Speaker 1: Ye. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene
Speaker 1: with David Gura. Daily we bring you insight from the
Speaker 1: best of economics, finance, investment, and international relations. Find Bloomberg
Speaker 1: Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course,
Speaker 1: on the Bloomberg Good Morning everyone, David Geran, Tom Keene,
Speaker 1: Bloomberg Surveillance, Our studios in New York, Mr gurl Off,
Speaker 1: Francie Aqua in our studios in London, Francine, Prime Minister May.
Speaker 1: Is she in Japan on her way? What's that? So?
Speaker 1: I think she just landed in Japan. We just spoke
Speaker 1: to Alex Moraless on TV. He's traveling with the Prime Minister. Tom.
Speaker 1: This is actually quite significant. She's gone to Japan in
Speaker 1: the hope of some kind of commitment for a free
Speaker 1: trade deal. Of course they can't actually sign anything, but
Speaker 1: if she comes back a failure, that's not gonna look
Speaker 1: very great. I mean, this is a massive Brexit theme.
Speaker 1: Am I going to suggest? Mr Johnson? Boris Johnson's theme
Speaker 1: that we are going to become a trading empire again?
Speaker 1: And I agree it starts with Japan, doesn't it. Yeah?
Speaker 1: I don't. I don't know about the trading empire. Certainly
Speaker 1: in his mind and maybe a couple of people that
Speaker 1: voted for breaks it, that's certainly what they aim for.
Speaker 1: But if you think about it, Look, it's going to
Speaker 1: be quite difficult to pull this thing off. I think
Speaker 1: negotiations with the EU lost it for almost a decade
Speaker 1: before they could actually, you know, be in these final
Speaker 1: stages of this free trade agreement. Okay, here's what we're
Speaker 1: gonna do. One question with YenS Nordvig on the business
Speaker 1: at hand, the dollar, and then we want to talk
Speaker 1: to him about global Wall Street dollar dynamics, the massive
Speaker 1: miscall of the summer strong dollar euro parity, all of
Speaker 1: it was reversed. Let's start with why why did everybody
Speaker 1: get the strong dollar call wrong? Well, I think that
Speaker 1: the hope about what the administration could do was just
Speaker 1: two elevations. It's linked to Trump the election. The just
Speaker 1: think there's a part of that, and I think there
Speaker 1: was there's too much concern about the European political risk, right,
Speaker 1: So it was something that focused everybody minds around the
Speaker 1: French election, and they were worried about the downside risk.
Speaker 1: But in fact, now we have upside rice in terms
Speaker 1: of politics and Europe. Maybe mccollan Mentel can actually get
Speaker 1: a deal together in coming months, so that would be
Speaker 1: a positive thing. Francine has led our coverage on mithid
Speaker 1: my fed How how do you pronounce the chase mythic method? Method?
Speaker 1: One another method you've lived in. You've gone from major
Speaker 1: firms Coleman, Saxon number to where you've got to shingle out.
Speaker 1: You're hugely successful talking to elites. There can only be
Speaker 1: so many Yen's nordvigs. What are the mere mortals of
Speaker 1: research in intellectual content? What are the mere mortals do
Speaker 1: in the city and in New York? Well, so I
Speaker 1: can talk a little bit about what what we are
Speaker 1: trying to do, right, because you're it that if it's
Speaker 1: based on a single individual, then you can't scale a
Speaker 1: business that's just going to stop there, right, So you
Speaker 1: need to have some kind of infrastructure that gives you
Speaker 1: an edge. Right. So what we're trying to do is
Speaker 1: we're trying to really build unique data. You need models
Speaker 1: that we can show to people and that gives them
Speaker 1: an edge. So that's what we're trying to scale the business.
Speaker 1: But I think you're right. If you are a pretty
Speaker 1: good analysis that sits in a bank or independent research
Speaker 1: into choosing pretty good is not going to cut it.
Speaker 1: You have to be among the very best to get
Speaker 1: paid specific before your research, and that's the competition that
Speaker 1: everybody is going to be in. Now. Yes, I can't
Speaker 1: really make sense of it. So I understand these are
Speaker 1: very important rules to make everything more transparent. But then
Speaker 1: we speak to Danskin Bank and they say they're trying
Speaker 1: to figure out whether research on this need to charge
Speaker 1: for routine phone calls. Why do we not know yet?
Speaker 1: We're what August or twenty nine? This you know goes
Speaker 1: in place January three. I think one major problem is
Speaker 1: that the banks setting prices now for their research, and
Speaker 1: you can see that they're coming down down, down, deut
Speaker 1: your bank without announcement the other day exactly, and they
Speaker 1: we don't know where the floor is. We don't know
Speaker 1: where regulators going to say, Okay, that price is just
Speaker 1: actually it doesn't match any any of the cost you having.
Speaker 1: It's just a fake price. So the regulators have to
Speaker 1: come out and give some guidance as to what pricing
Speaker 1: they would would accept, and we just don't have that yet. Okay,
Speaker 1: do we have any idea of where that accepted prices?
Speaker 1: Because if you if you low ball it, right, if
Speaker 1: you say, well, I'm hardly going to pay anything at all,
Speaker 1: not only the regulators saying that's not good enough, but
Speaker 1: they could also do an investigation on it. Yeah. No,
Speaker 1: So I think that's the core of a problem. That
Speaker 1: guidance has not been given and we're only a couple
Speaker 1: of months away from when they're supposed to come to
Speaker 1: into effect, and it's kind of paralyzing everybody because we
Speaker 1: just don't know how research is going to be a price.
Speaker 1: It's away from your world of foreign exchange. But in equities,
Speaker 1: Collins Rockwell Collins, the merger with ut X Collins, and
Speaker 1: the Bloomberg has an analysts following it. From where you sit,
Speaker 1: are those days over well, I think you can already
Speaker 1: see it in the equity space that there are more
Speaker 1: and more players withdrawing from like traditional equity research, and
Speaker 1: therefore we have less analysts covering certain stocks, and we
Speaker 1: have also less stocks overall being covered. So in a way, this,
Speaker 1: this is the regulation is going to mean that there's
Speaker 1: less information available to trade on. Okay, does that mean
Speaker 1: for example, that if you're a great you know, if
Speaker 1: you bring your research in house so you stop paying
Speaker 1: for it from others, that actually will give you the
Speaker 1: real advantage. How much is the financial landscape really going
Speaker 1: to change because you'll see the people that are really
Speaker 1: good out of their own research actually making the trades. Yeah,
Speaker 1: I think I think you're seeing that that there's more
Speaker 1: and more by side firms that says, Okay, it's going
Speaker 1: to be too expensive, we have to do it internally.
Speaker 1: So there's certainly players that are doing it that way.
Speaker 1: They're doing it very quickly. I know you've got to
Speaker 1: go to a client call right now, but yes, this
Speaker 1: is critical. Have you seen any evidence that anyone's going
Speaker 1: to quote unquote take foreign exchange coverage internally? So the
Speaker 1: foreign exchange market was special in that it's not about
Speaker 1: thousands of companies. Is like a couple of key crosses.
Speaker 1: So I think in general, the big currency traders in
Speaker 1: the world, they will have a mix of internal research
Speaker 1: and they also pay for the best they can get outside.
Speaker 1: They're still gonna send people to the New York Rangers,
Speaker 1: Montreal Canadians game all that rack. It's gonna still continue
Speaker 1: against nord Vig. Thank you so much with Elexante data
Speaker 1: here and I'm an important call for those of you
Speaker 1: interested in the energy assets of a Beliger Golf of Mexico.
Speaker 1: This is, without question the interview of the day. Jacques
Speaker 1: Roussou is with clear view energy partners, but barely describes
Speaker 1: decades of work on the pipelines the refineries of our
Speaker 1: American energy infrastructure. Jack an open question first, our our
Speaker 1: assets at risk? Do we thirty days from now, sixty
Speaker 1: days from now, ninety days from now, move on with
Speaker 1: Harvey as a memory. That's a difficult question to answer.
Speaker 1: I think one way to think about it is during Katrina,
Speaker 1: it took about three months for these refineries to get
Speaker 1: back up to a full production level. So that is
Speaker 1: one marker to think about. But you just never know.
Speaker 1: You mentioned uh earlier this morning when we spoke on
Speaker 1: television about the unique place of electricity to oil into
Speaker 1: gas in the region. Explain that. Give us a Lehigh
Speaker 1: University exclamation. Exclamation of explanation, I'll get it out, explanation
Speaker 1: of how electricity folds into hydrocarbons. Sure, I think what
Speaker 1: you want to think about is refineries, pumping stations, for pipelines,
Speaker 1: chemical plants. Uh, there's a lot of electricity that powers
Speaker 1: the plants, and if that has gotten flooded and knocked out,
Speaker 1: you know, there can be a lengthy recovery time to
Speaker 1: repair that. Alright, I'm looking at some of the refineries
Speaker 1: and there's a great function on the Bloomberg terminal for
Speaker 1: those that have one, Jack talk to me about what
Speaker 1: is more concerning. Is it refineries shutting or the pipeline
Speaker 1: being blocked off? Well, right now we're looking on the
Speaker 1: refinery side. If you think about the United States, about
Speaker 1: fifty percent of refining capacity is in the Gulf Coast,
Speaker 1: of that in Louisiana, of that in Texas. From what
Speaker 1: we've seen now, there's been reported eighteen percent or so
Speaker 1: of US refining capacity is either down or working at
Speaker 1: restricted rates. So that is kind of the key thing
Speaker 1: to focus on right now because if those refineries stay
Speaker 1: down for an extended period of time, that is what
Speaker 1: the market is thinking with gasoline going up. How much
Speaker 1: does a hurricane actually impact the demands, not the supply side,
Speaker 1: but the demand side of things. That's a great question,
Speaker 1: and I think you can see that in oil price
Speaker 1: because what we're seeing for w T I is that
Speaker 1: the United States is down roughly eight hundred thousand barrels
Speaker 1: per day of oil supply due to the hurricane. But
Speaker 1: oil demand to the hurricane is a bigger number because
Speaker 1: that's the refining side of the equation. Is that we're
Speaker 1: seeing over three million barrels per day of refining capacity
Speaker 1: down and so that's cutting um the gasoline, which is
Speaker 1: the way the government calculates it in terms of products supplied,
Speaker 1: is what they call demand. I mean, flooding is not
Speaker 1: the only Flooding seems to be a jack the primary
Speaker 1: problem for refineries, right, but it's not the only one, sure,
Speaker 1: I mean you have a lot of Do you have
Speaker 1: ability to get oil? Do you have ability to access pipelines?
Speaker 1: You know, there's there's definitely a lot of infrastructure issues
Speaker 1: that need to be worked out, and I think we
Speaker 1: will see this over the next few days. We will
Speaker 1: get reports from the different companies on the status um
Speaker 1: As I recall from the Trina days, you know, there
Speaker 1: was a lot of information flow once companies could actually
Speaker 1: get back into the assets. Brian Mound, Big Hill, West
Speaker 1: Heckberry and buy you Chuck Taw. That's where our strategic
Speaker 1: oil reserve. Is is our strategic oil reserve up to
Speaker 1: its eyeballs and water this morning? Uh, that's a hard
Speaker 1: one to say. I mean, I think what you want
Speaker 1: to think about is do we need that oil? And um,
Speaker 1: you know that's not what this This hurricane has caused
Speaker 1: a shortage of oil. So we're we're not in a
Speaker 1: situation where we need oil, but it may get to
Speaker 1: the point where companies need to borrow some oil. And
Speaker 1: during Katrina, companies actually borrowed ten million barrels of oil
Speaker 1: and then actually returned it in the subsequent months. Many
Speaker 1: more questions. Let's continue with a chuck or so were
Speaker 1: this with clear view energy partners, we are being smarter
Speaker 1: on hydrocarbons today, for instance the quart in London. I'm
Speaker 1: Tom keenan New York chacker. So with this with clear
Speaker 1: view energy partners, as we could continue to look at
Speaker 1: what has become a tropical storm. What is the the
Speaker 1: infrastructure need of our pipelines and refineries? Is it as
Speaker 1: ugly as our many bridges worn out across this nation? Oh,
Speaker 1: I wouldn't say that. You know, these assets are taken
Speaker 1: care of very well. Obviously if they weren't there would
Speaker 1: be a lot more significant problems to that. So, um,
Speaker 1: it's just a matter of dealing with, um the flooding
Speaker 1: and figuring out what actually happened. I mean, are the
Speaker 1: new facilities we think of all the stereotypes of refineries
Speaker 1: built after World War Two that are being pieced together
Speaker 1: with duct tape. Is that's not the case down there,
Speaker 1: is it? Well, there's not too many new refineries. Marathon
Speaker 1: Petroleum had built one near New Orleans a few years back,
Speaker 1: but most of them have been around for a while. Obviously,
Speaker 1: there's there's maintenance that occurs on routine bases. What is
Speaker 1: the things are that we understand or misunderstand about shale
Speaker 1: production from the U S. If you look at you know,
Speaker 1: the I guess the break even price, I'm hearing everything
Speaker 1: from thirty to sixty. Yeah. Obviously we've seen a big
Speaker 1: move up in shale production, UM with the move up
Speaker 1: an oil price since the OPEQ announcement to start cutting production,
Speaker 1: and that is becoming a marginal supply out there. I mean,
Speaker 1: I think what you need to look at going forward
Speaker 1: in the back half of the year is that the
Speaker 1: world uses a lot more oil in the second half
Speaker 1: of the year, just seasonally, and this is opex big
Speaker 1: chance to reduce inventories, supply and demands very close. So
Speaker 1: we have a lot of wild cards out there that
Speaker 1: could go either way, and we've got a new one
Speaker 1: with the hurricane because, as we're mentioning before, this is
Speaker 1: going to uh clip demand in the US some If
Speaker 1: you if you look at Libya's oil production right it's
Speaker 1: dropped I think by around three sixty one thousand barrels
Speaker 1: a day. That's thirty five percent of output lost month.
Speaker 1: How much does that help OPAQUE and it's struggled to
Speaker 1: reduce this global glut. That's a great question, and Libya
Speaker 1: is one of the wild cards. You've got Libya, You've
Speaker 1: got Nigeria, You've got Venezuela. Iraq has not come close
Speaker 1: to to meeting their production cuts. So this is what
Speaker 1: OPEC needs, is they need a few of these countries
Speaker 1: to for their oil to move down UM to offset
Speaker 1: any sort of demand loss that we might get because
Speaker 1: of the hurricane. Jacque. One final question, is America energy independent? Oh?
Speaker 1: On the way for sure, but there's still a significant
Speaker 1: amount of imported oil that we need every day to
Speaker 1: UM to keep the gasoline and keep our cars going.
Speaker 1: Very good, Jack on short nose, Thank you so much,
Speaker 1: jacqu Roussou with clear view energy partners, with great perspective,
Speaker 1: particularly of a troubled Gulf of Mexico coastline. And again
Speaker 1: all of our reports, folks, seriousness of the hurricane and
Speaker 1: no tropical Storm Harvey. The rescue efforts continue across much
Speaker 1: of Houston and to the eastern clients. For our global audience,
Speaker 1: this is Houston and the Gulf of Mexico over to
Speaker 1: the Louisiana border on the way to New Orleans. Not
Speaker 1: to get to New Orleans, that would be a misstatement.
Speaker 1: So here's the theme, folks, with all the news slow
Speaker 1: that's going on, you know, the hunch like two weeks ago,
Speaker 1: as you know, we're gonna reset September. It's supposed to
Speaker 1: be Labor Day, you know, five days after Labor Day. No,
Speaker 1: it's starting now with the amazing news flow that we've gotten,
Speaker 1: not only out of Washington and London, with the Prime
Speaker 1: Minister traveling to Japan, but now with Hurricane Harvey and
Speaker 1: all that, we need reset in one way to do
Speaker 1: that in a decade financial crisis is without exaggeration, I
Speaker 1: will say one of the five most important books of
Speaker 1: the last decade on what we do with surveillance, and
Speaker 1: that is the Age of Oversupply. There was at some
Speaker 1: point forty seven books on my desk, and the world
Speaker 1: changed when Martin Wolf of the Ft said, shut up
Speaker 1: and read Dan Albert's Age of Oversupply. Dan, you've retired
Speaker 1: off of the royalties of Age of Oversupply, right, I
Speaker 1: just wish. I don't think I've earned back the advantage.
Speaker 1: When's the movie out? This is the is the is
Speaker 1: a movie come out? Here? Like Memorial Day two thousand twenty?
Speaker 1: Kit Harrington? What is what? Where'd you get the title?
Speaker 1: What is the Age of Oversupply? Is very funny. The
Speaker 1: the original title was supposed to be managed Capitalism. It
Speaker 1: was basically looking back and saying, you know, we pursued
Speaker 1: free market strategies for thirty years and there needs to
Speaker 1: be a new look taken a capitalism. Everybody basically said
Speaker 1: to me, that's an really insidious title. Don't do that.
Speaker 1: The first chapter was called the Age of Oversupply, and
Speaker 1: the publisher came back to me and said, it's a
Speaker 1: great title for the book. That's what we did, right,
Speaker 1: so so what is it being oversupplied? Oh? Well, the
Speaker 1: whole concept is that that the emergence of the post
Speaker 1: socialist states after beginning nineteen and thereafter h really created
Speaker 1: this massive oversupply of labor relative to aggregate demand globally uh.
Speaker 1: And that in turn created a huge, huge oversupply production
Speaker 1: and therefore capital excess. Capital UH defined as I guess
Speaker 1: by Bernanke as the savings glatt. And then we came
Speaker 1: to understand it a little bit better, which you know,
Speaker 1: basically flowed back into markets seeking risk free returns in
Speaker 1: bonds and mortgage backed securities in such there any way,
Speaker 1: there's any number of ways to go with us. I'm
Speaker 1: going to go to the brain power of chapter eight,
Speaker 1: which is bad values. Why sticky wages and prices block
Speaker 1: a real recovery? Now, that can go either way, depression, advance, etcetera.
Speaker 1: But when you wrote the Age of Oversupply, did you
Speaker 1: predict or think about the lack of wage growth we
Speaker 1: see right now? Well, wage growth, you know, really this
Speaker 1: is the big debate because we've had such an enormous
Speaker 1: expansion and service jobs relative to goods producing jobs. If
Speaker 1: you actually net it out, going back to the previous
Speaker 1: height two thousand and seven, we've only added net net
Speaker 1: about a million something in UH in goods producing jobs
Speaker 1: or high wage high hours jobs, i should say. And
Speaker 1: the rest of it, for plus million has been low wage,
Speaker 1: low hour jobs, really crappy jobs. Um and and so
Speaker 1: all of that is a is a manifestation of the
Speaker 1: lack of demand for UH labor in all but the
Speaker 1: most high tech sectors of the economy. And and it's
Speaker 1: it's all of this is a global phenomenon. You have
Speaker 1: to go back to what what happened, you know, in
Speaker 1: the age of oversupply, which is just this enormous amount
Speaker 1: of productive labor that is willing to work relatively and expensively.
Speaker 1: And you know, people have for years said, oh, the
Speaker 1: Chinese thing is over. It's it's now, you know, they're
Speaker 1: going to have to find cheaper labor somewhere else. But
Speaker 1: China isn't over. Neither is India. And the reason for
Speaker 1: that is there urbanized population is still a fraction of
Speaker 1: its total population. China is still only about half urbanized,
Speaker 1: and now the rest of the people are not really
Speaker 1: part of the global economy UM and India is only
Speaker 1: about sixty urbanize I'm sorry urbanized. So you know, you
Speaker 1: have this mess of bench strength that can continue to
Speaker 1: add labor to the problem, which tamps down the value
Speaker 1: of labor in the developed world. But don how do
Speaker 1: you fix it? Do you bring jobs American jobs abroad
Speaker 1: or you do you bring foreigners to America. I'm looking
Speaker 1: at a group great Bloomberg chart, right, and it's what
Speaker 1: you were talking about. So the difference between unfilled job
Speaker 1: openings and workers highed. There were six point one million
Speaker 1: unfilled job openings on June. I think that's, you know,
Speaker 1: the most since data was compiled in two thousands, and
Speaker 1: it's a massive myth. The myth is that there are
Speaker 1: all these job openings, but their job openings at a wage.
Speaker 1: And that is the key to understand the old statistics. Uh,
Speaker 1: you don't have this massive unfilled inventory when you have
Speaker 1: a huge unemployed labor base that's going into jobs at
Speaker 1: low wages and low hours just to make ends meet. Um.
Speaker 1: These these jolt statistics are very grossly misleadings and unfortunately
Speaker 1: the federalize a lot on them. I will editorialize your
Speaker 1: fencing anecdotally. Mr Alpert is correct. It is absolutely unreal
Speaker 1: disinterest people have in those skilled jobs at the wage offered.
Speaker 1: You know, you see it anecdotally every single day, Frenzy. Yeah.
Speaker 1: But what I'm asking done is how do you fix this? Right?
Speaker 1: So you're you're saying this is not true, but again
Speaker 1: you still have the the unemployment or the labor forces conundrum,
Speaker 1: let's call it that. So this is the big issue
Speaker 1: going into the fall. Right, We're going to be talking
Speaker 1: about tax reform in the United States, the issue of
Speaker 1: whether or not the economic nationalist agenda is going to
Speaker 1: prevail or continue to prevail under I don't know if
Speaker 1: it ever prevailed, but I mean I'm going to prevail
Speaker 1: under under under the Trump administration. These big issues are
Speaker 1: all oriented at what he had promised in his campaign
Speaker 1: and what the American electorate apparently seems to to to want,
Speaker 1: or at least a good chunk of them, which is
Speaker 1: better jobs. And the notion that trickle down tax reform
Speaker 1: is going to help, I think is highly specious. Uh.
Speaker 1: And of course when it comes to tariffs and other
Speaker 1: protectionist measures, I favor some measures because we can't go
Speaker 1: on like this forever in the United States. Uh. And
Speaker 1: and there are some very good things that we could
Speaker 1: be doing. But at the end of the day, you
Speaker 1: have to ask yourself the quintessential question, which is can
Speaker 1: the private sector in the United States actually shift people
Speaker 1: back into more gainful, higher paying jobs when there is
Speaker 1: this massive exogenous labor force offshore um And at my conclusion,
Speaker 1: the conclusion that I reached in the book and my
Speaker 1: conclusion today, especially looking at the last ten years, is
Speaker 1: it's very difficult. You have terrific power points. I'll steal
Speaker 1: any number of these charts folks, in of course take
Speaker 1: credit for them myself. But it does go back then
Speaker 1: to what can government policymakers do. Now you mentioned the
Speaker 1: FED earlier, and they're struggling against Nordvig talking about one
Speaker 1: uh one uh uh FED increase out to the end
Speaker 1: of next year. What does Dan Elpert demand from the
Speaker 1: legislative branch or from the executive office? Now, I mean,
Speaker 1: is it just as simple as targeted investment tax credits? No,
Speaker 1: it's not. And and uh you know this, this gets
Speaker 1: down to the big debate. We have a huge number
Speaker 1: of people who found it politically expedient to use uh,
Speaker 1: the national debt as a whipping boy. We have and
Speaker 1: you look at the bond today. I don't I'm not
Speaker 1: looking at it on the screen in front of me.
Speaker 1: But my recollections the ten years back down to two, one,
Speaker 1: three or something two, and you can tell that the
Speaker 1: relentless UH, lack of inflationary pressures and the the enormous
Speaker 1: demand for for bonds makes the government extremely cheap to finance.
Speaker 1: And so the government really needs to step in and
Speaker 1: and actually go back rebuild our infrastructure, spend trillions of dollars,
Speaker 1: and put people back to work and gainful jobs. Here
Speaker 1: we go back to infrastructure and the mystery of why
Speaker 1: that can occur. Dan Olpert, is there a beach read
Speaker 1: on this book? Are you're doing, you know with a
Speaker 1: movie rights sold? Are you're doing an afterward where, you know,
Speaker 1: for the holiday purchase? One of the things is is
Speaker 1: I've done a lot of work recently with the Coalition
Speaker 1: for American Prosperity, which is UH trade group that that
Speaker 1: is very focused on this issue. I've determined that you know,
Speaker 1: given the fact that people communicate today, including the President
Speaker 1: United States, through tweet tweet storms UH, and people are
Speaker 1: far more graphically oriented that I that I really devoted
Speaker 1: myself to writing more decks than reports. Very good. Dan
Speaker 1: olport Uh with us the Age of Oversupply. It's not dated.
Speaker 1: I really it is a book where every chapter will
Speaker 1: force you to think differently. That is, I can't say
Speaker 1: enough about it. Daniel Alpert with us in the studios
Speaker 1: off the Age of Oversupply, and we will continue on
Speaker 1: where is the wage growth? Which in celebration of you know,
Speaker 1: you think about the five books of the crisis. The
Speaker 1: Age of Oversupply is clearly when Daniel output where this.
Speaker 1: Maybe there's like r Ryin Art and Rogue off and
Speaker 1: Uh Andrew Ross Sorkin is wonderful, too Big to Fail,
Speaker 1: and there's other books this, that and the other. But
Speaker 1: The Age of Oversupply really deserves a second read if
Speaker 1: you've read it before, and if you haven't read it,
Speaker 1: you're missing something on some of the great changes. Dan Alpert.
Speaker 1: The most frightening chart for me and Francine and mostly
Speaker 1: for our children, Francy, our grandchildren. I'm sorry, is your
Speaker 1: debt expansion? It's three lines. We know corporate debts up,
Speaker 1: blah blah blah, government debts up. But I think a
Speaker 1: lot of people don't realize where private debt is. It's
Speaker 1: becoming what Katlacoff of Boston Universe and he talks about,
Speaker 1: isn't it? Yeah? It is, I mean the the at
Speaker 1: this point we're back into a debt cycle. The real
Speaker 1: question is to what extent is debt being taken on
Speaker 1: because of optimism on the part of consumers? Uh? And
Speaker 1: to what extent is it just merely filling the gap
Speaker 1: between what they desire and what they earned? And uh.
Speaker 1: You know, one of the one of the histories of
Speaker 1: the crisis or the bubble that preceded it, is that
Speaker 1: so much of g d P was being supported by
Speaker 1: people pulling debt out of their homes for the most part,
Speaker 1: but credit cards also counted. Uh and uh. And this
Speaker 1: this vicious cycle of continuing to um uh, continuing to
Speaker 1: to borrow in order to consume. That is that is
Speaker 1: re emerging. And we look back for instine on you know,
Speaker 1: age of oversupply. A major shout out to the work
Speaker 1: of Jannatis who was younger then in his wonderful work
Speaker 1: on mortgage equity withdrawal at Goldben Sacks. That was path
Speaker 1: breaking well over ten years ago. Yes, and that that
Speaker 1: was amazing word done. Can you I don't know if
Speaker 1: how much you look at debt in the UK, but
Speaker 1: I imagine there's a trend in Western worlds that actually
Speaker 1: debt is becoming more and more sustainable. Unsustainable for the
Speaker 1: younger generation. How will it affect their consumer behavior? Well,
Speaker 1: you know, the it's very very clear that we brought
Speaker 1: forward demand for housing, and housing is certainly one of
Speaker 1: the largest consumables in in any developed country. So we
Speaker 1: brought brought forward enormous demand. And we have left um,
Speaker 1: the young people with with two things. One is, uh,
Speaker 1: less expectations of intergenerational wealth transfer because so much of
Speaker 1: wealth was eradicated during this crisis. Some has come back,
Speaker 1: but people, you know, the previous generation is going to
Speaker 1: live a long time, so they're not going to get
Speaker 1: the intergenerational wealth transfer except at the very very top
Speaker 1: of the pyramid. Um. You know that that I think
Speaker 1: people were counting on. There's been some really great work
Speaker 1: done on that over the last few years. Uh. And
Speaker 1: then secondly, of course, they are burdened by education expenses
Speaker 1: in the form of continued student loans. I mean, one
Speaker 1: of the great horrors of the post post crisis period
Speaker 1: was watching the amount of student debt in the United
Speaker 1: States go up from four or five billion to one
Speaker 1: point two trillion in almost the blink of an eye. Um,
Speaker 1: that does not affect the UK as much as it
Speaker 1: does in the US, but it is it is certainly
Speaker 1: a factor in the Western world. We we have effectively
Speaker 1: eradicated UH and and put and put very highly educated
Speaker 1: people into underproducing jobs as well. UH. You know, a
Speaker 1: huge amount of demand. We will there be less appetite
Speaker 1: to own homes and rent. Well. It's very interesting because
Speaker 1: we're seeing in the United States over the last six
Speaker 1: months sort of a peaking of the rental market, and
Speaker 1: a lot of that is due to overbuilding, and a
Speaker 1: lot of it is due to UH an enormous amount
Speaker 1: of or sale housing that has been built, specifically in
Speaker 1: the condominium sector. These deals are starting to crash. Rents
Speaker 1: of decline in the high end over the last in
Speaker 1: in cities like New York over the last several months,
Speaker 1: and look like they are accelerating in that respect. Workouts
Speaker 1: are beginning. There's a good piece in the Wall Street
Speaker 1: Journal today on on condominium workouts. Um, this is going
Speaker 1: to trickle you. So you saw what happened in London
Speaker 1: when when the London luxury market peaked um. These things
Speaker 1: are are effectively in disha of cheap money having flowed
Speaker 1: into enormous amounts of construction. Damn Francine commutes from Cornwall. Uh,
Speaker 1: the last chapter of your book in pursuit of pragmatism,
Speaker 1: where's the pragmatism forward? Well, to a certain extent, right,
Speaker 1: the Trump revolt was uh, sort of a proxy for
Speaker 1: you know, torches and in the street. Not to talk
Speaker 1: about what happened, but but you know people people really
Speaker 1: getting out there and and and getting angry. They expressed themselves,
Speaker 1: I think unwisely in the way they did in the
Speaker 1: ballot box. But at the end of the day, the
Speaker 1: the key, the key issue is to is to service
Speaker 1: the very disgruntled people. We wait for round two. Dan
Speaker 1: Elpert with one of the classics of the last ten years,
Speaker 1: the age of oversupplyed with Westwood Capital the the my
Speaker 1: message screen has been a fire with GDP analysis. We're
Speaker 1: honored to bring you in her working day, Allan Zentner
Speaker 1: of Morgan Stanley Ellen, you have been exceptionally prescient on
Speaker 1: a quieter economy. Is today a sea change or is
Speaker 1: it a nuance of upgrade of g d P? Ah,
Speaker 1: that's a good one, Tom. I don't get the sense
Speaker 1: that it's a sea change it. I think that it's
Speaker 1: been some time, uh that we haven't really been focused
Speaker 1: on just what's going on on the private investment side
Speaker 1: of the economy. UM. And so what we did with
Speaker 1: today's data was if you look under the hood at
Speaker 1: just you know the fact that that not onally was
Speaker 1: consumer spending and business investment, the two sources of upside
Speaker 1: revision and biggest contributors to GDP in this in this report, um,
Speaker 1: they have been the source of upside revision all year UM.
Speaker 1: And so if you look at just the private final
Speaker 1: domestic demand, right, think the economist fancy way of saying,
Speaker 1: let's take exports, let's take inventories out of it, and
Speaker 1: just look at what's going on domestically. It's been tracking
Speaker 1: on average over the past four quarters about two point nine.
Speaker 1: So you know, oftentimes that's that's what lost in the
Speaker 1: phrase that's pretty robust domestic economy. Eleanor Carl Ricka Donna
Speaker 1: mentions the end of the corporate profits recession. That's dear
Speaker 1: to the I is of Megden to say at the
Speaker 1: London School of Economics can you say the corporate profit
Speaker 1: recession is over, and does that fold into boosted productivity
Speaker 1: which makes Cherry Yellin's job easier. Yeah, and if only
Speaker 1: that were her job for the next four years, we
Speaker 1: should all be so lucky. Uh. You know, I would
Speaker 1: say that that that I would concur and and uh,
Speaker 1: Mike Wilson, our chiefdeose equity strategist, certainly sees that the
Speaker 1: profits recession uh is over. I mean, one thing that
Speaker 1: we've seen in the data is that labor costs, which
Speaker 1: is this typical later in the cycle, labor costs have
Speaker 1: risen to a point that you start to incentivize capex
Speaker 1: over labor and that's when corporates in the US turned
Speaker 1: back to investing growing their bottom line. And that's when
Speaker 1: you can get the product into increase in productivity. And
Speaker 1: some of that is just simply cyclical where we are
Speaker 1: in the cycle, and we do see that that's underway,
Speaker 1: and absolutely it would make uh the chair's job easier
Speaker 1: if they want to continue along with gradual rate hikes,
Speaker 1: because rising productivity also means you can get a lift
Speaker 1: in wage growth without pressuring margins and pressuring profits, but
Speaker 1: raising the standards of living of of people in your economy,
Speaker 1: and given what we've seen today, is it necessary Is
Speaker 1: it needed for the FED disse inflation moving higher to
Speaker 1: have the confidence that it will, you know, in the end,
Speaker 1: move higher or is this enough? Yeah? So that's um,
Speaker 1: that's the question of the day. Right Inflation is the
Speaker 1: only place where they are missing on their forecast. Growth
Speaker 1: is above potential and around their forecast. The unemployment rate
Speaker 1: is below where they think full employment is. Financial conditions
Speaker 1: are easy. All of that for monetary policy theory, All
Speaker 1: of that is a powerful stew that that would tell
Speaker 1: you surely inflationary pressures will build some time over the outlook.
Speaker 1: And so they remain confident just as they marked market,
Speaker 1: there are marked where their inflation forecast. Every single month
Speaker 1: and another week of print comes out, you'll see that
Speaker 1: in their forecast beyond this year, they don't budge. They
Speaker 1: just still have full faith and confidence that we get
Speaker 1: to that two percent inflation goal. So I think right
Speaker 1: now the bar is low enough for a December high
Speaker 1: that I do think if we just simply get a
Speaker 1: pick up off the bottom, and I don't think we've
Speaker 1: seen the worst yet for inflation this year. But if
Speaker 1: we just see a pick up off the bottom is
Speaker 1: we go in to that Simmer meeting. I think that
Speaker 1: will be enough for them, but I think it's going
Speaker 1: to become increasingly difficult for them to fight for additional
Speaker 1: rate heights and less inflation really does cooperate next year,
Speaker 1: and how different or how important it is going to
Speaker 1: be that wage growth on Friday. So, uh, Friday's report,
Speaker 1: we expect another tick up in wage growth to two
Speaker 1: point six percent. It's been a pretty sluggish but slow
Speaker 1: climb upward. Uh. You know, I think that I hate
Speaker 1: to say it, but I think that Hurricane Harvey, because
Speaker 1: we know it's not going to have a bearing on
Speaker 1: this employment sport, but will start to have a bearing
Speaker 1: on the data by the next employment report. I think
Speaker 1: that that will turn eyes away from this employment report
Speaker 1: because it's like, oh yeah, but that was before the disaster.
Speaker 1: Ellen Sner, thank you for joining us on Bloomberg Surveillance
Speaker 1: this morning. Zenter's with Morgan Stanley and they're out with
Speaker 1: a more enthusiastic view here forward, and of course all
Speaker 1: that tying into FED coverage. Thanks for listening to the
Speaker 1: Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at
Speaker 1: Tom Keene. David Gura is at David Gura. Before the podcast,
Speaker 1: you can always catch us worldwide. I'm Bloomberg Radio Ey