WEBVTT - Surveillance: Fed is Worried About Overheating, O'Sullivan Says 0:00:05.720 --> 0:00:13.040 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Lee. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:28.120 Bloomberg dot Com, and of course on the Bloomberg. Yeah. 0:00:33.080 --> 0:00:34.360 Do you want to us here in New York City 0:00:34.360 --> 0:00:37.239 in the studio and please to say Chris Grassanti Grassanti 0:00:37.280 --> 0:00:40.760 Capital Management, CEO our value man, who says, don't worry 0:00:40.800 --> 0:00:43.680 about Democrats taking the House, don't worry about higher rates, 0:00:43.680 --> 0:00:46.800 and don't worry about inflation. Can we start with politics, Chris? 0:00:47.040 --> 0:00:49.160 Why should we worry about the politics at the moment? 0:00:49.760 --> 0:00:51.839 You know, I think almost the consensus view is that 0:00:51.880 --> 0:00:54.600 the Democrats will take the House. It's very difficult to 0:00:54.640 --> 0:00:57.560 see them taking the Senate. So I think the market 0:00:57.600 --> 0:01:00.080 has priced in divided government. It's not like a a 0:01:00.160 --> 0:01:03.400 lot has gotten done before this, So I you know, 0:01:03.440 --> 0:01:06.360 I don't think if com on the day after election 0:01:06.440 --> 0:01:09.440 day we see a divided Congress that it's it's going 0:01:09.480 --> 0:01:12.080 to upset the market. Maybe a little volatility, maybe some opportunity, 0:01:12.080 --> 0:01:14.800 but it's been so market positive with Republicans in the House, 0:01:14.800 --> 0:01:17.080 and Republicans running the Senate as well. Why is the 0:01:17.080 --> 0:01:20.080 opposite not apply. Well, we've gotten the tax break, we 0:01:20.120 --> 0:01:23.480 will continue to get lower regulation because that's an executive function. 0:01:23.880 --> 0:01:26.440 Um So I think that the trends that have repelled 0:01:26.480 --> 0:01:29.280 the market can continue. Of course, the big wild card 0:01:29.360 --> 0:01:32.479 is if the Houses goes democratic, whether we'll see lots 0:01:32.480 --> 0:01:35.319 of investigations. But I think the final release of the 0:01:35.360 --> 0:01:38.479 Muller Report will set that to rest one way or another. 0:01:38.560 --> 0:01:41.319 In terms of a trade policy, the President kind of 0:01:41.400 --> 0:01:44.480 rampant things up again, threatening to tax all imports coming 0:01:44.520 --> 0:01:47.400 from China, and the data over the weekend from the Chinese, 0:01:47.400 --> 0:01:50.160 the trade dates surplus might be narrowing, but with the 0:01:50.240 --> 0:01:52.960 United States, and it's a record, it doesn't look good 0:01:53.000 --> 0:01:55.640 for the Chinese if they're trying to have It's hard 0:01:55.640 --> 0:01:57.559 to have sympathy for the Chinese in some ways, but 0:01:57.560 --> 0:01:59.920 but here you kind of do because the trade deficit 0:02:00.120 --> 0:02:02.560 typically widens, and Tom will be able to tell this 0:02:02.600 --> 0:02:05.880 bitter night because we're having strong economic times and we 0:02:06.040 --> 0:02:09.120 just buy more stuff because people have jobs, so the 0:02:09.480 --> 0:02:14.600 deficit would widen. The problem is that's Trump's major litmus 0:02:14.639 --> 0:02:16.480 test for whether things are fair or not. I don't 0:02:16.480 --> 0:02:18.880 care about the politics. Here's a reality. We're ten years 0:02:18.919 --> 0:02:22.359 on from Leman. We're only talking to optimists this week 0:02:22.400 --> 0:02:25.160 that had the courage to stay in the market. How 0:02:25.200 --> 0:02:28.079 did you stay in the market in April of two 0:02:28.120 --> 0:02:31.040 thousand nine, Well, we ran to quality times. So you 0:02:31.160 --> 0:02:34.799 buy JP Morgan, you buy Goldman Sacks. It was the 0:02:34.840 --> 0:02:36.760 first time, really in a generation where they were turning. 0:02:37.200 --> 0:02:39.840 What did he buy bear Sterns for like a dollar? Was? 0:02:39.880 --> 0:02:42.320 It was like two dollars he bought Remember he bought 0:02:42.320 --> 0:02:43.680 it for two dollars and then he had to up 0:02:43.680 --> 0:02:45.840 the price to ten dollars because he got so many 0:02:45.880 --> 0:02:48.919 complaints about And you loaded the boat on JP Morgan? 0:02:49.400 --> 0:02:52.200 We did, because you know, if JP Morgan went under, 0:02:52.320 --> 0:02:55.840 we had what was the sweat like in London with 0:02:55.960 --> 0:02:58.720 Northern Rock. Nobody was loading the boat on Northern Rock, 0:02:59.240 --> 0:03:01.640 good joke, they didn't, and that that was the story. 0:03:01.680 --> 0:03:03.959 If you loaded, and if you loaded the boat on RBS, 0:03:04.080 --> 0:03:06.880 I mean you are still struggling right now. That's the 0:03:06.880 --> 0:03:09.680 difference I think between them. We say the United States, 0:03:09.720 --> 0:03:13.280 the US did such a much better job of recapitalizing 0:03:13.320 --> 0:03:14.840 the banks than the rest of you, and they took 0:03:14.880 --> 0:03:16.800 their medicine earlier. I think that's right, because I think 0:03:16.800 --> 0:03:19.640 you're Eurebe is still doing that. But we took and 0:03:19.680 --> 0:03:23.000 sit here with the benefit of hindsight. When you sort 0:03:23.040 --> 0:03:25.639 of talk about loading the boat of JP Morgan ten 0:03:25.720 --> 0:03:29.560 years ago, it didn't seem that hopefullus did it. No. 0:03:29.680 --> 0:03:31.680 I mean, that's why you could do it, although there 0:03:31.880 --> 0:03:34.920 is some as the boat goes under water, you head 0:03:34.920 --> 0:03:36.560 to the highest point, You head to the quality you 0:03:36.560 --> 0:03:38.320 could have done JP Moore than you could have done 0:03:38.360 --> 0:03:41.160 Wells Fargo. And by the way, in retrospect, neither Wells 0:03:41.200 --> 0:03:44.480 Fargo nor JP Morgan had a single quarter of reported 0:03:44.560 --> 0:03:47.640 losses during that period. But did you sell them now? Are? 0:03:47.680 --> 0:03:49.520 Do you only own junk down? Do you only own 0:03:49.560 --> 0:03:52.640 things with five symbols? No, we've sold j JP Morgan 0:03:52.680 --> 0:03:54.800 simply because it's you know, it's quadruple since then, but 0:03:55.320 --> 0:03:58.120 we've we own and would buy today the Wells Fargo 0:03:58.160 --> 0:04:00.720 because of the company's specific problem, which I think they 0:04:00.720 --> 0:04:03.880 will grow out. What's the differential value between JPEOPLE Morgan. 0:04:03.960 --> 0:04:07.240 What what ratio do you use to compare and contrast 0:04:07.600 --> 0:04:10.600 JPM with WS We use both price to book and 0:04:10.720 --> 0:04:14.040 price to earnings In both cases, Wells because of their mix. 0:04:15.720 --> 0:04:18.599 Right now, they're trading almost at parody, but the proviser 0:04:18.760 --> 0:04:20.960 is time. They usually Wells usually trades at almost a 0:04:21.000 --> 0:04:25.240 fifty premium because it has a more stable book of businesses, mortgages. 0:04:25.320 --> 0:04:27.159 It's it's kind of bread and butter lending where JP 0:04:27.200 --> 0:04:30.480 Morgan is more trading. So you can buy Wells if 0:04:30.520 --> 0:04:34.360 they get the same historic premium, you'll make on your money. Chris, 0:04:34.440 --> 0:04:35.920 can we get a quick word from you on Apple 0:04:36.440 --> 0:04:38.400 big launch light this week? I know you hold the stock, 0:04:38.680 --> 0:04:40.839 do what are you looking for? You know, it's it's funny. 0:04:41.040 --> 0:04:43.000 We're contrarians and it's so it's hard to sit here 0:04:43.000 --> 0:04:46.200 and defend Apple. But it's just done everything right. It's 0:04:46.240 --> 0:04:50.040 not terribly expensive. And what we love are two things 0:04:50.040 --> 0:04:51.640 that people don't usually talk about, which is all the 0:04:51.760 --> 0:04:54.760 cash that's coming back, and second the services business, which 0:04:54.760 --> 0:04:57.160 has gone It's almost like Amazon Web Services, the hidden 0:04:57.200 --> 0:05:00.240 jam of Amazon. Here you have Apple services Busines is 0:05:00.360 --> 0:05:03.440 where they're selling apps and everything else, and that's gone 0:05:03.480 --> 0:05:06.320 from zero to almost ten percent of the revenue, and 0:05:06.480 --> 0:05:09.720 we think it's heading to the company revealing late last 0:05:09.720 --> 0:05:12.360 week that some of the twi's coming through will hit 0:05:12.360 --> 0:05:14.000 some of that products. The President is saying, that's an 0:05:14.000 --> 0:05:17.400 easy solution to that on shore um Sammy for duck Ship. 0:05:17.720 --> 0:05:19.640 I'm sure it's not that obvious for Apple and not 0:05:19.680 --> 0:05:22.640 that simplistic kind that, but anything to you because the 0:05:22.720 --> 0:05:25.640 problem with all this trade stuff is you have to 0:05:25.680 --> 0:05:29.200 make multi year capital spending decisions based on stuff that 0:05:29.279 --> 0:05:31.159 can change. So no company is going to do that 0:05:31.240 --> 0:05:33.880 until we get some certainty there. And so that Jonathan 0:05:34.279 --> 0:05:36.720 coming full circle, that's the big wild card in this 0:05:36.720 --> 0:05:39.520 this March. There's sure buy backs and dividing growth support 0:05:39.600 --> 0:05:42.159 the market into two thousand nineteen or you know it 0:05:42.200 --> 0:05:44.360 has it, has it has or will there be a 0:05:44.480 --> 0:05:46.720 change behavior? I don't think, you know. I think it's 0:05:46.760 --> 0:05:48.680 continues to be a tail wind Tom, but I don't 0:05:48.720 --> 0:05:50.839 think we need it. I think for the first time 0:05:50.880 --> 0:05:55.080 since the crisis, we have increasing employment, increasing wages for 0:05:55.120 --> 0:05:57.479 the first time. So you've got a bunch of tail winds, 0:05:57.520 --> 0:05:59.800 of which is shared by backs. Are are simply one 0:05:59.880 --> 0:06:03.200 of Chris, thank you, great to catch up with you. 0:06:17.880 --> 0:06:20.039 Why don't you bring in James? He is one of 0:06:20.080 --> 0:06:24.360 the accurate payrolls forecasters on the planet. You my son 0:06:24.400 --> 0:06:28.839 have enjoined us from High Frequency Economics, The chief US economist, Jim, 0:06:28.880 --> 0:06:32.800 what did you look for Friday and did you get it? Hi? John? Morning, 0:06:32.960 --> 0:06:35.279 Morning Tom? And Well, it was actually a bit a 0:06:35.279 --> 0:06:37.760 bit stronger on the peril side than expected, plus on 0:06:37.839 --> 0:06:40.800 the on the weight side obviously as well. So I 0:06:40.839 --> 0:06:42.800 mean they were they were pretty strong numbers. I mean, 0:06:42.800 --> 0:06:45.040 obviously monthly numbers jump around a lot, but I mean 0:06:45.080 --> 0:06:47.640 it's pretty unambiguous that we keep getting something in the 0:06:47.720 --> 0:06:50.120 in the range of two thousand a month on jobs, 0:06:50.160 --> 0:06:53.720 which even though an employment held in Friday's numbers, more 0:06:53.760 --> 0:06:56.680 than enough overtime to keep unemployment coming down. Meanwhile, wages 0:06:56.680 --> 0:06:59.000 are accelerating. Yeah, but Jim, there is this feeling and 0:06:59.040 --> 0:07:00.960 I've called you one of the most thanks for forecasters 0:07:01.000 --> 0:07:03.040 because you are. But there are many people out there 0:07:03.080 --> 0:07:05.240 that say this has got a whole lot more predictable 0:07:05.240 --> 0:07:07.400 over the last couple of years. And wage growth has 0:07:07.400 --> 0:07:10.480 been pretty stable. Payrolls growth has been stable around two 0:07:10.840 --> 0:07:13.080 thousand every single month. Can we break out to a 0:07:13.160 --> 0:07:17.000 higher trend on wage growth? Jim, Well, I think the 0:07:17.040 --> 0:07:19.720 trend has been moving up and we'll continue to move 0:07:19.800 --> 0:07:22.760 up I mean, the two point nine percent year over 0:07:22.920 --> 0:07:26.800 year we saw on Friday is a new high and 0:07:26.840 --> 0:07:28.120 that's going to keep on going up. And I think 0:07:28.120 --> 0:07:30.040 we've seen the same already in fact in the employment 0:07:30.120 --> 0:07:33.240 cost in which if anything, is more comprehensive, and the 0:07:33.360 --> 0:07:36.000 private wage number, and that report was already up to two. 0:07:36.720 --> 0:07:40.000 So what's the sweat at the Fed? I mean, coming 0:07:40.000 --> 0:07:42.320 off for Friday, what you thought made a nice splash 0:07:42.320 --> 0:07:44.920 and you know, end of the weekend, make America great 0:07:44.960 --> 0:07:48.160 again and all that, what's the level of sweat or 0:07:48.200 --> 0:07:50.960 the change in the level of sweat at the Fed? 0:07:52.320 --> 0:07:55.200 And well, I mean, like everyone else, I'm sure they're 0:07:55.440 --> 0:07:58.680 they're watching the trade, trade war threats and trade tensions 0:07:58.720 --> 0:08:01.400 as as a stuff. And the monitor in terms of 0:08:01.440 --> 0:08:05.080 the labor market itself numbers on Friday, and I think, 0:08:05.120 --> 0:08:07.520 I mean, what they're worrying about is ultimately unemployment keeps 0:08:07.520 --> 0:08:10.920 on falling and the economy overheats. The unemployment rate at 0:08:10.960 --> 0:08:14.240 three point nine is already below the media and fedeficial 0:08:14.320 --> 0:08:16.360 estimate of what sustainable over the long run for and 0:08:16.360 --> 0:08:19.000 a half percent. And while the inflation numbers right now, 0:08:19.080 --> 0:08:20.720 and I would say even the wage numbers right now 0:08:20.920 --> 0:08:23.360 are pretty much where they want to see them. I Mean, 0:08:23.360 --> 0:08:26.000 the question is do they stop at these at these 0:08:26.040 --> 0:08:28.520 at these readings or do they keep on accelerating because 0:08:28.560 --> 0:08:31.360 unemployment is too low? So I think ultimately, yeah, they're 0:08:31.400 --> 0:08:33.440 in terms of the labor market they're worrying about. Ultimately, 0:08:33.520 --> 0:08:36.840 this is unsustainably strong. Jim, that Fed staff paper that 0:08:36.880 --> 0:08:39.280 came out over the weekend at Jackson Hole, um, several 0:08:39.320 --> 0:08:41.920 weekends back. Do you think that is the guide? Just 0:08:42.160 --> 0:08:46.520 follow the unemployment right and does that make sense to you? Well? Historically, 0:08:46.840 --> 0:08:49.280 I mean they've always put a lot of emphasis on 0:08:49.280 --> 0:08:52.120 the unemployment rate is a key slock indicator. And of 0:08:52.120 --> 0:08:55.120 course I mean broadly, I mean, what what are the 0:08:55.120 --> 0:08:58.880 FED goals? FEDS goals, I mean they're full employment and 0:08:59.240 --> 0:09:02.920 price stability, and I mean they're defining price full employment 0:09:03.120 --> 0:09:05.360 right now at least is four and a half percent 0:09:05.440 --> 0:09:07.640 unemployment rate over the long haul. So yeah, I mean 0:09:08.080 --> 0:09:10.160 it's it's never been so simple that the only thing 0:09:10.200 --> 0:09:12.320 that matters for reslation is the uneployment rate. But I 0:09:12.360 --> 0:09:15.439 mean it it's clearly an important indicator from their perspective. Jim, 0:09:16.080 --> 0:09:21.119 review for us the quality of the jobs being created, 0:09:21.200 --> 0:09:24.200 I mean, if we make the assumption everybody got two 0:09:24.280 --> 0:09:27.680 hundred thou months wrong because proper job growth was a 0:09:27.720 --> 0:09:35.040 huddy whatever, that marginal job growth that's surprised even the optimusts. 0:09:35.320 --> 0:09:39.640 Are they good jobs, and I think they're probably pretty 0:09:39.679 --> 0:09:43.720 average jobs on average, in the sense that the some 0:09:43.880 --> 0:09:45.520 of them are above average and some of them were 0:09:45.559 --> 0:09:48.080 below average. And I think that's inevitable when you've got 0:09:48.120 --> 0:09:51.199 a hundred and fifty million jobs in terms of the level, 0:09:51.240 --> 0:09:53.360 I mean, half them are average and half the average. 0:09:53.400 --> 0:09:55.960 And not just trying to be facetious here, but the 0:09:56.120 --> 0:09:57.840 point is that when you look at average early earnings 0:09:57.840 --> 0:10:00.400 going up two point nine, and that's a pure average, 0:10:00.960 --> 0:10:03.720 so I mean, that's similar to what we're seeing, for instance, 0:10:03.720 --> 0:10:07.520 in the employment cost index, which is a weighted index. 0:10:07.800 --> 0:10:09.319 I mean, this is a little technical, but if you 0:10:09.360 --> 0:10:13.840 were consistently seeing below average weights jobs created, you'd see 0:10:13.840 --> 0:10:16.120 the average early earnings number, which is the pure average, 0:10:16.760 --> 0:10:19.760 go up much much less than the employment cost index, 0:10:19.800 --> 0:10:21.920 which is a fixed weighted index. But they're pretty much 0:10:21.920 --> 0:10:25.360 consistent right now. So implication is, yeah, they're above average jobs, 0:10:25.360 --> 0:10:27.880 and there are below average jobs, but on average, I mean, 0:10:27.920 --> 0:10:29.920 the new jobs being created are probably not all that 0:10:30.000 --> 0:10:32.680 different from the stock of jobs that's already out there 0:10:32.679 --> 0:10:34.360 d and fifty million jobs that are already out there 0:10:34.679 --> 0:10:37.079 at this stage of the cycle. Given what unemployment is, 0:10:37.320 --> 0:10:43.120 where is this payroll's growth coming from? And well, I 0:10:43.160 --> 0:10:46.120 mean it's across the board in terms of sectors, for sure. 0:10:46.600 --> 0:10:50.200 And it's not as if when you hit the roughly 0:10:50.200 --> 0:10:52.120 what full employment is, and of course there's no clear 0:10:52.200 --> 0:10:54.000 right answer, and what full employment is, I mean, four 0:10:54.000 --> 0:10:57.720 point five is in the FATS estimate for what stainable 0:10:57.720 --> 0:10:59.199 over the long haul. I mean three point nine is 0:10:59.200 --> 0:11:01.000 obviously a bit below of that. But it's not as 0:11:01.080 --> 0:11:04.199 if you suddenly hit a wall where you run out 0:11:04.200 --> 0:11:07.360 of workers. And I mean at this point of the cycle, 0:11:07.800 --> 0:11:12.200 then certainly workers are harder to find, and gradually we 0:11:12.240 --> 0:11:14.600 start seeing the wage numbers drift up. So I think 0:11:14.640 --> 0:11:17.160 that's the point we're at. And I mean, I certainly 0:11:17.160 --> 0:11:19.319 over time you would expect, I mean, the payroll numbers 0:11:19.320 --> 0:11:22.520 to slow a bit just because companies can't find workers. 0:11:22.880 --> 0:11:25.600 But I guess we asked this question, Jim, is because 0:11:25.679 --> 0:11:29.360 I was told this two years ago. Yeah, although I 0:11:29.360 --> 0:11:31.720 don't think anyone would have really said you suddenly hit 0:11:31.760 --> 0:11:35.400 a wall that you suddenly can't employment grow goes from 0:11:35.400 --> 0:11:38.839 two hundred thousand, expected to slow, expected to go down 0:11:38.880 --> 0:11:41.600 towards a hundred thousand, expected to go to maintenance rights. 0:11:41.640 --> 0:11:43.920 It didn't. I yeah, I don't know. I would have 0:11:44.040 --> 0:11:46.559 questioned that. I mean, just because you've hit more or 0:11:46.640 --> 0:11:49.680 less full employment. And again it's also plausible that maybe 0:11:49.679 --> 0:11:51.640 instead of two d and months would be getting two 0:11:51.640 --> 0:11:53.439 fifty a month right now. I mean, if if the 0:11:53.480 --> 0:11:56.760 unemployment rate we're higher, and there's been a lot of 0:11:56.760 --> 0:11:59.880 stimulats in the economy recently, growth is actually accelerated and 0:12:00.000 --> 0:12:01.959 means well, I mean you are seeing the wage numbers 0:12:01.960 --> 0:12:04.280 starting starting to pick up, so that's where the pressure 0:12:04.520 --> 0:12:07.640 is coming through. Fifteen weeks ago, it was like, Okay, 0:12:07.640 --> 0:12:09.920 this is as good as it gets. It will taper off. 0:12:10.240 --> 0:12:13.680 Where have you adjusted your taper? Now? Have you? Have 0:12:13.800 --> 0:12:18.120 you extended this good growth into Q four and even 0:12:18.160 --> 0:12:23.079 into two thousand nineteen, and I haven't changed any numbers recently. 0:12:23.080 --> 0:12:25.200 I mean, I've got three percent for the second half 0:12:25.200 --> 0:12:27.000 of this year, so still pretty good. I mean, I 0:12:27.000 --> 0:12:29.720 don't think the trend is over four percent, which is 0:12:29.720 --> 0:12:31.960 what the Q two number was. I mean four two 0:12:32.320 --> 0:12:34.360 for the second quarter. But when I've got three percent 0:12:34.440 --> 0:12:36.440 for the second half, I mean that said, I think 0:12:36.440 --> 0:12:38.559 the temptation would be if anything go up a bit 0:12:38.640 --> 0:12:41.240 from from three percent in the second half. The momentum 0:12:41.320 --> 0:12:43.319 it looks so good, I mean last week obviously, the 0:12:43.360 --> 0:12:46.640 IM numbers that came out, I mean, the job dis 0:12:46.679 --> 0:12:50.360 claims numbers are at their lowestans nineteen nine. But I 0:12:50.360 --> 0:12:53.360 do think ultimately, I mean, Taper of course is the 0:12:53.720 --> 0:12:55.720 sort of a monitor policy ward these days. But in 0:12:55.800 --> 0:12:59.239 terms of growth, I mean, I think the fiscal stimulus 0:12:59.240 --> 0:13:02.480 will start fading into two and I think it's a 0:13:02.559 --> 0:13:06.439 fac keeps tightening every quarter that gradually montro policy becomes 0:13:06.600 --> 0:13:09.240 less accommodative as well. So I think it's it's pretty 0:13:09.240 --> 0:13:11.439 plausible that growth does start to slow by two thousand 0:13:11.480 --> 0:13:13.960 and nineteen. Jimmal Sullivan, thank you so much with high 0:13:13.960 --> 0:13:31.719 frequency economics, and now folks are definitive discussion today on 0:13:31.920 --> 0:13:36.679 trade in the ramifications for you. Very lovely is always 0:13:36.720 --> 0:13:40.960 powerful in intellect with the Peterson Institute for International Economics, 0:13:40.960 --> 0:13:44.160 but the real joy is very Lovely combined with their 0:13:44.200 --> 0:13:47.240 colleague Chad Bone, and the two of them almost it 0:13:47.320 --> 0:13:50.960 seems writing every other day, maybe every three days, have 0:13:51.160 --> 0:13:53.840 put out a body of work that I know has 0:13:53.880 --> 0:13:57.040 made me smarter about the trade debate. Mary, what's the 0:13:57.080 --> 0:14:02.520 next thing you write for? Peterson? Thanks so much for that. Well, 0:14:02.520 --> 0:14:06.560 we're particularly looking at just the some total of what's 0:14:06.600 --> 0:14:10.640 going on and how it will uh make American businesses 0:14:11.440 --> 0:14:17.599 either less competitive and international marketplaces or um forced companies 0:14:17.600 --> 0:14:20.360 to move some of their operations offshore. I think that's 0:14:20.360 --> 0:14:23.880 the real challenge that we're seeing right now. We're looking 0:14:23.880 --> 0:14:27.360 a little longer term, uh, you know, beyond day to 0:14:27.440 --> 0:14:30.880 day movies in the market and thinking longer term about competitiveness. 0:14:30.920 --> 0:14:35.880 If it's make America great again in amercantile thinking of 0:14:35.920 --> 0:14:39.800 the president or neo mercantilist, I guess I should say, 0:14:40.080 --> 0:14:44.880 is it make China week again? Can the President with 0:14:45.000 --> 0:14:49.680 these actions diminish China g d P or throw them 0:14:49.680 --> 0:14:55.760 into some form of recession? Well, it definitely can have 0:14:55.800 --> 0:15:00.160 an effect on China. I think that that the you 0:15:00.360 --> 0:15:03.400 that the US is powerful enough to get them to 0:15:03.480 --> 0:15:08.120 their knees where they will just wholeheartedly accept Trump's demands 0:15:08.240 --> 0:15:13.240 is wrong. However, our purchases of their manufactured grids. They're 0:15:13.240 --> 0:15:16.560 only about three percent of their total revenue. It's important 0:15:16.560 --> 0:15:20.280 in other ways however, to them, and they're always uh 0:15:20.600 --> 0:15:24.840 have their own internal struggles that this can make worse. Um. 0:15:24.880 --> 0:15:28.160 I think it is an attempt to hurt them to 0:15:28.280 --> 0:15:31.840 get what we want. Unfortunately, even if we do hurt them, 0:15:31.880 --> 0:15:34.200 we won't get what we want, which is some sanity 0:15:34.440 --> 0:15:38.640 in terms of intellectual property regimes and treatment of our 0:15:39.320 --> 0:15:44.120 intellectual property and technology. This is something that of course 0:15:44.160 --> 0:15:47.600 we share with other countries such as Japan, the European Union. 0:15:48.480 --> 0:15:52.080 But the distraction of trade is you in the combine 0:15:52.360 --> 0:15:54.440 I think of Nick Lartey and the rest of Peterson. 0:15:54.960 --> 0:16:00.440 Does the distraction of trade dramatically damage investment it by 0:16:00.600 --> 0:16:06.440 US companies and particularly US multinationals. I've given US multinationals 0:16:06.520 --> 0:16:09.960 now their heads must be spinning over where the next 0:16:10.120 --> 0:16:15.760 marginal investment dollar goes. Yes, and there's certainly an attempt 0:16:15.760 --> 0:16:19.640 by the administration to notn have US companies invest in 0:16:19.720 --> 0:16:23.080 China and quote to bring the jobs home. Um, that 0:16:23.240 --> 0:16:26.400 is a powerful I think at okay, But but Mary, Mary, 0:16:26.480 --> 0:16:28.400 I just set up a new router at my home, 0:16:28.480 --> 0:16:32.640 Thank you, Nextgear, and it was made in Vietnam. I 0:16:32.640 --> 0:16:35.000 mean the debate and this is no fault of mery 0:16:35.040 --> 0:16:39.000 lovely folks who teaches at Syracuse. It's not China, China, China, 0:16:39.600 --> 0:16:43.280 But the debate in the media is always US China, Mary, 0:16:43.360 --> 0:16:46.760 and you know, it's a much richer set of adjacenc 0:16:46.800 --> 0:16:49.760 ease it is. And that's why we're worried about US 0:16:49.800 --> 0:16:52.560 competitiveness because there's a it's a big world. There's lots 0:16:52.560 --> 0:16:56.320 of other UH countries out there. If we look at 0:16:56.400 --> 0:17:01.840 even US operations in China, about se of the goods 0:17:01.880 --> 0:17:05.160 that they're selling are being sold into Asia. So how 0:17:05.200 --> 0:17:08.960 would tariffs on imports back to the state stop those 0:17:09.000 --> 0:17:11.800 companies are moving to Asia? It won't. Asia's where the 0:17:11.840 --> 0:17:14.520 market growth is. It's where these companies need to be 0:17:14.680 --> 0:17:18.640 to make sure that they're profitable UH and return value 0:17:18.680 --> 0:17:23.000 for investors. So this bilateral focus of the president keeps 0:17:23.080 --> 0:17:25.879 him from seeing the bigger game. Part of that is 0:17:25.880 --> 0:17:28.679 seeing what our multinationals are doing abroad the other courses. 0:17:28.720 --> 0:17:30.640 As you point out that there's a lot of other 0:17:31.119 --> 0:17:35.000 UH GO income countries who are ready to either take 0:17:35.040 --> 0:17:37.920 more investment or finish off the goods so that they 0:17:37.920 --> 0:17:41.760 come from say Vietnam, even with Chinese components. I mean 0:17:41.840 --> 0:17:45.040 within the micro economics are wedges and incentives. What are 0:17:45.040 --> 0:17:49.520 the incentives now that the president's creating with Trunch one 0:17:49.840 --> 0:17:54.119 of taxes and now Trunch two of trade taxes. What 0:17:54.359 --> 0:17:57.520 is the key incentive there that people have to adapt 0:17:57.600 --> 0:18:01.440 and adjust to. Well, it's going to raise the price 0:18:01.480 --> 0:18:04.560 of bringing an intermediate goods to the United States, and 0:18:04.600 --> 0:18:10.280 so will will reorient some uh certainly supply chains. As 0:18:10.440 --> 0:18:13.440 you know, it's possible for them to simply import goods 0:18:13.440 --> 0:18:16.760 from other countries, other low wage countries, or we can 0:18:16.840 --> 0:18:20.320 produce it here at a higher cost. It's essentially producing 0:18:20.320 --> 0:18:23.440 a production island for the United States, and that will 0:18:23.480 --> 0:18:28.159 force companies to move production for sport outside the United States. 0:18:28.240 --> 0:18:30.440 That's the dynamic that it's setting up, and that's really 0:18:30.480 --> 0:18:32.520 not good for workers or for investors. I'm not going 0:18:32.560 --> 0:18:35.240 to put out this chart because it's Monday. In my brains, Fried, 0:18:35.320 --> 0:18:37.560 I'll put out the link to it. And Mary, this 0:18:37.640 --> 0:18:40.080 is Paul Krugman, who you know, people go mental because 0:18:40.080 --> 0:18:43.040 Professor Krugman is talking about this, this or this. This 0:18:43.119 --> 0:18:47.240 is the Krugman wheelhouse. This is the lovely wheelhouse. Is well, 0:18:47.640 --> 0:18:50.760 if you've got a dynamic on the y axis mary 0:18:50.920 --> 0:18:54.960 of the price of imports coming in, and on the 0:18:55.000 --> 0:18:59.119 other side you've got the units the volume of imports 0:18:59.160 --> 0:19:03.400 coming in, you have a demand for imports based on 0:19:03.440 --> 0:19:08.359 the price of them and the units of them, and 0:19:08.440 --> 0:19:10.760 you end up in a trade for war with what 0:19:10.880 --> 0:19:15.439 Professor Krugman you would call a welfare loss. What's the 0:19:15.520 --> 0:19:20.440 welfare loss to our listeners, Well, it's basically that we're 0:19:20.480 --> 0:19:22.920 going to be forced to pay more for inputs and 0:19:22.960 --> 0:19:25.480 will drive up the cost of our goods. And people 0:19:25.480 --> 0:19:28.560 will say, well that will create jobs. Yes, it will 0:19:28.600 --> 0:19:31.160 create jobs in the protected in industry, but it has 0:19:31.200 --> 0:19:33.760 to take jobs from some place else. When I have 0:19:33.880 --> 0:19:37.200 to pay more for my children's clothing, or for toys, 0:19:37.359 --> 0:19:39.879 or for mobile phones, all of which are threatened with 0:19:39.920 --> 0:19:43.000 the last trance of Chinese art, that means that I 0:19:43.040 --> 0:19:47.840 can't buy myself a nice dress at the store, or upgrade, 0:19:47.880 --> 0:19:50.760 you know, upgrade my router, or buy or you know, 0:19:50.920 --> 0:19:53.840 buy a new car. That means jobs are not created 0:19:53.840 --> 0:19:57.959 in those other industries. So basically you see the first thing, Oh, 0:19:58.000 --> 0:20:01.520 well there's a job created in technic industry. X. Well, 0:20:01.560 --> 0:20:03.960 you failed to seize the job that wasn't created in 0:20:04.000 --> 0:20:07.080 another industry. And those other industries tend to be the 0:20:07.119 --> 0:20:10.400 export industries that pay more, they're firm to do more, 0:20:10.520 --> 0:20:12.760 R and D, and frankly their firms that are going 0:20:12.800 --> 0:20:15.880 to drive innovation in the future. So we're really just 0:20:16.200 --> 0:20:20.000 hampering ourselves in the future generations beautifully explained. I feel 0:20:20.040 --> 0:20:22.120 like it's like, this is not like ECON one O one. 0:20:22.160 --> 0:20:24.240 It's like ECON two or three or two oh four. 0:20:24.840 --> 0:20:28.639 But within it, Mary is the idea of the marginal 0:20:28.840 --> 0:20:32.800 or the next dollar I spend, or the next tradeable item. 0:20:33.119 --> 0:20:36.920 When the President looks at the blunt instrument of car sales, 0:20:37.040 --> 0:20:40.359 Germany bad, We're good. I mean, the simplistic tone. And 0:20:40.440 --> 0:20:43.280 that's sort of criticism of President Trump, folks, it's just 0:20:43.359 --> 0:20:48.800 a fact. It's a simplistic analysis. Drag President Trump over 0:20:48.800 --> 0:20:52.399 to the dynamic space that Mary Lovely is in. Where's 0:20:52.440 --> 0:20:59.200 the complexity of that simplistic debate? Well, where is the complexity? 0:20:59.240 --> 0:21:01.080 I think there are a lot of people who are 0:21:01.119 --> 0:21:03.600 trying to explain this to the president to make their 0:21:03.680 --> 0:21:07.639 views heard. We saw many many companies UH testifying and 0:21:08.160 --> 0:21:10.760 the hearings that were held for this latest tront of 0:21:11.280 --> 0:21:16.240 taxes against Chinese imports. We saw tens of thousands of 0:21:16.280 --> 0:21:19.040 companies asked for exemptions from the stealing a movement of terror. 0:21:19.680 --> 0:21:22.199 So the business and you know world is trying to 0:21:22.240 --> 0:21:24.640 get the message out this is not good for us. 0:21:25.480 --> 0:21:27.520 You're hurting us in terms of the price of the 0:21:27.560 --> 0:21:31.000 goods that we need to produce the US and eventually 0:21:31.080 --> 0:21:33.560 it will show up in jobs. This has been wonderful, 0:21:33.640 --> 0:21:37.119 very lovely. Thank you so much, greatly appreciate your attendance 0:21:37.160 --> 0:21:39.920 on Bloomberg surveillance over the last number of weeks. Can't 0:21:39.960 --> 0:21:56.160 say enough about what they're doing at Peterson h It's 0:21:56.160 --> 0:21:58.879 a book's collusion. How central bankers ring the world know me? 0:21:58.960 --> 0:22:01.680 Prints with us have been You can about an international 0:22:01.760 --> 0:22:05.520