WEBVTT - Surveillance: Trump Could Restore Productivity, Bullard Says 0:00:00.040 --> 0:00:02.640 Who you put your trust in matters investors have put 0:00:02.680 --> 0:00:07.000 their trust and independent registered investment advisors to the two 0:00:07.280 --> 0:00:11.360 four trillion dollars. Why learn more and find your independent 0:00:11.400 --> 0:00:26.960 advisor dot com. Welcome to the Bloomberg Surveillance Podcast. I'm 0:00:27.040 --> 0:00:30.920 Tom Keene with David Gura. Daily we bring you insight 0:00:31.040 --> 0:00:35.560 from the best in economics, finance, investment and international relations. 0:00:35.960 --> 0:00:40.559 Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and 0:00:40.640 --> 0:00:48.240 of course on the Bloomberg A lot to talk about 0:00:48.240 --> 0:00:51.040 this morning with Jeffrey You, investment Strategisy at ups Wealth Management, 0:00:51.040 --> 0:00:55.000 who joins us from London. Morning. Jeffrey, good morning. Let's 0:00:55.000 --> 0:00:57.320 start with with that dollar strength in your sense of 0:00:57.360 --> 0:00:59.600 how long that's that's going to persist? Again, We're looking 0:00:59.640 --> 0:01:01.920 down the barrel here of a transition to a new 0:01:02.120 --> 0:01:04.040 a new presidency here in the US. How is that 0:01:04.040 --> 0:01:07.120 going affect things? We do think that pretty much and 0:01:07.160 --> 0:01:08.720 I should have run its course against some of the 0:01:08.760 --> 0:01:11.959 development again, some of the developed market currencies like Sterling 0:01:12.000 --> 0:01:14.880 and Europe for example. UM, we are going to get 0:01:14.920 --> 0:01:17.880 to a point where politics aside, the FED is going 0:01:17.920 --> 0:01:20.319 to be looking at this again saying okay, we thought 0:01:20.319 --> 0:01:22.240 we had a good inflation profile, but the dollar looks 0:01:22.280 --> 0:01:24.360 a bit too toppy right now? Is that going to 0:01:24.520 --> 0:01:27.000 affect our inflation profile? And the moment they signal that 0:01:27.040 --> 0:01:29.240 it will be doing so, then I think we're going 0:01:29.280 --> 0:01:31.760 to see a dollar reversal. So, um, I would you 0:01:31.800 --> 0:01:33.800 know the whole things a bit before saying right now, 0:01:33.800 --> 0:01:36.000 this is going to be the onset of another dollar surge, 0:01:36.360 --> 0:01:38.720 even after the recent moves that we've had a headline 0:01:38.760 --> 0:01:40.840 crossing the Bloomberg right now, Donald Trump said to pick 0:01:40.920 --> 0:01:43.480 Jeff Session, Senator Jeff Sessions of Alabama to be his 0:01:43.520 --> 0:01:47.400 attorney general, again reiterating that headline crossing the terminal here, 0:01:47.440 --> 0:01:49.920 Donald Trump said to pick Jeff Sessions for attorney general. 0:01:49.960 --> 0:01:53.240 Senator Sessions met with Donald Trump yesterday at Trump Tower 0:01:53.600 --> 0:01:56.720 in Midtown, Manhattan, the transition team releasing a statement thereafter 0:01:56.920 --> 0:01:59.080 commenting on how positive the meeting was, but not going 0:01:59.080 --> 0:02:01.920 so far ast it to aim the pick. Yesterday Bloomberg 0:02:01.920 --> 0:02:04.680 reporting Jeff Sessions will be the next attorney general or 0:02:04.760 --> 0:02:07.680 Donald Trump's pick to be the next attorney general pending confirmation. 0:02:07.840 --> 0:02:10.400 Of course, Jenny, when you look at what we know 0:02:10.480 --> 0:02:12.959 about Donald Trump from a policy perspective. What we've learned 0:02:12.960 --> 0:02:15.240 here over the last ten days or so, what conclusions 0:02:15.240 --> 0:02:18.079 can you draw about dollar strength? What have we heard 0:02:18.080 --> 0:02:19.760 that gives you an indication of where it might be 0:02:20.080 --> 0:02:23.040 in one word, reflationary, Right, so you know that that 0:02:23.240 --> 0:02:24.840 is the view right now, and I think you know 0:02:24.880 --> 0:02:27.000 several people have commented on this already. We were in 0:02:27.040 --> 0:02:30.880 a very deflationary mindset, secular stagnation, and then suddenly someone 0:02:30.919 --> 0:02:34.320 comes along which rips apart um like the playbook and says, Okay, 0:02:34.320 --> 0:02:36.560 now we are going to go for a reflationary wave 0:02:36.680 --> 0:02:39.000 coming out of the world's largest economy. And this is 0:02:39.000 --> 0:02:42.040 in a context where say, in China we are seeing 0:02:42.760 --> 0:02:44.600 of secular down trends and growth, but they still have 0:02:44.639 --> 0:02:47.359 the ability to actually reflate as well, and I'll be 0:02:47.360 --> 0:02:49.200 eaten a bad way. So now I think actually the 0:02:49.240 --> 0:02:51.320 onus is on Europe and so in the UK, and 0:02:51.320 --> 0:02:53.240 we've got the Autumn statement coming up, there's been talk 0:02:53.280 --> 0:02:56.440 of minor reflation to can the Eurozone, right, can the 0:02:56.480 --> 0:03:00.360 Eurozone actually now come through with reflationary policies. If this happens, 0:03:00.560 --> 0:03:04.200 then this mindset for seculate for secular stagnation, that we've 0:03:04.240 --> 0:03:06.000 had over the last few years, you know, might just 0:03:06.040 --> 0:03:08.440 start to turn around. But you know, it's only one 0:03:08.480 --> 0:03:11.040 piece of the puzzle right now, and talking about it 0:03:11.080 --> 0:03:13.840 is one thing. Implementation is another thing. I can be 0:03:13.880 --> 0:03:15.960 as guilty as any of having a short term memory 0:03:16.000 --> 0:03:18.440 here going back to previous transitions, did we see the 0:03:18.480 --> 0:03:20.880 amount of market movement that we've seen in this one? 0:03:20.919 --> 0:03:23.440 It has been extraordinary and it seems like investors trying 0:03:23.480 --> 0:03:26.240 desperately here to process what's happening, what what could be happening? 0:03:26.360 --> 0:03:29.080 How different is this time versus the past? It's very different, 0:03:29.080 --> 0:03:32.639 one because the result was so unexpected. And two it's 0:03:32.639 --> 0:03:36.160 so different because as people have highlighted the president elector 0:03:36.240 --> 0:03:39.520 he has no policy trail, right, and some it's it's 0:03:39.720 --> 0:03:42.000 a bit difficult to you know, take what he said, 0:03:42.040 --> 0:03:45.200 you en during the campaign of various sometimes and things 0:03:45.200 --> 0:03:48.720 contradicted each other, and try to apply a unique economic 0:03:48.760 --> 0:03:52.920 philosophy there. But I think as the nominees start to, 0:03:53.000 --> 0:03:54.800 you know, fall in place, we get a better sense 0:03:54.840 --> 0:03:57.760 of their philosophies and we should have a better sense of, 0:03:57.880 --> 0:04:00.520 you know, how the economic policy is going to implemented. 0:04:00.560 --> 0:04:02.320 Up ahead, Jeff, for you with us with you be 0:04:02.480 --> 0:04:05.120 a skood morning everyone, Tom Keenan London with Mr You, 0:04:05.680 --> 0:04:09.480 David Gura in New York. Maybe David Gura transitioning this 0:04:09.520 --> 0:04:12.320 weekend in New Jersey. I'm not sure of that. Everyone 0:04:12.360 --> 0:04:14.600 else seems to be doing it. Mr Trump will migrate 0:04:14.680 --> 0:04:19.400 out to Bedminster, New Jersey, perhaps from Midtown relief just 0:04:19.600 --> 0:04:21.760 for you. We didn't have time to talk about this morning, 0:04:21.760 --> 0:04:24.799 and I hope David will let me do this, which 0:04:24.839 --> 0:04:28.719 is we know the euro was linked with Germany and 0:04:28.760 --> 0:04:33.560 say the peripherals Spain, Portugal, Greece, etcetera. Earlier this week, 0:04:33.760 --> 0:04:37.080 literally the first chart I made in London was synthetic 0:04:37.240 --> 0:04:42.599 Deutscher Mark Italian Lira. Italy has a very expensive euro, 0:04:42.760 --> 0:04:46.000 doesn't it. It does most of Southern Europe, of the 0:04:46.000 --> 0:04:50.080 low growth countries, they have an expensive domestic currency and 0:04:50.160 --> 0:04:52.120 the only way for them to achieve competitiveness, as we've 0:04:52.120 --> 0:04:56.279 seen in Greece um is through internality evaluation, very very painful, 0:04:56.320 --> 0:04:58.240 and that drives poplar. So I want you to get 0:04:58.279 --> 0:05:01.040 in the debate. Let me frame it Horger Schmiding a 0:05:01.120 --> 0:05:04.279 barren Berg Bank saying do what the Spanish did, Do 0:05:04.360 --> 0:05:08.880 what the Irish did reform now and someone like Douglas 0:05:09.160 --> 0:05:12.400 David fokers landour Deutsche Bank saying no, they're not going 0:05:12.480 --> 0:05:16.400 to reform and this is an urgent matter to assist 0:05:16.560 --> 0:05:20.960 Italy towards some form of change given the linkage to 0:05:21.040 --> 0:05:23.000 Germany in the Europe. Do you think the view is 0:05:23.279 --> 0:05:27.479 with this constitutional shift, Well, the the referendum is required 0:05:27.520 --> 0:05:31.240 if Italy is to reform whatsoever. But what needs reform 0:05:31.360 --> 0:05:33.919 right now in Italy is its entire growth structure. The 0:05:33.920 --> 0:05:35.920 problem playing in Italy. People often talk about it's a 0:05:35.960 --> 0:05:39.720 least debt ratios italyast debt has actually been relatively sustainable. Right. 0:05:39.720 --> 0:05:42.080 It's growth that has always been the problem. It's demographics 0:05:42.080 --> 0:05:44.080 and be that's been the problem as well. So now 0:05:44.120 --> 0:05:46.960 those things that takes time. So yes there can can 0:05:47.040 --> 0:05:49.839 be a sense of urgency. But right now, ever since 0:05:49.839 --> 0:05:51.920 some of the US election, I think the shift has 0:05:51.920 --> 0:05:56.400 suddenly um the focus suddenly shifted towards right now. It's 0:05:56.400 --> 0:05:59.200 actually not an attacking game where we push for reform. 0:05:59.200 --> 0:06:01.400 It's a defensive gained suttenly, we pushed back against the 0:06:01.400 --> 0:06:04.520 populous forces. That's a completely different strategy that the Eurozone 0:06:04.560 --> 0:06:06.280 elite so to say that they need to look at 0:06:06.720 --> 0:06:09.799 what happens if this this referenumentally doesn't pass. What happens 0:06:09.800 --> 0:06:12.960 to the Italian economy, Well, at this point it's going 0:06:13.000 --> 0:06:17.440 to I wouldn't say prolonged uncertainty or anything, but people 0:06:17.480 --> 0:06:19.440 just think, Okay, nothing's ever going to change. You're not 0:06:19.480 --> 0:06:21.719 going to lift your trend growth forecast for Italy or 0:06:21.760 --> 0:06:25.440 anyway whatsoever. But for the Eurozone as a whole. I 0:06:25.440 --> 0:06:28.000 think people are indeed concerned that this is another domino 0:06:28.160 --> 0:06:30.880 that the inexorable rise of populism, and they will lead 0:06:30.960 --> 0:06:34.360 on to potentially disruptive results next year. In the French 0:06:34.400 --> 0:06:37.719 and German votes, we saw investors process that Brexit referentum 0:06:37.760 --> 0:06:40.080 in real time, perhaps influenced how they process the U 0:06:40.160 --> 0:06:43.120 S presidential elections going here into the Italian referendum in 0:06:43.160 --> 0:06:45.760 these other elections in Europe in the next few months. 0:06:45.920 --> 0:06:48.120 Would investors know now that that they didn't know what 0:06:48.200 --> 0:06:51.560 those first two rounds. Always expect the unexpected. So what 0:06:51.600 --> 0:06:53.880 you thought was consensus, you know what you thought that 0:06:54.440 --> 0:06:57.320 very very accurate polling models and whatnot. No, we're telling 0:06:57.360 --> 0:07:00.240 you you must have a hedge the other way, so 0:07:00.960 --> 0:07:05.839 as you mentioned see how Sterling performed um overnight when 0:07:06.200 --> 0:07:08.680 the referend results came out in versus S ANDP futures 0:07:08.680 --> 0:07:11.400 and for example, almost exactly the same. But then the 0:07:11.440 --> 0:07:14.440 reaction afterwards it was quite similar, was quite similar in 0:07:14.440 --> 0:07:16.520 the way that the foot tea was doing fine and 0:07:16.520 --> 0:07:18.920 now the smps don't fine too. I want to expand 0:07:18.960 --> 0:07:22.040 with you right now, and the basically because you're with 0:07:22.200 --> 0:07:24.360 UBS Wealth Management, I'm going to say it's a more 0:07:24.440 --> 0:07:29.440 conservative test to money management. Are people getting shell ACKed? 0:07:29.880 --> 0:07:33.280 That's an American phrase, Jeoffrey, and maybe that's lost in translation, Rachel. 0:07:33.960 --> 0:07:38.000 I'm not sure shell act shell actors are getting clobered pounded. 0:07:38.280 --> 0:07:41.960 Are people taking losses now? Or is everybody pretty much 0:07:42.360 --> 0:07:45.760 out of the big trade of this big dollar move. Actually, 0:07:45.800 --> 0:07:49.000 if you look at in both events, are clients one 0:07:49.120 --> 0:07:51.600 they were over positioned in cash to begin with. You know, 0:07:51.640 --> 0:07:53.559 I think that that's a challenge that's been playing asset 0:07:53.560 --> 0:07:56.240 management in general over the last a few quarters. Also, 0:07:56.320 --> 0:07:58.440 so much uncertainty out there, you don't know how it's 0:07:58.440 --> 0:08:00.360 going to play out. I'd rather just staying ash and 0:08:00.440 --> 0:08:03.640 it's sort of work out, especially for UK clients holding 0:08:03.720 --> 0:08:06.680 a common assets for example, what's the level, what's the 0:08:06.760 --> 0:08:11.240 level of opportunity? Now in the foreign exchange world, are 0:08:11.280 --> 0:08:14.480 you thinking big figures? Are you thinking I got to 0:08:14.480 --> 0:08:17.320 get the January? So right now in the FFX world, 0:08:17.360 --> 0:08:20.960 we are seeing massive distortions in terms of valuations, right 0:08:21.160 --> 0:08:23.960 Mexican pay so you know that? So how where whereas 0:08:24.000 --> 0:08:26.840 fair value should be seventeen eighteen something like that, and 0:08:27.080 --> 0:08:29.840 it's four big figures, are three big figures of absolutely no, 0:08:29.960 --> 0:08:31.920 Sterling wears fair value over the mediums a longer term. 0:08:31.920 --> 0:08:34.240 Euro wears fair value over the mediums a longer term 0:08:34.240 --> 0:08:36.480 if you look at it as an economic and aggregate, right, 0:08:36.559 --> 0:08:38.760 So that gives you opportunities. And for our clients, we 0:08:38.800 --> 0:08:41.240 say eighty percent of your returns are still going to 0:08:41.280 --> 0:08:43.800 be delivered on your strategic as allocation. You take a 0:08:43.800 --> 0:08:46.040 five to seven year of you So in that context 0:08:46.040 --> 0:08:48.120 then there can be something to capture from the currency side, 0:08:48.120 --> 0:08:51.400 depending on your base currency of critically the alpha of 0:08:51.480 --> 0:08:53.200 big Well, we're gonna have to come back on this 0:08:53.280 --> 0:08:56.000 is too much. Mathematics are for Friday, Jeff, for you 0:08:56.040 --> 0:08:59.720 with this ubs Jennifer Jacobs of course reporting a number 0:08:59.720 --> 0:09:02.240 of men. Let's go ten minutes ago. Uh, this is 0:09:02.280 --> 0:09:05.520 from two sources. The President alex said to pick the 0:09:05.559 --> 0:09:11.160 senator from Alabama, Jeffrey Jefferson Sessions, Jeff Sessions for Attorney General. 0:09:11.240 --> 0:09:13.880 I want to make clear that's from two sources. Uh. 0:09:14.040 --> 0:09:17.800 Jennifer Jacobs saying that, Uh, it is unclear if Mr 0:09:17.840 --> 0:09:22.720 Trump is formally offered the job to Mr Sessions. We've 0:09:22.720 --> 0:09:25.880 offered the job of explanation of foreign exchange to Jeffrey, 0:09:25.920 --> 0:09:30.760 you of ubs Um, who always gives a clarity and 0:09:30.760 --> 0:09:33.440 and and it helps with that. A strong dollar, now, 0:09:34.200 --> 0:09:36.800 is it different than a strong dollar of the eighties 0:09:36.840 --> 0:09:40.040 pre Plaza accord or the strong dollar of the late 0:09:40.120 --> 0:09:43.880 nineties to two thousand one associated as a Reuben dollar. 0:09:44.280 --> 0:09:46.960 Is this strong dollar different? I do think it is 0:09:47.160 --> 0:09:49.679 because the US has balance of payments and the exposures 0:09:49.679 --> 0:09:52.440 the USS balance of payments actually completely different. Now around 0:09:52.440 --> 0:09:55.320 the time the Plaza chord and clearly current accounts adjustment 0:09:55.640 --> 0:09:59.199 was needed and enduring the Reuben phase. Uh, the U 0:09:59.320 --> 0:10:01.280 s cycle was at sync with the e M cycle. 0:10:01.600 --> 0:10:04.480 This time around, I would say the main difference is 0:10:04.720 --> 0:10:08.880 the US can broadly afford a strong reflationary dollar and 0:10:08.960 --> 0:10:11.040 not really care about what happens the rest of the world. 0:10:11.080 --> 0:10:14.520 I knew your answer. That's tricky on my part, jeff 0:10:14.559 --> 0:10:19.400 You if that's your answer about us, is it their problem? 0:10:19.600 --> 0:10:24.680 Is it Mexico's problem, Malaysia's problem, Turkey's problem. The theory 0:10:24.840 --> 0:10:27.640 is they're less exposed than you they used to be. 0:10:27.720 --> 0:10:30.400 I don't buy it, um, Turkey, you hit the nail 0:10:30.400 --> 0:10:31.880 on the head there. You know that probably if you 0:10:31.920 --> 0:10:37.480 measure debt ratios as a proportion or in the relative 0:10:37.760 --> 0:10:41.040 to their funding abilities, probably one of the most of 0:10:41.120 --> 0:10:44.360 those currencies out there. So in that sense, Um, I 0:10:44.400 --> 0:10:47.320 would say, e M. Right now, use this how many 0:10:47.360 --> 0:10:49.320 moon period where markets are not really gunning for your 0:10:49.360 --> 0:10:52.439 currencies right now, look at your liabilities, look at your 0:10:52.440 --> 0:10:55.120 dollar exposures, try to hedge them, or just try to 0:10:55.160 --> 0:10:57.600 generate some savings as quickly as possible. Jeffer, you mentioned 0:10:57.640 --> 0:11:00.520 emerging markets, and I think about the potential for real 0:11:00.600 --> 0:11:04.000 change to trade policy in this country and globally when 0:11:04.000 --> 0:11:06.680 you look at currencies. What could the potential effect there 0:11:06.720 --> 0:11:08.679 be if we see more protectionism, if we see the 0:11:08.720 --> 0:11:11.200 kind of terrors that people have been talking about. Now 0:11:11.240 --> 0:11:13.719 here's where it gets interesting, because I do think there 0:11:13.800 --> 0:11:15.760 is an opening. So let's assume that the US, you know, 0:11:15.840 --> 0:11:20.400 does turn its back to globalization. There is a unique 0:11:20.400 --> 0:11:23.600 opportunity for countries, especially in Asia and emerging market so 0:11:23.679 --> 0:11:25.880 to actually find their new trader courts and actually just 0:11:25.920 --> 0:11:28.520 trade amongst themselves. The US is the biggest economy in 0:11:28.520 --> 0:11:30.240 the world, but it's not the only economy in the world, 0:11:30.320 --> 0:11:32.120 right so you know, they can actually generate demand that 0:11:32.160 --> 0:11:33.840 way as well. I don't think it's going to happen 0:11:33.880 --> 0:11:36.199 in the Eurozone. But this is why people are looking 0:11:36.200 --> 0:11:38.320 at the r CEP, you know, looking at a CM 0:11:38.360 --> 0:11:42.320 plus China, Japan, South Korea and New Zealand, India and Australia. 0:11:42.360 --> 0:11:44.680 You know, that's a chunky economic block they're put together. 0:11:44.960 --> 0:11:47.079 Not going to be the same rules as what happened 0:11:47.120 --> 0:11:49.920 through on t t P or what probably APEC had 0:11:49.920 --> 0:11:52.800 in mind general. But it doesn't mean that with the 0:11:52.880 --> 0:11:55.120 US out of the game globalization and f t A 0:11:55.200 --> 0:11:56.720 is that's not going to be the way forward. And 0:11:56.760 --> 0:11:59.640 I was just saying UK doesn't really have a Pacific 0:11:59.640 --> 0:12:02.320 border right now, but why shouldn't UK joined the our 0:12:02.360 --> 0:12:04.880 CEP if it's so desperate for such agreements amongst like 0:12:05.040 --> 0:12:07.679 Minded countries and Eurozone. It's also sorts of turning its 0:12:07.720 --> 0:12:10.800 back against globalization right now. So this is a challenge 0:12:10.880 --> 0:12:13.800 but also represents an opportunity. Big trade summit this weekend 0:12:13.960 --> 0:12:16.040 in Lima, Lima, Peru. We are you gonna be watching 0:12:16.080 --> 0:12:18.880 that closely for free signs? I think we will. But 0:12:19.000 --> 0:12:23.280 also the commentary um and than the body language between 0:12:23.600 --> 0:12:27.079 you know, the bilactual meetings between Asian leaders and President 0:12:27.120 --> 0:12:31.080 Obama and probably some of the comments that actually less 0:12:31.080 --> 0:12:33.400 interesting the comments are from Obama. Probably more interesting the 0:12:33.480 --> 0:12:37.120 questions and that Asian leaders will be asking Obama. I'm 0:12:37.120 --> 0:12:39.800 gonna put this on on Twitter for its extraordinary chart 0:12:39.920 --> 0:12:44.000 of Turkish Lira and Jeffrey there's the mathematics of a 0:12:44.040 --> 0:12:47.520 curve on a log, which is called log quadratic. I'm sorry, 0:12:47.559 --> 0:12:51.640 this is log moon shot. It is a real depreciation 0:12:52.200 --> 0:12:55.000 of Turkish leader. We know the politics of Turkey and 0:12:55.240 --> 0:12:59.439 the interesting dual interest rate, etcetera. When do they scream 0:12:59.600 --> 0:13:05.360 uncle to uncle drunk Uncle Donald? Well, so is it really, uh, 0:13:05.440 --> 0:13:07.480 you know, something that the Turkish government can actually do 0:13:07.520 --> 0:13:09.400 about if you look at what has fuel Turkish growth 0:13:09.440 --> 0:13:11.520 over the last few years, you know, borrowing in dollar debt, 0:13:12.280 --> 0:13:15.120 strong investment growth. Has been a lot of investment in 0:13:15.120 --> 0:13:17.600 the in the property sector as well, and now that's 0:13:17.600 --> 0:13:22.600 proving to be difficult to sustain. So they need reforms 0:13:22.640 --> 0:13:25.640 domestically right now to rebalance the economy in the same way. 0:13:25.880 --> 0:13:28.080 You know that that China has been trying to rebalanced 0:13:28.080 --> 0:13:31.680 its company. You're seeing similar credit to GDP ratios. So again, 0:13:31.840 --> 0:13:34.240 use this window of opportunity to do so, otherwise it 0:13:34.240 --> 0:13:36.800 could be too late to have standard deviations off a 0:13:36.840 --> 0:13:39.360 monthly church that isn't ugly charge. Jeff for you, Thank 0:13:39.360 --> 0:13:42.120 you so much. Always good to see you in London. 0:13:42.160 --> 0:13:57.880 Here is with ubs Well management. David Gurraw. You know 0:13:58.320 --> 0:14:01.080 back and forth that will whether we see appointments today. 0:14:01.480 --> 0:14:04.000 Do you see any reporting that we may see further 0:14:04.120 --> 0:14:08.280 appointments than the sources said on Jeff Sessions. I don't know. 0:14:08.360 --> 0:14:10.800 It's it's it's funny. I mentioned that we got a 0:14:10.840 --> 0:14:13.200 press release from the Trump transition team last night. Let 0:14:13.200 --> 0:14:15.199 me just pull that up quickly because it was so extraordinary. 0:14:15.200 --> 0:14:18.120 I thought, uh, he said here this was This was 0:14:18.160 --> 0:14:21.720 after he met with Donald Trump yesterday, noting the meeting, saying, well, 0:14:21.800 --> 0:14:23.520 nothing has been fine. Lights and he's still talking with 0:14:23.560 --> 0:14:25.600 others as he forms his cabinet. The president elect has 0:14:25.600 --> 0:14:28.760 been unbelievably impressed with Senator Sessions and his phenomenal record 0:14:28.960 --> 0:14:31.480 as Alabama's Attorney general and U S Attorney. It's no 0:14:31.520 --> 0:14:34.080 wonder that the people of alabam are reelected him without opposition. 0:14:34.120 --> 0:14:36.320 So no clues like that, and maybe that's what we 0:14:36.320 --> 0:14:39.240 should be looking for. Statements like that after these meetings, 0:14:39.240 --> 0:14:41.200 you know, if they if they go well, an indication 0:14:41.240 --> 0:14:43.280 that could be formalized. Shortly there after, he wrote a 0:14:43.320 --> 0:14:45.760 script looking for white smoke coming out of the Trump 0:14:45.800 --> 0:14:51.520 Tower at some points, Secretary of State, whatever it is, 0:14:51.600 --> 0:14:54.520 there's the the news Slow has been fierce over the 0:14:54.600 --> 0:14:59.160 last uh ten days. Also fierce in his economics has 0:14:59.160 --> 0:15:03.040 been Michael fre of JP Morgan. He has been absolutely 0:15:03.200 --> 0:15:08.080 brilliant about identifying the glide pass to a new level. 0:15:08.440 --> 0:15:11.800 I knew what's called terminal value, terminal rate, and this 0:15:12.000 --> 0:15:16.520 linkages of our economic growth or subpar economic growth, two 0:15:16.560 --> 0:15:18.880 interest rates. All of that turned on its head with 0:15:18.920 --> 0:15:24.200 a Trump election, higher yield, stronger dollar. Michael Faroli his 0:15:24.280 --> 0:15:27.040 head spinning as he gets to the acclaimed JP Morgan note, 0:15:27.400 --> 0:15:30.480 no doubt to be published at six o'clock tonight. Help 0:15:30.520 --> 0:15:33.000 us here, Michael Farley, give us a head start. You 0:15:33.080 --> 0:15:36.840 talked about three percent GDP the other day. What will 0:15:36.880 --> 0:15:40.640 be the theme tonight of your JP Morgan note, Thomas, 0:15:40.720 --> 0:15:42.960 you know, I would say we have the possibility of 0:15:43.000 --> 0:15:45.520 three GDP for a year or two if all of 0:15:45.560 --> 0:15:51.600 Trump's UH fiscal policy plans that he announces during his 0:15:51.640 --> 0:15:54.240 campaign where I'm so he talked about a tax cut 0:15:54.320 --> 0:15:56.800 that would run close to five billion dollars a year 0:15:56.840 --> 0:15:59.360 or six trillion dollars over ten years, and then's some 0:15:59.400 --> 0:16:03.520 pretty big members on institution and spending. So that's that's 0:16:03.600 --> 0:16:08.320 kind of there in principle. I'm not political person, but 0:16:08.360 --> 0:16:11.120 I you know, I suspect we get something much smaller 0:16:11.160 --> 0:16:14.480 than that. So, uh, three percent for a year or 0:16:14.480 --> 0:16:17.040 two seems, but we don't think that's the most likely. 0:16:17.120 --> 0:16:21.000 If I'm one of your Booth school seminars, University of Chicago. 0:16:21.520 --> 0:16:26.000 The money question, Dr Feroli is simple, do you amend 0:16:26.520 --> 0:16:29.720 your new level of potential g d P or the 0:16:29.840 --> 0:16:34.800 terminal value of GDP because of Trump election and Trump economics? 0:16:35.840 --> 0:16:39.280 We are not so Tom when you talk about potential 0:16:39.320 --> 0:16:41.560 GDP growth as you know, the commists usually like to 0:16:41.600 --> 0:16:44.720 think about labor supply and labor productivity and the two 0:16:44.760 --> 0:16:48.360 of those together kind of give you potential potential growth, 0:16:48.400 --> 0:16:52.960 and we don't really see these policy changes fundamentally altering 0:16:53.000 --> 0:16:54.920 those things in the long run. So when I just 0:16:55.000 --> 0:16:57.320 mentioned these tax cuts, is in the spending we think 0:16:57.360 --> 0:16:59.000 I could give you, you know, a nice short run 0:16:59.040 --> 0:17:02.600 philippas of activity, but not something that is going to 0:17:02.640 --> 0:17:06.320 really change the productive capacity economy. We actually see the risks, 0:17:06.359 --> 0:17:08.480 you know, when we talk about potential GDP. Perhaps there 0:17:08.480 --> 0:17:10.560 are two kind of off setting risks. One is that 0:17:11.240 --> 0:17:15.000 you know, some of these more restrictive immigration policies could 0:17:15.000 --> 0:17:18.560 actually lower labor supply. Uh. And there you know, an 0:17:18.640 --> 0:17:22.200 argument could be made that some of the tax policies 0:17:22.240 --> 0:17:26.240 would increase labor productivity, particularly if you reduce taxes on 0:17:26.400 --> 0:17:30.119 capital income and corporate income taxes in principle that should 0:17:30.160 --> 0:17:33.080 reduce the cost of capital to increase capital deepening and 0:17:33.160 --> 0:17:37.239 therefore productivity. Um, you know, we see those as kind 0:17:37.240 --> 0:17:40.320 of pretty small risks around the view that longer run 0:17:40.359 --> 0:17:42.840 trend growth is. You know, we have it at a 0:17:42.840 --> 0:17:44.760 little bit below one and a half percent, and we 0:17:44.760 --> 0:17:46.879 don't know, as I said, we're not changing based on 0:17:47.560 --> 0:17:51.320 these kind of short run influences and disturbances to aggreate 0:17:51.320 --> 0:17:54.160 demand that would likely come about through some of these policies. 0:17:54.320 --> 0:17:56.240 Michael Fairlie pulled back the curtain if you wouldn't just 0:17:56.280 --> 0:17:59.600 talk about the complexities of forecasting for for what this 0:17:59.680 --> 0:18:01.280 might look like in terms of what we know and 0:18:01.560 --> 0:18:05.720 what we're learning here as this transition goes on, I 0:18:05.720 --> 0:18:07.600 imagine you're you're playing with a lot of variables here. 0:18:07.600 --> 0:18:10.240 There's a lot we still don't know. Yeah, there are 0:18:10.359 --> 0:18:12.919 more than usual. So first we don't know what the 0:18:12.960 --> 0:18:15.720 policy we're gonna get is going to be. And then 0:18:15.880 --> 0:18:17.600 once we get that policy, there's still a lot of 0:18:17.680 --> 0:18:22.200 uncertainty among economists how different aspects of fiscal policy kind 0:18:22.240 --> 0:18:26.000 of ricochet through the economy. So usually economists are just 0:18:26.119 --> 0:18:28.280 kind of dealing with the second part of the uncertainty, 0:18:28.720 --> 0:18:31.320 and the first. Being trained economists, I don't really know 0:18:31.359 --> 0:18:33.280 what's going to happen and wash and I read the 0:18:33.280 --> 0:18:36.080 papers like everyone else, and it seems like a you know, 0:18:36.520 --> 0:18:39.320 a fall right now. So we're dealing with I think 0:18:39.320 --> 0:18:42.080 two layers of uncertainty, and that's really just on the 0:18:42.119 --> 0:18:46.399 fiscal policy. Um, there are other aspects of a the 0:18:46.440 --> 0:18:50.199 new administration that could also impact the economy, most notably 0:18:50.200 --> 0:18:53.359 trade policies. And that is a big wild card to 0:18:53.440 --> 0:18:56.159 degree to which he will follow through on some of 0:18:56.160 --> 0:18:58.040 the things he said in the campaign. Yeah. I think 0:18:58.080 --> 0:18:59.879 about that and the greed which we've been talking about 0:18:59.880 --> 0:19:02.560 the contours of that fiscal policy package, how much will 0:19:02.600 --> 0:19:04.920 be tax cuts, how much we'll be spending on infrastructure. 0:19:04.920 --> 0:19:07.800 There hasn't been a lot of talk about trade, and 0:19:07.840 --> 0:19:09.800 I wonder if that leads you and others to believe 0:19:09.840 --> 0:19:11.399 that maybe we should take at face value what he 0:19:11.440 --> 0:19:14.520 said on the campaign trail. Are you able to forecast 0:19:14.600 --> 0:19:16.840 what what you know a change in tariffs might mean 0:19:16.880 --> 0:19:20.640 for for the GDP, for for the economy generally. So 0:19:21.040 --> 0:19:24.080 that's a great question. You know, economists, UM, being pro 0:19:24.240 --> 0:19:28.480 free trade is almost an occupational requirement. UM. But we 0:19:28.520 --> 0:19:32.080 see the benefits of trade as being long run ones 0:19:32.119 --> 0:19:35.439 that deal with efficiency and efficient allocation of resources. We 0:19:35.480 --> 0:19:38.520 don't really think about benefits of free trade, or even 0:19:38.520 --> 0:19:40.120 the impacts of free trade from kind of a short 0:19:40.200 --> 0:19:43.879 run business cycle standpoint. Uh. And so we're kind of 0:19:43.960 --> 0:19:47.040 flying blind and thinking about if we were suddenly, you know, 0:19:47.080 --> 0:19:51.680 erect tariff walls. How that would impact economy. We tend 0:19:51.720 --> 0:19:54.640 to think that it would be pretty disruptive because there 0:19:54.680 --> 0:19:57.920 are a lot of domestic producers who are even now 0:19:57.960 --> 0:20:01.240 even more intertwined in global supply chain. Uh. You know, 0:20:01.320 --> 0:20:04.399 so as he thought saw like the Tohuco earthquake, that 0:20:04.440 --> 0:20:06.600 you know, once the supply chains get disrupted, that can 0:20:06.640 --> 0:20:10.560 really kind of reverberate through uh, through a lot of 0:20:10.560 --> 0:20:14.560 sections econmy So it's not clear that, um, yeah, I 0:20:14.560 --> 0:20:16.680 think there's a good kid to be made that you know, 0:20:16.840 --> 0:20:20.399 sort of rapidly erecting tariffs would uh, you know, it 0:20:20.400 --> 0:20:23.560 could be pretty disruptive. I mean that really goes back 0:20:23.600 --> 0:20:25.040 to one of the one of the hearts of the 0:20:25.040 --> 0:20:28.760 selection and the linkage into your world, Michael faroli is, 0:20:28.760 --> 0:20:32.119 is the idea of new protectionalism, and around that the 0:20:32.280 --> 0:20:36.480 idea of neo mercantilism, which can be defined eight ways. Folks, 0:20:36.480 --> 0:20:39.040 it's the Friday, We're not going to do that. All 0:20:39.080 --> 0:20:42.359 it means is a more closed society, a zero sim society, 0:20:42.720 --> 0:20:48.480 a non growthy philosophy. Is that where we're heading. I 0:20:48.520 --> 0:20:51.280 don't know, so certainly there was a lot of chatter 0:20:51.440 --> 0:20:56.320 that not just chatter during the campaign. Um, it seems 0:20:56.400 --> 0:20:59.240 like that has not been talked about quite as much 0:21:01.119 --> 0:21:03.520