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

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Speaker 1: We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. This

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Speaker 1: is a true joy. Gideon Rose has been wonderful to

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Speaker 1: stop buying a monthly basis to flog his issue of

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Speaker 1: Foreign Affairs at magazine. It's a jewel, this one. I

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Speaker 1: hate him because the books in the back, like including

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Speaker 1: a one volume on chopin what is the music book?

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Speaker 1: Foreign Affairs again does it well with thoughtful reading, including

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Speaker 1: essays by Secretary Pom Pale and also by the former

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Speaker 1: Treasury Secretary of the United States, Jacob Blue. We're thrilled

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Speaker 1: to Jack, Lou and Gideon Rose could be with us

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Speaker 1: together this morning. Gentlemen, this is just a joy to

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Speaker 1: have you here, particularly with the news flow. I've to

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Speaker 1: ask you an ugly question. I don't want to ask you,

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Speaker 1: but I want to go first to you. Gideon. You've

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Speaker 1: got a beautiful essay in this new issue on authoritarianism

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Speaker 1: in the Middle East. Give us your thoughts on the

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Speaker 1: new Saudi Arabia. Well, so uh, in many respects, this

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Speaker 1: is not exactly shocking. Um. The Saudi regime does not

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Speaker 1: take distance lightly and they have gone after their internal

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Speaker 1: critics in many respects in the past when and in fact,

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Speaker 1: many regimes have done this in an unsavory way over

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Speaker 1: the years. When Napoleon did something similar and got criticized

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Speaker 1: for it, his foreign minister Talleyrand famously said it was

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Speaker 1: worse than a crime, it was a blunder because it

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Speaker 1: made everybody upset. And so what the Saudis have done

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Speaker 1: with Kashogi was not just a crime but also a

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Speaker 1: blunder because by doing so so gratuitously and obviously they've

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Speaker 1: made everybody upset. And the reality is this crisis will

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Speaker 1: blow over. No one's going to actually break relations with

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Speaker 1: Saudi Arabi be over this. And so the question now

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Speaker 1: is not really getting to the bottom of it, but

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Speaker 1: getting past it for the diplomats and how that happens

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Speaker 1: will be an interesting story about diploma for the diplomats.

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Speaker 1: Mr Secretaries, Secretary minution attend this conference in Saudi Arabia. Look,

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Speaker 1: the story is coming out of Istanbul or nothing short

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Speaker 1: of horrific and Um, the idea that journalist could be

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Speaker 1: murdered for reporting offends our most basic values. I've made

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Speaker 1: it my business to refrain from publicly advising my successor.

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Speaker 1: I appreciated it when my predecessors offered me private advice.

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Speaker 1: But I can say that when I was Secretary and

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Speaker 1: we had to make a decision about whether American business

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Speaker 1: people should attend a conference in Russia, business conference in

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Speaker 1: Russia while Russia was occupying Crimea and moving in in

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Speaker 1: the eastern Ukraine, I advised them not to go. All right,

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Speaker 1: But um, you know, Mr jacklu, how does it affect

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Speaker 1: for relations between the US and Saudi Arabia? So away

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Speaker 1: from the from the conference which is immediate, which is

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Speaker 1: next week, Um, what kind of advice would you have

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Speaker 1: taken on on the next step for the US and

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Speaker 1: Saudi Arabia. Look, I think that the issue is a

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Speaker 1: very serious one. It has to be engaged directly. There's

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Speaker 1: a need to understand, in a kind of murky situation,

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Speaker 1: what the facts on the ground are. Um. I think

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Speaker 1: it's taken too long to get to a clear explanation

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Speaker 1: of what happened, and the swirling stories that we hear

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Speaker 1: only make it worse. Um, the conversations that have been

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Speaker 1: going on between Secretary Pompeo and the leaders in Saudi

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Speaker 1: Arabia hopefully will provide some more clear understanding. UM, I'm

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Speaker 1: not sure that we'll ever understand exactly what happened, and

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Speaker 1: they're just going to need to be a recognition that

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Speaker 1: this kind of behavior is unacceptable. You know, the United

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Speaker 1: States has complicated relationships all for the world, but it

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Speaker 1: also has align that it draws in terms of what

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Speaker 1: core values are and I think that that's this is

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Speaker 1: a situation that requires an articulation of those issues. Well,

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Speaker 1: should it actually hurt business? Again, this is the very

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Speaker 1: complicated question, Mr Leeu, of how to deal with allies

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Speaker 1: that could have, you know, questionable morals. So look, you know,

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Speaker 1: the the idea of using economic sanctions is actually what

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Speaker 1: I wrote in the current Issue of Foreign Affairs about

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Speaker 1: I believe that using economic power economic leadership is an

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Speaker 1: appropriate use of power and a powerful tool. The question

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Speaker 1: is how you do it. Um, you have the opportunity

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Speaker 1: to inflict pain, but the goal of using economic pressure

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Speaker 1: is not just to cause pain. It's a change of policies.

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Speaker 1: You have to articulate what the new policy is how

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Speaker 1: economic pressure would be used to accomplish that, and you

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Speaker 1: have to do it in a way where the United

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Speaker 1: States hopefully is working as part of the world community.

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Speaker 1: I'm not addressing the facts right here, but as a

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Speaker 1: general model, saying you can power requires some care and

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Speaker 1: skill give you. And I notice how the Secretary diplomatically

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Speaker 1: began his essay with the walk through of our history

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Speaker 1: of American sanctions and waited for the crushing criticisms of

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Speaker 1: the Trump administration until the end. Let's bring up the

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Speaker 1: quote right now here from Secretary lou in Gideon Rose's

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Speaker 1: new Foreign Affairs and magazine, the president's administration is behavior,

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Speaker 1: behaving as if the United States is immune to consequences.

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Speaker 1: He goes on to say bellicost unilateral actions, and then

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Speaker 1: he shifts it will fall to Congress and honest reckoning

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Speaker 1: on the part of US polly policy makers with the

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Speaker 1: limits of American power, Gideon Rose, can Congress come to

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Speaker 1: a diplomatic rescue or is that's so nineteenth century? I mean,

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Speaker 1: Congress has lots of power and at some points in

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Speaker 1: the past has played an important role in American foreign policy.

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Speaker 1: They're not really doing so now. I think many of

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Speaker 1: us would like them to do so now, but end well,

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Speaker 1: it's a quite The people in Washington can do anything

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Speaker 1: if they actually choose to. Right now, we seem to

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Speaker 1: be in a sort of partisan spitfighting spending contest that

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Speaker 1: prevents Congress from playing any kind of significant role in

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Speaker 1: foreign policy or domestic Well, I'm gonna use the word pragmatic.

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Speaker 1: This is what you do when Jack lou works with

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Speaker 1: Joe Mowkley and Tip O'Neil up in Massachusetts from another

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Speaker 1: time ago. There's got to be a pragmatic view coming

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Speaker 1: out of these mid term elections towards if we're not

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Speaker 1: going to go to multilateral, we're going to go to

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Speaker 1: some new lateral What would you like to see? Whatever

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Speaker 1: the form of Congress in senateive is. To be clear,

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Speaker 1: I think the United States should work multilaterally whenever we can,

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Speaker 1: reserving the right to act unilaterally when we need to.

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Speaker 1: The question is, um, do we go around the world

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Speaker 1: as we are right now with our tariffs, acting in

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Speaker 1: a way that violates norms that we helped to define?

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Speaker 1: Do we do things like withdrawing from the Iran Deal,

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Speaker 1: leaving all of our allies in Europe and Japan with

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Speaker 1: with countries like China and Russia. They cooperated with US

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Speaker 1: rejecting to what we're doing. And that's going to happen

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Speaker 1: in a few days when the new secondary sanctions kick

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Speaker 1: in because the United States withdrew and does that increase

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Speaker 1: or decrease American influence. The argument that I make in

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Speaker 1: the article is that this is a powerful tool that

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Speaker 1: you need to treat as a tool of some limitation.

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Speaker 1: Where does it come from. It comes from the centrality

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Speaker 1: of the dollars, the world's reserve currency, and the primacy

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Speaker 1: of the United States. It's not a good thing when

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Speaker 1: you see countries in Europe working with China to develop

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Speaker 1: alternative payment systems in order to get around the dollar.

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Speaker 1: This won't happen overnight. This is not a question of

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Speaker 1: the ATTORNI switch and does the world move away from

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Speaker 1: the dollar. It's a decades long process. I think it's

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Speaker 1: profoundly against US national security interest to accelerate that process.

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Speaker 1: And I think the unilateralism, the the you know, the

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Speaker 1: I think not careful unilateralism is driving that process to

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Speaker 1: speed up. Reserving the right tower is different than using

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Speaker 1: it on every issue. Aren't these just acting on campaign promises.

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Speaker 1: A lot of people won't expect the president and his

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Speaker 1: administration to follow through, but this is what they promised

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Speaker 1: when the people voted for them. Well, I think that,

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Speaker 1: you know, we all have to live and should live

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Speaker 1: with campaign promises because when you're elected, it is a

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Speaker 1: contract with the people. UM. I think how you exercise

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Speaker 1: that power has to reflect the facts on the ground

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Speaker 1: and strategic questions about how do you preserve us influence.

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Speaker 1: I think that diminishing US power over the long term

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Speaker 1: is a very serious consequence, and I think it's something

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Speaker 1: that the Embarkan people don't want us to do. UM.

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Speaker 1: These are questions that require careful thought, careful analysis. You know,

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Speaker 1: Tom asked, can Congress come to the rescue? Congress is

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Speaker 1: traditionally pushed administrations, where administrations have restrained Congress. The idea

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Speaker 1: that that kind of leadership comes from Congress is a

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Speaker 1: bit backwards. We're not seeing the kind of careful leadership

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Speaker 1: that we've seen frankly in Republican and democratic administrations in

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Speaker 1: the past, Which does not mean you don't use the levels,

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Speaker 1: but you have to use them carefully. But but if

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Speaker 1: you if what you say is true, Secretary Lucian, the

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Speaker 1: Republican Party not hold the Trump administration into account if

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Speaker 1: they're actually diminishing over the longer term the power of

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Speaker 1: the US. Look I I can't speak for the Republican Party, UM,

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Speaker 1: but I know that over my decades in public life, UM,

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Speaker 1: there used to be a core and the Republican Party

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Speaker 1: that believed deeply in free trade, that thought that it

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Speaker 1: enhanced American influence and grew the economy. We now see

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Speaker 1: a Congress that's willing to step back when an administration

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Speaker 1: puts in place things like steel and aluminum tariffs on

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Speaker 1: our closest allies, which is an attack in some ways

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Speaker 1: on the core principles of the Atlantic Alliance. It doesn't

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Speaker 1: make sense in terms of our long term national security.

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Speaker 1: We could keep this discussion going all day. We'll try

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Speaker 1: to do that with Secretary Louis welcome all of you

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Speaker 1: on Bloomberg Television and radio worldwide with Jeck Lou and

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Speaker 1: Gideon Rose and celebration of a new Foreign affairs magazine.

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Speaker 1: You have the Secretary State occupied in Riod with your

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Speaker 1: lead article on Iran, and I love his subhead Iran Exposed.

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Speaker 1: But as you listen to Secretary lou Gideon Rose. Is

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Speaker 1: it America exposed? Is that the real distinction here? I

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Speaker 1: think the challenge is exactly the Secretary he was saying

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Speaker 1: that you have to pick your fights. You can't fight

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Speaker 1: with everybody on everything. The United States is far and

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Speaker 1: away the most powerful player in the world, not just

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Speaker 1: in the security but also in the economics fear. We

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Speaker 1: can deploy that leverage for our interests and our values,

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Speaker 1: but we can't do everything, and so you have to

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Speaker 1: pick and choose which fights you on. And the problem

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Speaker 1: with this administration, or one of the problems with the

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Speaker 1: tradition for me, is that they keep fighting with everybody,

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Speaker 1: allies and enemies, Iran and China and Russia, and were

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Speaker 1: not Russia, Russia the only person they don't fight with,

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Speaker 1: but essentially everybody else. And that diminishes your leverage. And

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Speaker 1: at some point people wonder, is this guy really somebody

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Speaker 1: we want to play with? Or should we just go

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Speaker 1: and organize a game by ourselves without the United States.

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Speaker 1: That's the danger down the road within our economics statecraft,

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Speaker 1: Mr Secretary, is the idea of our new debt, in

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Speaker 1: our new deficit. Congressional budget Office driving for this convert sation.

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Speaker 1: We have a Reinehart and Reinhardt not right off and

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Speaker 1: rogue golf Carmen Reinhardt Vincent Reinhart writing on where we

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Speaker 1: are ten years on in this new edition of Foreign Affairs.

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Speaker 1: But it comes down to a debt. Your thoughts on

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Speaker 1: a debt growing easily out over a trillion And we

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Speaker 1: have one guest who is suggested, with economic slowdown, we

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Speaker 1: could begin to look at a crisis near two trillion

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Speaker 1: dollar deficit. You know, I I think the growth of

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Speaker 1: the deficit over a period of strong economic growth is

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Speaker 1: very troubling. Usually you deficits go up when you're in

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Speaker 1: a recession or when you're in a war. We don't

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Speaker 1: usually drive the deficit out of control when we're in

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Speaker 1: a period of sustained high growth. I have a number

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Speaker 1: of concerns. First of all, our borrowing requirements will keep growing.

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Speaker 1: That means that, you know, for all the focus on

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Speaker 1: the trade deficit, when you have a fiscal deficit, you're

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Speaker 1: borrowing money from overseas, You're driving up the trade deficit.

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Speaker 1: That's going to have a powerful negative impact on our

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Speaker 1: trade balances. Secondly, it has an effect on interest rates.

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Speaker 1: It drives up, not just treasury rates, but all rates

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Speaker 1: in the economy. You know. Third, we need to have

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Speaker 1: fiscal capacity when the economy needs it. We're in the

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Speaker 1: tenth year of a recovery. We're not going to grow forever.

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Speaker 1: Whether it's six months, a year or two MutS from now,

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Speaker 1: we're going to wish we had more fiscal s Your charm,

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Speaker 1: he has a limited charm. As you worked in the

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Speaker 1: legislative branch for years and then in the executive branch,

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Speaker 1: many of you won't know that secretary who will also

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Speaker 1: served in state for a while. Your charm, as you

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Speaker 1: understand the addictions of Washington is debt is a growing deficit.

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Speaker 1: Does it become an addictive process for the Beltway? I

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Speaker 1: think right now you have an unusual situation. There is

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Speaker 1: no loud chorus for fiscal responsibility. Fiscal conservatives voted for

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Speaker 1: a tax cut that costs two trillion dollars over ten

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Speaker 1: years and blew a hole in any plan for fiscal balance.

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Speaker 1: Progressives are saying, you know, to democratic administrations in a

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Speaker 1: row were fiscally responsible and what did they do? They

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Speaker 1: were followed by Republican administrations that spent more than we

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Speaker 1: had on tax cuts. I'm worried that putting together any

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Speaker 1: coalition to care about fiscal responsibility is much harder. And

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Speaker 1: I would point out fancy that the chairman's Gideon Rose

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Speaker 1: is the Peterson, the Pete Peterson chair at the Council unformulations,

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Speaker 1: with his deficit UH knowledge over the years. Francy. Yeah,

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Speaker 1: I like them to talk about charm Tom, but I

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Speaker 1: really want to talk about is actually dullar as a

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Speaker 1: reserve of currency? Secretary leew And. This is something that

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Speaker 1: you alluded when we started off the conversation. Why why

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Speaker 1: does it not actually really lose its appeal in less

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Speaker 1: than ten years if the US continues going the way

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Speaker 1: it is. Look at the moment, I don't see an

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Speaker 1: alternative out there. There were times when people thought that

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Speaker 1: either the euro or the yen or the R and

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Speaker 1: B would emerge as a near term alternative. UM. I

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Speaker 1: think if you look over the next five or ten years,

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Speaker 1: it is hard to imagine that it's going to be

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Speaker 1: a process that's that quick. I'm being very careful when

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Speaker 1: I say this is a multi decade process. Um. The

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Speaker 1: special position the United States has in the world, because

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Speaker 1: the dollar is the world reserve currency, is one of

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Speaker 1: the reasons we have the ability to have the deepest

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Speaker 1: and most liquid bond markets in the world. It's it's

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Speaker 1: the reason we can exercise the sanctions authority that we exercise.

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Speaker 1: It's an enormous consequence to the United States to maintain that.

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Speaker 1: I think if you just turn the speed up on

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Speaker 1: a movement away, it is against the national interest. So

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Speaker 1: I'm not sitting here predicting it's going to be in

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Speaker 1: the next five or ten years. And and I I

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Speaker 1: think if there were an alternative, I might be in

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Speaker 1: a position where I would be more concerned about it

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Speaker 1: being quicker. I think it's pretty scary if you take

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Speaker 1: what could be a fifty year process and you accelerated

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Speaker 1: by ten or fifteen or twenty years. But does China

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Speaker 1: want to be that China fill that vacuum. I think

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Speaker 1: at the moment, you know, China wants to have it

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Speaker 1: both ways. They want to be taken very seriously as

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Speaker 1: one of the two major economies of the world. They

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Speaker 1: wanted their currency, the R and B, to be accepted

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Speaker 1: by the I m F into the Special Drawing Rights basket. Uh.

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Speaker 1: They don't really want their currency to be fully convertible

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Speaker 1: and subject to all market pressures the way a world

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Speaker 1: reserve currency would have to be. Um. Do they want

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Speaker 1: that in the long term? Possibly? What I do think

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Speaker 1: is that there are conversations between Chinese and Europeans looking

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Speaker 1: at ways to develop alternatives to you know, settling in

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Speaker 1: dollars and going through things like swift. What we're gonna

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Speaker 1: do is one final question with Secretary Low and then

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Speaker 1: we'll move forward with Gideon Rows on Foreign Affairs Magazine.

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Speaker 1: Some interesting themes they are, particularly on nuclear warfare. Mr Secretary,

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Speaker 1: your Democratic Party was distracted over the last twenty four

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Speaker 1: hours of the DNA out to one one thousand and

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Speaker 1: twenty four of whatever this silly DNA debate is. How

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Speaker 1: does your party get back to Mokeley and Tip O'Neill.

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Speaker 1: It's that simple. How do we get back to what

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Speaker 1: you lived a number of decades ago? You know, Tom,

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Speaker 1: I hear a lot of discussion about where where is

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Speaker 1: the Democratic Party going? Um. I think in a few

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Speaker 1: weeks on election day, we're going to see whether or

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Speaker 1: not Democrats win a majority in the House. The arithmetic

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Speaker 1: to me is pretty straightforward. If we went back a

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Speaker 1: majority will be because we picked up some centrist seats,

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Speaker 1: some switchovers from Republican to Democratic seats, and you're going

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Speaker 1: to see a group of new faces, new moderates come

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Speaker 1: to Washington. This is not a moment where I expect

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Speaker 1: broad bypartisan revival, but I think it's gonna be a

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Speaker 1: breath of fresh air if we see some faces that

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Speaker 1: are looking at how do we get things done, how

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Speaker 1: do we solve problems? And that's going to start to

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Speaker 1: become part of the debate about where is the Democratic

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Speaker 1: Party going? Mr Secretary, congratulations on your article and Warn Affairs.

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Speaker 1: Uh this morning Gideon Rose with us in celebration of

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Speaker 1: a new issue of Foreign Affairs magazine. It's got a

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Speaker 1: real focus on a new thinking about nuclear But the

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Speaker 1: real headline, Gideon Rose, is you go all cabinet on

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Speaker 1: us with an essay by Secretary of Pompeio distracted right

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Speaker 1: now in read and the attendance this morning of the

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Speaker 1: Secretary Treasury Jack Lou with you as well with Bloomberg Surveillance.

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Speaker 1: Let's start with Jack Lou. What did he tell you

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Speaker 1: in Foreign Affairs? The great ability to have wise men

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Speaker 1: and women like that to come in and sort of

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Speaker 1: help us get some perspective on events is really one

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Speaker 1: of the pleasures of the job. Um. So one of

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Speaker 1: the things that that Secretary lou is so concerned about

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Speaker 1: is the way that we are abusing The United States

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Speaker 1: is abusing its privileges as the most important dominant nation

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Speaker 1: in the global economy. And the question of we have

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Speaker 1: the leverage to use our financial power to extract things

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Speaker 1: from others, to enforce norms, to uh get things we want,

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Speaker 1: but we can't do it recklessly, and if we do

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Speaker 1: it too much, then other countries basically start to question

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Speaker 1: whether they want to be part of a system that

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Speaker 1: we are helping to run. And the real question here

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Speaker 1: is the United States has basically engaged in a bargain

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Speaker 1: with the world in which we have our economic power

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Speaker 1: and our security power, and we use it relatively restrained

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Speaker 1: lee on behalf not just of our own national interests,

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Speaker 1: but of the system stability as a whole. And the

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Speaker 1: question now is are we actually going to continue that

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Speaker 1: kind of policy or are we going to simply be

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Speaker 1: using our power just for us? And if we do

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Speaker 1: it just for us, at some point will others say

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Speaker 1: this is not a game we want to keep playing.

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Speaker 1: So let's not with the premise of the pace, and

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Speaker 1: we should question it to begin with, Is the United

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Speaker 1: States doing it too much? Well? I think so the

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Speaker 1: answer is again yes, because we're picking fights with everybody.

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Speaker 1: If not so much that you can't have trade disputes

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Speaker 1: with your allies, not so much of you cannot trade

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Speaker 1: disputes with China. It's not so much that you can't

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Speaker 1: object to what Russia is doing in here, and you

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Speaker 1: can't object to what ex is doing there, and you

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Speaker 1: should say something about the Saudis. But basically, if every

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Speaker 1: single mode is punitive and you're never cooperating, and you're

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Speaker 1: basically trying to punish everybody, you you rack up a

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Speaker 1: lot of grudging compliance. Even when you get anything at all,

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Speaker 1: you piss people off. And that's what we're doing now.

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Speaker 1: And the question is how long before people just start

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Speaker 1: to lose faith in American economic leadership of the system

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Speaker 1: as a whole. That's the real danger here down the road.

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Speaker 1: And Secretary of Pompeo with an essay as well on Iran,

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Speaker 1: and in course he is speaking the Trump Doctor and

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Speaker 1: as he calls, well, but so this is a great question, right,

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Speaker 1: So what what what Pompeo wants? And it's a legit

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Speaker 1: goal is to use American economic leverage to get let's say,

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Speaker 1: other countries like the Europeans, to put pressure on Iran

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Speaker 1: and to further our goals. That's a legitimate policy. We've

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Speaker 1: tried to do secondary sanctions before. I happened to think

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Speaker 1: it's a dumb policy that doesn't work well because other

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Speaker 1: countries resist. That has happened in the Nine Ease with

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Speaker 1: Europe on Iran and Libya sanctions. But basically, if you

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Speaker 1: want to do that, then you can't pick fights on

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Speaker 1: something else, and if you want to pick fights on

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Speaker 1: this other thing, you can do that. You can't fight

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Speaker 1: with everybody all the time. If you do that, your

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Speaker 1: positioner rose down the road. And what the administration is

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Speaker 1: has it's demonstrated its ability to get into fights, and

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Speaker 1: it's even demonstrated its ability to get out of them

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Speaker 1: uh and settle them and move on. But it hasn't

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Speaker 1: yet demonstrated any ability as far as I can see,

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Speaker 1: to link its fights together to some broader strategy that

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Speaker 1: moves things forward. Overall. Well, let's talk about the argument

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Speaker 1: as to whether there is one rule for Iran and

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Speaker 1: another facaity Arabia to sending Arabic at special treatment. And

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Speaker 1: why because they are the dominant player in the global

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Speaker 1: energy supply markets and that extracts their ability to uh,

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Speaker 1: their their ability to manipulate oil prices, gives them leverage

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Speaker 1: over other countries pulses? Does that enable them to commit

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Speaker 1: humanitarian catastrophes, do things like the allegations that we're seeing

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Speaker 1: in Turkey murdering journalists. I mean, uh, if you say,

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Speaker 1: does it permit it in practice? Yes? In theory no,

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Speaker 1: but I think you will. And my cynical guess is

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Speaker 1: that you're going to see this uh again. People are shocked,

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Speaker 1: shocked to find this happening. Nobody is surprised. Nobody has

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Speaker 1: any illusions about what the Saudi regime is actually like,

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Speaker 1: and if they did, they were uh, they were silly

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Speaker 1: to have done so. Um. Yeah, I looked within the

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Speaker 1: magazine and we don't really have time for it today.

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Speaker 1: Why did you take the nuclear topic on? Because what

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Speaker 1: annoyed me was the fact that the nuclear issues get

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Speaker 1: brought in as unquestioned game changers. And when you say, okay,

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Speaker 1: no matter what we're doing, we they've they've moved forward.

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Speaker 1: So obviously this Trump's everything, and it's no longer clear

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Speaker 1: to me that that necessarily should be the case. There

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Speaker 1: are good reasons why you might think that there are

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Speaker 1: good reasons to be upset about hawks, but there are

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Speaker 1: also reasons to worry about whether we're obsessing too much.

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Speaker 1: And there's a wonderful piece by John Mueller that closes

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Speaker 1: by saying, before we get let's at the very least

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Speaker 1: not get into a major war and kill lots of

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Speaker 1: people and do the things for fear of something that

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Speaker 1: might happen that we're not really sure about. Gideon Rose,

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Speaker 1: thank you so much. Congratulations a new issue of Foreign

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Speaker 1: Affairs Magazine. We'll have the conversation with Mr Rose and

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Speaker 1: Secretary Lou we'll do that out in our podcast here

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Speaker 1: Allison Williams with us parsing the details of all these

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Speaker 1: different things. I'm going to assume, Allison, that this economy

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Speaker 1: is so good it's really hard not to have a

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Speaker 1: good earnings report. Like things are pretty good. So I'm

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Speaker 1: gonna go all ratio on you before Farrell beat you

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Speaker 1: over the head with detail. What's return on equity and

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Speaker 1: what number is really good? Isn't it? It is really good?

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Speaker 1: And definitely the returns on they are being boosted by

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Speaker 1: taxes this year. So that's sort of the big up,

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Speaker 1: big from the gift from the trumpet ground. Um, it's

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Speaker 1: a couple of hundred to a few hundred, depending on

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Speaker 1: on the banks, you know, I mean, it's it's it's

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Speaker 1: here that job that's all different glass and pretty consistent.

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Speaker 1: That is across the board. It is consistent across the board.

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Speaker 1: But but keep in mind that was a lot of

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Speaker 1: this sort of stock run that we had, you know,

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Speaker 1: late last year when we got the tax reform. It

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Speaker 1: was a lot of the initial move up that we

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Speaker 1: had post the election. Banks sort of anticipating about a

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Speaker 1: regulatory environment, anticipating for fiscal stimulus, anticipating a lot of

432
00:23:41,359 --> 00:23:44,280
Speaker 1: the help that we had this year. Can we talk

433
00:23:44,320 --> 00:23:46,840
Speaker 1: about the lack of consistency in some of these reports.

434
00:23:46,920 --> 00:23:48,560
Speaker 1: It's very hard to get a read across from one

435
00:23:48,600 --> 00:23:51,399
Speaker 1: bank as to what the last quarter did for other banks. Um,

436
00:23:51,480 --> 00:23:55,440
Speaker 1: dead underwriting, equity underwriting. What's the signal from goldban this morning, Allison?

437
00:23:55,920 --> 00:23:58,359
Speaker 1: So I think because this quarter in general, it was

438
00:23:58,400 --> 00:24:00,640
Speaker 1: sort of a muted quarter for trading, So there's sort

439
00:24:00,680 --> 00:24:03,040
Speaker 1: of you know, slight puts and takes across those businesses

440
00:24:03,080 --> 00:24:06,040
Speaker 1: across companies for the most part coming in line maybe

441
00:24:06,040 --> 00:24:09,000
Speaker 1: one or two surprises. The big surprises that we've gotten

442
00:24:09,000 --> 00:24:11,320
Speaker 1: are on the investment banking fees, and I think that's

443
00:24:11,359 --> 00:24:13,919
Speaker 1: because if you look at again in a very muted

444
00:24:14,359 --> 00:24:17,480
Speaker 1: trading environment, we had huge growth in I p O

445
00:24:17,600 --> 00:24:19,879
Speaker 1: s in the US compared with a year ago, So

446
00:24:20,000 --> 00:24:23,720
Speaker 1: US I p O is doubling. The global equity you know,

447
00:24:23,760 --> 00:24:26,639
Speaker 1: global equity underwriting in general kind of flatish because there

448
00:24:26,680 --> 00:24:28,840
Speaker 1: were weak there were weaknesses in an area like Europe,

449
00:24:29,080 --> 00:24:30,880
Speaker 1: like I p O is super strong, and that's where

450
00:24:30,880 --> 00:24:33,840
Speaker 1: you're really seeing the strength, especially um for companies like

451
00:24:33,840 --> 00:24:36,679
Speaker 1: Goldman and Morgan Stairs, speaker of IPOs. There's one I

452
00:24:36,720 --> 00:24:38,560
Speaker 1: PO that I think everyone would like a slice of.

453
00:24:38,920 --> 00:24:42,160
Speaker 1: According to the Wall Street Journal, Tom Uber receiving IPO

454
00:24:42,240 --> 00:24:45,359
Speaker 1: proposals value in the company up to a hundred and

455
00:24:45,400 --> 00:24:50,600
Speaker 1: twenty billion dollars. That headlines just crossing the Bloomberg. Can

456
00:24:50,600 --> 00:24:52,440
Speaker 1: you imagine the scramble to get a piece of that

457
00:24:52,520 --> 00:24:55,560
Speaker 1: ipl So I believe we rip up the script at

458
00:24:55,560 --> 00:24:59,760
Speaker 1: this point, Williams, what's the math on that? Ms wims

459
00:25:00,160 --> 00:25:02,199
Speaker 1: that we want to pin you down live on radio

460
00:25:02,560 --> 00:25:06,440
Speaker 1: Worldwide but you're going to anyway, I mean, they're gonna

461
00:25:06,440 --> 00:25:08,960
Speaker 1: go We'll just go with a lot. Okay, a lot

462
00:25:09,040 --> 00:25:11,480
Speaker 1: does this safe answer? But you know, an I p

463
00:25:11,640 --> 00:25:13,600
Speaker 1: O a million years ago used to be a six

464
00:25:13,680 --> 00:25:16,280
Speaker 1: percent business. I can get any idea. They're not going

465
00:25:16,320 --> 00:25:21,640
Speaker 1: to make, you know, twelve billion dollars off of this transaction.

466
00:25:21,720 --> 00:25:24,520
Speaker 1: But what's how do you do that? How do you know?

467
00:25:24,600 --> 00:25:26,760
Speaker 1: And and just you know, you're talking about the size

468
00:25:26,760 --> 00:25:29,480
Speaker 1: of transactions. I think that's what we're seeing really in

469
00:25:29,480 --> 00:25:31,600
Speaker 1: the noise around the M and A numbers, Right, So

470
00:25:31,640 --> 00:25:33,560
Speaker 1: the M and A numbers are one area that are

471
00:25:33,600 --> 00:25:35,960
Speaker 1: coming in a little bit all over the place in

472
00:25:36,080 --> 00:25:38,119
Speaker 1: terms of growth and what's happening. And I think a

473
00:25:38,119 --> 00:25:41,000
Speaker 1: lot of that is because given the size of deals,

474
00:25:41,119 --> 00:25:43,960
Speaker 1: when there's you know, some closings pushed to the fourth quarter,

475
00:25:44,400 --> 00:25:46,359
Speaker 1: it can show up in your revenues. We generally do

476
00:25:46,440 --> 00:25:49,560
Speaker 1: see that at the smaller boutiques, but this quarter it

477
00:25:49,600 --> 00:25:52,200
Speaker 1: was it was sort of notable the difference between announcements

478
00:25:52,200 --> 00:25:54,840
Speaker 1: and closings. I think it's very interesting at this point

479
00:25:54,880 --> 00:25:57,240
Speaker 1: the cycle for these banks to to work out what

480
00:25:57,320 --> 00:25:58,760
Speaker 1: they want to be a part of from what they

481
00:25:58,800 --> 00:26:01,440
Speaker 1: don't want to be a pontsaw alisone. You're still getting

482
00:26:01,480 --> 00:26:05,800
Speaker 1: valuations like this for these kind of companies. It kind

483
00:26:05,800 --> 00:26:07,720
Speaker 1: of makes you scratch your head. Where are we? Last

484
00:26:07,720 --> 00:26:09,880
Speaker 1: week we had a big correction in the equity market,

485
00:26:10,440 --> 00:26:14,520
Speaker 1: UM Marcus a Unit, Gouldment Sex They're worried about meeting

486
00:26:14,560 --> 00:26:16,639
Speaker 1: their targets for next year and pulled back due to

487
00:26:16,680 --> 00:26:19,520
Speaker 1: credit risk. And then you see headlines like that, where

488
00:26:19,600 --> 00:26:22,600
Speaker 1: are we in this whole cycle? So I think there's

489
00:26:22,640 --> 00:26:25,199
Speaker 1: two I guess there's two sides of the business. Right.

490
00:26:25,200 --> 00:26:28,760
Speaker 1: There's the traditional lending business, which I think is hitting

491
00:26:28,800 --> 00:26:31,840
Speaker 1: on all cylinders, just given the fact that we've had

492
00:26:31,880 --> 00:26:34,760
Speaker 1: the interest rate cycle move up and credits still stable,

493
00:26:34,920 --> 00:26:38,480
Speaker 1: so UM very profitable on that front, and also the

494
00:26:38,520 --> 00:26:41,440
Speaker 1: cost cutting efforts coming through adding to the tax reform

495
00:26:41,760 --> 00:26:44,520
Speaker 1: we're hitting are we's that are at or above targets?

496
00:26:44,920 --> 00:26:47,160
Speaker 1: And then we have the capital markets business. So again

497
00:26:47,240 --> 00:26:50,320
Speaker 1: there's pockets of strength, but in the quarter, you know,

498
00:26:50,359 --> 00:26:53,480
Speaker 1: not especially strong quarter, not especially weak quarter. I think

499
00:26:53,520 --> 00:26:57,919
Speaker 1: in general, investors are still looking at potential upside to

500
00:26:57,960 --> 00:27:00,199
Speaker 1: the cycle in terms of help from volatil it in

501
00:27:00,240 --> 00:27:03,560
Speaker 1: then longer term capital market, like if I email Juno,

502
00:27:03,640 --> 00:27:05,920
Speaker 1: which is a New York City Uber equivalent. I get

503
00:27:05,920 --> 00:27:08,960
Speaker 1: an email back. If I email Lift, nobody an Uber

504
00:27:09,000 --> 00:27:11,760
Speaker 1: talks to me. I mean it's like, I mean, Pharaoh,

505
00:27:11,800 --> 00:27:14,280
Speaker 1: You've got so much cloute you can actually talk to

506
00:27:14,680 --> 00:27:16,800
Speaker 1: What are you trying to talk about? Just you know,

507
00:27:16,840 --> 00:27:18,840
Speaker 1: I owe money or they owe me money. Whatever. You

508
00:27:18,880 --> 00:27:23,280
Speaker 1: can't communicate with Uber. Wall Street's got to communicate with Uber.

509
00:27:23,720 --> 00:27:27,040
Speaker 1: What advice do they give a company that's a hundred

510
00:27:27,080 --> 00:27:32,520
Speaker 1: and twenty jillion dollars According to The Wall Street Journal, Well,

511
00:27:32,560 --> 00:27:35,040
Speaker 1: if I perhaps if I would have a better question

512
00:27:35,440 --> 00:27:38,000
Speaker 1: answer to that if I was the Goldman banker. But

513
00:27:38,080 --> 00:27:40,640
Speaker 1: I think what's important to know is that the Goldman

514
00:27:40,640 --> 00:27:44,239
Speaker 1: bankers do have a sort of an eye into these clients, right,

515
00:27:44,280 --> 00:27:46,560
Speaker 1: sort of the Morgan Stanley bankers. And that's why I

516
00:27:46,600 --> 00:27:48,960
Speaker 1: think we're gonna be listening today to hear what these

517
00:27:48,960 --> 00:27:51,760
Speaker 1: companies are hearing from their clients. That is one of

518
00:27:51,760 --> 00:27:53,479
Speaker 1: the things that we've listened to just to point out.

519
00:27:53,480 --> 00:27:56,040
Speaker 1: According to reporting by The Wall Street Journal, Goldman Snacks

520
00:27:56,080 --> 00:27:59,440
Speaker 1: and Morgan Stanley last month, the two banks that delivered

521
00:27:59,480 --> 00:28:02,879
Speaker 1: the value I proposals to Uber, according to the Soldier,

522
00:28:03,080 --> 00:28:05,080
Speaker 1: is this going to be a techie techie deal where

523
00:28:05,119 --> 00:28:07,840
Speaker 1: the public has no voting rights, no control on nothing.

524
00:28:07,880 --> 00:28:11,080
Speaker 1: There's gonna be three side card preferred transactions. You know,

525
00:28:11,080 --> 00:28:14,560
Speaker 1: everybody's gonna get rich except the public. And then foisted

526
00:28:14,640 --> 00:28:17,760
Speaker 1: on this company at a hundred and twenty billion dollars.

527
00:28:19,920 --> 00:28:25,080
Speaker 1: I'm getting silence see that, and it's you know, she

528
00:28:25,160 --> 00:28:28,359
Speaker 1: named her cat red herring. Yeah, you know the I

529
00:28:28,440 --> 00:28:30,320
Speaker 1: p o s of a million years ago, back when

530
00:28:30,320 --> 00:28:32,560
Speaker 1: they were in print, John, we called those red herrings.

531
00:28:33,040 --> 00:28:35,560
Speaker 1: I will I will say though that um, you know,

532
00:28:35,640 --> 00:28:38,760
Speaker 1: in terms of you know, Goldman and Morgan Stanley, and

533
00:28:38,840 --> 00:28:41,040
Speaker 1: you know you're talking about sort of the performance of

534
00:28:41,080 --> 00:28:43,720
Speaker 1: the stocks after the fact. I think that is something

535
00:28:43,720 --> 00:28:46,560
Speaker 1: that they bring to the table. That's something that why

536
00:28:46,880 --> 00:28:48,960
Speaker 1: people will go to them over time, right, is to

537
00:28:49,040 --> 00:28:53,840
Speaker 1: find the valuation that makes investors happy. But that also, um,

538
00:28:53,840 --> 00:28:55,959
Speaker 1: sort of rewards the people that are sounding. Do they

539
00:28:56,000 --> 00:28:58,320
Speaker 1: do road shows anymore? Do they? You know, is there

540
00:28:58,320 --> 00:29:00,400
Speaker 1: going to be an uber road show? I think there's

541
00:29:00,440 --> 00:29:05,120
Speaker 1: always very Because I'm not an investor, you just don't,

542
00:29:05,120 --> 00:29:09,480
Speaker 1: you just don't follow it anymore. Come on, you dial up.

543
00:29:09,520 --> 00:29:12,200
Speaker 1: Can we just point out that that one twenty. According

544
00:29:12,240 --> 00:29:15,640
Speaker 1: to the Wall Street Journal, that one is nearly double

545
00:29:16,480 --> 00:29:21,160
Speaker 1: the company's valuation in a fundraising round two months ago.

546
00:29:22,520 --> 00:29:26,040
Speaker 1: Think about that a fundraising round. How two months ago

547
00:29:26,440 --> 00:29:30,320
Speaker 1: the valuation proposal delivered by Goldman Sax and Morgan Stanley

548
00:29:30,520 --> 00:29:34,080
Speaker 1: is double that valuation from two months ago, Tom, in

549
00:29:34,120 --> 00:29:36,880
Speaker 1: the whole digital dissemination, does I mean Ellison? They're putting

550
00:29:36,920 --> 00:29:41,000
Speaker 1: us out on Twitter on WSJ business is Well, I'm

551
00:29:41,000 --> 00:29:43,120
Speaker 1: trying to sign in right now to the But I

552
00:29:43,120 --> 00:29:45,280
Speaker 1: think more importantly, and I think more importantly Tom, for

553
00:29:45,320 --> 00:29:48,840
Speaker 1: many people who have access to public markets, it's very

554
00:29:48,880 --> 00:29:51,720
Speaker 1: difficult for your average retail investor to get access to

555
00:29:51,760 --> 00:29:54,680
Speaker 1: private markets. And there has been some real growth opportunities

556
00:29:54,680 --> 00:29:58,120
Speaker 1: in private markets, which is why private equity have found

557
00:29:58,160 --> 00:30:00,719
Speaker 1: it so easy to raise as much money as they

558
00:30:00,720 --> 00:30:03,480
Speaker 1: could possibly want. And watch some people also, if there's

559
00:30:03,480 --> 00:30:05,400
Speaker 1: many people out that they talk about the valuations in

560
00:30:05,440 --> 00:30:07,880
Speaker 1: private markets, Tom, and maybe they're too frothy. But if

561
00:30:07,920 --> 00:30:09,920
Speaker 1: you can get evaluation two months ago and then get

562
00:30:09,920 --> 00:30:12,520
Speaker 1: a proposal for an IPO from two banks for doubled

563
00:30:12,520 --> 00:30:16,200
Speaker 1: evaluation and anything else, does Liz Hoffman, Gregg Bensinger and

564
00:30:16,240 --> 00:30:21,280
Speaker 1: Marineen Ferrell state second paragraph, the combined Uber would be

565
00:30:21,600 --> 00:30:24,520
Speaker 1: more than the combined General Motors, Ford Motor and Chrysler.

566
00:30:24,840 --> 00:30:27,480
Speaker 1: I mean, that's a kind of silliness we're talking about.

567
00:30:27,560 --> 00:30:30,320
Speaker 1: And I think to that point, we've had sort of

568
00:30:30,320 --> 00:30:33,400
Speaker 1: this early volatility, We've had some price activity. I think

569
00:30:33,440 --> 00:30:35,800
Speaker 1: for companies that might have been thinking about doing deals

570
00:30:35,840 --> 00:30:39,120
Speaker 1: and going public to some extent, you could actually get

571
00:30:39,640 --> 00:30:42,000
Speaker 1: sort of a push. Right, So if people are concerned

572
00:30:42,000 --> 00:30:45,320
Speaker 1: about the market next year, does that pull forwards? Does

573
00:30:45,360 --> 00:30:47,440
Speaker 1: that pull forwards? In a serious point? And on the

574
00:30:47,800 --> 00:30:50,240
Speaker 1: private equity side, I would say this as well. So

575
00:30:50,280 --> 00:30:51,960
Speaker 1: we have seen this huge growth, and I think there

576
00:30:52,040 --> 00:30:53,760
Speaker 1: is a lot of talk and there is more effort

577
00:30:53,960 --> 00:30:56,880
Speaker 1: about trying to get private equity more into retirement accounts,

578
00:30:57,120 --> 00:30:59,960
Speaker 1: sort of broadening. You know. It's it's good for the managers,

579
00:31:00,000 --> 00:31:03,920
Speaker 1: it's good for the investors, especially for something that's locked up. John,

580
00:31:04,000 --> 00:31:05,840
Speaker 1: you and PIM are better at this same I am.

581
00:31:05,920 --> 00:31:08,720
Speaker 1: Is there any indication Uber makes a quarter to quarter

582
00:31:08,840 --> 00:31:12,280
Speaker 1: operating profit. I believe I have not seen it. I

583
00:31:12,320 --> 00:31:15,720
Speaker 1: have not seen that. I think cash burn is quarter.

584
00:31:16,240 --> 00:31:18,480
Speaker 1: You know, there may be one quarter where they've done well.

585
00:31:18,520 --> 00:31:22,160
Speaker 1: But Allison essentially they're throwing a tenth of a trillion

586
00:31:22,200 --> 00:31:25,920
Speaker 1: dollar valuation and something that I believe. Cash Burn is

587
00:31:25,960 --> 00:31:30,240
Speaker 1: the middle name. So I'm financial analysts, so I cannot

588
00:31:30,280 --> 00:31:34,200
Speaker 1: relate to tech. I can't relate to tech until and

589
00:31:34,240 --> 00:31:37,480
Speaker 1: that's why tech focus. Financial companies don't want the bank analysts.

590
00:31:37,480 --> 00:31:40,640
Speaker 1: So I continue continue this. There is already some speculation

591
00:31:40,960 --> 00:31:45,040
Speaker 1: out there, and I I won't name names, know that

592
00:31:45,120 --> 00:31:48,920
Speaker 1: this is well timed good news for certain investors in

593
00:31:49,120 --> 00:31:52,040
Speaker 1: uber and those certain investors, of course could well be

594
00:31:52,120 --> 00:31:55,640
Speaker 1: the Saudis or soft Bank who have rather large steak

595
00:31:56,000 --> 00:31:58,680
Speaker 1: in uber Um, and this is wild timed good news

596
00:31:59,160 --> 00:32:01,840
Speaker 1: for those um those respective entities. At this point there

597
00:32:01,880 --> 00:32:05,120
Speaker 1: it is Allison Williams just killing it today doing Morgan

598
00:32:05,200 --> 00:32:08,520
Speaker 1: Stanley earnings blind and then coming in there nailing Goldman

599
00:32:08,600 --> 00:32:13,480
Speaker 1: Sax and then vamping on her knowledge of the technology space.

600
00:32:13,600 --> 00:32:20,000
Speaker 1: This is Bloomberg coming to today from the Bloomberg Interactive

601
00:32:20,000 --> 00:32:22,640
Speaker 1: Broker Studio, and we're thrilled to bring in someone that

602
00:32:22,680 --> 00:32:26,800
Speaker 1: we have known for yours, Muhammad el Arian writing always

603
00:32:26,840 --> 00:32:31,520
Speaker 1: in Bloomberg opinion and very visible in terms of synthesizing

604
00:32:31,560 --> 00:32:34,800
Speaker 1: economics and all Dr Llarion. You have a heritage of

605
00:32:34,840 --> 00:32:38,520
Speaker 1: Egypt of your father of years ago. In in cif

606
00:32:38,600 --> 00:32:42,000
Speaker 1: I Capital Finance magazine two years ago, you wrote up

607
00:32:42,000 --> 00:32:46,040
Speaker 1: the bold vision of Saudi Arabia. Is it shattered right

608
00:32:46,080 --> 00:32:50,040
Speaker 1: now for Saudi Arabia and how will the adjacent Middle

609
00:32:50,080 --> 00:32:55,160
Speaker 1: Eastern nations deal with his latest uproar of Turkey, Saudi

610
00:32:55,160 --> 00:32:59,400
Speaker 1: Arabia and a disappearing journalist. I think in terms of

611
00:32:59,440 --> 00:33:01,480
Speaker 1: what countries are going to do in the region, they're

612
00:33:01,480 --> 00:33:04,440
Speaker 1: gonna wait and see. Saudi Arabia is very important. UM.

613
00:33:04,480 --> 00:33:07,560
Speaker 1: They're not going to front run the kingdom in any way,

614
00:33:07,640 --> 00:33:09,680
Speaker 1: so they're gonna wait and see what comes out of

615
00:33:09,720 --> 00:33:13,600
Speaker 1: the internal investigation and what the Saudies themselves say in

616
00:33:13,720 --> 00:33:17,960
Speaker 1: terms of what it does to the Saudi vision. Clearly

617
00:33:18,160 --> 00:33:21,920
Speaker 1: it's a short term setback. Long term we yet to see.

618
00:33:22,040 --> 00:33:26,840
Speaker 1: What I find fascinating Tom is the market reaction UM today,

619
00:33:26,880 --> 00:33:31,880
Speaker 1: For example, CDs on on on Saudi sovereign is tighter,

620
00:33:32,360 --> 00:33:35,400
Speaker 1: oil is lower, So the market is basically saying this

621
00:33:35,480 --> 00:33:39,280
Speaker 1: is a short term hiccup that's going to be brushed off,

622
00:33:39,320 --> 00:33:41,760
Speaker 1: and the question is politically whether that turns out to

623
00:33:41,760 --> 00:33:43,200
Speaker 1: be the case or not. So the market is just

624
00:33:43,240 --> 00:33:45,600
Speaker 1: making the assumption that this doesn't escalate. We saw that

625
00:33:45,640 --> 00:33:48,480
Speaker 1: in the old market yesterday, not responding to a not

626
00:33:48,560 --> 00:33:50,520
Speaker 1: so veiled threat that they could use it as a

627
00:33:50,560 --> 00:33:53,240
Speaker 1: policy tool. That makes me ask a broader question just

628
00:33:53,280 --> 00:33:55,640
Speaker 1: about complacency in general, Mohammed, So let's talk about the

629
00:33:55,640 --> 00:33:58,360
Speaker 1: broader question of complacency. Do you see a lot more

630
00:33:58,360 --> 00:34:02,280
Speaker 1: pockets of that popping up through sing I see somewhat

631
00:34:02,360 --> 00:34:05,280
Speaker 1: less complacency. I think last year was the height of complacency,

632
00:34:05,400 --> 00:34:09,399
Speaker 1: Jonathan Um. And that's because markets were very comforted by

633
00:34:09,440 --> 00:34:13,280
Speaker 1: central banks. The narrative has changed in markets. Central banks

634
00:34:13,280 --> 00:34:18,200
Speaker 1: are stepping back, fundamentals are reasserting themselves. It's a messy transition,

635
00:34:18,280 --> 00:34:23,040
Speaker 1: it's a volatile transition, and there are complicated fundamentals. As

636
00:34:23,120 --> 00:34:26,400
Speaker 1: the I m F meetings, Um told us, this is

637
00:34:26,400 --> 00:34:29,840
Speaker 1: not about synchronized pick up and growth anymore. This is

638
00:34:29,880 --> 00:34:32,719
Speaker 1: about divergent growth and all the complications that come with that.

639
00:34:33,239 --> 00:34:35,960
Speaker 1: So it's the reaction function of the Federal Reserve shifted

640
00:34:36,160 --> 00:34:38,160
Speaker 1: as well. Typically, when we see around like the one

641
00:34:38,200 --> 00:34:40,959
Speaker 1: we saw last week, several years ago, the Federal Reserve

642
00:34:41,000 --> 00:34:42,759
Speaker 1: would have sent someone out and it would have backed

643
00:34:42,800 --> 00:34:45,800
Speaker 1: away that didn't happen last week. Yes, not a word,

644
00:34:46,040 --> 00:34:49,520
Speaker 1: not a word from any official, neither the board nor

645
00:34:49,800 --> 00:34:52,279
Speaker 1: from the regional banks. And I think that's important. This

646
00:34:52,400 --> 00:34:54,840
Speaker 1: is a different fat. I tell my friends, this is

647
00:34:54,880 --> 00:34:57,920
Speaker 1: a different fat. This is a fat that will deliver

648
00:34:58,480 --> 00:35:01,040
Speaker 1: higher rates than what the marketing is. Fact, this is

649
00:35:01,080 --> 00:35:03,160
Speaker 1: a fit that will keep an eye on the issue

650
00:35:03,160 --> 00:35:07,800
Speaker 1: of future financial stability. And it's a different paradigm for markets.

651
00:35:07,800 --> 00:35:09,960
Speaker 1: And I think markets are starting to get it. They're

652
00:35:09,960 --> 00:35:12,480
Speaker 1: not quite there yet, but they're starting to understand that

653
00:35:12,520 --> 00:35:16,240
Speaker 1: this is a different fit. In your classic when markets

654
00:35:16,400 --> 00:35:20,479
Speaker 1: collide back in the back of the book, this ancient tome,

655
00:35:20,960 --> 00:35:22,880
Speaker 1: it's like out a Game of Thrones, John, it's up

656
00:35:22,920 --> 00:35:25,280
Speaker 1: there in the temple thing up there, like on fifteen

657
00:35:25,320 --> 00:35:30,520
Speaker 1: stories up chapter eight. Improved risk management? Have we have

658
00:35:30,640 --> 00:35:34,160
Speaker 1: we actually improved our risk management? You've invented this idea

659
00:35:34,200 --> 00:35:38,680
Speaker 1: of unknown unknowns? Are we better at our unknown unknowns?

660
00:35:39,080 --> 00:35:42,040
Speaker 1: So I didn't invent it? Um, We're not better at

661
00:35:42,120 --> 00:35:45,879
Speaker 1: unknown unknowns. Um. In terms of risk management, where there

662
00:35:45,880 --> 00:35:48,640
Speaker 1: has been a significant improvement is in the banking system.

663
00:35:48,640 --> 00:35:51,120
Speaker 1: The banking system in the US has been de risked.

664
00:35:51,440 --> 00:35:54,160
Speaker 1: If you're looking for sources of systemic risk. It's not

665
00:35:54,280 --> 00:35:55,840
Speaker 1: the banks, But John and I are doing tons of

666
00:35:55,840 --> 00:35:58,279
Speaker 1: interviews Mohammed which make it very clear there's a new

667
00:35:58,320 --> 00:36:01,280
Speaker 1: shadow banking, and that's what people are talking about. Correct,

668
00:36:01,320 --> 00:36:05,680
Speaker 1: Because what people haven't quite understood is that risk doesn't disappear,

669
00:36:05,760 --> 00:36:08,279
Speaker 1: It morphs and migrates, and it has migrated to the

670
00:36:08,320 --> 00:36:11,600
Speaker 1: non banks. So there's certain segments that I really worry about.

671
00:36:11,600 --> 00:36:15,080
Speaker 1: I worry about the overpromise of liquidity that's now embedded

672
00:36:15,160 --> 00:36:18,480
Speaker 1: in the system by certain products. John Very John Tucker

673
00:36:18,640 --> 00:36:23,800
Speaker 1: is a non banks, a non bank for three children. Yeah,

674
00:36:23,880 --> 00:36:28,000
Speaker 1: but I have definite systematic risk attached to me. So

675
00:36:28,120 --> 00:36:32,200
Speaker 1: they say, what's a non bank? A non bank is

676
00:36:32,280 --> 00:36:36,000
Speaker 1: a an institution that is not subject to both the

677
00:36:36,080 --> 00:36:39,360
Speaker 1: restrictions and the privileges of being very close to the

678
00:36:39,400 --> 00:36:42,120
Speaker 1: Federal Reserve and being very closer to posit insurance. So

679
00:36:42,120 --> 00:36:44,200
Speaker 1: where's the leverage right now? What are the pockets of

680
00:36:44,239 --> 00:36:47,120
Speaker 1: fixed income that you're worried about? So I worry about

681
00:36:47,320 --> 00:36:50,319
Speaker 1: the lower quality segments. I worry about segments of high yield.

682
00:36:50,360 --> 00:36:53,200
Speaker 1: I worry about emerging market corporates. I think there's been

683
00:36:53,239 --> 00:36:56,600
Speaker 1: an overpromise of liquidity there when you see the proliferation

684
00:36:56,640 --> 00:36:59,600
Speaker 1: of ETFs and inherently a liquid as a class, worry

685
00:36:59,680 --> 00:37:02,200
Speaker 1: because it doesn't need to have signal to the consumer

686
00:37:02,719 --> 00:37:07,240
Speaker 1: instantaneous liquidity at reasonable bit office spreads. If the underlying

687
00:37:07,280 --> 00:37:10,760
Speaker 1: asset class is a liquid, that is a silly promise

688
00:37:10,840 --> 00:37:12,920
Speaker 1: to make, and yet it's been made because the market

689
00:37:13,080 --> 00:37:15,040
Speaker 1: has gone that way. So what did you make of

690
00:37:15,120 --> 00:37:18,040
Speaker 1: last week when we have a significant draw down in

691
00:37:18,280 --> 00:37:22,120
Speaker 1: risk assets like equities, but then we see leverage loans

692
00:37:22,120 --> 00:37:24,279
Speaker 1: looking really solid and yes we see a bit of

693
00:37:24,320 --> 00:37:26,600
Speaker 1: spread wine again high yield, but there's been some performance

694
00:37:26,640 --> 00:37:28,279
Speaker 1: there through eighteens. So what do you make of that

695
00:37:28,360 --> 00:37:33,000
Speaker 1: Equities get hit but things like leverage alons look rock solid. Mohammed? Why, Yeah,

696
00:37:33,000 --> 00:37:35,760
Speaker 1: it's unusual. Normally it's the bond market that leads away

697
00:37:36,080 --> 00:37:38,439
Speaker 1: and then the equity markets follow. But as you point

698
00:37:38,440 --> 00:37:44,000
Speaker 1: out Natan correctly, corporates in particular have been relatively stable. Um.

699
00:37:44,000 --> 00:37:47,680
Speaker 1: I think part of that is because people have been

700
00:37:47,920 --> 00:37:51,960
Speaker 1: reassured and conditioned over and over again to fade every

701
00:37:51,960 --> 00:37:55,160
Speaker 1: cell off in markets. And I think that is very

702
00:37:55,200 --> 00:37:58,280
Speaker 1: deep conditioning after years and years and years of exceptional

703
00:37:58,320 --> 00:38:02,160
Speaker 1: support from central Banks Maham, that opinion Columnistum, do you

704
00:38:02,160 --> 00:38:03,759
Speaker 1: want to us say, in New York City without the

705
00:38:03,800 --> 00:38:06,640
Speaker 1: New York Jets jacket? Um this morning, and we're a

706
00:38:06,680 --> 00:38:09,080
Speaker 1: little bit disappointed. Yeah, I just expected that he would

707
00:38:09,120 --> 00:38:11,279
Speaker 1: show up with the New York They play the Vikings next,

708
00:38:11,320 --> 00:38:13,840
Speaker 1: which is like a layup win right there. There's no

709
00:38:13,880 --> 00:38:16,200
Speaker 1: such thing, because lay up for the New York Jets.

710
00:38:17,680 --> 00:38:21,040
Speaker 1: Muhammad Arian with us, who was so visible that I

711
00:38:21,080 --> 00:38:24,840
Speaker 1: think too many people forget the first principal skills of

712
00:38:24,960 --> 00:38:27,560
Speaker 1: Dr l Arian, which is out of the game, theoretic

713
00:38:28,239 --> 00:38:31,759
Speaker 1: uh knowledge base of the British schools of Oxford and

714
00:38:31,840 --> 00:38:35,480
Speaker 1: of his Cambridge is well Dr Larryen. And this goes

715
00:38:35,520 --> 00:38:37,840
Speaker 1: to your books The Unknown Unknown and the te Decision,

716
00:38:37,880 --> 00:38:42,080
Speaker 1: and that John von Neumann who who sort of codified this,

717
00:38:42,200 --> 00:38:46,040
Speaker 1: if you will, in World War two had a great

718
00:38:46,160 --> 00:38:49,000
Speaker 1: idea about zero some games, and that was just the

719
00:38:49,040 --> 00:38:52,879
Speaker 1: basic idea, how can I maximize my rewards in this

720
00:38:52,960 --> 00:38:56,799
Speaker 1: sort of game in a President Trump era, in the

721
00:38:56,880 --> 00:39:01,080
Speaker 1: neo mercantilist world that we're in right now, how can

722
00:39:01,200 --> 00:39:06,440
Speaker 1: President Trump maximize his rewards? So I think what President

723
00:39:06,480 --> 00:39:12,360
Speaker 1: Trump is doing is approaching an inherently cooperative game trade

724
00:39:12,960 --> 00:39:17,760
Speaker 1: in cooperatively in order for the other side to correct

725
00:39:18,480 --> 00:39:22,400
Speaker 1: regards as longstanding deficiencies. And that is quite a change

726
00:39:22,400 --> 00:39:24,759
Speaker 1: from what we've had in the past. The distinction, and

727
00:39:24,800 --> 00:39:26,960
Speaker 1: this goes back to Abanage Sticks of the Princeton and

728
00:39:27,040 --> 00:39:30,279
Speaker 1: his art of strategy classic book, The Distinction, and you

729
00:39:30,400 --> 00:39:34,480
Speaker 1: just nailed it. The perception that the other side is

730
00:39:34,560 --> 00:39:38,600
Speaker 1: one side and it is not multilateral and numerous, isn't

731
00:39:38,640 --> 00:39:41,960
Speaker 1: it it is? You know, Tom, what he's done is

732
00:39:41,960 --> 00:39:45,000
Speaker 1: he's taking it sequentially. So everybody in the beginning said,

733
00:39:45,040 --> 00:39:47,160
Speaker 1: you know what, if you're going to take on China,

734
00:39:47,520 --> 00:39:52,200
Speaker 1: let's confront China with one side. And he did something

735
00:39:52,320 --> 00:39:56,160
Speaker 1: very different, high high risk, but it turns out to

736
00:39:56,200 --> 00:39:59,080
Speaker 1: be a strategy that that is working. He said, let's

737
00:39:59,080 --> 00:40:04,160
Speaker 1: take them sequential. So he first agreed with Career, then Mexico,

738
00:40:04,640 --> 00:40:08,640
Speaker 1: then Canada. The EU is next, and then he will

739
00:40:08,680 --> 00:40:13,240
Speaker 1: confront China. So his idea of trade is very different

740
00:40:13,280 --> 00:40:16,479
Speaker 1: from what we've seen in the past. And it turns out,

741
00:40:16,719 --> 00:40:20,879
Speaker 1: just like Reagan realized this in the eighties, that if

742
00:40:20,920 --> 00:40:25,440
Speaker 1: you're willing to underwrite the cost and risks of an

743
00:40:25,880 --> 00:40:29,680
Speaker 1: operative strategy, there are benefits, but the equation is a

744
00:40:29,800 --> 00:40:32,840
Speaker 1: very delicate one. Sometime it let's talk about potential outcomes.

745
00:40:32,880 --> 00:40:36,239
Speaker 1: What are the potential outcomes at the moment for un So,

746
00:40:36,400 --> 00:40:38,800
Speaker 1: A lot depends on how long it takes the Chinese

747
00:40:38,800 --> 00:40:41,400
Speaker 1: to realize that at the end of the day they

748
00:40:41,440 --> 00:40:44,480
Speaker 1: will have to make concessions. If it takes them a

749
00:40:44,640 --> 00:40:49,640
Speaker 1: short term, short while, then we will get concessions on

750
00:40:49,920 --> 00:40:55,960
Speaker 1: a joint venture. Requirements be intellectual property transfers and see

751
00:40:56,040 --> 00:41:00,520
Speaker 1: the deficit. If we don't, Jonathan, and this is really important,

752
00:41:00,840 --> 00:41:04,640
Speaker 1: then what is today's trade issue becomes a national security issue,

753
00:41:05,040 --> 00:41:08,640
Speaker 1: and the more it migras international security space, the harder

754
00:41:08,719 --> 00:41:11,920
Speaker 1: will be to diffuse these tensions. Some people might say

755
00:41:11,920 --> 00:41:15,560
Speaker 1: we're already there, Muhammed, I think we're getting there, and

756
00:41:15,640 --> 00:41:17,799
Speaker 1: I understand those who feel that we are already there.

757
00:41:17,840 --> 00:41:20,080
Speaker 1: I don't think we're quite there yet. A lot will

758
00:41:20,120 --> 00:41:22,719
Speaker 1: depend on what the Chinese decided to do over the

759
00:41:22,760 --> 00:41:25,400
Speaker 1: next few weeks, not months, weeks. Yeah, I hate you

760
00:41:25,480 --> 00:41:27,439
Speaker 1: talk about trade, and I have to say, you come

761
00:41:27,440 --> 00:41:30,440
Speaker 1: on the more optimistic side of the debate. You think

762
00:41:30,440 --> 00:41:32,680
Speaker 1: there is a real chance and you can talk about

763
00:41:32,840 --> 00:41:34,920
Speaker 1: talk to me about what probability you allocate to it,

764
00:41:34,960 --> 00:41:36,359
Speaker 1: but you think there is a real chance of having

765
00:41:36,400 --> 00:41:39,280
Speaker 1: what you've described as a Reagan moment. What's a Reagan

766
00:41:39,320 --> 00:41:41,520
Speaker 1: moment and what's the chance of actually ham Nick, So,

767
00:41:41,600 --> 00:41:45,400
Speaker 1: a Reagan moment is an event that changes the landscape

768
00:41:45,920 --> 00:41:49,120
Speaker 1: in a permanent way and in a way that's beneficial

769
00:41:49,200 --> 00:41:52,520
Speaker 1: to the US. That is what Reagan did in the

770
00:41:52,520 --> 00:41:56,120
Speaker 1: eighties with the Soviet Union. He completely changed the geo

771
00:41:56,160 --> 00:42:01,120
Speaker 1: political landscape. My probability, Jonathan, are percent we end up

772
00:42:01,160 --> 00:42:06,040
Speaker 1: in a very damaging trade war, sixty percent that we

773
00:42:06,160 --> 00:42:08,239
Speaker 1: end up with the same outcome of China as we've

774
00:42:08,239 --> 00:42:12,920
Speaker 1: had with Korea, Mexico, Canada, which is tweaks but nothing revolutionary,

775
00:42:13,360 --> 00:42:15,480
Speaker 1: and a fifteen percent probability that we end up with

776
00:42:15,480 --> 00:42:18,040
Speaker 1: the Reagan moment. So that's how I see the probabilities.

777
00:42:18,080 --> 00:42:21,400
Speaker 1: But as I say, the longer this goes on, the

778
00:42:21,480 --> 00:42:25,239
Speaker 1: more worried I will be about going higher. What's the

779
00:42:25,280 --> 00:42:28,640
Speaker 1: market position for I think the market's position for what

780
00:42:28,719 --> 00:42:32,400
Speaker 1: it has seen, which is that we get tweaks. At

781
00:42:32,400 --> 00:42:34,120
Speaker 1: the end of the day. This is not a trade war,

782
00:42:34,280 --> 00:42:36,680
Speaker 1: this is a skirmish, and that it will be solved

783
00:42:36,719 --> 00:42:41,040
Speaker 1: because after all which countries would voluntarily go into a

784
00:42:41,080 --> 00:42:43,160
Speaker 1: global trade war. That's how the market. How do you

785
00:42:43,320 --> 00:42:48,040
Speaker 1: respond to the gloom crew? Friday afternoon, all the articles

786
00:42:48,120 --> 00:42:50,719
Speaker 1: come out, World's coming to an end? There's that, There's

787
00:42:50,840 --> 00:42:54,640
Speaker 1: what John Themes look at the Bank of American Mary

788
00:42:54,719 --> 00:42:57,200
Speaker 1: Lynch fund manager server that came at this morning the

789
00:42:57,239 --> 00:43:00,520
Speaker 1: most bearish on the global outlooks. How do you respond

790
00:43:00,520 --> 00:43:03,080
Speaker 1: to that? So and yet your Bloomberg survey that came

791
00:43:03,080 --> 00:43:06,279
Speaker 1: out yesterday on the metric markets suggested a majority of

792
00:43:06,280 --> 00:43:10,080
Speaker 1: people feel like it's time to fade the divergence trade,

793
00:43:10,360 --> 00:43:12,560
Speaker 1: which I find, which I find interesting. The way I

794
00:43:12,600 --> 00:43:15,200
Speaker 1: respond of that is very simply to say, differentiate between

795
00:43:15,280 --> 00:43:19,480
Speaker 1: baselines and risk scenarios, right, and make a difference. And

796
00:43:19,760 --> 00:43:22,200
Speaker 1: I your WIS scenarios are there, but let's not forget

797
00:43:22,200 --> 00:43:25,600
Speaker 1: the baseline. And that's how I do it. But this

798
00:43:25,719 --> 00:43:29,359
Speaker 1: is this is a more fluid and to use Ben

799
00:43:29,400 --> 00:43:33,040
Speaker 1: Bernanke's term, unusually uncertain time than we've seen for a

800
00:43:33,080 --> 00:43:34,920
Speaker 1: long Time've got been and a half left with you,

801
00:43:35,120 --> 00:43:37,000
Speaker 1: and then you're gonna go after one of John Farroll's

802
00:43:37,000 --> 00:43:41,120
Speaker 1: other properties, which I fully understand. You manage money for

803
00:43:41,160 --> 00:43:44,640
Speaker 1: a small school up on the Charles River in Massachusetts

804
00:43:44,680 --> 00:43:47,319
Speaker 1: a few years ago. I was flabbergasted by a Yale

805
00:43:47,400 --> 00:43:51,120
Speaker 1: University article the other day on use of alternative investments?

806
00:43:51,360 --> 00:43:54,800
Speaker 1: Are they done? Are we done with relatively ill liquid

807
00:43:55,120 --> 00:43:58,680
Speaker 1: alternative investments? Is everybody going back to block and tackle

808
00:43:58,840 --> 00:44:03,480
Speaker 1: endowment investing? There still going to be a place for alternatives. Oh,

809
00:44:03,520 --> 00:44:06,440
Speaker 1: they'll definitely be a place for alternatives. I mean in

810
00:44:06,440 --> 00:44:11,040
Speaker 1: in a in a period where there's ample liquidity, then

811
00:44:11,160 --> 00:44:14,120
Speaker 1: giving up liquidity is not something that you get rewarded for.

812
00:44:14,680 --> 00:44:18,560
Speaker 1: And that's why we have seen a general tone change

813
00:44:18,640 --> 00:44:22,080
Speaker 1: against that. But we are we are exiting that regime.

814
00:44:22,160 --> 00:44:25,160
Speaker 1: And I think that endowments have to remember that their

815
00:44:25,400 --> 00:44:28,799
Speaker 1: edge is that quasi permanent capital, and that's a really

816
00:44:28,800 --> 00:44:31,320
Speaker 1: important you don't you know this, Tom? You know this, Johnathan.

817
00:44:31,400 --> 00:44:34,040
Speaker 1: You don't get involved in the investment world if you

818
00:44:34,040 --> 00:44:36,920
Speaker 1: don't know what your edges. John is entourage or two

819
00:44:37,000 --> 00:44:38,680
Speaker 1: of them will help you get out of your chair,

820
00:44:39,200 --> 00:44:42,000
Speaker 1: and the other two will help John get out. How

821
00:44:42,080 --> 00:44:45,640
Speaker 1: much small AMO entourages compared to yours? Well, yeah, but

822
00:44:45,680 --> 00:44:50,200
Speaker 1: I got that, Bill, you know got that right. We

823
00:44:50,239 --> 00:44:54,480
Speaker 1: have a tool to two people after Muhammad Laren. Thank

824
00:44:54,520 --> 00:44:57,560
Speaker 1: you so much for joining us. Thanks for listening to

825
00:44:57,640 --> 00:45:02,160
Speaker 1: the Bloomberg Surveillance podcast. Scribe and listen to interviews on

826
00:45:02,200 --> 00:45:08,040
Speaker 1: Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm

827
00:45:08,080 --> 00:45:11,399
Speaker 1: on Twitter at Tom Keene before the podcast. You can

828
00:45:11,440 --> 00:45:14,600
Speaker 1: always catch us worldwide. I'm Bloomberg Radio