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Speaker 1: Runt you by Bank of America Mary Lynch. With virtual reality,

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Speaker 1: virtually everything will change. Discover opportunities in a transforming world

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Speaker 1: VI of a mL dot Com slash VR, Mary Lynch,

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Speaker 1: Pierced Fenner and Smith Incorporated. Ye. Welcome to the Bloomberg

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Speaker 1: Surveillance Podcast. I'm Tom Keene with David Gura. Daily we

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Speaker 1: bring you insight from the best of economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg d

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Speaker 1: We beginning this point with the bias left Vich. He's

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Speaker 1: the chief US Equity Strategic City and joins us in

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Speaker 1: our Bloomberg eleven three oh studios. We see the tweet

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Speaker 1: this morning piece together. What happened over these last nine

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Speaker 1: days between the business meetings in Saudi Arabia, moving on

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Speaker 1: to Europe, the Native Summit, at the g semit, at

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Speaker 1: seven Summit, after that, what's your takeaway from that about

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Speaker 1: the state of the integrity of the alliance between the

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Speaker 1: US and Europe and what does that say to you

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Speaker 1: about the direction of the U S economy. I'm not

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Speaker 1: sure the two are necessarily rely Yeah, I would say

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Speaker 1: probably the the alliance is you know, is fine. Um,

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Speaker 1: I think they're you know, ebbsom and flows of of

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Speaker 1: that alliance. And and there there's certainly differences between for example,

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Speaker 1: the way George Bush conducted himself, George W. Bush conducted

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Speaker 1: himself with Europe, the way Obama did, and now the

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Speaker 1: way Trump is doing it. And it tends to you know,

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Speaker 1: move along with the with the various people involved. I've

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Speaker 1: always said that, you know, I've been going to Europe

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Speaker 1: for you know, close to thirty years, and and there's

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Speaker 1: kind of this you're either neutral about the US off

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Speaker 1: European or you're really negative about the US off your

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Speaker 1: European They're never almost a little bit positive about the

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Speaker 1: US because then I guess you have to get up

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Speaker 1: your European citizenship or something. Um. And I joke about

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Speaker 1: it a little bit. But there tends to be a

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Speaker 1: lot of the political differences show up in the relationships

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Speaker 1: that that are even conversation with investors. It's not even

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Speaker 1: about the leaders of the country. So there's certainly a

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Speaker 1: more i don't know, progressive mindset maybe in Europe that

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Speaker 1: doesn't necessarily exist in the US. Fully, there's obviously different

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Speaker 1: political sizes in the US, but it's much more entrenched

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Speaker 1: in Europe. And I think that tends to come to

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Speaker 1: the four when you have different leaders who have different perspectives.

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Speaker 1: At this stage, four months into this this administration does

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Speaker 1: a tweet like the one this morning or the one

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Speaker 1: last week about UH automakers German automakers comment about German

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Speaker 1: automakers not a tweet, but but a common doesn't have

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Speaker 1: much of an effect on your your world, not really.

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Speaker 1: I mean there there's there was. I think initially when

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Speaker 1: the tweets came out and the people were and I

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Speaker 1: don't know if those novel are knew it, just it

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Speaker 1: had an immediate reaction in the markets. And then they've

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Speaker 1: been having fewer and fewer impacts in the market, and

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Speaker 1: that was kind of our thought process that have eventually

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Speaker 1: it would kind of fade into the background. Um, it

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Speaker 1: doesn't help, but it's I don't think it's a dominant feature.

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Speaker 1: I think we care more about economic progress. Jim Bullard

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Speaker 1: of the St. Louis FID was never view by Bloomberg

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Speaker 1: guests to Day and talked about how this new administration

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Speaker 1: will have to fill the expectations it's it's laid out

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Speaker 1: in the stock market has for what it intends to do.

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Speaker 1: How heavily does that way on you. So, you know,

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Speaker 1: we we track a lot of different things in the

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Speaker 1: in the stock market, including let's say high tax versus

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Speaker 1: low tax performance stocks. We look at the um the

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Speaker 1: interest expense deductibility potentially being removed. You know, how's that

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Speaker 1: affecting stocks that have that kind of exposure. And most

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Speaker 1: of the Trump trades have pretty much rolled off. So

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Speaker 1: the idea that this is being priced in the market UM,

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Speaker 1: I think is antiquated. With all due respect to Mr Bullard,

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Speaker 1: I think he's wrong on that on that front. To

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Speaker 1: the city up, good morning, every good morning, David, Tom

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Speaker 1: glad you survived the three weekend, made it up with

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Speaker 1: that incident and we watched all Pirates of the Caribbean.

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Speaker 1: You did. It's like there's eight of our Yeah, not

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Speaker 1: the new one, I hope, Yeah, I got I got

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Speaker 1: ice shadow on that. It's great for radio. The one

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Speaker 1: thing on the data screen that's there, and I know

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Speaker 1: the record highs inequities and all that sp and not

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Speaker 1: the doubt yet is curve flattening? What is kurve flattening

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Speaker 1: signal to a guy like you. In my mind, it's

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Speaker 1: more about global flows of money than it is about

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Speaker 1: economic trend. Now I'm probably not. I can find people

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Speaker 1: who will say the other side of that argument, that

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Speaker 1: there's something wrong economically. Um. The reason I say that

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Speaker 1: is because what is what's your competition to a tune

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Speaker 1: a quarter tenure yield in the world today? Point oh

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Speaker 1: four and J G B's uh point for on a

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Speaker 1: bund yield of equivalent duration um. And I think if

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Speaker 1: there's a problem, chances are tenure treasuries would rally or

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Speaker 1: the dollarwood rally. So if you're a foreign investor, buying

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Speaker 1: the US isn't a particularly bad trade. And just very quickly, folks,

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Speaker 1: that's price up, yield down. So the curve is flatter

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Speaker 1: from the land of Lefkovitch because the tenure yield is

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Speaker 1: lower rather than higher. Would you be a steeper curve

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Speaker 1: we have all the fet is also raising rates on

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Speaker 1: the short end, So okay, we need to have a

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Speaker 1: moment of silence. David, it's the crunch time for the

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Speaker 1: cif A exams. It's coming up this weekend. All cf

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Speaker 1: A candidates had a miserable Memorial Day weekend and we

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Speaker 1: say good morning to all of them. They haven't slept.

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Speaker 1: They say best of luck as well. There's like eight

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Speaker 1: thousand of them at City Group. Right, did they get

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Speaker 1: the week off? I don't think they have the week off,

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Speaker 1: And I've had associates who've definitely taken a couple of

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Speaker 1: days off for it. Uh. They're going back to your

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Speaker 1: points about the yield curve flattening. I think it's it's

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Speaker 1: less from my perspective about the economy. UM, most of

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Speaker 1: the data that I look at UM is still pretty supportive.

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Speaker 1: The one area that's squishy, call it is the autos.

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Speaker 1: But if I look at capital spending, intention, hiring intentions,

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Speaker 1: new order trends, UM, consumer sentiment, all the kinds of

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Speaker 1: things that you'd like to be seeing are are suggesting

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Speaker 1: that we aren't necessarily in the economy. And again, autos

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Speaker 1: is an area that there's been a little bit of

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Speaker 1: tension around prime subprime loans and uh and and retail

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Speaker 1: sales trans inventory. There is some issues in autos and

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Speaker 1: we're monitoring carefully. Yeah, this great note out a couple

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Speaker 1: of weeks back on growth. Looking at growth as you've

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Speaker 1: been thinking about it chewing it over as we've seen

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Speaker 1: the White House continue to reiterate, we're gonna see three percent?

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Speaker 1: What what new? What? What new things have you come

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Speaker 1: to inclusion on what what have you learned here? Thinking

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Speaker 1: about growth in such detail. So we were we were

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Speaker 1: thinking about a longer term perspective when were wroth at

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Speaker 1: the pieces called growth, and the one you're highlighting was

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Speaker 1: called growth growth My kingdom for growth, UM and and

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Speaker 1: the idea was more around what are the long term

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Speaker 1: drivers of growth? And historically it's been things like population growth,

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Speaker 1: income growth, productivity, and innovation. Now I think innovation is

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Speaker 1: still pretty darned healthy out there. UM. I was out

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Speaker 1: in California last week, and you know stle Com values

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Speaker 1: humming UM. But if you look at the demographics, they've

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Speaker 1: clearly weakened the The birth rates are down, population growth

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Speaker 1: is down, still adding eighty two million people globally every year,

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Speaker 1: but off off of larger base, the percentage increases decline UM.

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Speaker 1: Income growth was a big story in emerging markets over

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Speaker 1: the past decade plus and and it's still happening. It's

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Speaker 1: not as aggressive, but it's still happening again off a

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Speaker 1: higher base. UM. And the one area that's probably the

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Speaker 1: most disturbing and I think is the one that causes

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Speaker 1: angst amongst economists around the world is productivity is just

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Speaker 1: seemingly not there despite all this investment in technology. And

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Speaker 1: I'm not sure if it's because people are sitting at

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Speaker 1: you know, watching you know, looking at their Facebook feeds

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Speaker 1: h during the day and seeing what their friends had

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Speaker 1: for lunch, um, or you know, or they're playing candy

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Speaker 1: Crush instead of working at their desks. I just don't know, um,

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Speaker 1: But but there there is some you know, you made

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Speaker 1: a common earlier in on TV Tom about Marty Felstone.

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Speaker 1: I know that Harvard there are spending a lot of

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Speaker 1: time trying to understand why we're not seeing all this

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Speaker 1: productivity benefits. Maybe we're measuring widgets per man hour correct

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Speaker 1: incorrectly in this kind of service based economy with with

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Speaker 1: new digital tech achnology. And I have sympathy to that

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Speaker 1: view because it does seem like things are much more productive.

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Speaker 1: You can sit there in the cab, pay your bills,

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Speaker 1: you know, off your phone through your bank account with

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Speaker 1: mobile so I mean that that's much more productive than

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Speaker 1: sitting at home at night writing check Okay, but David,

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Speaker 1: where are you on this? Because to me, it's a

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Speaker 1: partition of American society as much as we saw on

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Speaker 1: the reporting of a mobile day weekend, there's a group

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Speaker 1: of society that's taking advantage of what Tobias just mentioned

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Speaker 1: as a whole another group that's just being loved by

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Speaker 1: the wayside. And I suppose too, there's the argument as well, Tobias,

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Speaker 1: how are we getting any better at measuring this? Do

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Speaker 1: you do you see signs that we are? No, I

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Speaker 1: don't see any. But I don't see signs we're getting

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Speaker 1: better at measuring And I think this is I think

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Speaker 1: this is where economists are struggling. I've talked to a

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Speaker 1: number of them and they have not kind of found

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Speaker 1: the holy grail on this um. But you know, to

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Speaker 1: your point, time, I think innovation over time has always

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Speaker 1: left some people behind. I mean, when I went back

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Speaker 1: in the ninet thirties, I think was close to um

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Speaker 1: of the American workforce was working down on the form.

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Speaker 1: Today it's less than two percent. Productivities up more than

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Speaker 1: tenfold through a whole bunch of measures, including mechanized farming,

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Speaker 1: including anti fungus type UM pesticides including UH modified c

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Speaker 1: that can that can survive different temperature swings. So there's

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Speaker 1: a lot of different things going on that allows people

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Speaker 1: to to kind of move elsewhere. The question is, and

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Speaker 1: I think this is the fair one, are we retraining

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Speaker 1: people fast enough well for that new economy? And the

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Speaker 1: answer is probably know in The answer is that's where

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Speaker 1: every article ends upgoing. Is this mystery of retraining and

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Speaker 1: almost career shift, which is a theme under its own,

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Speaker 1: Or Tobias Levkovich of sitting David Gurr and and with

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Speaker 1: you on a Tuesday, four day workwate somebody said a

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Speaker 1: younger soul, David said, what's a holiday length and work week?

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Speaker 1: And you know, I said, well, you gotta live it.

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Speaker 1: You know how it is. Folks, you're like working five

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Speaker 1: days and you work four days and they tell you

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Speaker 1: to squeeze in five days or six days, and that's

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Speaker 1: how you get to a holiday length and at work week.

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Speaker 1: He knows about that. He's an academic professor. That was

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Speaker 1: a little sarcasm there, Professor Calamarus at Columbia University Hard Work, CHERYLS. Calamaris,

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Speaker 1: who's planning a sixth sabbatical reforming financial regulation after Dodd

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Speaker 1: Frank is a small but important book. If you wrote

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Speaker 1: this book for the believers in a more conservative free

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Speaker 1: market take on regulation, what's in this book for liberals?

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Speaker 1: What's in this book for Democrats that support UM? Senator

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Speaker 1: Warren Speaker Pelosi? Why do they need to read this book? Actually, Tom,

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Speaker 1: at the end of the book, I try to argue

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Speaker 1: that it's exactly directed to them, because, UM, some of

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Speaker 1: the concerns the ineffectiveness of regulation, not just the high

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Speaker 1: costs of regulation, and also the collapse of due process

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Speaker 1: in regulation should particularly be concerns for Democrats, especially now

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Speaker 1: that they're not in power. So we've had eight years

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Speaker 1: of the Obama administration. They don't worry about process the

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Speaker 1: Democrats when they're in control, but they're not in control

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Speaker 1: right now. Trump is going to point, for example, at

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Speaker 1: least five and maybe all seven of the governors of

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Speaker 1: the FED, and now the discretion the unlimited discretionary uh

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Speaker 1: sort of moment to moment cough cask process of regulation

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Speaker 1: is going to be in the people's hands that he appoints.

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Speaker 1: So I think that it's an attractive time for Democrats

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Speaker 1: to be thinking about due process given that, UH, some

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Speaker 1: of their concerns about the Trump administration. So I I

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Speaker 1: really do feel that this is a bipartisan story. Um.

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Speaker 1: And I wouldn't even describe this as a conservative set

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Speaker 1: of principles. I would just describe it as a rational

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Speaker 1: set of principles. The the the academic literature over the

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Speaker 1: past nine years has now evaluated the regulatory reforms, and

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Speaker 1: the evaluation is very negative. The regulatory reforms aren't accomplishing

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Speaker 1: what they wanted to accomplish by their own lights. They're

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Speaker 1: doing it at very high cost and having pretty much

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Speaker 1: destroyed due process uh in the regulatory sphere. So I

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Speaker 1: think it's a it's a failure across the board. What

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Speaker 1: lessons can we can we learn? What lessons can we

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Speaker 1: draw from what's happened with the so called fiduciary rule.

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Speaker 1: This is something that was in the prominence of Department

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Speaker 1: of Labor for some time. We have a new Labory

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Speaker 1: Secretary who has expressed some desire for the sec to

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Speaker 1: take on a role in its implementation and oversight. Uh. Indeed,

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Speaker 1: it seems like we may be headed in that that direction.

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Speaker 1: What does that city about the level of complexity associated

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Speaker 1: with financial regulation now that you have two different agencies

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Speaker 1: fighting this truth war over who's gonna oversee a rule

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Speaker 1: like that one? It's an excellent question. I mean, I

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Speaker 1: think there are two things that leap to mind. One is,

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Speaker 1: once people are used to something and have already gone

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Speaker 1: through spending the costs to adopt it, especially the large players,

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Speaker 1: they want to keep with the status quo. So you're

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Speaker 1: seeing that having already implemented some changes or about to

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Speaker 1: implement them, having paid the cost of it, they now

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Speaker 1: don't want to have to think again about whether the

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Speaker 1: fiduciary rule makes sense. Um. I think that there's another

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Speaker 1: piece to it, which is that specific to the fiduciary rule,

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Speaker 1: that there are some arguments in favor of it. Um,

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Speaker 1: it's a trade off. It's not clear that it's a

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Speaker 1: good idea, but it's not clear that it's a terrible idea.

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Speaker 1: So I think I was very encouraged that, um, we're

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Speaker 1: now going to have from the Labor Department, uh, a

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Speaker 1: sort of thoughtful review. That's what they should be doing.

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Speaker 1: Is the president on board. I can't figure out if

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Speaker 1: he's a conservative liberal, regulationist deregulationist. Depends on the tweet, Yeah,

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Speaker 1: what is it? You gotta you gotta are you gonna

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Speaker 1: join his staff. Can we make some news here this morning? UM,

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Speaker 1: I have not been approved. Let's just leave it at that.

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Speaker 1: And but I would say that I would be willing

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Speaker 1: to because I think that this is a time where

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Speaker 1: we have to come together. And I think that the

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Speaker 1: President is uh not fully formed. His views are not

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Speaker 1: fully formed on exactly what to do in financial regulation.

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Speaker 1: But I think his instinct is right, which is that there's, um,

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Speaker 1: there's been a lack of discipline in terms of cost

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Speaker 1: benefit analysis on regulation, and so I think that his

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Speaker 1: his action so far on the regulatory front um have

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Speaker 1: actually been very encouraging. And as I would emphasize, you

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Speaker 1: have to also ask who's in charge now in the

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Speaker 1: Treasury Department. Mutan doesn't really seem to know much about

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Speaker 1: financial regulation yet, and he doesn't have an under secretary.

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Speaker 1: In fact, now I don't even think there's one that's

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Speaker 1: been named. Because can you pass the litmus test? I'm

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Speaker 1: not sure. Well, you know, I think Nick Burns, who

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Speaker 1: joined policy, are you on the ugly list? I maybe

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Speaker 1: I don't know. I did know. I criticized the idea

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Speaker 1: of Chinese currency manipulation in two thousand and fifteen, that's

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Speaker 1: been the main, the main thing. So you never know,

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Speaker 1: how do you teach finance differently than you did in

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Speaker 1: two thousand six. You don't need a face lift to

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Speaker 1: do that, but how do you teach the troops differently

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Speaker 1: than you did in June or in April of two

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Speaker 1: thousand seven. You know, UH finance has sort of um

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Speaker 1: fallen off a cliff UH in NBA curriculums, mainly because

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Speaker 1: of the change in UH jobs that happened in two

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Speaker 1: thousand seven, and so a lot of the teaching has

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Speaker 1: to do with trying to think through UM how crises occur.

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Speaker 1: And I've been teaching, of course for twenty years called

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Speaker 1: emerging financial markets, which is all about how things tectonic

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Speaker 1: shifts happen in different countries. So it was very natural

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Speaker 1: for me. I I feel like it actually helped my

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Speaker 1: class because it made risk and systemic risk really was

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Speaker 1: brought to life by the crisis. So for me it

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Speaker 1: was actually good news. But for much of our teaching

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Speaker 1: and finance, I have to say, I think that it

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Speaker 1: was a little bit overconfident that we thought that it was. Ah, well,

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Speaker 1: it's also normal and it's also just about technical details,

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Speaker 1: whereas In fact, people started asking very basic questions, do

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Speaker 1: do banks know what they're doing? Um? Do people have

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Speaker 1: a way to quantify risk on a forward looking basis

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Speaker 1: that's useful? So these were really fundamental questions. I think

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Speaker 1: the curriculum has been affected. But from my class, this

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Speaker 1: was really grisp from my mills, because that's that's really

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Speaker 1: what I like to teach. I wanna ask you about

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Speaker 1: Alan Meltzer. He passed away on May the eighth. We

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Speaker 1: were very closely do something on the show, and then

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Speaker 1: the president fired as FBI director and things got busy

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Speaker 1: the following morning. I know that you you knew him

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Speaker 1: well and every worked on the shadow Open Market Committe

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Speaker 1: with what should we know about him? And in his

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Speaker 1: legacy Again, he passed away on May the eight. Well,

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Speaker 1: Allen was an amazingly diverse and hard working person. I

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Speaker 1: was with him in the hospital. Uh just you know

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Speaker 1: a couple of days before he died, and he was

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Speaker 1: working in the I c U. He was working on

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Speaker 1: his new book with pen and paper, with the oxygen

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Speaker 1: hooked up and very very weak. UM. So he was

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Speaker 1: just somebody who had an incredible dedication. He worked on

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Speaker 1: issues as diverse as um what's the link between monetary

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Speaker 1: policy and inflation or the political economy of elections? Why

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Speaker 1: sometimes growth versus redistribution wins in an election. He also

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Speaker 1: worked on reform of the international financial institutions, the I

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Speaker 1: m F, the World Bank, etcetera. UM. He worked though

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Speaker 1: on many other issues. UM he founded the Shadow Open

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Speaker 1: Market Committee. UM. You know, just an amazing contribute. What

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Speaker 1: was his work with Carl Brunner of the University of Rochester.

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Speaker 1: The Carnegie Rochester series was legendary for all in economics.

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Speaker 1: What was Carl Brunner Elor Meltzer's legacy. Well, you know,

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Speaker 1: I was at Allen's apartment and I noticed several pictures

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Speaker 1: in his office of Carl Brunner. Still so, Carl Brunner

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Speaker 1: was an incredible influence on Allen and not all of us.

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Speaker 1: And it was a personal partnership of dedication to public

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Speaker 1: policy old school style, right people who saw problems at

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Speaker 1: that time in the seventies, people were saying that inflation

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Speaker 1: wasn't caused by monetary policy, and Carl and Alan, I

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Speaker 1: think we're absolutely dedicated to showing that wasn't true. In

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Speaker 1: the Carnegie Rochester Public Policy series was really unique very valuable.

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Speaker 1: Charles Collenyers, thank you so much for Columbia. David. My

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Speaker 1: great Allen Meltzer memory was somebody holding an umbrella over

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Speaker 1: his head in the pouring rain at Jackson Hole and

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Speaker 1: his lee upset that he's wasting time. My TV said

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Speaker 1: Mr Meltzer. There's too many panels, aren't there? In heat?

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Speaker 1: God fear Tom. That used to be simpler, there were

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Speaker 1: fewer panels. In honor of Allan Meltzer. Charles calumeres with

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Speaker 1: thoughts there. This is Bloomberg Brunt you by Bank of

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Speaker 1: Bloomberg dot com slash lens. David Harrow with US from Chicago.

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Speaker 1: He invests in large cap internationals and is known he'll

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Speaker 1: have an off You're here and off You're there, but

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Speaker 1: has put together just a terrific long term track record. David,

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Speaker 1: good morning. What is your appetite for international stocks right now?

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Speaker 1: Has all the easy money been made? No? First of all,

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Speaker 1: it's never easy to make money time. You know that. Um,

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Speaker 1: there's always the beauty of having the globe at your disposal,

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Speaker 1: as you are always able to find a place or

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Speaker 1: a pocket where there's value where perhaps fear and fright

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Speaker 1: have caused opportunity. And I think if you're looking at

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Speaker 1: the differential that European equities still sell at from evaluation

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Speaker 1: differential perspective to US equities as an example, there's still

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Speaker 1: some opportunity there. So we're not seeing fire sale prices

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Speaker 1: like we did after Brexit or in February. But we're

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Speaker 1: seeing some reasonable valuations, especially in some of the European

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Speaker 1: continental blue chips and financials. Where are the other places

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Speaker 1: and pockets you're you're looking at outside of the Eurozone. Well,

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Speaker 1: we have increased our m exposure a little bit, but

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Speaker 1: again this is all driven from bottom up valuation. Uh,

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Speaker 1: some places are easier than others. UM, we have an

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Speaker 1: exposure to I've got a few good quality Mexican stocks

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Speaker 1: Group or all of Visa is an example. UM. And

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Speaker 1: we we actually have in our large camp strategy at

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Speaker 1: Chinese stock I do which is not of course the

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Speaker 1: leading search engine in China, but one of the leaders

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Speaker 1: and artificial intelligence, one of the top two or three

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Speaker 1: players and artificial intelligence in the world. So, and they're

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Speaker 1: not owned, there's not a direct government ownership, which always

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Speaker 1: scares us. Of course, there are some government influence because

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Speaker 1: of how the Chinese regulates the Internet, but it's it's

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Speaker 1: not owned by government entities, which is which is the

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Speaker 1: case for a great deal of the Chinese stocks. Is

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Speaker 1: China a place you're looking to more and more for

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Speaker 1: companies that are innovative. You mentioned that company doing work

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Speaker 1: on yes search, but also AI and I wonder if

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Speaker 1: if if that's increasingly the place you look to for

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Speaker 1: for new novel technology. Well, it's kind of tough because

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Speaker 1: of this government involvement. What I mean by government involved

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Speaker 1: mentis the government basically tells them what to buy and

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Speaker 1: what to sell and wow to expand. And even with

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Speaker 1: some of the tech companies, uh, you just don't really

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Speaker 1: have it independence that you want that you could get elsewhere.

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Speaker 1: And so this is a major problem. I mean, you

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Speaker 1: could talk all he wants about globalization, but when you're

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Speaker 1: a European automaker and you want to build a plant

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Speaker 1: and they want your battery technology for free, that's not globalization.

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Speaker 1: Where we on use of cash and if we finally

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Speaker 1: get interest rate normalization, I guess the first question is

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Speaker 1: do you predict that how will use of cash change

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Speaker 1: in a more normal rate environment. I mean, that's a

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Speaker 1: great question, Tom. I do think there will be interest

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Speaker 1: rate normalization. I think this has just been a long cycle.

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Speaker 1: But eventually you'll start to see interest rates uh reflect

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Speaker 1: you know, inflation levels, etcetera, etcetera, etcetera. So I do

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Speaker 1: think you'll see some interest rate normalization, that the central

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Speaker 1: banks will realize that these low negative rates haven't really

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Speaker 1: had the desired impact. And one of the reasons why

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Speaker 1: they haven't is remember Irving Fisher's quantity theory of money

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Speaker 1: and the equals p Q will The problem is that

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Speaker 1: velocity you know, has which was supposed to be stable,

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Speaker 1: has fallen, and this is what you're getting at uses

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Speaker 1: of money. Well, at some point you're going to see

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Speaker 1: the velocity of money pick up and you're going to

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Speaker 1: see kind of back to the quantity theory of money.

428
00:24:29,880 --> 00:24:33,919
Speaker 1: But because of technology and financial technology, I would assume

429
00:24:34,080 --> 00:24:38,359
Speaker 1: actual uses of cash continue to decline, though of course

430
00:24:38,440 --> 00:24:42,960
Speaker 1: the black market loves the use cash. When you when

431
00:24:42,960 --> 00:24:44,800
Speaker 1: you talk about the length of the cycle, that's being

432
00:24:44,800 --> 00:24:46,560
Speaker 1: along the cycle, what are the signs you see that

433
00:24:46,640 --> 00:24:50,000
Speaker 1: it may be coming to an end? Well, I think

434
00:24:50,000 --> 00:24:53,760
Speaker 1: in the United States in particular, you're starting to see um,

435
00:24:54,720 --> 00:25:01,199
Speaker 1: the easing cycle turn um, we see interest rates lifteeing um,

436
00:25:01,720 --> 00:25:04,040
Speaker 1: talk of what to do with the FENS balance sheet.

437
00:25:04,600 --> 00:25:06,920
Speaker 1: These are all little signs that we're gonna start to

438
00:25:06,960 --> 00:25:11,160
Speaker 1: see back to a pickup in a normal interest rate environment.

439
00:25:11,280 --> 00:25:14,440
Speaker 1: Even in Europe, I think there's some some talk about

440
00:25:14,640 --> 00:25:17,960
Speaker 1: we're getting getting towards the end of using monetary policy

441
00:25:18,480 --> 00:25:20,760
Speaker 1: as an end all and be all tool. And I

442
00:25:20,840 --> 00:25:23,119
Speaker 1: think that's also something that needs to be mentioned, is

443
00:25:24,440 --> 00:25:28,800
Speaker 1: we have around the globe relied far too much on

444
00:25:28,920 --> 00:25:32,920
Speaker 1: an imperfect tool, and that's monetary policy. I mean, monetary

445
00:25:33,040 --> 00:25:37,520
Speaker 1: policy is best used to provide a stable price level.

446
00:25:37,840 --> 00:25:41,920
Speaker 1: It is not meant to be used to to lift

447
00:25:42,560 --> 00:25:48,440
Speaker 1: employment level simultaneously everywhere to get the economic engine necessarily started.

448
00:25:48,800 --> 00:25:51,320
Speaker 1: Because of this whole notion that Kane says, you can't

449
00:25:51,400 --> 00:25:56,280
Speaker 1: necessarily push your strength if people don't have positive expectations

450
00:25:56,320 --> 00:25:58,399
Speaker 1: about the future or animal spirits that they are not

451
00:25:58,480 --> 00:26:00,919
Speaker 1: going to invest, they're not going to so so there

452
00:26:01,000 --> 00:26:04,240
Speaker 1: has to be something other than monetary policy. And this,

453
00:26:04,560 --> 00:26:08,280
Speaker 1: I think is one of the lessons that we're learning

454
00:26:08,560 --> 00:26:11,480
Speaker 1: post the Great Financial Crisis of two thousand and eight

455
00:26:11,520 --> 00:26:16,080
Speaker 1: and two thousand nine, is that monetary policy can facilitate growth,

456
00:26:16,400 --> 00:26:19,520
Speaker 1: but you need other policies to really ignite the engines

457
00:26:19,600 --> 00:26:23,000
Speaker 1: of growth. And there's been far too much reliance, in

458
00:26:23,160 --> 00:26:26,119
Speaker 1: my view, on monetary policy, and it's been used to

459
00:26:26,200 --> 00:26:28,760
Speaker 1: someone incorrectly. It is a blunt tool. It is not

460
00:26:28,920 --> 00:26:32,520
Speaker 1: a tool that you could find tune and use meticulously.

461
00:26:32,960 --> 00:26:36,240
Speaker 1: What have we learned about the promise of policy, about

462
00:26:36,280 --> 00:26:39,040
Speaker 1: optimism here over these last five six months since since

463
00:26:39,119 --> 00:26:41,920
Speaker 1: the election. Is you look at yourself and other investors

464
00:26:42,000 --> 00:26:44,360
Speaker 1: and how they reacted to the presidential election last year

465
00:26:44,359 --> 00:26:46,000
Speaker 1: and all that that could have ushered in or people

466
00:26:46,000 --> 00:26:48,240
Speaker 1: thought it would usher in. What have we learned now

467
00:26:48,280 --> 00:26:51,320
Speaker 1: a few months into the president's term. Well, I think

468
00:26:51,400 --> 00:26:54,400
Speaker 1: we haven't learned all that much quite yet. I think

469
00:26:54,440 --> 00:26:57,600
Speaker 1: what we're the biggest thing we've learned is this kind

470
00:26:57,640 --> 00:27:02,040
Speaker 1: of consistent bashing of success send capitalism and banks and

471
00:27:02,160 --> 00:27:05,040
Speaker 1: greedy bankers and all of us. You know, everyone's greedy

472
00:27:05,119 --> 00:27:08,360
Speaker 1: and everyone's out to get the world. At least we've

473
00:27:08,400 --> 00:27:10,480
Speaker 1: backed off of that, and I think there was a

474
00:27:10,560 --> 00:27:14,600
Speaker 1: realization that the private sector creates jobs, the private sector

475
00:27:14,680 --> 00:27:19,120
Speaker 1: creates opportunity, the private sector creates upward mobility, and it's

476
00:27:19,160 --> 00:27:23,920
Speaker 1: not this evil boogeyman. Perhaps that is the biggest lesson learned,

477
00:27:23,960 --> 00:27:26,399
Speaker 1: the biggest relief because prior to this, I mean, we

478
00:27:26,480 --> 00:27:29,639
Speaker 1: had eight years of of you know, the bashing of

479
00:27:29,680 --> 00:27:33,400
Speaker 1: the private sector and a free enterprise, and we still

480
00:27:33,480 --> 00:27:35,480
Speaker 1: have yet to see what's going to replace it. I

481
00:27:35,560 --> 00:27:38,240
Speaker 1: think there's still some uncertainty what's going to replace it?

482
00:27:38,640 --> 00:27:40,760
Speaker 1: But what we have seen is kind of an end

483
00:27:40,800 --> 00:27:45,800
Speaker 1: to the evil private sector rhetoric. Do you invest thinking

484
00:27:45,920 --> 00:27:49,760
Speaker 1: it's a double digit return world? Or is David Harrow

485
00:27:49,840 --> 00:27:52,960
Speaker 1: a single digit guy? Now? I think what you have

486
00:27:53,080 --> 00:27:55,320
Speaker 1: to invest is a you have to think of what's

487
00:27:55,359 --> 00:27:58,000
Speaker 1: inflation while it's one or two percent, and then you

488
00:27:58,040 --> 00:27:59,920
Speaker 1: know worship interest rate speed and you had a couple

489
00:28:00,080 --> 00:28:02,520
Speaker 1: points to that, and what's the equity risk premium when

490
00:28:02,520 --> 00:28:06,080
Speaker 1: you add it all together. I think equities through time,

491
00:28:06,720 --> 00:28:09,719
Speaker 1: if you have an inflation environment of one to two percent,

492
00:28:10,119 --> 00:28:13,080
Speaker 1: should be should do eight to ten percent through time

493
00:28:13,320 --> 00:28:17,720
Speaker 1: through time, And what you achieve is dependent on where

494
00:28:17,840 --> 00:28:21,439
Speaker 1: you enter in the evaluation cycle. So if stocks are

495
00:28:21,600 --> 00:28:24,440
Speaker 1: kind of rich and you enter there, you will get

496
00:28:24,520 --> 00:28:26,800
Speaker 1: less than that eight to ten percent. Stocks are kind

497
00:28:26,800 --> 00:28:30,240
Speaker 1: of average valuation, I would presume you would get around

498
00:28:30,280 --> 00:28:32,800
Speaker 1: eight to ten percent, and you could buy stocks at

499
00:28:32,840 --> 00:28:35,879
Speaker 1: a cheap valuation level and the cycle you will do

500
00:28:36,040 --> 00:28:38,760
Speaker 1: better than eight to ten percent. But I hope for

501
00:28:38,880 --> 00:28:41,920
Speaker 1: my shareholders that we could do close to double digit

502
00:28:42,000 --> 00:28:44,840
Speaker 1: and that we could beat the index that we compete

503
00:28:44,840 --> 00:28:50,520
Speaker 1: against by a measurable one one basis points and luckily,

504
00:28:50,680 --> 00:28:52,920
Speaker 1: over twenty years we've been able to beat it by

505
00:28:52,960 --> 00:28:56,080
Speaker 1: four hundred basis points, so we got we get bonus points.

506
00:28:56,400 --> 00:29:00,400
Speaker 1: David Harrow with US on International Investing. David, you more

507
00:29:00,720 --> 00:29:05,520
Speaker 1: buy and holding Now is your so called portfolio turnover rate?

508
00:29:06,080 --> 00:29:08,640
Speaker 1: Is it lower and lower or are you churning in

509
00:29:09,400 --> 00:29:13,560
Speaker 1: holding stocks for like ten minutes or ten months? Well,

510
00:29:13,640 --> 00:29:16,280
Speaker 1: we tend to be very much on the buy and

511
00:29:16,360 --> 00:29:18,880
Speaker 1: hold camp. If if you look at our strategy to

512
00:29:19,000 --> 00:29:21,400
Speaker 1: analyze the business, to price a business, to buy it

513
00:29:21,520 --> 00:29:25,560
Speaker 1: low and to sell it, dear, business valuation and the

514
00:29:25,720 --> 00:29:28,760
Speaker 1: creation of business value tends to be a lot more

515
00:29:28,880 --> 00:29:33,600
Speaker 1: stable than price. Price is very very volatile, whereas business

516
00:29:33,720 --> 00:29:37,400
Speaker 1: value even through cycle tends to be somewhat moving gentle fashion.

517
00:29:37,960 --> 00:29:40,760
Speaker 1: So we tend to be very long term shareholders. Some

518
00:29:40,920 --> 00:29:44,520
Speaker 1: stocks we've owned for over a decade as an example. Now,

519
00:29:44,600 --> 00:29:49,120
Speaker 1: when prices, when you have atility uh and prices that

520
00:29:49,400 --> 00:29:52,880
Speaker 1: may pick up our portfolio turnover rate. So the natural

521
00:29:53,040 --> 00:29:58,840
Speaker 1: rate is probably a year, but in very volatile periods,

522
00:29:59,120 --> 00:30:01,360
Speaker 1: and if you have a out of inflows and outflows,

523
00:30:01,640 --> 00:30:05,440
Speaker 1: it could drift up to thirty percent a year, probably

524
00:30:05,520 --> 00:30:08,640
Speaker 1: still well below the average fund which you know, some

525
00:30:08,840 --> 00:30:13,040
Speaker 1: funds literally are you know, trading every two days and

526
00:30:13,200 --> 00:30:17,720
Speaker 1: you see two portfolio turnover for us, it's a very

527
00:30:17,960 --> 00:30:22,280
Speaker 1: very different strategy. How does what President she unveiled at

528
00:30:22,320 --> 00:30:24,760
Speaker 1: his One Belt, One Road for UM change the calculus

529
00:30:24,880 --> 00:30:28,360
Speaker 1: for you or for investors more generally outline these ambitious

530
00:30:28,400 --> 00:30:32,040
Speaker 1: plans outlining the need for private investment, Does that change

531
00:30:32,080 --> 00:30:35,160
Speaker 1: the calculus for you at all? Well, again, you know

532
00:30:35,280 --> 00:30:38,960
Speaker 1: these are plans and these are mostly words, and what

533
00:30:39,080 --> 00:30:42,600
Speaker 1: you really need to see, for instance, is you know,

534
00:30:42,680 --> 00:30:46,800
Speaker 1: an increase infrastructure development as part of this plan really

535
00:30:46,920 --> 00:30:53,000
Speaker 1: suggests and more airports, ports, ports, railway, etcetera, etcetera, etcetera,

536
00:30:53,120 --> 00:30:56,560
Speaker 1: more trade, more free trade. Now, if all this happens,

537
00:30:56,600 --> 00:31:00,760
Speaker 1: it's quite good, and it's really good for infrastructure. Uh, infrastructure,

538
00:31:00,800 --> 00:31:03,760
Speaker 1: which is kind of the oil that lubricates economic growth.

539
00:31:04,440 --> 00:31:07,040
Speaker 1: And you know we have we own shares and companies

540
00:31:07,120 --> 00:31:09,960
Speaker 1: like Lafarge Wholesome that is one of the leading cement

541
00:31:10,080 --> 00:31:12,360
Speaker 1: makers in the world. I mean, this would be very

542
00:31:12,440 --> 00:31:15,360
Speaker 1: good for Lafarge Wholesome, This would be very good for Glencore,

543
00:31:15,440 --> 00:31:18,600
Speaker 1: which is a big producer of copper. So I mean

544
00:31:18,680 --> 00:31:20,640
Speaker 1: it would be good for our portfolio. It would be

545
00:31:20,720 --> 00:31:23,640
Speaker 1: good for global growth, would be good for just about everyone.

546
00:31:23,840 --> 00:31:26,880
Speaker 1: But you know, these are politicians and often what they

547
00:31:26,960 --> 00:31:32,000
Speaker 1: say does not materialize. Where's the growthiness right now? Not

548
00:31:32,200 --> 00:31:34,800
Speaker 1: the value, but the growthiness. I see you at w

549
00:31:35,040 --> 00:31:38,600
Speaker 1: P P. Martin Searle's company at some point, but you know,

550
00:31:38,800 --> 00:31:42,320
Speaker 1: is it like an entertainment or cable or something. Where's

551
00:31:43,040 --> 00:31:47,040
Speaker 1: where's David Harrow's growthiness right now? Yeah? You know, you

552
00:31:47,160 --> 00:31:50,240
Speaker 1: don't see just these high pockets of growth. And maybe

553
00:31:50,360 --> 00:31:54,560
Speaker 1: you know, certain areas of financial technology, maybe certain areas

554
00:31:54,840 --> 00:31:59,280
Speaker 1: of UM credit expansion. You're starting to see a lending

555
00:31:59,400 --> 00:32:02,400
Speaker 1: pick up in Europe as an example. I mentioned it before.

556
00:32:02,560 --> 00:32:05,160
Speaker 1: Europe is looking a little better and part of that

557
00:32:05,320 --> 00:32:11,000
Speaker 1: manifests itself and better lending volumes. Um. You know, autos

558
00:32:11,080 --> 00:32:14,240
Speaker 1: aren't growing, but they're still selling at We're at a

559
00:32:14,320 --> 00:32:19,120
Speaker 1: pretty high level. Um. You know, even though you know

560
00:32:19,240 --> 00:32:23,880
Speaker 1: it's slowed down the auto global automobile sales are at

561
00:32:23,920 --> 00:32:28,880
Speaker 1: a high level. You still see respectable automobile sales even

562
00:32:28,880 --> 00:32:32,040
Speaker 1: in the United States, despite the fact that perhaps too

563
00:32:32,120 --> 00:32:34,920
Speaker 1: much incentive is needed to maintain those levels. But you

564
00:32:35,040 --> 00:32:38,080
Speaker 1: still see places in China and the emerging markets growing

565
00:32:38,880 --> 00:32:43,800
Speaker 1: um some consumer products luxury goods are growing. Soft goods

566
00:32:43,840 --> 00:32:48,920
Speaker 1: in particular, company carrying that owns Gucci and in Paris,

567
00:32:49,040 --> 00:32:53,840
Speaker 1: and Gucci is an Italian company carrying owner owner is

568
00:32:53,880 --> 00:32:56,720
Speaker 1: a French company. You go into a Gucci store in

569
00:32:56,960 --> 00:33:04,160
Speaker 1: London on Necessariday afternoon and mob seeing a mobs to

570
00:33:04,320 --> 00:33:10,440
Speaker 1: buy your wife Gucci is very hot. Thank you, Fastion.

571
00:33:10,520 --> 00:33:13,560
Speaker 1: Advice for the wise guy from David get one more

572
00:33:13,680 --> 00:33:16,040
Speaker 1: question and with David Harold before I hit him over

573
00:33:16,080 --> 00:33:18,239
Speaker 1: there very quickly, David, And light of the tweet from

574
00:33:18,240 --> 00:33:20,080
Speaker 1: the present this morning, light of the reports of the

575
00:33:20,120 --> 00:33:22,440
Speaker 1: new tension between Europe and the US, how much does

576
00:33:22,480 --> 00:33:25,520
Speaker 1: that matter to you as a global investor, global politics

577
00:33:25,640 --> 00:33:29,680
Speaker 1: and and the comedy between the US and Europe. Not

578
00:33:29,880 --> 00:33:33,080
Speaker 1: really too much, David, because what really matters is how

579
00:33:33,280 --> 00:33:37,920
Speaker 1: does this impact a company's ability to generate cash flow streams?

580
00:33:38,440 --> 00:33:41,800
Speaker 1: And so much of it again just ends up being noise. Now,

581
00:33:41,880 --> 00:33:44,920
Speaker 1: I said, I just saw the tweet about this trade deficit. Well,

582
00:33:45,640 --> 00:33:48,880
Speaker 1: the problem is that some of this is autos. But

583
00:33:49,720 --> 00:33:54,760
Speaker 1: the German car companies, namely BMW and Mercedes, have substantial

584
00:33:54,920 --> 00:33:59,800
Speaker 1: operations in the United States and are huge exporters. Every

585
00:34:00,400 --> 00:34:04,760
Speaker 1: X Serish truck literally around the world is made in

586
00:34:04,840 --> 00:34:07,760
Speaker 1: South Carolina. So when you when you go around the

587
00:34:07,800 --> 00:34:09,680
Speaker 1: world and seeing X five and X three and X

588
00:34:09,760 --> 00:34:12,560
Speaker 1: two and X one, those are all US cars, you

589
00:34:12,640 --> 00:34:15,920
Speaker 1: know made, And so I mean this is this is

590
00:34:16,120 --> 00:34:18,759
Speaker 1: again the problem with politicians. They just say things that

591
00:34:18,920 --> 00:34:21,600
Speaker 1: aren't always accurate. David, thank you so much. David here

592
00:34:22,160 --> 00:34:38,440
Speaker 1: greatly and Harriss Associates greatly appreciate that. This morning, it

593
00:34:38,600 --> 00:34:41,120
Speaker 1: is our great pleasure to bring you know a gentleman

594
00:34:41,160 --> 00:34:46,120
Speaker 1: who has changed worldwide how we get around, how we fly.

595
00:34:46,400 --> 00:34:49,719
Speaker 1: His effect has been profound. I can think of very

596
00:34:49,800 --> 00:34:52,759
Speaker 1: few people in the airline business even approaching the work

597
00:34:52,800 --> 00:34:55,719
Speaker 1: of Michael O'Leary and the impact he runs a small

598
00:34:55,800 --> 00:34:59,920
Speaker 1: shop called Ryan Air. I met you in the basement

599
00:35:00,120 --> 00:35:03,080
Speaker 1: of our London offices. I think the Right Brothers had

600
00:35:03,160 --> 00:35:06,680
Speaker 1: just landed and the Carolinis on the beach. You've been

601
00:35:06,760 --> 00:35:09,600
Speaker 1: doing this, Michael a long time? Is it still fun?

602
00:35:10,920 --> 00:35:12,560
Speaker 1: Thank you? Tom. I know you didn't say that I've

603
00:35:12,600 --> 00:35:17,160
Speaker 1: improved their form after the weekend we've had, but are

604
00:35:17,200 --> 00:35:20,680
Speaker 1: you still having fun? I'm having more any more. It

605
00:35:20,800 --> 00:35:22,320
Speaker 1: is the most fun you can have with your clothes

606
00:35:22,400 --> 00:35:26,280
Speaker 1: on tom in Europe bringing forward lower affairs, keep driving

607
00:35:26,360 --> 00:35:28,600
Speaker 1: down those air fairs and making it impossibly for other

608
00:35:28,640 --> 00:35:32,560
Speaker 1: airlines to compete. After what Mr Walsh and companies saw

609
00:35:32,719 --> 00:35:37,360
Speaker 1: this weekend, can you outsource I T. We don't think so.

610
00:35:37,520 --> 00:35:40,400
Speaker 1: I mean we've deliberately insourced the whole I T function

611
00:35:40,480 --> 00:35:42,560
Speaker 1: under Ryanair Labs for the last couple of years now.

612
00:35:42,600 --> 00:35:44,600
Speaker 1: To be fair, I don't think what happened this weekend

613
00:35:44,719 --> 00:35:47,440
Speaker 1: had to do withoutsourcing. But there's clearly something wrong with

614
00:35:47,520 --> 00:35:50,080
Speaker 1: their disaster recovery program. I mean there's no way that

615
00:35:50,200 --> 00:35:53,319
Speaker 1: any large company can operate with all of its data

616
00:35:53,320 --> 00:35:56,480
Speaker 1: in one center where some power surge takes it all out.

617
00:35:56,520 --> 00:35:59,120
Speaker 1: I mean, it's just it's beyond incompetent. And we've had

618
00:35:59,160 --> 00:36:01,319
Speaker 1: this three or four times now. Right to be fair

619
00:36:01,360 --> 00:36:04,440
Speaker 1: to British Airways, there are a small airline company in London.

620
00:36:04,480 --> 00:36:08,160
Speaker 1: You may ye vaguely. They carry about thirty million pastors

621
00:36:08,160 --> 00:36:09,800
Speaker 1: a year. We'd cary about a hundred and twenties, so

622
00:36:09,880 --> 00:36:12,279
Speaker 1: you know, but I think there's something wrong with the

623
00:36:12,360 --> 00:36:14,880
Speaker 1: disaster recovery program. We are in our data centers are

624
00:36:14,880 --> 00:36:17,480
Speaker 1: spread across five different data centers in Europe with disaster

625
00:36:17,560 --> 00:36:20,680
Speaker 1: recovery programs for each one, so if one thing goes down,

626
00:36:20,760 --> 00:36:23,480
Speaker 1: you switch to the other four um But you know,

627
00:36:23,640 --> 00:36:26,920
Speaker 1: ultimately these are just blips. Be A is doing a

628
00:36:26,960 --> 00:36:30,040
Speaker 1: reasonably good job. They're trying to lower their costs. Unfortunately

629
00:36:30,160 --> 00:36:32,080
Speaker 1: can't lower them down to where Ryan areas, so they're

630
00:36:32,080 --> 00:36:34,120
Speaker 1: still not able to compete with us on price. But

631
00:36:34,239 --> 00:36:37,200
Speaker 1: the good news is that we're continuing to expand rapidly.

632
00:36:37,640 --> 00:36:40,920
Speaker 1: We have produced guidance this morning. We see our fares

633
00:36:40,960 --> 00:36:43,000
Speaker 1: falling by another five to seven percent in the next

634
00:36:43,040 --> 00:36:45,400
Speaker 1: twelve months, but profits will rise by about eight percent,

635
00:36:45,480 --> 00:36:47,440
Speaker 1: and so good do you think is the business model?

636
00:36:47,800 --> 00:36:50,560
Speaker 1: We're buying back another six hundred million euros of our

637
00:36:50,600 --> 00:36:53,320
Speaker 1: shares in the next couple of months. What's the greatest

638
00:36:53,400 --> 00:36:55,200
Speaker 1: challenge that you face. You talked about the expansion of

639
00:36:55,239 --> 00:36:58,080
Speaker 1: the reducing fierce even more. What's the biggest challenge that

640
00:36:58,120 --> 00:37:00,600
Speaker 1: you face in the next six months. I think, without

641
00:37:00,600 --> 00:37:03,640
Speaker 1: doubt it's always cost discipline keeping. How do we get

642
00:37:03,719 --> 00:37:05,359
Speaker 1: the cost to come down again? And this is where

643
00:37:05,600 --> 00:37:07,919
Speaker 1: you know our new aircraft order with Boeing we're taking

644
00:37:07,960 --> 00:37:10,719
Speaker 1: delivery of fifty grade boweing seventies seven eight hundreds each

645
00:37:10,760 --> 00:37:13,000
Speaker 1: year for the next eight years. That's going to take

646
00:37:13,040 --> 00:37:16,160
Speaker 1: down our costs. We're talking to airports all over Europe

647
00:37:16,160 --> 00:37:18,600
Speaker 1: who are terrified that Anatally is now in chapter eleven.

648
00:37:18,640 --> 00:37:22,160
Speaker 1: Air Berlin, Yeah, Berlin's how do you get to Rome?

649
00:37:22,200 --> 00:37:24,480
Speaker 1: What are you gonna do about Rome? Where now the

650
00:37:24,800 --> 00:37:27,640
Speaker 1: second largest airline in Rome. We're have a big base

651
00:37:27,719 --> 00:37:29,799
Speaker 1: in Champago and with a big base in Film and Gino.

652
00:37:29,880 --> 00:37:33,200
Speaker 1: And I think what happens tom is as Alatali emerges

653
00:37:33,239 --> 00:37:36,440
Speaker 1: from chapter eleven. It would probably be more focused on

654
00:37:36,520 --> 00:37:39,200
Speaker 1: Longhold where they can make money. And I think they're

655
00:37:39,200 --> 00:37:41,279
Speaker 1: gonna have to cut their capacity on shorthold where they're

656
00:37:41,320 --> 00:37:43,560
Speaker 1: just unable to compete with Ryan there either on Italian

657
00:37:43,600 --> 00:37:46,359
Speaker 1: domestics or shorthold European routes. It's plainly a trip. That's

658
00:37:46,360 --> 00:37:48,359
Speaker 1: the sigma do you know? Yeah? No, Do you see

659
00:37:48,640 --> 00:37:52,440
Speaker 1: any indication that the American public wants anything but cheap price?

660
00:37:52,800 --> 00:37:55,920
Speaker 1: I keep hearing these theories. They want this, they want that, Bologna.

661
00:37:55,960 --> 00:37:57,680
Speaker 1: They just want the lowest price. And it's not just

662
00:37:57,800 --> 00:38:02,000
Speaker 1: the American public, the European customer as well. People booking

663
00:38:02,040 --> 00:38:04,040
Speaker 1: a trip, the first questions who's got the cheapest fairs.

664
00:38:04,680 --> 00:38:07,480
Speaker 1: They want safety, they want new aircraft, and they want punctuality.

665
00:38:07,600 --> 00:38:10,839
Speaker 1: But other than that, they're willing to trade almost every

666
00:38:10,920 --> 00:38:13,000
Speaker 1: element of customer service, which is if you look at

667
00:38:13,040 --> 00:38:15,239
Speaker 1: the Ryan Revolution, Tom in the last twenty years, we

668
00:38:15,280 --> 00:38:17,600
Speaker 1: were the first people to start charging for the onboard snacks,

669
00:38:17,880 --> 00:38:19,800
Speaker 1: the first people start charging you for checked in bags.

670
00:38:19,880 --> 00:38:21,759
Speaker 1: Not because we wanted your money. We wanted people to

671
00:38:21,800 --> 00:38:24,399
Speaker 1: start bringing checked in bags. And I've been transformational. I'm

672
00:38:24,480 --> 00:38:27,920
Speaker 1: on air on our surveillance golf stream. I'm paying people

673
00:38:28,080 --> 00:38:30,919
Speaker 1: not to bring the snacks to me. That's a gold

674
00:38:31,560 --> 00:38:34,080
Speaker 1: Michael Leary, thank you so much. With Ryan here, let's

675
00:38:34,120 --> 00:38:49,640
Speaker 1: speak in London. This is Bloomberg. David, why don't you

676
00:38:49,680 --> 00:38:52,160
Speaker 1: bring in our esteem? Gust very glad to looking forward

677
00:38:52,160 --> 00:38:54,759
Speaker 1: to this next conversation with Graham Allison. He is a

678
00:38:54,760 --> 00:38:57,040
Speaker 1: professor at the Kennedy School of Government at Harvard University,

679
00:38:57,040 --> 00:38:59,880
Speaker 1: the director of the Belfry Center for Science and International Affairs,

680
00:39:00,239 --> 00:39:02,600
Speaker 1: the author of a new book, Destined for War. Can

681
00:39:02,680 --> 00:39:06,120
Speaker 1: America and China Escape the Cydities Trap? He joins us

682
00:39:06,160 --> 00:39:08,000
Speaker 1: now on our phone lines and running through his bio,

683
00:39:08,040 --> 00:39:10,920
Speaker 1: Theere failed to mention his role in government as well,

684
00:39:11,000 --> 00:39:14,600
Speaker 1: having served as Assistant Secretary of Defense previously as well.

685
00:39:14,719 --> 00:39:16,600
Speaker 1: Great to have you with us and help me with

686
00:39:16,719 --> 00:39:18,759
Speaker 1: the Greek term. First, I think we should begin there

687
00:39:18,760 --> 00:39:21,000
Speaker 1: at the Cydities trap? What is it and what can

688
00:39:21,040 --> 00:39:24,400
Speaker 1: we learn from it? Here in two thousand seventeen. Okay,

689
00:39:24,480 --> 00:39:26,719
Speaker 1: so it's a mouthful, and some people have a little

690
00:39:26,800 --> 00:39:31,400
Speaker 1: trouble saying Thucidities I practiced, I didn't practice before the Okay,

691
00:39:31,520 --> 00:39:35,240
Speaker 1: So Thucidities was the father of history. He wrote about

692
00:39:35,320 --> 00:39:40,240
Speaker 1: the great conflict in the Classic Greece between Athens and Sparta,

693
00:39:40,840 --> 00:39:46,200
Speaker 1: and the Thucidities trapped is when a rising power threatens

694
00:39:46,320 --> 00:39:51,239
Speaker 1: to displace a ruling power. Bad things happened, alarm bell

695
00:39:51,280 --> 00:39:55,680
Speaker 1: should sound danger ahead. In Thucydities case, it was, as

696
00:39:55,719 --> 00:39:59,120
Speaker 1: he said famously quote the rise of Athens and the

697
00:39:59,280 --> 00:40:03,320
Speaker 1: fear that this instilled in Sparta that made the war inevitable.

698
00:40:03,719 --> 00:40:05,879
Speaker 1: In this book, I look at the last five years,

699
00:40:05,920 --> 00:40:09,840
Speaker 1: I find sixteen cases in which a rising power threatened

700
00:40:09,880 --> 00:40:12,800
Speaker 1: to displace the ruling power. Twelve of them ended in

701
00:40:12,920 --> 00:40:17,799
Speaker 1: war four and not war, but in general, business as

702
00:40:17,880 --> 00:40:21,239
Speaker 1: usual will produce history as usual. And in the case

703
00:40:21,320 --> 00:40:25,040
Speaker 1: of the rise of China, which is now threatening to

704
00:40:25,239 --> 00:40:30,040
Speaker 1: displace the US in arena after arena, either we'll learn

705
00:40:30,120 --> 00:40:34,239
Speaker 1: the lessons of history or will be just to repeat it,

706
00:40:34,680 --> 00:40:37,640
Speaker 1: probably with the inevitability of that trap. If anything, that

707
00:40:37,760 --> 00:40:40,160
Speaker 1: the last presidential campaign taught us to look at this

708
00:40:40,239 --> 00:40:42,960
Speaker 1: relationship in a binary uh. And there are a lot

709
00:40:43,000 --> 00:40:45,960
Speaker 1: of people who fear the rise of China is conflict

710
00:40:46,040 --> 00:40:49,279
Speaker 1: with China, conflict between China and the US, and inevitability

711
00:40:49,280 --> 00:40:52,719
Speaker 1: as you see him in a word, No, okay. So

712
00:40:52,880 --> 00:40:57,359
Speaker 1: when Tucidity said made the war inevitable, if when read

713
00:40:57,480 --> 00:41:01,200
Speaker 1: it in context, as I say in the book, here's exaggerating.

714
00:41:01,320 --> 00:41:04,000
Speaker 1: He bent this to be hyperbole just for the purpose

715
00:41:04,040 --> 00:41:07,520
Speaker 1: of emphasis, just likely would be a more likely, more

716
00:41:07,680 --> 00:41:12,640
Speaker 1: more appropriate word. So if we look at the recent history,

717
00:41:12,719 --> 00:41:16,200
Speaker 1: as I say, just the last five hundred years, twelve

718
00:41:16,280 --> 00:41:19,320
Speaker 1: cases of war, four cases of not war. So that

719
00:41:19,440 --> 00:41:22,920
Speaker 1: clearly does not mean inevitable. That just means that's the

720
00:41:22,960 --> 00:41:27,680
Speaker 1: way to bid it. If people don't learn, Graham, you

721
00:41:27,840 --> 00:41:30,319
Speaker 1: founded the Kennedy School at Harvard. You were the force

722
00:41:30,440 --> 00:41:32,600
Speaker 1: that got it going and got it onto bigger and

723
00:41:32,680 --> 00:41:36,600
Speaker 1: better things. If you were lecturing today at Kennedy on

724
00:41:36,760 --> 00:41:40,080
Speaker 1: North Vietnam, what will be? This is the number one

725
00:41:40,200 --> 00:41:42,880
Speaker 1: question I get on excuse me a North Korea, A

726
00:41:42,960 --> 00:41:50,400
Speaker 1: little misstatement there by myself. Yeah, North Korea, what do

727
00:41:50,480 --> 00:41:54,320
Speaker 1: the how are the president's comments received in North Korea

728
00:41:54,400 --> 00:41:59,600
Speaker 1: by their leadership? Well? I think the North Korean's or

729
00:41:59,640 --> 00:42:01,680
Speaker 1: a puzz sol for all of us. And I don't

730
00:42:01,719 --> 00:42:04,040
Speaker 1: believe anybody has a good fix on him. I mean,

731
00:42:04,160 --> 00:42:08,360
Speaker 1: Kim Jongwin, at least until the past year, was clearly

732
00:42:08,920 --> 00:42:14,800
Speaker 1: the strangest, most erratic, most impulsive, most unpredictable character you

733
00:42:14,880 --> 00:42:16,960
Speaker 1: know on the on the global stage. And so this

734
00:42:17,120 --> 00:42:19,920
Speaker 1: is a guy who, uh, he looks at his local

735
00:42:20,160 --> 00:42:23,280
Speaker 1: things that he may be suspicious and gets a rocket

736
00:42:23,520 --> 00:42:28,719
Speaker 1: launcher that blessed him away in public, who killed his

737
00:42:28,760 --> 00:42:31,319
Speaker 1: half brother or had him killed in the recent event

738
00:42:31,400 --> 00:42:34,920
Speaker 1: in Malaysias. So it's a very strange guy. Nonetheless, I

739
00:42:35,040 --> 00:42:38,560
Speaker 1: think as he looks and listens to Trump, he may

740
00:42:38,640 --> 00:42:43,120
Speaker 1: at least think that things will change. What he's learned

741
00:42:43,239 --> 00:42:46,359
Speaker 1: from his father and from his grandfather is that North

742
00:42:46,440 --> 00:42:51,040
Speaker 1: Korea can just take one step after another and defy

743
00:42:51,920 --> 00:42:57,200
Speaker 1: the US and defy China in creating nuclear weapons, building

744
00:42:57,360 --> 00:43:02,880
Speaker 1: nuclear arsenal testing, miss being capable to now to deliver

745
00:43:02,920 --> 00:43:07,360
Speaker 1: a warhead against South Korea, also delivereral warhead against Japan,

746
00:43:07,800 --> 00:43:10,759
Speaker 1: and god forbid soon but in the next year or so,

747
00:43:11,280 --> 00:43:14,000
Speaker 1: as soon on the current path to be able to

748
00:43:14,080 --> 00:43:17,560
Speaker 1: deliver a warhead against San Francisco or Los Angeles. So

749
00:43:17,800 --> 00:43:20,120
Speaker 1: he hears Trump saying, no, I'm telling you, this is

750
00:43:20,560 --> 00:43:23,080
Speaker 1: not going to happen. Of course, that's the same thing

751
00:43:23,160 --> 00:43:26,000
Speaker 1: he heard from George W. Bush. That's the same thing

752
00:43:26,040 --> 00:43:28,520
Speaker 1: you heard from Obama. That's the same thing he heard

753
00:43:28,560 --> 00:43:31,040
Speaker 1: from Clinton. That's the same thing he heard from she

754
00:43:31,280 --> 00:43:34,080
Speaker 1: and his predecessors. So I suspect he thinks he can

755
00:43:34,120 --> 00:43:36,040
Speaker 1: get away with it, and that's why I think this

756
00:43:36,200 --> 00:43:39,360
Speaker 1: is going to be very dangerous. He's strange, He's dangerous.

757
00:43:39,400 --> 00:43:41,680
Speaker 1: How do you you counsel a student who wonders how

758
00:43:41,760 --> 00:43:44,680
Speaker 1: you engage with a leader like that. We've enjoyed talking

759
00:43:44,719 --> 00:43:47,279
Speaker 1: with your colleague, Ambassador Nicholas Burns from time to time

760
00:43:47,320 --> 00:43:49,680
Speaker 1: here on the show. Of course, he's dealt with these issues.

761
00:43:49,680 --> 00:43:52,040
Speaker 1: Ambassador Chris Hill, whom we've talked to as well, has

762
00:43:52,080 --> 00:43:54,480
Speaker 1: dealt with him as well, how do you engage how

763
00:43:54,520 --> 00:43:56,320
Speaker 1: do you deal with with with the leader who is

764
00:43:56,360 --> 00:44:01,239
Speaker 1: so erratic? Well, I get if an excellent question that

765
00:44:01,360 --> 00:44:04,239
Speaker 1: I would say that we've had great diplomats and great

766
00:44:04,520 --> 00:44:08,200
Speaker 1: secretaries of state try to deal with this little But

767
00:44:08,800 --> 00:44:11,640
Speaker 1: the truth is that if you look at the facts, unsuccessfully,

768
00:44:12,080 --> 00:44:15,759
Speaker 1: that is, the succession of efforts have not been successful

769
00:44:16,080 --> 00:44:18,600
Speaker 1: in dealing with either Kim Jolin or with his dad.

770
00:44:19,520 --> 00:44:23,280
Speaker 1: I think, Uh, I start by asking about all leaders

771
00:44:23,360 --> 00:44:25,920
Speaker 1: and their regimes, what do they really care about? What

772
00:44:26,080 --> 00:44:28,719
Speaker 1: matters most to him? And I think for him it's

773
00:44:28,960 --> 00:44:32,239
Speaker 1: his survival and the survival of the Kim regime. It's

774
00:44:32,360 --> 00:44:37,400
Speaker 1: essentially a dynasty. But I think that I think therefore, Uh,

775
00:44:37,760 --> 00:44:40,920
Speaker 1: to the extent that he feels that the regime is threatened,

776
00:44:40,920 --> 00:44:42,960
Speaker 1: if there was a credible way to do that, we

777
00:44:43,080 --> 00:44:45,080
Speaker 1: might be able to move him. A book that's getting

778
00:44:45,200 --> 00:44:50,359
Speaker 1: considered in Rave reviews, Destined for War Graham Allison, who

779
00:44:50,440 --> 00:44:53,279
Speaker 1: is at Harvard's Kennedy School, indeed was the founder and

780
00:44:53,360 --> 00:44:57,759
Speaker 1: the soul of the school. A guy named Kissinger says,

781
00:44:57,800 --> 00:45:00,400
Speaker 1: of this book, I read it with great interest. I

782
00:45:00,480 --> 00:45:04,160
Speaker 1: can only hope that the U. S. China relationship becomes

783
00:45:04,200 --> 00:45:08,239
Speaker 1: the fifth case to resolve itself peacefully. Speaking of peacefully,

784
00:45:08,800 --> 00:45:12,880
Speaker 1: let's talk NATO, Professor Allison, there was a thing called

785
00:45:13,000 --> 00:45:19,359
Speaker 1: the Truman Doctrine March twelfth, ninety seven. How scared were

786
00:45:19,440 --> 00:45:27,879
Speaker 1: we in March of nine? Extremely uh? The again hard

787
00:45:27,920 --> 00:45:31,920
Speaker 1: to remember the Cold War, but the Soviet Union emerged

788
00:45:32,000 --> 00:45:36,200
Speaker 1: from World War Two as the other great power. UH.

789
00:45:36,719 --> 00:45:40,680
Speaker 1: The Soviet Union was getting its act together and aggressively

790
00:45:41,239 --> 00:45:46,040
Speaker 1: reaching into Europe, including into Greece and into Turkey, into France,

791
00:45:46,160 --> 00:45:51,920
Speaker 1: into Italy, into their politics. And the Truman administration initially

792
00:45:52,280 --> 00:45:55,520
Speaker 1: with the Truman Doctrine, and then with the Marshall Plan

793
00:45:56,080 --> 00:45:58,960
Speaker 1: also in thy seven, and then with the creation of

794
00:45:59,080 --> 00:46:04,200
Speaker 1: NATO in pushed back and basically that's the reason why

795
00:46:04,280 --> 00:46:06,840
Speaker 1: we have a free Europe today. Let me ask you

796
00:46:06,840 --> 00:46:09,960
Speaker 1: about the message, the tone, the content of the President's

797
00:46:10,040 --> 00:46:12,600
Speaker 1: speech in Brussels last week. He received a lot of

798
00:46:12,680 --> 00:46:15,279
Speaker 1: criticism for focusing so much on funding and so little

799
00:46:15,360 --> 00:46:18,880
Speaker 1: on the alliance and its history and its importance. Let

800
00:46:18,920 --> 00:46:20,360
Speaker 1: me stick with the funding side of things for just

801
00:46:20,600 --> 00:46:22,960
Speaker 1: a second. Here. You've written about this before. I think

802
00:46:23,000 --> 00:46:26,840
Speaker 1: your agreement here that European nations, most allies should be

803
00:46:26,840 --> 00:46:29,319
Speaker 1: doing more to get to the two percent commitment they've

804
00:46:29,600 --> 00:46:32,560
Speaker 1: they've made. Why is that case so difficult to make?

805
00:46:32,640 --> 00:46:34,080
Speaker 1: Why does it have to be made? And such maybe

806
00:46:34,200 --> 00:46:36,680
Speaker 1: a ham handed way by the President in Brussels, it's

807
00:46:36,719 --> 00:46:39,560
Speaker 1: clearly something he cares a lot about. Why Why hasn't

808
00:46:39,560 --> 00:46:43,600
Speaker 1: he Why haven't previous presents made much traction there? Well,

809
00:46:43,719 --> 00:46:46,520
Speaker 1: I think it's a great question, and I think essentially

810
00:46:46,920 --> 00:46:50,400
Speaker 1: the President speaks for many Americans when he says, rightly,

811
00:46:51,160 --> 00:46:53,320
Speaker 1: Germans are as wealthy as the US, why should the

812
00:46:53,440 --> 00:46:57,680
Speaker 1: U S Citizens taxpayers pay more to defend Germans. The

813
00:46:57,840 --> 00:47:01,320
Speaker 1: Germans are prepared to pay for for themselves. And the

814
00:47:01,400 --> 00:47:04,280
Speaker 1: answer is, well, we've been doing that through the period

815
00:47:04,320 --> 00:47:08,040
Speaker 1: of the Cold War, when NATO was the pillar essential

816
00:47:08,320 --> 00:47:12,200
Speaker 1: for the defeat of the evil Empire. That was understandable

817
00:47:12,280 --> 00:47:16,200
Speaker 1: or at least explainable. But in the period the last

818
00:47:16,239 --> 00:47:18,000
Speaker 1: twenty five years since the end of the Cold War,

819
00:47:18,640 --> 00:47:22,000
Speaker 1: this becomes less and less plausible. From the European perspective.

820
00:47:22,840 --> 00:47:25,759
Speaker 1: A free writer's role is a good is a good role.

821
00:47:26,320 --> 00:47:30,920
Speaker 1: Uh And even though repeatedly presidents and secretaries of Defense

822
00:47:31,320 --> 00:47:34,799
Speaker 1: have said to the NATO counterparts this cannot continue. We're

823
00:47:34,840 --> 00:47:37,520
Speaker 1: not going to continue doing this. American tax players won't

824
00:47:37,560 --> 00:47:41,040
Speaker 1: continue supporting it. Basically they've said yes, yes, yes, but

825
00:47:41,160 --> 00:47:43,960
Speaker 1: they meant no, no, no. So I think I can

826
00:47:44,239 --> 00:47:48,839
Speaker 1: empathize with President Trump's frustrations, which you're shared by many people.

827
00:47:48,880 --> 00:47:52,000
Speaker 1: If you look at Gates's speech at his last NATO meeting,

828
00:47:52,360 --> 00:47:55,759
Speaker 1: it looks very similar to the to what Trump was

829
00:47:55,800 --> 00:47:58,960
Speaker 1: saying about. You know, look, guys, this cannot go on

830
00:47:59,239 --> 00:48:03,360
Speaker 1: in this fast but moving people from a position in

831
00:48:03,480 --> 00:48:07,800
Speaker 1: which you can't really exclude them from a defensive perimeter

832
00:48:07,960 --> 00:48:10,800
Speaker 1: because we care about their defense as well. Uh is

833
00:48:10,840 --> 00:48:14,200
Speaker 1: a dilimma. There will be some listening today who will

834
00:48:14,320 --> 00:48:17,960
Speaker 1: sympathize with what Secretary of State Rex Tillerson said mumbled

835
00:48:18,000 --> 00:48:20,520
Speaker 1: off Mike on his first trip to Europe as Secretary

836
00:48:20,600 --> 00:48:24,160
Speaker 1: of State. Why why is NATO relevant? What do you

837
00:48:24,200 --> 00:48:25,640
Speaker 1: say to them? How do you make the case to

838
00:48:25,800 --> 00:48:28,040
Speaker 1: to Americans this alliance, which is stories and has been

839
00:48:28,080 --> 00:48:31,840
Speaker 1: around for for so long, indeed, art triggered after nine eleven,

840
00:48:32,239 --> 00:48:35,239
Speaker 1: has done more than Yeoman's work in Afghanistan in our

841
00:48:35,280 --> 00:48:37,279
Speaker 1: war there. How do you make the case for its

842
00:48:37,320 --> 00:48:40,520
Speaker 1: continued relevance that Americans should continue to put billions of

843
00:48:40,560 --> 00:48:42,759
Speaker 1: dollars a year to pay for it. Well, I would

844
00:48:42,760 --> 00:48:46,840
Speaker 1: say that the three things. First is the historic fact

845
00:48:46,920 --> 00:48:49,600
Speaker 1: that it's been the greatest alliance in history that was

846
00:48:49,719 --> 00:48:53,719
Speaker 1: essential for the defeat of the evil empires. Secondly, it

847
00:48:54,200 --> 00:48:58,760
Speaker 1: is our closest set of colleagues for engagement in the world.

848
00:48:59,280 --> 00:49:03,280
Speaker 1: So NATO members are with the US in Afghanistan today.

849
00:49:03,800 --> 00:49:06,399
Speaker 1: NATO members were eager to be with the US after

850
00:49:06,560 --> 00:49:09,440
Speaker 1: nine eleven. So if the US wants any company in

851
00:49:09,480 --> 00:49:14,600
Speaker 1: the world in terms of values, interests, institutions, uh, it's NATO.

852
00:49:14,719 --> 00:49:17,600
Speaker 1: And then thirdly, as President Trump has said, for the

853
00:49:17,680 --> 00:49:22,560
Speaker 1: fight on terrorism, basically Europe is the heart of that.

854
00:49:22,840 --> 00:49:28,080
Speaker 1: Now as you see the populations that have come into

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Speaker 1: the European complies and not been fully intovated. What is

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Speaker 1: your quickly, what is your prescription professor for Secretary Madison,

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00:49:34,360 --> 00:49:39,200
Speaker 1: Secretary Tillerson. Well, I think they have a hard job

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Speaker 1: dealing with the NATO counterparts because the NATO counterparts have

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00:49:42,600 --> 00:49:46,759
Speaker 1: become accustomed to basically not being serious about defense, not

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00:49:46,960 --> 00:49:49,719
Speaker 1: being serious about their own defense, not spending what they

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00:49:49,760 --> 00:49:52,360
Speaker 1: should spend, and even worse than what they spend is

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Speaker 1: what they spend it on mainly on the headquarters and

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00:49:55,960 --> 00:50:00,279
Speaker 1: bands and flyovers, not fighting capability. So trying to get

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Speaker 1: Pato to be a good partner is going to be

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Speaker 1: a long, hard shout. It has been. This has been wonderful.

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Speaker 1: Destined for war Graham Allison again. Robert D. Calpot writing

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Speaker 1: it up in the Journal today. I'm one money of

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Speaker 1: the constructive reviews. Destined for Ward is most thoughtful. He

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Speaker 1: is at Kennedy School, Harvard. Thanks for listening to the

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00:50:31,000 --> 00:50:37,839
Speaker 1: Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,

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00:50:38,239 --> 00:50:42,000
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at

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Speaker 1: Tom Keene. David Gura is at David Gura. Before the podcast,

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Speaker 1: you can always catch us worldwide. I'm Bloomberg Radio, brought

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