Speaker 1: Brought you by Bank of America Mary Lynch. Investing in
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Speaker 1: Member s I p C. Welcome to the Bloomberg Surveillance Podcast.
Speaker 1: I'm Tom Keene with David Gura. Daily we bring you
Speaker 1: insight from the best in economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and
Speaker 1: of course on the Bloomberg. John Gollub joins us now
Speaker 1: in our Bloomberg eleven three studios here in New York.
Speaker 1: John and Gollo the chief US market strate that RBC
Speaker 1: Capital Markets. We're just reminiscing about the evening of number
Speaker 1: November eight. You are here as we went through the results.
Speaker 1: Even what's your sense of what's happened since market wise?
Speaker 1: There was this swoon, there was this great enthusiasm in
Speaker 1: the markets afterwards. Help us understand what's been through the
Speaker 1: going through the dulations here leading up to today. Well,
Speaker 1: you mean, I think there's two stories. The first thing
Speaker 1: is there was this natural knee jerk reaction to to Trump.
Speaker 1: But then I think the market realized that these pro
Speaker 1: growth policies may actually um not you know, maybe maybe
Speaker 1: much more important or positive than people think. But what
Speaker 1: really has happened over the last four months is that
Speaker 1: the economy has been really good. Expectations for corporate profits
Speaker 1: have been good. UM. If you look at um market returns,
Speaker 1: the day before the election, when people thought Hillary was
Speaker 1: going to win, the market was up, and then after
Speaker 1: the market was still up. So it appears the real
Speaker 1: story here is this is way less about Donald Trump
Speaker 1: and really more about an approving global economy and US
Speaker 1: economy and the reflation trade. You've helped us with the
Speaker 1: definition of that, and your most recent note you you
Speaker 1: note that you know there are so many definitions spinning right,
Speaker 1: how do you define those reflationary pressures? We we've been in, uh,
Speaker 1: this ultra low inflation, ultra low interest rate environment, and
Speaker 1: it's been really damaging. And it's been damaging, for example,
Speaker 1: to people who are in retirement or planning for retirement,
Speaker 1: and it causes them to do something really interesting, was
Speaker 1: to save even more money because they can't get any
Speaker 1: kind of return on their assets. UM. While you would
Speaker 1: think that corporations would take advantage of these low interest
Speaker 1: rates they look at as a sign of the world
Speaker 1: being broken, and they do the opposite. They actually refused
Speaker 1: to invest and so so there's actually a fair bit
Speaker 1: of damage done by this this kind of environment. So
Speaker 1: reflating and getting back to something which looks more normal,
Speaker 1: where you can actually get a return on your bank
Speaker 1: you know, on on a savings account, that's actually a
Speaker 1: really positive thing and maybe the big surprise over the
Speaker 1: next year or two if rates can get back towards
Speaker 1: something that feels a bit more normal. Was there a
Speaker 1: Trump trade, as as you look back at it now,
Speaker 1: was there a Trump trade? If there was, when one
Speaker 1: did lose its luster for you, I think that there
Speaker 1: was probably Trump trade for about a week, you know,
Speaker 1: if you look. Market had this vicious sell off and
Speaker 1: stopped out really overnight, and then it bounced really hard.
Speaker 1: But for the last three and a half months, most
Speaker 1: of this has just been economics, and we can see
Speaker 1: that by the kinds of companies that are are driving
Speaker 1: the market. John's great to have David gur back. He
Speaker 1: took his family to Antarctica and I've got an email
Speaker 1: he was like a tour Tara del Fuego and he
Speaker 1: got at the Buenos Areas for the fight back, and
Speaker 1: it's long with that. Help us here with the idea
Speaker 1: of foreign investment right now, if I want to invest seriously,
Speaker 1: not in Antarctica, but in Argentina, is how do I
Speaker 1: express it? Now? Do I do it through US multinationals
Speaker 1: or do I buy abroad? You know, there's there's a
Speaker 1: ton is a big difference between the companies that you
Speaker 1: would invest in in the US compared to overseas. Um
Speaker 1: non US portfolios tend to have a ton of banks
Speaker 1: and old economy, and in the US, you you know,
Speaker 1: if you think about innovative tech companies and biotech companies,
Speaker 1: so the US kind of feels more like the Nasdaq
Speaker 1: is a bit fresher. The interesting thing though, is if
Speaker 1: the economy is bouncing, old economy, these old banks in
Speaker 1: old industry tends to actually bounce harder, which could surprisingly
Speaker 1: be good for some of these non US investments. What's
Speaker 1: been going on with emerging markets surprising results since the
Speaker 1: election you've versus Yeah, if you look at kind of
Speaker 1: the orthodoxy or and the data proves us to be
Speaker 1: the cases. When the dollar is strengthening, you don't want
Speaker 1: to be in emerging markets, and emerging markets have been
Speaker 1: on fire. Um, it's really about a re risking. I mean,
Speaker 1: what do you have right now is small caps are
Speaker 1: beating the markets. Riskier assets are beating the markets. Companies
Speaker 1: that are more volatile and less stable and less have
Speaker 1: less dependable earnings are beating the markets. And that environment
Speaker 1: has just been great for emerging market companies. And and
Speaker 1: it's it really has been the whole the big surprise
Speaker 1: over last three or four months. I was talking with
Speaker 1: our colleague Oliver Rennick, and he said that small caps
Speaker 1: is really where it's at at this point. How do
Speaker 1: you what's your advice on how to approach that space
Speaker 1: right now? If we're seeing that looked upon so favorably well,
Speaker 1: if you if you said, what are the real big wins,
Speaker 1: and all of them I think are going to continue.
Speaker 1: First of all, just betting on the banks as a
Speaker 1: win has been If you did that, nothing else you've got,
Speaker 1: you've done unbelievably well. I think that continues to ride. Um.
Speaker 1: Value stocks, cheap companies have you know, have outperformed the market.
Speaker 1: And then smaller companies. But the smaller company thing is
Speaker 1: really about risk. It's the fact that they are risky
Speaker 1: or more volatile, and that's what's really been driving it,
Speaker 1: not the fact that they're small. How do I catch?
Speaker 1: And I mean I heard this, it didn't buy the bank.
Speaker 1: I didn't hear this eighteen times this weekend, but I'm sorry, folks,
Speaker 1: I heard it like six times. The percentage of the
Speaker 1: institutional and retail public that hasn't made the bogey is
Speaker 1: I've never seen it. It's off the chart. Do you
Speaker 1: catch up with you so leverage? Do you catch up
Speaker 1: with going sexier, fancier higher? Beata to use a Greek letter, folks.
Speaker 1: We have to use a Greek letter every day. Last night,
Speaker 1: I mean, I mean they needed beta last night at
Speaker 1: the end of the oscars. Help me, Actually they needed
Speaker 1: a stiff drink. Help me here with how I catch up?
Speaker 1: You know, Tom, I don't think you want to invest
Speaker 1: thinking about how you catch. There's what you haven't done.
Speaker 1: So what you want to do is just you know,
Speaker 1: if you think that this thing has lags, I think
Speaker 1: that you want to get in it in the kind
Speaker 1: of in the and really what's been working the last
Speaker 1: few months. It's value companies. It's companies are a little
Speaker 1: bit riskier, it's banks, it's cyclical. The arch idea here,
Speaker 1: and please you're the pro I'm not. You jump into
Speaker 1: the market knowing you could enjoy a bear market of
Speaker 1: x percent down and you still got to get in
Speaker 1: the market psychologically ready to take that hit if it comes.
Speaker 1: We've all gotten spoiled. I forget about whether you you
Speaker 1: you have a pullback of two percent or five percent
Speaker 1: or something like that, which is which is normal and that.
Speaker 1: But but if you're talking about really big you know, pullbacks,
Speaker 1: they almost only occur when you have recessions, and there's
Speaker 1: just none of the indications that a recession is around
Speaker 1: the corner are in place. So the likelihood of having
Speaker 1: that walloping pull back's just extremely alone that you lower
Speaker 1: right now. You have to have something really go badly
Speaker 1: um and and right now from an economic and markets perspective,
Speaker 1: it doesn't appear to be there. Could we be missing
Speaker 1: something We talked about orthodoxy and how emerging markets should
Speaker 1: be performing with the dollar ware it's at Could we
Speaker 1: be missing something when it comes to forecasting for a
Speaker 1: recession at this point if there can clearly be policy issues,
Speaker 1: and you know, if you have these border just a
Speaker 1: tax issues, or if we end up in a trade war,
Speaker 1: or if to some type of a geopolitical event, they
Speaker 1: could be really disruptive and in the market struggling with
Speaker 1: a hand handicap that but if you look even at
Speaker 1: the volatility in the market, the market's telling you that
Speaker 1: that it thinks the likelihood of those things is reasonably low. So, yeah,
Speaker 1: we could be missing We could always be missing something.
Speaker 1: But the yield curve that you know, the difference between
Speaker 1: a long dated bond and something that's near you know,
Speaker 1: a short dated UM, it's steep. That's a sign that
Speaker 1: you're not likely to have a recession. Um. You know,
Speaker 1: the employment market, we're creating lots of jobs. That's not
Speaker 1: something you have as you're moving towards a recession. Wages
Speaker 1: arising steadily, that's not something that has housing activity. You know,
Speaker 1: if you've made a list of the dozen things you
Speaker 1: want to see to tell you that recessions aren't around
Speaker 1: the corner, you know ten of the twelve or telling
Speaker 1: you or twelve or the twelve we're telling you that
Speaker 1: everything's gone. You and I mentioned the banks earlier. You
Speaker 1: said me, in the banks, if you believe in higher rates,
Speaker 1: what about the industrials. The President likes to trot these
Speaker 1: people out a photo fest at the White House. Are
Speaker 1: they happy? I mean Emerson Electric the CEO shows up.
Speaker 1: Is the Emerson Electrics of the world happy. I think
Speaker 1: it's a much murkier picture. The g D P ain't there. Well.
Speaker 1: But if you think about if you're a company, one
Speaker 1: of the things you want to know is where you're
Speaker 1: gonna get your supplies from. And if you don't know
Speaker 1: what the border adjusted taxes or trade agu is gonna be.
Speaker 1: If you're a Ford and you don't know whether you're
Speaker 1: making cars in Mexico or the United States, it affects decisions.
Speaker 1: It's hard to me. I'm glad you mentioned this. We're
Speaker 1: gonna come back with John Gallup. Here's gonna do, folks,
Speaker 1: because you know my theme this week. And besides, I
Speaker 1: missed David Girl so much like Antarcticle with the kids.
Speaker 1: Are you kidding me? A sheet of ice is gonna
Speaker 1: fall into the ocean anyways, I said, besides missing David Girl,
Speaker 1: I said, I gotta read about the border tax I'm
Speaker 1: gonna put out on Twitter two killer articles on the
Speaker 1: border tacks that I looked at. Uh, this uh weekend,
Speaker 1: We're gonna rip up the script big time right now.
Speaker 1: Greg Villier just wrote a blistering note on Republican reality,
Speaker 1: speaking about an epic war to come in the budget battle.
Speaker 1: He takes it back John Gallop to the Budget Control
Speaker 1: Act of two thousand eleven, which sets the question your
Speaker 1: caps and you know all the rest of it. What
Speaker 1: happens to your world And forget about the politics of this, folks,
Speaker 1: pro Trump, anti Trump. If we just get delay, if
Speaker 1: the X axis extends out where what we thought would
Speaker 1: happen in April happens in November, where we thought what
Speaker 1: would happen in November is pushed into the next year.
Speaker 1: If two thousand eighteen is pushed to two thousand twenty,
Speaker 1: how does your world respond to that? Well, first of all,
Speaker 1: I think that's exactly what's going to happen. I mean,
Speaker 1: you saw this with Minuchin who talked about hoping to
Speaker 1: get something on taxes by August, which probably means that
Speaker 1: getting something on taxes is a two thousand and eighteen events. Um,
Speaker 1: as long as we are confident that there's something which
Speaker 1: looks like pro growth somewhere in the attainable future. Six
Speaker 1: months nine months twelve months out. I think the market
Speaker 1: stays perfectly engaged. What we don't want to see is
Speaker 1: the process breakdown in front of us to believe that
Speaker 1: it can't happen as long as we have that promise
Speaker 1: a year from now, six months from now. All the
Speaker 1: same time, I look at the Bloomberg, I pick up
Speaker 1: the FT, I see a lot of articles about how
Speaker 1: investors are very hungry for detail in the speech tomorrow night.
Speaker 1: And you look back at history State of Union addresses,
Speaker 1: joint UH addresses to joint Sessions of Congress are usually
Speaker 1: short on details. They're full of sweeping statements, and seems
Speaker 1: like from Gregvlier's note, the tom I just mentioned, we're
Speaker 1: going to get a big, sweeping rhetorical speech tomorrow night.
Speaker 1: How important are the details to you? How important is
Speaker 1: it that there be details in that speech tomorrow night? Okay,
Speaker 1: so the details are really important, and I have zero expectations.
Speaker 1: I mean, I mean, you're talking about, David that on
Speaker 1: a president other than Donald Trump has been short on
Speaker 1: giving details. What's the what's the incentive for Donald Trump
Speaker 1: to give details at this very moment of time. David,
Speaker 1: continue here, but I just had an incredible insight went
Speaker 1: through my Monday morning brain. Forget about fake news. What
Speaker 1: if he started going on fake strategy guys like John
Speaker 1: fake strategy from John gollub, I mean, that could be
Speaker 1: that that could be the next frontier for Bloomberg surveillance.
Speaker 1: We can debate the fakeness of it. But listening to
Speaker 1: the Sunday shows yesterday on on Bloombergradi yesterday afternoon, there
Speaker 1: were a lot of conversations about here we are a
Speaker 1: few weeks into the first hundred days, so there's still
Speaker 1: time to go. But we haven't seen great movement in
Speaker 1: the House or Senate when it comes to repealing the
Speaker 1: Affordable Care Act. We haven't seen a lot when it
Speaker 1: comes to tax reform. How worried about that? Are you?
Speaker 1: That the that the great strategic promise there was a
Speaker 1: lot of this stuff would happen early. You know, from
Speaker 1: a market's perspective, what's most important is that he give
Speaker 1: priority to the things that the market cares about most.
Speaker 1: And so the market doesn't care about um immigration issues.
Speaker 1: The market care is really about two things that care about.
Speaker 1: It doesn't care about the New York Times. Yeah, and
Speaker 1: the market doesn't care about but but the latest tweet
Speaker 1: or whether he shows up to you know, to a
Speaker 1: press event. What the market cares about is, um, are
Speaker 1: we going to see something on taxes? And and frankly,
Speaker 1: if it happens at the beginning of eighteen instead of
Speaker 1: the middle of seventeen, as long as we believe that
Speaker 1: in directly it's moving, so I think the market is
Speaker 1: going to be comfortable with that. And the market wants
Speaker 1: to see, you know, a pullback in regulation and all
Speaker 1: these things. Taxes is really hard, but on the regulatory front,
Speaker 1: there's a lot that it can do through executive order. UM.
Speaker 1: There there is areas such as financial regulation. We're both
Speaker 1: Democrats and Republicans believe that there are areas within Dodd
Speaker 1: Prank Frank that can be improved upon. So even a
Speaker 1: modest softening of things like that, UM would would really
Speaker 1: be quite appealing. What the market doesn't want to see
Speaker 1: is an obsession on things that don't matter to the economy.
Speaker 1: As an investor, am I happy that executive from big
Speaker 1: companies are now interfacing with the president in a new way,
Speaker 1: that they're being called to the portico, that they're being
Speaker 1: called to the cabinet room to meet with the president
Speaker 1: to have these listening sessions. Is that a good thing,
Speaker 1: that new kind of dynamic. You know, as as I'm
Speaker 1: talking to institutional investors, they're frankly not spending as much
Speaker 1: time worrying about the latest photo up with what they
Speaker 1: what they're obsessing on which they're not getting to your
Speaker 1: point is they want to see the actual details around
Speaker 1: this tax plan more than anything else. In the extent
Speaker 1: that they can get that on some regulatory issues as well. Great, Um,
Speaker 1: but it appears as if this stuff is going to
Speaker 1: be um, take a little time. And I think Manuchin
Speaker 1: did a brilliant job of putting August out there by
Speaker 1: basically saying, is I'm promising if something's on the come,
Speaker 1: just be patient with me. And I think that that
Speaker 1: was a really smart move. You must be happy now
Speaker 1: to see Steven Manuchan in that job, to see Rex
Speaker 1: de Lerson confirming in that job. It must provide some
Speaker 1: stability for the market to have the heads of those
Speaker 1: agencies in place. Yeah, And I think that there's a
Speaker 1: wide belief that whether you agree with their politics or
Speaker 1: this or that, that they're grown ups in the seats
Speaker 1: their reasonable guys. Um. If you look at the when
Speaker 1: when Tillerson was speaking to foreign leaders or when the
Speaker 1: Vice president speaking to foreign leaders, they're speaking with with
Speaker 1: the tone which is I think pretty comfortable for people. Lincoln,
Speaker 1: we're gonna run out of time here, Lincoln, here in
Speaker 1: thir seconds your view with Tom Purcelli's view, there are
Speaker 1: we going to get the g d P the president
Speaker 1: needs to make America great again. Let's call it three
Speaker 1: point zero. Yeah, we have a shot at something between
Speaker 1: two and a half and three percent this year. But
Speaker 1: but the real I think that what you're gonna get
Speaker 1: is nominal GDP will be substantially hired. That's GDP plus inflation.
Speaker 1: What's that We can't talk real wages. You gotta come
Speaker 1: back and we got to talk about real wages will
Speaker 1: be out. That's that's what people will focus on. Okay,
Speaker 1: John Golif RBC Capital Markets, thank you for the time commitment.
Speaker 1: This Monday morning, David Gura and Tom Keen worldwide, coast
Speaker 1: to coast. This is Bloomberg. David, I want you to
Speaker 1: bring in the next guest here as we tell talk
Speaker 1: about policy in the abstract issues of medicine. But I
Speaker 1: just want to say, David that every parent has tattooed
Speaker 1: to their brain the once a year, the once every
Speaker 1: three years. Where you you go, where you go where
Speaker 1: I live is five. He's that's where you go when
Speaker 1: you need there's that moment where you need to go
Speaker 1: with said child, and it's He's sixty Street, New York,
Speaker 1: New York. A man very familiar with that addresses Dr
Speaker 1: Steve core and he's the President and c of New
Speaker 1: York Presbyterian Hospital. Joining us here in our studios in
Speaker 1: New York as the President prepares to meet with health
Speaker 1: insurance company CEOs. He's calling it a listening session. Today
Speaker 1: he's had he's had a few of these. Were you
Speaker 1: around the table or what would you say to him
Speaker 1: about what needs to happen to Affordable Care Act, whether
Speaker 1: it's repeal, replaced, repair? What does the government need to
Speaker 1: do here to write the ship? Well, I think repeal
Speaker 1: is UH an overreach. I think that the Medicaid expansion
Speaker 1: has worked. I think a number of Republican governors have
Speaker 1: told the President that I think the Medicaid expansion should
Speaker 1: continue and not be rolled back. UH. The individual insurance
Speaker 1: market needs to be repaired. We have many areas in
Speaker 1: the country where there's only a single insurer. People are
Speaker 1: concerned about deductibles and premiums, but that individual insurance market
Speaker 1: cannot work in the absence, in my opinion, of an
Speaker 1: individual mandate and subsidies for the insurance companies. And I
Speaker 1: think the health insurance executives will tell the President that
Speaker 1: today you've got a company like pulling out of a
Speaker 1: number of these markets saying they're not eager to get
Speaker 1: back into them at this point in time. What's it
Speaker 1: going to take these insurers to get back into markets
Speaker 1: that they well, I think first there needs to be stability.
Speaker 1: You need to tell people this is where we're going.
Speaker 1: I think it would be very unfortunate if with the
Speaker 1: House Republican Reconciliation Bill, the individual mandate and the subsidies
Speaker 1: were removed, because that that will just precipitate this happening. Doctor,
Speaker 1: you're out of Northwestern and then Columbia p ands and
Speaker 1: you've got this blending of being a practicing cardiologist with
Speaker 1: the actual running of hospital. What do doctors and nurses
Speaker 1: want or think of this silly debate in Washington. Basically,
Speaker 1: we have non experts experting on the fact that if
Speaker 1: David Gura's kids or my kids are sick. We need
Speaker 1: them fixed by the best talent we can find. How
Speaker 1: do you people respond to this debate? In Washington, we
Speaker 1: have over thirty thousand employees, and I would tell you
Speaker 1: that their response to this is, when somebody's sick, you've
Speaker 1: got to take care of them. One out of every
Speaker 1: four people in New York State is on Medicaid. One
Speaker 1: out of every three New York City residence is on Medicaid,
Speaker 1: and this is replicated throughout the country. UM. I think
Speaker 1: it's important to recognize that Medicaid insures over seventy five
Speaker 1: million Americans, and you have to have insurance in this country.
Speaker 1: Access to care is not insurance. One of the great
Speaker 1: things is that Logan in Boston are there's many other cities.
Speaker 1: Here at JFK, foreign people come here when they're really sick.
Speaker 1: I've seen it. They come through our airports, whether it's
Speaker 1: Cleveland Clinic or Mgture You're wonderful hospital. How do we
Speaker 1: repair and move forward away from six of gdp HE
Speaker 1: or whatever we're spending to the proper balance of medicine.
Speaker 1: I think in order to bend the cost curve, you've
Speaker 1: got to deal more with preventive health, mental health. I
Speaker 1: know this is unpopular in many areas, but UM, I
Speaker 1: am in favor of attacks on sugary drinks. You've seen
Speaker 1: in Mexico, the the reduction in soda consumption. Uh, if
Speaker 1: you can't prevent illness, you're going to have UM six
Speaker 1: substantial expenses associated with caring for people, and I think
Speaker 1: that that is one of the things that should be
Speaker 1: kept with the Affordable Care Act. Just about thirty seconds
Speaker 1: left too short. I'm sorry to say it. Are you?
Speaker 1: Are you convinced this is going to be a more
Speaker 1: participatory process going forward. A lot of people have complained
Speaker 1: that when the Portal CARECT came about, all the parties
Speaker 1: were involved in crafting it. That needed to be when
Speaker 1: it comes to changing the law. Do you think more
Speaker 1: voy say we're going to be here, They're gonna be
Speaker 1: more voices at the time. I would hope that we
Speaker 1: can get bipartisan support on that. Right now, it looks
Speaker 1: like it is just going to be one party doing it,
Speaker 1: and I think that would be unfortunate. Do I have
Speaker 1: to walk ten thousand steps today? I'd like for you
Speaker 1: to go away the tall ten thousand step things you
Speaker 1: think is A is A is an adequate measure of
Speaker 1: good health. A path to good health. Exercise is great
Speaker 1: for the brain, great for the heart, and I would
Speaker 1: urge everybody to exercise. You are you are so done.
Speaker 1: Dr Corwin, Thank you so much. Presbyterian. Please come by
Speaker 1: in a weekly. Oh I just got in a message
Speaker 1: here from Mrs Keane. Have Dr Carwin daily. Okay, thank you,
Speaker 1: David Garrow Toime Keen. This is Bloomberg, brought you by
Speaker 1: Bank of America. Mary Lynch. Dedicated to bringing our clients
Speaker 1: in sites and solutions to meet the challenges of a
Speaker 1: transforming world. That's the power of global connections, Marylynch, Pierce
Speaker 1: Federin Smith Incorporated, Member s I p C. David Gura,
Speaker 1: this is very, very smart work on our foreign policy
Speaker 1: and the choices in the debates the new administration has
Speaker 1: to do. I like Trump's team of rivals. It's very lincolness.
Speaker 1: Thomas Wright is online director of the Project on International
Speaker 1: Order and Strategy at the Brookings Institution, co author of
Speaker 1: a new report Building Situations of Strength and National Security
Speaker 1: Strategy for the United States and Thomas right, let me
Speaker 1: ask you first of all about this president's national security strategy.
Speaker 1: How different is it now that Michael Flynn. Lieutenant Michael
Speaker 1: Flynn is out office, he's no longer the National Security Advisor.
Speaker 1: Did we see Donald Trump's foreign policy change? I think
Speaker 1: it's highly significant, actually is it's one of the most
Speaker 1: significant developments or in his first month in office, and
Speaker 1: not typically in the way people think, though, I think,
Speaker 1: what what what? What? What's striking to me is that
Speaker 1: this basically denies President Trump and Steve Bannon sort of
Speaker 1: access in control of the bureaucracy to forward the America
Speaker 1: First agenda. So you know, to the extent that they
Speaker 1: have very radical ideas about American farm policy, it is
Speaker 1: much harder now for them to use the interagency process
Speaker 1: and sort of the flight as infrastructure to push that
Speaker 1: throughout the different departments in a way they might have
Speaker 1: been able to do so with Flynn. So you know,
Speaker 1: President Trump still has its views, Bannon still has this views.
Speaker 1: They'll do their thing, but there's a bit more of
Speaker 1: a constraint there from the NSC than there was a
Speaker 1: few weeks ago. What's your sense of who is crafting
Speaker 1: and guiding foreign policy in this White House? Is it
Speaker 1: hr McMaster, Michael Flynn's successor. Is it James Maddis the
Speaker 1: Secretary Defense, Rex tillers in the Secretary of State, or
Speaker 1: is it the as in himself. I think there's no
Speaker 1: easy answer to that, because there is a structural incoherence
Speaker 1: sort of built into this administration, like there's no um,
Speaker 1: there's no sort of unified position, and there will not
Speaker 1: be one because there the views of the President and
Speaker 1: of Bannon and maybe two others around him are so
Speaker 1: fundamentally different than those of the cabinets. So what we're
Speaker 1: likely to see is a continuing sort of struggle and
Speaker 1: wrestling maps to see who comes out on top on
Speaker 1: different issues. But those looking for sort of the you know,
Speaker 1: the voice of of coherence or who can sort of
Speaker 1: sum it all up, I think they'll be looking for
Speaker 1: a long time because that's that's not going to happen. Um.
Speaker 1: I think in a Trump administration. We're talking to Jonathan
Speaker 1: Galub with the OURBC Capital Markets and he spoke about
Speaker 1: how he's listening to what the Vice president has to
Speaker 1: say when he's traveling abroad, He's listening to the Secretary
Speaker 1: of State when he goes to Europe and talks to
Speaker 1: our our allies there. How much discord or distance, says
Speaker 1: there between the message we're hearing from those underneath Donald
Speaker 1: Trump and those the messages that we're hearing from the
Speaker 1: president himself, Well, there's enormous difference, you know. But the
Speaker 1: Vice president's comments and Munich are a great example, like
Speaker 1: he went there and gave a speech as that that
Speaker 1: George W. Bush could have given. Um, So that that
Speaker 1: is reassuring to a lot of people who want to
Speaker 1: see a strong story of US alliance in Europe. But
Speaker 1: the fact of the matter is that if there's a crisis,
Speaker 1: say there's a crisis of Russia in the politics or
Speaker 1: somewhere else, the person who gets to make the decision
Speaker 1: about what to do is the president, right. So, um,
Speaker 1: I certainly understand those who point to Tillerson and Pence
Speaker 1: and Madison say, oh, you should just listen to them,
Speaker 1: that's really what's important. But at the end of the day,
Speaker 1: you know, Trump is going to have a major say
Speaker 1: and his personal views could determine whether or not the
Speaker 1: US polled some of these commitments or not. So I'm
Speaker 1: not bully reassured. I think it's a positive thing that
Speaker 1: they're saying, that things are saying and I'm glad they're
Speaker 1: doing it when they go tom when when matters Tillerson
Speaker 1: offense goes to these places. But it's not as sufficient. Okay,
Speaker 1: enough of the brookings feet stuff, doctor Wright. Tomorrow night.
Speaker 1: If the president possibly goes off speech script and let's
Speaker 1: say he goes after fake news, etcetera, all the other
Speaker 1: themes of the moment, if he starts bashing name the
Speaker 1: nation or you know, the Sweden idiocy of two weeks ago,
Speaker 1: how do you respond to that? How how do our
Speaker 1: allies what a quaint word, how do our allies respond
Speaker 1: to that? Yeah, No, it's a great question. I mean
Speaker 1: I think what they have two reactions. One is that
Speaker 1: it will it will really um, it will really underscore
Speaker 1: their concerned that they will be really worried basically that
Speaker 1: they can't trust the president. Um. They'll essentially, you know,
Speaker 1: think that if push comes to shove and there's a problem,
Speaker 1: you know, this guy doesn't understand them and it's a
Speaker 1: wild card. And the other thing is they look for
Speaker 1: assurance from everyone else. Just as we were talking about
Speaker 1: a second ago. The next day, all the other members
Speaker 1: of the cabinet will come out and say that's not
Speaker 1: what he really meant and you know, our alliance is strong,
Speaker 1: as there will be some sort of assurance there. But
Speaker 1: these episodes like Sweden or Australia or any one of
Speaker 1: a number of examples over the last you know, month
Speaker 1: or so, you know, they point to the fact that
Speaker 1: the commander in chief is not exactly um, you know,
Speaker 1: it's not exactly uh, you know, upholding the alliances and
Speaker 1: commitments from your international relations per view. Why is trade down?
Speaker 1: Why is world trade down down? Down down over like
Speaker 1: over the last few years or less ten years last,
Speaker 1: the growth of trade is down. I mean, we're not
Speaker 1: getting it like we used to get it. Yeah, I
Speaker 1: think it's you know, I think there are I do
Speaker 1: think that they're you know, we're the important time we
Speaker 1: say this in the report you mentioned to look at
Speaker 1: free trade agreements and look at economic diplomacy and say,
Speaker 1: you know, it's not just about market access anymore. It's
Speaker 1: also about distortions in the market, whether it's Chinese use
Speaker 1: of state owned enterprises or currency or many other issues,
Speaker 1: and then to work with like minded countries to try
Speaker 1: to address those, you know, problems. So I think there
Speaker 1: are problems in you know, the global economy. Trump is
Speaker 1: not sort of wrong about that, but it's really you know,
Speaker 1: how he's responding and whether or not the appropriate way
Speaker 1: to respond is by launching a trade war or general
Speaker 1: economic war with China or Mexico, which could be catastrophic
Speaker 1: and kind of productive, you know, or is it to
Speaker 1: work you know, diplomatically and multilaterally with with other sort
Speaker 1: of large industrialized democracy to try to address these these issues.
Speaker 1: So I do think, you know, I do think there's
Speaker 1: it's not that the concerns about the training system are unfounded.
Speaker 1: I think there there is, um there is some reason
Speaker 1: for concern, but it's not it's not in the sense
Speaker 1: that he's saying that the US has lost out in
Speaker 1: these deals and it's just been negotiating badly. I think
Speaker 1: Thomas right. You have a book coming out All Measures
Speaker 1: short of We're the Contest for the twenty Century in
Speaker 1: the Future of American Power, due to be published in May,
Speaker 1: and I can just picture you pouring over the galleys
Speaker 1: in early November and the election was how much did
Speaker 1: you have to revise in light of this election, in
Speaker 1: light of what we're seeing with this new administration. Yeah,
Speaker 1: and it's a great question. You know, the draft was
Speaker 1: done before November eight, but I had you know, they
Speaker 1: said that if the if Trump won, I'd have a
Speaker 1: chance to make some revisions. Um, well, you know, the
Speaker 1: book read is arguing that the you know, this age
Speaker 1: is sort of great power cooperation and convergence towards the
Speaker 1: liberal international order is is over and unraveling, and that
Speaker 1: we're seeing the advent of a more nationalists and geopolitically
Speaker 1: competitive world. And so prior to the election, I thought
Speaker 1: the US to be pushing back against that, you know,
Speaker 1: that the US to be trying to op that from
Speaker 1: happening and trying to uphold the liberal order. And I
Speaker 1: guess that what I sort of corrected for was that
Speaker 1: actually the US is more caught up in it than
Speaker 1: I might have, you know, than I had anticipated. But
Speaker 1: the basic sort of gist of the of the argument
Speaker 1: I think was was, I mean, in some ways Trump
Speaker 1: just confirmed it, right, because it's just really underscored that
Speaker 1: this was this force is even stronger than I pought,
Speaker 1: and I thought it was sort of the driving force.
Speaker 1: That's right. One more question if we can squeeze it
Speaker 1: in here. You have the luxury of experience in Dublin,
Speaker 1: Cambridge and over UH at Georgetown as well. Is there
Speaker 1: a risk of the city in the financial part of
Speaker 1: London could move part or all to Dublin. Do you
Speaker 1: buy that idea? Well, I think that. I mean, I
Speaker 1: think that they will definitely lose. The City of London
Speaker 1: will definitely be diminished. I think there's very little dabt
Speaker 1: about that, and the folks I speak to over there
Speaker 1: when I when I go over to UH for events
Speaker 1: in the City of London very much acknowledge it upfront.
Speaker 1: If the question is the destination, I think it's not.
Speaker 1: It's not at all clear will be Dublin, although Dublin
Speaker 1: is picking up some business, but Frankfurt and Amsterdam I
Speaker 1: think are strong competitors as well. But you know, the
Speaker 1: folks in London hope that they will only lose business
Speaker 1: that is specific to you know, the passporting issue, but
Speaker 1: it could be more broad than that. I think we've
Speaker 1: got to leave it there time right, Thank you so much.
Speaker 1: Dr Wright is with Brookings Institution. What we're gonna do
Speaker 1: years investment talk and we'll do the political talk in
Speaker 1: our next section with one of our most popular guests,
Speaker 1: one d Herrow David Harrold of Harris associates and the
Speaker 1: oak Mark International Fund joins us. Now, David, you've had
Speaker 1: mense repair to your track record, and this is typical
Speaker 1: with international where you get a ginormous year and then
Speaker 1: you get a bad year, and maybe you get two
Speaker 1: good years and two off the marketers. What's the year
Speaker 1: ahead or the two year ahead view? David Harrow on
Speaker 1: international stocks versus US multinationals. Well, good morning, Tom, And
Speaker 1: this view for me, anyways, always predicated on where we
Speaker 1: sit in terms of the valuation spectrum, where stocks are trading,
Speaker 1: in terms of you know, conventional conventional valuation uh in
Speaker 1: dissees that I like to use, like cash flow yields
Speaker 1: EV two EVA. I mean just looking at how businesses
Speaker 1: are priced and given what business conditions are like and
Speaker 1: what we see today's there about average price. We don't
Speaker 1: see panic fire sales like we saw during certain periods
Speaker 1: in the last year or two. Recalling the beginning of
Speaker 1: we had a very very weak start, a bottomed in
Speaker 1: February and then an international market's got really hit hard
Speaker 1: right after Brexit. And to me, these were really really
Speaker 1: good panic buying panic There was panic selling given a
Speaker 1: good buying opportunity. UM, we don't see you four in
Speaker 1: the markets because they're still there's still people scared of
Speaker 1: what might happen in Europe with the elections, and we
Speaker 1: always have this with the elections, um. But so what
Speaker 1: we see is valuations are just about average. They're they're
Speaker 1: not super attractive, and they're not over the humble. One
Speaker 1: forgets to mention that thirty two days ago you were
Speaker 1: named morning Stars International Stock Fund Manager of the Year.
Speaker 1: And the issue here, David Girl, it's like the Oscars.
Speaker 1: You just expect that Meryl Street will come up on
Speaker 1: the stage, same thing with David Harrow. But David, to
Speaker 1: the boom bust of your world and you've won every
Speaker 1: award there is within is you just assume last year
Speaker 1: was a great year, this year is a bad year. No,
Speaker 1: not necessarily. What you do assume is that you can't
Speaker 1: look in the past, and you have to keep looking
Speaker 1: forward and you have to keep the portfolio forward positioned.
Speaker 1: And you know, if I look at my history at
Speaker 1: Harris Associates, it's almost twenty five years, there's been about
Speaker 1: three or four big bust years and about twelve or
Speaker 1: thirteen big boom years. And to me, that's that's livable,
Speaker 1: because what we're ultimately trying to deliver is performance over
Speaker 1: three fifteen years as opposed to just trying to match
Speaker 1: the index over week to week, month to month, quarter
Speaker 1: to quarter, half year and a half year. And I
Speaker 1: think there is a trade off. There is a trade
Speaker 1: off between, you know, trying to achieve short term performance
Speaker 1: and trying to achieve medium and long term And we'll
Speaker 1: take the medium and long term any day. So if
Speaker 1: it means some short term under performance, I'll take that,
Speaker 1: if it means we're going to get greater medium and
Speaker 1: long term out performance. Ask you a bit about the
Speaker 1: Italian banking sector. We've talked about that a bunch here
Speaker 1: over these last last few months, and let me just
Speaker 1: get a sense of where you see opportunity there. There
Speaker 1: were reports here of Antessa generally merger happening, and we've
Speaker 1: talked about the need perhaps for for more consolidation in
Speaker 1: the banking sector in Italy and Europe more generally. Where
Speaker 1: do you see things headed there? Yeah, there definitely needs
Speaker 1: to be more consolidation in the Italian banking market, probably
Speaker 1: even in the German the Lindest bunk in which the
Speaker 1: setup there makes it very difficult for any bank to
Speaker 1: make money doing local banking in Germany. But back to Italy. Yeah,
Speaker 1: we're big shareholders of Intessa and we were watching this
Speaker 1: quite closely because this generally, in our view, it made
Speaker 1: limited sense. And management assured us they're going to stick
Speaker 1: to the plan. They're going to stick to their capital
Speaker 1: allocation policies Etter and so we trusted and we trusted
Speaker 1: him as they have a very good track record. The
Speaker 1: CEO of Antessa is very sound. Uh. They continue to form,
Speaker 1: they're starting to grow their loan book, Loan losses are
Speaker 1: going down, costs are going down, and they're distributing most
Speaker 1: of their excess capital, which they have a bit of
Speaker 1: and Testa sel Paul actually has excessive capital and they're
Speaker 1: distributing it most of it back to owners. So this
Speaker 1: is what we liked, and we were raise some doubts
Speaker 1: on this generally, but they looked at it, they looked
Speaker 1: at it closely, and they decided to pull back, which
Speaker 1: um us was was a good sign unless you could
Speaker 1: really really make a strong case for business combination because
Speaker 1: these things are littered, littered with the laws of unintended
Speaker 1: consequences when you merge to big entasis. There's so much
Speaker 1: work that needs to be done in combining businesses, and
Speaker 1: you just have to make sure you're really paying the
Speaker 1: right price and you have the ability to integrate and
Speaker 1: to manage. So that's it's fraught with risks, or we're
Speaker 1: pretty happy that they backed away from that. Jonathan Donald
Speaker 1: was here just a few minutes ago talking about how
Speaker 1: well you would have done if you've gotten into America
Speaker 1: and financials shortly before the election. Is there still room
Speaker 1: to get into financials here in the US and indeed overseas.
Speaker 1: Overseas in particular, there's been a little bounce, but if
Speaker 1: you just look at the valuation spreads where they're trading
Speaker 1: at versus historic on an absolute basis, for other sectors,
Speaker 1: there's still a lot of room, and especially since we're
Speaker 1: starting to finally see in Europe finally starting to see
Speaker 1: lending growth, you know, three four or five six percent,
Speaker 1: and that's better than not. And in the meantime, these
Speaker 1: banks have been very proactive at cutting costs. The regulatory
Speaker 1: burdens seems to have been the strictest regulatory burdens that
Speaker 1: we saw in Bossil three seemed to kind of be
Speaker 1: in the rear view mirror. Most of these big European
Speaker 1: firms are at or above their desired capital positions. So
Speaker 1: I think valuation is still saying for at least for
Speaker 1: European banks like B and P and Tessa Lloyd's. It's
Speaker 1: it's yes, you should be looking at these seriously. How
Speaker 1: did you respond to the Craft Heinz Buffett private equity
Speaker 1: tons of money going after Uni Leaver? Here? Did you
Speaker 1: wan Unilever? We don't own Uni Leaver, but I and
Speaker 1: I've looked at it, we've owned in the past, and
Speaker 1: you know this, this company does not have a good pedigree.
Speaker 1: I mean we recall it was an Anglo Dutch monstrosity.
Speaker 1: Two chairman to ce CFOs do everything and I don't
Speaker 1: even know if they've ever quite recovered from that. Um.
Speaker 1: You know, these big companies with all these brands, they
Speaker 1: just sometimes lack focus and they become huge bureaucracies. And
Speaker 1: you know, to be honest, I think maybe you know
Speaker 1: the three gene Heinscraft people would have had had good
Speaker 1: run at would have had a good run at Unilevers.
Speaker 1: I would guess there's a lot of fact that cut there. Um,
Speaker 1: and they have some good brands and some good businesses,
Speaker 1: especially in health and personal care and ice cream. We
Speaker 1: all like ice cream. Um, But you know, I'm I'm
Speaker 1: surprised that backed away so quickly. Maybe they're reloading or
Speaker 1: because I think there's an opportunity there for someone. When
Speaker 1: you look at the VIX hovering around twelve on the
Speaker 1: issue of where does David Harris down the issue of complacency?
Speaker 1: What do you make of the VIX being where it
Speaker 1: is and and indeed where it's been here for these
Speaker 1: last few months. Yeah, that's not something I give a
Speaker 1: lot of thought about. But just looking at how quiet
Speaker 1: things are and knowing that you know, for every period
Speaker 1: of quiet, there's a period of disquiet. I would assume that, um,
Speaker 1: it's not sustainable, but you know, you never know. If
Speaker 1: you look at charts of the VIX, there's been periods
Speaker 1: of time where it's been law for quite some time,
Speaker 1: and I think, you know, the market's kind of in
Speaker 1: a good place because you know, what they think is
Speaker 1: going to be better more pro capitalist policy coming down
Speaker 1: the road, David, let's talk about the politics. You've been
Speaker 1: moderately active in Republican politics and in Wisconsin. How's a
Speaker 1: state that the president uh, I took right now. How
Speaker 1: intrusive is the Washington debate? What we're going to observe
Speaker 1: tomorrow night, the present budget debate and with that any
Speaker 1: delay in the hopes of Republicans. How intrusive is that
Speaker 1: on our g d P and particularly on our investments.
Speaker 1: I think market participants have grown used to this political
Speaker 1: discourse for better or worse, and as a result, um
Speaker 1: especially as as a result of various events happening and
Speaker 1: the impacts of markets becoming less and less and less,
Speaker 1: and so you're going to continue to see more noise
Speaker 1: out of Washington. It is a constant flow. This is
Speaker 1: an altunate, but it does seem to be amped up
Speaker 1: a little bit. How I had to do is watch
Speaker 1: the last night's programming on the OSCARS, and I mean,
Speaker 1: people are just extremely excited about this whole presidency in
Speaker 1: one direction or the next. But I think the markets
Speaker 1: have grown, um what less responsive. I wouldn't say immune,
Speaker 1: but less responsive to all this noise and chatter. And
Speaker 1: I think that what really market participants need to do
Speaker 1: is listen to the policy UH and look for things
Speaker 1: that make it better for corporates to grow their profits
Speaker 1: and cash flow. Streams. You know, if that happens, they
Speaker 1: hire more workers. If that happens, they invest more. If
Speaker 1: that happens, you know, it leads to better business conditions
Speaker 1: and economic growth. It's the bottom up value investor. What
Speaker 1: we really want is for our companies to be able to,
Speaker 1: you know, grow, grow their cash flow streams in a
Speaker 1: in a safetound environment. And I think that's what this
Speaker 1: whole rally has kind of been about, is the belief
Speaker 1: that the policies of the previous eight years been very
Speaker 1: anti capitalist, very anti free market. And I think the policies,
Speaker 1: even though they there's a little hair surrounding them, I
Speaker 1: think there's an anticipation that the policies will be lot
Speaker 1: more pro growth, pro free market capitalism. When you are
Speaker 1: you listening now more to those I was chatting about
Speaker 1: this a little bit earlier today. Do you listen less
Speaker 1: to Donald Trump and more to say Steven Manuch and
Speaker 1: he has been on the job now for for just
Speaker 1: over a week. Are you when you're when you're trying
Speaker 1: to understand what this administration is trying to do? Is
Speaker 1: it more useful, last investor, to listen to those heading
Speaker 1: the agencies and those beneath them. You know, it's a
Speaker 1: really good question, is you know, where does the puck
Speaker 1: really stop? Because you know, Trump was all his roaring.
Speaker 1: He does listen to the people around him, and I
Speaker 1: think that was evidence during the whole Remember the first
Speaker 1: executive order, UM, the immigration restrictions, and you heard the
Speaker 1: story of Madison whatever said well what about the green
Speaker 1: card holders? And they very quickly got to Trump and
Speaker 1: he wanted, you know, wanted that clarified. So he does
Speaker 1: listen to people, um, and he does have very strong
Speaker 1: people around him. That was one of the things that
Speaker 1: surprised me. I thought someone was such a big ego
Speaker 1: would put a bunch of weeklings around him. In fact,
Speaker 1: he put some very very strong, highly opinionated people. And
Speaker 1: so I think you have to really listen to both
Speaker 1: and you have to see how to interact. And I
Speaker 1: think really what one has to do is look to
Speaker 1: see if Trump is listening, learning and reacting to his
Speaker 1: skilled advisors. And I think it would be a very
Speaker 1: good sign if he does, because he is new, he
Speaker 1: is new to politics, and he has some very good
Speaker 1: people around David Harrow, Thank you so much. Congratulations David
Speaker 1: Harrow in your morning star acclaim it will be. It
Speaker 1: goes on the Harrow mantle of the fireplace, crowd fireplace
Speaker 1: in the west wing. That's where it goes. David Harrow
Speaker 1: with the Market Harris Associates International Manager of the Year.
Speaker 1: But that's how it is, David, I mean, David garraw Um,
Speaker 1: I find it in the international you know, you wait,
Speaker 1: you wait, you go. It's not working. It's not working
Speaker 1: in a boom you get one year or two years too.
Speaker 1: It's a it's a different cadence than domestic. Yeah no.
Speaker 1: And I was again struck by what he had to
Speaker 1: say there about the European banks. We talked about European
Speaker 1: banks in terms of how they are structurally and in
Speaker 1: the context of financial regulations. But interesting to hear that,
Speaker 1: David Hare, they're talking about opportunity in the European banking
Speaker 1: system right now. Thanks for listening to the Bloomberg Surveillance podcast.
Speaker 1: Subscribe and listen to interviews on iTunes, SoundCloud, or whichever
Speaker 1: podcast platform you prefer. I'm out on Twitter at Tom Keene.
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