1 00:00:09,720 --> 00:00:12,920 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene with 2 00:00:13,560 --> 00:00:16,520 Speaker 1: David Gura. Daily we bring you insight from the best 3 00:00:16,560 --> 00:00:22,279 Speaker 1: of economics, finance, investment, and international relations. Find Bloomberg Surveillance 4 00:00:22,320 --> 00:00:27,000 Speaker 1: on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course 5 00:00:27,320 --> 00:00:33,320 Speaker 1: on the Bloomberg. We start things off on this Thursday 6 00:00:33,320 --> 00:00:35,159 Speaker 1: morning with that As Gartman, editor and publisher of The 7 00:00:35,159 --> 00:00:37,839 Speaker 1: Gartman Letter, on our phone line and were reaching him 8 00:00:37,840 --> 00:00:39,479 Speaker 1: by phone as he prepares to make his way down 9 00:00:39,520 --> 00:00:41,960 Speaker 1: to Carter Finley Stadium this week and for Syracuse and 10 00:00:42,120 --> 00:00:44,800 Speaker 1: see State the wolf Pack three and one so far 11 00:00:45,240 --> 00:00:47,280 Speaker 1: this season. Dennis, great to have you with us this morning. 12 00:00:47,360 --> 00:00:49,320 Speaker 1: Let's start with the tax plan we're talking about a 13 00:00:49,320 --> 00:00:51,360 Speaker 1: few weeks back when you were on the show. Back then, 14 00:00:51,400 --> 00:00:53,000 Speaker 1: it seemed like we weren't going to get a whole lot. 15 00:00:53,200 --> 00:00:54,680 Speaker 1: What did you make of what we got, the level 16 00:00:54,720 --> 00:00:56,800 Speaker 1: of detail on what this means for for the marketing 17 00:00:56,800 --> 00:00:59,440 Speaker 1: for the U. S economy. Well, first of all, it 18 00:00:59,520 --> 00:01:02,440 Speaker 1: is it's a good plan. Let's let's let's be blunt. 19 00:01:03,240 --> 00:01:05,920 Speaker 1: The fact that we've gone to a simple, a much 20 00:01:06,000 --> 00:01:10,120 Speaker 1: simpler type of tax structure I think is reasonable and wise, 21 00:01:10,640 --> 00:01:13,200 Speaker 1: we are a long away from getting it passed. However, 22 00:01:13,240 --> 00:01:16,119 Speaker 1: there will be months before this can be put through, 23 00:01:16,600 --> 00:01:19,440 Speaker 1: months before the legislation comes from the House, months before 24 00:01:19,440 --> 00:01:22,679 Speaker 1: it's passed by the Senate, months before it is written 25 00:01:22,680 --> 00:01:25,759 Speaker 1: by or as signed off by the President. But it's 26 00:01:25,760 --> 00:01:28,800 Speaker 1: a good step forward. Hopefully it will be pushed through. 27 00:01:28,840 --> 00:01:31,600 Speaker 1: Hopefully we'll we'll see it comes to fruition. It will 28 00:01:31,600 --> 00:01:33,840 Speaker 1: be good for the economy. I stand in favor of it. 29 00:01:34,240 --> 00:01:36,400 Speaker 1: Hot off the press is this morning the latest gartment. Letty, 30 00:01:36,440 --> 00:01:38,800 Speaker 1: you spend a lot of time today, Dennis focusing on Japan. 31 00:01:38,840 --> 00:01:40,560 Speaker 1: We learned a couple of days ago from the Prime 32 00:01:40,600 --> 00:01:43,040 Speaker 1: Minister he's going to call a snap election in that country, 33 00:01:43,520 --> 00:01:46,200 Speaker 1: partly because of the threats from North Korea, partly because 34 00:01:46,240 --> 00:01:49,200 Speaker 1: he's planning to change the tax go there in Japan, 35 00:01:49,280 --> 00:01:52,200 Speaker 1: so tax tax changes all around. It seems like these days, 36 00:01:52,360 --> 00:01:53,720 Speaker 1: why is this so important? Why are you looking at 37 00:01:53,800 --> 00:01:56,960 Speaker 1: Japan in particular today? Well, first of all, any time 38 00:01:56,960 --> 00:01:59,720 Speaker 1: you get a regime change, and we're not going to 39 00:01:59,760 --> 00:02:03,560 Speaker 1: get regime change in Japan at this point. Mr Abbe 40 00:02:03,640 --> 00:02:06,600 Speaker 1: has made the decision to call a snap election, not 41 00:02:06,720 --> 00:02:09,760 Speaker 1: because he is terribly popular. In fact, he's not very 42 00:02:09,800 --> 00:02:12,880 Speaker 1: popular at all, But the fact is that his popularity 43 00:02:12,919 --> 00:02:17,240 Speaker 1: has risen marginally from its worst levels in several years, 44 00:02:17,680 --> 00:02:20,520 Speaker 1: and he has no one to run against. There is 45 00:02:20,560 --> 00:02:25,359 Speaker 1: nobody on from the Democratic Party of Japan of any 46 00:02:25,400 --> 00:02:28,480 Speaker 1: consequence that can stand in his stead. So he's going 47 00:02:28,520 --> 00:02:31,840 Speaker 1: to win the election. Uh I, if I'm not mistaken 48 00:02:31,880 --> 00:02:34,320 Speaker 1: at this point, will probably see the l d P 49 00:02:34,560 --> 00:02:37,280 Speaker 1: pick up five, maybe ten more seats in the diet 50 00:02:37,600 --> 00:02:40,519 Speaker 1: than it had previously. It will have a larger majority 51 00:02:40,520 --> 00:02:42,960 Speaker 1: than it has had. And if I were Mr Abbe, 52 00:02:42,960 --> 00:02:45,680 Speaker 1: I would have done exactly the same thing. He's getting 53 00:02:45,760 --> 00:02:48,400 Speaker 1: votes this time because he has done at least a 54 00:02:48,440 --> 00:02:52,280 Speaker 1: reasonable job of steadying the economy and studying the political 55 00:02:52,400 --> 00:02:56,200 Speaker 1: environs given the circumstances prevailing in the in the Korean Peninsula, 56 00:02:56,520 --> 00:02:58,520 Speaker 1: and he's probably done the right thing. I would have 57 00:02:58,560 --> 00:03:01,280 Speaker 1: done the same thing if I were Mr Dennis. What 58 00:03:01,360 --> 00:03:04,720 Speaker 1: everybody wants to know from you, among a number of things, 59 00:03:04,800 --> 00:03:08,280 Speaker 1: is not whether you're long December corn. I mean, you 60 00:03:08,320 --> 00:03:11,400 Speaker 1: always have to be long something in the Midwest, but 61 00:03:11,520 --> 00:03:15,079 Speaker 1: the state of gold, just to start, why is gold 62 00:03:15,200 --> 00:03:18,560 Speaker 1: fluctuating in the way it is it's not around an 63 00:03:18,600 --> 00:03:22,560 Speaker 1: inflation dynamic, is it. No, it's it's ceased being an 64 00:03:22,560 --> 00:03:26,480 Speaker 1: inflation dynamic. In fact, what it's interesting is, uh that 65 00:03:26,639 --> 00:03:29,120 Speaker 1: gold and and the bond market seemed to be moving 66 00:03:29,120 --> 00:03:33,560 Speaker 1: in tandem under normal circumstances over long periods of time. Uh. 67 00:03:33,639 --> 00:03:35,440 Speaker 1: And in the history of it that I've been involved 68 00:03:35,440 --> 00:03:37,920 Speaker 1: in the market's gold moves one direction and bonds moved 69 00:03:37,920 --> 00:03:40,160 Speaker 1: the other. But for the past year and a half, 70 00:03:40,560 --> 00:03:42,880 Speaker 1: golden bonds have moved in tandem one with the other, 71 00:03:42,880 --> 00:03:47,080 Speaker 1: which is artuly atypical. So gold has clear clearly ceased 72 00:03:47,160 --> 00:03:51,400 Speaker 1: being a a measure of inflation, has become solely another 73 00:03:52,080 --> 00:03:55,400 Speaker 1: safe haven currency, nothing more than that. And I've always 74 00:03:55,440 --> 00:03:57,600 Speaker 1: thought that that's what gold should be to begin with anyway. 75 00:03:57,760 --> 00:04:01,360 Speaker 1: And David Gurin now for the important philosop question. Is 76 00:04:01,440 --> 00:04:07,480 Speaker 1: December corn a safe haven crop? December corn is the 77 00:04:07,480 --> 00:04:10,280 Speaker 1: new crop. It's the it's the first of the of 78 00:04:10,320 --> 00:04:13,840 Speaker 1: the coin that can be delivered for that which is 79 00:04:13,840 --> 00:04:16,440 Speaker 1: being grown right now. Some coin can be delivered in September, 80 00:04:16,440 --> 00:04:19,200 Speaker 1: but it's usually it's very a very small amount of 81 00:04:19,440 --> 00:04:23,880 Speaker 1: of of coin that gets mature at this point. So 82 00:04:23,960 --> 00:04:26,520 Speaker 1: it is the new crop. It's the most important future 83 00:04:26,560 --> 00:04:28,480 Speaker 1: of the of the corn market, and it's the one 84 00:04:28,520 --> 00:04:32,240 Speaker 1: everybody pays attention to watch December corn. How about watch 85 00:04:32,320 --> 00:04:35,239 Speaker 1: margin usage? You talk about the global bullmarket we're seeing 86 00:04:35,400 --> 00:04:37,440 Speaker 1: right now? Why is that metric? Why is that indicator 87 00:04:37,520 --> 00:04:39,960 Speaker 1: so important to you? At this point, a lot of 88 00:04:40,000 --> 00:04:42,479 Speaker 1: people using a lot of margin and historically when you 89 00:04:42,520 --> 00:04:47,200 Speaker 1: get to these levels of margin usage, you get stock 90 00:04:47,279 --> 00:04:50,960 Speaker 1: markets the show a little some signs of weakness. Now, uh, 91 00:04:51,480 --> 00:04:55,640 Speaker 1: margin usage has been extended and agreed just for the 92 00:04:55,640 --> 00:04:57,720 Speaker 1: past five or six months to begin with, it has 93 00:04:57,760 --> 00:05:00,720 Speaker 1: gone to a new high, well above pre vious levels 94 00:05:01,760 --> 00:05:05,120 Speaker 1: it would have been. It looked over extended and therefore 95 00:05:05,200 --> 00:05:08,359 Speaker 1: bearish of the of the stock market somewhile ago. But 96 00:05:08,560 --> 00:05:11,640 Speaker 1: you don't turn bearish of stocks until the margin usage 97 00:05:11,680 --> 00:05:16,440 Speaker 1: itself turns lower. The problem is marginal usages is only 98 00:05:17,279 --> 00:05:19,960 Speaker 1: made public with a one month delay, and in our 99 00:05:20,000 --> 00:05:22,880 Speaker 1: business one month can be a veritable lifetime. But if 100 00:05:23,080 --> 00:05:27,200 Speaker 1: but we have marginal usage by the public at extremely 101 00:05:27,279 --> 00:05:31,320 Speaker 1: extended levels, eventually that must be unwound. The really important 102 00:05:31,320 --> 00:05:33,760 Speaker 1: to the operative word here is eventually it will happen. 103 00:05:34,160 --> 00:05:37,279 Speaker 1: When it happens, well, is it at oh seven levels. 104 00:05:37,279 --> 00:05:40,400 Speaker 1: I mean, is it the silliness rather of two thousand six? 105 00:05:40,720 --> 00:05:44,839 Speaker 1: Can you a relative analysis of it? It's even higher 106 00:05:44,839 --> 00:05:47,240 Speaker 1: than that. It's gone to even newer highs than that 107 00:05:47,279 --> 00:05:50,280 Speaker 1: which was used in OH seven. It's even higher than 108 00:05:50,320 --> 00:05:52,359 Speaker 1: that which was used in at the turn of the 109 00:05:52,720 --> 00:05:56,880 Speaker 1: of the century. It is extremely over extended, but it's 110 00:05:56,880 --> 00:06:00,240 Speaker 1: going to get more over When do you sell? I mean, 111 00:06:00,279 --> 00:06:03,320 Speaker 1: you don't sell based on North Carolina State football wins? 112 00:06:03,320 --> 00:06:05,240 Speaker 1: When do you sell? But we're doing better this year? 113 00:06:05,320 --> 00:06:09,360 Speaker 1: Be nice behind we beat Florida State last week. Come on, now, 114 00:06:09,760 --> 00:06:12,520 Speaker 1: it's true. And actually I did follow that a little bit. 115 00:06:12,520 --> 00:06:16,039 Speaker 1: I hate depleted about it, just for well, how do 116 00:06:16,040 --> 00:06:17,720 Speaker 1: you know, Dennis? When do you get out? I mean, 117 00:06:17,760 --> 00:06:20,640 Speaker 1: I mean that's the money question, your opiniata on this 118 00:06:21,080 --> 00:06:23,640 Speaker 1: across all the global wallster because you've got the courage 119 00:06:24,200 --> 00:06:27,760 Speaker 1: to state your track record and your trades right now, 120 00:06:27,960 --> 00:06:29,719 Speaker 1: how do you know when to get out? If margin 121 00:06:30,279 --> 00:06:34,479 Speaker 1: balances are nuts? The only thing I can say in 122 00:06:34,480 --> 00:06:37,120 Speaker 1: in in forty some years of being involved in markets 123 00:06:37,320 --> 00:06:39,840 Speaker 1: is this. It is a bull market. It has been 124 00:06:39,880 --> 00:06:41,839 Speaker 1: a bull market. It shall continue to be a bull 125 00:06:41,880 --> 00:06:45,760 Speaker 1: market until several things happen one. You have to break 126 00:06:45,839 --> 00:06:48,360 Speaker 1: up trend lines that that can be drawn with with 127 00:06:48,440 --> 00:06:52,240 Speaker 1: rather wide pencils too. You have to fail below the 128 00:06:52,279 --> 00:06:55,960 Speaker 1: previous highs. That is, the market must make a new 129 00:06:56,040 --> 00:06:59,160 Speaker 1: high break not go to a new high. That has 130 00:06:59,200 --> 00:07:02,159 Speaker 1: to happen. You have to see that the volume comes 131 00:07:02,160 --> 00:07:04,960 Speaker 1: in on the downside. That's not happening yet. You have 132 00:07:05,080 --> 00:07:07,839 Speaker 1: to finally see that the market does not respond to 133 00:07:07,880 --> 00:07:10,760 Speaker 1: bullish news, bullish lee. When all four of those things occur, 134 00:07:11,320 --> 00:07:14,160 Speaker 1: it will probably have been a bear A bear market 135 00:07:14,200 --> 00:07:16,760 Speaker 1: will have started. You will not be able to know 136 00:07:16,880 --> 00:07:19,679 Speaker 1: that until you're at least five or six or seven 137 00:07:19,720 --> 00:07:23,400 Speaker 1: percent below the previous highs. Even if then, if once 138 00:07:23,440 --> 00:07:26,880 Speaker 1: a bullmarket or a bear market begins, prices will go down. 139 00:07:28,960 --> 00:07:31,920 Speaker 1: But right now it is a it is a ball market. 140 00:07:32,000 --> 00:07:34,520 Speaker 1: It has been a bull market. It is an overextended 141 00:07:34,560 --> 00:07:37,960 Speaker 1: bull market. It will continue until it stops. That's all 142 00:07:38,040 --> 00:07:40,320 Speaker 1: I've learned in forty five years of doing this. What 143 00:07:40,440 --> 00:07:42,080 Speaker 1: I've learned here is you always ask the hard question 144 00:07:42,120 --> 00:07:43,720 Speaker 1: when you're going up against a heart break and you've 145 00:07:43,720 --> 00:07:45,800 Speaker 1: got to go to commercials. So it's just a few 146 00:07:45,840 --> 00:07:48,080 Speaker 1: seconds left, you're Dennis, I noticed bitcoin is not mentioned 147 00:07:48,120 --> 00:07:50,520 Speaker 1: the latest newsletter. What have you made about the rhetoric 148 00:07:50,960 --> 00:07:53,880 Speaker 1: surrounding bitcoin since the comments by Jamie Diamond a few 149 00:07:53,920 --> 00:07:57,080 Speaker 1: weeks back. We we've certainly seen a lot of attention 150 00:07:57,120 --> 00:07:59,880 Speaker 1: on the cryptocurrencies here over these last few weeks. I 151 00:08:00,160 --> 00:08:03,520 Speaker 1: think that the blockchain is one of the most important technical, 152 00:08:03,800 --> 00:08:06,760 Speaker 1: computer driven circumstances or events that we will have seen 153 00:08:06,800 --> 00:08:09,960 Speaker 1: in our lifetime. It will end up becoming far more important. 154 00:08:10,000 --> 00:08:13,320 Speaker 1: But Bitcoin ethereum and the other one thousand or so 155 00:08:14,160 --> 00:08:18,240 Speaker 1: cryptocurrencies are ridiculously priced. There is no reason for them whatsoever. 156 00:08:18,720 --> 00:08:22,200 Speaker 1: It is a punter paradise. Leave it to them, punter's paradise. 157 00:08:22,240 --> 00:08:25,600 Speaker 1: Are we going to see the Gartman initial coin offering 158 00:08:29,000 --> 00:08:34,720 Speaker 1: the Gartman I ce, Oh, no, you you you won't 159 00:08:35,040 --> 00:08:37,040 Speaker 1: uh and if you did, and would probably go blow 160 00:08:37,200 --> 00:08:39,840 Speaker 1: right up in my face. Begin with Dennis Gartment too short, 161 00:08:39,920 --> 00:08:43,080 Speaker 1: Thank you so much for being with us this morning, wisdom, 162 00:08:43,120 --> 00:08:45,559 Speaker 1: and again we protect the copyright of all of our guests. No, 163 00:08:46,440 --> 00:08:49,480 Speaker 1: we're not going to send out the acclaimed Gartment. Letter 164 00:08:50,040 --> 00:08:52,920 Speaker 1: is written David like he gets up in some it's 165 00:08:52,960 --> 00:08:55,640 Speaker 1: like we are. I don't think he sleeps at all 166 00:08:56,760 --> 00:09:01,079 Speaker 1: golf course like Jilsembuths Gartman. He's playing golf, you know, 167 00:09:01,120 --> 00:09:03,960 Speaker 1: out of the fourth hole. Un there's some hemlock somewhere 168 00:09:04,080 --> 00:09:08,120 Speaker 1: snoozing away, getting ready for the early morning Gartment letter. 169 00:09:08,240 --> 00:09:11,280 Speaker 1: Dennis Gartment. Send your love notes to David Gurrl. I'll 170 00:09:11,320 --> 00:09:26,200 Speaker 1: take the hate mail oor Gartment. It's always enjoyable. David Kara, 171 00:09:26,280 --> 00:09:28,440 Speaker 1: Tom Keen here in New York. This is Bloomberg surveillance 172 00:09:28,440 --> 00:09:30,960 Speaker 1: on Bloomberg Grade. Yesterday the Big Six is they're called 173 00:09:31,000 --> 00:09:33,760 Speaker 1: released a framework for tax reform. We've been going through 174 00:09:33,840 --> 00:09:36,920 Speaker 1: that since we got that report yesterday. The gentleman from 175 00:09:36,960 --> 00:09:39,120 Speaker 1: the fourth Congressional District in Ohio joins us. Now that's 176 00:09:39,160 --> 00:09:41,559 Speaker 1: Congressman Jim Jordan, the former chairman of the House of 177 00:09:41,640 --> 00:09:43,839 Speaker 1: Freedom Caucus. He's on our phone lines. Congressman Jordan, great 178 00:09:43,840 --> 00:09:45,880 Speaker 1: to have you with us here once again. I don't 179 00:09:45,920 --> 00:09:47,920 Speaker 1: know as soon as you got this framework yesterday, I 180 00:09:47,960 --> 00:09:50,640 Speaker 1: gathered Republicans gathered just outside of DC at Virginia to 181 00:09:50,800 --> 00:09:53,679 Speaker 1: talk about the framework. What was the front of mine 182 00:09:53,720 --> 00:09:56,079 Speaker 1: for you? What's the one question you've got for the 183 00:09:56,120 --> 00:09:58,320 Speaker 1: Big Six? For Chairman Brady and the lot who put 184 00:09:58,400 --> 00:10:00,360 Speaker 1: this thing together. What are you still Curry is about 185 00:10:00,360 --> 00:10:03,640 Speaker 1: wondering about what needs to be answered, what what you 186 00:10:03,679 --> 00:10:05,560 Speaker 1: know when income levels, the personal rates will be at. 187 00:10:05,679 --> 00:10:08,320 Speaker 1: But overall, we uh, you know, we like the framework. 188 00:10:08,679 --> 00:10:11,319 Speaker 1: You know, we did a piece last last week in 189 00:10:11,440 --> 00:10:14,240 Speaker 1: the in the journal uh Connress Snettas and I where 190 00:10:14,280 --> 00:10:17,320 Speaker 1: we where we talked about, look is the tax gun 191 00:10:17,360 --> 00:10:19,559 Speaker 1: and cut taxes is going to simplify the code and 192 00:10:19,640 --> 00:10:21,719 Speaker 1: they're going to be conducive for this economic quote. We 193 00:10:21,800 --> 00:10:24,400 Speaker 1: think the answers to those three questions are yes, just 194 00:10:24,840 --> 00:10:27,360 Speaker 1: uh specifically when we when we look at but some 195 00:10:27,480 --> 00:10:29,160 Speaker 1: of the details we were given and we asked for 196 00:10:29,320 --> 00:10:31,600 Speaker 1: last week in our piece, which is what's the corporate rate, 197 00:10:31,679 --> 00:10:34,839 Speaker 1: what's the small business rate, what's the repatriation rate, and 198 00:10:35,040 --> 00:10:36,319 Speaker 1: you know how many rates and where they're going to 199 00:10:36,360 --> 00:10:38,719 Speaker 1: be on the personal side. So we're beginning to get 200 00:10:38,720 --> 00:10:40,360 Speaker 1: that information. We think it's a good plan, a good 201 00:10:40,360 --> 00:10:43,640 Speaker 1: framework to start with, and so we're supporting UM, We're 202 00:10:43,640 --> 00:10:45,920 Speaker 1: supporting the budget and moving forward. Help Tom and me 203 00:10:46,040 --> 00:10:48,199 Speaker 1: understand where we are in this process. We talked to 204 00:10:48,240 --> 00:10:50,360 Speaker 1: Senator Pat Toomey yesterday and it sounded from listening to 205 00:10:50,480 --> 00:10:52,000 Speaker 1: him that we're at the beginning of this, there's still 206 00:10:52,000 --> 00:10:53,960 Speaker 1: a lot of debate to be had among committees, among 207 00:10:54,040 --> 00:10:56,480 Speaker 1: members of the House and members of the Senate as well. 208 00:10:56,720 --> 00:10:58,240 Speaker 1: At the same time, we hear from the President this 209 00:10:58,360 --> 00:10:59,800 Speaker 1: is going to be done by the end of the calendar. 210 00:10:59,840 --> 00:11:03,440 Speaker 1: Your square that optimism with just the realities of legislating 211 00:11:03,920 --> 00:11:05,679 Speaker 1: what has to be done in committees and and the 212 00:11:05,760 --> 00:11:07,520 Speaker 1: likelihood as you see it, that we will get something 213 00:11:07,559 --> 00:11:11,560 Speaker 1: here over these next few months. That is my goal. Uh. Frankly, 214 00:11:11,840 --> 00:11:13,640 Speaker 1: I think the American people are tired of waiting for 215 00:11:13,840 --> 00:11:16,160 Speaker 1: the things that they you know, we told him we 216 00:11:16,240 --> 00:11:17,280 Speaker 1: were going to do when they had like it. As 217 00:11:17,320 --> 00:11:19,920 Speaker 1: that last November, the healthcare hasn't worked out like we 218 00:11:20,080 --> 00:11:23,800 Speaker 1: had planned, which is very unfortunate. But I think you 219 00:11:23,840 --> 00:11:24,960 Speaker 1: need to get done by the end of the year, 220 00:11:25,040 --> 00:11:27,120 Speaker 1: just like the presidents talked about. So let's get it 221 00:11:27,200 --> 00:11:29,920 Speaker 1: through the House. Step one is the passive budget um. 222 00:11:30,040 --> 00:11:31,719 Speaker 1: Now that we have this framework on the on the 223 00:11:31,800 --> 00:11:34,520 Speaker 1: taxi form House right position, we're willing to go for 224 00:11:34,600 --> 00:11:37,680 Speaker 1: a budget. Jim Jordan, you're as far from Gucci Gulf 225 00:11:37,880 --> 00:11:40,679 Speaker 1: John Fifth Avenue in New York is anybody I know? 226 00:11:40,920 --> 00:11:44,679 Speaker 1: Your fourth district is the little Switzerland of America. Your 227 00:11:44,800 --> 00:11:48,000 Speaker 1: district is what everybody wants. You got a yogurt factory, 228 00:11:48,360 --> 00:11:51,599 Speaker 1: you got a Ford factory, You're making Heinz ketchup and 229 00:11:51,760 --> 00:11:55,679 Speaker 1: all the rest of it. What what Yeah, I know 230 00:11:55,880 --> 00:12:00,440 Speaker 1: what tax relief? What tax relief? Does the middle class 231 00:12:00,559 --> 00:12:03,800 Speaker 1: miracle of the fourth District need away from what the 232 00:12:03,920 --> 00:12:07,040 Speaker 1: Titans of Wall Street want? Do you want to let 233 00:12:07,080 --> 00:12:09,960 Speaker 1: families keep more than money in their pocket? Plan and simple? 234 00:12:10,000 --> 00:12:11,839 Speaker 1: And that's what up on the standard deduction is gonna do. 235 00:12:11,880 --> 00:12:14,520 Speaker 1: That's what lower and the personal ranch is gonna do. 236 00:12:15,240 --> 00:12:18,000 Speaker 1: H Plus, you just won overall okay, broth, which which 237 00:12:18,040 --> 00:12:20,760 Speaker 1: helps every single American. And that's what you know. We 238 00:12:20,880 --> 00:12:22,440 Speaker 1: saw all kinds of a kind of gest you talking about. 239 00:12:22,440 --> 00:12:24,400 Speaker 1: This is the kind of plan that's gonna produce drugs. Okay, 240 00:12:24,440 --> 00:12:27,079 Speaker 1: But as Jim Jordan helped put it together, we're Steve Moore, 241 00:12:27,240 --> 00:12:30,880 Speaker 1: Larry Cutlow and understanding. Yeah, okay, but Larry, come on, Larry, 242 00:12:31,280 --> 00:12:35,080 Speaker 1: my good friend, Larry Cudlow is a Rockefeller Republican. Are 243 00:12:35,160 --> 00:12:39,079 Speaker 1: you doing this with an expanding deficit that sells to 244 00:12:39,240 --> 00:12:42,880 Speaker 1: Cudlow and more, but an expanding deficit that doesn't sell 245 00:12:42,920 --> 00:12:47,439 Speaker 1: in the fourth district. No, because revenue neutral this this 246 00:12:47,720 --> 00:12:51,520 Speaker 1: Washington speak, is a fancy way of saying the tax 247 00:12:51,600 --> 00:12:54,360 Speaker 1: burden stays the same. We just shipped around who pays 248 00:12:54,440 --> 00:12:58,360 Speaker 1: what and and that zero some game scenario. Who always 249 00:12:58,440 --> 00:13:01,599 Speaker 1: wins is the big corporation Satians who always loses his 250 00:13:01,720 --> 00:13:04,400 Speaker 1: middle class families. So I am not for revenue neutral. 251 00:13:04,720 --> 00:13:07,040 Speaker 1: I'm for actually just designing a TASCO that does those 252 00:13:07,080 --> 00:13:09,960 Speaker 1: things I described earlier, lets families keep more of their money, 253 00:13:10,120 --> 00:13:12,960 Speaker 1: and one that produces economic growth. That should be our focus. 254 00:13:13,280 --> 00:13:15,440 Speaker 1: And then over time we are going to get economic 255 00:13:15,520 --> 00:13:17,640 Speaker 1: growth which does in fact help you. You cannot deal 256 00:13:17,720 --> 00:13:19,840 Speaker 1: with the twenty trained oar dad if you don't start 257 00:13:19,880 --> 00:13:21,720 Speaker 1: growing as something better than what we've had the last 258 00:13:21,760 --> 00:13:23,640 Speaker 1: ten years, which has been a percent percent to half 259 00:13:23,679 --> 00:13:25,040 Speaker 1: each year. You've got to get the three and a 260 00:13:25,080 --> 00:13:28,120 Speaker 1: half percent growth to have any chance to the depth 261 00:13:28,200 --> 00:13:30,599 Speaker 1: of that of that magnitude. Well, something that's gotten a 262 00:13:30,640 --> 00:13:33,200 Speaker 1: lot of attention here is this cap on passed through entities. 263 00:13:33,200 --> 00:13:34,760 Speaker 1: What are you going to say to a mom from Tiffan, 264 00:13:34,800 --> 00:13:37,240 Speaker 1: Ohio about passed through entities and why that's something that 265 00:13:37,360 --> 00:13:42,000 Speaker 1: just to be kept. Well's small business owners, they create 266 00:13:42,040 --> 00:13:43,599 Speaker 1: most of the job in this country. So if you 267 00:13:43,640 --> 00:13:46,719 Speaker 1: don't want them paying at thirty for goodness sake, you 268 00:13:46,760 --> 00:13:48,679 Speaker 1: want that rate to come down. And that's what it 269 00:13:48,760 --> 00:13:51,600 Speaker 1: does under this plan. So that is a good thing. 270 00:13:51,720 --> 00:13:53,760 Speaker 1: Letting people, I mean this is real simple. Letting people 271 00:13:53,800 --> 00:13:55,640 Speaker 1: keep more of their money is a good thing. Letting 272 00:13:55,679 --> 00:13:57,360 Speaker 1: moms and dads have more of their money to spend 273 00:13:57,400 --> 00:14:00,439 Speaker 1: on their kids, their grand kids, their goals, theirs, their 274 00:14:00,480 --> 00:14:02,760 Speaker 1: small business if they have one, is a good thing. 275 00:14:02,960 --> 00:14:05,920 Speaker 1: That's what this plan does. This frame work. We've got 276 00:14:06,000 --> 00:14:08,760 Speaker 1: some specifics to work out, I understand, but so far 277 00:14:08,880 --> 00:14:11,439 Speaker 1: the outline is good. Let's move forward, Let's get it done. 278 00:14:11,760 --> 00:14:13,520 Speaker 1: After all, that's what we told the voters we're gonna do. 279 00:14:14,440 --> 00:14:17,640 Speaker 1: Good morning on the Sandusky River, Tiffan, Ohio. This morning. 280 00:14:17,720 --> 00:14:20,400 Speaker 1: Jim Jordan whether it's on the fourth District of Ohi. 281 00:14:20,440 --> 00:14:23,880 Speaker 1: It's a really interesting district. It's sort of like rural Ohio. 282 00:14:24,200 --> 00:14:27,120 Speaker 1: I think tomatoes and it curves up to the right. 283 00:14:27,640 --> 00:14:32,080 Speaker 1: Jim Jordan's is the representative of the conservative university known 284 00:14:32,120 --> 00:14:37,360 Speaker 1: as Oberlin. How does that Jim Jordan's represents the students 285 00:14:37,760 --> 00:14:41,040 Speaker 1: of Oberlin College Eclectic district to say, the least that, Steve, 286 00:14:41,080 --> 00:14:42,560 Speaker 1: We're going to join us as well in the next hour. 287 00:14:44,120 --> 00:14:48,360 Speaker 1: Basketball scandal is nothing, I'm telling it. Always good to 288 00:14:48,400 --> 00:14:51,720 Speaker 1: talk to. Jim Jordan's stay with us worldwide. This is Bloomberg. 289 00:15:02,640 --> 00:15:04,920 Speaker 1: David Gurrl is going to bring on our next esteemed 290 00:15:05,200 --> 00:15:08,080 Speaker 1: guest and David. It's the theme of the day, including 291 00:15:08,120 --> 00:15:12,240 Speaker 1: with the National Economic Advisor Mr Kohan, which is everything's 292 00:15:12,240 --> 00:15:15,560 Speaker 1: gonna be fine. We're gonna grow our way, grow our 293 00:15:15,640 --> 00:15:19,240 Speaker 1: way along the tax reform bath. Somebody's been saying that 294 00:15:19,280 --> 00:15:21,480 Speaker 1: for a while now. Is Steven More, former advisor to 295 00:15:21,520 --> 00:15:24,280 Speaker 1: then candidate Donald Trump, former president of Club for Growth. 296 00:15:24,320 --> 00:15:26,400 Speaker 1: We talked with the Senator Pat Toomey yesterday. Another former 297 00:15:26,440 --> 00:15:28,760 Speaker 1: president of that organization. Steve, We're the founder of it. 298 00:15:29,080 --> 00:15:31,560 Speaker 1: He's now the senior Fellow at the Heritage Foundation in Washington, 299 00:15:31,600 --> 00:15:33,320 Speaker 1: d C. Joining us on our phone line. Steven, great 300 00:15:33,320 --> 00:15:35,040 Speaker 1: to speak with you. We were talking with Congressman Jim 301 00:15:35,120 --> 00:15:37,600 Speaker 1: Jordan a few minutes ago and he was quibbling with 302 00:15:37,640 --> 00:15:40,040 Speaker 1: the term revenue neutral. He said, we shouldn't be so 303 00:15:40,120 --> 00:15:41,920 Speaker 1: fixated on that at this point as we begin the 304 00:15:41,960 --> 00:15:44,440 Speaker 1: discussion over what this bill is gonna look like, How 305 00:15:44,520 --> 00:15:46,320 Speaker 1: important is it to you and your colleagues there at 306 00:15:46,360 --> 00:15:49,080 Speaker 1: the Heritage Foundation representing the conservative wing of the Republican 307 00:15:49,160 --> 00:15:52,040 Speaker 1: Party that this bill when it's written, is in fact 308 00:15:52,280 --> 00:15:56,680 Speaker 1: a depsite neutral Uh. To me, I can only speak 309 00:15:56,720 --> 00:15:58,520 Speaker 1: for myself. I'm not going to speak for Heritage, but 310 00:15:58,720 --> 00:16:01,800 Speaker 1: I think what's much more by far, the most important 311 00:16:01,800 --> 00:16:04,120 Speaker 1: thing for our country right now is get the economy 312 00:16:04,400 --> 00:16:06,920 Speaker 1: UH growing faster. You know, we've been growing less than 313 00:16:06,960 --> 00:16:09,960 Speaker 1: two percent now for ten years. I believe the capacity 314 00:16:10,000 --> 00:16:11,640 Speaker 1: of the US economy is to grow at three and 315 00:16:11,640 --> 00:16:14,760 Speaker 1: a half to four percent, so almost twice has passed. Uh. 316 00:16:14,800 --> 00:16:17,280 Speaker 1: There are a lot of ways of getting there, but 317 00:16:17,400 --> 00:16:20,040 Speaker 1: one of them is having more competitive taxes. Some I 318 00:16:20,120 --> 00:16:22,320 Speaker 1: think it would be hard to find anybody who thinks 319 00:16:22,400 --> 00:16:25,240 Speaker 1: we have a globally competitive tax system. We have the 320 00:16:25,480 --> 00:16:28,040 Speaker 1: highest statutory tax rates in the world on our on 321 00:16:28,120 --> 00:16:31,200 Speaker 1: our corporation. That just doesn't work anymore. We're at the 322 00:16:31,240 --> 00:16:33,600 Speaker 1: rest of the world that closer to twenty. So it's 323 00:16:33,640 --> 00:16:36,720 Speaker 1: like a head start program for every uh, you know, 324 00:16:36,840 --> 00:16:39,600 Speaker 1: company we're competing with abroad. We want to bring a 325 00:16:39,680 --> 00:16:42,640 Speaker 1: lot of the capital that's stored abroad, and we estimate 326 00:16:42,680 --> 00:16:45,040 Speaker 1: there's two to three trillion dollars. We won't bring that 327 00:16:45,200 --> 00:16:47,800 Speaker 1: home back to the United States and have it reinvested here, 328 00:16:47,920 --> 00:16:50,600 Speaker 1: so you guarantee that happens. Steven, sorry to interrupt there, 329 00:16:50,600 --> 00:16:52,160 Speaker 1: But if that capital is brought back, how do you 330 00:16:52,200 --> 00:16:54,360 Speaker 1: incentivize these companies to spend it on things that will, 331 00:16:54,400 --> 00:16:57,840 Speaker 1: as you say, get the economy growing. Well, look, if 332 00:16:57,960 --> 00:17:00,560 Speaker 1: if you've got if you've got a good vibrant economy, 333 00:17:00,760 --> 00:17:03,640 Speaker 1: and you're you have lower tax rates, so you increase 334 00:17:03,680 --> 00:17:06,080 Speaker 1: the after tax rate to return on investing, guess what 335 00:17:06,320 --> 00:17:09,000 Speaker 1: they will invest more? And now look, a lot of 336 00:17:09,040 --> 00:17:12,800 Speaker 1: it will be invested in building more plants and investing 337 00:17:12,840 --> 00:17:16,040 Speaker 1: more in equipment and machinery and workers and wages. But 338 00:17:16,240 --> 00:17:18,960 Speaker 1: some of it probably will be passed on the shareholders 339 00:17:19,040 --> 00:17:21,359 Speaker 1: and in dividends. And that's fine. What's wrong with that? 340 00:17:21,600 --> 00:17:25,560 Speaker 1: You know, good dividends to a half of Americans own stocks, 341 00:17:25,600 --> 00:17:27,840 Speaker 1: So it'll be good for the economy if the companies 342 00:17:28,080 --> 00:17:30,760 Speaker 1: have more dividends to their Stephen, around about the fourth 343 00:17:30,800 --> 00:17:33,200 Speaker 1: of July three years ago, you wrote an important essay 344 00:17:33,320 --> 00:17:37,760 Speaker 1: on Kansas counseling patients. Kansas will workout and a number 345 00:17:37,800 --> 00:17:40,800 Speaker 1: of others, including your good friend Paul Krugman said, uh, 346 00:17:41,240 --> 00:17:46,080 Speaker 1: maybe not. Can you apply Kansas is a failure or 347 00:17:46,359 --> 00:17:50,680 Speaker 1: Kansas as a success over a success over to the 348 00:17:50,800 --> 00:17:55,080 Speaker 1: national tax reform debate. Well, I think it's Look, the 349 00:17:55,200 --> 00:17:57,240 Speaker 1: Kansas has gotten a lot of attention on no question 350 00:17:57,320 --> 00:17:59,560 Speaker 1: about it, and and uh, you know they've had problems 351 00:17:59,600 --> 00:18:02,159 Speaker 1: and cans us and partly because you know the oil 352 00:18:02,560 --> 00:18:07,480 Speaker 1: bus you know it didn't work out. It's also but 353 00:18:07,640 --> 00:18:10,160 Speaker 1: here's the point. I mean, yeah, I love the point 354 00:18:10,200 --> 00:18:12,800 Speaker 1: to the states. The states are such a good example 355 00:18:12,840 --> 00:18:14,520 Speaker 1: of why we need to do this. I mean, North 356 00:18:14,600 --> 00:18:17,680 Speaker 1: Carolina just passed, uh three or four years ago, a 357 00:18:17,800 --> 00:18:20,919 Speaker 1: gigantic task kind of business tax cut in North Carolina 358 00:18:21,000 --> 00:18:22,920 Speaker 1: is now the three the third fastest growing state in 359 00:18:22,960 --> 00:18:24,879 Speaker 1: the country. And then if you look at what's happened 360 00:18:24,920 --> 00:18:28,159 Speaker 1: in Tennessee, they eliminated their tax on investment. Tennessee is 361 00:18:28,240 --> 00:18:30,760 Speaker 1: hot one of the two or three growing states in 362 00:18:30,800 --> 00:18:33,640 Speaker 1: the country. So states are really good examples of why 363 00:18:34,080 --> 00:18:36,479 Speaker 1: tax rates matter. I mean, look at the ten states 364 00:18:36,520 --> 00:18:39,200 Speaker 1: with no income tax and compare them with like California 365 00:18:39,280 --> 00:18:44,560 Speaker 1: and New York and New Jersey and Canada. Demographic questions, jobs, 366 00:18:44,800 --> 00:18:47,720 Speaker 1: no question about the no question about that, and just 367 00:18:47,800 --> 00:18:51,200 Speaker 1: looking at Texas alone is a job for me miracle, 368 00:18:51,280 --> 00:18:54,879 Speaker 1: given the sharp demographic differences within the great state of Texas. 369 00:18:55,160 --> 00:18:58,159 Speaker 1: But Stephen Moore, just to get to the point, what 370 00:18:58,400 --> 00:19:02,160 Speaker 1: is Stephen Moore's definition middle class? I don't mean heritage. 371 00:19:02,520 --> 00:19:05,720 Speaker 1: I mean what's your definition a middle class? Because it's 372 00:19:05,800 --> 00:19:08,680 Speaker 1: different in Kansas than it is near the Gucci store 373 00:19:08,920 --> 00:19:12,240 Speaker 1: on Fifth Avenue. Well, that's a great question, you know. 374 00:19:12,359 --> 00:19:14,440 Speaker 1: I mean being a middle class in Manhattan, you know, 375 00:19:14,520 --> 00:19:16,520 Speaker 1: you probably need a you need an income of at 376 00:19:16,600 --> 00:19:19,040 Speaker 1: least you know, two hundred thousand dollars or so to 377 00:19:19,640 --> 00:19:22,119 Speaker 1: be in the middle class there. I mean whereas you're 378 00:19:22,160 --> 00:19:24,800 Speaker 1: right if if you're in a rural area, probably you know, 379 00:19:24,960 --> 00:19:28,800 Speaker 1: fifty puts you in the middle class. Look, I want 380 00:19:28,960 --> 00:19:31,600 Speaker 1: a rising tide that lifts off boats. I want every 381 00:19:31,680 --> 00:19:34,439 Speaker 1: American to have a higher income. We want higher wages 382 00:19:34,480 --> 00:19:38,000 Speaker 1: and salaries. We do think having businesses bring back jobs 383 00:19:38,080 --> 00:19:40,560 Speaker 1: to American invest more is a good way to do it. 384 00:19:40,640 --> 00:19:44,000 Speaker 1: You know, the Congressional Budget Office, which is probably a conservative, 385 00:19:44,280 --> 00:19:48,679 Speaker 1: you know, numbers crunching. You've got a love affair, Stephen, 386 00:19:48,840 --> 00:19:51,840 Speaker 1: or you have a love affair with CBO they say 387 00:19:51,960 --> 00:19:56,080 Speaker 1: sixty five of the benefits of hutting business taxes will 388 00:19:56,160 --> 00:19:58,560 Speaker 1: go to workers in the form of higher wages and 389 00:19:58,640 --> 00:20:03,720 Speaker 1: more jobs. So you know, we really I hope he's right. Okay, 390 00:20:03,800 --> 00:20:07,880 Speaker 1: John Tucker the headline Years More More re establishes romance 391 00:20:08,000 --> 00:20:10,920 Speaker 1: with CBO. Stephen Moore, thank you. We want you to 392 00:20:11,040 --> 00:20:14,600 Speaker 1: come on more during this heated debate because tax reform 393 00:20:14,720 --> 00:20:16,680 Speaker 1: is going to go on for two years, contrary to 394 00:20:16,720 --> 00:20:19,440 Speaker 1: what everybody says. Stephen Moore, Club for Growth was that? Okay, 395 00:20:19,520 --> 00:20:21,760 Speaker 1: David now at the Heritage Foundation DC on our phone, 396 00:20:21,800 --> 00:20:35,960 Speaker 1: lies now it's time to get you know, a little 397 00:20:36,000 --> 00:20:38,880 Speaker 1: bit of cute and Matthew on a vix at nine 398 00:20:38,960 --> 00:20:41,639 Speaker 1: point ninety three down printing negative thirty right now in 399 00:20:41,640 --> 00:20:46,760 Speaker 1: the initial Prince eschew aloncars with Jennis Henderson out of 400 00:20:46,960 --> 00:20:51,159 Speaker 1: m I T and Hosperkeley as well. Dr Lanca, good morning, um. 401 00:20:51,400 --> 00:20:54,320 Speaker 1: What's the nature of the damp and quiet, the volatility 402 00:20:54,400 --> 00:20:56,960 Speaker 1: that we see, the lack of volatility that we see. 403 00:20:57,000 --> 00:21:01,040 Speaker 1: What's the distinction you see within that? Good morning gentlemen. Uh, 404 00:21:01,280 --> 00:21:04,840 Speaker 1: excellent question. A big puzzle, I would say over the 405 00:21:04,920 --> 00:21:09,520 Speaker 1: past many years is the stamp in volatility, and our 406 00:21:09,640 --> 00:21:13,760 Speaker 1: take on this is the following. Volatility. If you think 407 00:21:13,800 --> 00:21:16,600 Speaker 1: of it as an asset class, it's an asset class 408 00:21:16,840 --> 00:21:20,639 Speaker 1: which is used to earn carry. People's short volatility to 409 00:21:20,720 --> 00:21:25,480 Speaker 1: earn carry, to earn income, to earn a monthly or 410 00:21:25,520 --> 00:21:28,520 Speaker 1: a weekly cupon. Okay, stop, we gotta translate this. Not 411 00:21:28,640 --> 00:21:34,720 Speaker 1: everybody has a PhD. From Okay, here's what he says, folks, volatility. 412 00:21:35,200 --> 00:21:37,840 Speaker 1: I'm going to sell it to you and bring in 413 00:21:38,000 --> 00:21:41,440 Speaker 1: money a premium and bank the money. Did I get 414 00:21:41,480 --> 00:21:48,240 Speaker 1: that right? That's exactly correct. Continue. So, if volatility is 415 00:21:48,400 --> 00:21:54,520 Speaker 1: used as an asset to generate income, what is the 416 00:21:54,800 --> 00:21:58,960 Speaker 1: alternative way to earn income? The alternative way to earn 417 00:21:59,040 --> 00:22:02,239 Speaker 1: income is to hold bonds to collect an interest rate 418 00:22:02,320 --> 00:22:05,760 Speaker 1: by holding US treasuries, holding corporate bonds, holding high yield 419 00:22:05,800 --> 00:22:11,440 Speaker 1: bonds with interest rates so bloody low. You then have 420 00:22:11,880 --> 00:22:14,520 Speaker 1: a choice to make. Should I hold a tenure bond 421 00:22:14,560 --> 00:22:18,199 Speaker 1: which is earning or yielding today at learning yielding two 422 00:22:18,240 --> 00:22:22,480 Speaker 1: point three um? Or can I short some volatility to 423 00:22:22,640 --> 00:22:26,520 Speaker 1: earn a bit more and bear that risk. So, when 424 00:22:26,680 --> 00:22:31,320 Speaker 1: interest rates are low, all forms of carry strategies, whether 425 00:22:31,440 --> 00:22:34,880 Speaker 1: it be shorting volatility to collect a premium um as 426 00:22:34,960 --> 00:22:40,320 Speaker 1: you describe tom or holding f X uh carry trades um, 427 00:22:40,560 --> 00:22:45,399 Speaker 1: those all start getting distorted. Uh. So our firm belief 428 00:22:45,920 --> 00:22:49,480 Speaker 1: is as long as interest rates stay very low, it's 429 00:22:49,640 --> 00:22:52,560 Speaker 1: very difficult for volatility to rise because you have a 430 00:22:52,640 --> 00:22:58,400 Speaker 1: continuous flow of investors selling volatility. But once interest rates rise, 431 00:22:59,119 --> 00:23:02,160 Speaker 1: volatility should increase commensurately. Yeah, but that's the funny question. 432 00:23:02,240 --> 00:23:04,959 Speaker 1: You got a jump condition on the word once. I mean, 433 00:23:05,520 --> 00:23:09,080 Speaker 1: everybody's telling me a smooth, stable pass and you've got 434 00:23:09,160 --> 00:23:12,200 Speaker 1: a single sentence in your note. Bonds continue to represent 435 00:23:12,320 --> 00:23:15,800 Speaker 1: the least attractive asset class. That's because the astrilant car 436 00:23:15,920 --> 00:23:19,359 Speaker 1: is worried about a jump condition, right. Um, I actually 437 00:23:19,359 --> 00:23:22,280 Speaker 1: wouldn't say were worried about a jump condition. Um, we 438 00:23:22,600 --> 00:23:25,440 Speaker 1: think the FED, Um, So what can cause a jump 439 00:23:25,520 --> 00:23:29,560 Speaker 1: condition and yield to rise? That jump condition often isn't 440 00:23:29,640 --> 00:23:33,000 Speaker 1: caused in a in a developed country by a jump 441 00:23:33,080 --> 00:23:37,040 Speaker 1: in real rates. That jump condition is caused by a 442 00:23:37,160 --> 00:23:41,400 Speaker 1: jump in inflation. And we currently do not see any 443 00:23:41,560 --> 00:23:47,320 Speaker 1: signs of appending unexpected upward shot to inflation. And if 444 00:23:47,400 --> 00:23:53,080 Speaker 1: that's the case, then the FED is not We will 445 00:23:53,119 --> 00:23:58,080 Speaker 1: never be forced to quickly drain liquidity from the markets. Um. 446 00:23:58,119 --> 00:24:00,440 Speaker 1: And if that risk is off the table, so is 447 00:24:00,600 --> 00:24:04,240 Speaker 1: the risk of h pushing the economy or tipping the 448 00:24:04,320 --> 00:24:07,560 Speaker 1: economy off a cliff, right, David, Let me do a 449 00:24:07,680 --> 00:24:10,040 Speaker 1: jargon a arn here, David, A jump condition is a 450 00:24:10,119 --> 00:24:13,480 Speaker 1: Louisville point guard jumping up and taking a shot with 451 00:24:13,560 --> 00:24:17,199 Speaker 1: a pair of Adidas shoes on. Just that's that's right, 452 00:24:17,440 --> 00:24:20,120 Speaker 1: That's what a jump condition is. Actually, that's that Tom 453 00:24:20,200 --> 00:24:22,600 Speaker 1: was referencing there a moment ago. You focus a lot 454 00:24:22,680 --> 00:24:24,760 Speaker 1: on sharp ratios, and Tom and I were talking a 455 00:24:24,800 --> 00:24:26,600 Speaker 1: bit about the role of them, what we can learn 456 00:24:26,680 --> 00:24:28,439 Speaker 1: from them yesterday. How do you use them? What does 457 00:24:28,480 --> 00:24:31,960 Speaker 1: the sharp ratio tell you? Uh? Great, So we actually 458 00:24:32,240 --> 00:24:36,240 Speaker 1: don't use a traditional sharp ratio. UM. So, the traditional 459 00:24:36,320 --> 00:24:39,720 Speaker 1: sharp ratio, which Bill Sharper was in part rewarded the 460 00:24:39,760 --> 00:24:43,600 Speaker 1: Nobel Prize for, is a ratio of risk adjusted returns, 461 00:24:43,680 --> 00:24:47,119 Speaker 1: which aims to estimate the expected return on an asset, 462 00:24:47,200 --> 00:24:50,119 Speaker 1: so say the expected return on the SMP five and 463 00:24:50,320 --> 00:24:53,639 Speaker 1: normalizes it by the risk you're bearing by holding the 464 00:24:53,800 --> 00:24:57,240 Speaker 1: SMP five D, which is the volatility. UM. We believe 465 00:24:57,280 --> 00:25:00,119 Speaker 1: that that actually is an incomplete measure of attractiveness us. 466 00:25:00,560 --> 00:25:04,600 Speaker 1: And the better measure of attractiveness deals with the kind 467 00:25:04,600 --> 00:25:07,520 Speaker 1: of this idea we're talking about about jump risk um, 468 00:25:07,880 --> 00:25:12,439 Speaker 1: where your attractiveness to an asset is not the expected return, 469 00:25:12,920 --> 00:25:16,159 Speaker 1: but it's the potential of that asset to realize a 470 00:25:16,400 --> 00:25:19,359 Speaker 1: very large move to the upside i e. A right 471 00:25:19,440 --> 00:25:22,879 Speaker 1: tail event. And the risk of holding an asset is 472 00:25:22,920 --> 00:25:26,119 Speaker 1: not really volatility. The risk of holding an asset is 473 00:25:26,160 --> 00:25:28,879 Speaker 1: the risk of loss or draw down risk. So we 474 00:25:29,000 --> 00:25:32,960 Speaker 1: normalize that and divide that by the risk of suffering 475 00:25:33,000 --> 00:25:35,440 Speaker 1: a severe draw down, and we call that a tail 476 00:25:35,480 --> 00:25:40,160 Speaker 1: based sharp ratio. And and what the market is telling 477 00:25:40,280 --> 00:25:45,119 Speaker 1: us is so we really embrace the and and respect 478 00:25:45,560 --> 00:25:49,159 Speaker 1: the value of market prices and what market prices can 479 00:25:49,240 --> 00:25:53,639 Speaker 1: tell you about future risk. And these market prices um 480 00:25:54,560 --> 00:25:58,840 Speaker 1: mainly option prices, are telling us both good and bad 481 00:25:58,920 --> 00:26:02,199 Speaker 1: news quickly. Okay, So what would you like to hear 482 00:26:02,280 --> 00:26:06,760 Speaker 1: the good or the bad? So the good news is 483 00:26:06,840 --> 00:26:10,560 Speaker 1: the market is not pricing in a level of risk 484 00:26:10,840 --> 00:26:14,960 Speaker 1: which is consistent with a sharp blow down in The 485 00:26:16,119 --> 00:26:21,640 Speaker 1: bad news is the market is pricing ever more little upside. Okay, 486 00:26:21,680 --> 00:26:24,359 Speaker 1: I'll go that. My problem with all this mumbo jumbo 487 00:26:24,800 --> 00:26:27,480 Speaker 1: is the idea of you're working within a Gaussian constructor 488 00:26:27,520 --> 00:26:30,800 Speaker 1: symmetric bell curve. Aren't you working in a log normal world? 489 00:26:30,880 --> 00:26:33,200 Speaker 1: Like everybody else where? When we go down, we go 490 00:26:33,320 --> 00:26:37,480 Speaker 1: down faster than when we go up. Um, so we 491 00:26:37,600 --> 00:26:39,960 Speaker 1: are not working in a log normal world. We're working 492 00:26:40,000 --> 00:26:42,800 Speaker 1: But what you said is exactly right. We're assuming the 493 00:26:42,920 --> 00:26:46,399 Speaker 1: world is not Gaussian, the world is not log normal. 494 00:26:46,760 --> 00:26:51,760 Speaker 1: The world is potentially a fat tailed world. Okay, so 495 00:26:51,840 --> 00:26:57,280 Speaker 1: when exactly But those fat tails don't only exist in 496 00:26:57,400 --> 00:27:00,840 Speaker 1: the left tail, I e. That black swan, but fat 497 00:27:00,920 --> 00:27:05,160 Speaker 1: tails also show themselves on the right side in terms 498 00:27:05,240 --> 00:27:08,399 Speaker 1: of very very bullish and upwards send. Are we on 499 00:27:08,480 --> 00:27:10,000 Speaker 1: the right side of the left side? We're gonna come 500 00:27:10,000 --> 00:27:11,840 Speaker 1: back on this, folks, because four people in the Garden 501 00:27:11,880 --> 00:27:15,159 Speaker 1: State Parkway just drove off the road. What's the likelihood 502 00:27:15,200 --> 00:27:16,600 Speaker 1: we're on the right side? And to be fair to 503 00:27:16,680 --> 00:27:19,920 Speaker 1: not seem Nicholas Talad, he did stay there were two tales. 504 00:27:20,320 --> 00:27:22,960 Speaker 1: But what's our likelihood to be in and the nirvana 505 00:27:23,160 --> 00:27:27,120 Speaker 1: right side of that golden swan? Very very low? Right now, 506 00:27:27,840 --> 00:27:32,280 Speaker 1: we do not see right tail uh written or right 507 00:27:32,359 --> 00:27:37,680 Speaker 1: tail potential manifesting and unfolding themselves anytime soon. David's like 508 00:27:37,960 --> 00:27:41,240 Speaker 1: Richard Dreyfuss in the movie Close Encounters. He's spinning on 509 00:27:41,320 --> 00:27:43,600 Speaker 1: the wall here and he just wrote the he just 510 00:27:43,920 --> 00:27:46,040 Speaker 1: he just took in the mud. He just wrote the 511 00:27:46,080 --> 00:27:48,760 Speaker 1: symbol one divided by the square root of two pie. 512 00:27:49,359 --> 00:27:51,720 Speaker 1: And you know, the music's going off like close Chuns. 513 00:27:52,480 --> 00:27:54,680 Speaker 1: We're gonna come back with our show, Alanka, this was 514 00:27:54,800 --> 00:27:57,719 Speaker 1: very mathy. Gerda demands we do a little less mathy 515 00:27:58,760 --> 00:28:01,800 Speaker 1: discussion here. Man. Yeah, we could go Western New York 516 00:28:01,840 --> 00:28:04,840 Speaker 1: on everybody here right now, echelon car with us. What 517 00:28:05,000 --> 00:28:07,520 Speaker 1: we got there to translate that quickly is a lot 518 00:28:07,600 --> 00:28:10,160 Speaker 1: of this theory, folks, is based on the Bell curve, 519 00:28:10,280 --> 00:28:13,159 Speaker 1: like your high school class, like the height of your 520 00:28:13,200 --> 00:28:16,120 Speaker 1: high school class. And the big debate is, no, that's 521 00:28:16,160 --> 00:28:19,240 Speaker 1: not true. What's the Bell curve really look like? And 522 00:28:19,320 --> 00:28:21,240 Speaker 1: a lot of it goes back to the great work 523 00:28:21,640 --> 00:28:25,480 Speaker 1: of Nasiem Tal. I'm gonna put out Bloomberg Radio. You're 524 00:28:25,480 --> 00:28:28,399 Speaker 1: gonna see this first out on social and it's the 525 00:28:28,520 --> 00:28:33,680 Speaker 1: inflation adjusted five year yield back to Dwight Eisenhower. It's 526 00:28:33,720 --> 00:28:37,080 Speaker 1: like sixty seventy years, and you know, it's amazing. Ash 527 00:28:37,119 --> 00:28:39,560 Speaker 1: how we've forgotten that there used to be a real yield. 528 00:28:40,200 --> 00:28:42,280 Speaker 1: Do you in your day to day work, do you 529 00:28:42,400 --> 00:28:47,240 Speaker 1: ever think you're gonna see a substantially positive inflation adjusted yield? 530 00:28:49,080 --> 00:28:53,680 Speaker 1: That is the greatest distortions that currently exists in the markets, 531 00:28:53,720 --> 00:28:58,880 Speaker 1: that there's no real yield anywhere except in local emerging 532 00:28:58,960 --> 00:29:03,880 Speaker 1: market debt UM. We do believe real yields are artificially 533 00:29:04,000 --> 00:29:08,000 Speaker 1: low because of the extravagant UM and I would say 534 00:29:08,040 --> 00:29:13,120 Speaker 1: successful central bank policy UM. But that will get normalized UM. 535 00:29:13,200 --> 00:29:16,600 Speaker 1: We do believe you will see real yields that are 536 00:29:16,840 --> 00:29:21,640 Speaker 1: more consistent and anchored to real GDP. UM. Take the 537 00:29:21,720 --> 00:29:24,840 Speaker 1: ten year real yield today. The ten year real yield 538 00:29:24,880 --> 00:29:28,280 Speaker 1: today is under fifty basis points. What is that telling you. 539 00:29:28,680 --> 00:29:32,440 Speaker 1: That's telling you that the market thinks real GDP will 540 00:29:32,560 --> 00:29:35,960 Speaker 1: average fifty basis points per year over the next ten years. 541 00:29:36,360 --> 00:29:39,640 Speaker 1: Does that make sense? Likely not. If we do realize 542 00:29:39,680 --> 00:29:42,320 Speaker 1: fifty basis points and real growth over the next ten years, 543 00:29:42,560 --> 00:29:46,800 Speaker 1: we have big problems to worry about UM. So over time, 544 00:29:46,880 --> 00:29:50,520 Speaker 1: we do believe real yields will normalize, and that normalization 545 00:29:51,400 --> 00:29:54,080 Speaker 1: UM will be a gradual normalization. For what we talked 546 00:29:54,080 --> 00:29:57,520 Speaker 1: about earlier because yelling In team have the luxury of 547 00:29:57,640 --> 00:30:02,120 Speaker 1: raising rates slowly because inflationary pressure are quite muted. Um, 548 00:30:02,560 --> 00:30:06,080 Speaker 1: so we were becoming I'm a firm believer that just 549 00:30:06,440 --> 00:30:10,880 Speaker 1: maybe Janet yelling team are ahead of the curve here. 550 00:30:11,200 --> 00:30:15,600 Speaker 1: They've timed it exactly correct. Um. They've proactively raised rates, 551 00:30:16,040 --> 00:30:20,400 Speaker 1: proactively moved on this path normalization and are doing and 552 00:30:20,480 --> 00:30:24,920 Speaker 1: by doing so, they've already contained inflationary rifts. Hence they 553 00:30:24,960 --> 00:30:28,200 Speaker 1: can continue to move gradually. Is that what you heard 554 00:30:28,200 --> 00:30:30,800 Speaker 1: from her this week? Are Michael McKee back from Cleveland, 555 00:30:30,840 --> 00:30:32,239 Speaker 1: talked to us yesterday. He said there was a bit 556 00:30:32,240 --> 00:30:34,240 Speaker 1: of misinterpretation of that speech he thought when it was 557 00:30:34,320 --> 00:30:36,720 Speaker 1: initially given, and that indeed was what she was saying, 558 00:30:36,760 --> 00:30:40,560 Speaker 1: that that they has been here properly ahead of the curve. Yeah, 559 00:30:40,600 --> 00:30:43,160 Speaker 1: I completely agree with that. I mean, we always give 560 00:30:43,720 --> 00:30:48,120 Speaker 1: uh like central bankers have such a difficult job. If 561 00:30:48,240 --> 00:30:51,680 Speaker 1: they moved too slowly, we criticize them for creating a bubble. 562 00:30:52,240 --> 00:30:57,200 Speaker 1: If they moved too quickly, we criticize them for popping 563 00:30:57,240 --> 00:31:01,120 Speaker 1: that bubble. Um and yell In, on the other hand, 564 00:31:01,160 --> 00:31:06,400 Speaker 1: people are criticizing her for moving Um. Some people believe 565 00:31:06,400 --> 00:31:10,080 Speaker 1: a bit too quickly. UM. But I think she's doing 566 00:31:10,120 --> 00:31:12,320 Speaker 1: the right thing, and I think she's timed it perfectly. 567 00:31:12,400 --> 00:31:14,719 Speaker 1: So we have to give credit UM to to her 568 00:31:14,800 --> 00:31:19,680 Speaker 1: and her team UM in my opinion, for tightening at 569 00:31:19,720 --> 00:31:24,560 Speaker 1: a moderate pace, but a pace just enough to curtail inflation, 570 00:31:25,200 --> 00:31:29,600 Speaker 1: yet at the same time not curtail growth UM. And 571 00:31:29,960 --> 00:31:34,320 Speaker 1: the fabric of the UH, the the corporate and balanced 572 00:31:34,560 --> 00:31:40,120 Speaker 1: balance sheet UM stability of of of of America and UH, 573 00:31:40,520 --> 00:31:44,320 Speaker 1: she just maybe has done that. How much? What effects 574 00:31:44,360 --> 00:31:46,360 Speaker 1: are we seeing from from the storms that hit the 575 00:31:46,480 --> 00:31:48,640 Speaker 1: US over these last nuts when it comes to to inflation, 576 00:31:48,680 --> 00:31:51,160 Speaker 1: are they Are they having a notional noticeable role here 577 00:31:51,200 --> 00:31:54,080 Speaker 1: in inflation in the US? I think they will. I 578 00:31:54,200 --> 00:31:57,480 Speaker 1: think we're going to see a mini fiscal spending campaign 579 00:31:57,840 --> 00:32:02,320 Speaker 1: UM to rebuild UH that the hurricane hit Florida and 580 00:32:02,680 --> 00:32:06,240 Speaker 1: Texas regions. UM and and that should UM lead to 581 00:32:06,440 --> 00:32:09,200 Speaker 1: some inflation, but it's going to be transient. UM. I 582 00:32:09,360 --> 00:32:12,960 Speaker 1: really believe today our signals are telling us there's many 583 00:32:13,080 --> 00:32:18,120 Speaker 1: structural reasons why inflation has remained muted. UH, most notably 584 00:32:18,200 --> 00:32:22,960 Speaker 1: technology UM. Technology has come, the digital era has come. 585 00:32:23,440 --> 00:32:30,240 Speaker 1: Technology is allowing competition to come into industries that traditionally, 586 00:32:30,760 --> 00:32:35,480 Speaker 1: UM and currently operate as monopolies. UM. So as competition 587 00:32:35,600 --> 00:32:39,240 Speaker 1: comes in, UM think Amazon, Amazon is bringing competition to 588 00:32:39,320 --> 00:32:44,200 Speaker 1: the grocery store industry. Uh. What competition should do is twofold. 589 00:32:44,360 --> 00:32:47,720 Speaker 1: It should bring prices down, and it should improve the 590 00:32:47,880 --> 00:32:51,040 Speaker 1: quality of the product sold. And that's a good thing. 591 00:32:51,320 --> 00:32:53,120 Speaker 1: That's not a bad thing. That that's not a bad 592 00:32:53,280 --> 00:32:58,280 Speaker 1: form of disinflation. That's actually good disinflation within your caution 593 00:32:58,360 --> 00:33:03,480 Speaker 1: and binds price down, yield up. Can you frame a 594 00:33:03,720 --> 00:33:06,960 Speaker 1: bond bear market? I mean, is there an X axis? 595 00:33:07,040 --> 00:33:11,760 Speaker 1: Is there a length of time that causes Aschel Anchor 596 00:33:11,840 --> 00:33:14,320 Speaker 1: to say, look, folks, a bond bear markets coming? Is 597 00:33:14,360 --> 00:33:18,440 Speaker 1: that to inflammatory? Um? Yes, I think there is a 598 00:33:18,520 --> 00:33:21,680 Speaker 1: threshold there. I think that threshold is ten year yields 599 00:33:21,720 --> 00:33:25,640 Speaker 1: getting to three UM. The reason I say that is 600 00:33:26,240 --> 00:33:28,640 Speaker 1: a very simple rule of thumb that many people use, 601 00:33:28,720 --> 00:33:33,080 Speaker 1: which makes economic sense, is looking at the differential between 602 00:33:33,200 --> 00:33:37,360 Speaker 1: earning zield, so the inverse pe ratio for equities, and 603 00:33:37,600 --> 00:33:42,280 Speaker 1: comparing that to the ten year interest rate. UM. If 604 00:33:42,400 --> 00:33:46,320 Speaker 1: the ten year interest rate is higher than the earning 605 00:33:46,480 --> 00:33:51,160 Speaker 1: yield on equities, than almost equal, holding bonds is more 606 00:33:51,200 --> 00:33:56,960 Speaker 1: attractive than holding equities. In the long run that yield differential. 607 00:33:57,240 --> 00:34:00,720 Speaker 1: So the difference between earning zeield on equities versus ten 608 00:34:00,800 --> 00:34:05,040 Speaker 1: uere interest rates is about two hundred basis points um. Today, 609 00:34:05,560 --> 00:34:10,120 Speaker 1: the earnings zield on the sp is around So a 610 00:34:10,239 --> 00:34:13,399 Speaker 1: pe of around twenty um, which gives you one over 611 00:34:13,520 --> 00:34:16,719 Speaker 1: twenty gives you an earning zield of five. The ten 612 00:34:16,800 --> 00:34:20,719 Speaker 1: year rate is att If that tenure rate gets to three, 613 00:34:21,880 --> 00:34:26,200 Speaker 1: equities then are fairly priced relative to bonds. If your 614 00:34:26,280 --> 00:34:32,120 Speaker 1: ten year yield starts increasing above, then your earning sield 615 00:34:32,200 --> 00:34:35,120 Speaker 1: have to increase, which means either prices have to fall 616 00:34:35,560 --> 00:34:38,960 Speaker 1: our earnings really But then to circle back and we'll 617 00:34:39,040 --> 00:34:41,320 Speaker 1: let you go after this, to circle back ash to 618 00:34:41,440 --> 00:34:45,200 Speaker 1: what we originally talked about, is the basic idea we 619 00:34:45,360 --> 00:34:49,759 Speaker 1: do that smoothly and we've controlled glide pass or do 620 00:34:49,880 --> 00:34:53,680 Speaker 1: we have the instabilities that so many either just outright 621 00:34:53,840 --> 00:34:58,839 Speaker 1: fear or mathematically fear. I believe we do it gradually. Um, 622 00:34:59,360 --> 00:35:02,080 Speaker 1: it's a smooth glide path. It's a it's a smooth 623 00:35:02,360 --> 00:35:08,080 Speaker 1: smooth ride, uh towards normalization. And a lot of that also, 624 00:35:08,160 --> 00:35:11,160 Speaker 1: I believe has to do not only with inflation pressures 625 00:35:11,560 --> 00:35:17,480 Speaker 1: disappearing but also the divergence and central bank policy. Um. 626 00:35:17,600 --> 00:35:19,560 Speaker 1: What I mean by that the banks are just doing 627 00:35:19,600 --> 00:35:23,160 Speaker 1: a different story exactly. It's all central banks were draining 628 00:35:23,239 --> 00:35:26,839 Speaker 1: liquidity at the same time. That would be really bad. Um. 629 00:35:27,160 --> 00:35:30,200 Speaker 1: But central bankers that they're smart so that they they say, 630 00:35:30,280 --> 00:35:35,920 Speaker 1: let's drain liquidity, not in parallel, Well, let's drain it sequentially. Um. 631 00:35:36,120 --> 00:35:39,400 Speaker 1: And and that's that's good. This has been great. Just 632 00:35:39,840 --> 00:35:43,720 Speaker 1: ordered off Amazon. Uh new Burger's Options book on Greek 633 00:35:43,840 --> 00:35:49,759 Speaker 1: Sheldon Newburger's Options Book on Greek stock. Funnily Vega get 634 00:35:49,800 --> 00:35:54,520 Speaker 1: a used copy Viga Viga, Vega VG. It's not Susanne Vega. Okay, 635 00:35:54,560 --> 00:35:56,360 Speaker 1: it's not a can get both. You can get the 636 00:35:56,920 --> 00:35:59,600 Speaker 1: CD in the book together. Thank you so much for 637 00:35:59,760 --> 00:36:03,680 Speaker 1: with him on mathematics. That's a real window into the 638 00:36:03,760 --> 00:36:06,320 Speaker 1: pro discussion a little bit. We try to do some 639 00:36:06,440 --> 00:36:09,880 Speaker 1: jargon rights there along the way. On the tenure is 640 00:36:09,960 --> 00:36:12,600 Speaker 1: the threshold for a bond market? Yeah, what what he's 641 00:36:12,640 --> 00:36:15,560 Speaker 1: talking about? There's a tip point and Um, if you 642 00:36:15,680 --> 00:36:17,759 Speaker 1: have a glide path from two point where are we 643 00:36:17,880 --> 00:36:20,560 Speaker 1: right now? Two point three two percent? And you know, 644 00:36:20,640 --> 00:36:23,400 Speaker 1: within all the day to day noise, if you glide 645 00:36:23,520 --> 00:36:27,960 Speaker 1: up towards three is the rate of change constant And 646 00:36:28,080 --> 00:36:31,560 Speaker 1: what he's suggesting is no, after three percent, you get 647 00:36:31,640 --> 00:36:36,040 Speaker 1: into different rates of change. And the real question, uh, 648 00:36:36,280 --> 00:36:40,640 Speaker 1: Davy Gurrows is the stability along the way. And mathematically 649 00:36:40,680 --> 00:36:42,719 Speaker 1: there's a lot of time spent on that, and I 650 00:36:42,760 --> 00:36:47,439 Speaker 1: want to make clear it's guessing what will happen. There's yeah, 651 00:36:47,560 --> 00:36:51,560 Speaker 1: there's no certitude on this at all. High risk, it 652 00:36:51,640 --> 00:36:54,800 Speaker 1: can be high risk. One of the great regressive of 653 00:36:54,840 --> 00:36:57,400 Speaker 1: high risk is leverage. So if you're if you're not 654 00:36:57,480 --> 00:36:59,759 Speaker 1: in leverage, you've got a lot of cushion. But you'd 655 00:36:59,760 --> 00:37:03,200 Speaker 1: be shocked at how many people in the game actually 656 00:37:03,320 --> 00:37:06,319 Speaker 1: use leverage because they're sure they're gonna get it right 657 00:37:06,360 --> 00:37:10,120 Speaker 1: and that pops there their return whatever you know format 658 00:37:10,160 --> 00:37:14,760 Speaker 1: they're in. So leverage can make glad pass less glide 659 00:37:15,880 --> 00:37:18,680 Speaker 1: because that's a cf A word. Taylor Riggs taught me 660 00:37:18,760 --> 00:37:34,480 Speaker 1: that glider quiz. Yeah, thanks for listening to the Bloomberg 661 00:37:34,520 --> 00:37:40,839 Speaker 1: Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, 662 00:37:41,200 --> 00:37:45,000 Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at 663 00:37:45,080 --> 00:37:49,719 Speaker 1: Tom Keene. David Gura, Is that David Gurra before the podcast. 664 00:37:50,080 --> 00:37:53,439 Speaker 1: You can always catch us worldwide. I'm Bloomberg Radio.