Speaker 1: Runch you by Bank of America Mary Lynch. With virtual reality,
Speaker 1: virtually everything will change. Discover opportunities in a transforming world.
Speaker 1: Be of a mL dot Com, slash VR, Mary Lynch,
Speaker 1: Pierced Fenner and Smith Incorporated. Ye, Welcome to the Bloomberg
Speaker 1: Surveillance Podcast. I'm Tom Keene with David Gura. Daily we
Speaker 1: bring you insight from the best of economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg The
Speaker 1: Morning on Monday, the thirty one of July. This is
Speaker 1: Bloomberg Surveillance on Bloomberg Radio. David Gura in New York
Speaker 1: with Franci Lakway in London. Today, Tom Keene is off
Speaker 1: the staff. You're instructed to alert me if they get
Speaker 1: any messages from Tom. In Manhattan, we were in Michael Cheryl.
Speaker 1: Now we're having a great conversation with him on Bloomberg
Speaker 1: Television just a few minutes ago. He's the chairman and
Speaker 1: CEO of market Field Asset Management. He joins me and
Speaker 1: our eleven three oh studios here in New York and Michael,
Speaker 1: let me just take a step back from from the
Speaker 1: news we were just reporting a moment, go, how does
Speaker 1: this say? How does this environment look for deals like
Speaker 1: the one we're seeing announced this morning. You know, it's
Speaker 1: pretty good. I know. I think people feel culportations, feel
Speaker 1: fairly good about the prospects and and willing to pay
Speaker 1: prices that sell us you know, find attractive. So I
Speaker 1: mean I think that you know, typically with the mature
Speaker 1: point of a bull market and the chure point of
Speaker 1: the economic cycle, you would expect to see m and
Speaker 1: a accelerator this at this point, and that's been happening
Speaker 1: this year. Michael, What have we learned from from earning
Speaker 1: season thus far? Here we are seeing a lot of
Speaker 1: companies report their second quarter earnings, and were financial companies
Speaker 1: last week, in the week beforehand, some tech companies last
Speaker 1: week as well. What are we learning about the state
Speaker 1: of the market from these companies we've reported thus far.
Speaker 1: I think it's been a pretty decent earning season. I
Speaker 1: think that that we needed one, given the the s
Speaker 1: P was up at an all time high, and you know,
Speaker 1: I think the fact that it's it's been a fairly
Speaker 1: quiet season in terms of the sponsored markets to it.
Speaker 1: I think that's I think that's fairly positive. You know,
Speaker 1: where there have been disappointments for markets taken action. But
Speaker 1: equally on on the other side, you had a you know,
Speaker 1: a company like Boeing completely blowing out and the market
Speaker 1: responding though positively to it. So as I as I
Speaker 1: said on on on TV earlier, I think this is
Speaker 1: very much for sweet spot of the economic cycle. It
Speaker 1: is the point at which you would expect earnings to
Speaker 1: meet and beat expectations, which you know, which they're able
Speaker 1: to do. And in most sectors we don't yet have
Speaker 1: the sign of of sort of chronic over supply. There's
Speaker 1: a couple of sectors that that we'd start to be
Speaker 1: worried about going forwards. But but you know, in most
Speaker 1: cases businesses are still undergoing sensible expansion plans. And you know,
Speaker 1: you may say they're paying company is paying too much
Speaker 1: for company B, but at least you can understand why
Speaker 1: they want about it in the first place. Michael, you
Speaker 1: say there are a couple of industries that you would
Speaker 1: worry about, what are they? Commercial will of state in
Speaker 1: the United States is the one that the the you know,
Speaker 1: really has our attention. Where where I think there are
Speaker 1: signs of chronic over supply. And you know, even the
Speaker 1: news this morning that that Ang Bang is possibly going
Speaker 1: to be forced to divest it's it's recent US investments,
Speaker 1: a lot of which in were in real estate. I
Speaker 1: think that that's a market where supply and demand maybe
Speaker 1: starting to to really be problematic. You have a lot
Speaker 1: of new supply hitting over the next twelve to eighteen months,
Speaker 1: and a lot of the demand has been none US
Speaker 1: demand for commercial real estate, and you know, partly because
Speaker 1: of a weaker US dollar and partly in China's case,
Speaker 1: because of different government policies towards investments of board. I
Speaker 1: think the demand side maybe weakening just at the point
Speaker 1: that supplies accelerating. So you know, if there was one
Speaker 1: part of the domestic US economy the fankly we would
Speaker 1: expect to deteriorate over the next twelve months, it would
Speaker 1: be commercial will estate. Michael, do you worry that as
Speaker 1: there's more of a shift towards passive investment, it means,
Speaker 1: you know, almost automatically, that hedge funds take a bigger role,
Speaker 1: which means that there are less players are the markets,
Speaker 1: which actually means that you could have not disruption, but
Speaker 1: that you could be miss pricing things. I think certainly
Speaker 1: passive investing towards the ends of ball markets involves chronic mispricing. Um,
Speaker 1: I think you know, we're we're heading towards that, you know.
Speaker 1: I think it's something that I think is going to
Speaker 1: define the next bear market, which is which is likely
Speaker 1: to be much worse than economic economic conditions. Actually actually
Speaker 1: wanan't but but look, I I mean, I think that
Speaker 1: every investment cycle is a product cycle. Um that product
Speaker 1: tends to demonate dominate towards the end of this cycle.
Speaker 1: But there's no point in in in fighting the fact
Speaker 1: that people want passive investments and they're going to work
Speaker 1: very well at the index level, you know, until this
Speaker 1: this cycle heads off, you know, heads off a cliff.
Speaker 1: But um, I think it's something that that you do
Speaker 1: need to be aware of it. I think that understanding
Speaker 1: what's in indexes at this point in time is is crucial.
Speaker 1: I'm always amazed at how little people who use indexes
Speaker 1: and E t F actually understand the way of h change,
Speaker 1: you know, across the course of the cycle. I think
Speaker 1: that's for the most useful thing you could do today
Speaker 1: is at least understand what's in the index that that
Speaker 1: that you're investing in, and I think in many cases
Speaker 1: you get quite a surprised Michael, let me ask you lastly.
Speaker 1: We'll come back here in just a moment, have a
Speaker 1: minute left, but let me ask you about emerging markets
Speaker 1: right now, what you're seeing there in dinto where you're
Speaker 1: particularly interested right now? When it comes to emerging markets,
Speaker 1: We're very positive on emerging markets. I think they have
Speaker 1: several forces going forward. And first of all, a generally
Speaker 1: better global economy I think, in particular, much better domestic
Speaker 1: Chinese economy, which has really started to have an impact
Speaker 1: on on on Asian markets. And then at the index level,
Speaker 1: this sneaky rewaiting towards technology. Either the MSCI Emerging Market
Speaker 1: Index is now more tech weighted than the SMP five
Speaker 1: hundred and and you know, it's really been technology returns
Speaker 1: which have been pushing emerging markets higher this time. You know,
Speaker 1: commodities haven't been very helpful to emerging markets. If that changes,
Speaker 1: that will be another know, another push in that direction.
Speaker 1: And the final pieces is a weaker US dollar involves
Speaker 1: stronger emerging market currencies. And you know, currency returns in
Speaker 1: many cases have been almost as high as domestic stock returns.
Speaker 1: So this is one of those years in which you
Speaker 1: really want to have a decent exposure to a m
Speaker 1: and I think that's going to continue to be true.
Speaker 1: We were having a nice chat with Michael Sholl of
Speaker 1: market Field Asset Management as he is CEO there on
Speaker 1: the markets, and Michael, you were pretty confident that actually
Speaker 1: what we've seen so far is a trend where indices
Speaker 1: go higher, keep on going higher. What could reverse that?
Speaker 1: I'm seeing the dollar gaining a touch, but actually, given
Speaker 1: all the geopolitics out there, can that reverse quite quickly? Um?
Speaker 1: You know, I mean with with markets, it's it's difficult
Speaker 1: to see an immediate catalyst which is going to make
Speaker 1: them go down. I mean, you could have, you know,
Speaker 1: a bigger version of what we saw on June ninth,
Speaker 1: when you know, the NASDAC for no apparent reason went down,
Speaker 1: and you know, I guess it could accelerate off that
Speaker 1: and you know, could have a five percent pullback before
Speaker 1: you know it in a couple of days. But you know,
Speaker 1: I think that would be noise in a in a
Speaker 1: in a fairly in a fairly calm environment, and and
Speaker 1: you know, I think if you're if you're waiting for
Speaker 1: something more spectacular to the downside, I think you're gonna
Speaker 1: have to be You're going to have to be patient,
Speaker 1: and you're going to have to wait for this cycle
Speaker 1: to deteriorate in some way or other. I mean, I
Speaker 1: think we, you know, right now, twenty seventeen looks like
Speaker 1: a good year. My guess, is going to go into
Speaker 1: the history books as a as a very good year,
Speaker 1: potentially the best year since two thousand and nine for
Speaker 1: most of the world and for the US potentially the
Speaker 1: best years you know since too, since two thousand and thirteen.
Speaker 1: And if that's going to change, then it's going to
Speaker 1: be because of new news. The news sitting in front
Speaker 1: of us today, the existing news. It doesn't look that
Speaker 1: damaging to anything, and it's easier to see markets go
Speaker 1: higher and go lower at this point. But you're not
Speaker 1: worried about some kind of big policy mistake. And I
Speaker 1: feel like I ask you every ten minutes, but you
Speaker 1: don't really know what the distortions are until you take
Speaker 1: away that safety blanket. I think there's no doubt that
Speaker 1: central banks will lose control of this cycle, but I
Speaker 1: I think they are either too tight too long or
Speaker 1: too loose too long, and it looks like the latter
Speaker 1: is going to be the case for cycle. So I
Speaker 1: I do think that by the end of this year,
Speaker 1: global inflation is going to be moving back to where
Speaker 1: central banks want it. And the wire for next year
Speaker 1: would be does it continue to move higher and does
Speaker 1: it undermine the ability of central banks to to keep
Speaker 1: in control of monetary policy, you know, in say twenty eighteen.
Speaker 1: But it's it's it's going to take time to get there.
Speaker 1: I'm not the sort of person that believes that central
Speaker 1: banks have sort of you know, become alchemists, have solved
Speaker 1: economic cycles. I think, I think this will end in
Speaker 1: in a in a period of chaos, But it takes
Speaker 1: time for chaos to emerge. You know, two thousand and
Speaker 1: eight didn't suddenly start on a on a sunny June
Speaker 1: morning when when the Bear Stearns funds blew up. It
Speaker 1: started eighteen months eighteen months before that. And the technology
Speaker 1: cycle ended in March two thousand, but it ended with
Speaker 1: a couple of quarters of massive inventory build ups in
Speaker 1: in in in in key areas of a of a
Speaker 1: technology sector. And right now it's difficult to see that
Speaker 1: process of excess getting to the point that you actually
Speaker 1: should be worried about it. You can understand that the
Speaker 1: markets aren't meant to levitate them the way that they
Speaker 1: have been doing. You know, I'm sympathetic to someone like
Speaker 1: Howard Marks who's trying to sound the medium term alarm.
Speaker 1: But if you're asking me, am I worried about where
Speaker 1: the market's going to be on August first, or September
Speaker 1: one or October first? You know, factly, I'm not like now,
Speaker 1: you know, it might change, but if it changes, it
Speaker 1: will be because something different happened. Michael, you mentioned that
Speaker 1: the prospects for k I see the inevitable prospect for KAS.
Speaker 1: What are you looking at for indicators of when that
Speaker 1: that comes? What? What? What are the data that you
Speaker 1: pay the closest attention to. You know, as I say,
Speaker 1: in key sectors, supply and demand numbers matter, Inventory matters.
Speaker 1: As boring as they are, you know, do do matter?
Speaker 1: I think that that you know, measuring market cap is
Speaker 1: starting to become important understanding how large markets are. I mean,
Speaker 1: you know the SMPS. You know how many trillions of
Speaker 1: dollars is that? What is a temper cent move in
Speaker 1: the SMP how does that? You know, actually, matt Against
Speaker 1: what what what central banks? You know what central banks
Speaker 1: are doing? So that's what that's what we you know,
Speaker 1: sort of really struggle with the data. Obviously, you look
Speaker 1: at it when it comes in. It hasn't generally been
Speaker 1: very surprising, and and you know, if it started to
Speaker 1: move in a in a new direction, then when you'd
Speaker 1: start paying more more attention to it. But I think
Speaker 1: the the question I have two questions in my mind.
Speaker 1: One is is what is what happened in commodities three
Speaker 1: years ago when supply and demand got badly out of
Speaker 1: balance and provoked a deep correction in that area? Could
Speaker 1: that happen in other sectors in the global economy? And
Speaker 1: and number two, at what point is the size of
Speaker 1: market cap of fixed income and equities itself problematic? At
Speaker 1: what point is our markets so large that the overwhelmed
Speaker 1: the generosity of central banks? And you know that's going
Speaker 1: to be a very difficult question to answer, but at
Speaker 1: some point it's going to matter. Michael, great to speak
Speaker 1: with you. Thank you very much for the time doing
Speaker 1: both the radio and television with this at this one.
Speaker 1: We really appreciate that Michael Shell, he is the chairman
Speaker 1: and CEO portfolio manager as well at market Field. I
Speaker 1: said management, I was writing through the president's schedule, just
Speaker 1: a moment to go busy day in Washington, as I said,
Speaker 1: here to help us understand what's going on today and
Speaker 1: here as we push ahead of the rest of the year,
Speaker 1: is Wendy Schieler. She's the chair of the political science
Speaker 1: department at Brown University. Joins us Professor Schiler. Great to
Speaker 1: speak with you once again that this is being herald
Speaker 1: is a new day, at least within the confines of
Speaker 1: the White House. John Kelly taking over for Ryan's previous
Speaker 1: who has been the chief of staff since the beginning
Speaker 1: of this administration. How radical a change does this promise
Speaker 1: to be? Do you think? Well, I mean, it could
Speaker 1: really be a very very strong decision by the President
Speaker 1: if he allows John Kelly to get the White House
Speaker 1: in order. Let's not forget you know, Dwight D. Eisenhower,
Speaker 1: who was a general, really created this position. Truman had
Speaker 1: a sort of pseudo chief of staff, but Eisenhower really thought,
Speaker 1: you need a chief of staff. Government's big, the White
Speaker 1: House is big, and it has to be a chain
Speaker 1: of command. And this is a military guy at General
Speaker 1: who's used to that kind of organization. Will Trump respect
Speaker 1: that kind of organizational skill. I don't know. I don't
Speaker 1: think we know. If he does, I think things get
Speaker 1: much better for him in the White House. If he doesn't,
Speaker 1: I think things remain really chaotic. Question about history here,
Speaker 1: Professor Schiller. Have we had an administration like this before
Speaker 1: where there spent so many factions within the White House itself?
Speaker 1: A lot being made this morning of the fact that uh,
Speaker 1: Jared Kushner and Ivanka Trump, the President's son in law
Speaker 1: and daughter, respectively, senior advisories, both like John Kelly, think
Speaker 1: he's a good choice for this job. Have we seen
Speaker 1: a as fractious an administration as this one? I think
Speaker 1: I think you have, particularly in the first year. I
Speaker 1: think you've seen pretty chaotic administrations. And let's not forget
Speaker 1: Bill Clinton's administration. The first nine months of that, I mean,
Speaker 1: I would argue, even until you get to NAFTA in
Speaker 1: December of nineties three was a disaster. I mean, it
Speaker 1: was couttern appointments flying left and right, not making it through,
Speaker 1: and and the House was mad at dam and then
Speaker 1: the Senate was mad adam. He lost on stimulus. I mean,
Speaker 1: there was a disaster that first year, and I think
Speaker 1: that was because he had voices, lots of voices surrounding
Speaker 1: him and hadn't settled on a couple of people he trusted.
Speaker 1: You need an agenda as a president, though, to want
Speaker 1: to listen to people to tell you how to accomplish it.
Speaker 1: We just don't know if Trump actually has an agenda,
Speaker 1: and that makes it hard for everybody who works form
Speaker 1: in the White House, whether they're fassionately fighting or not,
Speaker 1: what do you want to try to get done? And
Speaker 1: if you're not on the same team on that score,
Speaker 1: I just don't know how everything else doesn't fall apart.
Speaker 1: Professor Schiller, what exactly does it chief of Stuff do?
Speaker 1: So you either take, you know, a bet that this
Speaker 1: is a command and control managerial task, which means that
Speaker 1: John Kelly, he's a retired general, would do quite well.
Speaker 1: But if it's a very political job, does he really
Speaker 1: have any experience in these kind of things? Well, I
Speaker 1: think you're pointing out just a really important facet of
Speaker 1: the way that each individual president chooses to sort of
Speaker 1: decide what people who work form will do. Right, So,
Speaker 1: sometimes the domestic counsel or the advisor to the president
Speaker 1: is the political person, and the chief of staff is
Speaker 1: literally the organizational gatekeeper, and that manages the president's time,
Speaker 1: the flow of information to the president, and the president's agenda.
Speaker 1: But if you're somebody who doesn't have anybody else doing
Speaker 1: the politics, then the chief of staff takes on that
Speaker 1: additional role. So I think it depends on what the
Speaker 1: president is good at and not good at, and how
Speaker 1: much that president can see that the chief of staff
Speaker 1: can balance out his weaknesses and strengths. I don't think
Speaker 1: President Trump, at least at the moment, has actually self
Speaker 1: reflected on that yet. So right now it looks like
Speaker 1: just to get the White House in order, staff up completely.
Speaker 1: You know, the White House, even the President's staff is
Speaker 1: sort of half full right now. You've got tons of
Speaker 1: positions throughout the administration in cabinet departments that are going empty,
Speaker 1: and you know, there's one way to slow the federal
Speaker 1: government down, but some jobs have to be filled. So
Speaker 1: I would think that would be first on the agenda
Speaker 1: for the chief of Staff very quickly. Does John Kelly
Speaker 1: have the support of Congress and does he need it?
Speaker 1: I don't think he. I don't think they know, yeah,
Speaker 1: I think Congress always respects people who have a long,
Speaker 1: uh successful military career, But I don't think he needs
Speaker 1: that quite yet. I mean, remember were serious is best
Speaker 1: friends of Paul Ryan, and he doesn't have a job anymore.
Speaker 1: So I'm just not sure how much that will matter
Speaker 1: to the Trump administration. But you do want to have
Speaker 1: open lines of communication. So he does want to be
Speaker 1: available to Congressional leaders when they want to talk to him,
Speaker 1: and he wants to be open in hearing them. And
Speaker 1: I think if he does that, he'll cultivate a good
Speaker 1: relationship with the leadership. Professor Schiller, let me ask you
Speaker 1: about something you mentioned a few moments ago. You're talking
Speaker 1: about a lot of the positions that have still gone
Speaker 1: unfilled in this administration. Uh. We heard from Anthony Scara,
Speaker 1: much of the new communications director, that his means of
Speaker 1: combating leaks would be to fire everybody. What does the
Speaker 1: pool look like a perspective members of this administration? How
Speaker 1: how how much of a deficit are they operating with
Speaker 1: at this point? And how much do you think that
Speaker 1: John Kelly could write that well? I mean, David, you're
Speaker 1: pointing out something that's so important to a functioning White House.
Speaker 1: You know, the government, centeral government is very big. If
Speaker 1: cabint departments you have, you have tremendous amount of oversight
Speaker 1: of how policy being implemented. And if you want to
Speaker 1: change that policy, you have two people in the chairs
Speaker 1: at the desk doing their job and they don't have
Speaker 1: that yet. So if you have more people who lose
Speaker 1: their jobs in the White House, then you've got to
Speaker 1: replace them, and you've got to go to security clearances
Speaker 1: and a lot of questions are asked. So you've got
Speaker 1: to replace them with more establishment people who maybe have
Speaker 1: served in white Houses prior to the Trump administration. And
Speaker 1: that's something Trump doesn't have any knowledge about in terms
Speaker 1: of connections. You know, establishment Republicans are not going to
Speaker 1: work for Donald Trump, at least not at the moment.
Speaker 1: They haven't been offering themselves. They're turning things down. People
Speaker 1: don't really want to go there. And John Kelly's job
Speaker 1: is to make it a more attractive proposition to bring
Speaker 1: in people with some prior government experience, particularly places like
Speaker 1: the State Department where you need diplomacy. You need this
Speaker 1: to be functioning, and that's I think the big problem.
Speaker 1: I think nobody wants to touch that job or any
Speaker 1: job right now who's in the Republican Party. They're just
Speaker 1: thinking ahead. The geographic gulf between the White House and
Speaker 1: the Capital, I would guess is about a mile and
Speaker 1: a half wide. When it comes to how each of
Speaker 1: those places understands one another, where are we How much
Speaker 1: of an understanding of the way Congress works does this
Speaker 1: administration have? Uh? And is the Congress getting better and
Speaker 1: understanding the motivations of the White House? Well? I think
Speaker 1: that Donald Trump understandably expected that the Republican Party, even
Speaker 1: though they had been factionalized and fought his nomination really
Speaker 1: almost to the end, would embrace him, would accept him
Speaker 1: and embrace him, and that he would have a lot
Speaker 1: of mojo among the base to push them in terms
Speaker 1: of grassroots movement. If they didn't do what he wanted,
Speaker 1: he'd go out he rallies. And then is the people
Speaker 1: who like Trump would pressure the Congress to do what
Speaker 1: Trump wanted him to do. It has not turned out
Speaker 1: to be that way. The Republican Party has not really
Speaker 1: turned a corner to embrace him. And because Trump's approval
Speaker 1: ratings are so low, he just doesn't have enough juice
Speaker 1: politically among the base in enough areas around the country
Speaker 1: to pressure enough Republicans a couple of them here and there,
Speaker 1: But he doesn't have that wide swath of you know,
Speaker 1: bully pulplic popularity. And that's something that's traditionally been a
Speaker 1: very important and strong weapon for the president, particularly early
Speaker 1: in his term with his own party, and Trump seems
Speaker 1: to be completely missing that. And the longer it goes
Speaker 1: that he has a bad approval reading and he doesn't
Speaker 1: seem to be generating any support, the more Republicans are
Speaker 1: upper re election in November eighteen, will say we don't
Speaker 1: trust him, we want to distance ourselves. We've got to
Speaker 1: go our own way, because he could a throw us
Speaker 1: under the bus at any time, and be he becomes
Speaker 1: so unstable that he becomes a real liability. Would the
Speaker 1: President be able to push through a tax overhaul this
Speaker 1: year if he were to focus on that. I don't
Speaker 1: think he. I don't think we need the president to
Speaker 1: push the tax bill. I think the Republican leadership is
Speaker 1: desperately wants to do a tax reform bill. Uh. They
Speaker 1: want to cut corporate taxes, they want to cut you know,
Speaker 1: income taxes, you know there's two things going on here.
Speaker 1: They think there's obviously too much taxation, that's the Republican
Speaker 1: Party platform. But to just as Ronald Reagan did, they
Speaker 1: want to squeeze the revenue stream. Because if you squeeze
Speaker 1: the revenue stream, and you cut the revenue stream, you
Speaker 1: can cut spending, particularly entitlements. You know, Paul Lyon has
Speaker 1: not forgotten about his desire to cut Medicaid and cut
Speaker 1: Medicare and really transform the entitlement state UH into something
Speaker 1: very different and much smaller. And you know, the first
Speaker 1: place you started to squeeze the revenue line. So I
Speaker 1: think that's the big part about tax cuts that's really
Speaker 1: ideologically important to the leadership in the House and Senate.
Speaker 1: So they're going to write a bill that they want
Speaker 1: and they're gonna hope that he signs it, and I
Speaker 1: wouldn't have any expectation that he wouldn't. Great, But I
Speaker 1: don't understand why the president doesn't focus on that. If
Speaker 1: you want to win it's smaller big, he can focus
Speaker 1: on tax and get it through because he seems to
Speaker 1: be just just a speculation, you know, obsessed with anything
Speaker 1: that has Obama's name on it. He just seems to
Speaker 1: want to prove that he can erase Obama's legacy altogether,
Speaker 1: and that means erasing something called Obamacare and replacing it
Speaker 1: was something called trump Care. It seems to be a
Speaker 1: personal obsession of his and the only people can talk
Speaker 1: about of that. I think the people are the people
Speaker 1: who are closest to him, who can say, listen, you've
Speaker 1: got a long time line here, let's just move on
Speaker 1: and get a success and then come back to Obamacare
Speaker 1: when you have more political juice. You know, you keep
Speaker 1: going at this thirty approval rating and you don't get
Speaker 1: yourself out of that. Eventually voters just decide, we're just
Speaker 1: missing you. We're not going to be able to restore
Speaker 1: our confidence in you. And that's where the president is.
Speaker 1: If we're talking about this in December, in January and
Speaker 1: he's still at he may get reelected, it's possible, but
Speaker 1: he will have no juice or cloud with the Congress
Speaker 1: going into next year, and so that means obsessing on
Speaker 1: things that they've moved on from. It's just going to
Speaker 1: be spending his wheels. On Friday, I had a conversation
Speaker 1: with Tim Phillips, who's the President of Americans for prosperity
Speaker 1: of conservative group that's backed by the Koch brothers, and
Speaker 1: they're going to be investing a lot of money and
Speaker 1: resources in tax reform. And I asked him how he
Speaker 1: reacted to the joint statement we got from Republican leadership
Speaker 1: in Congress and the White House untaxed. For my sense
Speaker 1: of it was, Uh, it was still pretty thin if
Speaker 1: you compare to what we got from the White House
Speaker 1: a few months back that was a page long. This
Speaker 1: was maybe a little more than a page. Of course,
Speaker 1: there was a definitive news that the border adjustment tax
Speaker 1: has been dropped. And I asked him if that was
Speaker 1: a good thing, that that you don't have a whole
Speaker 1: lot of details, if that makes negotiation easier, and he
Speaker 1: sort of indicated that it was. Are you surprised by
Speaker 1: how little policy detail we have at this point and
Speaker 1: do you think that's necessarily a good thing or a
Speaker 1: bad thing. Well, I think you have to have people
Speaker 1: who really understand the tax code to have a very
Speaker 1: complex conversation, and I don't think Trump is staffed up
Speaker 1: enough either at Treasury or even in the White House
Speaker 1: to have that kind of conversation. And I'm not sure
Speaker 1: the president really understands all the round vacations of all
Speaker 1: the changes that he may or may not support in
Speaker 1: the tax code. And the other thing is it's still
Speaker 1: a tough political issue for the president because he never
Speaker 1: released his tax returns, So it just will dog him,
Speaker 1: dog him everywhere he goes. You know, there'll be a question, Oh,
Speaker 1: you want tax reform, you want to change the tax code. Hey,
Speaker 1: how about we see your tax returns. So I think
Speaker 1: that's the problem with the president. If he could just
Speaker 1: release them and get that out of the way, I
Speaker 1: think you have a clean slate on taxes and publicly
Speaker 1: could promote or object to things that Congress wants to do.
Speaker 1: But I think that's the other problem with the Republican Congress.
Speaker 1: They don't want to get their message clouded by constant
Speaker 1: calls for asking the president to release his tax returns,
Speaker 1: which will inevitably happen when you're talking about tax reform,
Speaker 1: pressor Shela, let me ask you about the debt limit.
Speaker 1: This comes around time and time again. I think for
Speaker 1: people who are listening, who are investors, economists involved in
Speaker 1: the market, this is hugely important, and I wonder who
Speaker 1: you're going to be listening to for guidance on how
Speaker 1: this administration, how this Congress is going to deal with
Speaker 1: it this time around. There's talk again of having a
Speaker 1: clean debt ceiling increase, there's talk of tethering it to
Speaker 1: spending cuts. Who's going to be taking the leadership role?
Speaker 1: And who are you listening to? Well, I pay attention
Speaker 1: to Mark Meadows, who's a congress for pub converressman from
Speaker 1: North Carolina, who's the head of the Freedom Caucus. You know,
Speaker 1: they're about thirty six official members. Give her take. Uh,
Speaker 1: They've got some really interesting party discipline subparties has been
Speaker 1: going on in the Freedom Caucus. And I'm listening to him,
Speaker 1: I'm watching him. I'm thinking about what is he's saying
Speaker 1: about the debt limit? Does he want it clean? Are
Speaker 1: they going to support it? He's already indicated he doesn't
Speaker 1: want to see a government shutdown over it. But these
Speaker 1: are the most fiscal hawk ish members of the Republican Party,
Speaker 1: and I'm looking to see what they want to see happen,
Speaker 1: because Paul Ryan can't get it through without them. So
Speaker 1: that's who I'm watching to figure out what's going to
Speaker 1: come out of the House. And I think right now.
Speaker 1: McConnell's trying to regroup in the Republican Party in the
Speaker 1: Senate and try to find a way to move forward
Speaker 1: and be solid. You know, you just can't bring another
Speaker 1: proposition to the Senate floor for the majority party and
Speaker 1: lose again. You know, that's what started to happen to Bayner,
Speaker 1: and he needed the Democrats to get things done like
Speaker 1: the debt ceiling and opening up the government again. And
Speaker 1: McConnell just can't afford to do that this early in
Speaker 1: this unified party government, particularly going into next year. Push
Speaker 1: again here to that October first at Denverine will continue
Speaker 1: to watch what we hear from the Treasury Department and
Speaker 1: the Congress, from Mr Meadows and others. Wendy Schiller, thank
Speaker 1: you very much for your time this morning both on
Speaker 1: Bloomberg Radio and Bloomberg Television as well. That's Wendy Schilder
Speaker 1: of Brown University and Providence, Rhode Island. She's a share
Speaker 1: of the Political Science department at Brown University. Brunch you
Speaker 1: by Bank of America Merrill Lynch. With virtual reality, virtually
Speaker 1: everything will change. Discover opportunities in a transforming world. VI
Speaker 1: of a mL dot Com slash VR Meryll Lynch, Pierced
Speaker 1: Fenner and Smith Incorporated roscasters joints here. As I mentioned
Speaker 1: our Bloomberg eleven three studios, he's ahead of the globalcation
Speaker 1: portfolio at black Rock. Great to have you with us here.
Speaker 1: Thanks for taking the time to come in. Oh Dave,
Speaker 1: thanks for having me. Let me start by asking about volatility.
Speaker 1: We haven't talked about it that much this morning, and
Speaker 1: you look at volatility still hovering around U these loads.
Speaker 1: Talk about the particular challenges you face navigating this low
Speaker 1: vall world. Well, I think the biggest challenges everyone's waiting
Speaker 1: for it to end. Uh. We've seen the VIX go
Speaker 1: from load to load to low. It's not just in
Speaker 1: the equity markets. We see the same pattern in bond
Speaker 1: markets as well, and this left everybody justifiably nervous about
Speaker 1: how much longer can go on, which has meant there's
Speaker 1: been a lot of focus on hedging. There's been a
Speaker 1: lot of focus on downside. But in an environment which
Speaker 1: economic volatility is low and monetary accommodation is still very
Speaker 1: much present, not just in the US but also throughout
Speaker 1: the world, markets are just marching quietly on. What are
Speaker 1: you most worried about Russ. I would say, there are
Speaker 1: a couple of things. You know. One thing that does
Speaker 1: have me a bit nervous. One of the side effects
Speaker 1: of low volatility is you see a lot of investors
Speaker 1: really having to lever up, getting crowded trades to kind
Speaker 1: of produce returns. And we hear about some of the
Speaker 1: leverage in the hedge funds space, particularly in market neutral
Speaker 1: equity long short it reminds me a little bit of
Speaker 1: what the world like ten years ago. We also at
Speaker 1: the low volatility environment and a lot of hedge funds
Speaker 1: we're levering up in ways that produced a very fragile market.
Speaker 1: And again, in that type of environment, it doesn't take
Speaker 1: a big shock to produce some very bad results, at
Speaker 1: least for a short period of time. So as are
Speaker 1: you saying that hedge funds have too much space in
Speaker 1: these financial markets? And does that really lead to distortions? Now,
Speaker 1: it's not that hedge funds have too much space, it's
Speaker 1: that are particular types of hedge funds that in a
Speaker 1: low volatility environment or doing what what they need to do,
Speaker 1: which is to level up to try to generate a
Speaker 1: target return, and that creates a risk. It creates an
Speaker 1: additional risk, Uh, if many of those players are focused
Speaker 1: on particularly crowded parts of the market. And again we've seen,
Speaker 1: for example in US equities, is that leadership has been
Speaker 1: somewhat narrow. It's been very much a market dominated by
Speaker 1: some large cap tech names. Uh. And that's the type
Speaker 1: of thing you always want to take account of. Ask
Speaker 1: a couple of questions about about currency. Here is a
Speaker 1: proxy for political risk. You look at the week dollar,
Speaker 1: you look at all of the political dulations coming out
Speaker 1: of Washington, d C. How different is this environment that
Speaker 1: the currency market right now, given what we've seen in
Speaker 1: terms of political risk here in the US and in
Speaker 1: Europe as well, well, I think the currency market is
Speaker 1: is discounting a couple of things. I mean, certainly politics
Speaker 1: is have an impact, although I think it's less about
Speaker 1: political risk and more about a reversal of the Trump
Speaker 1: trade which dominated in the back half of sixteen. And
Speaker 1: as we remember, you know, at that time, there was optimism,
Speaker 1: their expectations for significant fiscal stimulus for infrastructure, for tax cuts,
Speaker 1: and clearly, as of now, none of that has actually occurred.
Speaker 1: So what you've seen is that many of those trades
Speaker 1: the run up in in value, the run up in financials, uh,
Speaker 1: the run up in interest rates, and of course the
Speaker 1: dollar have all reversed. Now the dollar has been the
Speaker 1: most violent reversal, and I think in some ways that
Speaker 1: reflects the fact that not only have we seen some disappointment,
Speaker 1: uh from the administration, we've also seen a moderation of
Speaker 1: the U s economy and surprisingly a particularly strong economy
Speaker 1: in Europe, which means that rate differential, the fact that
Speaker 1: the FED was going to lead other central banks, that's
Speaker 1: not quite as strong of a narrative as it was,
Speaker 1: which is why the dollars pulled back so dramatically, particularly
Speaker 1: against the euro rus. Do you have a sense from
Speaker 1: this administration of what its dollar policy is? We had,
Speaker 1: of course, the the Reuben strong dollar policy for so long.
Speaker 1: There was a lot of talk about to where this
Speaker 1: administration wanted the dollar to be from many officials within
Speaker 1: the administration, including the President himself. What's your sense of
Speaker 1: what this administration wants when it comes to dollar strength? Well,
Speaker 1: I think, like everybody else, uh, you know, I we
Speaker 1: don't have any strong insight into the administration's policy on this,
Speaker 1: but I think what you can derive both from comments
Speaker 1: from the President himself up also from discussion about potential
Speaker 1: successors to Janet Yellen or even reappointing UH miss Yelling
Speaker 1: to to the role of chair, is that the administration
Speaker 1: is somewhat comfortable up with a dollar that's either a
Speaker 1: bit softer in the trading range. And that's one of
Speaker 1: the reasons I think the dollar has pulled back that
Speaker 1: this is not an administration at least so far, has
Speaker 1: signaled they're looking for a strong dollar policy. Does a
Speaker 1: soft dollar mean a soft economy? Actually it doesn't. Up
Speaker 1: in some ways, it it actually means the opposite. So
Speaker 1: if you take a look at US corporate earnings in
Speaker 1: the second quarter, they're actually quite strong. We're seeing earnings
Speaker 1: growth of nine or ten percent, We're seeing revenue growth
Speaker 1: around five percent. UH. This is much better than expected,
Speaker 1: and I think a lot of that can be attributed
Speaker 1: to the fact that the softer dollar has provided a
Speaker 1: tailwind for many US multinationals. In addition, if you think globally, UH,
Speaker 1: a stronger dollar is a de facto monetary tightening. UH
Speaker 1: not just in the US, but globally, is particularly hard
Speaker 1: on emerging markets. I think one of the reasons global
Speaker 1: markets have done as well as they have here to date.
Speaker 1: Is that while the Fed has nudged up interest rates, uh,
Speaker 1: the weaker dollars actually kept monetary conditions more accommodated. But
Speaker 1: for us very quickly, if you have a weaker dollar,
Speaker 1: it means that the FED doesn't see an economy strong
Speaker 1: enough to withhold normalization. That's not good thing. Well, the
Speaker 1: FED certainly is being cautious about normalization. And I wouldn't
Speaker 1: argue with the fact this is not an economy running away,
Speaker 1: but it's an economy, for better or worse, where it's
Speaker 1: been for the last seven or eight years, which is
Speaker 1: generating very low inflation and steady but uninspiring two percent growth.
Speaker 1: So I'd say it's it's no better or worse than
Speaker 1: what we've had for most of the last five years.
Speaker 1: Rust Cast, which is with us here in our Bloomberg
Speaker 1: eleven three oh studios in New York. He's the manager
Speaker 1: of the Global Allocation Fund at black Rock. Here with
Speaker 1: me in Francine Lackwell, who is in Free tom to
Speaker 1: day and Russ I wanted to ask you about energy.
Speaker 1: We're gonna have a conversation in a few minutes about
Speaker 1: the oil market in particular. But when you look at
Speaker 1: when you look at equities, when you look at other
Speaker 1: other assets at this point, how much is energy driving
Speaker 1: markets at this point? Not as much as it used
Speaker 1: to Obviously energies driving energy stocks. But if we think
Speaker 1: about the impact of oil prices relative to where they
Speaker 1: were eighteen months ago in early sixteen, uh. If you
Speaker 1: remember back, that was a time when lower oil was
Speaker 1: really scaring the entire market, particularly the US high yield market.
Speaker 1: And today we see resiliency relative to the price of oil. Now,
Speaker 1: I think there's a limit to that. If we were
Speaker 1: to see oil slip well below forty into the mid thirties,
Speaker 1: I do think you'd see some stress both in bond
Speaker 1: markets and equity markets. But in the mid forties we've
Speaker 1: seen is that many energy producers in the US can
Speaker 1: be profitable and close to those levels. Rus do you
Speaker 1: believe OPEC are still in control of the price of oil? Well, fenceeing.
Speaker 1: Clearly OPEC is not in control the way they were
Speaker 1: let's say thirty years ago. We've got a major player
Speaker 1: in US shale producers. The US is now producing over
Speaker 1: nine million barrels of oil per day, and the key
Speaker 1: thing is that for many of these producers to break even,
Speaker 1: as I mentioned, a moment ago is lower and they're
Speaker 1: very nimble. They can bring production on and off again
Speaker 1: much quicker than was the case two decades ago. And
Speaker 1: this means that it has resulted in some loss of control,
Speaker 1: some loss of pricing control for the OPEC cartel, right,
Speaker 1: what can they actually do to keep the price under control?
Speaker 1: As you say, there's so much competition from us. Shall
Speaker 1: their meeting I think in Abudabi next week on the seventh,
Speaker 1: to try and make sure that there's compliance that will
Speaker 1: do almost nothing, will it? I think OPEC would have
Speaker 1: to pull back on production much more than they've been
Speaker 1: able to so far. And again the last agreement, UH
Speaker 1: their exceptions for Libya, for Nigeria, this is where a
Speaker 1: lot of the marginal productions occurred over the last six
Speaker 1: to nine months. So whether or not OPEC is going
Speaker 1: to be able to have a draconian enough cut, I think,
Speaker 1: as you suggest, that's just not clear. Let me ask
Speaker 1: you have China a little bit here, can put it
Speaker 1: towards Asia for for the last few minutes that that
Speaker 1: we have with you, uh, we we watched as the
Speaker 1: Chinese government convene this one belt, one road for him,
Speaker 1: I talked about the prospects for a lot more investment,
Speaker 1: not just in China, but in the region as a whole.
Speaker 1: How does that stand to change the region? I think
Speaker 1: there are a couple of things. One, obviously, we are
Speaker 1: seeing a multipolar world, which which is the you know,
Speaker 1: the the obvious observation, uh in how that's going to
Speaker 1: play it? I don't think anyone knows. The other, of course,
Speaker 1: is the significance of Chinese growth, something we're all focusing
Speaker 1: on much more than was the case ten years ago.
Speaker 1: And I think that's one reason the global economies in
Speaker 1: decent shape right now. China has been able to avoid,
Speaker 1: at least thus far, the hard landing that people were
Speaker 1: very concerned about in early sixteen. Growth is stable. We
Speaker 1: think it is likely to slow, but slow at and
Speaker 1: measured pace, and that means that China continues, at least
Speaker 1: for now, to be a source of stability for the
Speaker 1: global economy. Friend, and I had the pleasure of talking
Speaker 1: with your colleague Isabel Mateosi Lago a few a few
Speaker 1: moments ago on Bloomberg Television. We talked a little bit
Speaker 1: about industrial overcapacity in China. Recall going with the US
Speaker 1: Treasury Secretary now former US Treasury Secretary to Beijing, and
Speaker 1: this was something that he was hammering on a lot.
Speaker 1: China's need to reckon with this and do more about it.
Speaker 1: We saw steel production reach I believe a record level
Speaker 1: here on a month month basis last month or earlier
Speaker 1: this month. Is China finally reckon reckoning with the fact
Speaker 1: that it's it's producing too much steel, too much of
Speaker 1: other metals. I think it is, Although you know, as
Speaker 1: you as you know, this can be a very long process.
Speaker 1: But we are seeing some changes anecdotally. We're hearing of
Speaker 1: the closure of many, many small inefficient minds and and factories.
Speaker 1: We're also seeing a change of the macro level. If
Speaker 1: we look at the difference between producer prices prices out
Speaker 1: of the factory gate in China today which are now
Speaker 1: positive versus a few years ago when they were consistently negative,
Speaker 1: it does suggest that China is slowly starting to come
Speaker 1: to grips with their overcapacity problem. First, what worries you
Speaker 1: about China the most is it's that you have I guess,
Speaker 1: the the holy the unholy trinity of you know, reserves
Speaker 1: going down. They need to stay blast one. At the
Speaker 1: same time, they have to make sure that outflows don't
Speaker 1: get worse. I think the the the capital account is
Speaker 1: definitely a source of concern. So far, they've been able
Speaker 1: to manage that. I think my my bigger concerned friends
Speaker 1: see and again, I don't know when it becomes an issue,
Speaker 1: but certainly the build up of debt over the last
Speaker 1: five or ten years in China is worrying. Uh We've
Speaker 1: seen similar build ups in the past in other countries.
Speaker 1: It hasn't ended well. Now. That doesn't mean that China
Speaker 1: is facing a Western style banking crisis. It is a
Speaker 1: different system, but it does mean if bad debts accumulate,
Speaker 1: that can be a drag on China at a time
Speaker 1: when when the rest of the world is very dependent
Speaker 1: upon Chinese growth. Could it be as ugly as a
Speaker 1: financial crisis. Well, I think it really depends on how
Speaker 1: bad you think the bad debt situation is, and the
Speaker 1: truth is nobody knows. I'm a little bit encouraged by
Speaker 1: the fact that most of that debt is held domestically
Speaker 1: by China uh in that China does have significant resources
Speaker 1: to address it, whether or not they're going to be
Speaker 1: ultimately successful, I think is one of the big risks
Speaker 1: we're all facing over let's say, the next five years.
Speaker 1: Russ grates to please with you. Thank you very much
Speaker 1: for joining us here on Blimberg Spilience Frestcast, which manager
Speaker 1: with the Global Allocation funded black Rock here in our
Speaker 1: Bloomberg eleven three oh studios pleasure now to be joined
Speaker 1: by Dennis Gardner, the editor, of course of the Gartment Letter. Dennis,
Speaker 1: great to talk with you, as always, uh A few
Speaker 1: people can do this as well as you weave in
Speaker 1: the political risk with the market volatility that we've seen.
Speaker 1: Let me ask you first of all about how markets
Speaker 1: have reacted to the second intercontinental ballistic missile test we
Speaker 1: saw last week. Of course, we're watching to see what
Speaker 1: the fallout from that is going to be on the
Speaker 1: diplomat and policy up front. How's it playing out in markets?
Speaker 1: What is it? What does it portend for you? Well,
Speaker 1: first of all, the response has been rather temp at heaven.
Speaker 1: That's gold has gotten a bid, but not a dramatic one.
Speaker 1: And in past times one might have expected gold to
Speaker 1: be up fifty five dollars and then it's up eight
Speaker 1: or ten dollars instead. The dollar itself is a little
Speaker 1: bit weaker, but the operative wards here are a little
Speaker 1: bit so the responses have been strangely quiet. It is
Speaker 1: as if there is no real problem whatsoever, or if
Speaker 1: there is a problem, it is certainly manageable. So I
Speaker 1: think some people might well be surprised by the tepid
Speaker 1: nature with which many of the markets have responded. Right,
Speaker 1: But then it's I'm also looking at iron or right,
Speaker 1: and that's riley quite significantly. In fact, we're looking at
Speaker 1: almost like you know, a bull run. And this is
Speaker 1: after we had some pretty strong China manufacturing data. Well,
Speaker 1: I think that the first of all, you you had
Speaker 1: a bear market in iron and steel for a long
Speaker 1: period of time. Now all of a sudden it's turned.
Speaker 1: They both have turned much for the better. Base metals
Speaker 1: across the board have turned for the better. And I
Speaker 1: think that is exemplary of better economic environs here in
Speaker 1: the United States, but more importantly, better economic environs and
Speaker 1: and and they hope for better economic environment in the
Speaker 1: future in China. I think you have to be impressed
Speaker 1: by the fact that that iron and steel prices are
Speaker 1: doing as well as they are. If there are economic
Speaker 1: data points or anecdotal economic data points that I'm going
Speaker 1: to pay attention to. Shipping is one. Iron ore and
Speaker 1: steel prices are another, and both of them are starting
Speaker 1: to turn for the better. Can can it go higher?
Speaker 1: If you look at what China is trying to do?
Speaker 1: So they're you know, trying to I guess, fight over
Speaker 1: capacity um and rein in some more unruly events by
Speaker 1: cutting production. Well, I think that you're you're common about
Speaker 1: how how swift has been the increase in iron ore
Speaker 1: prices and iron prices themselves, and steel prices. Perhaps after
Speaker 1: a very short span of time, they're a bit overbought,
Speaker 1: might develop a bit of weakness, but I would suspect
Speaker 1: any sort of weakness that one gets, one should be
Speaker 1: a buyer. So what do I think the trend is?
Speaker 1: I think the trend and iron ore prices and steel
Speaker 1: prices and even shipping values are for the better. We
Speaker 1: would is talking with Michael Whitner of Suction about oil.
Speaker 1: I want to get your take on on oil as
Speaker 1: well as we look ahead to this OPEC non OPEC
Speaker 1: meeting in Abu Dhabi next next week. What's your sense
Speaker 1: of what's driving oil prices at this point. Now. Well,
Speaker 1: first of all, the thing that I'll pay more attention
Speaker 1: to when it comes to oil is the term structure.
Speaker 1: What is what is the is the contango narrowing, is
Speaker 1: the backwardation widening, and the fact that we have moved.
Speaker 1: And let's begin by saying that until about three weeks ago,
Speaker 1: I had been manifestly barish of crude oil, clearly, no, no,
Speaker 1: no equivocation. But then about three weeks ago I started
Speaker 1: to watch as the front months, as as the backwardation
Speaker 1: began to narrow, and discussions incumbent in the markets that
Speaker 1: perhaps we might even move to backwardation, which is a
Speaker 1: very strange, very material change over the course of the
Speaker 1: past several years. That shifting nature of moving from a
Speaker 1: contango to a backwardation tells us one either supply is diminished,
Speaker 1: which is not true, or demand is increasing, which must
Speaker 1: be true. So I I look at the Coude oil market,
Speaker 1: and having been manifestly overtly bearished for a long period
Speaker 1: of time, finally I have to say to myself, maybe
Speaker 1: higher prices lie ahead. Now after the last two weeks,
Speaker 1: when prices have gone up rather swiftly, would I be
Speaker 1: a buyer here. No, But just like the discussion of
Speaker 1: iron ore prices, any weakness, perhaps a dollar dollar and
Speaker 1: a half two dollars from here, then I shall be
Speaker 1: Dennis Gartment. How worried are you about the week the
Speaker 1: weekend dollar? It's been weak now for a while. How
Speaker 1: worried about that are you? Not? Not? Particularly? Uh? If
Speaker 1: if we walked in several times and we watched the
Speaker 1: the euro trading above one and doing it in a
Speaker 1: very short period of time, and doing it on a
Speaker 1: flash upward, I might be concerned. But the fact that
Speaker 1: it is quietly, laboriously the dollars quietly, laboriously moving lower,
Speaker 1: the euro is quietly rather or in an orderly fashion
Speaker 1: movement fashion moving higher. It doesn't bother me that much.
Speaker 1: It does mean that we will probably do better as
Speaker 1: far as exports trade is concerned. And if you're a
Speaker 1: corn grower, if you're somebody in the in the wheat
Speaker 1: export business, a week or dollar is something that you
Speaker 1: would applaud. But let's not be too concerned. It has.
Speaker 1: It has weakened, no question. The fact that we've gone
Speaker 1: from one oh five euros to one fifteen euros might
Speaker 1: be some of some concern, but it's done it over
Speaker 1: the course of three or four months, so it's been orderly,
Speaker 1: it's been slow, it's been laborious, and I therefore know
Speaker 1: it is a great good deal of sleep over it all, right, Dennis,
Speaker 1: What is actually impacting the price of oil more the
Speaker 1: dollar or OPEC? I think it is a combination of
Speaker 1: bolt and I hate to take that the middle of
Speaker 1: the road attitude, but I think it is a combination
Speaker 1: of both. OPEC is clearly worried about its ability to
Speaker 1: get crude oil, to get w t I above fifty,
Speaker 1: to get Brent above fifty two dollars and keep it there.
Speaker 1: They need to keep it there. They're going to try
Speaker 1: to keep it there, but they need to restrain. Well,
Speaker 1: let me back up. The big problem that OPEC has
Speaker 1: is in just a few of its members, Nigeria, uh
Speaker 1: Libya and perhaps even angle Ala. Nigeria and Libya have
Speaker 1: been left out of the quota system. In both Nigeria
Speaker 1: and Libya have been extraordinary and increasing production, to the
Speaker 1: dismay of the Emirates, to the obvious dismay of the
Speaker 1: Saudi Arabians, and they need to bring them back into
Speaker 1: the fold. They need to in this next meeting, they
Speaker 1: have to find some way to put in Nigeria and
Speaker 1: Libya back into the quota system. Whether the Nigeria and Libya,
Speaker 1: who will even allow themselves excuse me, to be put
Speaker 1: back into the quote as another question for another time,
Speaker 1: but obviously the Saudia's would prefer seeing it done. Can
Speaker 1: they do it? I don't know. Looking forward to that
Speaker 1: another time with Dennis Garman. I hope to see in
Speaker 1: New York sometimes soon. That's Dennis Gartman. He's the editor
Speaker 1: of the Garment Letter. Joining us on our phone lines.
Speaker 1: A pleasure to have here in our Bloomberg eleven three
Speaker 1: studios in the York. Senator Jeff Flake, the junior Senator
Speaker 1: from Arizona, Republican Senator from Arizona, author of the new
Speaker 1: book It's of a Conservative, a rejection of destructive politics
Speaker 1: and a return to principal. Great to have you here
Speaker 1: with us amid all of the political news out of
Speaker 1: Washington over these last few weeks's thanks for having me on.
Speaker 1: It's nice to be out of Washington just a little
Speaker 1: bit anyway, I'm sure. Well, let me start with with
Speaker 1: what transpired here over these uh, these last few days
Speaker 1: of course, the debates that led up to the vote
Speaker 1: on a piece of healthcare legislation early in the morning
Speaker 1: a few nights ago. Describe that process for us. I
Speaker 1: think there must have been a lot of people who
Speaker 1: are listening to the show who who wondered what happened
Speaker 1: between the procedural vote and how this happened on such
Speaker 1: an accelerated way walk us through? Uh what what? What
Speaker 1: went on on on Capitol Hill over the last few days. Well,
Speaker 1: I'm not sure it's fruitful to go through the whole thing.
Speaker 1: It was a kind of an ugly process. It always
Speaker 1: is when you get a big piece of legislation like
Speaker 1: this that we're trying to move through quickly. There is
Speaker 1: a bit of an urgency to it, and that uh,
Speaker 1: you know, the insurance markets out there are unstable, and
Speaker 1: the exchange around the country, the Obamacare exchange is altering.
Speaker 1: In Arizona, we have fifteen counties. In fourteen of the
Speaker 1: fifteen counties, there's only one insurer, and you know, there's
Speaker 1: there's a risk of losing that insure. So there was
Speaker 1: there was, you know, urgency to go through it. We
Speaker 1: just didn't didn't keep it alive. I wish we had.
Speaker 1: I think that for those in Arizona, for example, two
Speaker 1: hundred thousand people wake up this morning without health insurance.
Speaker 1: They've paid the fine, but they can't afford to get insurance,
Speaker 1: and so we we desperately need that reform. But I
Speaker 1: think if we learned anything from the past couple of
Speaker 1: months and certainly last week, is that there are limits
Speaker 1: to what one party can do alone help us understand
Speaker 1: the degree to which the thing is still alive and
Speaker 1: the role that the White House is playing here. I
Speaker 1: spoke with the Director of the Office of Management Budget
Speaker 1: last week, mcmulvaaney, and he said it was his hope
Speaker 1: that the Senate would still vote on something related to
Speaker 1: healthcare over the weekend. He clarified those comments further, saying
Speaker 1: he thinks that Senate shouldn't vote on anything else until
Speaker 1: they another vote on health care. Are you content to
Speaker 1: to leave this behind for now and and focus on
Speaker 1: other parts the legislative agenda? Where is this something you're
Speaker 1: still going to be you and your colleagues are still
Speaker 1: gonna be trying to work on Well, we've got to
Speaker 1: continue to work on it. But I don't think that
Speaker 1: any new vote before the weekend is going to be fruitful.
Speaker 1: I mean, what would that vote be on a motion
Speaker 1: to proceed to something? A motion to proceed to what?
Speaker 1: Um so I we don't have enough of a consensus
Speaker 1: on the Republican side to move ahead. We are going
Speaker 1: to need to sit down with our colleagues from the
Speaker 1: other side of the aisle. I think that's going to happen.
Speaker 1: We all knew that we would get here at some point.
Speaker 1: For parts of the reform there there are only so
Speaker 1: many things you can do under rules of reconciliation where
Speaker 1: it only requires fifty one votes. So we we just
Speaker 1: got there sooner than we thought we would. And on
Speaker 1: the relationship, but with the White House, I was on
Speaker 1: air on television when that President Trump convened his lunch
Speaker 1: with Senate Republicans at the White House, And and if
Speaker 1: you just look over these past few weeks, there were
Speaker 1: a few occasions that among them he tried to to
Speaker 1: wield some influence, some political influence, to try to sway
Speaker 1: some on the fence votes to to vote for this
Speaker 1: particular piece of legislation. How effective was that? How healthy
Speaker 1: is it to have that kind of relationship between one
Speaker 1: branch and the other. Well, I don't know that that
Speaker 1: in itself moved the needle much. Um. I know there
Speaker 1: there's concern among some of my colleagues that, you know,
Speaker 1: the House got through the process, the President had a
Speaker 1: big signing ceremony, and then a few weeks later he
Speaker 1: referred to the House product as as mean. And I
Speaker 1: know that doesn't inspire a lot of confidence among my
Speaker 1: colleagues that that you know that the same won't be
Speaker 1: said of a bill that we would pass, and so
Speaker 1: that that that makes it difficult. Let me tell you,
Speaker 1: it does make it difficult that relationship. Centator, how would
Speaker 1: you describe the relationship between the Republican Party and the
Speaker 1: President right now? Oh? It's you know, on some things.
Speaker 1: Let me just take the positive. He named a great
Speaker 1: super Court justice. We worked with the president on regulatory reform.
Speaker 1: We passed I think fourteen so called c r a
Speaker 1: S or Congressional Review Act, where we paired back regulations
Speaker 1: that were straining the economy. Um. The President, we think
Speaker 1: most most Republicans in the in the Congress think he
Speaker 1: has good instincts on tax reform, lower the rates, broad
Speaker 1: in the base. Um, that's the Republican orthodoxy. So there
Speaker 1: are some things that we will work with the President on,
Speaker 1: but many of us are very concerned with one, the
Speaker 1: kind of the chaotic atmosphere that's going on at the
Speaker 1: White House, whether whether it's has to do with domestic
Speaker 1: policy or foreign policy. It's profoundly unconservative to to uh,
Speaker 1: you know, have an unsteady, unpredictable uh, you know, policy.
Speaker 1: And so that's concerning. And then uh, things like trade.
Speaker 1: I'm very concerned and many of my colleagues are as
Speaker 1: well that we're being left behind by other countries who
Speaker 1: are moving ahead. And and then also um, the kind
Speaker 1: of plane to the base, uh, making it very difficult
Speaker 1: for us to grow the party and speak to a
Speaker 1: lot of our larger audience. Is there enough trust between
Speaker 1: the presidents and the Republicans and if there isn't, how
Speaker 1: does the president regain that trust? Well, I think, you know,
Speaker 1: we'll have to work on some other issues. Healthcare was
Speaker 1: a tough one to start with. It really was. Health
Speaker 1: Care is a big, complex, any issue in and of itself,
Speaker 1: but it's it's personalized for people, and you know, obviously hindsight,
Speaker 1: but it would have been better to start with something else.
Speaker 1: So I think maybe with tax reform, if we can
Speaker 1: build some trust there. I think they are more shared
Speaker 1: values there perhaps that we can work on. Um. But
Speaker 1: but a lot of it has to do all so
Speaker 1: with with tone and demeanor. Um. You know, we in
Speaker 1: the Senate have rules that you know, almost always require
Speaker 1: us to work across the aisle. It's not just on
Speaker 1: piece of legislation, but just to move you know, the
Speaker 1: Senate business. It's done by unanimous consent or by supermajorities.
Speaker 1: And and when the President is referring to people on
Speaker 1: the other side of the aisle as losers or clowns,
Speaker 1: and um, you know it just that that doesn't help matters,
Speaker 1: It really doesn't. Well, let's come back here in a
Speaker 1: couple of minutes talk about some of those that rules.
Speaker 1: Of course, the President proposing in these recent days that
Speaker 1: new kind of nuclear option here going with a simple majority.
Speaker 1: Eager to talk to you about that. And uh Andrew
Speaker 1: new book, conscious of a Conservative, rejection of destructive politics
Speaker 1: and a return to principal. Eager to see how conservatism
Speaker 1: fits into the Republican Party today. Senator Jeff Flake with
Speaker 1: us here on bloom brick surveillance in our studios in
Speaker 1: New York's Republican Senator from Arizona Junior Senator from Arizona
Speaker 1: joining us here on bloom Brick surveillance. Let me ask you,
Speaker 1: if I could, Senator Flight, just about what it's like
Speaker 1: to be a conservative in the Republican Party today. When
Speaker 1: I talked to members of the House in particular, Uh,
Speaker 1: it's not uncommon if the Republican members, but then to
Speaker 1: be affiliated with the Freedom Caucus or some other caucus
Speaker 1: ideological caucus within the Republican Party on Capitol Hill. How
Speaker 1: tough does it make things to have such a maybe
Speaker 1: not fractured, but uh, different different parts of the Republican Party.
Speaker 1: How do you get them to to cohere? Well, that's
Speaker 1: a lot of what the book is about. That's why
Speaker 1: I wrote this book, Conscience of a Conservative kind of
Speaker 1: borrowing from the from Verry Goldwaters of you know, Seminal
Speaker 1: Tome of fifty six years ago, where he recognized that
Speaker 1: the party had had kind of been compromised by the
Speaker 1: New Deal at that point. I think the party today
Speaker 1: is being compromised by things like protectionism and uh um
Speaker 1: um and also this this kind of demeanor that we
Speaker 1: have where you have to be matter than everybody else
Speaker 1: and and it it's not a good combination if you
Speaker 1: want to grow the party. So I am concerned with
Speaker 1: with where the party is and where the White House
Speaker 1: has been, and and that's really what the book is about.
Speaker 1: And it's not not an opportune time to write a
Speaker 1: book like this when I'm in my reelection bid, but
Speaker 1: I felt it was important enough to to spell it
Speaker 1: out as to where I think conservatives need to go.
Speaker 1: We need to embrace traditional republicanism and conservatism, which is
Speaker 1: limited government to economic freedom, free trade, um and and
Speaker 1: not looks for short term gain. I looked at the
Speaker 1: White House is a bit of a microcosm for this.
Speaker 1: Of course, there's all the palace intrigue. But you hear
Speaker 1: about those who are the so called globalists butting heads
Speaker 1: with the conservatives, Steve Bannon types, what what what have you? Uh?
Speaker 1: And I we just read Josh Green's book about Steve Bannon,
Speaker 1: the role he played in the President's election campaign and
Speaker 1: now in his administration, to my mind, at least to
Speaker 1: my reading at least, sort of wants to blow things
Speaker 1: up in a different way than you just in your book.
Speaker 1: How does that complicate matters to to have people within
Speaker 1: the party calling for a wholescale invention. You're calling for
Speaker 1: it in one way, he's calling for it in another. Uh.
Speaker 1: Can there be a coming together? Can there be a
Speaker 1: unified Republican Party? Do you think? Well? I think our
Speaker 1: first obligation is Conservatives, is to be honest with people.
Speaker 1: And it's far easier for a politician to point to
Speaker 1: a shuttered factory and say, oh, that's just a free trade.
Speaker 1: You know, Mexico took your jobs or China did, when
Speaker 1: it's far more complex than that. And we have to
Speaker 1: realize we're five percent of the world's population, of the
Speaker 1: world's economic output. If we don't find new markets for
Speaker 1: our goods, we simply don't grow economically. I recall, you know,
Speaker 1: the term globalist I went during my last campaign. There
Speaker 1: was a blog post in Arizona at one point that
Speaker 1: said that Jeff Flake was seen in the company of
Speaker 1: globalists in Paris, frances I thought at that point, I thought, well,
Speaker 1: you know, what else do you find im Paris? Or
Speaker 1: what's the alternative to be called the provincialist or localist
Speaker 1: or I'll take globalist if that's the case. But I
Speaker 1: think we have to recognize that Obviously, we need to
Speaker 1: address the concerns of the factory worker who may be
Speaker 1: out of a job because of automation um or because
Speaker 1: we've simply found a more efficient allocation of capital. That's
Speaker 1: what capitalism does, and we need to be sensitive with
Speaker 1: that and work with job training programs and whatever else
Speaker 1: to deal with it. But we shouldn't tell them that
Speaker 1: that some of those jobs are coming back um in
Speaker 1: certain energy sectors or coal mines or whatnot, when when
Speaker 1: you know that's that's just not the way we're headed.
Speaker 1: And so I think we owe it to ourselves and
Speaker 1: certainly to the country and to the Party to be
Speaker 1: honest about these things. But Senator, how does the party
Speaker 1: regroup and refocus? Does it just only really have to
Speaker 1: be the president refocusing and maybe regrouping, and that mean
Speaker 1: that the parties is on a better track, on a
Speaker 1: better footing. Well, this has been this isn't just the
Speaker 1: president's problem. That we've been adrift for a while. I
Speaker 1: in the book, I talk a lot about coming to
Speaker 1: Congress along with Mike Pence. We both ran free market
Speaker 1: think tanks in the nineties. We got to Congress at
Speaker 1: the same time, all full of them and vigor and
Speaker 1: wanting to have these great debates over you know, whether
Speaker 1: it should be a flat tax or a consumption tax,
Speaker 1: and and quickly found that the party was kind of
Speaker 1: slipping away in our These great debates were kind of
Speaker 1: in the past, and we became the party of of
Speaker 1: earmarks and and corruption, and so much so that in
Speaker 1: two thousand six we lost the White House. I'm sorry,
Speaker 1: we lost both houses of Congress, and then in eight
Speaker 1: lost the White House, and frankly we deserved it given
Speaker 1: what we were doing at that time, the overspending and
Speaker 1: everything else. I'm just afraid that unless we get back
Speaker 1: to traditional insipoles of limited government, economic freedom, free trade,
Speaker 1: and a politics that isn't mean and course uh, then
Speaker 1: we're going to be in the minority again. Are there
Speaker 1: any circumstances where you see the party splitting um? You know,
Speaker 1: I don't think that that's the case. I don't think
Speaker 1: that that's needed. I do think that we have to
Speaker 1: have a recommitment to conservative principles. That's what the book
Speaker 1: is about. But I do still think that the Republican
Speaker 1: Party is the vehicle for conservative policy, and and I
Speaker 1: think it can remain so. But it's going to require
Speaker 1: recommitment and to to stand up when whether it's the
Speaker 1: President or somebody else who's trying to take us down
Speaker 1: a path that that simply doesn't hold up or won't
Speaker 1: work in the long run. You know, this is a
Speaker 1: populism is you know, it's called populism because it might
Speaker 1: be popular in the moment, but I'm afraid we're on
Speaker 1: a bit of a s a high now and when
Speaker 1: we come down it'll be particularly unpleasant. You can look
Speaker 1: at this present through prison that he's a sort of
Speaker 1: populist proxy for frustration. Uh. And I think there's a
Speaker 1: lot of frustration with how slow things seem to happen
Speaker 1: or not happen in Washington. E see you see that
Speaker 1: play out with this president when it comes to our
Speaker 1: relationship with China, in particular, he met the President in
Speaker 1: Florida in just a few months later, he'd expressed some
Speaker 1: frustration that things hadn't moved along faster with with China's
Speaker 1: willingness to show some might towards North Korea. You're seeing
Speaker 1: his frustration play on now, And imagine a lot of
Speaker 1: Americans frustration play out now when it comes to this
Speaker 1: healthcare vote and the rules of the Senate. We've seen
Speaker 1: the President tweet over these last few days about changing
Speaker 1: the way that the Senate votes on things, to make
Speaker 1: it to move it to a simple majority fifty one
Speaker 1: votes as opposed to to sixty. Do you do you
Speaker 1: understand the the the impulse to to make that change
Speaker 1: and sort of what kind of effect would that have
Speaker 1: on policy making, on legislating and Washington if we were
Speaker 1: to see a change like that, uh, in the most
Speaker 1: the world's greatest deliberative body. Well, let's keep in mind
Speaker 1: that we failed to get fifty one votes, let alone
Speaker 1: sixty for the realism you described just a few moments ago. Right,
Speaker 1: So I don't think that would change anything immediately, but
Speaker 1: I think for the long term it would be extremely detrimental. Uh.
Speaker 1: If if we were to move to assistant where the
Speaker 1: Senate was just like the House, where we responded more
Speaker 1: to populist sentiment, Uh, then we would be lurching, I
Speaker 1: think back and forth as we have been with regard
Speaker 1: to healthcare. Democrats were able to do it. They had
Speaker 1: sixty votes for a short time back in two thousand eleven,
Speaker 1: and and then we have Obamacare, and now we're trying
Speaker 1: to repeal it just with a very Republican majority. Um,
Speaker 1: and you know we'd be lurching back a couple of years. Uh,
Speaker 1: you know, towards another extreme. We're far better off when
Speaker 1: the Senate works the way it has. When we reach
Speaker 1: across the aisle, the requirement of sixty votes almost always
Speaker 1: require is bipartisan approach. And let's face it, if you
Speaker 1: want legislation to endure the test of time, it's best
Speaker 1: when you reach across the aisle. And most importantly, as
Speaker 1: I talked about in the book, UM, the most important
Speaker 1: things we've got to solve in the future dealing with
Speaker 1: our debt and our deficit. We're we've got twenty trillion
Speaker 1: in debt. We're going to soon be back at trillion
Speaker 1: dollar deficits. At some point, the financial markets are going
Speaker 1: to respond and just say you're not such a good
Speaker 1: bet anymore. In order to fix that, we have to
Speaker 1: sit down with our colleagues across the aisle. Because no
Speaker 1: one party, Republican or Democrat, if that party controls both
Speaker 1: chambers in the White House, no one party will tackle
Speaker 1: it alone because they share or they don't share, any
Speaker 1: of the political blame. You've got to have the parties
Speaker 1: as we've done in the past couple of decades. Every
Speaker 1: good budget agreement we've had over the past forty years
Speaker 1: has been done when we had divided government, where both
Speaker 1: parties sat down and said, all right, let's share the
Speaker 1: political risk. And so, as I explained the book, that's
Speaker 1: the approach that we've got to have moving ahead. Center
Speaker 1: Fake Thank you very much, don't be a stranger. I'd
Speaker 1: love to have you back on the show in the future.
Speaker 1: That Senator Jeff Flake, author of Conscious of a Conservative
Speaker 1: Rejection of destructive Politics and a Return to Principle. That
Speaker 1: book out tomorrow. This is Bloomberg Surveillance on Bloomberg Radio
Speaker 1: David Gura with Francine Lack with Tom Keane back in
Speaker 1: our studios tomorrow. Thanks for listening to the Bloomberg Surveillance podcast.
Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom Keene,
Speaker 1: David Gura is at David Gura. Before the podcast, you
Speaker 1: can always catch us worldwide. I'm Bloomberg Radio. Brunch you
Speaker 1: by Bank of a America Merrill Lynch. With virtual reality,
Speaker 1: virtually everything will change discover opportunities in a transforming world,
Speaker 1: be of a mL dot com, slash vr, Merry Lynch,
Speaker 1: Pierced Fenner and Smith Incorporated,