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Speaker 1: Ye. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene

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Speaker 1: with David Gura. Daily we bring you insight from the

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Speaker 1: best of economics, finance, investment, and international relations. Find Bloomberg

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Speaker 1: Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course,

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Speaker 1: on the Bloomberg Good Morning everyone, David Geran, Tom Keene,

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Speaker 1: Bloomberg Surveillance, Our studios in New York, Mr gurl Off,

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Speaker 1: Francie Aqua in our studios in London, Francine, Prime Minister May.

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Speaker 1: Is she in Japan on her way? What's that? So?

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Speaker 1: I think she just landed in Japan. We just spoke

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Speaker 1: to Alex Moraless on TV. He's traveling with the Prime Minister. Tom.

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Speaker 1: This is actually quite significant. She's gone to Japan in

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Speaker 1: the hope of some kind of commitment for a free

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Speaker 1: trade deal. Of course they can't actually sign anything, but

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Speaker 1: if she comes back a failure, that's not gonna look

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Speaker 1: very great. I mean, this is a massive Brexit theme.

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Speaker 1: Am I going to suggest? Mr Johnson? Boris Johnson's theme

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Speaker 1: that we are going to become a trading empire again?

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Speaker 1: And I agree it starts with Japan, doesn't it. Yeah?

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Speaker 1: I don't. I don't know about the trading empire. Certainly

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Speaker 1: in his mind and maybe a couple of people that

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Speaker 1: voted for breaks it, that's certainly what they aim for.

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Speaker 1: But if you think about it, Look, it's going to

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Speaker 1: be quite difficult to pull this thing off. I think

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Speaker 1: negotiations with the EU lost it for almost a decade

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Speaker 1: before they could actually, you know, be in these final

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Speaker 1: stages of this free trade agreement. Okay, here's what we're

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Speaker 1: gonna do. One question with YenS Nordvig on the business

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Speaker 1: at hand, the dollar, and then we want to talk

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Speaker 1: to him about global Wall Street dollar dynamics, the massive

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Speaker 1: miscall of the summer strong dollar euro parity, all of

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Speaker 1: it was reversed. Let's start with why why did everybody

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Speaker 1: get the strong dollar call wrong? Well, I think that

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Speaker 1: the hope about what the administration could do was just

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Speaker 1: two elevations. It's linked to Trump the election. The just

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Speaker 1: think there's a part of that, and I think there

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Speaker 1: was there's too much concern about the European political risk, right,

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Speaker 1: So it was something that focused everybody minds around the

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Speaker 1: French election, and they were worried about the downside risk.

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Speaker 1: But in fact, now we have upside rice in terms

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Speaker 1: of politics and Europe. Maybe mccollan Mentel can actually get

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Speaker 1: a deal together in coming months, so that would be

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Speaker 1: a positive thing. Francine has led our coverage on mithid

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Speaker 1: my fed How how do you pronounce the chase mythic method? Method?

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Speaker 1: One another method you've lived in. You've gone from major

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Speaker 1: firms Coleman, Saxon number to where you've got to shingle out.

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Speaker 1: You're hugely successful talking to elites. There can only be

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Speaker 1: so many Yen's nordvigs. What are the mere mortals of

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Speaker 1: research in intellectual content? What are the mere mortals do

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Speaker 1: in the city and in New York? Well, so I

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Speaker 1: can talk a little bit about what what we are

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Speaker 1: trying to do, right, because you're it that if it's

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Speaker 1: based on a single individual, then you can't scale a

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Speaker 1: business that's just going to stop there, right, So you

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Speaker 1: need to have some kind of infrastructure that gives you

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Speaker 1: an edge. Right. So what we're trying to do is

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Speaker 1: we're trying to really build unique data. You need models

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Speaker 1: that we can show to people and that gives them

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Speaker 1: an edge. So that's what we're trying to scale the business.

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Speaker 1: But I think you're right. If you are a pretty

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Speaker 1: good analysis that sits in a bank or independent research

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Speaker 1: into choosing pretty good is not going to cut it.

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Speaker 1: You have to be among the very best to get

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Speaker 1: paid specific before your research, and that's the competition that

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Speaker 1: everybody is going to be in. Now. Yes, I can't

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Speaker 1: really make sense of it. So I understand these are

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Speaker 1: very important rules to make everything more transparent. But then

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Speaker 1: we speak to Danskin Bank and they say they're trying

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Speaker 1: to figure out whether research on this need to charge

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Speaker 1: for routine phone calls. Why do we not know yet?

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Speaker 1: We're what August or twenty nine? This you know goes

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Speaker 1: in place January three. I think one major problem is

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Speaker 1: that the banks setting prices now for their research, and

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Speaker 1: you can see that they're coming down down, down, deut

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Speaker 1: your bank without announcement the other day exactly, and they

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Speaker 1: we don't know where the floor is. We don't know

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Speaker 1: where regulators going to say, Okay, that price is just

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Speaker 1: actually it doesn't match any any of the cost you having.

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Speaker 1: It's just a fake price. So the regulators have to

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Speaker 1: come out and give some guidance as to what pricing

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Speaker 1: they would would accept, and we just don't have that yet. Okay,

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Speaker 1: do we have any idea of where that accepted prices?

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Speaker 1: Because if you if you low ball it, right, if

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Speaker 1: you say, well, I'm hardly going to pay anything at all,

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Speaker 1: not only the regulators saying that's not good enough, but

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Speaker 1: they could also do an investigation on it. Yeah. No,

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Speaker 1: So I think that's the core of a problem. That

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Speaker 1: guidance has not been given and we're only a couple

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Speaker 1: of months away from when they're supposed to come to

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Speaker 1: into effect, and it's kind of paralyzing everybody because we

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Speaker 1: just don't know how research is going to be a price.

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Speaker 1: It's away from your world of foreign exchange. But in equities,

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Speaker 1: Collins Rockwell Collins, the merger with ut X Collins, and

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Speaker 1: the Bloomberg has an analysts following it. From where you sit,

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Speaker 1: are those days over well, I think you can already

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Speaker 1: see it in the equity space that there are more

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Speaker 1: and more players withdrawing from like traditional equity research, and

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Speaker 1: therefore we have less analysts covering certain stocks, and we

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Speaker 1: have also less stocks overall being covered. So in a way, this,

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Speaker 1: this is the regulation is going to mean that there's

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Speaker 1: less information available to trade on. Okay, does that mean

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Speaker 1: for example, that if you're a great you know, if

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Speaker 1: you bring your research in house so you stop paying

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Speaker 1: for it from others, that actually will give you the

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Speaker 1: real advantage. How much is the financial landscape really going

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Speaker 1: to change because you'll see the people that are really

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Speaker 1: good out of their own research actually making the trades. Yeah,

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Speaker 1: I think I think you're seeing that that there's more

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Speaker 1: and more by side firms that says, Okay, it's going

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Speaker 1: to be too expensive, we have to do it internally.

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Speaker 1: So there's certainly players that are doing it that way.

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Speaker 1: They're doing it very quickly. I know you've got to

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Speaker 1: go to a client call right now, but yes, this

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Speaker 1: is critical. Have you seen any evidence that anyone's going

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Speaker 1: to quote unquote take foreign exchange coverage internally? So the

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Speaker 1: foreign exchange market was special in that it's not about

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Speaker 1: thousands of companies. Is like a couple of key crosses.

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Speaker 1: So I think in general, the big currency traders in

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Speaker 1: the world, they will have a mix of internal research

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Speaker 1: and they also pay for the best they can get outside.

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Speaker 1: They're still gonna send people to the New York Rangers,

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Speaker 1: Montreal Canadians game all that rack. It's gonna still continue

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Speaker 1: against nord Vig. Thank you so much with Elexante data

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Speaker 1: here and I'm an important call for those of you

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Speaker 1: interested in the energy assets of a Beliger Golf of Mexico.

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Speaker 1: This is, without question the interview of the day. Jacques

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Speaker 1: Roussou is with clear view energy partners, but barely describes

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Speaker 1: decades of work on the pipelines the refineries of our

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Speaker 1: American energy infrastructure. Jack an open question first, our our

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Speaker 1: assets at risk? Do we thirty days from now, sixty

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Speaker 1: days from now, ninety days from now, move on with

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Speaker 1: Harvey as a memory. That's a difficult question to answer.

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Speaker 1: I think one way to think about it is during Katrina,

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Speaker 1: it took about three months for these refineries to get

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Speaker 1: back up to a full production level. So that is

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Speaker 1: one marker to think about. But you just never know.

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Speaker 1: You mentioned uh earlier this morning when we spoke on

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Speaker 1: television about the unique place of electricity to oil into

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Speaker 1: gas in the region. Explain that. Give us a Lehigh

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Speaker 1: University exclamation. Exclamation of explanation, I'll get it out, explanation

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Speaker 1: of how electricity folds into hydrocarbons. Sure, I think what

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Speaker 1: you want to think about is refineries, pumping stations, for pipelines,

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Speaker 1: chemical plants. Uh, there's a lot of electricity that powers

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Speaker 1: the plants, and if that has gotten flooded and knocked out,

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Speaker 1: you know, there can be a lengthy recovery time to

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Speaker 1: repair that. Alright, I'm looking at some of the refineries

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Speaker 1: and there's a great function on the Bloomberg terminal for

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Speaker 1: those that have one, Jack talk to me about what

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Speaker 1: is more concerning. Is it refineries shutting or the pipeline

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Speaker 1: being blocked off? Well, right now we're looking on the

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Speaker 1: refinery side. If you think about the United States, about

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Speaker 1: fifty percent of refining capacity is in the Gulf Coast,

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Speaker 1: of that in Louisiana, of that in Texas. From what

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Speaker 1: we've seen now, there's been reported eighteen percent or so

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Speaker 1: of US refining capacity is either down or working at

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Speaker 1: restricted rates. So that is kind of the key thing

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Speaker 1: to focus on right now because if those refineries stay

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Speaker 1: down for an extended period of time, that is what

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Speaker 1: the market is thinking with gasoline going up. How much

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Speaker 1: does a hurricane actually impact the demands, not the supply side,

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Speaker 1: but the demand side of things. That's a great question,

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Speaker 1: and I think you can see that in oil price

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Speaker 1: because what we're seeing for w T I is that

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Speaker 1: the United States is down roughly eight hundred thousand barrels

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Speaker 1: per day of oil supply due to the hurricane. But

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Speaker 1: oil demand to the hurricane is a bigger number because

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Speaker 1: that's the refining side of the equation. Is that we're

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Speaker 1: seeing over three million barrels per day of refining capacity

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Speaker 1: down and so that's cutting um the gasoline, which is

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Speaker 1: the way the government calculates it in terms of products supplied,

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Speaker 1: is what they call demand. I mean, flooding is not

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Speaker 1: the only Flooding seems to be a jack the primary

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Speaker 1: problem for refineries, right, but it's not the only one, sure,

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Speaker 1: I mean you have a lot of Do you have

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Speaker 1: ability to get oil? Do you have ability to access pipelines?

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Speaker 1: You know, there's there's definitely a lot of infrastructure issues

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Speaker 1: that need to be worked out, and I think we

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Speaker 1: will see this over the next few days. We will

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Speaker 1: get reports from the different companies on the status um

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Speaker 1: As I recall from the Trina days, you know, there

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Speaker 1: was a lot of information flow once companies could actually

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Speaker 1: get back into the assets. Brian Mound, Big Hill, West

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Speaker 1: Heckberry and buy you Chuck Taw. That's where our strategic

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Speaker 1: oil reserve. Is is our strategic oil reserve up to

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Speaker 1: its eyeballs and water this morning? Uh, that's a hard

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Speaker 1: one to say. I mean, I think what you want

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Speaker 1: to think about is do we need that oil? And um,

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Speaker 1: you know that's not what this This hurricane has caused

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Speaker 1: a shortage of oil. So we're we're not in a

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Speaker 1: situation where we need oil, but it may get to

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Speaker 1: the point where companies need to borrow some oil. And

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Speaker 1: during Katrina, companies actually borrowed ten million barrels of oil

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Speaker 1: and then actually returned it in the subsequent months. Many

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Speaker 1: more questions. Let's continue with a chuck or so were

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Speaker 1: this with clear view energy partners, we are being smarter

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Speaker 1: on hydrocarbons today, for instance the quart in London. I'm

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Speaker 1: Tom keenan New York chacker. So with this with clear

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Speaker 1: view energy partners, as we could continue to look at

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Speaker 1: what has become a tropical storm. What is the the

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Speaker 1: infrastructure need of our pipelines and refineries? Is it as

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Speaker 1: ugly as our many bridges worn out across this nation? Oh,

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Speaker 1: I wouldn't say that. You know, these assets are taken

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Speaker 1: care of very well. Obviously if they weren't there would

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Speaker 1: be a lot more significant problems to that. So, um,

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Speaker 1: it's just a matter of dealing with, um the flooding

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Speaker 1: and figuring out what actually happened. I mean, are the

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Speaker 1: new facilities we think of all the stereotypes of refineries

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Speaker 1: built after World War Two that are being pieced together

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Speaker 1: with duct tape. Is that's not the case down there,

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Speaker 1: is it? Well, there's not too many new refineries. Marathon

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Speaker 1: Petroleum had built one near New Orleans a few years back,

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Speaker 1: but most of them have been around for a while. Obviously,

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Speaker 1: there's there's maintenance that occurs on routine bases. What is

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Speaker 1: the things are that we understand or misunderstand about shale

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Speaker 1: production from the U S. If you look at you know,

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Speaker 1: the I guess the break even price, I'm hearing everything

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Speaker 1: from thirty to sixty. Yeah. Obviously we've seen a big

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Speaker 1: move up in shale production, UM with the move up

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Speaker 1: an oil price since the OPEQ announcement to start cutting production,

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Speaker 1: and that is becoming a marginal supply out there. I mean,

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Speaker 1: I think what you need to look at going forward

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Speaker 1: in the back half of the year is that the

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Speaker 1: world uses a lot more oil in the second half

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Speaker 1: of the year, just seasonally, and this is opex big

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Speaker 1: chance to reduce inventories, supply and demands very close. So

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Speaker 1: we have a lot of wild cards out there that

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Speaker 1: could go either way, and we've got a new one

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Speaker 1: with the hurricane because, as we're mentioning before, this is

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Speaker 1: going to uh clip demand in the US some If

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Speaker 1: you if you look at Libya's oil production right it's

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Speaker 1: dropped I think by around three sixty one thousand barrels

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Speaker 1: a day. That's thirty five percent of output lost month.

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Speaker 1: How much does that help OPAQUE and it's struggled to

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Speaker 1: reduce this global glut. That's a great question, and Libya

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Speaker 1: is one of the wild cards. You've got Libya, You've

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Speaker 1: got Nigeria, You've got Venezuela. Iraq has not come close

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Speaker 1: to to meeting their production cuts. So this is what

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Speaker 1: OPEC needs, is they need a few of these countries

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Speaker 1: to for their oil to move down UM to offset

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Speaker 1: any sort of demand loss that we might get because

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Speaker 1: of the hurricane. Jacque. One final question, is America energy independent? Oh?

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Speaker 1: On the way for sure, but there's still a significant

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Speaker 1: amount of imported oil that we need every day to

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Speaker 1: UM to keep the gasoline and keep our cars going.

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Speaker 1: Very good, Jack on short nose, Thank you so much,

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Speaker 1: jacqu Roussou with clear view energy partners, with great perspective,

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Speaker 1: particularly of a troubled Gulf of Mexico coastline. And again

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Speaker 1: all of our reports, folks, seriousness of the hurricane and

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Speaker 1: no tropical Storm Harvey. The rescue efforts continue across much

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Speaker 1: of Houston and to the eastern clients. For our global audience,

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Speaker 1: this is Houston and the Gulf of Mexico over to

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Speaker 1: the Louisiana border on the way to New Orleans. Not

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Speaker 1: to get to New Orleans, that would be a misstatement.

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Speaker 1: So here's the theme, folks, with all the news slow

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Speaker 1: that's going on, you know, the hunch like two weeks ago,

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Speaker 1: as you know, we're gonna reset September. It's supposed to

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Speaker 1: be Labor Day, you know, five days after Labor Day. No,

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Speaker 1: it's starting now with the amazing news flow that we've gotten,

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Speaker 1: not only out of Washington and London, with the Prime

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Speaker 1: Minister traveling to Japan, but now with Hurricane Harvey and

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Speaker 1: all that, we need reset in one way to do

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Speaker 1: that in a decade financial crisis is without exaggeration, I

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Speaker 1: will say one of the five most important books of

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Speaker 1: the last decade on what we do with surveillance, and

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Speaker 1: that is the Age of Oversupply. There was at some

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Speaker 1: point forty seven books on my desk, and the world

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Speaker 1: changed when Martin Wolf of the Ft said, shut up

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Speaker 1: and read Dan Albert's Age of Oversupply. Dan, you've retired

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Speaker 1: off of the royalties of Age of Oversupply, right, I

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Speaker 1: just wish. I don't think I've earned back the advantage.

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Speaker 1: When's the movie out? This is the is the is

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Speaker 1: a movie come out? Here? Like Memorial Day two thousand twenty?

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Speaker 1: Kit Harrington? What is what? Where'd you get the title?

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Speaker 1: What is the Age of Oversupply? Is very funny. The

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Speaker 1: the original title was supposed to be managed Capitalism. It

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Speaker 1: was basically looking back and saying, you know, we pursued

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Speaker 1: free market strategies for thirty years and there needs to

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Speaker 1: be a new look taken a capitalism. Everybody basically said

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Speaker 1: to me, that's an really insidious title. Don't do that.

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Speaker 1: The first chapter was called the Age of Oversupply, and

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Speaker 1: the publisher came back to me and said, it's a

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Speaker 1: great title for the book. That's what we did, right,

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Speaker 1: so so what is it being oversupplied? Oh? Well, the

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Speaker 1: whole concept is that that the emergence of the post

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Speaker 1: socialist states after beginning nineteen and thereafter h really created

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Speaker 1: this massive oversupply of labor relative to aggregate demand globally uh.

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Speaker 1: And that in turn created a huge, huge oversupply production

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Speaker 1: and therefore capital excess. Capital UH defined as I guess

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Speaker 1: by Bernanke as the savings glatt. And then we came

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Speaker 1: to understand it a little bit better, which you know,

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Speaker 1: basically flowed back into markets seeking risk free returns in

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Speaker 1: bonds and mortgage backed securities in such there any way,

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Speaker 1: there's any number of ways to go with us. I'm

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Speaker 1: going to go to the brain power of chapter eight,

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Speaker 1: which is bad values. Why sticky wages and prices block

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Speaker 1: a real recovery? Now, that can go either way, depression, advance, etcetera.

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Speaker 1: But when you wrote the Age of Oversupply, did you

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Speaker 1: predict or think about the lack of wage growth we

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Speaker 1: see right now? Well, wage growth, you know, really this

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Speaker 1: is the big debate because we've had such an enormous

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Speaker 1: expansion and service jobs relative to goods producing jobs. If

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Speaker 1: you actually net it out, going back to the previous

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Speaker 1: height two thousand and seven, we've only added net net

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Speaker 1: about a million something in UH in goods producing jobs

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Speaker 1: or high wage high hours jobs, i should say. And

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Speaker 1: the rest of it, for plus million has been low wage,

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Speaker 1: low hour jobs, really crappy jobs. Um and and so

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Speaker 1: all of that is a is a manifestation of the

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Speaker 1: lack of demand for UH labor in all but the

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Speaker 1: most high tech sectors of the economy. And and it's

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Speaker 1: it's all of this is a global phenomenon. You have

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Speaker 1: to go back to what what happened, you know, in

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Speaker 1: the age of oversupply, which is just this enormous amount

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Speaker 1: of productive labor that is willing to work relatively and expensively.

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Speaker 1: And you know, people have for years said, oh, the

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Speaker 1: Chinese thing is over. It's it's now, you know, they're

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Speaker 1: going to have to find cheaper labor somewhere else. But

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Speaker 1: China isn't over. Neither is India. And the reason for

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Speaker 1: that is there urbanized population is still a fraction of

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Speaker 1: its total population. China is still only about half urbanized,

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Speaker 1: and now the rest of the people are not really

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Speaker 1: part of the global economy UM and India is only

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Speaker 1: about sixty urbanize I'm sorry urbanized. So you know, you

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Speaker 1: have this mess of bench strength that can continue to

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Speaker 1: add labor to the problem, which tamps down the value

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Speaker 1: of labor in the developed world. But don how do

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Speaker 1: you fix it? Do you bring jobs American jobs abroad

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Speaker 1: or you do you bring foreigners to America. I'm looking

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Speaker 1: at a group great Bloomberg chart, right, and it's what

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Speaker 1: you were talking about. So the difference between unfilled job

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Speaker 1: openings and workers highed. There were six point one million

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Speaker 1: unfilled job openings on June. I think that's, you know,

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Speaker 1: the most since data was compiled in two thousands, and

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Speaker 1: it's a massive myth. The myth is that there are

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Speaker 1: all these job openings, but their job openings at a wage.

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Speaker 1: And that is the key to understand the old statistics. Uh,

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Speaker 1: you don't have this massive unfilled inventory when you have

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Speaker 1: a huge unemployed labor base that's going into jobs at

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Speaker 1: low wages and low hours just to make ends meet. Um.

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Speaker 1: These these jolt statistics are very grossly misleadings and unfortunately

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Speaker 1: the federalize a lot on them. I will editorialize your

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Speaker 1: fencing anecdotally. Mr Alpert is correct. It is absolutely unreal

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Speaker 1: disinterest people have in those skilled jobs at the wage offered.

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Speaker 1: You know, you see it anecdotally every single day, Frenzy. Yeah.

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Speaker 1: But what I'm asking done is how do you fix this? Right?

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Speaker 1: So you're you're saying this is not true, but again

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Speaker 1: you still have the the unemployment or the labor forces conundrum,

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Speaker 1: let's call it that. So this is the big issue

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Speaker 1: going into the fall. Right, We're going to be talking

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Speaker 1: about tax reform in the United States, the issue of

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Speaker 1: whether or not the economic nationalist agenda is going to

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Speaker 1: prevail or continue to prevail under I don't know if

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Speaker 1: it ever prevailed, but I mean I'm going to prevail

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Speaker 1: under under under the Trump administration. These big issues are

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Speaker 1: all oriented at what he had promised in his campaign

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Speaker 1: and what the American electorate apparently seems to to to want,

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Speaker 1: or at least a good chunk of them, which is

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Speaker 1: better jobs. And the notion that trickle down tax reform

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Speaker 1: is going to help, I think is highly specious. Uh.

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Speaker 1: And of course when it comes to tariffs and other

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Speaker 1: protectionist measures, I favor some measures because we can't go

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Speaker 1: on like this forever in the United States. Uh. And

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Speaker 1: and there are some very good things that we could

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Speaker 1: be doing. But at the end of the day, you

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Speaker 1: have to ask yourself the quintessential question, which is can

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Speaker 1: the private sector in the United States actually shift people

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Speaker 1: back into more gainful, higher paying jobs when there is

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Speaker 1: this massive exogenous labor force offshore um And at my conclusion,

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Speaker 1: the conclusion that I reached in the book and my

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Speaker 1: conclusion today, especially looking at the last ten years, is

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Speaker 1: it's very difficult. You have terrific power points. I'll steal

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Speaker 1: any number of these charts folks, in of course take

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Speaker 1: credit for them myself. But it does go back then

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Speaker 1: to what can government policymakers do. Now you mentioned the

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Speaker 1: FED earlier, and they're struggling against Nordvig talking about one

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Speaker 1: uh one uh uh FED increase out to the end

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Speaker 1: of next year. What does Dan Elpert demand from the

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Speaker 1: legislative branch or from the executive office? Now, I mean,

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Speaker 1: is it just as simple as targeted investment tax credits? No,

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Speaker 1: it's not. And and uh you know this, this gets

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Speaker 1: down to the big debate. We have a huge number

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Speaker 1: of people who found it politically expedient to use uh,

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Speaker 1: the national debt as a whipping boy. We have and

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Speaker 1: you look at the bond today. I don't I'm not

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Speaker 1: looking at it on the screen in front of me.

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Speaker 1: But my recollections the ten years back down to two, one,

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Speaker 1: three or something two, and you can tell that the

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Speaker 1: relentless UH, lack of inflationary pressures and the the enormous

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Speaker 1: demand for for bonds makes the government extremely cheap to finance.

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Speaker 1: And so the government really needs to step in and

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Speaker 1: and actually go back rebuild our infrastructure, spend trillions of dollars,

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Speaker 1: and put people back to work and gainful jobs. Here

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Speaker 1: we go back to infrastructure and the mystery of why

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Speaker 1: that can occur. Dan Olpert, is there a beach read

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Speaker 1: on this book? Are you're doing, you know with a

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Speaker 1: movie rights sold? Are you're doing an afterward where, you know,

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Speaker 1: for the holiday purchase? One of the things is is

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Speaker 1: I've done a lot of work recently with the Coalition

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Speaker 1: for American Prosperity, which is UH trade group that that

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Speaker 1: is very focused on this issue. I've determined that you know,

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Speaker 1: given the fact that people communicate today, including the President

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Speaker 1: United States, through tweet tweet storms UH, and people are

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Speaker 1: far more graphically oriented that I that I really devoted

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Speaker 1: myself to writing more decks than reports. Very good. Dan

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Speaker 1: olport Uh with us the Age of Oversupply. It's not dated.

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Speaker 1: I really it is a book where every chapter will

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Speaker 1: force you to think differently. That is, I can't say

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Speaker 1: enough about it. Daniel Alpert with us in the studios

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Speaker 1: off the Age of Oversupply, and we will continue on

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Speaker 1: where is the wage growth? Which in celebration of you know,

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Speaker 1: you think about the five books of the crisis. The

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Speaker 1: Age of Oversupply is clearly when Daniel output where this.

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Speaker 1: Maybe there's like r Ryin Art and Rogue off and

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Speaker 1: Uh Andrew Ross Sorkin is wonderful, too Big to Fail,

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Speaker 1: and there's other books this, that and the other. But

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Speaker 1: The Age of Oversupply really deserves a second read if

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Speaker 1: you've read it before, and if you haven't read it,

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Speaker 1: you're missing something on some of the great changes. Dan Alpert.

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Speaker 1: The most frightening chart for me and Francine and mostly

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Speaker 1: for our children, Francy, our grandchildren. I'm sorry, is your

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Speaker 1: debt expansion? It's three lines. We know corporate debts up,

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Speaker 1: blah blah blah, government debts up. But I think a

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Speaker 1: lot of people don't realize where private debt is. It's

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Speaker 1: becoming what Katlacoff of Boston Universe and he talks about,

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Speaker 1: isn't it? Yeah? It is, I mean the the at

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Speaker 1: this point we're back into a debt cycle. The real

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Speaker 1: question is to what extent is debt being taken on

427
00:24:11,000 --> 00:24:15,639
Speaker 1: because of optimism on the part of consumers? Uh? And

428
00:24:15,680 --> 00:24:17,760
Speaker 1: to what extent is it just merely filling the gap

429
00:24:17,840 --> 00:24:21,640
Speaker 1: between what they desire and what they earned? And uh.

430
00:24:21,680 --> 00:24:24,160
Speaker 1: You know, one of the one of the histories of

431
00:24:24,200 --> 00:24:27,200
Speaker 1: the crisis or the bubble that preceded it, is that

432
00:24:27,359 --> 00:24:31,000
Speaker 1: so much of g d P was being supported by

433
00:24:31,040 --> 00:24:34,320
Speaker 1: people pulling debt out of their homes for the most part,

434
00:24:34,400 --> 00:24:38,080
Speaker 1: but credit cards also counted. Uh and uh. And this

435
00:24:38,240 --> 00:24:42,880
Speaker 1: this vicious cycle of continuing to um uh, continuing to

436
00:24:42,880 --> 00:24:45,600
Speaker 1: to borrow in order to consume. That is that is

437
00:24:45,640 --> 00:24:48,000
Speaker 1: re emerging. And we look back for instine on you know,

438
00:24:48,080 --> 00:24:50,760
Speaker 1: age of oversupply. A major shout out to the work

439
00:24:50,800 --> 00:24:54,720
Speaker 1: of Jannatis who was younger then in his wonderful work

440
00:24:55,080 --> 00:24:58,600
Speaker 1: on mortgage equity withdrawal at Goldben Sacks. That was path

441
00:24:58,680 --> 00:25:03,399
Speaker 1: breaking well over ten years ago. Yes, and that that

442
00:25:03,440 --> 00:25:05,680
Speaker 1: was amazing word done. Can you I don't know if

443
00:25:06,040 --> 00:25:07,800
Speaker 1: how much you look at debt in the UK, but

444
00:25:07,840 --> 00:25:10,760
Speaker 1: I imagine there's a trend in Western worlds that actually

445
00:25:10,840 --> 00:25:13,800
Speaker 1: debt is becoming more and more sustainable. Unsustainable for the

446
00:25:13,840 --> 00:25:18,719
Speaker 1: younger generation. How will it affect their consumer behavior? Well,

447
00:25:18,760 --> 00:25:21,800
Speaker 1: you know, the it's very very clear that we brought

448
00:25:21,920 --> 00:25:24,560
Speaker 1: forward demand for housing, and housing is certainly one of

449
00:25:24,600 --> 00:25:28,919
Speaker 1: the largest consumables in in any developed country. So we

450
00:25:29,040 --> 00:25:33,040
Speaker 1: brought brought forward enormous demand. And we have left um,

451
00:25:33,080 --> 00:25:36,640
Speaker 1: the young people with with two things. One is, uh,

452
00:25:36,880 --> 00:25:41,240
Speaker 1: less expectations of intergenerational wealth transfer because so much of

453
00:25:41,680 --> 00:25:44,960
Speaker 1: wealth was eradicated during this crisis. Some has come back,

454
00:25:45,040 --> 00:25:47,520
Speaker 1: but people, you know, the previous generation is going to

455
00:25:47,520 --> 00:25:49,400
Speaker 1: live a long time, so they're not going to get

456
00:25:49,440 --> 00:25:52,120
Speaker 1: the intergenerational wealth transfer except at the very very top

457
00:25:52,160 --> 00:25:54,600
Speaker 1: of the pyramid. Um. You know that that I think

458
00:25:54,600 --> 00:25:56,800
Speaker 1: people were counting on. There's been some really great work

459
00:25:56,840 --> 00:25:59,399
Speaker 1: done on that over the last few years. Uh. And

460
00:25:59,440 --> 00:26:03,680
Speaker 1: then secondly, of course, they are burdened by education expenses

461
00:26:03,720 --> 00:26:05,719
Speaker 1: in the form of continued student loans. I mean, one

462
00:26:05,760 --> 00:26:08,840
Speaker 1: of the great horrors of the post post crisis period

463
00:26:08,960 --> 00:26:11,399
Speaker 1: was watching the amount of student debt in the United

464
00:26:11,440 --> 00:26:16,480
Speaker 1: States go up from four or five billion to one

465
00:26:16,520 --> 00:26:20,480
Speaker 1: point two trillion in almost the blink of an eye. Um,

466
00:26:20,520 --> 00:26:23,000
Speaker 1: that does not affect the UK as much as it

467
00:26:23,040 --> 00:26:25,960
Speaker 1: does in the US, but it is it is certainly

468
00:26:26,200 --> 00:26:30,280
Speaker 1: a factor in the Western world. We we have effectively

469
00:26:30,520 --> 00:26:35,040
Speaker 1: eradicated UH and and put and put very highly educated

470
00:26:35,040 --> 00:26:38,080
Speaker 1: people into underproducing jobs as well. UH. You know, a

471
00:26:38,160 --> 00:26:41,760
Speaker 1: huge amount of demand. We will there be less appetite

472
00:26:41,800 --> 00:26:46,360
Speaker 1: to own homes and rent. Well. It's very interesting because

473
00:26:46,680 --> 00:26:49,840
Speaker 1: we're seeing in the United States over the last six

474
00:26:49,920 --> 00:26:53,800
Speaker 1: months sort of a peaking of the rental market, and

475
00:26:53,920 --> 00:26:56,919
Speaker 1: a lot of that is due to overbuilding, and a

476
00:26:56,960 --> 00:26:59,800
Speaker 1: lot of it is due to UH an enormous amount

477
00:26:59,840 --> 00:27:02,240
Speaker 1: of or sale housing that has been built, specifically in

478
00:27:02,280 --> 00:27:05,280
Speaker 1: the condominium sector. These deals are starting to crash. Rents

479
00:27:05,320 --> 00:27:09,160
Speaker 1: of decline in the high end over the last in

480
00:27:09,160 --> 00:27:12,200
Speaker 1: in cities like New York over the last several months,

481
00:27:12,200 --> 00:27:16,160
Speaker 1: and look like they are accelerating in that respect. Workouts

482
00:27:16,160 --> 00:27:17,720
Speaker 1: are beginning. There's a good piece in the Wall Street

483
00:27:17,800 --> 00:27:21,800
Speaker 1: Journal today on on condominium workouts. Um, this is going

484
00:27:21,840 --> 00:27:25,040
Speaker 1: to trickle you. So you saw what happened in London

485
00:27:25,560 --> 00:27:29,480
Speaker 1: when when the London luxury market peaked um. These things

486
00:27:29,520 --> 00:27:34,240
Speaker 1: are are effectively in disha of cheap money having flowed

487
00:27:34,280 --> 00:27:39,680
Speaker 1: into enormous amounts of construction. Damn Francine commutes from Cornwall. Uh,

488
00:27:39,760 --> 00:27:42,960
Speaker 1: the last chapter of your book in pursuit of pragmatism,

489
00:27:43,000 --> 00:27:46,520
Speaker 1: where's the pragmatism forward? Well, to a certain extent, right,

490
00:27:46,600 --> 00:27:51,720
Speaker 1: the Trump revolt was uh, sort of a proxy for

491
00:27:52,119 --> 00:27:55,000
Speaker 1: you know, torches and in the street. Not to talk

492
00:27:55,040 --> 00:27:59,119
Speaker 1: about what happened, but but you know people people really

493
00:27:59,160 --> 00:28:03,359
Speaker 1: getting out there and and and getting angry. They expressed themselves,

494
00:28:03,520 --> 00:28:05,760
Speaker 1: I think unwisely in the way they did in the

495
00:28:05,800 --> 00:28:08,600
Speaker 1: ballot box. But at the end of the day, the

496
00:28:08,880 --> 00:28:11,640
Speaker 1: the key, the key issue is to is to service

497
00:28:11,720 --> 00:28:14,560
Speaker 1: the very disgruntled people. We wait for round two. Dan

498
00:28:14,640 --> 00:28:17,080
Speaker 1: Elpert with one of the classics of the last ten years,

499
00:28:17,119 --> 00:28:33,919
Speaker 1: the age of oversupplyed with Westwood Capital the the my

500
00:28:34,080 --> 00:28:38,600
Speaker 1: message screen has been a fire with GDP analysis. We're

501
00:28:38,600 --> 00:28:41,160
Speaker 1: honored to bring you in her working day, Allan Zentner

502
00:28:41,680 --> 00:28:46,080
Speaker 1: of Morgan Stanley Ellen, you have been exceptionally prescient on

503
00:28:46,200 --> 00:28:51,520
Speaker 1: a quieter economy. Is today a sea change or is

504
00:28:51,560 --> 00:28:56,200
Speaker 1: it a nuance of upgrade of g d P? Ah,

505
00:28:56,240 --> 00:28:58,720
Speaker 1: that's a good one, Tom. I don't get the sense

506
00:28:58,720 --> 00:29:01,240
Speaker 1: that it's a sea change it. I think that it's

507
00:29:01,240 --> 00:29:04,640
Speaker 1: been some time, uh that we haven't really been focused

508
00:29:04,680 --> 00:29:08,120
Speaker 1: on just what's going on on the private investment side

509
00:29:08,120 --> 00:29:10,800
Speaker 1: of the economy. UM. And so what we did with

510
00:29:10,840 --> 00:29:13,360
Speaker 1: today's data was if you look under the hood at

511
00:29:13,440 --> 00:29:16,360
Speaker 1: just you know the fact that that not onally was

512
00:29:17,240 --> 00:29:21,920
Speaker 1: consumer spending and business investment, the two sources of upside

513
00:29:22,800 --> 00:29:28,120
Speaker 1: revision and biggest contributors to GDP in this in this report, um,

514
00:29:28,160 --> 00:29:32,840
Speaker 1: they have been the source of upside revision all year UM.

515
00:29:32,920 --> 00:29:35,600
Speaker 1: And so if you look at just the private final

516
00:29:35,640 --> 00:29:38,440
Speaker 1: domestic demand, right, think the economist fancy way of saying,

517
00:29:38,520 --> 00:29:41,480
Speaker 1: let's take exports, let's take inventories out of it, and

518
00:29:41,520 --> 00:29:44,280
Speaker 1: just look at what's going on domestically. It's been tracking

519
00:29:44,280 --> 00:29:47,160
Speaker 1: on average over the past four quarters about two point nine.

520
00:29:48,200 --> 00:29:51,440
Speaker 1: So you know, oftentimes that's that's what lost in the

521
00:29:51,440 --> 00:29:55,040
Speaker 1: phrase that's pretty robust domestic economy. Eleanor Carl Ricka Donna

522
00:29:55,160 --> 00:29:58,920
Speaker 1: mentions the end of the corporate profits recession. That's dear

523
00:29:59,040 --> 00:30:01,280
Speaker 1: to the I is of Megden to say at the

524
00:30:01,320 --> 00:30:04,400
Speaker 1: London School of Economics can you say the corporate profit

525
00:30:04,440 --> 00:30:09,520
Speaker 1: recession is over, and does that fold into boosted productivity

526
00:30:09,600 --> 00:30:14,360
Speaker 1: which makes Cherry Yellin's job easier. Yeah, and if only

527
00:30:14,440 --> 00:30:16,880
Speaker 1: that were her job for the next four years, we

528
00:30:16,880 --> 00:30:19,560
Speaker 1: should all be so lucky. Uh. You know, I would

529
00:30:19,600 --> 00:30:23,080
Speaker 1: say that that that I would concur and and uh,

530
00:30:23,240 --> 00:30:27,000
Speaker 1: Mike Wilson, our chiefdeose equity strategist, certainly sees that the

531
00:30:27,040 --> 00:30:29,960
Speaker 1: profits recession uh is over. I mean, one thing that

532
00:30:30,000 --> 00:30:32,520
Speaker 1: we've seen in the data is that labor costs, which

533
00:30:32,560 --> 00:30:36,000
Speaker 1: is this typical later in the cycle, labor costs have

534
00:30:36,080 --> 00:30:38,640
Speaker 1: risen to a point that you start to incentivize capex

535
00:30:38,720 --> 00:30:42,720
Speaker 1: over labor and that's when corporates in the US turned

536
00:30:42,720 --> 00:30:45,200
Speaker 1: back to investing growing their bottom line. And that's when

537
00:30:45,240 --> 00:30:48,160
Speaker 1: you can get the product into increase in productivity. And

538
00:30:48,160 --> 00:30:50,320
Speaker 1: some of that is just simply cyclical where we are

539
00:30:50,360 --> 00:30:53,320
Speaker 1: in the cycle, and we do see that that's underway,

540
00:30:53,360 --> 00:30:58,360
Speaker 1: and absolutely it would make uh the chair's job easier

541
00:30:58,440 --> 00:31:02,080
Speaker 1: if they want to continue along with gradual rate hikes,

542
00:31:02,760 --> 00:31:06,640
Speaker 1: because rising productivity also means you can get a lift

543
00:31:06,680 --> 00:31:11,520
Speaker 1: in wage growth without pressuring margins and pressuring profits, but

544
00:31:11,720 --> 00:31:15,920
Speaker 1: raising the standards of living of of people in your economy,

545
00:31:16,520 --> 00:31:19,880
Speaker 1: and given what we've seen today, is it necessary Is

546
00:31:19,920 --> 00:31:23,120
Speaker 1: it needed for the FED disse inflation moving higher to

547
00:31:23,120 --> 00:31:26,239
Speaker 1: have the confidence that it will, you know, in the end,

548
00:31:26,240 --> 00:31:30,720
Speaker 1: move higher or is this enough? Yeah? So that's um,

549
00:31:30,760 --> 00:31:33,000
Speaker 1: that's the question of the day. Right Inflation is the

550
00:31:33,040 --> 00:31:36,560
Speaker 1: only place where they are missing on their forecast. Growth

551
00:31:36,640 --> 00:31:40,880
Speaker 1: is above potential and around their forecast. The unemployment rate

552
00:31:41,200 --> 00:31:44,000
Speaker 1: is below where they think full employment is. Financial conditions

553
00:31:44,040 --> 00:31:47,840
Speaker 1: are easy. All of that for monetary policy theory, All

554
00:31:47,880 --> 00:31:50,280
Speaker 1: of that is a powerful stew that that would tell

555
00:31:50,320 --> 00:31:54,880
Speaker 1: you surely inflationary pressures will build some time over the outlook.

556
00:31:55,440 --> 00:31:58,520
Speaker 1: And so they remain confident just as they marked market,

557
00:31:59,080 --> 00:32:02,360
Speaker 1: there are marked where their inflation forecast. Every single month

558
00:32:02,400 --> 00:32:05,000
Speaker 1: and another week of print comes out, you'll see that

559
00:32:05,120 --> 00:32:08,720
Speaker 1: in their forecast beyond this year, they don't budge. They

560
00:32:08,760 --> 00:32:11,120
Speaker 1: just still have full faith and confidence that we get

561
00:32:11,120 --> 00:32:13,880
Speaker 1: to that two percent inflation goal. So I think right

562
00:32:13,960 --> 00:32:16,680
Speaker 1: now the bar is low enough for a December high

563
00:32:16,800 --> 00:32:18,600
Speaker 1: that I do think if we just simply get a

564
00:32:18,640 --> 00:32:20,680
Speaker 1: pick up off the bottom, and I don't think we've

565
00:32:20,680 --> 00:32:23,040
Speaker 1: seen the worst yet for inflation this year. But if

566
00:32:23,080 --> 00:32:25,000
Speaker 1: we just see a pick up off the bottom is

567
00:32:25,040 --> 00:32:26,520
Speaker 1: we go in to that Simmer meeting. I think that

568
00:32:26,520 --> 00:32:28,160
Speaker 1: will be enough for them, but I think it's going

569
00:32:28,200 --> 00:32:32,720
Speaker 1: to become increasingly difficult for them to fight for additional

570
00:32:32,800 --> 00:32:35,760
Speaker 1: rate heights and less inflation really does cooperate next year,

571
00:32:36,480 --> 00:32:38,840
Speaker 1: and how different or how important it is going to

572
00:32:38,880 --> 00:32:43,120
Speaker 1: be that wage growth on Friday. So, uh, Friday's report,

573
00:32:43,200 --> 00:32:45,400
Speaker 1: we expect another tick up in wage growth to two

574
00:32:45,400 --> 00:32:49,160
Speaker 1: point six percent. It's been a pretty sluggish but slow

575
00:32:49,200 --> 00:32:53,520
Speaker 1: climb upward. Uh. You know, I think that I hate

576
00:32:53,520 --> 00:32:56,880
Speaker 1: to say it, but I think that Hurricane Harvey, because

577
00:32:57,400 --> 00:32:59,080
Speaker 1: we know it's not going to have a bearing on

578
00:32:59,120 --> 00:33:01,920
Speaker 1: this employment sport, but will start to have a bearing

579
00:33:01,960 --> 00:33:04,960
Speaker 1: on the data by the next employment report. I think

580
00:33:04,960 --> 00:33:08,680
Speaker 1: that that will turn eyes away from this employment report

581
00:33:08,760 --> 00:33:11,160
Speaker 1: because it's like, oh yeah, but that was before the disaster.

582
00:33:11,480 --> 00:33:13,920
Speaker 1: Ellen Sner, thank you for joining us on Bloomberg Surveillance

583
00:33:13,960 --> 00:33:17,480
Speaker 1: this morning. Zenter's with Morgan Stanley and they're out with

584
00:33:17,520 --> 00:33:21,480
Speaker 1: a more enthusiastic view here forward, and of course all

585
00:33:21,520 --> 00:33:32,560
Speaker 1: that tying into FED coverage. Thanks for listening to the

586
00:33:32,600 --> 00:33:39,440
Speaker 1: Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,

587
00:33:39,800 --> 00:33:43,640
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at

588
00:33:43,640 --> 00:33:48,360
Speaker 1: Tom Keene. David Gura is at David Gura. Before the podcast,

589
00:33:48,640 --> 00:34:00,280
Speaker 1: you can always catch us worldwide. I'm Bloomberg Radio Ey