you know,

674
00:37:59,160 --> 00:38:01,719
Speaker 1: if you don't have a doesn't in a country, it's

675
00:38:01,840 --> 00:38:05,279
Speaker 1: very hard to get information sometimes and information that's good

676
00:38:05,280 --> 00:38:08,200
Speaker 1: and reliable. So that's one thing. Um. One of the

677
00:38:08,239 --> 00:38:10,399
Speaker 1: things that is the CIA is balled is sometimes it's

678
00:38:10,440 --> 00:38:14,319
Speaker 1: an analysis it's very watered down and because especially in

679
00:38:14,320 --> 00:38:16,560
Speaker 1: the last ten years, I mean, the CIA has been

680
00:38:16,600 --> 00:38:19,359
Speaker 1: like a pinata for policy makers to kind of take

681
00:38:19,400 --> 00:38:23,120
Speaker 1: wax that and you know, uh, it just sort of

682
00:38:23,200 --> 00:38:25,480
Speaker 1: at that point to sort of hunkers down and takes

683
00:38:25,480 --> 00:38:29,359
Speaker 1: the blows. But the the the analysis itself gets kind

684
00:38:29,360 --> 00:38:32,400
Speaker 1: of watered down and is not that good because the

685
00:38:32,440 --> 00:38:34,719
Speaker 1: CIA doesn't want to be you know, a blame for

686
00:38:34,800 --> 00:38:39,600
Speaker 1: making mistakes. Um. In fairness, I will say this intelligence

687
00:38:39,719 --> 00:38:43,239
Speaker 1: is not something that is a hundred hundred percent right

688
00:38:43,360 --> 00:38:46,479
Speaker 1: all the time. And contrary to popular opinion, we don't

689
00:38:46,520 --> 00:38:50,400
Speaker 1: have a scene uh uh crystal ball in the basement.

690
00:38:51,320 --> 00:38:55,560
Speaker 1: But you know, we can often give policymakers a fairly

691
00:38:55,600 --> 00:38:58,359
Speaker 1: good range of what might happen in what they can

692
00:38:58,400 --> 00:39:03,120
Speaker 1: expect um. And sometimes it's policy maker problems that really

693
00:39:03,160 --> 00:39:07,239
Speaker 1: are at fault because they do think that somehow, you know,

694
00:39:07,320 --> 00:39:10,040
Speaker 1: we can critic the future. John Dixon was a senior

695
00:39:10,120 --> 00:39:13,560
Speaker 1: leadership analyst with the CIA from two thousand and eleven,

696
00:39:13,600 --> 00:39:16,440
Speaker 1: regularly wrote for and briefed the most senior levels of

697
00:39:16,560 --> 00:39:19,759
Speaker 1: US government. He's written a book about his experience in

698
00:39:19,840 --> 00:39:23,600
Speaker 1: Iraq debriefing the President, the Interrogation of saddahm Lussein, in

699
00:39:23,640 --> 00:39:27,360
Speaker 1: which he is critical of the CIA's efforts to understand

700
00:39:27,360 --> 00:39:30,279
Speaker 1: what is going on in Iraq, although you are not

701
00:39:30,719 --> 00:39:35,839
Speaker 1: a wholesale critic of the agency, as we were just

702
00:39:35,880 --> 00:39:41,399
Speaker 1: talking about. So I'm wondering, uh, from what we never

703
00:39:41,480 --> 00:39:44,239
Speaker 1: quite know what the president elect is thinking, but from

704
00:39:44,239 --> 00:39:47,439
Speaker 1: what he has tweeted and said, Um, do you think

705
00:39:47,480 --> 00:39:52,480
Speaker 1: his distrust, dislike and disinterest in uh, the intelligence community

706
00:39:52,920 --> 00:39:59,840
Speaker 1: is justified. Uh No, I think that. I think that

707
00:40:00,000 --> 00:40:03,800
Speaker 1: it's very I'm very disturbed that there is this clash

708
00:40:04,000 --> 00:40:07,680
Speaker 1: that appears to be happening between the president elect and

709
00:40:07,800 --> 00:40:11,960
Speaker 1: the c I A. UM. The irony here is that

710
00:40:12,640 --> 00:40:16,120
Speaker 1: both sides need each other. The president is going to

711
00:40:16,239 --> 00:40:19,960
Speaker 1: need good information in order to make decisions, and the

712
00:40:20,040 --> 00:40:24,200
Speaker 1: CIA needs to have the President's trust and backing in

713
00:40:24,280 --> 00:40:27,080
Speaker 1: carrying out its mission. Uh. And if a wall is

714
00:40:27,120 --> 00:40:29,720
Speaker 1: brit And I hate to use this metaphor for obvious reasons,

715
00:40:29,719 --> 00:40:31,960
Speaker 1: but if a wall comes up between the president and

716
00:40:32,160 --> 00:40:36,440
Speaker 1: his intelligence community, that will that will just the only

717
00:40:36,440 --> 00:40:39,000
Speaker 1: people that will benefit from that our enemies, and that's

718
00:40:39,040 --> 00:40:42,560
Speaker 1: what they really would like to see happening. Um. The

719
00:40:42,640 --> 00:40:45,680
Speaker 1: thing is, the intelligence community really can for someone like

720
00:40:45,760 --> 00:40:51,759
Speaker 1: Donald Trump, who doesn't have a steep background in foreign affairs. Um,

721
00:40:51,840 --> 00:40:54,759
Speaker 1: the intelligence community actually can help him in terms of

722
00:40:54,760 --> 00:40:58,040
Speaker 1: getting up to speed and understanding some of the issues

723
00:40:58,080 --> 00:41:01,319
Speaker 1: that will confront him in the next four years. And

724
00:41:02,600 --> 00:41:06,040
Speaker 1: I get nervous when I hear him say things like, well,

725
00:41:06,080 --> 00:41:08,160
Speaker 1: you know, I'm a smart guy and I already know things,

726
00:41:08,360 --> 00:41:11,680
Speaker 1: and I'll just you know, if I need to hear

727
00:41:11,760 --> 00:41:14,799
Speaker 1: from them, I'll ask them, Um, you really need to

728
00:41:14,840 --> 00:41:18,920
Speaker 1: be engaged in in and you get your briefing every

729
00:41:19,000 --> 00:41:22,279
Speaker 1: day so that you can understand what's going on. It's

730
00:41:22,320 --> 00:41:24,759
Speaker 1: a very complex world out there, and if you just

731
00:41:24,880 --> 00:41:28,160
Speaker 1: jump into something when it's at a crisis point, you're

732
00:41:28,239 --> 00:41:30,719
Speaker 1: you're probably not going to come up and make the

733
00:41:30,760 --> 00:41:33,920
Speaker 1: right decision. You know. If I can sort of come

734
00:41:33,920 --> 00:41:35,719
Speaker 1: back to the book, that's sort of the way that

735
00:41:35,880 --> 00:41:40,040
Speaker 1: I'm Hussein operated in his government. He didn't have regular briefings.

736
00:41:40,120 --> 00:41:43,239
Speaker 1: He didn't he didn't have an intelligence community that was

737
00:41:43,320 --> 00:41:46,720
Speaker 1: gaily serving his needs. Um. And a lot of times

738
00:41:46,920 --> 00:41:48,480
Speaker 1: he when he asked a quid, when he did ask

739
00:41:48,480 --> 00:41:50,200
Speaker 1: the questions, he would get back the answer that they

740
00:41:50,239 --> 00:41:52,839
Speaker 1: thought he'd wanted to hear. And you know, he made

741
00:41:52,840 --> 00:41:56,080
Speaker 1: a series of bad mistakes, chief among them the invasion

742
00:41:56,120 --> 00:42:00,400
Speaker 1: of Kuwait in and you know something, Um, I I

743
00:42:00,440 --> 00:42:04,440
Speaker 1: think if don Trump wants to avoid derailing his presidency,

744
00:42:04,640 --> 00:42:07,920
Speaker 1: he really should try to develop a relationship for the

745
00:42:07,920 --> 00:42:11,160
Speaker 1: intelligence community. John, congratulations on your book. It's a great

746
00:42:11,160 --> 00:42:14,600
Speaker 1: book and also an extremely important book because of what

747
00:42:14,600 --> 00:42:17,480
Speaker 1: we're talking about with the president like Donald Trump. But

748
00:42:17,520 --> 00:42:20,440
Speaker 1: actually in your book, right, you're right that the agency,

749
00:42:20,880 --> 00:42:25,080
Speaker 1: no matter who the president is, will almost want to

750
00:42:25,120 --> 00:42:28,760
Speaker 1: give him the answer that he wants to hear. So, actually,

751
00:42:28,800 --> 00:42:31,360
Speaker 1: with the dysfunctional or the fact that Donald Trump is

752
00:42:31,360 --> 00:42:34,560
Speaker 1: now calling the agency dysfunctional, do you not see any

753
00:42:34,600 --> 00:42:37,640
Speaker 1: hope that that this gets severed that actually we find

754
00:42:37,920 --> 00:42:42,400
Speaker 1: a much more stable and fruitful working relationship between the president,

755
00:42:42,520 --> 00:42:47,359
Speaker 1: any president, and the CIA. That's a that's a very

756
00:42:47,360 --> 00:42:52,800
Speaker 1: good question. Um, I'm hopeful that somehow they'll Right now,

757
00:42:53,680 --> 00:42:56,400
Speaker 1: right now, the CIA is trying to probably is probably

758
00:42:56,400 --> 00:43:00,840
Speaker 1: trying to figure out how best that the conservative needs uh.

759
00:43:00,880 --> 00:43:03,400
Speaker 1: And you know, there are things that he has said

760
00:43:03,480 --> 00:43:05,919
Speaker 1: that maybe might be able to they might be able

761
00:43:05,920 --> 00:43:08,440
Speaker 1: to sort of get themselves in the door with him,

762
00:43:08,520 --> 00:43:10,400
Speaker 1: which is you know, he said he doesn't want to

763
00:43:10,400 --> 00:43:13,160
Speaker 1: read the same thing every day. Okay, well that's one indication.

764
00:43:13,320 --> 00:43:15,879
Speaker 1: So they might not give him the same they might

765
00:43:15,880 --> 00:43:19,279
Speaker 1: not give him the same topic every day. And they

766
00:43:19,320 --> 00:43:22,040
Speaker 1: also know that he wants to look at he likes Twitter,

767
00:43:22,360 --> 00:43:25,840
Speaker 1: and he probably likes his information these small little tweet

768
00:43:25,880 --> 00:43:28,920
Speaker 1: like messages. That's unfortunate, but you know that might be

769
00:43:28,960 --> 00:43:34,080
Speaker 1: another way to kind of communicate with him. Um, it

770
00:43:34,239 --> 00:43:38,320
Speaker 1: still remains to be seeing how this gets worked out. Um.

771
00:43:38,400 --> 00:43:41,719
Speaker 1: But for all of its shortcomings, and you know, the

772
00:43:41,760 --> 00:43:44,680
Speaker 1: CIA has many short tunnels, and I chronicle some of

773
00:43:44,680 --> 00:43:47,640
Speaker 1: them in the book. But the thing is, you know,

774
00:43:48,600 --> 00:43:51,840
Speaker 1: you can't try that. You can't say to yourself, Okay,

775
00:43:51,880 --> 00:43:53,600
Speaker 1: I know what Iron is doing, I know what the

776
00:43:53,640 --> 00:43:56,680
Speaker 1: supremeter is up to. If you're not getting some so

777
00:43:56,800 --> 00:43:58,600
Speaker 1: if you don't have some sort of grounding in the

778
00:43:58,640 --> 00:44:02,040
Speaker 1: intelligence and some sort of grounding in the context in

779
00:44:02,080 --> 00:44:05,279
Speaker 1: the history of what has happened before, Because if you

780
00:44:05,400 --> 00:44:07,600
Speaker 1: don't do that and you say I'm going to make

781
00:44:07,680 --> 00:44:11,359
Speaker 1: decisions a based on because I'm a smart guy, it's

782
00:44:11,360 --> 00:44:13,680
Speaker 1: going to be a disaster, you know. And and really,

783
00:44:13,800 --> 00:44:16,839
Speaker 1: can this country afford many more fiascos like a rock

784
00:44:17,640 --> 00:44:21,200
Speaker 1: I don't. I don't think so. Very interesting story in

785
00:44:21,239 --> 00:44:24,680
Speaker 1: the Washington Post yesterday written by a former colleague of yours,

786
00:44:24,680 --> 00:44:29,880
Speaker 1: Stephen Hall, of former CIA official, why the CIA won't

787
00:44:29,920 --> 00:44:32,800
Speaker 1: want to go public with its evidence of Russia's hacking.

788
00:44:33,120 --> 00:44:36,719
Speaker 1: We're gonna have these committees investigating at least maybe even

789
00:44:36,760 --> 00:44:42,080
Speaker 1: want just one supercommittee investigating the hacking thing. Um. Mr

790
00:44:42,160 --> 00:44:44,439
Speaker 1: Hall makes case that you know, any kind of any

791
00:44:44,440 --> 00:44:47,680
Speaker 1: time you give out information, you risk giving out sources

792
00:44:47,680 --> 00:44:52,440
Speaker 1: and methods, and sometimes the cost of doing that is

793
00:44:52,920 --> 00:44:56,479
Speaker 1: uh much greater than the benefit you gain from making

794
00:44:56,480 --> 00:44:59,880
Speaker 1: the information public. So do you think we get anywhere

795
00:45:00,040 --> 00:45:05,440
Speaker 1: with this Russian hacking investigation anywhere that would satisfy the

796
00:45:05,520 --> 00:45:09,040
Speaker 1: American people, the people who believe Donald Trump when he

797
00:45:09,080 --> 00:45:12,960
Speaker 1: says it didn't happen. Uh, Can they be convinced without

798
00:45:13,320 --> 00:45:17,160
Speaker 1: giving up sources and methods. Well, I think there's a

799
00:45:17,200 --> 00:45:20,680
Speaker 1: way to do that, and I think the Obama administration

800
00:45:20,800 --> 00:45:24,920
Speaker 1: was correct in wanting to ask passing the intelligence community

801
00:45:25,239 --> 00:45:28,120
Speaker 1: to look into this. Where I think the problem is

802
00:45:28,200 --> 00:45:30,360
Speaker 1: is that all of a sudden, it gets leaked to

803
00:45:30,480 --> 00:45:34,200
Speaker 1: the media before any conclusions are drawn. And then once it,

804
00:45:34,280 --> 00:45:38,000
Speaker 1: once it's sort of into the public realm, then it

805
00:45:38,640 --> 00:45:41,480
Speaker 1: becomes politicized, that it becomes sort of a football, that

806
00:45:41,560 --> 00:45:45,360
Speaker 1: it gets kicked around by commentators and politicians and what

807
00:45:45,480 --> 00:45:47,840
Speaker 1: have you, and your chances of really getting at the

808
00:45:47,880 --> 00:45:51,879
Speaker 1: truth at that point become very small. And I think

809
00:45:51,880 --> 00:45:54,960
Speaker 1: that that's a bad thing. The politicization of intelligence has

810
00:45:55,040 --> 00:45:59,520
Speaker 1: done more, I think, to harm our foreign policy than

811
00:46:00,680 --> 00:46:05,560
Speaker 1: than anything in the last decade. Um. You know, because

812
00:46:06,080 --> 00:46:08,759
Speaker 1: you know, we the CIA really should just be this

813
00:46:09,000 --> 00:46:12,520
Speaker 1: institution that just comes to the president and says, here

814
00:46:12,520 --> 00:46:14,520
Speaker 1: are the facts, this is what we know, this is

815
00:46:14,600 --> 00:46:16,000
Speaker 1: what we think we know, and this is what we

816
00:46:16,040 --> 00:46:18,840
Speaker 1: don't know. Um. But now it's sort of like you

817
00:46:18,920 --> 00:46:21,600
Speaker 1: get this brow beating from the Oval Office, and then

818
00:46:21,800 --> 00:46:24,080
Speaker 1: you know, the CIA gets under pressure to kind of

819
00:46:24,400 --> 00:46:27,440
Speaker 1: give the give the boss what he wants, and you know,

820
00:46:27,960 --> 00:46:30,400
Speaker 1: it's just it's something that's snowballs and it has a

821
00:46:30,480 --> 00:46:33,360
Speaker 1: very pernicious effect on our government and the conduct of

822
00:46:33,360 --> 00:46:38,080
Speaker 1: our own police. John Nixon, former CIA senior analyst, author

823
00:46:38,080 --> 00:46:41,360
Speaker 1: of the new book Debriefing the President the Interrogation of

824
00:46:41,440 --> 00:46:44,680
Speaker 1: Saddam Hussein, and I think fran it's very obvious that

825
00:46:44,960 --> 00:46:47,640
Speaker 1: what happens within the intelligence community is going to be

826
00:46:47,680 --> 00:46:51,280
Speaker 1: front and center in the Trump administration. Yeah, it's it's

827
00:46:51,320 --> 00:46:54,120
Speaker 1: actually fascinating, and it was great having John Nixon on.

828
00:46:54,719 --> 00:46:57,479
Speaker 1: We I wonder how much of this actually will find

829
00:46:57,480 --> 00:47:00,080
Speaker 1: out right, because the CIA is always a secretive I

830
00:47:00,080 --> 00:47:02,080
Speaker 1: wonder whether Donald Trump will maybe give us more of

831
00:47:02,120 --> 00:47:12,600
Speaker 1: a glimpse than previous presidents. Thanks for listening to the

832
00:47:12,640 --> 00:47:18,640
Speaker 1: Bloomberg Surveillance Podcast. Subscribe and listen to interviews on iTunes, SoundCloud,

833
00:47:19,040 --> 00:47:23,280
Speaker 1: or whichever podcast platform you prefer. I'm out on Twitter

834
00:47:23,400 --> 00:47:27,160
Speaker 1: at Tom Keene. David Gura is at David Gura. Before

835
00:47:27,200 --> 00:47:31,560
Speaker 1: the podcast, you can always catch us worldwide. I'm Bloomberg Radio.

836
00:47:44,320 --> 00:47:48,160
Speaker 1: Who you put your trust in matters. Investors have put

837
00:47:48,200 --> 00:47:51,640
Speaker 1: their trust in independent registered investment advisors to the tune

838
00:47:51,640 --> 00:47:56,239
Speaker 1: of four trillion dollars. Why learn more and find your

839
00:47:56,280 --> 00:48:00,000
Speaker 1: independent advisor dot com