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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: This is the Bloomberg Surveillance Podcast. Catch us live weekdays

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Speaker 2: at seven am Eastern on Apple Car Player, Android Auto

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Speaker 2: with the Bloomberg Business App. Listen on demand wherever you

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Speaker 2: get your podcasts, or watch us live on YouTube.

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Speaker 3: Right now your most important conversation of the day. Richard Hass,

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Speaker 3: Ambassador has serving both parties. Ambassador Hass, of course always

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Speaker 3: in forever associated with his Consolin Foreign Relations and Writing

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Speaker 3: and Foreign Affairs at magazine. He holds court with Morning

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Speaker 3: Joe on an often basis. Rattner's charts on Morning Joe

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Speaker 3: had been great. They've been like a font of wisdom.

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Speaker 4: He works at.

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Speaker 5: It, he works at it. They're also a font of

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Speaker 5: accurate information. And the fact that it stands out is

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Speaker 5: stand it depressing.

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Speaker 3: This is I can't say thank you so much for

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Speaker 3: attending today. I want to go to Lloyd Austin Foreign

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Speaker 3: Affairs Magazine. The price of principle is dwarfed by the

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Speaker 3: cost of capitulation in Ukraine. I guess we have a

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Speaker 3: new Secretary of Defense and the apparatus around it. Can

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Speaker 3: anybody that you see there based on Trump loyalty work

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Speaker 3: at the level of a four star general.

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Speaker 5: Well, let's just take a step back. When you read

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Speaker 5: Secretary of Austin's article, he never quite defines what capitulation

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Speaker 5: in Ukraine is, So I was not overwhelmed with the piece.

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Speaker 5: Just capitulation in Ukrainian Anything less than Ukraine regaining its

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Speaker 5: nineteen ninety one.

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Speaker 6: Borders is capitulation.

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Speaker 5: If that's the case, we are unavoidably capitulating because there's

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Speaker 5: zero chance Ukraine's going to be able to achieve that militarily.

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Speaker 5: So we feel, first of all, we got to define

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Speaker 5: what's our definition of success there, what's a reasonable outcome?

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Speaker 5: And clearly we're going to have to move to the

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Speaker 5: negotiating table because we can't get there simply on the battlefield.

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Speaker 4: Will Europe join us at the negotiation table?

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Speaker 3: How lonely is President elect Trump and get out of Ukraine?

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Speaker 5: Well again, I wouldn't necessarily say it's get out of Ukraine.

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Speaker 5: At the negotiating table will be Ukraine and Russia. The

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Speaker 5: question is what is US and European policy in the background.

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Speaker 5: Are we prepared to continue to support Ukraine enough so

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Speaker 5: the Russians will see incentive to compromise the Russians have

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Speaker 5: to feel the pain of this war. Unless they do,

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Speaker 5: they won't compromise.

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Speaker 7: So what has changed for Russia and Ukraine in the

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Speaker 7: last week with this election. Has anything materially changed?

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Speaker 6: It's a good question. I don't have the answer to it.

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Speaker 5: I mean, you can see the direction of a lot

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Speaker 5: of the appointments on China, and we can talk about that,

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Speaker 5: secondarily probably on the Middle East. Less clear on Ukraine

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Speaker 5: because if you look at what say Marco Rubio is

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Speaker 5: going to be Secretary of State or the new National

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Speaker 5: Security Advisor, they have been critical most recently arms support

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Speaker 5: for Ukraine, but they're not necessarily let's throw Ukraine under

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Speaker 5: the bus. There's a big gray area in between that.

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Speaker 5: So I understand why everybody's uneasy. But again, I think

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Speaker 5: a lot of it's going to depend upon what sort

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Speaker 5: of a negotiated outcome will President elect Trump support when

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Speaker 5: he's President Trump.

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Speaker 7: How much is in our hands, the US hands versus

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Speaker 7: Ukraine and Russia in terms of making the next step

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Speaker 7: to maybe getting to a negotiation, Do we have any

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Speaker 7: real influence in pushing that forward?

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Speaker 5: Absolutely, we need to be sufficiently supportive of Ukraine. So

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Speaker 5: Putin begins to question his assumption that times on his

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Speaker 5: side he can just wait out the United States on

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Speaker 5: the West. On the other hand, we have to be

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Speaker 5: sufficiently conditional in our support for Ukraine, so mister Zelenski

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Speaker 5: gets more prepared to compromise. So actually we play a

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Speaker 5: critical role, not so much at the table, but in

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Speaker 5: setting the context for the table.

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Speaker 3: All these people that he's selecting now, I'm going to say,

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Speaker 3: based just a generalization, one hundred percent have been on

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Speaker 3: the outside.

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Speaker 4: You have experience in this.

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Speaker 3: When you walk through the doors sixteen Pennsylvania Avenue, when

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Speaker 3: you walk through the door of the Pentagon, how do

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Speaker 3: you change?

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Speaker 4: How does your message? How does your thinking change?

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Speaker 5: It reminds me a little bit of Mario Cuomos comment

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Speaker 5: that you campaign in poetry and you governed in prose.

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Speaker 5: When you walk inside the doors, you start governing in

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Speaker 5: prose at a level of detail, at a level of implementation.

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Speaker 6: When you work on the hill, you can.

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Speaker 5: Propose this or that resolution or legislation, it passes, and

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Speaker 5: then you're on to the next piece of legislation. The

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Speaker 5: big difference in the executive branch is you own it.

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Speaker 5: When I used to teach at the Kennedy School. We

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Speaker 5: used to say Tom that ninety percent of life is implementation.

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Speaker 5: Ninety percent of life in the executive branch is implementation.

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Speaker 5: None of these people, for the most part, have experience

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Speaker 5: with implementing policies.

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Speaker 3: Speak to people that voted for President elect Trump but

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Speaker 3: are really not a fan of President elect Trump. It

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Speaker 3: was a negative vote versus the Democrats. Speak to those

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Speaker 3: people about how you perceive this will amend from January

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Speaker 3: to February to lie of next year.

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Speaker 6: Not sure what you're asking me, Sorry, how the people?

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Speaker 3: The people, the people, the behavior, the enthusiasm that's reel Now,

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Speaker 3: how will they amend the summer of next year?

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Speaker 5: Well, again, it's going to be more sobering because what

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Speaker 5: they're going to find out, Whether it's on say, immigration policy,

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Speaker 5: it's one thing to talk about mass deportations, it's something

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Speaker 5: else actually to bring it about. You've got to find people.

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Speaker 5: You've got to then presumably arrest people. You've got if

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Speaker 5: you want to deport people, you've got to get through

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Speaker 5: legal challenges. You then have to find host countries willing

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Speaker 5: to take them. You've got to deal with the physical

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Speaker 5: and economic, uh disruptions of it, and every.

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Speaker 6: Conversation we could have again. You know what, right now we.

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Speaker 5: Have sort of positions that have been staked out, actually

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Speaker 5: making them policies. Translating into policies is going to be difficult.

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Speaker 5: And then also in other areas, like, for example, you've

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Speaker 5: talked a lot here about tariffs and the like, there's

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Speaker 5: going to be consequences to those and ones when one

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Speaker 5: can't just be quote unquote protaph, one's going to have

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Speaker 5: to say, well, what about the inflationary effects of that?

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Speaker 6: And so forth. So in every one of these areas, we're.

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Speaker 5: Going to have to deal with the knock on effects

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Speaker 5: of these articulated stances.

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Speaker 7: What do you make of just the cabinet picks that

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Speaker 7: we've seen this week from the President elect?

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Speaker 1: What's your takeaway to mix back?

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Speaker 5: I thought I was somewhat reassured by Senator Rubio and

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Speaker 5: the fact not quite a cabinet position. National Security Advisor.

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Speaker 6: Mister Waltsch.

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Speaker 5: Yeah, he's worked in the executive branch, has working in

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Speaker 5: the pentagons, so he has the most he has the

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Speaker 5: most experience of anybody. They're both internationalists, both very tough

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Speaker 5: on China, though exactly what that translates into being a policy.

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Speaker 6: It's not clear, but I basically felt that was fine.

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Speaker 5: Much less comfortable with the choice for intelligence and above

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Speaker 5: all for Secretary of Defense. Again, this is somebody without

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Speaker 5: any governing experience. Pentagons one of the biggest, if not

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Speaker 5: the biggest management job in the government, and to put

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Speaker 5: someone in that seat who doesn't have experience, to me

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Speaker 5: is eyewordering.

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Speaker 3: We're gonna come back with Richard Hause. I have to

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Speaker 3: ask the journalist a question, would you serve within this

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Speaker 3: new administration?

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Speaker 5: The odds of me being asked, Tom arebout equal to

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Speaker 5: your being asked.

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Speaker 4: What are you doing for? Cent of your partners.

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Speaker 5: Spending a lot of time talking to CEOs about the

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Speaker 5: world and how it affects their business plans, supply chains, markets,

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Speaker 5: name it, and also try to increase our international business.

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Speaker 5: So I've been traveling around the world doing what I can.

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Speaker 3: There one thing I've learned doing this new project, Richard,

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Speaker 3: is the international nature.

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Speaker 4: PAULA, Good morning in San Diego, Chile.

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Speaker 3: Chile offers expats and people leaving America a vibrant and

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Speaker 3: diverse experience. You can benefit from the country's thriving job market,

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Speaker 3: affordable cost of living in rich cultural Hairiness. Richard as

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Speaker 3: on the people out there that want to leave America, Now,

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Speaker 3: what do you say to them.

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Speaker 5: I'm not big on leaving America. This country is still

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Speaker 5: the greatest experiment on earth. And if you have problems

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Speaker 5: or difficulties, then stay in the system and work block,

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Speaker 5: work against things you don't want to see, work in

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Speaker 5: favor of those things you want to say. There's so

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Speaker 5: many ways to make a difference in government, in the

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Speaker 5: private sector, in civil society. I just don't understand this

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Speaker 5: argument for leaving and.

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Speaker 3: What people in the punditry I see this, They think

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Speaker 3: we're four years out to twenty eight. We have a

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Speaker 3: congressional election where congress people start running in one year

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Speaker 3: for the election of twenty six, which is basically tomorrow.

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Speaker 6: You got that.

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Speaker 5: We've also got a mayor election in this city in

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Speaker 5: New York in exactly a year.

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Speaker 6: Got to think about that.

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Speaker 5: We also have the two hundred and fiftieth anniversary of

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Speaker 5: this country coming up. That could be a collective teaching

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Speaker 5: about the value of being a citizen in this American

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Speaker 5: democracy of ours.

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Speaker 7: Richard, talk to us about the challenges of China. Hear

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Speaker 7: for this new Trump administration where do you think the

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Speaker 7: US is going as it relates to China these days?

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Speaker 5: What's clear to me is the direction in the sense

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Speaker 5: that we are going to become tougher, particularly on the

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Speaker 5: economic side. I think that's good, and by the way,

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Speaker 5: that had already happened under the Biden administration, which continued

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Speaker 5: the previous Trump administration. I think there the hours are

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Speaker 5: pretty clear. The biggest question I have is to what

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Speaker 5: extent will be prepared to resist China geopolitically if China

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Speaker 5: does something, for example, against the Philippines in the South

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Speaker 5: China see, which has the potential to be the first

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Speaker 5: foreign policy crisis for this administration. If China ultimately does

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Speaker 5: puts greater pressure on on Taiwan, what tools is this

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Speaker 5: administration willing to bring to bear? Would it just be

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Speaker 5: economic tools, tariffs and sanctions, or would they be prepared

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Speaker 5: to bring military tools to bear. I think that's a big,

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Speaker 5: big question.

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Speaker 3: The heart of your book, The Bill of Obligations, The

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Speaker 3: Ten Habits of Good Citizens is our checks imbalances. You

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Speaker 3: mentioned earlier, Ambassador that there's going to be action by

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Speaker 3: the new administration, and they'll be legal pushback.

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Speaker 4: How will that unfold?

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Speaker 5: Tommy rais a big question there. For the first time

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Speaker 5: in modern memory, we've become effected a parliamentary system. You've

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Speaker 5: got one party, indeed one individual with the lion's share

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Speaker 5: of control, the White House, the Senate, the House, and

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Speaker 5: Supreme Court that tilts that way. So we no longer

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Speaker 5: really have checks and balances to a significant degree at

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Speaker 5: the federal level. So the real question is how does

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Speaker 5: this president, how does this administration comport itself? Does it

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Speaker 5: respect any limits? Yes, they won the election, but forty

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Speaker 5: eight to forty nine percent of America voted against them.

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Speaker 6: And the real question is.

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Speaker 5: Does our system work with this degree.

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Speaker 6: Of concentration of power?

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Speaker 5: And what makes me a little bit uneasy tom is

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Speaker 5: we're beginning to see somehowld I call it extra exstitutional

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Speaker 5: institutional things. For example, this potential board of our military

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Speaker 5: people to look at the political orientation of the of

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Speaker 5: the generals, or what elon Musks and Vivekas are being

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Speaker 5: asked to do postage possibly also a trades our position.

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Speaker 5: What's interesting about all these things? You should you're giving

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Speaker 5: people the authority, but they're not really accountable, and that

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Speaker 5: makes me uneasy.

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Speaker 3: Legally, a posed can we can someone out there say

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Speaker 3: I don't like doge efficiency, whatever it is, I want

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Speaker 3: to sue somebody is there.

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Speaker 4: I mean, we've never been here, right.

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Speaker 5: Right, And traditionally the courts are reluctant to enter into,

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Speaker 5: to step into what they consider to be political disputes, So.

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Speaker 6: I would be surprised.

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Speaker 5: My guess is the president will have a lot of

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Speaker 5: authority to create these positions of authority potentially also through

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Speaker 5: recess appointments, but beyond the cabinet, beyond positions that have

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Speaker 5: to be confirmed.

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Speaker 4: Elon Musk.

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Speaker 7: You mentioned Elon Musk. I think a lot of our

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Speaker 7: listeners and our viewers are wondering what role was he

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Speaker 7: going to really play in this government?

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Speaker 6: Do you think at the most.

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Speaker 7: I understanding he's been down in mar A Lago since

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Speaker 7: election day.

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Speaker 5: It's it's just when you think you've seen everything, you

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Speaker 5: realize you haven't seen everything. And the idea that he's

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Speaker 5: on this or that phone call and seems to have

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Speaker 5: this brief with no uh with no clear borders to it. Again,

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Speaker 5: I think there's real questions about Elon must Yes, he's genius,

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Speaker 5: what do you what he's done with space launch, with

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Speaker 5: Starlink and the rest is fantastic, but I get nervous

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Speaker 5: when I see this degree of power in the hands

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Speaker 5: of an individual who's essentially beyond accountability. He's got his

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Speaker 5: own political agenda. We've seen it on X during the campaign.

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Speaker 5: He's got his own foreign policy agenda. So he's clearly

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Speaker 5: going to have a role. Presidents are allowed to have

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Speaker 5: kitchen cabinets. That's happened since time immemorial, but usually it's limited.

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Speaker 5: And the question is here, how operational does he get?

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Speaker 5: I think that's just a question mark out there.

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Speaker 4: The heart of your work.

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Speaker 3: I think of Ambassador Harmance as well as we need

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Speaker 3: to be strong and structured and responsible at home before

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Speaker 3: we look to a proactive foreign policy. In this election,

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Speaker 3: I would suggest crime was front center off of immigration migration.

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Speaker 3: It wasn't Nixon sixty eight or Nixon seventy two. But

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Speaker 3: how do we deal domestically with clearly a nation's worry

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Speaker 3: about crime.

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Speaker 5: Well, first of all, you're right, I think the border

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Speaker 5: had tremendous impact, along with inflation and so forth. The

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Speaker 5: first thing I say, Tom is not to have less

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Speaker 5: foreign policy. Our problems at home are real, but they're

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Speaker 5: not caused about what we're doing or spending in the world.

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Speaker 5: As a percentage of GDP, all of our defense is

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Speaker 5: still only roughly half what we did during the Cold War.

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Speaker 5: Look on crime, there's no one thing, but I would

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Speaker 5: basically say it's where the Democrats got it so wrong

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Speaker 5: with defund the police. We ought to fund the police,

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Speaker 5: We ought to train the police, we ought to expand

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Speaker 5: the police and make them more professional. And yes they've

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Speaker 5: got to be accountable, but we need more police, so

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Speaker 5: we need better police.

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Speaker 3: This just across a headline in the Bloomberg The US

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Speaker 3: Ambassador to Kenya, Meg Whitman, says, she tenders her regulation.

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Speaker 3: What will become of her resignation? Tenders her resignation is

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Speaker 3: Ambassador to Kenya. What will become of a conventional state department?

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Speaker 5: Well, again, Marco Rubio is not a revolutionary. On the

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Speaker 5: other hand, he inherits a much weakened state department. The

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Speaker 5: best in the brightest no longer are joining the foreign service.

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Speaker 5: State department has lost enormous influence to the National Security Council,

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Speaker 5: which has grown topsy turvy over the last few administrations.

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Speaker 5: So Marco Rubio is one of his big challenges. In

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Speaker 5: addition to the world addition to wars in the Middle

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Speaker 5: East and war in Europe and the challenge of China.

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Speaker 5: Marco Rubio is going to look inside this building and

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Speaker 5: he's going to say, oh my god, I do not

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Speaker 5: have the horses I need, and that's going to be

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Speaker 5: a real problem for.

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Speaker 6: What you going to hold him back?

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Speaker 4: Migration?

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Speaker 7: In reality, what should be the policy here for migration

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Speaker 7: in this country?

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Speaker 5: We want to have I think a large amount of

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Speaker 5: legal immigration. It's been the great strength of America, over

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Speaker 5: a million people of the year.

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Speaker 6: We ought to look goough at the criteria.

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Speaker 5: I think there's too much family unification, not enough getting

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Speaker 5: the people in who bring the most talent and skills.

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Speaker 5: I want well over a million people a year. Helps

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Speaker 5: the economy, helps us demographically. We've got to fix the

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Speaker 5: asside system. The idea that someone comes in here says

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Speaker 5: I'm coming here for asylum, we can hear their.

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Speaker 6: Case for six or seven years. It's crazy.

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Speaker 5: I think basically we're going to have to reintroduce some

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Speaker 5: version of remain in Mexico or remain outside the United

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Speaker 5: States while you press your asylum case. But basically immigration

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Speaker 5: is going to take a combination of a good legal program,

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Speaker 5: but tougher border, and we've got to deal with those.

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Speaker 5: We got to create the capacity to vet the people

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Speaker 5: who want to come here.

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Speaker 4: One final question, what is the tone?

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Speaker 3: The number one question from chief executive officers when you

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Speaker 3: speak at Centerview Partners.

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Speaker 5: I think the biggest question right now is about China.

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Speaker 5: So many of them are one way dependent on investment

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Speaker 5: in China, China influenced supply chains. What particularly those in

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Speaker 5: the technology space time, they want to know is what

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Speaker 5: is the political environment they're going to be operating in,

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Speaker 5: whether it's regulation, tariffs, sanctions. Also very concerned about what

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Speaker 5: about geopolitics and how might that affect the US relationship.

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Speaker 5: But I think for a lot of Americans that's issue

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Speaker 5: number one. I would say for a lot issue number

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Speaker 5: two might be Mexico, and that's where working out a

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Speaker 5: relationship with the new leadership of Mexico. Can we figure

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Speaker 5: out something where we can manage our border in a

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Speaker 5: way that doesn't cause a massive trade crisis. At the

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Speaker 5: same time, with Mexico, you.

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Speaker 3: Can't say enough about the Bill of Obligations, the Ten

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Speaker 3: Habits of Good Citizens, many other efforts, including the World

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Speaker 3: which was my book of the summer I believe years ago.

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Speaker 4: Richard Hawes, thank you so much. With Centerview Partners, and

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Speaker 4: of course.

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Speaker 3: The former president, he's he's very emeritus president, emeritus, absolute consol.

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Speaker 6: One day you'll step down from the show and YouTube.

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Speaker 4: John says, I'm emeritus every day. Jeh. Thank you, John,

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Speaker 4: Thank you for that as well. Richard Hawes, thank you

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Speaker 4: so much.

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Speaker 2: You're listening to the Bloomberg Surveillance Podcast. Catch US live

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Speaker 2: weekday afternoons from seven to ten am Eastern. Listen on

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Speaker 2: applecar Play and then Broo with a Bloomberg Business app,

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Speaker 2: or watch US live on YouTube.

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Speaker 3: Jim Carron, he is with Morgan Stanley. Can't say enough

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Speaker 3: about the holistic approach he takes. Jim, I saw today

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Speaker 3: completely aside from the CPI report, JPL is laying off

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Speaker 3: like five percent of their employees.

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Speaker 4: You may actually darkened the door there, right. I was

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Speaker 4: shocked by that. What does that say about science in America? Right?

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Speaker 1: So the jet propultionon laugh, Thank you.

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Speaker 4: Tom.

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Speaker 1: Always surprised with some of the questions. I get, Oh,

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Speaker 1: but it's a shock.

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Speaker 4: I mean they're like.

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Speaker 1: Iconic, Yes, it is iconic.

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Speaker 8: It's it was viewed as welfare for Caltech students because

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Speaker 8: you could always get a job there. But look, I

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Speaker 8: think science and technology at least may be there from

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Speaker 8: what they're doing. It could be a slow period, but

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Speaker 8: let me tell you, it's it's not going away.

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Speaker 4: Is inflation going away? There seems to be some angst

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Speaker 4: about that.

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Speaker 8: So I'm in the camp that we do have an

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Speaker 8: inflation issue. That doesn't mean that I don't think that

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Speaker 8: inflation's coming down right now, and I think that it is.

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Speaker 8: I just think that we're going to have a hard

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Speaker 8: time keeping it at target levels around two percent for

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Speaker 8: an extended period of time. Therefore, any uptick or failure

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Speaker 8: for inflation to come down materially creates more anxiety for me.

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Speaker 8: And I think that's the way the markets are going

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Speaker 8: to think about it, and certainly that is the way

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Speaker 8: that the FED is going to react to it as well.

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Speaker 7: So should the Fed sit on the sidelines here? Are

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Speaker 7: they kind of done for the near term?

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Speaker 6: Do you think?

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Speaker 4: No?

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Speaker 8: I think the Fed is on a mission to four percent,

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Speaker 8: because if you listen to their last policy statements, what

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Speaker 8: they said is that they're lowering interest rates, they're not easy,

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Speaker 8: which means that they still believe that.

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Speaker 1: They're very tight right now. Okay, so if anything they

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Speaker 1: want to get to.

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Speaker 4: Neutral, are they very tight?

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Speaker 8: So the last guess, no, Yeah, So I was going

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Speaker 8: to say, like on financial conditions, if you look at

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Speaker 8: credit spreads, if you look at what's going on in

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Speaker 8: equity markets and what have you, it wouldn't seem like

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Speaker 8: they are very tight. But based on their own models

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Speaker 8: where you think of the neutral rate, what they're worried

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Speaker 8: about is if you get a slowdown in the econom

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Speaker 8: I mean, you could get what's called reflexivity, which is

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Speaker 8: a sudden rise in the unemployment rate. So if you

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Speaker 8: don't get rates to the proper levels today, which is

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Speaker 8: around neutral, and if you do get this slow down

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Speaker 8: in the future, you could get a surprise accelerated rise

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Speaker 8: in the unemployment rate. That's what they're trying to stay

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Speaker 8: in front of right now.

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Speaker 3: Is the FED restrictive for the America that just voted

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Speaker 3: for Donald Trump?

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Speaker 1: You know, that's a good question.

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Speaker 8: It really depends on who you ask, right So if

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Speaker 8: you if you ask you know, you know, middle to

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Speaker 8: lower class earners in the US, they would say that

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Speaker 8: it is because effectively, you know, the price of goods

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Speaker 8: has just gone up and maybe even the job situation

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Speaker 8: is starting to slow down a little bit, and that

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Speaker 8: and that we need more help. Mortgage rates are high,

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Speaker 8: But what I think people are missing is that with

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Speaker 8: the FED lowering interest rates, will it actually lower your

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Speaker 8: mortgage rate or does that create a yield curve steepener,

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Speaker 8: meaning that the longer term rates that you borrow at

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Speaker 8: may stay elevated because if the FED cuts rates today,

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Speaker 8: it may send an inflation impulse into the future, and

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Speaker 8: that could bring up those higher term rates that people

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Speaker 8: actually borrow at. So I think there's a lot of

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Speaker 8: misunderstanding around that in terms of just you know, the

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Speaker 8: broad American nobody.

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Speaker 1: Cares about the deficits.

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Speaker 7: Nobody cares about the national debt, should they?

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Speaker 1: Well I care about them. I care intensely about them.

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Speaker 8: And I'm not one of these guys that's a deficit

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Speaker 8: hawk that's always been talking about it for his entire career.

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Speaker 8: But I do think that we're at a level right

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Speaker 8: now that is not very good. It can be sustained

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Speaker 8: for a period of time, but the growth rate of

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Speaker 8: the deficit cannot be sustained.

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Speaker 7: So we do have the things growing three four five

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Speaker 7: percent a year.

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Speaker 8: Well, I mean in nominal terms, as long as nominal

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Speaker 8: GDP is higher than the deficit itself, then we can

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Speaker 8: actually sustain it. And that's where we are today. The

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Speaker 8: problem is is what if we have a shock and

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Speaker 8: we need to have a fiscal response, then we're limited

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Speaker 8: in terms of what we can do.

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Speaker 3: Jim Karen, Morgan Stanley on the little g the growth rate,

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Speaker 3: which is the bl and end all the debt and

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Speaker 3: the deafth So.

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Speaker 4: We have a great charts.

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Speaker 3: Just unbelievable bar chart that shows the pieces of inflation, energy,

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Speaker 3: food and the rest. And the answer is we used

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Speaker 3: to be at two point four ish percent on a

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Speaker 3: gobbledygook of Jim Karen moving averages, and then we exploded

443
00:21:18,320 --> 00:21:20,480
Speaker 3: up for a cup of coffee, cup of senka. Yep,

444
00:21:20,640 --> 00:21:24,960
Speaker 3: can't afford coffee senka at nine percent. And the whole

445
00:21:25,000 --> 00:21:27,640
Speaker 3: heart of the matter, Jim Karen, is we haven't come

446
00:21:27,760 --> 00:21:32,440
Speaker 3: down to two point four percent. What is the distance

447
00:21:32,480 --> 00:21:36,200
Speaker 3: between three point three percent and two point four percent?

448
00:21:36,520 --> 00:21:37,920
Speaker 3: Besides some basic math?

449
00:21:38,240 --> 00:21:41,240
Speaker 1: Yeah, so I mean effectively, this is what this is.

450
00:21:41,240 --> 00:21:42,800
Speaker 8: One of the things that the FED has to worry

451
00:21:42,840 --> 00:21:45,760
Speaker 8: about is that we're getting these numbers like point two

452
00:21:45,800 --> 00:21:49,480
Speaker 8: point three percent month over month, and inflation we need

453
00:21:49,480 --> 00:21:52,920
Speaker 8: to start getting point ones. And that's the issue here

454
00:21:53,000 --> 00:21:55,560
Speaker 8: because essentially we need to get not just down to

455
00:21:55,600 --> 00:21:57,320
Speaker 8: that target level, but we have to believe that we're

456
00:21:57,320 --> 00:21:59,120
Speaker 8: going to stay there. It has to be durable, meaning

457
00:21:59,200 --> 00:22:00,919
Speaker 8: that the way the Fed would say it is that

458
00:22:00,960 --> 00:22:02,840
Speaker 8: not only does inflation have to come down, but it

459
00:22:02,880 --> 00:22:06,160
Speaker 8: has to stay anchored at lower levels. And you know, look,

460
00:22:06,160 --> 00:22:08,280
Speaker 8: today's number is a friendly number in the sense that

461
00:22:08,440 --> 00:22:11,040
Speaker 8: did bring down yields. You know, it didn't surprise to

462
00:22:11,080 --> 00:22:13,960
Speaker 8: the upside. I think the markets were worried about that. Effectively,

463
00:22:13,960 --> 00:22:16,080
Speaker 8: this keeps the Fed on track to cutting interest rates

464
00:22:16,119 --> 00:22:16,880
Speaker 8: in December.

465
00:22:17,200 --> 00:22:19,920
Speaker 4: And Paul, what's interesting here within the colors.

466
00:22:19,480 --> 00:22:22,080
Speaker 3: Of the wonderful Bloomberg chart, Good morning in a one

467
00:22:22,440 --> 00:22:25,879
Speaker 3: all the great people putting these graphics together for Bloomberg,

468
00:22:26,160 --> 00:22:29,760
Speaker 3: it's service sector just sustains period yep.

469
00:22:29,920 --> 00:22:32,520
Speaker 7: So I mean, Jim, what do you think this Federal

470
00:22:32,520 --> 00:22:34,119
Speaker 7: Reserve looks at this data today?

471
00:22:34,240 --> 00:22:35,320
Speaker 1: Is this data in.

472
00:22:35,280 --> 00:22:38,560
Speaker 7: Align with what they want to see or coming back

473
00:22:38,560 --> 00:22:39,639
Speaker 7: of the mind. Is still a little bit of a

474
00:22:39,680 --> 00:22:40,760
Speaker 7: tinge of inflation out there?

475
00:22:40,920 --> 00:22:43,320
Speaker 8: I think there's still a tinge of inflation that's out there.

476
00:22:43,359 --> 00:22:44,840
Speaker 8: I mean, you know, one of the things that we

477
00:22:44,960 --> 00:22:47,560
Speaker 8: have to also continue to look at is the housing sector.

478
00:22:47,640 --> 00:22:51,920
Speaker 8: Household related sector services is another aspect of this. Look,

479
00:22:51,960 --> 00:22:55,480
Speaker 8: you know, wage inflation has come down, but it's not

480
00:22:55,800 --> 00:22:58,480
Speaker 8: down enough in order for the FED to be convinced

481
00:22:58,480 --> 00:23:01,960
Speaker 8: that the decline in CPI inflation is likely to stay

482
00:23:02,040 --> 00:23:05,280
Speaker 8: durable at or around lower levels. The next question that

483
00:23:05,320 --> 00:23:07,840
Speaker 8: they have to ask themselves is is it worth the

484
00:23:07,880 --> 00:23:10,800
Speaker 8: cost of pushing inflation down to two percent? Meaning that

485
00:23:10,920 --> 00:23:13,040
Speaker 8: do they just stay at high rates for a while.

486
00:23:13,520 --> 00:23:15,399
Speaker 3: I mean, you know, as we piece this together, I

487
00:23:15,440 --> 00:23:18,479
Speaker 3: do want to point out it's engineering our well, got

488
00:23:18,560 --> 00:23:20,960
Speaker 3: Jim Caron and physics, and then we go over to

489
00:23:20,960 --> 00:23:24,440
Speaker 3: the aerospace engineer Neil kush Carrie. Let's do some math

490
00:23:24,520 --> 00:23:29,480
Speaker 3: here the first and second derivatives of our disinflation vector.

491
00:23:30,920 --> 00:23:34,520
Speaker 3: I mean, I forget about convexity to disinflation, that's not there.

492
00:23:34,880 --> 00:23:37,199
Speaker 4: So what are the first and second derivatives? Look like?

493
00:23:37,280 --> 00:23:37,840
Speaker 4: Oh Newton?

494
00:23:38,080 --> 00:23:40,399
Speaker 8: Yeah, so the rate of change in acceleration is what

495
00:23:40,440 --> 00:23:41,840
Speaker 8: we're talking about in terms of the first.

496
00:23:41,720 --> 00:23:44,560
Speaker 4: And sec square.

497
00:23:44,920 --> 00:23:49,359
Speaker 8: Nailed, Yes, Okay, So look that they're both pointing in

498
00:23:49,480 --> 00:23:52,680
Speaker 8: the right direction. The problem is that the second derivative,

499
00:23:52,680 --> 00:23:55,760
Speaker 8: which is the acceleration, how fast are we moving down

500
00:23:55,840 --> 00:24:00,440
Speaker 8: towards low lower inflation, is starting to become concerned because

501
00:24:00,480 --> 00:24:02,359
Speaker 8: it feels like we're petering out here a little bit.

502
00:24:02,400 --> 00:24:06,040
Speaker 3: Would Jerome Poll say, we don't want a fast second derivative,

503
00:24:06,119 --> 00:24:10,639
Speaker 3: we want for the total economy and for our political society,

504
00:24:10,960 --> 00:24:14,120
Speaker 3: we need to be a little more gentle in our acceleration.

505
00:24:14,600 --> 00:24:16,320
Speaker 1: Yeah, I think that's probably right.

506
00:24:17,160 --> 00:24:20,320
Speaker 8: But it's got to have enough impact to give people

507
00:24:20,359 --> 00:24:24,080
Speaker 8: confidence that inflation is coming down and staying down and

508
00:24:24,119 --> 00:24:26,600
Speaker 8: it's going to be durable so that it doesn't change

509
00:24:26,640 --> 00:24:30,480
Speaker 8: the mindset. So I think Powell is happy with this number,

510
00:24:30,640 --> 00:24:33,639
Speaker 8: not thrilled, but I think that he gives it a

511
00:24:33,640 --> 00:24:34,280
Speaker 8: passing grade.

512
00:24:34,359 --> 00:24:39,040
Speaker 4: Paul features five. We reversed a moonshot, So Trumpian moonshot.

513
00:24:39,400 --> 00:24:41,920
Speaker 7: Jim, what are you talking to your clients about in

514
00:24:41,960 --> 00:24:45,360
Speaker 7: the last seven days since the election and kind of.

515
00:24:45,280 --> 00:24:46,400
Speaker 1: Where we're going from here?

516
00:24:46,640 --> 00:24:48,359
Speaker 8: So look, I mean, you know a lot of things

517
00:24:48,400 --> 00:24:50,399
Speaker 8: going on right now. People talk about the Trump trade

518
00:24:50,400 --> 00:24:52,520
Speaker 8: and what have you. I think a lot of this

519
00:24:52,640 --> 00:24:55,880
Speaker 8: and I know there's a lot of consumed talk around tariffs.

520
00:24:56,280 --> 00:24:59,520
Speaker 8: I think the discussion should really be more about deregulation,

521
00:24:59,680 --> 00:25:01,280
Speaker 8: and I think I think that's really where the animal

522
00:25:01,320 --> 00:25:04,240
Speaker 8: spirits live in the broader economy. Now, it's hard to

523
00:25:04,240 --> 00:25:06,680
Speaker 8: put a fine point on this, but if you think

524
00:25:06,680 --> 00:25:09,960
Speaker 8: about people being policy and depending on who Trump appoints

525
00:25:09,960 --> 00:25:13,320
Speaker 8: to all of these different positions, which you could have,

526
00:25:13,680 --> 00:25:16,560
Speaker 8: is a less regulatory environment. Now, think of all the

527
00:25:16,560 --> 00:25:19,120
Speaker 8: fiscal stimulus that's still in the system, the Chips Act,

528
00:25:19,160 --> 00:25:22,479
Speaker 8: the IRA Act, and everything else. If that starts to

529
00:25:22,560 --> 00:25:25,840
Speaker 8: become deregulated, that money starts to go towards more productive

530
00:25:25,920 --> 00:25:29,359
Speaker 8: use and could generate a higher multiple, higher earnings, and

531
00:25:29,400 --> 00:25:32,119
Speaker 8: everything else. So what's happening in the markets today is

532
00:25:32,160 --> 00:25:34,359
Speaker 8: we're starting to see more of a broadening. So small caps,

533
00:25:34,400 --> 00:25:37,280
Speaker 8: for example, have actually done really well. Mid caps are

534
00:25:37,280 --> 00:25:40,479
Speaker 8: doing very very well. It's the mag seven now all

535
00:25:40,520 --> 00:25:43,480
Speaker 8: of a sudden that's making us a little bit concerned.

536
00:25:43,800 --> 00:25:45,840
Speaker 8: But you know what, that's a broader market, and the

537
00:25:45,880 --> 00:25:48,840
Speaker 8: more people participate in and the more stocks participate in

538
00:25:48,840 --> 00:25:50,360
Speaker 8: the rally, the better off we are.

539
00:25:50,400 --> 00:25:51,280
Speaker 1: And that's what we're seeing.

540
00:25:51,920 --> 00:25:53,920
Speaker 7: How about in fixed income market here, I mean, where

541
00:25:53,920 --> 00:25:56,760
Speaker 7: do we go here for opportunity. I know, folks tell

542
00:25:56,800 --> 00:26:00,359
Speaker 7: me that spreads are at all time tight levels here.

543
00:26:01,000 --> 00:26:02,520
Speaker 4: Yeah, US high yield.

544
00:26:02,359 --> 00:26:04,639
Speaker 7: Has been the best performing its I've made a lot

545
00:26:04,640 --> 00:26:06,919
Speaker 7: of money this year, so it has been the best performer.

546
00:26:06,960 --> 00:26:07,520
Speaker 1: I will give you that.

547
00:26:07,560 --> 00:26:09,680
Speaker 8: Now, Will it be the continue to be the best

548
00:26:09,720 --> 00:26:14,040
Speaker 8: performer going forward is another question. I am in the

549
00:26:14,040 --> 00:26:15,879
Speaker 8: camp that we have a soft landing, which means that

550
00:26:15,920 --> 00:26:18,280
Speaker 8: I think that default risks stay relatively low. So I

551
00:26:18,320 --> 00:26:21,199
Speaker 8: do like the lower end of credit. So I do

552
00:26:21,280 --> 00:26:24,160
Speaker 8: like high yield, but in particular I like bank loans.

553
00:26:24,200 --> 00:26:26,919
Speaker 8: I like leverage credit. At this point, the reason is

554
00:26:26,920 --> 00:26:29,400
Speaker 8: is that I'm uncertain as to where the interest rate

555
00:26:29,440 --> 00:26:32,440
Speaker 8: movements are good are going to go. And bank loans

556
00:26:32,480 --> 00:26:34,360
Speaker 8: tend to be a floating rate instrument, so I think

557
00:26:34,440 --> 00:26:34,880
Speaker 8: that's good.

558
00:26:35,080 --> 00:26:37,600
Speaker 3: So that's where I wanted to go, floating fixed. You

559
00:26:37,640 --> 00:26:39,880
Speaker 3: say it's a floating twenty twenty five.

560
00:26:40,320 --> 00:26:42,560
Speaker 8: At this point, I'm going to say floating just because

561
00:26:42,600 --> 00:26:44,639
Speaker 8: I think that the markets have already priced in this

562
00:26:44,800 --> 00:26:47,280
Speaker 8: terminal rate for Fed funds, which is somewhere around three

563
00:26:47,280 --> 00:26:49,640
Speaker 8: and a half percent. I won't disagree with that too much.

564
00:26:49,880 --> 00:26:51,880
Speaker 8: I'm a little higher. I'm at like three seventy five

565
00:26:51,960 --> 00:26:54,040
Speaker 8: or four. So I think the FED cuts but not

566
00:26:54,080 --> 00:26:56,439
Speaker 8: as much as what the market's pricing. So therefore I

567
00:26:56,480 --> 00:26:58,040
Speaker 8: like the more floating versus the fix.

568
00:26:58,080 --> 00:27:01,080
Speaker 3: Explain that to mere mortals out there, community, go, who's

569
00:27:01,119 --> 00:27:01,880
Speaker 3: this carrying dice?

570
00:27:01,960 --> 00:27:05,720
Speaker 4: Floating fixers? Fix is when I got a coupon, I.

571
00:27:05,720 --> 00:27:07,439
Speaker 3: Know what I'm going to get on a semi annual

572
00:27:07,560 --> 00:27:10,240
Speaker 3: basis right, right, How often does floating float?

573
00:27:10,359 --> 00:27:13,080
Speaker 1: So it depends, but generally every three months. So generally

574
00:27:13,119 --> 00:27:13,920
Speaker 1: every three months.

575
00:27:13,840 --> 00:27:15,560
Speaker 4: We don't know your yield, but you're gonna get.

576
00:27:15,400 --> 00:27:17,560
Speaker 1: Something exactly right, it'll float with the short term.

577
00:27:17,560 --> 00:27:20,480
Speaker 3: Interesting, how many how much percentage point yield do I

578
00:27:20,520 --> 00:27:22,800
Speaker 3: get from taking floating versus fixed?

579
00:27:23,200 --> 00:27:25,840
Speaker 8: So so relative to if I look at fixed high

580
00:27:25,920 --> 00:27:29,879
Speaker 8: yield versus versus floating rate loans. Now, now both of

581
00:27:29,920 --> 00:27:32,560
Speaker 8: these are both high yield instruments. You know you're looking

582
00:27:32,560 --> 00:27:34,919
Speaker 8: at probably about one hundred and fifty basis points extra

583
00:27:35,600 --> 00:27:38,840
Speaker 8: carry one and a half percentage because because essentially the

584
00:27:38,880 --> 00:27:42,680
Speaker 8: curve is relatively flat to inverted, so therefore it's so

585
00:27:42,880 --> 00:27:46,840
Speaker 8: so you're not getting the extra duration and yield pickup.

586
00:27:47,200 --> 00:27:49,600
Speaker 4: But Paul, people are driving off, I do, right.

587
00:27:49,440 --> 00:27:51,800
Speaker 7: Now that is what am I supposed to be doing here?

588
00:27:52,000 --> 00:27:52,320
Speaker 9: All right?

589
00:27:52,920 --> 00:27:55,320
Speaker 1: So where is just just.

590
00:27:55,320 --> 00:27:58,240
Speaker 7: The best value that you see out there and your

591
00:27:58,320 --> 00:28:01,680
Speaker 7: cross asset that makes me think you're a remit you

592
00:28:01,720 --> 00:28:02,680
Speaker 7: can go anywhere?

593
00:28:02,800 --> 00:28:03,680
Speaker 4: Right, Where are you going?

594
00:28:03,840 --> 00:28:05,560
Speaker 8: So a couple lays, you know, let's say on the

595
00:28:05,560 --> 00:28:08,400
Speaker 8: fixed income thing for me, non agency mortgage back securities,

596
00:28:08,440 --> 00:28:11,280
Speaker 8: non non agency mortgage back example, that would be so

597
00:28:12,160 --> 00:28:14,879
Speaker 8: these are loans that are non conforming in the sense

598
00:28:14,880 --> 00:28:17,720
Speaker 8: that they are larger loans, So this would this could

599
00:28:17,760 --> 00:28:22,600
Speaker 8: be residential mortgage backed securities. They're trading wider than investment

600
00:28:22,600 --> 00:28:25,040
Speaker 8: grade credit spreads, and they still have an investment grade

601
00:28:25,200 --> 00:28:28,119
Speaker 8: credit rating, so therefore it's good, has slightly less duration.

602
00:28:28,680 --> 00:28:31,280
Speaker 8: On the equity side, what we're broadly going to say

603
00:28:31,440 --> 00:28:33,320
Speaker 8: is that the mid cap sector is where all the

604
00:28:33,400 --> 00:28:35,879
Speaker 8: value is. So we're talking about twenty two pe multiples

605
00:28:36,160 --> 00:28:38,520
Speaker 8: as being too high. Many of these mid caps. These

606
00:28:38,520 --> 00:28:40,880
Speaker 8: are companies who you know, you know the names, they

607
00:28:40,880 --> 00:28:43,680
Speaker 8: have real earnings and everything else, that are trading with

608
00:28:43,760 --> 00:28:47,360
Speaker 8: PE multiples in the mid teens. If we get more

609
00:28:47,400 --> 00:28:50,000
Speaker 8: of a rotation towards the cyclical sector of the economy,

610
00:28:50,000 --> 00:28:52,080
Speaker 8: which I think we will we have to start looking

611
00:28:52,120 --> 00:28:54,920
Speaker 8: about we have to start looking at materials and industrials.

612
00:28:55,080 --> 00:28:56,360
Speaker 1: Tom, When was the last time.

613
00:28:56,200 --> 00:28:58,240
Speaker 8: Somebody came in here, sat in the seat and said,

614
00:28:58,240 --> 00:29:00,840
Speaker 8: I'm really excited about these material stocks.

615
00:29:01,160 --> 00:29:04,080
Speaker 1: Right? Never, right, It hasn't happened in a long time.

616
00:29:04,120 --> 00:29:06,520
Speaker 8: And I think the time is right right now to

617
00:29:06,560 --> 00:29:11,440
Speaker 8: think about the reindustrialization manufacturing sector, you know, onboarding of

618
00:29:11,480 --> 00:29:14,880
Speaker 8: manufacturing in the US, particularly under a Trump administration. These

619
00:29:14,920 --> 00:29:16,400
Speaker 8: could be interesting cyclical stories.

620
00:29:16,480 --> 00:29:18,880
Speaker 4: Jim, I love you. On YouTube. They're talking to you.

621
00:29:19,000 --> 00:29:22,240
Speaker 3: They're asking me where I put my statistical analysis in

622
00:29:22,320 --> 00:29:26,000
Speaker 3: differential equation of books of on my bedside table. No,

623
00:29:26,160 --> 00:29:30,200
Speaker 3: there's a hallway at home, sort of seventeenth century, and

624
00:29:30,320 --> 00:29:32,840
Speaker 3: there's a hallway, and the phobosi's down at the bottom

625
00:29:32,840 --> 00:29:33,760
Speaker 3: where the dogs.

626
00:29:33,520 --> 00:29:35,960
Speaker 4: Chew on it. Yeah, that's what we got. Twelve miner page.

627
00:29:36,480 --> 00:29:39,920
Speaker 4: There's a lot. Jim Carron, brilliant. Thank you, don't be

628
00:29:39,960 --> 00:29:40,560
Speaker 4: a stranger.

629
00:29:41,160 --> 00:29:45,440
Speaker 2: This is the Bloomberg Surveillance Podcast. Listen live each weekday

630
00:29:45,520 --> 00:29:48,720
Speaker 2: starting at seven am Eastern on applecar Play and Android

631
00:29:48,760 --> 00:29:51,640
Speaker 2: Auto with the Bloomberg Business app. You can also listen

632
00:29:51,720 --> 00:29:54,840
Speaker 2: live on Amazon Alexa from our flagship New York station.

633
00:29:55,240 --> 00:29:58,120
Speaker 2: Just say Alexa playing Bloomberg eleven thirty.

634
00:29:58,080 --> 00:29:58,960
Speaker 4: This is a joy.

635
00:29:59,120 --> 00:30:02,720
Speaker 3: There are people that have studied the failure of the

636
00:30:02,760 --> 00:30:06,520
Speaker 3: American retirement system. I think of Roger Ferguson, of course,

637
00:30:06,560 --> 00:30:08,840
Speaker 3: all that he did with the FED and with Tia Krafft.

638
00:30:08,840 --> 00:30:12,560
Speaker 3: I think of Peter Orzagnaut Lazard his work at Brookings.

639
00:30:12,760 --> 00:30:17,440
Speaker 3: But no one has studied this. From Marissa nineteen seventy four.

640
00:30:18,280 --> 00:30:22,840
Speaker 3: Like Alicia Manel, her title is the most prestigious title

641
00:30:23,000 --> 00:30:28,680
Speaker 3: and management science, the Peter F. Drucker Professor of Management Sciences,

642
00:30:28,840 --> 00:30:33,160
Speaker 3: Boston College. And we're thrilled as she retires that Alisha

643
00:30:33,240 --> 00:30:36,400
Speaker 3: Manel will join us. Alisha, thank you so much for

644
00:30:36,520 --> 00:30:43,240
Speaker 3: joining today. It Boeing Boeing employee screamed, give us back

645
00:30:43,440 --> 00:30:47,280
Speaker 3: what was there before nineteen seventy four. We want to

646
00:30:47,280 --> 00:30:52,080
Speaker 3: go back to old stodgy define benefit programs. Should we

647
00:30:52,160 --> 00:30:56,560
Speaker 3: go back to define benefit programs from the mishmash of

648
00:30:56,680 --> 00:30:57,440
Speaker 3: for O one k.

649
00:30:59,360 --> 00:30:59,959
Speaker 9: Wet.

650
00:31:00,040 --> 00:31:03,479
Speaker 10: I'm delighted to be here today, and my basic answer

651
00:31:03,640 --> 00:31:05,560
Speaker 10: to that is no.

652
00:31:06,320 --> 00:31:08,920
Speaker 9: But I do view the whole debate.

653
00:31:08,720 --> 00:31:12,040
Speaker 10: About four one ks versus defined benefit plans as sort

654
00:31:12,080 --> 00:31:16,840
Speaker 10: of a detour and diversion. From what I've view, is

655
00:31:16,880 --> 00:31:19,760
Speaker 10: the most serious problem with the retirement system, and that

656
00:31:19,920 --> 00:31:22,640
Speaker 10: is that we don't have universal coverage. So there's some

657
00:31:22,680 --> 00:31:25,520
Speaker 10: people who just don't have either the old fashioned to

658
00:31:25,520 --> 00:31:28,680
Speaker 10: find benefit plan or a four to one K and

659
00:31:28,720 --> 00:31:31,000
Speaker 10: so there are people are going to end up only

660
00:31:31,040 --> 00:31:34,360
Speaker 10: on Social Security, and then there's some who weave in

661
00:31:34,440 --> 00:31:37,960
Speaker 10: and out of employers with plans and they end up

662
00:31:38,000 --> 00:31:41,360
Speaker 10: within adequate balances. So I think coverage is the main issue.

663
00:31:41,720 --> 00:31:45,760
Speaker 10: And this DBTC debate, which has been going on for

664
00:31:45,840 --> 00:31:51,160
Speaker 10: decades now, is really not too profitable and I don't

665
00:31:51,360 --> 00:31:55,800
Speaker 10: really understand it. The defined benefit plan was great for

666
00:31:55,880 --> 00:32:01,720
Speaker 10: its time when you had large, hierarchical companies where people

667
00:32:01,880 --> 00:32:07,240
Speaker 10: spent most of their careers. But we're mobile workforce and

668
00:32:07,400 --> 00:32:09,200
Speaker 10: it just wouldn't work right.

669
00:32:10,080 --> 00:32:13,400
Speaker 3: I am fascinated why reform is so hard to do.

670
00:32:13,560 --> 00:32:18,120
Speaker 3: Why it takes so darn long for Washington to common

671
00:32:18,240 --> 00:32:22,800
Speaker 3: sensely reform our retirement plan. Why does it take so long?

672
00:32:24,480 --> 00:32:26,480
Speaker 9: Well, I mean there's some things that are good.

673
00:32:26,560 --> 00:32:29,760
Speaker 10: I mean, the basic part of our system of social security,

674
00:32:30,880 --> 00:32:35,280
Speaker 10: it is a pretty well designed program, given that it

675
00:32:35,320 --> 00:32:39,560
Speaker 10: was enacted in the nineteen thirties and we're in the

676
00:32:39,600 --> 00:32:42,280
Speaker 10: twenty twenties and it still.

677
00:32:42,360 --> 00:32:47,360
Speaker 9: Is very appropriate for today's workforce. We do have a

678
00:32:47,400 --> 00:32:48,880
Speaker 9: shortfall in that program.

679
00:32:49,600 --> 00:32:51,880
Speaker 10: We've known we've going to have a short fall in

680
00:32:51,920 --> 00:32:56,160
Speaker 10: that program for forty years, and it's taken us a

681
00:32:56,240 --> 00:32:59,440
Speaker 10: little long to get around to fixing it. But we

682
00:32:59,480 --> 00:33:02,080
Speaker 10: are now going to be looking at a precipice and

683
00:33:02,120 --> 00:33:05,400
Speaker 10: we're going to have to fix it so that that's

684
00:33:05,720 --> 00:33:10,160
Speaker 10: a good base. In terms of the employer provided system,

685
00:33:10,440 --> 00:33:13,720
Speaker 10: I actually I was skeptical for one K plans when

686
00:33:13,760 --> 00:33:18,200
Speaker 10: they started, but for people who have them, they when

687
00:33:18,240 --> 00:33:23,800
Speaker 10: you introduce automatic enrollment, target date funds, all the things

688
00:33:23,800 --> 00:33:27,400
Speaker 10: that make it sort of automatic and easy, they work

689
00:33:27,480 --> 00:33:31,480
Speaker 10: fine for the people who have them. And no one

690
00:33:31,560 --> 00:33:35,560
Speaker 10: has in the private sector really has the defined Benefit

691
00:33:35,640 --> 00:33:37,840
Speaker 10: plan anymore. We were just looking at some data, so

692
00:33:38,000 --> 00:33:40,960
Speaker 10: only five percent of people approaching retirement have it.

693
00:33:41,000 --> 00:33:42,040
Speaker 9: To find the wow plan.

694
00:33:42,120 --> 00:33:43,840
Speaker 1: Wow Wow, Alicia.

695
00:33:44,160 --> 00:33:47,720
Speaker 7: Many of our viewers and our listeners are thinking about

696
00:33:47,760 --> 00:33:50,560
Speaker 7: social security. What can you tell us about the viability

697
00:33:50,600 --> 00:33:54,000
Speaker 7: of Social Security system in twenty years, thirty years, forty years.

698
00:33:55,080 --> 00:33:57,840
Speaker 9: I can tell you a lot. It's going to be there.

699
00:33:59,000 --> 00:34:00,800
Speaker 9: We do have a shortfall.

700
00:34:00,880 --> 00:34:05,600
Speaker 10: We have high costs and are higher than our tax

701
00:34:06,120 --> 00:34:09,359
Speaker 10: revenues coming in. We have a trust fund that we're

702
00:34:09,440 --> 00:34:13,160
Speaker 10: using to bridge that gap. That trust fund is going

703
00:34:13,200 --> 00:34:18,799
Speaker 10: to be exhausted in twenty thirty three for the retirement program,

704
00:34:19,160 --> 00:34:22,319
Speaker 10: and at that point benefits WI will have to be

705
00:34:22,400 --> 00:34:27,120
Speaker 10: cut about twenty one percent and if nothing is done.

706
00:34:27,440 --> 00:34:30,279
Speaker 10: So that's the bad news I think for people who

707
00:34:30,280 --> 00:34:31,680
Speaker 10: were in about Social Security not.

708
00:34:31,640 --> 00:34:34,640
Speaker 9: Going to be there. The good news is there's.

709
00:34:34,560 --> 00:34:38,600
Speaker 10: Enough money coming in forever to pay seventy nine percent

710
00:34:38,640 --> 00:34:39,280
Speaker 10: of benefits.

711
00:34:39,560 --> 00:34:39,759
Speaker 4: Now.

712
00:34:39,760 --> 00:34:41,680
Speaker 10: I would like to see them at one hundred, not

713
00:34:41,719 --> 00:34:44,919
Speaker 10: at seventy nine percent. So I would like to see

714
00:34:44,920 --> 00:34:48,080
Speaker 10: more revenues getting in, but you know, they'll maybe some

715
00:34:48,200 --> 00:34:52,600
Speaker 10: compromise in between, but there's a base amount that's guaranteed

716
00:34:52,760 --> 00:34:55,640
Speaker 10: going to be there ten years, twenty years, thirty years,

717
00:34:55,680 --> 00:34:56,480
Speaker 10: forty years.

718
00:34:57,280 --> 00:35:00,759
Speaker 3: I look, Alicia Manell at the mistakes you've all made

719
00:35:00,800 --> 00:35:04,520
Speaker 3: in retirement, and so much of it is is Peter

720
00:35:04,719 --> 00:35:09,080
Speaker 3: Orzagg emphasize it Brookings years and years ago, automatic sign.

721
00:35:09,000 --> 00:35:10,000
Speaker 4: Up when you're employed.

722
00:35:10,960 --> 00:35:13,879
Speaker 3: What how do we get people to save more within

723
00:35:13,960 --> 00:35:18,239
Speaker 3: the algebra of simply doing it? It's get more into equities,

724
00:35:18,719 --> 00:35:21,239
Speaker 3: but also you just got to put in more. How

725
00:35:21,280 --> 00:35:24,160
Speaker 3: do we incentivize people to put in more when they've

726
00:35:24,160 --> 00:35:25,760
Speaker 3: got bills to pay?

727
00:35:26,480 --> 00:35:28,640
Speaker 9: I mean no, I mean that's the thing.

728
00:35:28,680 --> 00:35:31,960
Speaker 10: It has to be realistic amounts. People would be nice

729
00:35:31,960 --> 00:35:36,160
Speaker 10: if people could contribute fifteen percent, but not everybody can

730
00:35:36,200 --> 00:35:39,080
Speaker 10: do that. So I think you want to make sure

731
00:35:39,120 --> 00:35:43,040
Speaker 10: that people have some base on which they can save

732
00:35:43,120 --> 00:35:47,200
Speaker 10: automatically at work, no matter what their income level.

733
00:35:47,560 --> 00:35:49,319
Speaker 9: And then people at more income.

734
00:35:49,080 --> 00:35:52,080
Speaker 10: Levels simply cannot say that those percentages.

735
00:35:52,719 --> 00:35:56,520
Speaker 3: Now you're retiring, but I don't believe you. What are

736
00:35:56,560 --> 00:36:00,000
Speaker 3: you going to do with You're a gyro? Alisia Manelle?

737
00:36:00,120 --> 00:36:02,719
Speaker 3: What are you going to do in your non retirement?

738
00:36:03,840 --> 00:36:06,760
Speaker 9: I don't. I have absolutely no clue.

739
00:36:06,800 --> 00:36:10,840
Speaker 10: I'm going to stay on here a service senior advisor

740
00:36:12,040 --> 00:36:15,760
Speaker 10: that may be wonderful, or maybe I'm become Ana.

741
00:36:16,400 --> 00:36:18,920
Speaker 4: Can you you could be a ballerina like at Wellesley.

742
00:36:18,960 --> 00:36:20,880
Speaker 4: I know you were a Queen of Ballerina.

743
00:36:20,680 --> 00:36:24,080
Speaker 3: Wellesley years ago. Can you save the red Sox? I mean,

744
00:36:24,200 --> 00:36:27,560
Speaker 3: can Alisia Manell help them?

745
00:36:27,920 --> 00:36:31,560
Speaker 9: I wish I could. It's not my sweet spot.

746
00:36:31,880 --> 00:36:35,120
Speaker 3: Okay, well, your sweet spot has been informing us about

747
00:36:35,200 --> 00:36:40,520
Speaker 3: retirement and the collapse thereof in so many people's retirement planning.

748
00:36:40,560 --> 00:36:45,360
Speaker 3: Alicia Manell inventing the Center for Retirement Research Boston College.

749
00:36:45,760 --> 00:36:49,440
Speaker 3: But I can't say enough about when she started this, it.

750
00:36:49,480 --> 00:36:52,479
Speaker 4: Was like what are you doing? Exactly what are you doing?

751
00:36:52,520 --> 00:36:54,160
Speaker 4: And it's now just I.

752
00:36:54,160 --> 00:36:56,680
Speaker 7: Mean it's a huge issue. I mean, people are living longer,

753
00:36:57,000 --> 00:37:00,160
Speaker 7: they need more money they made through You're to go

754
00:37:00,200 --> 00:37:01,000
Speaker 7: about their retirement?

755
00:37:01,200 --> 00:37:02,320
Speaker 1: Probably not no valid.

756
00:37:07,680 --> 00:37:11,960
Speaker 2: This is the Bloomberg Surveillance Podcast. Listen live each weekday

757
00:37:12,040 --> 00:37:15,560
Speaker 2: starting at seven am Eastern on Applecarplay and Android Auto

758
00:37:15,640 --> 00:37:18,440
Speaker 2: with the Bloomberg Business app. You can also watch us

759
00:37:18,560 --> 00:37:22,560
Speaker 2: live every weekday on YouTube and always on the Bloomberg terminal.

760
00:37:22,719 --> 00:37:26,160
Speaker 3: Right now, joining us David Salem. He was hugely popular

761
00:37:27,000 --> 00:37:28,560
Speaker 3: last time he was on with me. At least I've

762
00:37:28,560 --> 00:37:31,960
Speaker 3: been out a bit hedge eye risk management here this morning.

763
00:37:32,200 --> 00:37:36,240
Speaker 3: Do you change your investment outlook with a new administration

764
00:37:37,000 --> 00:37:39,759
Speaker 3: or do you try to get onto the beginning of

765
00:37:39,800 --> 00:37:41,480
Speaker 3: spring training when the Red Sox.

766
00:37:41,320 --> 00:37:42,200
Speaker 4: Say this is the year.

767
00:37:44,360 --> 00:37:47,080
Speaker 11: Our approach is data driven. So if the data change

768
00:37:47,160 --> 00:37:49,360
Speaker 11: is a result of the election, then we will change.

769
00:37:49,719 --> 00:37:51,719
Speaker 11: But if they don't, then we don't.

770
00:37:51,480 --> 00:37:54,840
Speaker 3: If nominal GDP is goose, I'm seeing lots of animal

771
00:37:54,880 --> 00:37:56,399
Speaker 3: spirits in an amateur way.

772
00:37:57,360 --> 00:37:59,920
Speaker 4: What is the most productive.

773
00:37:59,280 --> 00:38:02,759
Speaker 3: Nominal GDP real growth, or even a little bit of

774
00:38:02,760 --> 00:38:03,800
Speaker 3: an inflation.

775
00:38:03,520 --> 00:38:07,520
Speaker 11: Pop Well, probably a little bit tom because it's not this.

776
00:38:08,440 --> 00:38:09,480
Speaker 4: It's not the case.

777
00:38:09,239 --> 00:38:13,960
Speaker 11: That the market dislikes relatively high rates of inflation compared

778
00:38:13,960 --> 00:38:18,160
Speaker 11: to history. What the market really dislikes is volatile inflation

779
00:38:18,200 --> 00:38:20,120
Speaker 11: because it's hard to price, it's hard to manage, it's

780
00:38:20,120 --> 00:38:22,279
Speaker 11: hard to set up longer term positions.

781
00:38:22,440 --> 00:38:23,279
Speaker 4: For what it's worth.

782
00:38:23,320 --> 00:38:25,440
Speaker 11: Our view of we look at everything in real term,

783
00:38:25,520 --> 00:38:29,040
Speaker 11: so real GDP, we see it growing modestly through the

784
00:38:29,160 --> 00:38:32,520
Speaker 11: end of our planning horizon, which, due to model limitations,

785
00:38:32,560 --> 00:38:34,200
Speaker 11: is probably through the end of the third quarter of

786
00:38:34,200 --> 00:38:36,359
Speaker 11: twenty twenty five. So you're talking about, you know, two

787
00:38:36,440 --> 00:38:39,920
Speaker 11: point two two point three real GDP against an inflation

788
00:38:40,600 --> 00:38:43,359
Speaker 11: backdrop that we think will be a little bit higher

789
00:38:43,360 --> 00:38:45,560
Speaker 11: than the market is still discounting all the market's been

790
00:38:45,600 --> 00:38:50,520
Speaker 11: moving toward our inflation outlook, if you will, of sort

791
00:38:50,560 --> 00:38:52,680
Speaker 11: of low threes between now and the end of the

792
00:38:52,760 --> 00:38:54,239
Speaker 11: third quarter of twenty twenty five.

793
00:38:54,360 --> 00:38:59,040
Speaker 7: Wow, So what should this Federal Reserve do you talking

794
00:38:59,040 --> 00:39:02,080
Speaker 7: about growth rates like that, an argument can be made

795
00:39:02,120 --> 00:39:04,880
Speaker 7: that this federal reserves are just maybe sit pat a

796
00:39:04,880 --> 00:39:05,239
Speaker 7: little bit.

797
00:39:05,280 --> 00:39:06,840
Speaker 1: But what do you think this federal reserve should do?

798
00:39:06,960 --> 00:39:07,160
Speaker 4: Yeah?

799
00:39:07,160 --> 00:39:10,600
Speaker 11: I hope Paul this answer doesn't frustrate you or a TK,

800
00:39:11,120 --> 00:39:15,319
Speaker 11: But I don't think the Fed's mandate is sufficiently clear.

801
00:39:15,840 --> 00:39:18,680
Speaker 11: And I think with the utmost respect, like you hadnon

802
00:39:18,719 --> 00:39:20,960
Speaker 11: earlier today, I just saw I'm in the lobby cash carry.

803
00:39:21,239 --> 00:39:24,000
Speaker 11: They're just making it up as they go, and they're

804
00:39:24,040 --> 00:39:26,400
Speaker 11: making up not only the mandate but the means that

805
00:39:26,440 --> 00:39:30,520
Speaker 11: they pursue that they employ to pursue. However they define

806
00:39:30,520 --> 00:39:33,400
Speaker 11: the mandate, and that's because they're mandate from Congress is

807
00:39:33,440 --> 00:39:36,120
Speaker 11: insufficiently clear. So you asked me what should they do?

808
00:39:36,760 --> 00:39:39,160
Speaker 11: I don't think anybody can honestly answer that question.

809
00:39:39,400 --> 00:39:41,600
Speaker 4: Tell me what the FED should or should not do?

810
00:39:41,960 --> 00:39:44,440
Speaker 4: Is it December? You go into the next Yeah? All right.

811
00:39:44,480 --> 00:39:45,960
Speaker 11: So just to finish the point, I'm going to just

812
00:39:46,000 --> 00:39:47,840
Speaker 11: put myself into the mindset of the people at the

813
00:39:47,880 --> 00:39:50,960
Speaker 11: FED who have a different definition, definition of the mandate,

814
00:39:51,000 --> 00:39:54,080
Speaker 11: and different models than we ourselves employ. So to answer

815
00:39:54,160 --> 00:39:56,680
Speaker 11: the question, I think that that they ought to be

816
00:39:56,840 --> 00:39:59,759
Speaker 11: very very careful about cutting rates too quickly because the

817
00:39:59,800 --> 00:40:02,120
Speaker 11: out look for inflation. Look, what is inflation. You talked

818
00:40:02,120 --> 00:40:04,239
Speaker 11: about it earlier today when you talked about calculus first

819
00:40:04,239 --> 00:40:07,560
Speaker 11: and second derivatives. We focus intensely on first and second

820
00:40:07,560 --> 00:40:09,879
Speaker 11: derivatives at hedge eye. And when you look at that,

821
00:40:10,040 --> 00:40:12,719
Speaker 11: inflation is essentially a computation that's a ratio. You have

822
00:40:12,760 --> 00:40:15,600
Speaker 11: to look at your base effects, and the base effects

823
00:40:15,600 --> 00:40:17,239
Speaker 11: tell us that it's going to be very difficult for

824
00:40:17,320 --> 00:40:21,160
Speaker 11: them to move this gigantic Supertanker called the US economy

825
00:40:21,200 --> 00:40:24,120
Speaker 11: towards inflation and anything close to the target over the

826
00:40:24,120 --> 00:40:25,880
Speaker 11: next year, and that suggests that they ought to be

827
00:40:26,000 --> 00:40:29,040
Speaker 11: very measured and patient and further reductions of the rate

828
00:40:29,120 --> 00:40:30,040
Speaker 11: of the policy rate.

829
00:40:31,200 --> 00:40:33,400
Speaker 7: One of the key issues with this new administration is

830
00:40:33,400 --> 00:40:36,640
Speaker 7: going to be kind of how they're thinking about global trade.

831
00:40:36,880 --> 00:40:39,120
Speaker 7: One of the first orders of business is China, and

832
00:40:39,160 --> 00:40:40,480
Speaker 7: I know you have strong views.

833
00:40:40,239 --> 00:40:43,319
Speaker 11: On Yeah, how do you think about that? Well, my

834
00:40:43,400 --> 00:40:46,560
Speaker 11: strong views on China are limited exclusively to the perspective

835
00:40:46,560 --> 00:40:49,080
Speaker 11: of like a chief investment office or somebody stewarting a

836
00:40:49,120 --> 00:40:51,799
Speaker 11: large pile of money. And I've held these used for

837
00:40:51,840 --> 00:40:55,160
Speaker 11: a very long time, because when you're allocating capital and

838
00:40:55,200 --> 00:40:57,960
Speaker 11: taking risk, you obviously want to be cognizant of what

839
00:40:58,000 --> 00:41:00,279
Speaker 11: is the worst case for the risk taking and what's

840
00:41:00,320 --> 00:41:02,520
Speaker 11: the best case for the upside. And when you do

841
00:41:02,560 --> 00:41:05,520
Speaker 11: that and look at, for example, publicly traded companies in

842
00:41:05,600 --> 00:41:08,759
Speaker 11: China as this thing from private equity in China, I

843
00:41:08,800 --> 00:41:12,360
Speaker 11: don't see an upside Paul that's even remotely close or

844
00:41:12,400 --> 00:41:16,360
Speaker 11: commensurate with the downside. And the downside we saw obviously

845
00:41:16,760 --> 00:41:20,840
Speaker 11: with Russia's invasion of Ukraine, where either through Fiat regulation

846
00:41:21,000 --> 00:41:23,919
Speaker 11: or law or just by market movement, basically your wealth

847
00:41:23,960 --> 00:41:26,360
Speaker 11: gets taken away at least confiscated for a time period,

848
00:41:26,400 --> 00:41:29,080
Speaker 11: you get wiped out. So the expected return has to

849
00:41:29,120 --> 00:41:30,719
Speaker 11: be very high. And I don't think you see that

850
00:41:30,920 --> 00:41:33,200
Speaker 11: in China publicly traded Chinese companies.

851
00:41:33,280 --> 00:41:35,279
Speaker 3: Yes, I want to come back and focus on the

852
00:41:35,280 --> 00:41:38,880
Speaker 3: equity markets. But let's just begin with the character of

853
00:41:38,920 --> 00:41:42,719
Speaker 3: our exuberance. Yard Denny says, it's the roaring twenties. What

854
00:41:42,880 --> 00:41:46,120
Speaker 3: is the character of our exuberance after the selection?

855
00:41:46,400 --> 00:41:49,319
Speaker 11: Yeah, I actually think to some important respects, it's what

856
00:41:49,360 --> 00:41:52,520
Speaker 11: we might call rational exuberance, right, because you see the

857
00:41:52,560 --> 00:41:56,160
Speaker 11: market is starting to discount. Obviously, policy changes. I think

858
00:41:56,320 --> 00:41:59,720
Speaker 11: probably the single most important policy change that might affect

859
00:41:59,719 --> 00:42:02,000
Speaker 11: the te trajectory of say the US economy and in

860
00:42:02,040 --> 00:42:04,920
Speaker 11: turn the global economy for the next few years doesn't

861
00:42:04,920 --> 00:42:07,920
Speaker 11: emanate from either the White House or Congress. It emanated

862
00:42:07,960 --> 00:42:12,560
Speaker 11: from the Supreme Court with the Chevron Doctrine decision recently

863
00:42:12,600 --> 00:42:15,160
Speaker 11: that basically said to the independent agencies, you don't have

864
00:42:15,200 --> 00:42:18,600
Speaker 11: as much power as you've had in recent decades, and

865
00:42:18,640 --> 00:42:21,440
Speaker 11: you need to go to greater lengths to justify anything

866
00:42:21,440 --> 00:42:24,040
Speaker 11: that you're doing. And I think if that gets taken

867
00:42:24,080 --> 00:42:28,040
Speaker 11: to a kind of logical and prudent extreme by actors

868
00:42:28,040 --> 00:42:31,360
Speaker 11: in the economy generally, particularly those in the agencies, that

869
00:42:31,440 --> 00:42:35,279
Speaker 11: could be very productive of a stimulus to growth. That's

870
00:42:35,280 --> 00:42:38,160
Speaker 11: why I say something some things Tom that are going

871
00:42:38,160 --> 00:42:41,399
Speaker 11: on in the markets today strike me as rational rather

872
00:42:41,480 --> 00:42:42,120
Speaker 11: than irrational.

873
00:42:42,200 --> 00:42:44,160
Speaker 7: And David Salem joins us here in our Bloomberg and

874
00:42:44,200 --> 00:42:47,440
Speaker 7: Actor Broker studio. He's a Managing Director Capital Allocation for

875
00:42:47,719 --> 00:42:52,280
Speaker 7: hedge Eye Risk Management. David, literally a week ago today

876
00:42:52,560 --> 00:42:57,279
Speaker 7: the market woke up to a pretty big election. Did

877
00:42:57,280 --> 00:43:01,760
Speaker 7: that change your view hedgeys view of investment outlook?

878
00:43:02,320 --> 00:43:02,920
Speaker 4: Yeah?

879
00:43:03,239 --> 00:43:04,840
Speaker 11: First, I want to just cite a stat that I

880
00:43:04,840 --> 00:43:06,960
Speaker 11: think you guys will find intriguing. We hear a lot

881
00:43:06,960 --> 00:43:09,520
Speaker 11: of talk in media that the markets at an all

882
00:43:09,560 --> 00:43:12,560
Speaker 11: time high, and I did a recomputation of it this morning.

883
00:43:13,360 --> 00:43:16,759
Speaker 11: Roughly one third of all US stocks publicly traded are

884
00:43:16,840 --> 00:43:19,440
Speaker 11: trading at or below fifty percent of their.

885
00:43:19,280 --> 00:43:21,120
Speaker 4: All time high.

886
00:43:21,920 --> 00:43:23,040
Speaker 7: Not a broad based.

887
00:43:23,520 --> 00:43:25,600
Speaker 4: Yeah, yeah, and I own them all.

888
00:43:27,120 --> 00:43:34,759
Speaker 11: Globally. It's an even more laggardly situation in present, with

889
00:43:34,760 --> 00:43:37,279
Speaker 11: more than half of all stocks traded globally x the

890
00:43:37,360 --> 00:43:40,720
Speaker 11: US trading at least fifty percent below their all time high.

891
00:43:41,000 --> 00:43:43,600
Speaker 11: So that now let me segue over to your good question, Paul, like,

892
00:43:43,680 --> 00:43:46,480
Speaker 11: does an election change the outlook? My work at Hedge

893
00:43:46,520 --> 00:43:48,520
Speaker 11: Eye is an interesting because we have a lot of

894
00:43:48,520 --> 00:43:52,000
Speaker 11: people doing fantastic work that, for better or worse, I

895
00:43:52,040 --> 00:43:55,160
Speaker 11: think it's mostly for the better, focuses on short term opportunity.

896
00:43:55,160 --> 00:43:56,319
Speaker 4: In parallel in the market, I.

897
00:43:56,320 --> 00:43:59,399
Speaker 11: Don't capital allocation was I was brought in to build

898
00:43:59,440 --> 00:44:01,879
Speaker 11: a business takes a medium and much longer term view,

899
00:44:02,800 --> 00:44:04,880
Speaker 11: and in that context, I just want to share with

900
00:44:04,920 --> 00:44:07,480
Speaker 11: you just a few observations. Because we had the election

901
00:44:07,560 --> 00:44:10,120
Speaker 11: on Tuesday. On Wednesday, and Thursday, and because we were

902
00:44:10,160 --> 00:44:13,120
Speaker 11: subject to Chatham House rules, I can't say who I

903
00:44:13,160 --> 00:44:16,040
Speaker 11: met with, but we'll just say a dozen CIOs of

904
00:44:16,840 --> 00:44:19,880
Speaker 11: very large funds from around the world. And the focal

905
00:44:19,880 --> 00:44:22,040
Speaker 11: point was just take a step back, let's all take

906
00:44:22,080 --> 00:44:24,759
Speaker 11: a deep breath and ask ourselves a question, in light

907
00:44:24,800 --> 00:44:27,680
Speaker 11: of everything that's going on in the world, including but

908
00:44:27,800 --> 00:44:31,200
Speaker 11: not limited to yesterday's election, to what extent and how

909
00:44:31,200 --> 00:44:34,239
Speaker 11: should we change the approach that we've been employing for

910
00:44:34,280 --> 00:44:37,440
Speaker 11: some time now. These are institutions that have approaches that

911
00:44:37,480 --> 00:44:41,279
Speaker 11: are idiosyncratically suited to their missions. So one of them

912
00:44:41,360 --> 00:44:43,960
Speaker 11: is frankly the largest fund in the world, so it

913
00:44:44,120 --> 00:44:46,920
Speaker 11: knows that asset size is the enemy of investment success.

914
00:44:47,000 --> 00:44:50,240
Speaker 11: It cannot pursue the strategies that some of the smaller

915
00:44:50,239 --> 00:44:52,680
Speaker 11: funds but nonetheless large funds that were in the room

916
00:44:52,719 --> 00:44:55,479
Speaker 11: are pursuing. And the bottom line poll is that they're

917
00:44:55,520 --> 00:44:59,759
Speaker 11: not inclined to modify the approaches what they're inclined to do,

918
00:45:00,160 --> 00:45:02,319
Speaker 11: which by which I mean the policies and to some

919
00:45:02,400 --> 00:45:06,320
Speaker 11: extent the strategies. But there is acute agony in angst

920
00:45:06,680 --> 00:45:09,640
Speaker 11: about the overcrowding of some particularly some of the alternative

921
00:45:09,640 --> 00:45:14,000
Speaker 11: investment niches that have enabled these institutions to do better

922
00:45:14,040 --> 00:45:17,160
Speaker 11: than the norm until quite recently.

923
00:45:17,239 --> 00:45:19,600
Speaker 4: Agony and Eggs, It's right where I wanted to go.

924
00:45:19,960 --> 00:45:24,600
Speaker 3: Janet, Lauren and Bloomberg driving the ship on this endowment

925
00:45:24,920 --> 00:45:31,680
Speaker 3: failure recently because of alternative investment failure. Is it a

926
00:45:31,760 --> 00:45:34,640
Speaker 3: thing or is it just a moment that we've seen

927
00:45:34,680 --> 00:45:35,719
Speaker 3: this under performance.

928
00:45:35,920 --> 00:45:38,040
Speaker 11: It's a it's a big thing. I think it's even

929
00:45:38,080 --> 00:45:39,480
Speaker 11: though there's a lot of talk about it, Tom, I

930
00:45:39,480 --> 00:45:43,560
Speaker 11: don't think it's sufficiently recognized. The problem that is problem

931
00:45:43,600 --> 00:45:46,520
Speaker 11: that is looming. And one again Chathamhouse rules, so I

932
00:45:46,520 --> 00:45:50,240
Speaker 11: can't say who said it, but one of the CEOs.

933
00:45:49,760 --> 00:45:51,839
Speaker 4: You don't have to do chattermouse. We do chattamouse here.

934
00:45:51,880 --> 00:45:55,759
Speaker 3: We ignore talker as much as we can't continue, I will.

935
00:45:56,600 --> 00:45:58,239
Speaker 11: The point I'm driving at is simply that one of

936
00:45:58,239 --> 00:45:59,840
Speaker 11: the ceo is one of the largest funds in the

937
00:46:00,040 --> 00:46:03,400
Speaker 11: room said, look, we now have actually two distinct sets

938
00:46:03,440 --> 00:46:06,239
Speaker 11: of books. We have our accounting books where we have

939
00:46:06,320 --> 00:46:09,680
Speaker 11: to use the nads provided by all of our alt managers.

940
00:46:10,040 --> 00:46:14,720
Speaker 11: But for risk management purposes, which is what really counts, we're.

941
00:46:14,600 --> 00:46:15,600
Speaker 4: Using our own marks.

942
00:46:15,880 --> 00:46:19,959
Speaker 11: And there's a wide and growing gap between the two. Again,

943
00:46:20,000 --> 00:46:23,560
Speaker 11: it's been widely reported on. The question is when will

944
00:46:23,600 --> 00:46:26,880
Speaker 11: that problem come to the four No organization can be

945
00:46:26,880 --> 00:46:27,320
Speaker 11: better than that.

946
00:46:27,520 --> 00:46:29,240
Speaker 3: Come on, I just read I don't have the details

947
00:46:29,280 --> 00:46:31,680
Speaker 3: in front of me. Somebody I'm going to pick on Princeton.

948
00:46:31,719 --> 00:46:35,480
Speaker 3: It may be wrong, but people are putting out debentures

949
00:46:35,600 --> 00:46:38,839
Speaker 3: or bonds of some type because they can't cash out

950
00:46:38,880 --> 00:46:40,280
Speaker 3: of alternative exactly.

951
00:46:40,440 --> 00:46:42,319
Speaker 11: Yeah, and that'll problem will grow worse.

952
00:46:43,120 --> 00:46:45,600
Speaker 3: You have a permanence to this about three years, five

953
00:46:45,680 --> 00:46:46,600
Speaker 3: years more.

954
00:46:48,040 --> 00:46:51,040
Speaker 11: Well, the word permanence, that's a noun. You can use

955
00:46:51,080 --> 00:46:54,760
Speaker 11: the word the adjective permanent. Right, these are permanent posts

956
00:46:54,800 --> 00:46:57,760
Speaker 11: of capital. But nonetheless there are time horizons for measuring

957
00:46:57,800 --> 00:47:01,720
Speaker 11: performance and assessing the of the higher guns that deploy

958
00:47:01,760 --> 00:47:04,720
Speaker 11: their capital is much shorter than that. But the problems

959
00:47:04,760 --> 00:47:06,879
Speaker 11: haven't all bubbled up at the same time. What you're

960
00:47:06,880 --> 00:47:08,400
Speaker 11: going to have to see, I think this is my

961
00:47:08,440 --> 00:47:11,399
Speaker 11: own opinion, which I'm labeling as such, is that as

962
00:47:11,480 --> 00:47:15,319
Speaker 11: one institution after another finally throws in the towel and says, look,

963
00:47:15,360 --> 00:47:18,680
Speaker 11: we don't actually have as much money as we've been

964
00:47:18,719 --> 00:47:24,480
Speaker 11: professing to control, then the pressure gets unbearably acute on

965
00:47:24,520 --> 00:47:27,600
Speaker 11: others to take reasonable marks, which means marked downs.

966
00:47:28,040 --> 00:47:28,360
Speaker 4: Well.

967
00:47:28,640 --> 00:47:33,200
Speaker 7: In twenty twenty two, when everything went down, everything stocks,

968
00:47:33,360 --> 00:47:36,959
Speaker 7: bonds across the board, I was shocked that we didn't

969
00:47:37,000 --> 00:47:42,600
Speaker 7: see more markedowns of private equity and private credit, the endowments,

970
00:47:43,040 --> 00:47:45,120
Speaker 7: the university endowments, which I have some experience with.

971
00:47:45,960 --> 00:47:46,880
Speaker 1: I didn't say anything.

972
00:47:48,719 --> 00:47:51,239
Speaker 7: So is that a problem for the market, the fact

973
00:47:51,280 --> 00:47:54,680
Speaker 7: that the marketing marked the market rules aren't more maybe

974
00:47:54,719 --> 00:47:55,840
Speaker 7: stringent or timely.

975
00:47:56,560 --> 00:47:57,040
Speaker 4: It is.

976
00:47:58,640 --> 00:48:01,200
Speaker 11: What's even perhaps greater, I think, Paul, for a lot

977
00:48:01,200 --> 00:48:04,840
Speaker 11: of institutions that are loaded to the gills with private stuff,

978
00:48:05,360 --> 00:48:07,960
Speaker 11: is that they've actually made forward commitments. Right the way

979
00:48:07,960 --> 00:48:10,359
Speaker 11: an institutional fund works, you commit the capital gets drawn

980
00:48:10,400 --> 00:48:13,800
Speaker 11: down over time. The question now arises as the capitol

981
00:48:13,880 --> 00:48:17,880
Speaker 11: calls flow in, where do these institutions get the capital

982
00:48:17,920 --> 00:48:21,160
Speaker 11: of the dollars right to meet those capital calls? And

983
00:48:21,200 --> 00:48:23,719
Speaker 11: the answer obviously is they have to sell something. What

984
00:48:23,800 --> 00:48:29,360
Speaker 11: will they sell? That's that's the real elephant, unrecognized elephant

985
00:48:29,400 --> 00:48:30,680
Speaker 11: in the room in my judgment.

986
00:48:31,200 --> 00:48:33,480
Speaker 7: So that what do you think of it? I don't

987
00:48:33,480 --> 00:48:37,920
Speaker 7: know a professional institutional portfolio, what percentage should be? Alternatives

988
00:48:37,920 --> 00:48:38,760
Speaker 7: do you think these days?

989
00:48:38,840 --> 00:48:41,040
Speaker 11: Yeah, it really does depend on the skill of the

990
00:48:41,080 --> 00:48:44,160
Speaker 11: competence of the people that are deploying the money. Right,

991
00:48:44,239 --> 00:48:48,160
Speaker 11: So there's way too much sort of Yale wannabes in mimicry, right,

992
00:48:49,480 --> 00:48:50,480
Speaker 11: and this is a problem.

993
00:48:50,520 --> 00:48:50,719
Speaker 2: Again.

994
00:48:50,760 --> 00:48:54,120
Speaker 11: I won't name names, but one of the major university

995
00:48:54,200 --> 00:48:57,879
Speaker 11: endowments that competes certainly at the board level in terms

996
00:48:57,880 --> 00:49:01,680
Speaker 11: of performance comparisons with Ale itself, has done a computation

997
00:49:01,800 --> 00:49:06,120
Speaker 11: and said, look, our asset size is such a handicap.

998
00:49:06,719 --> 00:49:09,319
Speaker 11: Even if we had the most talented staff. Driving right

999
00:49:09,360 --> 00:49:12,480
Speaker 11: back to the main thread, we can't deploy enough capital

1000
00:49:13,239 --> 00:49:16,239
Speaker 11: in a manner that will enable us as well plausibly

1001
00:49:16,360 --> 00:49:19,840
Speaker 11: to capture the return premium that induces us to invest

1002
00:49:19,880 --> 00:49:21,080
Speaker 11: in private stuff to begin with.

1003
00:49:21,120 --> 00:49:23,000
Speaker 3: You got to come back one hundred percent agree that

1004
00:49:23,120 --> 00:49:24,279
Speaker 3: David Salemer out of time.

1005
00:49:24,320 --> 00:49:27,040
Speaker 4: Thank you so much. With hedgeye risk management. This is

1006
00:49:27,160 --> 00:49:27,560
Speaker 4: not a.

1007
00:49:27,480 --> 00:49:30,360
Speaker 3: Small matter of folks, Paul way better than me on

1008
00:49:30,440 --> 00:49:32,480
Speaker 3: private credit, private equity.

1009
00:49:32,080 --> 00:49:36,759
Speaker 4: And alternative yes, alternative investment.

1010
00:49:37,680 --> 00:49:42,120
Speaker 2: This is the Bloomberg Surveillance podcast, available on Apple, Spotify

1011
00:49:42,280 --> 00:49:45,919
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1012
00:49:45,960 --> 00:49:49,400
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1013
00:49:49,480 --> 00:49:53,120
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1014
00:49:53,360 --> 00:49:56,440
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1015
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