Speaker 1: Who you put your trust in matters. Investors have put
Speaker 1: their trust and independent registered investment advisors to the two
Speaker 1: and four trillion dollars. Why Learn more at find your
Speaker 1: Independent Advisor dot com. Welcome to the Bloomberg Surveillance Podcast.
Speaker 1: I'm Tom Keene with David Gura. Daily we bring you
Speaker 1: insight from the best in economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and
Speaker 1: of course on the Bloomberg I'm at the offices of
Speaker 1: Ian Bremer's you raise your group as we look at
Speaker 1: top risks for two thousand seventeen. Dr Bremer joining US
Speaker 1: and now joining us from Jamaica. Lawrence Summers, he has
Speaker 1: Elliott Professor at Harvard University and of course the president
Speaker 1: emeritus of Harvard and a former Secretary of the Treasury.
Speaker 1: Professor Summer is wonderful to have you with us. This
Speaker 1: will be a new presidency, it will be a new
Speaker 1: Capital Hill. What is your chief concern, your chief observation
Speaker 1: as we are seventeen days from an inauguration of President Trump,
Speaker 1: I think it's a moment of extraordinary uncertainty to an
Speaker 1: extent that markets seem not to appreciate there are prospects
Speaker 1: that things could work out well, at least for some interviews.
Speaker 1: But there are enormous risks to the global economy, enormous
Speaker 1: risks to the global economy from possible US protectionist measures,
Speaker 1: enormous risks to the global economy from experimentation in the
Speaker 1: world where basic pillars of American farm policy are up
Speaker 1: for grabs, enormous risks to the American economy from a
Speaker 1: very administration is going to take a very different approach
Speaker 1: to American society than has been a traditional Uh. This
Speaker 1: is probably the largest transition ideologically and in terms of
Speaker 1: substantive policy that we've seen in the United States in
Speaker 1: the last three quarters of a century. And those kinds
Speaker 1: of transitions have to be given the central role of
Speaker 1: the United States in the global system matters of enormous uncertainty,
Speaker 1: and I don't think that's fully recognized by markets. Okay, fair,
Speaker 1: I want to go to the market, which is the
Speaker 1: litmus paper the system. You know, within your academics of
Speaker 1: foreign exchange analysis goes from Robert Mundell onto Jacob Frankel,
Speaker 1: onto Kenneth Rogoff and onto the modern age to our
Speaker 1: markets and do our political system underestimate the risks of
Speaker 1: a truly strong dollar policy. I think there are risks
Speaker 1: because you have a development that is unprecedented in terms
Speaker 1: of dollar fluctuations, which is the possibility of major policy
Speaker 1: change in the fiscal area, not in terms of budget deficits,
Speaker 1: but in terms of the tax burden and subsidy on
Speaker 1: exports city imports. Remember the advocates, advocates of the tax
Speaker 1: reform proposal that the House has put forward and in
Speaker 1: some ways the President elect has endorsed with the Order
Speaker 1: Sudjustment assert that the reason will work out well is
Speaker 1: that it will lead to appreciation of the dollar. Well,
Speaker 1: that's got huge consequences if it happens rapidly for the
Speaker 1: financial architecture, for anyone who's a holder of dollar securities,
Speaker 1: for anyone who's a gator denominated in dollars, for the
Speaker 1: translation of profits back into UH dollars. And I just
Speaker 1: think that the financial consequences have not been fully thought through.
Speaker 1: And if there comes to be a person that that's
Speaker 1: got a real chance of happening, I think the risks
Speaker 1: are enormous. Okay, this is very important to synthesize this.
Speaker 1: Dr Bremer is the important paper highly criticized by Professor
Speaker 1: Summers and others from Peter Navarro and Wilbur Ross. The
Speaker 1: new Secretary of Commerce, can you fold the caution and uh,
Speaker 1: not hatred, but the distrust of China of Professor navarre
Speaker 1: Row into what Trump economics and politics will be. Well,
Speaker 1: there's no question that Trump comes into this office um
Speaker 1: with a feeling that the most important bilateral relationship in
Speaker 1: the world, that between the United States and China, is
Speaker 1: not only not being well managed, but fundamentally this country
Speaker 1: is taking advantage of the United States and it needs
Speaker 1: to be It needs a hard response. And that's happening
Speaker 1: exactly at the time when j and Ping won't take
Speaker 1: any uncertainty because he's leading into his own political cycle.
Speaker 1: Larry's point at the beginning is the right one, right,
Speaker 1: which is from we started our firm. We talked about
Speaker 1: global political risks. It was emerging markets, you know, it
Speaker 1: was the Middle East. Then the financial crisis hits. You've
Speaker 1: got the Eurozone in two thousand seventeen. Leading this document
Speaker 1: is the United States America is driving global political risk
Speaker 1: and uncertainty, and that is not reflected in the markets
Speaker 1: right now, but it is a fundamental sea change with
Speaker 1: anything we've seen over the past few decades. It's this
Speaker 1: transition which matters so much for the rest of the world.
Speaker 1: With Professor Summers, let's bring in Guy Johnson in London. Guy,
Speaker 1: good morning, Professor Summers. Um how how possible is it
Speaker 1: that in a few years time we are talking about
Speaker 1: the fact that the United States has gone through a
Speaker 1: productivity revolution. Donald Trump talks about repatriating money back to
Speaker 1: the United States. How does that money get invested into
Speaker 1: productive capacity? He talks about learning the tax rate. How
Speaker 1: does that extra money get get get reinvested into productivity.
Speaker 1: How do we make that work? Because if that would
Speaker 1: be to that were to happen, how much would that
Speaker 1: actually sort of lean into the kind of product of it?
Speaker 1: To the protectionist story that you're talking about. I don't
Speaker 1: think that gets at the drups of our difficulties. The
Speaker 1: vast majority of the companies who have large overseas cash
Speaker 1: also have substantial amounts of domestic cash, and so they
Speaker 1: had attractive investment opportunity these in new capital they would
Speaker 1: be making them out of that domestic cash. The reality
Speaker 1: is that cast that's brought home, will will be used
Speaker 1: to pay dividends, to payback shareholders, to buy back shares,
Speaker 1: to engage in mergers and acquisitions, to re arrange the
Speaker 1: financial chess board. Not true invest in large amounts of
Speaker 1: new capital. It is a shimmer to suppose that, uh,
Speaker 1: there will be large increases in capital investment as a
Speaker 1: consequence of that repatriation. We've done the experiment before, funny
Speaker 1: ambiguously during the Bush administration, the people who had been
Speaker 1: advocates of the policy, the Republican economists who had supported it,
Speaker 1: did honest work afterwards that evaluated it and found that
Speaker 1: it produced very little uh in uh the way of
Speaker 1: new investment. So this is this is potentially the worst
Speaker 1: of all worlds. Large flows of capital back into the
Speaker 1: United States, large adjustments of the dollar because of the
Speaker 1: border tax stuff, but relatively little stimulus to uh new investment.
Speaker 1: That's why I think it's quite dangerous. And I just
Speaker 1: want to say one other thing. Uh, there are different
Speaker 1: levels of economic US economic disagreements, and economists like me
Speaker 1: and like Alan Blinder have disagreements with economists like uh
Speaker 1: Glenn Glenn Harvard. At a further kind of level, their
Speaker 1: party felt stine at a further reclined level. They are
Speaker 1: the people who produced the proposals that, when Ronald Reagan
Speaker 1: ran on them, were called voodoo economics. The Navarro or
Speaker 1: Lost paper is well beyond voodoo economics. The logic of it,
Speaker 1: the arguments made are so far out of the mainstream
Speaker 1: of any kind of responsible economic thinking that they're the
Speaker 1: economic equivalent of creationism UM or the economic UH, the
Speaker 1: economic equivalent of the denial of UH of of evolution.
Speaker 1: Makes the people who like the people who who say
Speaker 1: that they doubt global warming looks like entirely responsible scientists.
Speaker 1: So this paper is to be a guide to US
Speaker 1: economic policy, and I'm not at a well shure that
Speaker 1: will be UH in practice. I think cooler and more
Speaker 1: rational heads made may well prevail. But the kind of
Speaker 1: thinking that is implicit in UH that paper goes beyond
Speaker 1: any set of doctrine that has been taken off any
Speaker 1: administration in my lifetime. From Jamaica, we greatly appreciate Laurence
Speaker 1: Somers for joining US. It is the top risk for
Speaker 1: two thousand seventeen. David Gurr and I enjoying the good
Speaker 1: coffee of Eurasia Group here in the historic Flat Iron district.
Speaker 1: We can't we're not allowed to give away the address
Speaker 1: and name Bremer security risk Ian Bremer with us and
Speaker 1: joining us now to brief Dr Bremer's Nora Rebini of
Speaker 1: New York University and noriel I read Carmen Reinhardt carefully
Speaker 1: this weekend, and she said, the massive distinction of dollar
Speaker 1: strength now is when we had previous dollar strains. Just
Speaker 1: as one example, we had Japan end with six percent
Speaker 1: GDP or even three percent GDP. We're getting dollar strength
Speaker 1: now with many other countries economic growth flat on the back.
Speaker 1: It's a different dollar strength this time, isn't it. It
Speaker 1: is a different dollar strength. Unfortunately, there's going to be
Speaker 1: a divergence within US monetary policy and the rest of
Speaker 1: the world. E c B BO j BO, e b
Speaker 1: B are gonna follow easy monetary policy. The FED is
Speaker 1: gonna tighten more so because now the fiscal steamulus by
Speaker 1: the Trump administration in the economy close to full employment
Speaker 1: is going to lead to a pickup in inflation and
Speaker 1: that strengthening of the dollar. Unfortunately, it's gonna then damage
Speaker 1: the US economy. Trump says that they saved one thousand
Speaker 1: jobs in Indiana. But this current appreciation of the dollar
Speaker 1: five percents is the election is gonna cut five hundred
Speaker 1: times and jobs in manufacturing in the United States. And
Speaker 1: the risk is that then this inconsistent combination of physical
Speaker 1: and monetary policy and strengthening of the dollar is going
Speaker 1: to lead to more protection is, more antiglobalization, and more
Speaker 1: by clash against migration. We saw it even during the
Speaker 1: regular years, where the fiscal steamers tight money, the dollar strength,
Speaker 1: and and where these unquote voluntary export restrictions on steel
Speaker 1: and alto against Japan today is much worse than it
Speaker 1: was then. Therefore that this is the inconsistent sense of
Speaker 1: micro policy lead to more protection is and more of
Speaker 1: a backlash against globalization. You both have written about the
Speaker 1: end of Pax American and neurial you on projects indicate
Speaker 1: recently and in the report that we're talking about today, Uh,
Speaker 1: is the end of it inevitable? Here? And and sort
Speaker 1: of what's the timetable for it? Is it already in progress?
Speaker 1: The erosion of that, I think it's been coming for
Speaker 1: a long time. I mean, you know, frankly, the United
Speaker 1: States did a lot of damage to itself with the
Speaker 1: wars in Iraq and Afghanistan. It's willingness to be the
Speaker 1: global sheriff eroted dramatically. As a consequence of that um, Certainly,
Speaker 1: Trump's election also drives a spike into two other areas
Speaker 1: of critical global leadership for the United States, one being
Speaker 1: its willingness to be the global trade architect the trans
Speaker 1: Pacific partnership of worse now dead. Also its willingness to
Speaker 1: project global values, which is the antithesis of what Trump's
Speaker 1: America's First is. It's no more US exceptionalism. But even
Speaker 1: if Hillary Clinton had been elected, if you look at
Speaker 1: the rise of China, if you look at the willingness
Speaker 1: of the Russians to undermine the U S from a
Speaker 1: security perspective, look at the weakness of Europe, look at
Speaker 1: the implosion of the Middle East, you recognize that the
Speaker 1: end of paxim ar Kana was coming over time. Just
Speaker 1: that trump selection suddenly means it's happening now. What interested
Speaker 1: me here? And you nailed this. I remember talking to
Speaker 1: you pre it will be my thirteen Davos, and I
Speaker 1: remember way back you and I sitting in a modest
Speaker 1: bar having a beverage of our choice for you talking
Speaker 1: about the crisis to come. You nailed it, but maybe
Speaker 1: you didn't get the amplitude right either. I didn't get
Speaker 1: the amplitude right either. Do you have a gauge of
Speaker 1: the amplitude of what's coming in two thousand and seventeen,
Speaker 1: the size of movements that you would forecast, or is
Speaker 1: there just that much uncertainty? I think there's a huge
Speaker 1: amount uncertainty as we understood that is uncertain about the
Speaker 1: economic policy, domestic, international and foreign policy of Trump. There
Speaker 1: are a huge amount of uncertainty in Europe. I worried
Speaker 1: that is a slow motion train wreck. I worried that
Speaker 1: Leapan is going to come to power in France, that
Speaker 1: these Shinquestele movement is going to come to power in Italy.
Speaker 1: This could be the beginning of the end of Europe
Speaker 1: and the Eurozone. At the time where Russia is becoming
Speaker 1: more aggressive in Syria, in Ukraine, in the Balkans, in
Speaker 1: the Baltics. Therefore, if the US gives up on the
Speaker 1: NATO and its allies in Europe, that's going to be
Speaker 1: an opening for puttings Russia. And there are concerns about,
Speaker 1: of course, what's gonna happen with China. The rise of China.
Speaker 1: It needs to do reform is not doing them because
Speaker 1: there is political transformation, and there are security issues in
Speaker 1: Asia from North Korea to Taiwan to Japan, and add
Speaker 1: the territory issues at the time where the US might
Speaker 1: say I'm giving up also on my premises in Asia,
Speaker 1: let alone in the Middle East, where if you give
Speaker 1: up on our allies and we're following a policy of
Speaker 1: igneerge independence, then the country between Shia e On and
Speaker 1: Sunny and his allies Sunny in the Middle East is
Speaker 1: going to become even worse. So those are the kind
Speaker 1: of been certainly as we're facing in the next few years.
Speaker 1: Nor beany Thank you so much, greatly appreciate looking forward
Speaker 1: to seeing you at the World Economics. At that modest bar,
Speaker 1: perhaps we could go for like an hour with being
Speaker 1: an hour, so we could do like an eight hour show. YEA, well,
Speaker 1: I mean it's the New Years. It is the New Year,
Speaker 1: and we're here, and did you survive the New Year? Yeah?
Speaker 1: I didn't. You know, if I come through it more
Speaker 1: exhausted than I started to come back to work to
Speaker 1: get arrest, I mean, it would be the truth about it.
Speaker 1: Who you put your trust in matters. Investors have put
Speaker 1: their trust in independent registered investment advisors to the tune
Speaker 1: of four trillion dollars. Why they see their roles to serve,
Speaker 1: not sell. That's why Charles Schwab is committed to the
Speaker 1: success of over seven thousand independent financial advisors who passionately
Speaker 1: dedicate themselves to helping people achieve their financial goals. Learn
Speaker 1: more and find your independent advisor dot com. Slotic Parton
Speaker 1: joins us now he's Global Managing Partner McKinsey and come before,
Speaker 1: we're Asia Chairman McKenzie as well as we continue to
Speaker 1: talk about some of the risks outlined in Top Risks
Speaker 1: two thousand seventeen from Eurasia Group and Don Burn. Great
Speaker 1: to see you here for having there's a there's a
Speaker 1: line in this report Eurasia Group saying we're gonna see
Speaker 1: near term chaos that comes from an absent superpower. How
Speaker 1: how good his sense do we have of what that
Speaker 1: near term chaos would look like. I think part of
Speaker 1: the challenge with chaos as we don't right about where
Speaker 1: it is. But I um I think that part of
Speaker 1: the issue is that is as your the Eurasia Group
Speaker 1: and laid out there are these ten big factors that
Speaker 1: are out there. Any one of them is significant. I
Speaker 1: think how they all kind of work together is another issue.
Speaker 1: So it's hard to fathom what it might be, but
Speaker 1: it could be bad. I'm a little more optimistic in
Speaker 1: a sense that I think we we could see some
Speaker 1: significant growth in the US economy like we haven't seen
Speaker 1: before UM, and that I think as business leaders we
Speaker 1: just you have to just you can't freeze, you have
Speaker 1: to keep moving UM. But it is a more fragile world,
Speaker 1: and there there does seem to be I think as
Speaker 1: Ian has said a sort of a withdrawing of the
Speaker 1: U S superpower, which makes the world less stable. UM.
Speaker 1: What chiefly will be driving that growth domestically, do you think?
Speaker 1: I think it's the you know, I think tax reform,
Speaker 1: I think deregulation. I think there's going to be in
Speaker 1: a very aggressive approach to making it easier to do business.
Speaker 1: At least that's what the retric is. I think the
Speaker 1: infrastructure investment UM. You know, if with tax reform and
Speaker 1: just being able to bring some of that two trillion
Speaker 1: dollars from overseas back, that's a pretty significant stimulus UM
Speaker 1: and doesn't take all these things are difficult to make happen.
Speaker 1: But I think that's not as difficult as what does
Speaker 1: Mackenzie's research on the value or efficacy of incentives or
Speaker 1: policy redirection of all that money coming back from abroad.
Speaker 1: Do you just bring it back and trust Tim Cook
Speaker 1: to spend it correctly or does he need to be
Speaker 1: incentivized to make that path from investment to jobs work.
Speaker 1: I think that that um. I think it's important for countries,
Speaker 1: even as big as the United States, to have a
Speaker 1: bit of a of an industrial policy. If I might
Speaker 1: even say that sounds very countercultural to say, I don't
Speaker 1: mean picking winners, but saying there are some areas that
Speaker 1: we really want to get in and invest behind because
Speaker 1: there are opportunities. I think in tech that's being the case.
Speaker 1: I so I think incentives in a sense on the
Speaker 1: tax side, to make it easier for people to do
Speaker 1: things deregulation, I would be very nervous about picking winners.
Speaker 1: You must do X, Y and Z with the money.
Speaker 1: I think that that would make me nervous. We get
Speaker 1: CEO's get enough direction as it is from markets, and
Speaker 1: I'd be nervous about, frankly, doing anything other than simplifying
Speaker 1: tax and UH and on the regulatory side of things,
Speaker 1: and putting a spotlight on opportunities getting researched and you know,
Speaker 1: business and and and a sort of the ecosystem working
Speaker 1: that can be useful. But more than that, I'd be
Speaker 1: nervous because I don't think it will last. It's not sustainable.
Speaker 1: We'll come back. But in just about thirty seconds here
Speaker 1: the geographic divide between Washington Silicon Valleys or so, but
Speaker 1: it seems like it's much larger through this last administration
Speaker 1: on one before it. Are you optimistic that there's going
Speaker 1: to be a better conversation between Silicon Valley and Washington. Um,
Speaker 1: I am optimistic. But maybe another thing I might say is,
Speaker 1: in some ways, I don't think it matters. I think
Speaker 1: the Silicon Valleys kind of said, we don't frankly give
Speaker 1: a good goddamn about what you guys are doing doing
Speaker 1: our thing type of the thing. It's like it's a
Speaker 1: different world. And so I think they'd been able to
Speaker 1: operate in that environment. It's not to say that government
Speaker 1: policy tacks and centives and so forth one affected, but
Speaker 1: they're kind of it's almost independent in terms of how
Speaker 1: they do things right now Don Barton with Us with Mackenzie,
Speaker 1: which barely describes the research capability of those at don
Speaker 1: Barton the heard of cats that he manages every day
Speaker 1: at Mackenzie, including Richard Dobbs, James Man, you and many others.
Speaker 1: You stopped me in my tracks last year with Poorer
Speaker 1: than your parents, just starting with a photograph on the
Speaker 1: cover of the Young Last from the Plymouth Charger. I
Speaker 1: couldn't afford at the time, and it was the most
Speaker 1: nostalgic yet smartest research piece I saw last year. Help
Speaker 1: us with your observation when Richard dropped Dobbs dropped this
Speaker 1: on your desk, What did dom Barton think of the
Speaker 1: idea that our kids are poorer than our parents? Well,
Speaker 1: it was shocking to see. It was something I think
Speaker 1: we people have been feeling or worrying when you see
Speaker 1: the populaces and so forth. But as you said, to
Speaker 1: see that in so many countries. It's not one country,
Speaker 1: it's in nine countries where it is actually worse. The
Speaker 1: last ten years have been worse, and it's in looking
Speaker 1: ahead it's even worse. And this is this is I
Speaker 1: think it was shocking just to see this The specificity
Speaker 1: of it, the breadth of it across many, many countries,
Speaker 1: and I think it it fits right in with what
Speaker 1: we're seeing again, as I said, with populism so deftail
Speaker 1: that if you would force I think of Roland Friars
Speaker 1: new research on this as well out of out of Stanford,
Speaker 1: looking again at this, at this very same issue, we've
Speaker 1: seen a global reach of populism. How disparate is it
Speaker 1: when you look for threads of continuity among what we've
Speaker 1: seen in the US and Europe and around the world.
Speaker 1: I think there there are variations, but only in terms
Speaker 1: of how bad it is. I mean, I think one
Speaker 1: of the other elements of that work that that Richard
Speaker 1: and James did was looking at the nature of work
Speaker 1: as well, and that's changed. So you see the gig economy.
Speaker 1: This is where I wanted to go to, the gig economy.
Speaker 1: Alan Krueger and the work that he's doing at Princeton
Speaker 1: and Professor Krueger has been a great I've been very kind,
Speaker 1: I should say, to come on on job's Day and
Speaker 1: other days were Bloomberg surveillance. Most of our audience listening
Speaker 1: to this after putting up with their kids over the holiday.
Speaker 1: I think the gig economy is a bunch of hotwash.
Speaker 1: I'm sorry forget about the high end academics of Bartner Krueger.
Speaker 1: We're going You've got to be kidding me. How do
Speaker 1: we get back to the full time benefit laden perspective
Speaker 1: that we were advantaged by and grew up with. I mean,
Speaker 1: I agree, and I think about it for not only
Speaker 1: job security but training. You think about this world that's
Speaker 1: moving faster and faster at the half life of a skill. Well,
Speaker 1: this speaks David to history sist to Lawrence Summers and
Speaker 1: Blanchard histories. So so it's a you know, I think
Speaker 1: one one in Spain of the economy around independent workers.
Speaker 1: And you know, some people want to do that. Most
Speaker 1: people have to do it because they don't have the job.
Speaker 1: And what I worry most about is the safety net,
Speaker 1: and particularly safety net around training. Who who's going to
Speaker 1: help these people stay current as the world was faster
Speaker 1: Because in my view, by the way, it's not trade
Speaker 1: that's dislocating jobs, that that's been the whipping boy for
Speaker 1: a while. For a while, it's going to be technology.
Speaker 1: And you know, ultimately I think technology is good, but
Speaker 1: you have to be able to retrain and who's going
Speaker 1: to do that? And that's that's that's where I you know,
Speaker 1: the forces, if we don't do something about it, are
Speaker 1: going to get worse, I think before they get better.
Speaker 1: I'll bring it back to Silicon Valley. We were watching
Speaker 1: as Saffra Cats and Tim Cook and others walked into
Speaker 1: Trump Towers, sat around that conference table and met with
Speaker 1: the present elect and so much of the focus when
Speaker 1: you when you think about Silicon Valley and the relationship
Speaker 1: between Silicon Valley watching is centered on privacy and security issues.
Speaker 1: But I think it's fair to say work is going
Speaker 1: to be a big issue here and and the nation
Speaker 1: the world is going to have to reckon with the
Speaker 1: fact that technology has made it possible for many these
Speaker 1: jobs to go away. What type of burden does that
Speaker 1: place on silicon value? Will the president try to place
Speaker 1: on on silicon value? Well, I think that um, you
Speaker 1: know that that Silicon Valley companies are going to have
Speaker 1: to be much more aware of it. Earlier on in
Speaker 1: the show This Morning with with Tom Ian mentioned what
Speaker 1: Randall Stevenson had been doing at A T and T
Speaker 1: in terms of taking ownership for training people as they
Speaker 1: move ahead, spending a lot of money to do it.
Speaker 1: He could have just laid people off and rehired people.
Speaker 1: He said, it's a commitment we have to make. I
Speaker 1: think we're gonna have to see more of that corporate
Speaker 1: switcher taking that ownership, because if you just let those
Speaker 1: people go, you're gonna have a revolution. It was one
Speaker 1: actually Silicon Valley Entrepreneur did very well. It wrote a
Speaker 1: piece that talked about the pitchforks are coming. I can't
Speaker 1: remember his name right now, but literally be careful because
Speaker 1: with this amount of dislocation, without anywhere for people to go,
Speaker 1: it could get very ugly, and we can't just flop
Speaker 1: it off on the government. But that's an inflammatory statement,
Speaker 1: and I'll be shocked. I'll be true, David. We've heard
Speaker 1: a lot of inflammatory statements this morning. The pitchforks are coming.
Speaker 1: What does the gilded aristocracy, the plutocracy do? What can
Speaker 1: be the reaction besides me the next Charles Dickens novel,
Speaker 1: that's no. Well, I think we all have to step
Speaker 1: back and say what are we what can we each do?
Speaker 1: And I think there are a lot of things we
Speaker 1: can do as corporates. I think there are things around
Speaker 1: said the training side of things. Being involved in the
Speaker 1: educational institutes, we're seeing some I think inklings of what
Speaker 1: may come in different parts of the world. Singapore with
Speaker 1: their skills labs that are putting in place, they're putting
Speaker 1: in giving every singapore In over the age of getting
Speaker 1: a five Singaporean dollar in education budget doesn't seem like
Speaker 1: a lot, but it's the notion of we've got to
Speaker 1: take care of people. Um, you're seeing this in Australia,
Speaker 1: trying to help understand what are the future jobs going
Speaker 1: to be? How do we rethink what different educational institutes,
Speaker 1: corporates do business as people need to You can't just
Speaker 1: assume that's going to happen if if we don't get
Speaker 1: involved to try and play a role in that, we
Speaker 1: will suffer the consequences that that's because I think it's
Speaker 1: moving too quickly and and so I think there has
Speaker 1: to be more of a sense of collective ownership and
Speaker 1: an investment. Let me ask you about China, drawing upon
Speaker 1: your experience as that from your Asia Chairman of of mckenzy.
Speaker 1: We have this Nineteenth Party Congress coming up in China.
Speaker 1: In this Seriratia Group report, a lot of detail about
Speaker 1: the pressures that places on the president of China. Now,
Speaker 1: what's your sense of how reforms are going there? And
Speaker 1: we talk about the pitchforks are coming, to the rise
Speaker 1: of populism, the wealth disparity here in the US, how
Speaker 1: does the Chinese governments have countered that as well in China? Well,
Speaker 1: I think I think the Chinese government for decades now
Speaker 1: has been focused on economic growth. And I would argue
Speaker 1: I don't think they say it exactly this way, but
Speaker 1: the focus is there on middle class growth. It's strange
Speaker 1: for communist countries that it's it's ensuring actually to Tom's point,
Speaker 1: that there you will see your children will have a
Speaker 1: better life, and that is fundamental and if you can
Speaker 1: keep that going, you're going to have the confidence that
Speaker 1: you need from the people to be able to move forward.
Speaker 1: So I think that reform will continue. There's and it
Speaker 1: is continuing. I think that the challenges there's been a
Speaker 1: very big shift on this anti corruption side, which in
Speaker 1: a strange way, I think has actually slowed reform down
Speaker 1: in the state enterprises because everyone's afraid to make the
Speaker 1: big change if you need to. But they'll get through it.
Speaker 1: There those guys are so long term on this as
Speaker 1: long as they but they will be watching that middle
Speaker 1: class growth and if it starts going the other way,
Speaker 1: then that's problem. Time. Every administration steals like theft Golden Sex.
Speaker 1: It's all the press, but come on, they all steal
Speaker 1: guys from Mackensey, men and women from young the young
Speaker 1: Turks of Mackensey. They disappear off to Washington. Are you
Speaker 1: seeing a loss or do you predict a loss of
Speaker 1: Mackensey talent to this administration or does Donald Trump just
Speaker 1: not give a hoot about Don Barton's world. I don't no.
Speaker 1: I think I think we we we are seeing some
Speaker 1: of that, and I think it's not just McKinsey. It's
Speaker 1: a broader group BCG, other Goldman as you said, other organizations.
Speaker 1: I think there's a there are a lot of business
Speaker 1: people that are in involved in NEST that are looking
Speaker 1: for people to help with the analytics, with perspectives, with
Speaker 1: longer term views of where things were, how things work.
Speaker 1: So I think we're already seeing it and we're going
Speaker 1: to see more of it, and we're supportive of that.
Speaker 1: I think it's a good it's a good thing to do.
Speaker 1: Imagine you're welcome some back from the administration as well,
Speaker 1: And what do they bring to the to the company
Speaker 1: having that government experience. What does it does it mean
Speaker 1: for a company like you know, I'm a big believer
Speaker 1: and that Joe and I have called it the trisector
Speaker 1: athlete leader, That you're a very good business leader. Someone
Speaker 1: said experience in the public sector and the social sector,
Speaker 1: a very good public sector leaders, someone who's had good
Speaker 1: experience in the other two sectors, and on on and
Speaker 1: so I think, first you just get that because I
Speaker 1: think that the I'm not saying that business is easier,
Speaker 1: but I'm saying there are less variables or stakeholders that
Speaker 1: you have to try and deal with. UM. I think
Speaker 1: than when you're in government, in in in a major role. UM.
Speaker 1: And I think that right away changes your mindset, UM
Speaker 1: in thinking about the breadth of what you have to do,
Speaker 1: how you get things done, UM is I think more complicated.
Speaker 1: So you bring those those kind of I could call
Speaker 1: it technical skills that are really useful as opposed to
Speaker 1: you know, so and so down Barton. Thank you so much,
Speaker 1: David Gore and Tom Keane from your Aisier group. UM.
Speaker 1: I think everyone Tom King, David Gurrow. We are thrilled
Speaker 1: you with us to begin two thousand seventeen. Our team
Speaker 1: put together a really interesting, David fabulous morning for us
Speaker 1: to kick off the year. Larry Summers, Nor Rabini, Ian
Speaker 1: Bremer our host here at your Aisier group, you know
Speaker 1: the historic flat iron building in New York. We just
Speaker 1: heard from Don Barton and Mackenzie and we'll get to
Speaker 1: the equity markets in a moment with the uh Douglas
Speaker 1: cast is well, what were your thoughts over the the
Speaker 1: interregnum that we took off and that we were apart on.
Speaker 1: I was able to step away from the news if
Speaker 1: only did you tweet off Mr Trump? There were livings
Speaker 1: on my tweets. I did read I did read his.
Speaker 1: There's a feature on the Bloominger that sends the tweets
Speaker 1: that he does to your email. So he's following through
Speaker 1: that and he's at with some this morning. You're talking
Speaker 1: about Obamacare and also General Motors, another company being called
Speaker 1: out by the President. My basic yeah, my basic take
Speaker 1: is we're seventeen days away. It's just suddenly incredible. I
Speaker 1: thought that more upon us than it was President giving
Speaker 1: a speech. I believe next week a farewell addressively broadcast
Speaker 1: in primetime. We have been dealing the morning with what
Speaker 1: has become front and center for the markets, which is
Speaker 1: our politics and our international relations. As you know, we
Speaker 1: do finance, we do investment, we do economics, and the
Speaker 1: distal that is people. Actually you have to put money
Speaker 1: at risk. He has written for decades thoughtful notes. Douglas
Speaker 1: Cast is one of those people that even if you
Speaker 1: don't agree with him, you're required to read them. Doug
Speaker 1: Cast joins us this morning by telephone. It is a
Speaker 1: Spectrum Enterprise phone line, Spectrum Enterprise nationwide fiber based network
Speaker 1: and I T Infrastructure solutions. Duck Cast. David Kerr, Girl
Speaker 1: was thinking over the holiday. I was thinking over the holiday.
Speaker 1: You were short. How painful was the holiday for the
Speaker 1: short one? Douglas Cast? Well, as I told you when
Speaker 1: I was on about a month ago, David and Tom, Um,
Speaker 1: I do like I I showed stocks, but I'm very
Speaker 1: tight in my UH loss and UH price discipline and
Speaker 1: that that keeps me alive. I'm not actually market neutral
Speaker 1: right now. Um. You know, seventeen days to inauguration, but
Speaker 1: more importantly thirty days to pictures and catchers. Um, so
Speaker 1: it depends upon your perspective. In my perspective is six
Speaker 1: six blocks of Marrow lago with my office is well
Speaker 1: the perspective here of politics and folding it into the
Speaker 1: equity market for our listeners who are away from the
Speaker 1: Cassie and not day trading. But the more short term perspective.
Speaker 1: What does a long term investor do if I'm going
Speaker 1: to readjust my four oh one case this morning? What
Speaker 1: is it? Doug cast wisdom on what I should do?
Speaker 1: I think Larry Summers in the previous segment, wasn't he
Speaker 1: something put it well? At first? Of all? Those interviews
Speaker 1: were great also with Dr brener Um he said he
Speaker 1: stated very laconically that quote uncertainty, the uncertainty premium should
Speaker 1: rise close quotes. And I think that's when you know
Speaker 1: when I construct my surprise list in December of every
Speaker 1: year for the following year. Um uh, that is uh
Speaker 1: really the central theme that I'm employing. I think every
Speaker 1: year when you do a surprise list is one dominant
Speaker 1: theme in the dominant theme, of course, is a new presidency.
Speaker 1: Give us a sense here how you put together that
Speaker 1: list this year. It's it's probably improbable as you put it.
Speaker 1: You mentioned it for a second to frame my concept um,
Speaker 1: I think that annual forecast on Wall Street, at least
Speaker 1: to me, are mostly an exercise in what Howard Marks
Speaker 1: calls first level thinking. Marks rights that what's clear to
Speaker 1: the broad consensus of investors is almost always wrong. First,
Speaker 1: most people don't understand the process to which something comes
Speaker 1: to have outstanding money making potential. And second, the very
Speaker 1: coalescing of popular opinion behind an investment tends to eliminate
Speaker 1: its profit potential. So quite frankly, anyone with a clean
Speaker 1: shirt and a ten percent forecasted rise in the SMP
Speaker 1: is invited uh and inhabits the business media airways. Of course,
Speaker 1: not bloomberg um, but we we We tend David to
Speaker 1: term experts people whose credentials consist of mostly being consistently
Speaker 1: and wildly wrong about the so called spheres of expertise.
Speaker 1: At the same time, they display the stunning lack of
Speaker 1: self doubt and humility about their failures. My Grandma co
Speaker 1: Fax used to tell me, and she was a very
Speaker 1: wise and successful investors used to use the words often wrong,
Speaker 1: but never in doubt. So we live in this kind
Speaker 1: of inauthentic investment world. Yet people perceive to be telling
Speaker 1: the truth are often shunned by the consensus. And um,
Speaker 1: so I approached my annual surprise list more unconventionally and
Speaker 1: outside of the ambulop envelope. And you just said, I
Speaker 1: call them probable improbables. These are These are basically overlays
Speaker 1: and overlays the term and embedding where the arts of
Speaker 1: a particular wager are higher than they should. And that's
Speaker 1: how I construct my my vision of surprises. David, I
Speaker 1: would not that Mr Cass, it's Mr Marks. This is
Speaker 1: where we're supposed to step in in quote Graccho Marks.
Speaker 1: But far more importantly, we should quote Richard Marks, the
Speaker 1: great songwriter. And I think it's sort of like the
Speaker 1: right here Waiting where we're sitting in January. Right here
Speaker 1: waiting is Richard Mark said his classic. Perhaps I should
Speaker 1: be quoting Graucho more and saying, who wants to be
Speaker 1: a member of a short club that happed me as
Speaker 1: a member. So that would be true to David Jumping,
Speaker 1: I'm you're surprised lest number three is no more at real.
Speaker 1: Donald Trump that the President life might be compelled to
Speaker 1: do away with his active use of Twitter. As I
Speaker 1: just mentioned a few moments ago, we saw two new
Speaker 1: tweets out this morning, one of which is calling out
Speaker 1: a company by name walk us to how big a
Speaker 1: risk that is for for an investor like you? Are? You?
Speaker 1: Are you waking up? As I assume these these executives
Speaker 1: are with some trepidation that they might be called out
Speaker 1: by the President elect here in the early morning hours
Speaker 1: on Twitter. Yeah. I think my surprise, Davis, that is
Speaker 1: that the security advises of the Trump administration will basically
Speaker 1: tell him to cease and assist, Yeah, and close his
Speaker 1: Twitter account. And I'm pretty acting that Twitter declines. The
Speaker 1: shares declined by about the day that is announced, and
Speaker 1: then you have this this failed operating strategy at the company.
Speaker 1: There was another management departure, I believe the head of
Speaker 1: the Chinese a subsidiary of Twitter, and you're gonna get
Speaker 1: increased in patience on the part of the initial founders
Speaker 1: and investors. And my surprises that Twitter has sold ten
Speaker 1: dollars and twelve dollars to take under UH in two
Speaker 1: thousand and seventeen. So no more jumping the start the shark,
Speaker 1: David from. No more tweets like the one we had
Speaker 1: been over the weekend or the several that we got
Speaker 1: this morning, David Kerr coming up, Roger and Rogers. And
Speaker 1: there's a lot of things you can't talk about. I mean,
Speaker 1: every nation is different on an exiting head of their sentence.
Speaker 1: He left in August, of course, from that job is
Speaker 1: Governor of the Bank of India. It's amazing. Each nation
Speaker 1: is different on how they treat this about what you
Speaker 1: can talk about but you can't. India is pretty pretty
Speaker 1: strict about it. But no doubt it will be a
Speaker 1: good conversation. The Dow up a hundred and thirty seven points,
Speaker 1: and we welcome Bloomberg Radio worldwide, Bloomberg Television worldwide and
Speaker 1: in India. Good morning with us. Now is Robin Rogen.
Speaker 1: You know him from the Boost School and from Chicago.
Speaker 1: He's appeared with us so many times. I've done panels
Speaker 1: with Professor Rogen in Davos at the meetings of the
Speaker 1: World Economic Forum. But in the recent years he has
Speaker 1: been with the Central Bank of his India. He has
Speaker 1: now left that position and is greatly restricted in what
Speaker 1: he can speak of about India. Let me frame it,
Speaker 1: uh rago if I can about the continued great distortion
Speaker 1: you more than anyone wrote about this in your classic
Speaker 1: book fault Lines. The great distortion is still in place.
Speaker 1: Ken Rogoff spoke about it in his book The Curse
Speaker 1: of Cash. When do we exit our great bond market distortion? Well,
Speaker 1: I think we're in the process of exiting. I think
Speaker 1: with the federal reserves seeing limited room for continued accommodation
Speaker 1: and starting to raise interest rates, I think you will
Speaker 1: see the pressure on other central banks also come off
Speaker 1: as much as it has been over the last few
Speaker 1: years to continue accommodation. So my guess is we're in
Speaker 1: the process of exit. How fast it will be will depend,
Speaker 1: to some extent on conditions in the United States, what
Speaker 1: policies the new administration brings, how comfortable the Federal Reserve
Speaker 1: feels with those policies, and whether it feels it needs
Speaker 1: to move faster or slower, depending on what what actually
Speaker 1: the administration proposes and how quickly it will come in.
Speaker 1: It seems to me that as one pressure comes off,
Speaker 1: another pressure comes on. Here. We heard the rhetoric about
Speaker 1: politics and the Federal Reserve here during the campaign. We're
Speaker 1: certainly seeing what's happening on Capitol Hill, a new round
Speaker 1: of Senators and Congress and being sworn in today many
Speaker 1: of them help bent here on changing the relationship between
Speaker 1: Congress and the Fed Reserve. How does this bank deal
Speaker 1: with that new politicization. I think it's a it's a
Speaker 1: very important issue, and it's it's there across the world.
Speaker 1: Because central banks have been the only game in town
Speaker 1: for the last few years, they've also acquired a sense
Speaker 1: of political power that certainly creates apprehension amongst the political establishment. Uh,
Speaker 1: and of course they would like to control that power. Unfortunately,
Speaker 1: it is coming at a point when increasingly central bank
Speaker 1: independence will become important as perhaps inflationary pressures rise and
Speaker 1: central banks are asked to do the normal thing, which
Speaker 1: is control inflation, for which we've spent many, many years
Speaker 1: getting an apparatus which ensures the independence, insures they can
Speaker 1: raise rates at the time that is needed without feeling
Speaker 1: somehow constrained by political pressures. So it does these pressures
Speaker 1: come at a time when Uh, it is really a
Speaker 1: very delicate situation for central banks, very delicate. Indeed, the
Speaker 1: backdrop to this, of course, is the possibility that we
Speaker 1: could see policy changes, tax reform, a big infrastructure spending
Speaker 1: package for instance, it seems to me that the FED
Speaker 1: isn't real damned if you do, damned if you don't
Speaker 1: position when it comes to to raising grads here that
Speaker 1: potentially could be blamed for doing the wrong thing whichever
Speaker 1: way they go. Absolutely, and given the as you said,
Speaker 1: the political situation, this is a time they have to
Speaker 1: tread very carefully. But I have no doubt that given
Speaker 1: the tradition they have established, the FED will do what
Speaker 1: it thinks is right rather than cater to political opinion. Professor.
Speaker 1: And again this wraps around the top risks of two
Speaker 1: thousand seventeen from Eurisia Group, and of course Ian Bremer
Speaker 1: and his team focus on China. We spocus Secretary Summers
Speaker 1: this morning about dollar strength. If we look at the
Speaker 1: research from Robert Mundel and out of Chicago Jacob Frankel
Speaker 1: of years ago, the researcher can Rogoff, Well, we can
Speaker 1: look at the academics of it. You've had to live
Speaker 1: the reality of currency dynamics. Do you have a concern
Speaker 1: over a strong dollar in this two thousand seventeen Well,
Speaker 1: I think a strong dollar is natural. Of course, one
Speaker 1: piece of Ken Rogoff's research says that it's very hard
Speaker 1: for anybody to predict the exchange the exchange rate over
Speaker 1: any sustained period of time. Uh, the expectation is the
Speaker 1: dollar will remain strong, and that certainly is consistent with
Speaker 1: the Federal Reserve being first out of the box and
Speaker 1: normalizing policy That will help other countries in the sense
Speaker 1: of reducing pressure on them to adopt increasingly aggressive policies.
Speaker 1: For the US, it could be a head wind to
Speaker 1: growth because uh, you know of the obvious effects on
Speaker 1: exports and imports. But that said, I think with the
Speaker 1: kind of fiscal packages that are being thought off or
Speaker 1: talked about, it may be that it it does more
Speaker 1: in neutralizing rather than in in substantially reducing growth. A
Speaker 1: big focus here of this present elect is on manufacturing,
Speaker 1: bringing jobs back to the US in sourcing. Some call
Speaker 1: it here. How difficult is that path forward going to
Speaker 1: be for Donald Trump? We've seen him meet with the
Speaker 1: Carrier company at its furnst factory in Indiana's deal with
Speaker 1: companies on an individual basis here, How how how difficult
Speaker 1: is it going to be to focus so exclusively on manufacturing? Right? Well, um,
Speaker 1: you know, the the the data on manufacturing suggests that
Speaker 1: over the last thirty years, the US has steadily lost jobs. However,
Speaker 1: the extent of manufacturing in the United States, the share
Speaker 1: of GDP has remained relatively constant. So what's happening is
Speaker 1: not that the US is losing a tremendous number of
Speaker 1: jobs to competition elsewhere. Clearly, factories are down, but new
Speaker 1: factories are opening up in different areas, for example in
Speaker 1: high tech. The bottom line, however, is that the loss
Speaker 1: of jobs is not so much because the US is
Speaker 1: uncomparative in manufacturing, but because technology is replacing jobs, many
Speaker 1: of them in the high tech industry. Again, because we're
Speaker 1: manufacturing in a in a smarter way here. So in
Speaker 1: that sense, you know you're really working against the tide
Speaker 1: of history when you say we're going to bring back jobs.
Speaker 1: Are you going to also stand in the way of automation,
Speaker 1: which is probably more important in terms of reducing jobs.
Speaker 1: And let me just say, this very fine report by
Speaker 1: Ian Bremer's group has one sentence which which worried me,
Speaker 1: and it was a sentence which said something like the US,
Speaker 1: many people in the US haven't benefited from trade. I
Speaker 1: think that's the line that's going around, which is tremendously
Speaker 1: dangerous both for the United States and the world. Any
Speaker 1: in the United States has benefited from trade as a consumer.
Speaker 1: Just look at the prices at Walmart, at Target, and
Speaker 1: so on. You wouldn't have those prices if you didn't
Speaker 1: have imposed from other countries. Professor, in the time that
Speaker 1: we've got left to you, I must ask you about
Speaker 1: the International Monetary Fund. Madame Legard enjoys the second term,
Speaker 1: even after her legal challenges in France. Your name has
Speaker 1: been shortlisted somewhere down the road to provide leadership to
Speaker 1: the i m F. Is that an appealing idea to
Speaker 1: Rock and Roger? Well, first, we do have a number
Speaker 1: of years of Madame Legard's term, so it's it's a
Speaker 1: hypothetical question where we're going to hypothetics. Hypothetical Tuesday go
Speaker 1: with me? I think they. I think the important question
Speaker 1: for anybody who takes over the i m F is
Speaker 1: how to provide leadership in a world where, as Ian
Speaker 1: Bremer's group puts it, uh, there is no country willing
Speaker 1: to take on the mantle of global hegemon as the
Speaker 1: United States used to. When everybody is backing off, it's
Speaker 1: very hard to do a job as as a multi
Speaker 1: lateral institution, which is right, Miss Leguard is doing well, professor,
Speaker 1: thank you so much, Rock and roging with the Boost
Speaker 1: School in Chicago. We thank Bloomberg Television for being with
Speaker 1: us today, David, You and I with final thoughts here.
Speaker 1: What I love about the Eurasia Group, the geopolitical recession
Speaker 1: top risks is the brevity of it. This is a
Speaker 1: Ian Bremer's always rushed. He's always moving on with Willis
Speaker 1: Sparks and the others, moving on to the next project.
Speaker 1: And there's a breath of directness to this, which which
Speaker 1: is great. Leading with America, Yeah, leading with America, Independent America.
Speaker 1: The biggest risk here last year was Chancellor Mercle there
Speaker 1: go and Chancellor mercle making appearance in this piece of armor.
Speaker 1: Money to this photo that our colleague Francine Lockwet tweeted
Speaker 1: out of Merkele with francois Land, Barack Obama, all of
Speaker 1: these other leaders who have lost their jobs. There is
Speaker 1: Mercle alone in the mix looking up. So she faces
Speaker 1: a series of challenges just in terms of her own
Speaker 1: political leadership within Germany this year. And that's number four
Speaker 1: or here on the risks, as you say, a fascinating
Speaker 1: report twenty five pages and well worth reading. Thanks for
Speaker 1: listening to the Bloomberg Surveillance podcast. Subscribe and listen to
Speaker 1: interviews on iTunes, SoundCloud, or whichever podcast platform you prefer.
Speaker 1: I'm out on Twitter at Tom Keene. David Gura is
Speaker 1: at David Gura. Before the podcast, you can always catch
Speaker 1: us worldwide. I'm Bloomberg Radio. Who you put your trust in? Matters?
Speaker 1: Investors have put their trust and independent registered investment advisors
Speaker 1: to the two and four trillion dollars. Why Learn more
Speaker 1: at find your Independent Advisor dot com