WEBVTT - Tariffs Are A Job Killer, PIIE's Lovely Says 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Ley. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:30.840 Bloomberg dot Com, and of course on the Bloomberg Leaves 0:00:30.880 --> 0:00:35.320 with Syracuse University and as a senior fellow the Peterson Institute, 0:00:35.800 --> 0:00:39.920 and she is more than wired in on trade. Mary, 0:00:40.040 --> 0:00:44.160 with all of the hysterics right now on trade, what 0:00:44.240 --> 0:00:48.760 do we need to know about the process forward the 0:00:48.800 --> 0:00:52.040 next three days? Well, we have a lot to watch 0:00:52.320 --> 0:00:54.360 for over the next three days. Tom, You're right, it's 0:00:54.480 --> 0:00:58.200 very interesting times we're living in right now. I think 0:00:58.280 --> 0:01:01.840 that um, we will see some probably stability and today 0:01:01.920 --> 0:01:06.959 because we need to recognize that Leah, who is president, 0:01:07.000 --> 0:01:09.880 she didn't Ping's main negotiator is on his way to 0:01:09.920 --> 0:01:14.440 the US UM and or at least that's our our belief, 0:01:14.680 --> 0:01:18.760 and that means that negotiations continue. So there's still quite 0:01:18.760 --> 0:01:20.640 a bit of hope that will get a deal here 0:01:20.680 --> 0:01:23.040 between the United States and China and that we can 0:01:23.800 --> 0:01:26.000 at least put off for a while the increase in 0:01:26.040 --> 0:01:29.000 tariffs at President Trump threatened over the weekend. What is 0:01:29.040 --> 0:01:32.240 a deal come Saturday morning? I mean, is it a handshake? 0:01:32.319 --> 0:01:35.240 Is it a photo? Opposite? We're going to talk further, 0:01:35.319 --> 0:01:39.000 I mean define deal. Well, there will be an agreement 0:01:39.200 --> 0:01:42.320 by both sides, even though President Trump hates the term. 0:01:42.360 --> 0:01:44.680 It will be a sense of m o U or 0:01:44.760 --> 0:01:48.800 memorandum of understanding. But there will be some lock in 0:01:48.840 --> 0:01:52.800 on on purchases for sure, and some changes to how 0:01:53.000 --> 0:01:57.120 how China operates, particularly with respect to investment from the 0:01:57.160 --> 0:02:00.840 United States. So we will see a deal. Will it 0:02:01.000 --> 0:02:04.120 solve all the problems? Clearly not. The can is going 0:02:04.160 --> 0:02:05.880 to be kicked down the road. It has to be. 0:02:06.440 --> 0:02:09.959 The agenda the US laid out was too ambitious and 0:02:10.080 --> 0:02:13.880 too in a sense ambiguous to be dealt with within 0:02:13.960 --> 0:02:16.120 the short period of time that the US and China 0:02:16.120 --> 0:02:18.959 have been negotiating. The President tweets, we are thrilled and 0:02:19.160 --> 0:02:22.800 very lovely with us. To translate, she's with the Peterson Institute. 0:02:23.080 --> 0:02:26.520 The reason for the China pullback, an attempted renegotiation of 0:02:26.520 --> 0:02:31.240 the trade deal is the sincere all caps hope that 0:02:31.360 --> 0:02:35.080 they will be able to quote negotiate unquote with Joe 0:02:35.120 --> 0:02:38.240 Biden are one of the very weak Democrats and thereby 0:02:38.240 --> 0:02:41.720 continue to rip off the United States five billion a 0:02:41.800 --> 0:02:44.760 year for years to come. Guess what that's not going 0:02:44.800 --> 0:02:48.119 to happen. China has just informed us that they vice 0:02:48.160 --> 0:02:51.160 premier are now coming to the US to make a deal. 0:02:51.600 --> 0:02:54.480 We'll see. But I am very happy with over one 0:02:54.880 --> 0:02:59.600 billion a year in tariffs filling US coffers. Great for 0:02:59.639 --> 0:03:02.680 you US, not good for China. Mary. I don't want 0:03:02.720 --> 0:03:06.080 to go into Elizabethan hysterics here, but the last sentence 0:03:06.120 --> 0:03:09.440 of that tweet, I am very happy with over one 0:03:09.520 --> 0:03:14.600 hundred billion a year and tariffs filling US coffers. I 0:03:14.680 --> 0:03:19.359 get that customs and incoming money goes up. Where does 0:03:19.480 --> 0:03:24.200 that money come from? Great question? Uh, you know, there's 0:03:24.560 --> 0:03:27.679 two very very good academic studies that we've just done 0:03:27.720 --> 0:03:30.200 looking at the price increases following the tariffs, and the 0:03:30.240 --> 0:03:34.480 answer is US consumers and businesses are paying these tariffs. 0:03:34.560 --> 0:03:38.160 That is a tax on US businesses and US consumers. Uh. 0:03:38.240 --> 0:03:40.400 No matter how many times the President likes it, you 0:03:40.400 --> 0:03:43.680 know the numbers, the numbers are playing. We're seeing price 0:03:43.760 --> 0:03:47.320 increases as a result. Uh. The San Francisco Fat estimates 0:03:47.360 --> 0:03:50.720 that it's put about zero point one percentage points on 0:03:50.800 --> 0:03:53.880 the c p I. Now that's not a lot, but 0:03:54.000 --> 0:03:56.360 if the President goes along with what he's threatened, it 0:03:56.400 --> 0:03:58.920 will raise the CPI by half a percentage point, which 0:03:58.960 --> 0:04:01.960 is quite a bit. More importantly, it raises the cost 0:04:02.040 --> 0:04:05.080 of investment by about one full percentage point. So we 0:04:05.160 --> 0:04:08.400 look at what businesses need to continue to be productive 0:04:08.400 --> 0:04:10.280 and grow jobs in the United States, and we see 0:04:10.320 --> 0:04:13.160 that this is a job killer. Okay, it's a job killer. 0:04:13.200 --> 0:04:18.040 I saw somebody tried two marginal tariffs. This is really important, folks, 0:04:18.080 --> 0:04:20.320 And I'm gonna go Matthew here on you You go 0:04:20.480 --> 0:04:25.480 from no tariff zero to two, three, five to ten, 0:04:26.240 --> 0:04:28.599 and the president wants to go ten to twenty five 0:04:28.720 --> 0:04:32.520 ish or something like that. The effect of that on 0:04:32.560 --> 0:04:36.880 our listeners is nonlinear, isn't it. The more in bigger 0:04:36.960 --> 0:04:41.719 the tariffs get, the worser the second derivity we sort 0:04:41.720 --> 0:04:45.719 of get, don't we marry? Yes, it is proportional to 0:04:45.760 --> 0:04:48.240 the square of the tax, which means there we go. 0:04:49.640 --> 0:04:53.119 The burden on Americans will get larger, and of course, 0:04:53.240 --> 0:04:55.840 you know, the uncertainty is taking its toll. Pretty soon 0:04:55.920 --> 0:04:59.479 businesses will rearrange supply chains, which of course I think 0:04:59.480 --> 0:05:02.200 this adminis straation applause. What they don't tell you is 0:05:02.240 --> 0:05:04.080 the jobs are not coming back to the United States. 0:05:04.120 --> 0:05:07.320 They're already starting to move to other parts of East Asia. 0:05:07.720 --> 0:05:10.160 And in fact, if the terroristory main we've already seen 0:05:10.240 --> 0:05:13.159 US businessmen say, hey, I love this country, I've invested 0:05:13.160 --> 0:05:18.920 in this country, but I can't take taxes on my inputs. 0:05:19.000 --> 0:05:21.240 It just doesn't make sense to me. I can't sell. 0:05:21.560 --> 0:05:25.000 One more question before we dash, very lovely, if the 0:05:25.040 --> 0:05:29.600 President puts in some new level of higher tariffs, where 0:05:29.600 --> 0:05:33.200 are we bombing ourselves back to? Are we back before 0:05:33.400 --> 0:05:38.080 the romantic names of the past, Uruguay gat, all the 0:05:38.120 --> 0:05:41.760 other famous trade meetings. Are we back ten years? Are 0:05:41.800 --> 0:05:44.719 we back to World War Two? Are we back to 0:05:45.000 --> 0:05:47.880 Smith and Ricardo? How far back are we on non 0:05:47.960 --> 0:05:53.159 free trade? Well, these are the China. We're back way 0:05:53.240 --> 0:05:58.520 back before the Uruguay round. Because considering all of the things, 0:05:58.560 --> 0:06:01.440 all of the various types as tarists we have on China, 0:06:01.480 --> 0:06:05.360 including things that pre date this latest round, over fifty 0:06:05.760 --> 0:06:08.480 of US imports from China are already subject to special 0:06:08.560 --> 0:06:11.599 US duties. So these are levels of towers that basically 0:06:11.640 --> 0:06:14.560 in the modern era we've never seen before. Okay, vera 0:06:14.640 --> 0:06:16.720 lovely what a clinic. Thank you so much at Folks. 0:06:17.000 --> 0:06:20.760 We will have out on podcast Dr Lovely Syracuse in 0:06:20.800 --> 0:06:24.920 the Peterson Institute. That was exceptionally important and valuable summary 0:06:24.960 --> 0:06:43.400 there of where we are heading. It talks keeping investors 0:06:43.400 --> 0:06:46.839 worldwide very much on edge. JP Morgan, chief executive office 0:06:46.839 --> 0:06:50.000 at Jamie Time and Santega notes of optimism even after 0:06:50.040 --> 0:06:53.440 the rising specter of tarists has royal global markets. Whatever 0:06:53.440 --> 0:06:55.960 the odds were before, I think it's still any percent. 0:06:56.040 --> 0:06:58.560 They'll get it done. The odds of something bad happening 0:06:58.600 --> 0:07:00.400 is now doubled whatever you thought there, or if a 0:07:00.480 --> 0:07:03.080 two percent or five minute temper is probably double and 0:07:03.120 --> 0:07:06.000 that's why the markets are reacting to it. Here in 0:07:06.040 --> 0:07:08.200 New York City to discuss someplace to say, it's David 0:07:08.279 --> 0:07:11.400 Rosenberg Clask and Chef, chief Economists and strategist alongside pre 0:07:11.480 --> 0:07:15.080 emisra Tle Security's head of Global interest rate Strategy. Guys, 0:07:15.080 --> 0:07:17.200 good morning to your both. Great to have you with us. Prayer, 0:07:17.520 --> 0:07:19.440 What are your hand and clients at the moment about 0:07:19.440 --> 0:07:22.800 what is about to happen Thursday Friday? Sure so, clearly 0:07:22.840 --> 0:07:26.040 the market is extremely nervous around this potential of not 0:07:26.160 --> 0:07:29.040 having a deal. Our view is that, you know, tariffs 0:07:29.080 --> 0:07:31.920 are likely to go up on Friday, but both sides 0:07:31.960 --> 0:07:33.920 are going to get a little annoyed, they're gonna step away, 0:07:33.920 --> 0:07:36.040 and then they're going to come back and negotiate. I 0:07:36.080 --> 0:07:39.600 really don't think either side wants the self inflicted trade 0:07:39.600 --> 0:07:41.560 war here, so our view is that it's going to 0:07:41.640 --> 0:07:45.119 be this sort of gang kick for another few months, 0:07:45.120 --> 0:07:47.200 so they're going to continue to talk. I actually think 0:07:47.240 --> 0:07:49.600 that a lot of this is politically motivated. I think 0:07:49.600 --> 0:07:52.960 going into the election, we're still going to be negotiating 0:07:53.360 --> 0:07:55.680 because it's very hard to get this deal. We need 0:07:55.800 --> 0:07:59.720 enforcement mechanisms, we need some sort of monitoring mechanisms. You know, 0:07:59.800 --> 0:08:02.560 they're a risk of China losing its sovereignty. These are 0:08:02.600 --> 0:08:04.960 all pretty big issues, and I think structuring they're pretty 0:08:04.960 --> 0:08:08.239 far apart. So we don't really expect to deal um. 0:08:08.440 --> 0:08:10.960 But but we don't expect this trade war either, and 0:08:11.600 --> 0:08:13.480 I think the markets at least going to be comfortable 0:08:13.480 --> 0:08:16.960 at the worst case scenario doesn't happen here. Thought well, 0:08:17.000 --> 0:08:19.880 I think that we've had a very interesting point here 0:08:19.880 --> 0:08:25.280 in this chess match. Uh, the US administration seems to 0:08:25.320 --> 0:08:28.920 think that because the stock market recently hit a new high. Uh, 0:08:28.960 --> 0:08:32.839 they're obviously believers in this three point six percent unemployment 0:08:32.920 --> 0:08:35.240 rate and the non firm paper report that came out 0:08:35.920 --> 0:08:38.120 that the U s economies in fine shape, the stock 0:08:38.160 --> 0:08:42.160 market isn't fine shape, and therefore, uh, the US has 0:08:42.200 --> 0:08:45.600 the upper hand. Uh. Then you moved to the Chinese part, 0:08:45.760 --> 0:08:49.199 and UM, I think it was fortuitous on their part 0:08:49.280 --> 0:08:53.040 to start easing monetary and fiscal policy provide what the 0:08:53.080 --> 0:08:56.120 markets called data stability so at least that the Chinese 0:08:56.160 --> 0:08:59.040 economy is stopped deteriorating. So they think they have the 0:08:59.120 --> 0:09:02.240 upper hand. UM. So look, we'll see how this plays out. 0:09:02.400 --> 0:09:04.920 I'm not recommending taking any treating positions. There's just too 0:09:04.960 --> 0:09:08.439 much uncertainty. Can go either way. UM. But I think 0:09:08.440 --> 0:09:10.160 really that's where we've come to us that both sides 0:09:10.200 --> 0:09:12.800 sort of feel a little emboldened right now, uh to 0:09:12.880 --> 0:09:15.120 push the other side around. UM, just being done how 0:09:15.120 --> 0:09:17.680 their economies have been doing. On the surface, it looks 0:09:17.720 --> 0:09:20.440 like the outcomes, the potential outcomes, are incredibly binary. Tom. 0:09:20.480 --> 0:09:23.080 We had a little bit more color overnight Royce's reporting 0:09:23.120 --> 0:09:25.320 the following. I think the story is really interesting. The 0:09:25.400 --> 0:09:28.920 diplomatic cable from Beijing arrived in Washington late on Friday 0:09:28.960 --> 0:09:31.800 with systematic edits to a nearly one hundred and fifty 0:09:31.800 --> 0:09:35.680 page draft agreement that would blow up months of negotiations 0:09:35.720 --> 0:09:38.320 between the world's two largest economies. This is according to 0:09:38.360 --> 0:09:41.360 three U s Government sources and three private sector sources 0:09:41.360 --> 0:09:45.160 briefed on the talks. The document riddled with reversals by China. 0:09:45.480 --> 0:09:47.679 The real surprise, as we get more color on all 0:09:47.720 --> 0:09:50.280 of this, is that it took two days for the 0:09:50.280 --> 0:09:52.360 president to blow up. That he only blew up on 0:09:52.400 --> 0:09:55.120 Sunday because we learned of this on Friday. Here's some 0:09:55.160 --> 0:09:57.559 other distractions, probably knowing what The New York Times is 0:09:57.600 --> 0:10:00.720 going to do with his fifteen years of taxes decades ago. 0:10:00.800 --> 0:10:03.680 But what's important here, and Meredith Sumter, thank you if 0:10:03.720 --> 0:10:06.280 you raise your group for joining us yesterday for what 0:10:06.400 --> 0:10:10.640 I thought was great conversation. Is here we are PreO, 0:10:10.760 --> 0:10:14.800 what where is the yield now two point for two percent? 0:10:15.440 --> 0:10:21.040 How do you trade negotiation adjust that yield? It's very hard. 0:10:21.520 --> 0:10:24.120 As you said, you know, there are significant binary risks here. 0:10:24.200 --> 0:10:26.640 I think the market is saying, well, there's some probability 0:10:26.720 --> 0:10:28.680 of all of these breaking now and we actually go 0:10:28.720 --> 0:10:30.720 into a trade war. So I think that's why the 0:10:30.720 --> 0:10:33.079 market is pricing in these feteases in the near term. 0:10:33.120 --> 0:10:36.360 We've got almost an entire Fetes price for this year. Yeah, 0:10:36.400 --> 0:10:38.640 I should point out, as usual, Rosenberg walks in the 0:10:38.640 --> 0:10:41.160 studio and the futures go negative twelve down to negative 0:10:41.240 --> 0:10:46.520 night and yeah, two big figures to twenty one on 0:10:46.640 --> 0:10:49.600 the vix. Is Well, David, is this like September or 0:10:49.640 --> 0:10:53.520 December or whatever the swoon was February of eighteen months ago. 0:10:53.600 --> 0:10:57.440 There a different character and color to it this time. Well, look, uh, 0:10:58.000 --> 0:11:00.400 I'm not going to compare it to going into the 0:11:00.440 --> 0:11:04.240 fourth quarter, where it was also coupled with you know, 0:11:04.360 --> 0:11:07.080 a lack of liquidity in the marketplace, and of course 0:11:07.120 --> 0:11:09.480 the Fed was in full blown tightening mode. So it's 0:11:09.480 --> 0:11:12.920 not I wouldn't draw that comparison. But here's what I'll say, Uh, 0:11:12.960 --> 0:11:16.280 there is way too much risk in the market right now. 0:11:16.320 --> 0:11:19.920 From my perspective. Uh, we're in a heightened period of 0:11:20.360 --> 0:11:23.959 I would say, not just political uncertainty. I would say 0:11:23.960 --> 0:11:26.560 there's more economic uncertainty than meets the eye. I think 0:11:26.559 --> 0:11:28.520 a lot of people are paying too much attention to 0:11:28.559 --> 0:11:31.480 the headlines. They're not looking under the hood at the economy. 0:11:32.000 --> 0:11:34.320 Excuse me, you're in a meeting with your clients. Excuse me, 0:11:34.320 --> 0:11:39.079 they're saying GDPs three discuss. Yeah, I'm gonna say that basically, 0:11:39.160 --> 0:11:41.800 if you look at the underlying domestic demand components of 0:11:41.840 --> 0:11:44.920 the economy, so you strip out I mean, negative imports 0:11:44.960 --> 0:11:48.360 actually contributes to GDP, we had a huge inventory build, 0:11:48.920 --> 0:11:52.920 which is not sustainable. In fact, I would say that, Well, 0:11:52.960 --> 0:11:55.560 what I'm gonna say is, basically, you've got to look 0:11:55.559 --> 0:11:57.679 beneath the veneer. Uh you know, you've take a look 0:11:57.720 --> 0:12:00.760 at inventories and manufacturing, wholesale and retailed inventory to sales 0:12:00.800 --> 0:12:03.120 ratio in the United States today it's higher than it 0:12:03.320 --> 0:12:06.640 was in December seven when the recession was starting. We 0:12:06.760 --> 0:12:09.040 have so yeah, a lot of the production and supported 0:12:09.080 --> 0:12:12.440 GDP tom went into inventories and that has to be 0:12:12.480 --> 0:12:14.560 worked off, by the way. That was the message in 0:12:14.600 --> 0:12:17.400 the isms in April. So so my senses that we 0:12:17.400 --> 0:12:19.600 look at the band cut to the economy stall speed 0:12:19.600 --> 0:12:22.880 barely more than one percent. That's the over here wants 0:12:22.920 --> 0:12:26.120 to talk as all TV securities. You don't agree respectfully 0:12:26.120 --> 0:12:28.839 with Mr Rosenberg. I don't because I see a pretty 0:12:28.840 --> 0:12:31.280 big difference from late last year. I think late last 0:12:31.360 --> 0:12:34.080 year was all about this FED making a policy mistake. 0:12:34.320 --> 0:12:37.319 They were letting the banksheet run off. They said essentially 0:12:37.360 --> 0:12:40.280 forever they were going to hike above neutral. I think 0:12:40.320 --> 0:12:42.360 it's it's useful to sort of think of FED policy 0:12:42.400 --> 0:12:45.320 as being either about the outlook or about the reaction function. 0:12:45.720 --> 0:12:49.120 There's been a dramatic shift in that reaction from function 0:12:49.160 --> 0:12:51.280 from late last year up until now. Now the Feds 0:12:51.280 --> 0:12:53.560 telling us we're close to neutral, we're kind of nervous 0:12:53.600 --> 0:12:57.000 about inflation, we don't need to hike anymore um and 0:12:57.080 --> 0:13:00.280 we've they've actually announced the end of bantand sheet enough. 0:13:00.360 --> 0:13:03.200 So on the reaction function front, I think they're largely 0:13:03.240 --> 0:13:06.679 responsible for the easing and financial conditions. Now we sort 0:13:06.679 --> 0:13:08.480 of get to the growth outlook point, and this is 0:13:08.480 --> 0:13:11.160 where I would say, based on data that we're looking 0:13:11.200 --> 0:13:13.719 at leading indicators that growth is okay. You know we're 0:13:13.760 --> 0:13:16.320 going to be around trend, which actually doesn't meet the 0:13:16.320 --> 0:13:19.160 fat threshold for a cut. If David's right and growth 0:13:19.240 --> 0:13:21.680 is going to all collapse from here, then absolutely I 0:13:21.679 --> 0:13:23.920 think the FED will need to ease. I just don't 0:13:23.920 --> 0:13:26.199 see enough data here that growth is about to for 0:13:26.440 --> 0:13:28.959 what that we're heading into a recession. They just seemed 0:13:28.960 --> 0:13:31.320 to be increasing confidence that the FED can engineer a 0:13:31.360 --> 0:13:35.800 soft landing. You're saying they can't. I'm trying hard not 0:13:35.920 --> 0:13:39.319 to laugh. Um, yeah, the Fed. So tell me exactly 0:13:39.360 --> 0:13:43.400 how many times the FAT successfully has engineered a soft landing. 0:13:43.760 --> 0:13:47.480 We've had, We've had, We've had time to put our 0:13:47.520 --> 0:13:50.920 historian had on. There's been thirteen FED rate hiking cycles 0:13:50.920 --> 0:13:54.040 in the post World War two experience. We had ten recessions, 0:13:54.360 --> 0:13:57.520 which which the FED never seems to see until it 0:13:57.559 --> 0:13:59.839 actually happens. If you're gonna take a look at the 0:13:59.840 --> 0:14:02.360 fair at staff forecast from the Green Book on the 0:14:02.400 --> 0:14:05.280 month of recession happens, there's never a negative for GDP 0:14:05.360 --> 0:14:08.640 in the next four quarters. We have three soft landings. Okay, 0:14:08.679 --> 0:14:11.000 we had one in the mid sixties, we had one 0:14:11.040 --> 0:14:13.079 in the mid eighties, and one in the mid nineties. 0:14:13.080 --> 0:14:16.000 When the economy slows but doesn't go in the reverse. Well, 0:14:16.000 --> 0:14:18.560 in those periods were basically in year three of the cycle, 0:14:18.600 --> 0:14:21.560 not year ten. The unemploying rate was over six percent 0:14:21.600 --> 0:14:24.480 in those periods, not south of four percent, and the 0:14:24.560 --> 0:14:27.600 FED was not just talking the talk. They're walking the walk. 0:14:27.600 --> 0:14:30.120 The FED on average cut rates in those soft landings 0:14:30.120 --> 0:14:34.680 two fifty basis points and they moved right away. So 0:14:34.720 --> 0:14:37.560 I would say, look, history is on our side. We 0:14:37.640 --> 0:14:40.440 have thirteen FED rate taking cycles. The only thing separating 0:14:40.800 --> 0:14:42.840 the inevitable recession and where we are right now are 0:14:42.880 --> 0:14:45.880 just the lags between Monterrey policy and the real cons Quickly, 0:14:45.880 --> 0:14:49.320 what's the significance of ten years laced ration? Some important 0:14:49.640 --> 0:14:52.560 when the recovery has been so shallow? Well, the recovery 0:14:52.560 --> 0:14:54.640 has been so shallow for variety of reasons. But you 0:14:54.720 --> 0:14:56.640 have to take a look at where accurate demand is 0:14:56.680 --> 0:15:00.080 Our demandage GDP. Our demand has been very soft, just 0:15:00.240 --> 0:15:02.360 over two percent growth. But tell me what's aggurate supply? 0:15:02.480 --> 0:15:05.600 Ben Productivity has only started to pick up very recently 0:15:05.640 --> 0:15:07.440 if you believe the data. But labor force, the labor 0:15:07.440 --> 0:15:09.440 force is collapsing. You know, how did we get down 0:15:09.440 --> 0:15:11.640 a three point six percent unemployment is because the labor 0:15:11.680 --> 0:15:13.600 pool is down to war. It wasn't made two thou 0:15:13.800 --> 0:15:17.120 and one. So that demand a demand has been aggreate 0:15:17.120 --> 0:15:19.200 demand has been weak, and aggriate supply has been weak. 0:15:19.320 --> 0:15:21.840 You know, So the answer back to you as basically, well, 0:15:21.840 --> 0:15:24.120 how do you get to three point six percent unemployment rate? 0:15:24.160 --> 0:15:26.680 By the way, three six an appoyment rate is exactly 0:15:26.680 --> 0:15:30.320 where we were in December nine and the recession nobody 0:15:30.360 --> 0:15:37.960 saw this week. That's a great observation by Mr Rosenberg 0:15:38.040 --> 0:15:40.040 on the labor pool off the chart that up pre 0:15:40.160 --> 0:15:43.200 a miserable as well. We've we've begged them to stay 0:15:43.840 --> 0:15:45.960 and where did you see, John? We got through that 0:15:46.040 --> 0:15:50.040 without being Liverpool twenty minutes. Don't worry, We've got that 0:15:50.040 --> 0:16:04.120 old comed thrilled. They'd be smart. This halfar with two 0:16:04.120 --> 0:16:07.840 people that respectfully disagree. David Rosenberg of Luskin chief from 0:16:07.840 --> 0:16:12.120 Priam Israel t D securities with us right now, David, 0:16:12.120 --> 0:16:13.840 I want to go to the equity markets. Pre As 0:16:14.240 --> 0:16:17.240 got bonds covered. We'll do that in a moment. Here 0:16:17.520 --> 0:16:19.880 you told us earlier you can't trade here. What do 0:16:19.920 --> 0:16:23.080 you do if you're a long term investor? I think 0:16:23.080 --> 0:16:26.080 that if you're a long term investor, you have to 0:16:26.080 --> 0:16:29.640 pay attention to where the starting point is on the multiple. 0:16:29.880 --> 0:16:33.840 That is a huge determinant of future returns. And if 0:16:33.880 --> 0:16:37.080 you take a look at the at the cape at 0:16:37.120 --> 0:16:40.920 the Schiller smooth pe UH, you know, which is still 0:16:41.000 --> 0:16:44.840 well north of thirty UH. You're expected real return in 0:16:44.880 --> 0:16:47.600 equities for the next decade. The real return and doesn't 0:16:47.600 --> 0:16:50.120 for inflation, is close to zero. So it tells me 0:16:50.200 --> 0:16:54.280 that this era of passive investing index investing is over. 0:16:54.440 --> 0:16:56.440 I think that it's going to be more of a 0:16:56.480 --> 0:16:59.720 market in the public equities market anyways of active management 0:17:00.280 --> 0:17:02.440 is going to be the way that you'll deliver alpha 0:17:02.440 --> 0:17:06.000 and the portfolios UH and UM. At the same time, 0:17:06.040 --> 0:17:11.120 I would suggest that that UH, in a declining rate environment, 0:17:12.040 --> 0:17:16.439 you want to be focused on dividend growth, dividend yield, 0:17:16.520 --> 0:17:21.520 low payout ratios, call it maybe the classic dividend Aristocrats index. 0:17:21.800 --> 0:17:24.119 That would be a good place to be UH in 0:17:24.240 --> 0:17:28.040 noncyclical parts of the market in this sort of environment, 0:17:28.240 --> 0:17:30.560 the rates environment that I'm depicting, then pre it within 0:17:30.560 --> 0:17:32.399 the bond market and bringing you over to equity and 0:17:32.440 --> 0:17:34.240 I don't want to step on, you know, the equity 0:17:34.240 --> 0:17:37.479 people of TV securities. But then how do you ravel 0:17:38.119 --> 0:17:42.080 how do you veil you revenue growth? Given the persistent 0:17:42.160 --> 0:17:45.880 low yields and the single digit actual assumption that Mr 0:17:46.320 --> 0:17:49.600 Merzenberg alludes to. I mean the revenue growth of double 0:17:49.640 --> 0:17:53.080 digit text stocks or even organic revenue growth of eight percent. 0:17:53.160 --> 0:17:56.800 That's pretty snappy, isn't it exactly? But I think sort 0:17:56.800 --> 0:17:59.600 of going back to your question, you know, the the 0:18:00.160 --> 0:18:03.320 question that that the entire macro community sort of dealing 0:18:03.320 --> 0:18:06.480 with is did all the devish central banks extend the 0:18:06.520 --> 0:18:08.919 cycle or did they actually signal the end of the cycle. 0:18:09.200 --> 0:18:11.640 If they've signal the end of the cycle, even if 0:18:11.760 --> 0:18:15.359 the multiples look attractive, well, if the cycle is ending, 0:18:15.720 --> 0:18:17.720 you don't want to be in any risk assets, I 0:18:17.760 --> 0:18:19.560 would say, then you want to be in ten your treasuries. 0:18:19.880 --> 0:18:22.639 If the cycle has been extended, then I completely hear you. 0:18:22.680 --> 0:18:25.159 I think with low interest rates, risk assets are the 0:18:25.160 --> 0:18:26.879 way to go. Carry trades are the way to go 0:18:27.400 --> 0:18:29.840 if you're in that camp, which is actually where we're in, 0:18:29.880 --> 0:18:31.960 that there has been an extension of the cycle. Not 0:18:32.000 --> 0:18:33.760 to say that we'll never get a recession, but if 0:18:33.800 --> 0:18:36.560 the recession is a year out, it's very expensive to 0:18:36.640 --> 0:18:39.200 be in U S treasuries rather than any of these 0:18:39.280 --> 0:18:41.679 risk assets. So you know, what what we're recommending is 0:18:42.480 --> 0:18:46.160 by rus assets, also own some front end treasuries because 0:18:46.200 --> 0:18:48.840 if you're getting three monthy bills at two point four percent. 0:18:49.000 --> 0:18:51.280 It's a positive real rate. We haven't had positive real 0:18:51.400 --> 0:18:53.760 rates in the treasury market for the last ten years. 0:18:54.080 --> 0:18:56.199 It's a good place to be in for when you 0:18:56.400 --> 0:18:59.200 need liquidity, because we know liquidity is going to be challenged. 0:19:00.000 --> 0:19:02.160 There's been so much of this passive investing that when 0:19:02.160 --> 0:19:06.080 everyone's trying to exit, you can have outside market move. 0:19:06.160 --> 0:19:08.199 So that's when if you've got liquidity, you don't need 0:19:08.240 --> 0:19:10.439 to sell at at that worst part you write an 0:19:10.440 --> 0:19:13.040 important question, praise Praier, it's what what is the incentive 0:19:13.080 --> 0:19:15.240 to take on juration risk at this point when you 0:19:15.280 --> 0:19:16.880 can get so much you'll pick up at the three 0:19:16.920 --> 0:19:19.920 month on the three months relative to the site, ten year, 0:19:19.960 --> 0:19:23.159 thirty year exactly. Yes, I think term premium, which is 0:19:23.200 --> 0:19:26.040 sort of this bond market explanation for this compensation for 0:19:26.040 --> 0:19:28.919 additional duration risk. It's actually back to levels when the 0:19:28.920 --> 0:19:31.840 FED has historically done qui, and we've heard from a 0:19:31.880 --> 0:19:34.920 lot of FED speakers there are nowhere close to either 0:19:35.200 --> 0:19:38.360 cutting rates to zero or doing quei or for guidance, 0:19:38.520 --> 0:19:40.840 I think they're telling us that they're at neutral. I 0:19:40.920 --> 0:19:42.800 don't think they can be preemptive here. I think if 0:19:42.800 --> 0:19:47.000 growth absolutely collapses here we're heading into a recession, then 0:19:47.080 --> 0:19:50.560 term premium makes sense if growth remains around trend. I 0:19:50.560 --> 0:19:53.760 think term premium can rise a little bit, you know. Secularly, 0:19:54.000 --> 0:19:56.560 I'm not sure that it can be much higher given 0:19:56.600 --> 0:19:59.000 where global bond deals are. But in the tenure get 0:19:59.000 --> 0:20:01.480 to to sixty two seventy, so I actually think the 0:20:01.480 --> 0:20:03.919 goal of the yielk of can step in a little bit. 0:20:04.119 --> 0:20:05.960 I'm assuming you tight the other side of that trite 0:20:06.000 --> 0:20:10.000 in the bond market. You know. Look, uh, the FED 0:20:10.400 --> 0:20:13.159 is the only central bank that's hyped rades nine times 0:20:13.160 --> 0:20:19.120 this cycle. And when you couple the quantitative tightening, the 0:20:19.119 --> 0:20:22.840 de facto increase in the shadow FED funds rate has 0:20:22.880 --> 0:20:25.920 been three fifty basis points. I would submit to you 0:20:26.400 --> 0:20:29.879 that this was a very significant monetary tightening cycle in 0:20:29.920 --> 0:20:33.639 the United States. I said before, I'll say it again 0:20:34.080 --> 0:20:37.840 that the only thing separating the current um happy place 0:20:37.880 --> 0:20:40.040 the US economy seems to be with a recession or 0:20:40.119 --> 0:20:43.119 just the lags um, you do not come out of 0:20:43.160 --> 0:20:45.640 a monetary tidening cycle of this magnitude. And the FED 0:20:45.680 --> 0:20:47.679 pushed the envelope to see how far they could go 0:20:48.200 --> 0:20:51.400 without it having an impact on growth. And I think 0:20:51.400 --> 0:20:54.439 we'll start to see more of these impacts, especially with 0:20:54.480 --> 0:20:57.080 fiscal stimulus fading. We will see more of this in 0:20:57.119 --> 0:20:58.760 the second half of the year. I'm not living in 0:20:58.760 --> 0:21:01.040 the here and now. I'm saying that basically, by the 0:21:01.119 --> 0:21:03.800 end of the year, Uh, the recession rests are going 0:21:03.880 --> 0:21:06.440 to turn into reality. David were gonna go, David Rosenberg, 0:21:06.480 --> 0:21:10.720 Lasko chef, thank you, Thank you so much. TV securities, 0:21:10.720 --> 0:21:14.680 that's what we love here at Surveillance Collegial difference of opinion, 0:21:15.200 --> 0:21:33.040 to say the least. Conversation with Admiral Stravins, the Carlisle Group, 0:21:33.040 --> 0:21:36.280 and we did speak of the Abraham Lincoln and flotilla. 0:21:36.440 --> 0:21:39.200 Moving over to the Arabian See why don't you bring 0:21:39.200 --> 0:21:41.200 in our good guest in Tehran. I want to bring 0:21:41.200 --> 0:21:44.560 in blimbers, Gona Montevelli. She joins us from Tehran. Gon. 0:21:44.600 --> 0:21:46.520 Not great to have you with us on the program. 0:21:46.560 --> 0:21:49.120 Talk to me about this sixty day deadline that has 0:21:49.160 --> 0:21:52.760 just been sent by Rahani. What is the latest on 0:21:52.800 --> 0:21:57.720 the ground. Yeah, so, um, this morning Rohani made a 0:21:57.760 --> 0:22:01.040 statement and it was dead live on State TV. And 0:22:01.080 --> 0:22:05.680