Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene
Speaker 1: Jay Lee. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Yeah.
Speaker 1: Do you want to us here in New York City
Speaker 1: in the studio and please to say Chris Grassanti Grassanti
Speaker 1: Capital Management, CEO our value man, who says, don't worry
Speaker 1: about Democrats taking the House, don't worry about higher rates,
Speaker 1: and don't worry about inflation. Can we start with politics, Chris?
Speaker 1: Why should we worry about the politics at the moment?
Speaker 1: You know, I think almost the consensus view is that
Speaker 1: the Democrats will take the House. It's very difficult to
Speaker 1: see them taking the Senate. So I think the market
Speaker 1: has priced in divided government. It's not like a a
Speaker 1: lot has gotten done before this, So I you know,
Speaker 1: I don't think if com on the day after election
Speaker 1: day we see a divided Congress that it's it's going
Speaker 1: to upset the market. Maybe a little volatility, maybe some opportunity,
Speaker 1: but it's been so market positive with Republicans in the House,
Speaker 1: and Republicans running the Senate as well. Why is the
Speaker 1: opposite not apply. Well, we've gotten the tax break, we
Speaker 1: will continue to get lower regulation because that's an executive function.
Speaker 1: Um So I think that the trends that have repelled
Speaker 1: the market can continue. Of course, the big wild card
Speaker 1: is if the Houses goes democratic, whether we'll see lots
Speaker 1: of investigations. But I think the final release of the
Speaker 1: Muller Report will set that to rest one way or another.
Speaker 1: In terms of a trade policy, the President kind of
Speaker 1: rampant things up again, threatening to tax all imports coming
Speaker 1: from China, and the data over the weekend from the Chinese,
Speaker 1: the trade dates surplus might be narrowing, but with the
Speaker 1: United States, and it's a record, it doesn't look good
Speaker 1: for the Chinese if they're trying to have It's hard
Speaker 1: to have sympathy for the Chinese in some ways, but
Speaker 1: but here you kind of do because the trade deficit
Speaker 1: typically widens, and Tom will be able to tell this
Speaker 1: bitter night because we're having strong economic times and we
Speaker 1: just buy more stuff because people have jobs, so the
Speaker 1: deficit would widen. The problem is that's Trump's major litmus
Speaker 1: test for whether things are fair or not. I don't
Speaker 1: care about the politics. Here's a reality. We're ten years
Speaker 1: on from Leman. We're only talking to optimists this week
Speaker 1: that had the courage to stay in the market. How
Speaker 1: did you stay in the market in April of two
Speaker 1: thousand nine, Well, we ran to quality times. So you
Speaker 1: buy JP Morgan, you buy Goldman Sacks. It was the
Speaker 1: first time, really in a generation where they were turning.
Speaker 1: What did he buy bear Sterns for like a dollar? Was?
Speaker 1: It was like two dollars he bought Remember he bought
Speaker 1: it for two dollars and then he had to up
Speaker 1: the price to ten dollars because he got so many
Speaker 1: complaints about And you loaded the boat on JP Morgan?
Speaker 1: We did, because you know, if JP Morgan went under,
Speaker 1: we had what was the sweat like in London with
Speaker 1: Northern Rock. Nobody was loading the boat on Northern Rock,
Speaker 1: good joke, they didn't, and that that was the story.
Speaker 1: If you loaded, and if you loaded the boat on RBS,
Speaker 1: I mean you are still struggling right now. That's the
Speaker 1: difference I think between them. We say the United States,
Speaker 1: the US did such a much better job of recapitalizing
Speaker 1: the banks than the rest of you, and they took
Speaker 1: their medicine earlier. I think that's right, because I think
Speaker 1: you're Eurebe is still doing that. But we took and
Speaker 1: sit here with the benefit of hindsight. When you sort
Speaker 1: of talk about loading the boat of JP Morgan ten
Speaker 1: years ago, it didn't seem that hopefullus did it. No.
Speaker 1: I mean, that's why you could do it, although there
Speaker 1: is some as the boat goes under water, you head
Speaker 1: to the highest point, You head to the quality you
Speaker 1: could have done JP Moore than you could have done
Speaker 1: Wells Fargo. And by the way, in retrospect, neither Wells
Speaker 1: Fargo nor JP Morgan had a single quarter of reported
Speaker 1: losses during that period. But did you sell them now? Are?
Speaker 1: Do you only own junk down? Do you only own
Speaker 1: things with five symbols? No, we've sold j JP Morgan
Speaker 1: simply because it's you know, it's quadruple since then, but
Speaker 1: we've we own and would buy today the Wells Fargo
Speaker 1: because of the company's specific problem, which I think they
Speaker 1: will grow out. What's the differential value between JPEOPLE Morgan.
Speaker 1: What what ratio do you use to compare and contrast
Speaker 1: JPM with WS We use both price to book and
Speaker 1: price to earnings In both cases, Wells because of their mix.
Speaker 1: Right now, they're trading almost at parody, but the proviser
Speaker 1: is time. They usually Wells usually trades at almost a
Speaker 1: fifty premium because it has a more stable book of businesses, mortgages.
Speaker 1: It's it's kind of bread and butter lending where JP
Speaker 1: Morgan is more trading. So you can buy Wells if
Speaker 1: they get the same historic premium, you'll make on your money. Chris,
Speaker 1: can we get a quick word from you on Apple
Speaker 1: big launch light this week? I know you hold the stock,
Speaker 1: do what are you looking for? You know, it's it's funny.
Speaker 1: We're contrarians and it's so it's hard to sit here
Speaker 1: and defend Apple. But it's just done everything right. It's
Speaker 1: not terribly expensive. And what we love are two things
Speaker 1: that people don't usually talk about, which is all the
Speaker 1: cash that's coming back, and second the services business, which
Speaker 1: has gone It's almost like Amazon Web Services, the hidden
Speaker 1: jam of Amazon. Here you have Apple services Busines is
Speaker 1: where they're selling apps and everything else, and that's gone
Speaker 1: from zero to almost ten percent of the revenue, and
Speaker 1: we think it's heading to the company revealing late last
Speaker 1: week that some of the twi's coming through will hit
Speaker 1: some of that products. The President is saying, that's an
Speaker 1: easy solution to that on shore um Sammy for duck Ship.
Speaker 1: I'm sure it's not that obvious for Apple and not
Speaker 1: that simplistic kind that, but anything to you because the
Speaker 1: problem with all this trade stuff is you have to
Speaker 1: make multi year capital spending decisions based on stuff that
Speaker 1: can change. So no company is going to do that
Speaker 1: until we get some certainty there. And so that Jonathan
Speaker 1: coming full circle, that's the big wild card in this
Speaker 1: this March. There's sure buy backs and dividing growth support
Speaker 1: the market into two thousand nineteen or you know it
Speaker 1: has it, has it has or will there be a
Speaker 1: change behavior? I don't think, you know. I think it's
Speaker 1: continues to be a tail wind Tom, but I don't
Speaker 1: think we need it. I think for the first time
Speaker 1: since the crisis, we have increasing employment, increasing wages for
Speaker 1: the first time. So you've got a bunch of tail winds,
Speaker 1: of which is shared by backs. Are are simply one
Speaker 1: of Chris, thank you, great to catch up with you.
Speaker 1: Why don't you bring in James? He is one of
Speaker 1: the accurate payrolls forecasters on the planet. You my son
Speaker 1: have enjoined us from High Frequency Economics, The chief US economist, Jim,
Speaker 1: what did you look for Friday and did you get it? Hi? John? Morning,
Speaker 1: Morning Tom? And Well, it was actually a bit a
Speaker 1: bit stronger on the peril side than expected, plus on
Speaker 1: the on the weight side obviously as well. So I
Speaker 1: mean they were they were pretty strong numbers. I mean,
Speaker 1: obviously monthly numbers jump around a lot, but I mean
Speaker 1: it's pretty unambiguous that we keep getting something in the
Speaker 1: in the range of two thousand a month on jobs,
Speaker 1: which even though an employment held in Friday's numbers, more
Speaker 1: than enough overtime to keep unemployment coming down. Meanwhile, wages
Speaker 1: are accelerating. Yeah, but Jim, there is this feeling and
Speaker 1: I've called you one of the most thanks for forecasters
Speaker 1: because you are. But there are many people out there
Speaker 1: that say this has got a whole lot more predictable
Speaker 1: over the last couple of years. And wage growth has
Speaker 1: been pretty stable. Payrolls growth has been stable around two
Speaker 1: thousand every single month. Can we break out to a
Speaker 1: higher trend on wage growth? Jim, Well, I think the
Speaker 1: trend has been moving up and we'll continue to move
Speaker 1: up I mean, the two point nine percent year over
Speaker 1: year we saw on Friday is a new high and
Speaker 1: that's going to keep on going up. And I think
Speaker 1: we've seen the same already in fact in the employment
Speaker 1: cost in which if anything, is more comprehensive, and the
Speaker 1: private wage number, and that report was already up to two.
Speaker 1: So what's the sweat at the Fed? I mean, coming
Speaker 1: off for Friday, what you thought made a nice splash
Speaker 1: and you know, end of the weekend, make America great
Speaker 1: again and all that, what's the level of sweat or
Speaker 1: the change in the level of sweat at the Fed?
Speaker 1: And well, I mean, like everyone else, I'm sure they're
Speaker 1: they're watching the trade, trade war threats and trade tensions
Speaker 1: as as a stuff. And the monitor in terms of
Speaker 1: the labor market itself numbers on Friday, and I think,
Speaker 1: I mean, what they're worrying about is ultimately unemployment keeps
Speaker 1: on falling and the economy overheats. The unemployment rate at
Speaker 1: three point nine is already below the media and fedeficial
Speaker 1: estimate of what sustainable over the long run for and
Speaker 1: a half percent. And while the inflation numbers right now,
Speaker 1: and I would say even the wage numbers right now
Speaker 1: are pretty much where they want to see them. I Mean,
Speaker 1: the question is do they stop at these at these
Speaker 1: at these readings or do they keep on accelerating because
Speaker 1: unemployment is too low? So I think ultimately, yeah, they're
Speaker 1: in terms of the labor market they're worrying about. Ultimately,
Speaker 1: this is unsustainably strong. Jim, that Fed staff paper that
Speaker 1: came out over the weekend at Jackson Hole, um, several
Speaker 1: weekends back. Do you think that is the guide? Just
Speaker 1: follow the unemployment right and does that make sense to you? Well? Historically,
Speaker 1: I mean they've always put a lot of emphasis on
Speaker 1: the unemployment rate is a key slock indicator. And of
Speaker 1: course I mean broadly, I mean, what what are the
Speaker 1: FED goals? FEDS goals, I mean they're full employment and
Speaker 1: price stability, and I mean they're defining price full employment
Speaker 1: right now at least is four and a half percent
Speaker 1: unemployment rate over the long haul. So yeah, I mean
Speaker 1: it's it's never been so simple that the only thing
Speaker 1: that matters for reslation is the uneployment rate. But I
Speaker 1: mean it it's clearly an important indicator from their perspective. Jim,
Speaker 1: review for us the quality of the jobs being created,
Speaker 1: I mean, if we make the assumption everybody got two
Speaker 1: hundred thou months wrong because proper job growth was a
Speaker 1: huddy whatever, that marginal job growth that's surprised even the optimusts.
Speaker 1: Are they good jobs, and I think they're probably pretty
Speaker 1: average jobs on average, in the sense that the some
Speaker 1: of them are above average and some of them were
Speaker 1: below average. And I think that's inevitable when you've got
Speaker 1: a hundred and fifty million jobs in terms of the level,
Speaker 1: I mean, half them are average and half the average.
Speaker 1: And not just trying to be facetious here, but the
Speaker 1: point is that when you look at average early earnings
Speaker 1: going up two point nine, and that's a pure average,
Speaker 1: so I mean, that's similar to what we're seeing, for instance,
Speaker 1: in the employment cost index, which is a weighted index.
Speaker 1: I mean, this is a little technical, but if you
Speaker 1: were consistently seeing below average weights jobs created, you'd see
Speaker 1: the average early earnings number, which is the pure average,
Speaker 1: go up much much less than the employment cost index,
Speaker 1: which is a fixed weighted index. But they're pretty much
Speaker 1: consistent right now. So implication is, yeah, they're above average jobs,
Speaker 1: and there are below average jobs, but on average, I mean,
Speaker 1: the new jobs being created are probably not all that
Speaker 1: different from the stock of jobs that's already out there
Speaker 1: d and fifty million jobs that are already out there
Speaker 1: at this stage of the cycle. Given what unemployment is,
Speaker 1: where is this payroll's growth coming from? And well, I
Speaker 1: mean it's across the board in terms of sectors, for sure.
Speaker 1: And it's not as if when you hit the roughly
Speaker 1: what full employment is, and of course there's no clear
Speaker 1: right answer, and what full employment is, I mean, four
Speaker 1: point five is in the FATS estimate for what stainable
Speaker 1: over the long haul. I mean three point nine is
Speaker 1: obviously a bit below of that. But it's not as
Speaker 1: if you suddenly hit a wall where you run out
Speaker 1: of workers. And I mean at this point of the cycle,
Speaker 1: then certainly workers are harder to find, and gradually we
Speaker 1: start seeing the wage numbers drift up. So I think
Speaker 1: that's the point we're at. And I mean, I certainly
Speaker 1: over time you would expect, I mean, the payroll numbers
Speaker 1: to slow a bit just because companies can't find workers.
Speaker 1: But I guess we asked this question, Jim, is because
Speaker 1: I was told this two years ago. Yeah, although I
Speaker 1: don't think anyone would have really said you suddenly hit
Speaker 1: a wall that you suddenly can't employment grow goes from
Speaker 1: two hundred thousand, expected to slow, expected to go down
Speaker 1: towards a hundred thousand, expected to go to maintenance rights.
Speaker 1: It didn't. I yeah, I don't know. I would have
Speaker 1: questioned that. I mean, just because you've hit more or
Speaker 1: less full employment. And again it's also plausible that maybe
Speaker 1: instead of two d and months would be getting two
Speaker 1: fifty a month right now. I mean, if if the
Speaker 1: unemployment rate we're higher, and there's been a lot of
Speaker 1: stimulats in the economy recently, growth is actually accelerated and
Speaker 1: means well, I mean you are seeing the wage numbers
Speaker 1: starting starting to pick up, so that's where the pressure
Speaker 1: is coming through. Fifteen weeks ago, it was like, Okay,
Speaker 1: this is as good as it gets. It will taper off.
Speaker 1: Where have you adjusted your taper? Now? Have you? Have
Speaker 1: you extended this good growth into Q four and even
Speaker 1: into two thousand nineteen, and I haven't changed any numbers recently.
Speaker 1: I mean, I've got three percent for the second half
Speaker 1: of this year, so still pretty good. I mean, I
Speaker 1: don't think the trend is over four percent, which is
Speaker 1: what the Q two number was. I mean four two
Speaker 1: for the second quarter. But when I've got three percent
Speaker 1: for the second half, I mean that said, I think
Speaker 1: the temptation would be if anything go up a bit
Speaker 1: from from three percent in the second half. The momentum
Speaker 1: it looks so good, I mean last week obviously, the
Speaker 1: IM numbers that came out, I mean, the job dis
Speaker 1: claims numbers are at their lowestans nineteen nine. But I
Speaker 1: do think ultimately, I mean, Taper of course is the
Speaker 1: sort of a monitor policy ward these days. But in
Speaker 1: terms of growth, I mean, I think the fiscal stimulus
Speaker 1: will start fading into two and I think it's a
Speaker 1: fac keeps tightening every quarter that gradually montro policy becomes
Speaker 1: less accommodative as well. So I think it's it's pretty
Speaker 1: plausible that growth does start to slow by two thousand
Speaker 1: and nineteen. Jimmal Sullivan, thank you so much with high
Speaker 1: frequency economics, and now folks are definitive discussion today on
Speaker 1: trade in the ramifications for you. Very lovely is always
Speaker 1: powerful in intellect with the Peterson Institute for International Economics,
Speaker 1: but the real joy is very Lovely combined with their
Speaker 1: colleague Chad Bone, and the two of them almost it
Speaker 1: seems writing every other day, maybe every three days, have
Speaker 1: put out a body of work that I know has
Speaker 1: made me smarter about the trade debate. Mary, what's the
Speaker 1: next thing you write for? Peterson? Thanks so much for that. Well,
Speaker 1: we're particularly looking at just the some total of what's
Speaker 1: going on and how it will uh make American businesses
Speaker 1: either less competitive and international marketplaces or um forced companies
Speaker 1: to move some of their operations offshore. I think that's
Speaker 1: the real challenge that we're seeing right now. We're looking
Speaker 1: a little longer term, uh, you know, beyond day to
Speaker 1: day movies in the market and thinking longer term about competitiveness.
Speaker 1: If it's make America great again in amercantile thinking of
Speaker 1: the president or neo mercantilist, I guess I should say,
Speaker 1: is it make China week again? Can the President with
Speaker 1: these actions diminish China g d P or throw them
Speaker 1: into some form of recession? Well, it definitely can have
Speaker 1: an effect on China. I think that that the you
Speaker 1: that the US is powerful enough to get them to
Speaker 1: their knees where they will just wholeheartedly accept Trump's demands
Speaker 1: is wrong. However, our purchases of their manufactured grids. They're
Speaker 1: only about three percent of their total revenue. It's important
Speaker 1: in other ways however, to them, and they're always uh
Speaker 1: have their own internal struggles that this can make worse. Um.
Speaker 1: I think it is an attempt to hurt them to
Speaker 1: get what we want. Unfortunately, even if we do hurt them,
Speaker 1: we won't get what we want, which is some sanity
Speaker 1: in terms of intellectual property regimes and treatment of our
Speaker 1: intellectual property and technology. This is something that of course
Speaker 1: we share with other countries such as Japan, the European Union.
Speaker 1: But the distraction of trade is you in the combine
Speaker 1: I think of Nick Lartey and the rest of Peterson.
Speaker 1: Does the distraction of trade dramatically damage investment it by
Speaker 1: US companies and particularly US multinationals. I've given US multinationals
Speaker 1: now their heads must be spinning over where the next
Speaker 1: marginal investment dollar goes. Yes, and there's certainly an attempt
Speaker 1: by the administration to notn have US companies invest in
Speaker 1: China and quote to bring the jobs home. Um, that
Speaker 1: is a powerful I think at okay, But but Mary, Mary,
Speaker 1: I just set up a new router at my home,
Speaker 1: Thank you, Nextgear, and it was made in Vietnam. I
Speaker 1: mean the debate and this is no fault of mery
Speaker 1: lovely folks who teaches at Syracuse. It's not China, China, China,
Speaker 1: But the debate in the media is always US China, Mary,
Speaker 1: and you know, it's a much richer set of adjacenc
Speaker 1: ease it is. And that's why we're worried about US
Speaker 1: competitiveness because there's a it's a big world. There's lots
Speaker 1: of other UH countries out there. If we look at
Speaker 1: even US operations in China, about se of the goods
Speaker 1: that they're selling are being sold into Asia. So how
Speaker 1: would tariffs on imports back to the state stop those
Speaker 1: companies are moving to Asia? It won't. Asia's where the
Speaker 1: market growth is. It's where these companies need to be
Speaker 1: to make sure that they're profitable UH and return value
Speaker 1: for investors. So this bilateral focus of the president keeps
Speaker 1: him from seeing the bigger game. Part of that is
Speaker 1: seeing what our multinationals are doing abroad the other courses.
Speaker 1: As you point out that there's a lot of other
Speaker 1: UH GO income countries who are ready to either take
Speaker 1: more investment or finish off the goods so that they
Speaker 1: come from say Vietnam, even with Chinese components. I mean
Speaker 1: within the micro economics are wedges and incentives. What are
Speaker 1: the incentives now that the president's creating with Trunch one
Speaker 1: of taxes and now Trunch two of trade taxes. What
Speaker 1: is the key incentive there that people have to adapt
Speaker 1: and adjust to. Well, it's going to raise the price
Speaker 1: of bringing an intermediate goods to the United States, and
Speaker 1: so will will reorient some uh certainly supply chains. As
Speaker 1: you know, it's possible for them to simply import goods
Speaker 1: from other countries, other low wage countries, or we can
Speaker 1: produce it here at a higher cost. It's essentially producing
Speaker 1: a production island for the United States, and that will
Speaker 1: force companies to move production for sport outside the United States.
Speaker 1: That's the dynamic that it's setting up, and that's really
Speaker 1: not good for workers or for investors. I'm not going
Speaker 1: to put out this chart because it's Monday. In my brains, Fried,
Speaker 1: I'll put out the link to it. And Mary, this
Speaker 1: is Paul Krugman, who you know, people go mental because
Speaker 1: Professor Krugman is talking about this, this or this. This
Speaker 1: is the Krugman wheelhouse. This is the lovely wheelhouse. Is well,
Speaker 1: if you've got a dynamic on the y axis mary
Speaker 1: of the price of imports coming in, and on the
Speaker 1: other side you've got the units the volume of imports
Speaker 1: coming in, you have a demand for imports based on
Speaker 1: the price of them and the units of them, and
Speaker 1: you end up in a trade for war with what
Speaker 1: Professor Krugman you would call a welfare loss. What's the
Speaker 1: welfare loss to our listeners, Well, it's basically that we're
Speaker 1: going to be forced to pay more for inputs and
Speaker 1: will drive up the cost of our goods. And people
Speaker 1: will say, well that will create jobs. Yes, it will
Speaker 1: create jobs in the protected in industry, but it has
Speaker 1: to take jobs from some place else. When I have
Speaker 1: to pay more for my children's clothing, or for toys,
Speaker 1: or for mobile phones, all of which are threatened with
Speaker 1: the last trance of Chinese art, that means that I
Speaker 1: can't buy myself a nice dress at the store, or upgrade,
Speaker 1: you know, upgrade my router, or buy or you know,
Speaker 1: buy a new car. That means jobs are not created
Speaker 1: in those other industries. So basically you see the first thing, Oh,
Speaker 1: well there's a job created in technic industry. X. Well,
Speaker 1: you failed to seize the job that wasn't created in
Speaker 1: another industry. And those other industries tend to be the
Speaker 1: export industries that pay more, they're firm to do more,
Speaker 1: R and D, and frankly their firms that are going
Speaker 1: to drive innovation in the future. So we're really just
Speaker 1: hampering ourselves in the future generations beautifully explained. I feel
Speaker 1: like it's like, this is not like ECON one O one.
Speaker 1: It's like ECON two or three or two oh four.
Speaker 1: But within it, Mary is the idea of the marginal
Speaker 1: or the next dollar I spend, or the next tradeable item.
Speaker 1: When the President looks at the blunt instrument of car sales,
Speaker 1: Germany bad, We're good. I mean, the simplistic tone. And
Speaker 1: that's sort of criticism of President Trump, folks, it's just
Speaker 1: a fact. It's a simplistic analysis. Drag President Trump over
Speaker 1: to the dynamic space that Mary Lovely is in. Where's
Speaker 1: the complexity of that simplistic debate? Well, where is the complexity?
Speaker 1: I think there are a lot of people who are
Speaker 1: trying to explain this to the president to make their
Speaker 1: views heard. We saw many many companies UH testifying and
Speaker 1: the hearings that were held for this latest tront of
Speaker 1: taxes against Chinese imports. We saw tens of thousands of
Speaker 1: companies asked for exemptions from the stealing a movement of terror.
Speaker 1: So the business and you know world is trying to
Speaker 1: get the message out this is not good for us.
Speaker 1: You're hurting us in terms of the price of the
Speaker 1: goods that we need to produce the US and eventually
Speaker 1: it will show up in jobs. This has been wonderful,
Speaker 1: very lovely. Thank you so much, greatly appreciate your attendance
Speaker 1: on Bloomberg surveillance over the last number of weeks. Can't
Speaker 1: say enough about what they're doing at Peterson h It's
Speaker 1: a book's collusion. How central bankers ring the world know me?
Speaker 1: Prints with us have been You can about an international
Speaker 1: focus there not me James Diamond wanders in on page eighteen,
Speaker 1: and a compare and contrast of the JP Morgan bear
Speaker 1: Stearns effort with the United States of America government versus
Speaker 1: stimulus effects and bail out effects of the international economy.
Speaker 1: From where you sit, what is the state of America banking?
Speaker 1: Are they truly too big to fail? Um? They remain
Speaker 1: too big to fail? Its ironic actually worked for both
Speaker 1: of those from um, they're they're too big to fail
Speaker 1: because they actually existed on the subsidy. I mean in
Speaker 1: the four and a half trillion at the tight now
Speaker 1: four point two trillion of the said that the cheap
Speaker 1: money and so forth, they were able to sort of
Speaker 1: like bring themselves back from the frank. But in the process, UM,
Speaker 1: the larger banks have collectively become larger. Uh. And there
Speaker 1: was an ask frank past that was the postestensibly reduced
Speaker 1: some of their risk and at least I mentioned before,
Speaker 1: there has been something leveraging throughout. However, they still remain
Speaker 1: reliant on that supply of money, on the quantity of
Speaker 1: using that has propped up. So the treasury assets that
Speaker 1: have gone through them, the mortgage assets have gone through them.
Speaker 1: How they're reevaluating and half over the years those assets up,
Speaker 1: so they're not as healthy as they they've just had
Speaker 1: more money. But within your book Collusion, there's no chapter
Speaker 1: on Canada. What's wrong with the Canadian system of like
Speaker 1: five or six or seven banks? Um, you know, the
Speaker 1: reason I don't have a chapter on on Canada is
Speaker 1: because they didn't they didn't really rate in the whole
Speaker 1: sort of quantitative easing of the rest of UM. The
Speaker 1: major G seven countries that I and plus China that
Speaker 1: I do look at as the major central banks in
Speaker 1: terms of creating the electronic money through this process. UM so,
Speaker 1: I mean they had a more stable and and less
Speaker 1: leverage banking system to begin with. They weren't actually at
Speaker 1: the UM you know, sort of crux of the crisis
Speaker 1: when it happened, Emerging markets were much in paying. Canada
Speaker 1: was to an extent and pain um you know, Europe
Speaker 1: was in major pain and became still because of Greece,
Speaker 1: because of other debt problems, because of major bank problems
Speaker 1: and things like Deutschaum which continue and so forth. So
Speaker 1: there were just more problems throughout some of the other
Speaker 1: banking systems, and Canadians banks have been just relatively less
Speaker 1: help than more stable going into this period. You know,
Speaker 1: as we reflect on what happened ten years ago, I
Speaker 1: have to wonder about the risk that has moved out
Speaker 1: of the banking system and into the asset management world.
Speaker 1: And there's been a lot of discussion about this, whether
Speaker 1: it's private equity firms taking a lot of a lot
Speaker 1: of the direct lending too smaller and mid sized businesses
Speaker 1: that big banks once did. How concerned are you that
Speaker 1: that is the next front lines of whatever crisis emerges.
Speaker 1: That is such an excellent question. UM, it's it's at
Speaker 1: the front lines, because if we have any kind of
Speaker 1: unraveling UM through different points of possibility, whether it's geo politics,
Speaker 1: whether that's you know, emerging market debt of false, corporate
Speaker 1: debt of false. We've seen it in the US non
Speaker 1: UH financial corporates have almost doubled from from three point
Speaker 1: to trillion debt to six point two one trillion said
Speaker 1: over this period, and so forth, UM and and these
Speaker 1: asset management companies have grown on the back of what
Speaker 1: has been a bull market that has been largely artificially
Speaker 1: injected by quantity using and the results of that money
Speaker 1: coming in and and and and investors and speculators and
Speaker 1: these funds looking for returns on the back of that money.
Speaker 1: So if that unravels, then the returns UM that these
Speaker 1: growing asset management companies have been producing will start to
Speaker 1: unravel as well. When debt starts to If it starts
Speaker 1: to default, it takes money therefore out of the stock
Speaker 1: market to pay for UM the liabilities of that debt
Speaker 1: and so forth, and it becomes this sort of circular cascade,
Speaker 1: and that ultimately means that all of these purchases, these
Speaker 1: asset management companies and the larger ones that have grown
Speaker 1: that purchased these assets over the years, have to start
Speaker 1: seeing losses and have to start taking money out, um
Speaker 1: you know, for redemptions from some of their customers as well. Well.
Speaker 1: I guess that. Then the follow up question is are
Speaker 1: any of these asset managers systemically important or is this
Speaker 1: just sort of uh, this sort of cycle of liquidity
Speaker 1: withdrawal that happens anytime there's a market sell off. The
Speaker 1: reason they are more systemically important than they were, and
Speaker 1: of course they're not insured, so these assets are not
Speaker 1: you have guys see insure, and there's no unit of
Speaker 1: government tied to them. Um. So as a result, that's
Speaker 1: whether a bit more dangerous. It is soundly important because
Speaker 1: they have bought a lot of the assets they've been
Speaker 1: part of, you know, so the party of inflating on
Speaker 1: the back of achieved money that has been created. Um.
Speaker 1: But but we don't necessarily don't have to bail them out. Okay,
Speaker 1: even nomi can't there be a good outcoming. And you've
Speaker 1: been the great critic of the process of methodology of
Speaker 1: developed countries solving the problem whatever the prices down the
Speaker 1: road and wherever that price travels. But can't there be
Speaker 1: an if you and Chairman Bernanke were to sit down together,
Speaker 1: can't there be a constructive outcome to the financial system
Speaker 1: or do you just throw in the towel. We'll have
Speaker 1: to look at the financial system and the general economies
Speaker 1: in combination, and I think some there there can be
Speaker 1: solutions and even unlined possibilities to what we have. What
Speaker 1: are those online possibilities right now? Well, well, one of
Speaker 1: my possibilis right now, are you know some rads go
Speaker 1: too higher, or there's there's there's there's currency protections throughout
Speaker 1: the world, and that basically and stills just you know,
Speaker 1: sort of freeze um that that that's that's a that's
Speaker 1: a far case scenario because of other factors. But I
Speaker 1: think you can solve some of that by going back
Speaker 1: to the core of why supposedly this money was created
Speaker 1: to begin with, is created to to basically inflate the economy.
Speaker 1: Even though that we can differ through that. We can
Speaker 1: basically say, look, there's all these debt in different countries
Speaker 1: where it's BCB creating at the advantages and and and deflected.
Speaker 1: Move it to more infrastructure, more long term, more sort
Speaker 1: of sustainable, and actually follow that money. Right now, if
Speaker 1: you follow the money, you know the lines are all
Speaker 1: the correlation and causation as to the markets. But if
Speaker 1: you follow it into sort of real long termustainable private
Speaker 1: investment developments or you get a more structured future. Do
Speaker 1: you just assume no, do you just assume stronger dollar
Speaker 1: In this great unlined um, the dollar is tends to
Speaker 1: be the recipient and the great unlined just because of
Speaker 1: the flight to tow qualities like to safety that's perceived
Speaker 1: in the fact that it remains the reserve currents. Throughout
Speaker 1: this decade. There has been more movement to other currencies
Speaker 1: at the trade alliances and so forth, and some of
Speaker 1: the trade woards will continue to make that happen. However,
Speaker 1: the dollar still remains at the top of that pile.
Speaker 1: So if there's an acute problem, the dollar does go
Speaker 1: up at Then in the wake of the crisis, the
Speaker 1: dollar got basically creamed right away because of the fact
Speaker 1: that it started financials the US. It really depends on
Speaker 1: how it how It also plays out me, thank you
Speaker 1: so many friends, all the President's bankers, and she follows
Speaker 1: with a really terse two fifty pages, two hundred fifty
Speaker 1: six pages collusion, How central bankers rigged the world. Very controversial.
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and
Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast
Speaker 1: platform you prefer. I'm on Twitter at Tom Keane before
Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg
Speaker 1: Radio