WEBVTT - Fed Sent a Powerful Signal on Friday, Wessel Says 0:00:00.080 --> 0:00:12.960 Yea. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Ley. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:32.559 Bloomberg dot Com, and of course, on the Bloomberg. The 0:00:32.600 --> 0:00:34.720 big news is the big sell off last week, the 0:00:34.760 --> 0:00:38.880 biggest weekly drop on sp in more than two years, 0:00:38.920 --> 0:00:41.159 and a big backup in treasury yields as well well 0:00:41.240 --> 0:00:43.479 three three percent on ten year treasuries. Tom and the 0:00:43.520 --> 0:00:46.720 equity market very much softer through the whole of last week. 0:00:46.720 --> 0:00:48.400 I want to bring the guest show. We Marcus Ashworth, 0:00:48.440 --> 0:00:52.800 Bloomberg Gaffly columnist and Chris Faron, Strategous Research Partners, Head 0:00:52.840 --> 0:00:56.040 of Technical Analysis. Chris, let's begin with you. Was that 0:00:56.120 --> 0:01:00.280 a short term sentiment shift, a regime change, or none 0:01:00.280 --> 0:01:03.400 of the above of yet? I think the longer term 0:01:03.480 --> 0:01:05.759 regime is still very much intact. But in the very 0:01:05.760 --> 0:01:09.120 short term, I'm not convinced sentiment is as flushed out 0:01:09.680 --> 0:01:11.760 or as stressed as it needs to be. I'm not 0:01:11.800 --> 0:01:15.280 convinced this market has cleared yet. While Friday was certainly 0:01:15.319 --> 0:01:19.880 bad in terms of the headline numbers, volume wasn't terribly pronounced. Um, 0:01:20.000 --> 0:01:22.479 the internals weren't as stressed as we'd like to see. 0:01:22.480 --> 0:01:24.920 That often marks interim low, So I think it's too 0:01:24.920 --> 0:01:27.679 early to say that we're quote there just yet. Something 0:01:27.760 --> 0:01:29.840 that you've touched on is something I was questioning through 0:01:29.840 --> 0:01:32.360 the whole of lost week. Typically, if things are really 0:01:32.480 --> 0:01:35.640 ugly high yield, it's got something to scream about. We 0:01:35.680 --> 0:01:38.640 didn't see that in a huge, huge white Chris. Yeah. 0:01:38.680 --> 0:01:40.760 I mean, hi yeld was down last week, but it 0:01:40.800 --> 0:01:43.600 didn't lead lower. So I think ultimately, if we're going 0:01:43.640 --> 0:01:47.119 to see a major shift in this regime, credit likely 0:01:47.200 --> 0:01:49.480 has to weaken. The fact that we're not seeing that 0:01:49.560 --> 0:01:52.720 yet actually gives us some confidence that the longer term 0:01:52.720 --> 0:01:55.840 picture is still intact. Here now, that doesn't help us 0:01:55.840 --> 0:01:57.280 in the short term, and I think in the short 0:01:57.360 --> 0:02:00.160 term there's probably more pain or more weakness before this 0:02:00.280 --> 0:02:03.000 is over. But so long as credit remains at least 0:02:03.040 --> 0:02:06.800 reasonably contained, I'm reluctant to say that the longer term 0:02:06.840 --> 0:02:09.919 picture is changing meaningfully. Marcus Ashworth, when you were trying 0:02:09.919 --> 0:02:12.520 to explain the cell off to some individuals maybe not 0:02:12.639 --> 0:02:15.000 that closely affiliated with Wall Street, and you explained to 0:02:15.040 --> 0:02:17.959 them that it's off the back of better economic data, 0:02:18.320 --> 0:02:21.079 better wage growth in the United States. It's just meant 0:02:21.120 --> 0:02:23.280 the bond market has finally had to catch up. What 0:02:23.320 --> 0:02:26.360 are your thoughts, Marcus, Yeah, High, I think it's very 0:02:26.440 --> 0:02:29.080 much that the two year yield has been telling us 0:02:29.080 --> 0:02:32.320 something loud and clear, shouting at us for for months now, 0:02:32.760 --> 0:02:35.600 and the ten year and thirty years has really not responded, 0:02:35.760 --> 0:02:37.280 and it's led some people to be in this sort 0:02:37.320 --> 0:02:40.639 of false belief that this is a harbinger of impending recession. 0:02:40.680 --> 0:02:43.160 It's quite the reverse. You know, we've finally seen the 0:02:43.639 --> 0:02:47.280 wage print that everyone has been expecting to see, and 0:02:47.320 --> 0:02:50.800 that has led to the realization that inflation and the 0:02:50.800 --> 0:02:53.720 Philips curve is going to come come up up into 0:02:53.800 --> 0:02:56.400 view um in hiding behind. As it has been a 0:02:56.480 --> 0:03:00.280 very strong economy with very little obvious signs of of 0:03:00.680 --> 0:03:03.639 real strength and inflation that now it looks to be normalizing. 0:03:03.800 --> 0:03:06.080 The curve therefore needs to normalize, which means it should 0:03:06.120 --> 0:03:08.480 be steeper. And I think I can agree with Chris that, 0:03:09.000 --> 0:03:10.720 you know, having trade bonds for the best part of 0:03:10.760 --> 0:03:13.839 thirty years and being on the wrong end of many 0:03:13.840 --> 0:03:15.840 a bear market from time to time, you know, you 0:03:15.919 --> 0:03:17.600 have to sense whether or not this has got some 0:03:17.680 --> 0:03:19.560 legs to it. And I still don't think we're quite 0:03:19.560 --> 0:03:22.200 fully flushed out. And he's spot on to say that 0:03:22.280 --> 0:03:24.519 the fact that credit hasn't moved means that the market 0:03:24.520 --> 0:03:26.720 sentiment hasn't really shifted. Here. We're not talking about a 0:03:26.720 --> 0:03:29.120 bond route. We might get to get three percent in 0:03:29.280 --> 0:03:32.240 ten year yields. We might get to UM. I think 0:03:32.320 --> 0:03:34.640 in some ways more importantly three three point three just 0:03:34.680 --> 0:03:37.480 around the era for thirty years where from whence it 0:03:37.560 --> 0:03:41.480 came in sixteen. That's really why I think we need 0:03:41.520 --> 0:03:44.000 to be and test, and I think we'll probably bounce 0:03:44.040 --> 0:03:47.120 before then. Um. Europe is doing better this morning, is 0:03:47.120 --> 0:03:49.320 the reason why Treasury is on following on with their 0:03:49.360 --> 0:03:51.920 sell off. And the key thing in Europe is peripherals. 0:03:51.960 --> 0:03:53.320 Its ly, he's got an election in less than a 0:03:53.360 --> 0:03:55.880 month's time. They're actually doing better, they're tightening. So that's 0:03:55.880 --> 0:03:57.360 why I think, give me a little bit of stability 0:03:57.400 --> 0:04:00.960 just as we walk into the US market. However, if 0:04:01.080 --> 0:04:03.560 US treasuries want to go in high and yield out, 0:04:03.600 --> 0:04:06.400 they'll go Christopher, Yeah, you know, I think, UM, we're 0:04:06.440 --> 0:04:08.680 spot on when we talk about three five as a 0:04:08.720 --> 0:04:11.320 target for ten year yields over the next number of months. 0:04:11.320 --> 0:04:14.160 Here it doesn't mean they won't see to sixty or 0:04:14.200 --> 0:04:17.839 two seventy first, but I think ultimately higher is the 0:04:17.880 --> 0:04:20.680 path that we're heading now. I would frankly be more 0:04:20.720 --> 0:04:24.520 worried if equities were selling off and bond yields were 0:04:24.520 --> 0:04:26.839 moving materially lower. I think that would be a sign 0:04:26.880 --> 0:04:29.520 that we're still stuck in that old regime. So higher 0:04:29.520 --> 0:04:32.400 bond yields what tactically it's probably a source of stress. 0:04:32.600 --> 0:04:35.160 I think structurally it's a decent signal. One of these 0:04:35.240 --> 0:04:38.160 Christopher and you and I do in technical analysis is 0:04:38.240 --> 0:04:40.240 we have a great respect for people that do a 0:04:40.240 --> 0:04:43.039 lot of back testing. And the back testing is a 0:04:43.080 --> 0:04:46.560 correction is ten percent down. A bear market is eighteen 0:04:46.560 --> 0:04:49.520 percent down. We're down four point six percent from the 0:04:49.560 --> 0:04:54.560 peak on SMP futures. Is a correction still minus ten percent? 0:04:54.960 --> 0:04:56.960 Or is there a new number in your head for 0:04:57.000 --> 0:04:59.760 a correction. I'm I'm in the old school. It's still 0:04:59.800 --> 0:05:03.280 ten We look at these things very simply. A bull 0:05:03.279 --> 0:05:06.400 market you're making money, a bear market you're losing money. 0:05:06.440 --> 0:05:08.760 And a correction. You're not sure yet. Uh. And I 0:05:08.839 --> 0:05:11.960 think at the end of the day, um SMP down 0:05:12.000 --> 0:05:14.600 four or four and a half. While it sounds pronounced 0:05:14.720 --> 0:05:17.600 and it sounds meaningful, it hasn't happened in two years, 0:05:17.600 --> 0:05:21.680 and it's not John, This is really important. Yeah, I mean, 0:05:21.720 --> 0:05:24.600 I'm sorry. Four point used to be a day at 0:05:24.600 --> 0:05:27.320 the race. And I think we need to remember there 0:05:27.360 --> 0:05:32.560 are countless examples of exceptional years where there's some meaningful drawnouts. 0:05:33.480 --> 0:05:36.520 Is an example exceptional year, SMP up thirty, but you 0:05:36.560 --> 0:05:39.280 have to seven percent pullbacks during the best year for 0:05:39.320 --> 0:05:41.719 the bull market in this bull market was one of 0:05:41.720 --> 0:05:44.320 the worst yearest fits right races precisely. Uh. And I 0:05:44.320 --> 0:05:47.840 think from that perspective is a useful roadmap. But it's 0:05:47.880 --> 0:05:50.360 not the perfect roadmap, but it's a useful roadmap. I 0:05:50.400 --> 0:05:53.960 think seven is also pretty interesting here. Now, let's remember 0:05:54.240 --> 0:05:57.480 for the last six years the SMP has done better 0:05:57.520 --> 0:06:00.560 than earnings have done. The street right now is looking 0:06:00.600 --> 0:06:04.640 for about out of earnings and is this the year 0:06:04.920 --> 0:06:08.680 where the market underperformed the economy. It's possible. Looking at 0:06:08.680 --> 0:06:11.960 the screen right now, the pullback to steepens tom the 0:06:12.000 --> 0:06:18.480 down down body the SMP negative twenty points have you're 0:06:18.520 --> 0:06:20.880 looking for some stability in the equity market is not 0:06:20.920 --> 0:06:23.880 there yet. So Marcus Ashworth, thank you so much. Writing 0:06:23.880 --> 0:06:27.080 for Bloomberg Gatfi. Look for his good work chart paragraph, chart, 0:06:27.120 --> 0:06:30.240 paragraph out on Bloomberg gat Flight today. Mr Ashworth in 0:06:30.320 --> 0:06:34.719 her studios in London, Christopher her own strategous research as well. 0:06:49.920 --> 0:06:52.560 There were seven thousand, three d and twelve books of 0:06:52.600 --> 0:06:56.400 the crisis in fed. We trust was one that actually 0:06:56.560 --> 0:07:00.000 site sliced through the zeitgeist and the added serious value 0:07:00.040 --> 0:07:02.960 you Ben Bernanke's wore on the Great Panic. David Wessell, 0:07:03.320 --> 0:07:06.800 writing for years with a journal, who landed happy in 0:07:06.920 --> 0:07:10.440 Washington when Glenn Hutchens said, Okay, we got to set 0:07:10.480 --> 0:07:13.960 up a fiscal and Monetary policy division at Brookings and 0:07:14.000 --> 0:07:16.520 the tour to force of Mr Wessell has been the 0:07:16.560 --> 0:07:20.280 signing of Chairman Bernankey and announced a few days ago 0:07:20.400 --> 0:07:24.520 that Chair Yelling today will join Mr Wessell at the 0:07:24.520 --> 0:07:28.760 Brookings Institute. David Wessel joins us right now. David, congratulations 0:07:28.880 --> 0:07:32.520 on this. How do you attract with your charm, Chairman 0:07:32.520 --> 0:07:37.280 Bernankey and Chair Yelling together. That's a good question. I 0:07:37.280 --> 0:07:39.400 think you probably should ask them. I think what we've 0:07:39.440 --> 0:07:41.840 tried to do is create an environment at Brookings where 0:07:41.920 --> 0:07:44.040 they can continue the kind of work they did as 0:07:44.080 --> 0:07:47.600 public servants, but in a more academic atmosphere. It is 0:07:47.600 --> 0:07:50.600 pretty exciting and we're really looking forward to seeing what 0:07:50.720 --> 0:07:53.120 kind of book Jannet Yellen will right. I think it'll 0:07:53.160 --> 0:07:55.640 be very different than the one Ben Bernanke wrote, because 0:07:56.120 --> 0:07:58.440 for four years as fetcher have been quite different than 0:07:58.480 --> 0:08:01.400 his eight years. Absolutely, maybe you could toilet slack and 0:08:01.400 --> 0:08:05.119 that will get some attention as as as well. David 0:08:05.160 --> 0:08:08.760 Will they will? They be down the hallway from get 0:08:08.800 --> 0:08:11.960 paint us the picture of the physical structure here is it? 0:08:12.280 --> 0:08:14.840 Is it a hallway and they've got one office here 0:08:14.840 --> 0:08:16.240 in one office there? Or do you have to keep 0:08:16.280 --> 0:08:19.960 them apart? Uh. We're on the eighth floor of the 0:08:20.040 --> 0:08:24.160 Brookings Building on Massages this Avenue near DuPont Circle, and 0:08:24.480 --> 0:08:28.559 Ben Bernanke got the corner office. I had the really 0:08:28.640 --> 0:08:32.320 nice spatience office next to him, but I traded it 0:08:32.360 --> 0:08:34.560 for Janet Yellen, so she'll be right next door to him, 0:08:34.559 --> 0:08:36.439 and I'm a couple of doors down in a more 0:08:36.760 --> 0:08:39.720 more modest Brooking scholar office. What is the one I deserve, 0:08:39.880 --> 0:08:42.320 and when Chairman Powell joined you, you'll be down in 0:08:42.360 --> 0:08:46.920 the basement next to the heat maxt. That would be 0:08:47.040 --> 0:08:49.480 very good. We'll look forward to that. David, let's turn 0:08:49.520 --> 0:08:53.280 the monetary policy. Chairman Powell is not a monetary PhD. 0:08:53.320 --> 0:08:58.160 What kind of vice chairman does Chairman Powell need? Well? 0:08:58.160 --> 0:09:00.640 I think it would be fantastic if Chairman how got 0:09:00.640 --> 0:09:03.719 a monetary economy ast, somebody who has a PhD in 0:09:03.800 --> 0:09:07.480 economics and has some experience. We'll have to see whether 0:09:07.520 --> 0:09:10.240 the Trump White House agrees with that. I think, as 0:09:10.280 --> 0:09:12.320 you know, the other big job up for grabs is 0:09:12.360 --> 0:09:15.160 the New York Fed job, and so the presidency of 0:09:15.160 --> 0:09:18.000 the New York Fed. So it's important. It seems to 0:09:18.000 --> 0:09:20.240 me that one of those two jobs go to someone 0:09:20.400 --> 0:09:23.200 who has some experience of monetary policy and David, it 0:09:23.240 --> 0:09:26.120 was really interesting the final act of Chair Yelling on 0:09:26.200 --> 0:09:31.640 Friday to cap the Wells Fargo assets, essentially capping its growth. 0:09:32.120 --> 0:09:35.600 Do you see the Federal Reserve under Chair Chair Powell 0:09:36.000 --> 0:09:39.400 as relatively different to under Chair Yelling? Do we see 0:09:39.400 --> 0:09:42.439 a different regulatory regime? It's that the first of many 0:09:42.520 --> 0:09:44.240 more acts to come from the Fed, or was that 0:09:44.360 --> 0:09:48.640 really the top of the regulatory curve. I think the 0:09:48.679 --> 0:09:51.560 FEDS had a pretty powerful signal on Friday that they're 0:09:51.559 --> 0:09:54.200 going to hold directors of the banks accountable when the 0:09:54.240 --> 0:09:58.079 banks screw up. Of course, Powell was part of that decision. 0:09:58.120 --> 0:10:00.520 I think it would have happened this week they hadn't 0:10:00.520 --> 0:10:02.800 got the paperwork done and Wells Fargo ahead and agreed 0:10:02.840 --> 0:10:06.000 to it on Friday. My gut is that Powell will 0:10:06.080 --> 0:10:09.400 be just as aggressive at yelling at the enforcement side, 0:10:09.960 --> 0:10:12.559 but he may not be quite as resistant to changes 0:10:12.600 --> 0:10:17.080 in Dodd Frank as she would have been. But so far, 0:10:17.480 --> 0:10:20.480 you know, the Trump administration has talked a lot of 0:10:20.800 --> 0:10:23.640 talk about doing away with dot frank, and there's some 0:10:23.679 --> 0:10:25.880 House Republicans to want to do it. But when you 0:10:25.880 --> 0:10:28.960 look at what they've actually proposed in the administration, the 0:10:29.040 --> 0:10:32.719 National Economic Council and the Treasury, they've been pretty modest reforms. 0:10:33.400 --> 0:10:35.400 What's the base case of Brookings? What do you expecting, 0:10:35.520 --> 0:10:41.199 David about what regulatory change? Oh? I expect that this 0:10:41.240 --> 0:10:45.439 is the high water mark of regulator regulatory uh enforcement. 0:10:45.480 --> 0:10:48.199 After I think that across the government, you see the 0:10:48.760 --> 0:10:52.320 government pulling back. I think the Fed maybe the break 0:10:52.400 --> 0:10:54.920 the resistance on stuff going on in the rest of 0:10:54.920 --> 0:10:59.079 the government. Tell us David about what Chairman Bernanke has 0:10:59.120 --> 0:11:02.400 been writing out and what you would like to see 0:11:02.480 --> 0:11:06.280 Cherry Yellen right about. She's more than independent minded. She'll 0:11:06.360 --> 0:11:08.640 donro white about what she wants to write about. But 0:11:08.720 --> 0:11:15.120 what does the curiosity you have in her first essays? Well, 0:11:15.240 --> 0:11:19.240 Chairman Bernanke has been quite focused on what led to 0:11:19.280 --> 0:11:21.800 the financial crisis and how we got out of it. 0:11:22.120 --> 0:11:25.439 After all, he cut his academic teats on writing about 0:11:25.440 --> 0:11:28.200 the Great Depression, and so he's long been interested in 0:11:28.200 --> 0:11:31.400 this stuff. I expect that I'm interested to see what 0:11:31.520 --> 0:11:34.480 Janet Yellen writes about two things. One, She's long been 0:11:34.520 --> 0:11:37.439 interested in the labor market. Why does it work the 0:11:37.480 --> 0:11:40.640 way it does? Why does some firms pay more wages 0:11:40.679 --> 0:11:44.040 than they have to? Why has labor force participation been 0:11:44.040 --> 0:11:47.079 so disappointing lately? What's the role of women in the 0:11:47.160 --> 0:11:49.920 labor market? So I would imagine that that would be 0:11:50.240 --> 0:11:53.120 continue to hear interest. And then, of course it's hard 0:11:53.160 --> 0:11:56.600 to escape, uh, the fact that she's the first woman 0:11:56.840 --> 0:12:01.040 FED chair in an economics profession where women are really 0:12:01.040 --> 0:12:04.959 willfully underrepresented. So I think that people will be interested, 0:12:05.000 --> 0:12:07.120 whether she wants to write about that or not, what 0:12:07.240 --> 0:12:10.400 her experiences have been the only woman in her class 0:12:10.400 --> 0:12:12.959 of PhDs at Yale and so forth. Yeah, I mean 0:12:13.040 --> 0:12:16.880 these are huge, huge issues that we see right now. 0:12:17.000 --> 0:12:19.160 Are we free and clear from where you said? I 0:12:19.240 --> 0:12:21.800 use a chart, David Wessel all the time? Would you 0:12:21.840 --> 0:12:24.960 just the FED funds target rateed justif for inflation and 0:12:25.000 --> 0:12:29.400 we're still on the edge of ultra accommodative via Taylor rule. Uh, proxy, 0:12:29.520 --> 0:12:34.440 we're still accommodative ultracommendative. How far does the FED have 0:12:34.600 --> 0:12:39.800 to move to get anywhere near a neutral rate? Well, 0:12:39.840 --> 0:12:42.320 I think the conventional wisdom is something close to three. 0:12:43.960 --> 0:12:47.199 I think it's been a bit baffling. My wages haven't 0:12:47.240 --> 0:12:50.720 grown gone up more given how low unemployment is, So 0:12:50.720 --> 0:12:52.520 I think the FED will be watching that carefully. And 0:12:52.559 --> 0:12:54.839 of course there was this new evidence on Friday that 0:12:54.880 --> 0:12:57.439 wages are beginning to rise. But as you know, Tom, 0:12:57.559 --> 0:13:01.040 the consensus among the con him as, including those in 0:13:01.080 --> 0:13:03.880 the FED, is the neutral real rate, that rate that 0:13:03.920 --> 0:13:07.160 will prevail when all is calm in the economy has 0:13:07.200 --> 0:13:09.280 come down quite a bit, and so I think that 0:13:09.360 --> 0:13:12.520 will affect the Fed's judgment. In the time we've got 0:13:12.600 --> 0:13:14.439 left to you, I want you to talk about what 0:13:14.559 --> 0:13:18.440 Mr Hutchins did. You're at Brookings, it's an acclaimed think tank. 0:13:19.120 --> 0:13:21.680 You go over and set up this economic tank. You 0:13:21.679 --> 0:13:25.720 have this huge announcement of Bernankey and Yelling joining you 0:13:26.440 --> 0:13:29.760 as well. What did Mr Hutchins want to accomplish when 0:13:29.760 --> 0:13:35.080 he donated money large two Brookings? UM? I think I 0:13:35.080 --> 0:13:38.840 think Glenn Hutchins wanted to improve the amount of research 0:13:38.920 --> 0:13:41.600 and thoughtful policy work that goes on in fiscal and 0:13:41.640 --> 0:13:44.760 monetary policy. And you know Yelling and Bernankey are clearly 0:13:44.800 --> 0:13:47.640 our stars, but there's a lot of us stuff going on. UM. 0:13:47.679 --> 0:13:50.120 But I think the thing that's impressed me about Glenn 0:13:50.280 --> 0:13:53.640 is he's really the model donor. He gave us a 0:13:53.679 --> 0:13:56.640 substantial sum of money to get us off for five 0:13:56.720 --> 0:14:00.199 years and said I want people who I risk back 0:14:00.280 --> 0:14:04.160 to stay. You're doing good work. Um. He's not one 0:14:04.160 --> 0:14:06.959 of these donors who has a particular agenda, either on 0:14:07.080 --> 0:14:09.839 his personal pocketbook or his political agenda. He's trying to 0:14:09.920 --> 0:14:12.960 influence that. So it's been really remarkable and as you know, 0:14:13.080 --> 0:14:15.760 that's not always the norm, and think thanks sometimes donors 0:14:15.800 --> 0:14:19.200 really want to tie down their their their centers to 0:14:19.280 --> 0:14:21.840 pursue their own particular interest. David Russell for all of 0:14:21.920 --> 0:14:25.200 US and economics. Just congratulations Cheer yell And joining Chairman 0:14:25.240 --> 0:14:29.000 Bernankia Mr Wessell's hutch and Center the Brookings Institution. Just 0:14:29.080 --> 0:14:32.600 absolutely uh an extraordina announcement. Really looking forward to Cheer 0:14:32.680 --> 0:14:36.360 Yellin's first essays. Mr Wessell again with the Brookings Institutions. 0:14:48.720 --> 0:14:52.160 We sure now to Morgan Stanley's Chief of US Public Policy, 0:14:53.000 --> 0:14:55.680 Michael Zess, who has got a really interesting pedigree. Not 0:14:55.760 --> 0:14:57.520 only is he a cf A, but he's done the 0:14:57.600 --> 0:15:01.480 usual political credit as well. And who including the LBJ 0:15:01.600 --> 0:15:04.600 School of Public Affairs. Did you study with James K. Galbraith? 0:15:05.560 --> 0:15:07.840 He was, He was not one of my I never 0:15:07.880 --> 0:15:10.360 had class with him, but here, Yeah. I mean that's 0:15:10.360 --> 0:15:12.880 a really interesting and twisted program as well, and really 0:15:12.920 --> 0:15:17.600 fits it right now with what we're seeing within public policy. 0:15:17.760 --> 0:15:21.560 What is the public policy and after after the meetings 0:15:21.600 --> 0:15:26.760 in Montreal, Well, I think that remains to be seen explicitly, 0:15:26.880 --> 0:15:31.400 but umly, what the US is asking for um is 0:15:31.480 --> 0:15:34.280 something that I think really is focus around the bottom 0:15:34.320 --> 0:15:36.120 line of kind of shrinking trade deficits, and I think 0:15:36.120 --> 0:15:38.800 it's unclear what both sides are willing to accept that 0:15:38.840 --> 0:15:42.080 would actually practically do that. Uh, you know, in our view, 0:15:42.200 --> 0:15:45.240 there's something ultimately that can be delivered to kind of, um, 0:15:45.280 --> 0:15:47.760 get the negotiation across the finish line, which I think 0:15:47.760 --> 0:15:51.680 can allow the US to talk about trade deficits perspectively 0:15:51.760 --> 0:15:55.560 being shrunk. Something like upping the destination of origin rules 0:15:55.560 --> 0:15:58.440 around autos for example, where the U s thinks it's 0:15:58.440 --> 0:16:03.160 got a competitive advantage around auto labor and manufacturing. Um, 0:16:03.360 --> 0:16:05.920 something like that, which you know, ultimately, in game theory terms, 0:16:06.000 --> 0:16:08.320 is is something where both sides can kind of claim victory. 0:16:08.400 --> 0:16:11.280 But you know it's not evident yet precisely what that is. 0:16:11.880 --> 0:16:14.400 The public policy is to say face and after for 0:16:14.480 --> 0:16:17.840 all three parties, right, yeah, I mean more or less. 0:16:18.160 --> 0:16:21.280 Uh you know what the or what what the US 0:16:21.360 --> 0:16:23.240 wants here? If you were to kind of take the 0:16:23.240 --> 0:16:26.160 President at his word, uh, you know, it's free and 0:16:26.240 --> 0:16:28.480 fair trade, and he tends to always define it in 0:16:28.600 --> 0:16:32.520 terms of shrinking the trade deficit. So I think whatever 0:16:32.560 --> 0:16:35.360 has to be delivered is something that you can feel 0:16:35.440 --> 0:16:37.720 like you can credibly tell your base supporters that this 0:16:37.760 --> 0:16:39.640 is something that's going to shrink the trade deficit, as 0:16:39.640 --> 0:16:42.200 opposed to something where when they're talking about the border 0:16:42.200 --> 0:16:44.840 adjustment tax or some other type of tariffing regime which 0:16:44.840 --> 0:16:48.560 could demonstrably actually shrink a trade deficit, at least in 0:16:48.880 --> 0:16:51.600 mathematical terms, those things seem to be off the table. 0:16:51.640 --> 0:16:53.480 It's something you need to be able to credibly make 0:16:53.480 --> 0:16:55.880 the argument, as opposed to put it on paper. So 0:16:55.920 --> 0:16:59.080 we call these big significant issues that need to be addressed, 0:16:59.120 --> 0:17:01.880 and to address them thanktively, you would hope for stability elsewhere. 0:17:02.000 --> 0:17:04.880 But we're talking about getting to Thursday now, never mind 0:17:04.880 --> 0:17:07.960 getting to the next round of naftal negotiations. Can they 0:17:08.080 --> 0:17:10.760 agree to keep the government open and can they come 0:17:10.760 --> 0:17:13.119 to any kind of agreement around an immigration plan? Can 0:17:13.119 --> 0:17:15.640 they do those two things? Michael, I think that they 0:17:15.680 --> 0:17:17.760 can agree to keep the government open because I think 0:17:17.800 --> 0:17:20.320 the base case on all these governments shutdowns because they 0:17:20.440 --> 0:17:23.560 had so many opportunities for government shutdowns, is that they 0:17:23.600 --> 0:17:26.720 tend the muddle through because the actual instance of shutdowns 0:17:26.840 --> 0:17:29.320 is pretty small, and really, when you're thinking about from 0:17:29.320 --> 0:17:33.080 a market's perspective, um a shutdown on its own to 0:17:33.280 --> 0:17:36.560 us is not terribly consequential hasn't had a giant feed 0:17:36.560 --> 0:17:39.840 through effected gdp UM. What matters more is what that 0:17:40.520 --> 0:17:43.720 what is that signal telling us about other policies that 0:17:43.840 --> 0:17:46.000 may or may not be stimulative. If this were a 0:17:46.080 --> 0:17:48.080 year where we were getting really excited about something like 0:17:48.160 --> 0:17:52.320 infrastructure policy, which we're not, why aren't we Well, there's 0:17:52.400 --> 0:17:54.760 political reasons, but just I don't need to interrupt, but this, 0:17:54.880 --> 0:17:57.200 John Ferrol, this came up like four times this weekend. 0:17:58.240 --> 0:18:01.680 What is the why? So there's a there's a political reason, 0:18:01.840 --> 0:18:04.200 and there's a policy reason. The political reason is that 0:18:04.400 --> 0:18:06.880 we just don't think there's enough time for the Democrats 0:18:06.920 --> 0:18:09.440 and Republicans to bridge their difference. They get differences on 0:18:09.560 --> 0:18:12.840 labor issues, environmental issues, and they get differences on how 0:18:12.880 --> 0:18:14.919 they want to fund it. Right where the Democrats are 0:18:14.960 --> 0:18:17.159 willing to raise the gas tax or other revenues, the 0:18:17.640 --> 0:18:20.760 Republicans want to kind of redirect money from elsewhere. But 0:18:20.880 --> 0:18:23.600 even if that were in a problem, the policy issue 0:18:23.760 --> 0:18:26.199 is the way it appears to be constructed right now. 0:18:26.480 --> 0:18:28.920 It's not clear to us that this is actually a stimulus. 0:18:29.000 --> 0:18:31.200 All it really kind of boils down to is is 0:18:31.200 --> 0:18:33.119 there going to be net new money in the economy 0:18:33.320 --> 0:18:35.760 after this policy. And we haven't seen a full proposal yet, 0:18:35.800 --> 0:18:38.440 but if you're talking about something where you've got twollion 0:18:38.480 --> 0:18:41.199 dollars from the federal government, where that's not necessarily going 0:18:41.280 --> 0:18:42.879 to be a new money, it's gonna be redirected from 0:18:42.920 --> 0:18:45.520 Amtrak or Tiger grants or something like that, and then 0:18:45.560 --> 0:18:48.600 it requires state and local governments to partner um and 0:18:48.680 --> 0:18:51.240 to sign on to certain conditions. Not clear to us 0:18:51.320 --> 0:18:53.920 that that those governments are going to sign on. They've 0:18:53.920 --> 0:18:56.280 got easier incentives if they just kind of go go 0:18:56.440 --> 0:18:59.960 with the traditional funding mechanisms they've been using. Brilliantly describe 0:19:00.280 --> 0:19:03.000 John Ferrell, I would point out to someone who tests 0:19:03.040 --> 0:19:06.640 tatted to his brain the time from Coventry to Paddington 0:19:06.760 --> 0:19:10.760 Station or whatever in London, that, with great respect for 0:19:10.800 --> 0:19:13.760 the courage of first responders, we've had three major Amtrak 0:19:13.880 --> 0:19:17.080 accidents in a cup of coffee and it's not funny. 0:19:17.520 --> 0:19:21.440 I mean, I'm I would I would suggest Michael that 0:19:21.560 --> 0:19:25.520 we've almost reached the point with you know, rusted bridges, 0:19:25.600 --> 0:19:30.119 and this is not funny. This this is serious, Michael. 0:19:30.200 --> 0:19:32.280 At the same time, though, when you break down the 0:19:32.400 --> 0:19:36.120 country into individual states and think about where there needs 0:19:36.160 --> 0:19:40.280 to be the biggest infrastuch just spend. Could you assume 0:19:40.480 --> 0:19:43.879 and conclude that actually it's the Northeast and it's blue 0:19:44.000 --> 0:19:46.640 states that probably need the most money spent on them. 0:19:47.359 --> 0:19:50.119 I think it's fair to your higher tax jurisdictions are 0:19:50.119 --> 0:19:52.440 the ones with the most deferred capital. You know, whether 0:19:52.560 --> 0:19:55.040 or not that becomes a political sticking point is unclear, 0:19:55.080 --> 0:19:56.920 But I will say that one thing that we threw 0:19:56.960 --> 0:19:58.760 out there when we were doing our outlook for policy 0:19:58.800 --> 0:20:01.840 for the years that when it comes the midterm election 0:20:01.920 --> 0:20:03.560 is one of the things that can unlock this right 0:20:03.600 --> 0:20:07.040 if the Democrats are able to take control. Arguably the 0:20:07.119 --> 0:20:09.919 president the Democrats are on the same page with how 0:20:10.000 --> 0:20:13.840 to fund this and not necessarily concerned as much about deficits. 0:20:13.920 --> 0:20:16.639 Now you've got tax reform done, because Republicans seem to 0:20:16.720 --> 0:20:19.440 be okay with deficits for tax cuts so far, they're 0:20:19.440 --> 0:20:22.919 signaling that they're not okay with deficits for increased spending. Uh, 0:20:23.119 --> 0:20:26.040 that view gets marginalized. Obviously, if the Democrats take control 0:20:26.080 --> 0:20:29.119 of Congress. I would mention John that there can be 0:20:29.280 --> 0:20:32.440 c changed things in infrastructure to change debate, and I 0:20:32.520 --> 0:20:37.119 would go back to Staplehurst in Kent, England, in the 0:20:37.280 --> 0:20:40.520 train derailment that Charles Dickens was in that he was 0:20:40.760 --> 0:20:44.440 never the same after that. Radio going back sometime I'm 0:20:44.480 --> 0:20:48.960 doing that just impressed you with actually thoroughly impressed. Not 0:20:49.080 --> 0:20:53.200 actually to Tom Covered at the time. I said last 0:20:53.240 --> 0:20:59.399 week that he graduated with Keynes and that's funny. Michael's like, 0:20:59.480 --> 0:21:01.680 what are they talking about? But this, I'm sorry. These 0:21:01.720 --> 0:21:05.359 accidents drive the conversation. We've had three m track accidents, Michael, 0:21:05.400 --> 0:21:08.440 and we don't have infrastructure. I listen dazzled by that. 0:21:08.640 --> 0:21:11.640 There are a lot of urgent things that you would 0:21:11.680 --> 0:21:13.680 think would kind of spur on Congress at the moment, 0:21:14.040 --> 0:21:17.440 and right now just don't seem to be working. I mean, obviously, 0:21:17.520 --> 0:21:20.720 the the need to take care of the Dreamers and 0:21:20.760 --> 0:21:23.200 the docket issue is something that kind of keeps getting 0:21:23.280 --> 0:21:25.760 rolled forward because it is embroiled in all of these 0:21:25.800 --> 0:21:28.440 other short term government funding fights. You've gotta come back, 0:21:28.560 --> 0:21:31.720 but very quickly here with your cf A understanding of 0:21:31.760 --> 0:21:34.879 the dynamics. Are we anywhere near a yield lift that 0:21:35.000 --> 0:21:39.120 changes the calculus in Washington? I don't think so. Um 0:21:39.840 --> 0:21:42.960