Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferroll and Lisa Brownwitz. Daily we bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com,
Speaker 1: and of course on the Bloomberg terminal. We try to
Speaker 1: summarize all this and of course the summary as well.
Speaker 1: Wrapped around sixty six pages from James Diamond. Right now,
Speaker 1: Jim Bianco joins us with Bianco Research in Chicago with
Speaker 1: a wonderful overview on the market. Jim, I assume you
Speaker 1: haven't read the sixty six pages of uh of Mr Diamond.
Speaker 1: It's wide ranging as you would imagine. Let's look right
Speaker 1: now at one of the quotes from Jamie Diamond. Let's
Speaker 1: zoom in on a quote on Zoom. Jim Bianco's lived
Speaker 1: with Zoom. Lisa Bramowitz has lived with Zoom. I am
Speaker 1: zoom free. I'm really please to say that, but let's
Speaker 1: look at Jamie Diamond on Zoo. Most professionals learn their
Speaker 1: job through an apprenticeship model, which is almost impossible to
Speaker 1: replicate in the Zoom world. Over time, this drawback could
Speaker 1: dramatically undermine character and culture. Remote work virtually eliminates spontaneous
Speaker 1: learning and creativity because you don't run into Jim Bianco
Speaker 1: at the coffee machine. I mean there it is old school, Uh,
Speaker 1: Jim Bianco. Do you think we returned to our offices
Speaker 1: of old Uh? Sort of. I'm gonna push back on
Speaker 1: that quote a little bit. I'm gonna say, yes, um,
Speaker 1: it is. You know, human interaction. Human contact is important,
Speaker 1: but not I don't think in the form that Jamie
Speaker 1: Diamond is suggesting that, you know, ten hours a day
Speaker 1: in an office, sitting in a little room by yourself,
Speaker 1: working at a computer in a service sector job. I
Speaker 1: think that we're gonna have to rethink what the office
Speaker 1: is and rethink I we go to the office we've
Speaker 1: just shown as an economy over the last year, we
Speaker 1: can produce the economy just fine, all working remotely, and
Speaker 1: I agree we need more human contact. Look, I want
Speaker 1: nothing more than to go to a weekly field game again.
Speaker 1: But I also recognize that maybe I don't need to
Speaker 1: go to one of those gigantic buildings in the center
Speaker 1: of a major city and spend forty fifty hours a
Speaker 1: week there as well too, there's going to have to
Speaker 1: be a rethink is to what exactly does the office mean?
Speaker 1: And it sounds like some people are not there yet
Speaker 1: as far as having that conversation, what does the bianco
Speaker 1: creative destruction then? And how do you prosper from it?
Speaker 1: What is your investment strategy given what this pandemic has wrought?
Speaker 1: And in the boom economy recovery, I think the biggest
Speaker 1: thing with the boom economy has been all of this stimulus. Uh,
Speaker 1: you know, the mailing of checks that we've had. We've
Speaker 1: got the savings rate at a sixty year high. We've
Speaker 1: got everybody itching to get out. That's what everybody says
Speaker 1: right now, and I think it's very true. And when
Speaker 1: they do, I think we're going to start to see
Speaker 1: spending go. That's what everybody says, and then we'll have
Speaker 1: to have a real conversation about inflation. It's too early
Speaker 1: to have that conversation about inflation. The base effect of
Speaker 1: dropping off March and April of last year and seeing
Speaker 1: the year over year numbers go up a lot is
Speaker 1: literally going to start next week. And the checks that
Speaker 1: we just recently mailed out have only been a couple
Speaker 1: of weeks old. So I think as we move forward,
Speaker 1: we're going to have a conversation about inflation and whether
Speaker 1: or not we see it. If we see it, it's
Speaker 1: going to have to accelerate the FED. If we don't
Speaker 1: see inflation, it's going to open the conversation to modern
Speaker 1: monetary theory and more money being spent at a higher
Speaker 1: rate than we're already doing it right now, what's the
Speaker 1: nature of the pickup in inflation that you're looking for?
Speaker 1: And this is important because we've seen inflation of certain
Speaker 1: key goods. But what is the important increase in inflation
Speaker 1: that you need to see to say this the sign
Speaker 1: of something different. I think it's probably going to be
Speaker 1: that companies are going to raise their prices. Look, we've
Speaker 1: known now for the last twenty five years. If you're
Speaker 1: a manager of a real company, not a Wall Street company,
Speaker 1: let's define those two uh and you raise your price.
Speaker 1: You raise your price for washing machines, or you raise
Speaker 1: your price for sweaters. You're on the second page of
Speaker 1: a Google search on lowest the highest price. You don't
Speaker 1: sell anything, you lose market share. Everybody has been droned
Speaker 1: into don't ever raise your price because of that, uh consequence,
Speaker 1: If we get to the point where there's a demand
Speaker 1: pull that so many people are wanting stuff that we
Speaker 1: start seeing prices start to reraise, then in FED speak,
Speaker 1: we've unanchored inflation and we could then start to talk
Speaker 1: about whether or not it is actually here for the
Speaker 1: first time in a quarter century. I think that's a
Speaker 1: real possibility as we move forward, that we could see
Speaker 1: that unanchoring of inflation. So we're seeing tenure yields today
Speaker 1: go down there, well down their recent highs, which raises
Speaker 1: a question a whether they are under pricing this reality
Speaker 1: that you're talking about. Where could tend your treasury yields
Speaker 1: conceivably go if you see those inflationary pressures that you're
Speaker 1: talking about, Well, I think they could go higher now.
Speaker 1: I'm not surprised that they're falling right now because they've
Speaker 1: had a relentless rise for the last several months and
Speaker 1: have been you know, over sold in terms of prices,
Speaker 1: and that we're seeing a correction in there. But I
Speaker 1: also would argue that when interest rates go up, it's
Speaker 1: neither bullish or bearsh for the stock market. It depends
Speaker 1: on why if they're going up, because the nartive right
Speaker 1: now is we're reopening, We're gonna have massive real growth,
Speaker 1: We're gonna have more earnings. That's fine. Interest rates could
Speaker 1: go up and it won't bother the economy or the
Speaker 1: financial or the stock market, if you will. But if
Speaker 1: interest rates are going up because of inflation, and that's
Speaker 1: a loss of purchasing power, your dollar buys less than
Speaker 1: a year than it buys, now, that's a problem for
Speaker 1: the economy and for the stock market. And we're going
Speaker 1: to continue to have that debate. The meantime, I think
Speaker 1: rates are gonna go higher like they have over the
Speaker 1: next several months, like they like they have over the
Speaker 1: previous several months, and we're going to continue have this
Speaker 1: debate whether it's reflation or real growth or inflation. I mean,
Speaker 1: I hate to say it to James Diamond, Jim Bianco,
Speaker 1: but the read of the morning is Brian Schapatta Bloomberg,
Speaker 1: not Jamie Diamond and JP Morgan. Where Chapatta tears apart
Speaker 1: the idea of wages aren't going up? Are you seeing
Speaker 1: wage inflation in Chicago? And to the point, is that
Speaker 1: really what's gonna happen here? A surprise into the end
Speaker 1: of the year, finally wage inflation gets back to three
Speaker 1: is percent. Yeah, you know, it's hard to say whether
Speaker 1: or not you're seeing it right now, but that's gonna be.
Speaker 1: The question is whether or not you do see wage
Speaker 1: inflation as we move forward. If you do, then you
Speaker 1: might see a bigger robust job market because a lot
Speaker 1: of people are sitting on the sidelines. They don't need
Speaker 1: to go back to work. They are being they've been
Speaker 1: given stimulus checks, they've been given an extra kicker in
Speaker 1: unemployment insurance, so they're sitting around waiting until all of
Speaker 1: that runs out. If we do see wage inflation, I
Speaker 1: think then, like I said, it would would fast forward
Speaker 1: everything like the FED and the thinking in the market.
Speaker 1: But right now it's too early to say that we've
Speaker 1: seen it. But I think that's gonna be the second
Speaker 1: half of the year question. Jim Biako, thanks so much.
Speaker 1: Go cubs Bianco Research in Chicago. We planned on doing
Speaker 1: this and we didn't understand that it would be a
Speaker 1: sixty six page letter by Mr Diamond. Certainly a tour
Speaker 1: de force, but you need the right guest at the
Speaker 1: right time, and that can always be Robert Albertson on
Speaker 1: banking with Piper Sandler his leadership at Goldman Sachs decades ago,
Speaker 1: and Bank Research out of Carnegie Mellon and Harvard. Were
Speaker 1: honored that Robert Albertson could join us this morning. Robert Albertson,
Speaker 1: you and I used to look at M D n
Speaker 1: A and it was a good way to fall asleep.
Speaker 1: Where did we go from Robert Williams of M and
Speaker 1: T Bank to a sixty six page missive from James Diamond?
Speaker 1: How did we get to these long letters? I think it, Uh,
Speaker 1: it's a personality. Partly. He is a very analytical person,
Speaker 1: and yet he has a way with words, and he
Speaker 1: recognizes analysis towards limits and the possibility of analysis paralysis
Speaker 1: if I would suggest it. But he is a tune
Speaker 1: to so many different things and has pretty reasonable comments
Speaker 1: about all of them. Within the comments you mentioned to
Speaker 1: us before this conversation, you were zeroing in on his
Speaker 1: view back to the nineties seventies. Why is now for
Speaker 1: James Diamond like the nineteen seventies. Well, he's it's sort
Speaker 1: of unlike the nineteen seventies. He's basically saying we had
Speaker 1: a recovery out of the seventies recessions. Without quantitative easy
Speaker 1: and uh, we've had quantitative easying this time around her
Speaker 1: and hasn't done much. So I think he's pointed to
Speaker 1: the wash with liquidity mistake in terms of monetary policy.
Speaker 1: There also is a question here of what his political
Speaker 1: ambitions are given the tone of this letter. He is
Speaker 1: talking about dysfunction. He said, Americans know that something has
Speaker 1: gone terribly wrong, and they blame this country's leadership, the elite,
Speaker 1: the powerful, the decision makers. This is completely appropriate for
Speaker 1: who else to blame? A lot of people have looked
Speaker 1: to the financial sector. Is this just a defense of
Speaker 1: the banking industry or is this something more an engagement
Speaker 1: that goes beyond just from the c suite into government.
Speaker 1: I think you have two ways to look at it.
Speaker 1: First of all, I would not be surprised to see
Speaker 1: him turn up somewhere in government in a high roll,
Speaker 1: and I think he would be excellent at it. The
Speaker 1: second point is he is from banking, which has been
Speaker 1: the most criticized sector I can think of, and and
Speaker 1: we have just gone through the most shocking recession in memory,
Speaker 1: and the banking industry has shown no credit problems. Uh.
Speaker 1: It is it is remarkable. Uh, that the underwriting of
Speaker 1: this business has gotten to where it is and the
Speaker 1: risk control. So he's proven something in a very tough area.
Speaker 1: I think he'd like to prove it in a more
Speaker 1: public policy way. He also talked about his Fortress balance
Speaker 1: sheet to your point about how it emerged very much
Speaker 1: as a stalwart during this pandemic. There's a question also
Speaker 1: of what's next. And he made a big point about fintech.
Speaker 1: How about is the big competitor going forward? And he
Speaker 1: actually talked about potential acquisitions in that space. What kind
Speaker 1: of tie up could you see with JP Morgan? What
Speaker 1: kind of fintech company? Well, frankly, it's a little hard
Speaker 1: to come up with that because they have their own
Speaker 1: budget on their own syntech operation, which which is pretty powerful. Um,
Speaker 1: they're also a complex organization and a lot of what
Speaker 1: without eric fintech isn't really appropriate for JP Morgan. Having
Speaker 1: said that, uh, I think he's very focused on what
Speaker 1: it can do in retail banking number one, UH, and
Speaker 1: I think that's kind of obvious to all of us,
Speaker 1: but also number two in terms of what what what
Speaker 1: can be done with artificial intelligence. Mr Diamond making clear
Speaker 1: he's not a fan of Zoom meetings is Robert Albertson
Speaker 1: is not a fan of zoom meetings. Robert Albertson, let's
Speaker 1: go there right now. As Mr Diamond talks about fortitude.
Speaker 1: This is a scathing statement, folks. On leadership. It goes
Speaker 1: on for two pages. For order to this attribute often
Speaker 1: is missing in leaders. They need to have a fierce
Speaker 1: resolve to act. It means driving change, fighting bureaucracy and politics,
Speaker 1: and taking ownership and responsibility. Mr Diamond goes on to
Speaker 1: say ability to face facts in a cold blooded, honest way.
Speaker 1: Leaders emphasize and negatives at management meetings and focus on
Speaker 1: what can be approved. That Robert Albertson sounds like best
Speaker 1: practices for every leadership out there right now. How do
Speaker 1: you move forward with that negative statement? How do you
Speaker 1: go into a bank management meeting with negative analysis to
Speaker 1: come to a positive outcome? That's a good question. Um,
Speaker 1: I think, uh, I think the real answer is embedded
Speaker 1: in what he's done and what he's achieved and why
Speaker 1: he's achieved it. And uh, if you look at the
Speaker 1: importance of analysis and facts in almost any industry, they
Speaker 1: are critically important. We all know that they seem to
Speaker 1: be absolutely uh devoid in the political sector. Uh, taking positions,
Speaker 1: making arguments that are financially wrong. Uh. You almost need
Speaker 1: a pop out there to control what the politicians are
Speaker 1: allowed to say. Robert elbertson a two part question, how
Speaker 1: does banking respond to James Diamond? How does American banking
Speaker 1: respond to this juggernaut, and very importantly, how does European
Speaker 1: banking respond to James Diamond. I'm not sure the European
Speaker 1: banking system will ever respond to the American banking system successes.
Speaker 1: They seem to be mired in their own history and
Speaker 1: legacy and they don't seem to be able to get
Speaker 1: out of it. But having said that, in terms of
Speaker 1: the U. S. Banking system, I think most people look
Speaker 1: up to him. Uh. They know they're not him in
Speaker 1: terms of their vehicle, but they recognize what he says
Speaker 1: is critical. And if you if you want to talk
Speaker 1: about being a good corporate citizen, all you have to
Speaker 1: do is go into some small community bank and see
Speaker 1: what they're really doing in that market that is community
Speaker 1: oriented to recognize their they're pretty much singing the same
Speaker 1: songs he is. In terms of giving back, there's a
Speaker 1: question of whether banks are going to take more risk
Speaker 1: right now given their fortress balance sheets and given the
Speaker 1: robust economic outlook, or whether they'll pare it back to
Speaker 1: avoid getting ahead of the economic cycle. And this really
Speaker 1: seems to be attention beneath Jamie Diamond's letter as well,
Speaker 1: because he talks about the dynamism of the economy, the
Speaker 1: economic boom pop possibly lasting till the end of three
Speaker 1: with all the spending and q E, but also talking
Speaker 1: about pockets of froth that he didn't specify. Can you
Speaker 1: talk about how banks are handling this, How high is
Speaker 1: the pressure to push further into risk to get returns
Speaker 1: at a time of economic dynamism a norm as high
Speaker 1: as you would think. They are very proud of coming
Speaker 1: out of what we went through in one piece, and
Speaker 1: I don't think they wanted to spoil that. I don't
Speaker 1: think underwriting standards are going to change. They are starved
Speaker 1: for long growth. The key here is if we have
Speaker 1: an infrastructure package that plus the last bill we have,
Speaker 1: we have enough trillions in the economy to dry have
Speaker 1: a huge capital expenditure cycle, investment cycle. Everything so far
Speaker 1: has been on the consumer side, UH, and the stimulus
Speaker 1: has been aimed at that. Now we're shifting it to
Speaker 1: the commercial side that has great power that could really
Speaker 1: make even better year than most people. Don't look look
Speaker 1: that far and see that yet. But if we get
Speaker 1: this infrastructure package, Uh, it's it's right, It's right up
Speaker 1: Jamie's alley of fiscal spending. It could really, it could
Speaker 1: really knock the cover off the ball. Could drive our
Speaker 1: economy into the eight or nine percent range. It could
Speaker 1: drive rates up for sure, and inflation all understood and accepted.
Speaker 1: Can you talk about where rates would have to go
Speaker 1: to make this as lucrative as you expect for banks?
Speaker 1: Because this is something Jamie Diamond has been very clear about.
Speaker 1: He sees benchmark ten year treasury yields going a lot higher.
Speaker 1: He's been wrong year after year. What's your view in
Speaker 1: terms of how high they have to go to make
Speaker 1: this equation makes sense? Well, I'm wrong with him and
Speaker 1: have been wrong for years. Uh. The history of the
Speaker 1: long term interest rate cycle is that it averages about
Speaker 1: what nominal GDP growth is. And if we got six
Speaker 1: or seven percent GDP growth and two or three percent inflation, Uh,
Speaker 1: you come up with a crazy number for the tenure.
Speaker 1: I would argue that it's going to get to at
Speaker 1: least a three percent level UH in fairly short order.
Speaker 1: The banks really care more about what happens to the
Speaker 1: short end of the spectrum. They need the FED funds
Speaker 1: rate to get moving UH and and not stay at zero.
Speaker 1: And I think that's actually going to occur this year,
Speaker 1: not next year. A lot of people think it won't happen.
Speaker 1: And I don't blame him, because that's what the sharing
Speaker 1: that keeps saying. Robert Albertson, thank you so much, Good
Speaker 1: health to you. With Piper Sandler, of course on this
Speaker 1: day of Mr Diamond's letter, wonderful to get decades of
Speaker 1: perspective from uh. Mr Albertson, Right now we reset and
Speaker 1: we can do that with Christen Bitterly of City Group
Speaker 1: Private Bank, someone who has to explain to people to
Speaker 1: find the courage. Kristin, thank you so much for joining.
Speaker 1: I really want to go right away to a wonderful
Speaker 1: phrase you have, which is the du that cash is punitive,
Speaker 1: and yet I know cash is punitive. I don't want
Speaker 1: to be in it, but I'm afraid to go. How
Speaker 1: do you move from this wall of cash and the
Speaker 1: fear of missing out to get into the market. What's
Speaker 1: the first step. It's so hard. So I think the
Speaker 1: first step is actually looking at the data. The reason
Speaker 1: that we have this association that cash is safe and
Speaker 1: and cash is where I go when I don't know
Speaker 1: what to do, kind of predates the global financial crisis, right,
Speaker 1: So if you look at pre global financial crisis, if
Speaker 1: you were sitting in cash on a post inflationary basis,
Speaker 1: you were earning about three percent per anum, not knocking
Speaker 1: it out of the park, but that's all right. Post
Speaker 1: global financial crisis, you're basically losing one per annum. And
Speaker 1: that's where we're at right now. So holding onto cash
Speaker 1: is basically guaranteed to lose value over the next twelve months.
Speaker 1: So do you assume do you assume on a real
Speaker 1: yield analysis that other asset classes are inflated? I mean,
Speaker 1: do you carry it right over to say not so
Speaker 1: much that you know, I don't want to be inflammatory.
Speaker 1: There's an equity bubble, but elements of the equity market
Speaker 1: are bubblelicious because I can't get a real yield in
Speaker 1: punitive cash. I think there's so I think if you
Speaker 1: look at the overall levels of equity markets, it doesn't
Speaker 1: really tell the full story. So when we're talking about
Speaker 1: the level of the SMP five dred being north of
Speaker 1: four thousand, which seems pretty incredible given the year that
Speaker 1: we've had, it doesn't tell you what's going on beneath
Speaker 1: the surface. And this is pretty intuitive, but one of
Speaker 1: the induseries that we track at City is called Pure Value.
Speaker 1: So it's one of our indicaes that what it does,
Speaker 1: in a very simple sense, is it takes the stocks
Speaker 1: that are in the SNP five hundred and it basically
Speaker 1: ranks them according to their exposure to value as a factor.
Speaker 1: It's long the top fifty percent of those stocks, short
Speaker 1: the bottom fifty. So it's a it's a basic outperformance
Speaker 1: in terms of value. And so what we saw in
Speaker 1: March was that was the strongest performance It was north
Speaker 1: of six percent that we've seen since second quarter of
Speaker 1: two thousand nine. So that to me is when you're
Speaker 1: looking at what's going on under the surface, is very
Speaker 1: different in terms of opportunities to put capital to work
Speaker 1: and delineating between those winners and losers in this environment.
Speaker 1: So Christian, you're not just saying that cash is more
Speaker 1: punitive than game stop shares. You're saying that people need
Speaker 1: to be investing in equities on an active level. This
Speaker 1: is everybody coming on and saying this is the year
Speaker 1: of active investment. Okay, great, but when you talk about allocations,
Speaker 1: what are you recommending. So there's a couple of things
Speaker 1: that I think we need to keep in mind this
Speaker 1: battle between as I was just saying value and growth.
Speaker 1: There's two trends that are driving the market right now.
Speaker 1: One is the mean reversion, right, so this is that
Speaker 1: catch up trade, that idea that you had COVID defensives
Speaker 1: COVID cyclicals, and basically the COVID cyclicals are catching up
Speaker 1: because of this reopening of the economy. The question there,
Speaker 1: which is why earnings are super important, is how much
Speaker 1: further can they go? So looking at some of these
Speaker 1: factors in value in these COVID cyclicals that have had
Speaker 1: tremendous performance, how much higher can they go? So an
Speaker 1: area that we like there is actually global healthcare. So
Speaker 1: global healthcare is one of those sectors. And it's ironic, right,
Speaker 1: it's underperformed the past twelve months from a PE standpoint,
Speaker 1: It's basically at its lowest levels on a relative basis
Speaker 1: to global equities and over ten years, it has an
Speaker 1: attractive dividend yield. So that's an area that we like. Um,
Speaker 1: But I think what's going to happen going into earnings
Speaker 1: is people are really going to pay attention to fundamental factors.
Speaker 1: They're going to pay attention to has inflation actually creeped
Speaker 1: into any of these earnings? So I think we could
Speaker 1: get some surprises which would create some buying opportunities. Okay,
Speaker 1: next couple of weeks. So in other words, you're saying,
Speaker 1: wait for the pullbacks and their potentially be some opportunities
Speaker 1: to get some potential returns that are bigger. I'm wondering
Speaker 1: on credit, we're looking right now at credit spreads that
Speaker 1: are the tightest they've been since two thousand and seven,
Speaker 1: certainly in the high yield space. And when you start
Speaker 1: talking talk about petitive cash, do you start to talk
Speaker 1: about people taking perhaps more risk than they're getting banged
Speaker 1: for their buck? Are you recommending that people follow this
Speaker 1: trade or pull back and go perhaps they're into equities
Speaker 1: or into treasuries and nothing in between. And so yeah,
Speaker 1: so that that three hundred basis points spread right kind
Speaker 1: of going through that was something that that is is
Speaker 1: pretty symbolic and significant. I think a lot of people
Speaker 1: are looking at this in terms of comparing it overall
Speaker 1: high yield to equities and saying, well, if we're looking
Speaker 1: at on a relative basis, there could be an additional
Speaker 1: fifty basis points, are a hundred basis points. We're not
Speaker 1: quite there yet. We're definitely delineating in terms of the
Speaker 1: sector analysis within high yield. But another area, just talking
Speaker 1: about equities again, so UK equities is another area that's
Speaker 1: been largely ignored. We're looking outside the US in terms
Speaker 1: of trying to create some of this yield where you
Speaker 1: can get three and a half percent there. And again,
Speaker 1: valuations look very attractive, Christen, enough that you and Lisa
Speaker 1: would know this. But the longer you're going far away.
Speaker 1: You bought Dominion of Richmond, Virginia. You bought it, you
Speaker 1: held it, you never sold it, and it's been a
Speaker 1: solid thirty ten year high single digit return. I just
Speaker 1: request Dominion Energy of Richmond, seventeen thousand employees, big three
Speaker 1: percent dividend yield, not with much dividend growth, and it's
Speaker 1: below the thirty year regression trend line. Our utilities of
Speaker 1: vailue here for those scared stiff. I think there's a
Speaker 1: place for it, but I honestly think within dividends and
Speaker 1: looking at dividends, this is not about just searching out
Speaker 1: for high dividend paying companies, because what you want to
Speaker 1: do is look through to the underlying balance sheet and
Speaker 1: make sure that they have a strong balance sheet. So
Speaker 1: when we build global dividend portfolio is what we're looking
Speaker 1: at is not just historical dividends, but also the ability
Speaker 1: to continue paying those dividends and grow those dividends going forward,
Speaker 1: which really gets into more of a credit and free
Speaker 1: cash flow analysis than anything else. And you get some
Speaker 1: pretty broad diversification part of this energy and utilities, but
Speaker 1: you actually get financials, healthcare, even technology. I feel so anciently.
Speaker 1: So I was trying to go Graham, Dot and Coddle,
Speaker 1: and Kristen just crushed me with the modern free cash
Speaker 1: flow analysis. I was just totally crushed their. Lisa, Well,
Speaker 1: hopefully you can recover in the next few minutes and
Speaker 1: hopefully we can drag you out of the whole. I
Speaker 1: will say, Kristen, we got to end the conversation, perhaps
Speaker 1: crushing Tom even more in talking about taxes. Uh, you
Speaker 1: know that you deal with a lot of wealthy individuals
Speaker 1: and right now are looking at potential policy changes in
Speaker 1: the US, the increased taxes on the wealthiest, particularly in
Speaker 1: New York State, but beyond on a federal level. How
Speaker 1: is this affecting the investment strategies of the people who
Speaker 1: you work with. You know what's interesting, it's not priced
Speaker 1: into the market at all. So another thing, and this
Speaker 1: goes back several years ago, when we have the tax reform.
Speaker 1: We started monitoring basically kind of the tax winners and
Speaker 1: tax losers in terms of the tax reform, and so
Speaker 1: looking at the reversion of that trade in terms of
Speaker 1: increasing the corporate tax rate. Basically you haven't seen anything
Speaker 1: play out within the market. So for people who are
Speaker 1: interested as these talks progress in terms of expressing a
Speaker 1: view from an entry point standpoint, that's actually pretty attractive
Speaker 1: in terms of what it could mean from a personal
Speaker 1: standpoint and how you invest. I think putting it into context,
Speaker 1: when we did have those tax hikes, and I think
Speaker 1: we have to go back to nineteen seven and the
Speaker 1: impact of that on the overall market, and it looked
Speaker 1: like on average it was about five percentage points. So
Speaker 1: in that sense, kind of putting it into perspective as
Speaker 1: to what that impact could be. I think is helpful.
Speaker 1: And then in the larger rates environment, we don't see
Speaker 1: a lot of either trading around that or investing around
Speaker 1: that at this point in time. Kristin, thank you so much.
Speaker 1: Christin Biddley, they're sharp from City Group Private. Thanks right now.
Speaker 1: And I guess this is an important discussion. This is
Speaker 1: something that Lisa and I are in our pre show
Speaker 1: meeting said is really top of pile. Forget about the
Speaker 1: I m F. Forget about James Diamond. How do you
Speaker 1: travel with the young Hellian's Mercedes Carna Phone is in
Speaker 1: charge of family psychiatry for the Brando, Wits and Keene
Speaker 1: households and joins us this morning from Chicago. You know, Mercedes,
Speaker 1: let's cut to the chase here, and this is important.
Speaker 1: We make a joke about it, uh, ill mannered brats
Speaker 1: that they are. But you say traveling with children is risky.
Speaker 1: I don't understand that. Why is that risky in this pandemic?
Speaker 1: You know, it's really tough. I think we're all eager
Speaker 1: to get out. I mean, I've been home with these
Speaker 1: children now for you know, fourteen or fifteen months. I'd
Speaker 1: like to go um and you know where is. My
Speaker 1: husband and I are vaccinated, and our older adult family
Speaker 1: members are now vaccinated. My children aren't. So if I
Speaker 1: take them with us, then I'm exposing them to risk
Speaker 1: of these new variants which seem to really infect children.
Speaker 1: Then what do we do on that? I mean everything
Speaker 1: we've talked about today and frankly this week on the show, Mercedes,
Speaker 1: that is the single boldest statement I've heard. Are you
Speaker 1: saying we cannot open up this nation because of true
Speaker 1: medical risk to our children? Well, you know, I think
Speaker 1: an estimate was that of our population is children. We're
Speaker 1: all racing towards this heard immunity, and we're estimating that
Speaker 1: we need to get sent of our population vaccinated. We
Speaker 1: are not currently eligible for vaccination. And children do contract COVID,
Speaker 1: and children do spread COVID. You know, while they don't
Speaker 1: have as severe of outcomes as adults, they do get it,
Speaker 1: and so we're going to continue to see it circulate.
Speaker 1: I want the nation to open up. I want out
Speaker 1: of my basement. I want out, you know, I want
Speaker 1: to go somewhere warm, But there still remains a risk
Speaker 1: to me taking the children with us. All right, so
Speaker 1: let's talk about what works. I mean, can you stick
Speaker 1: a mask on them, bring them into the plane, and
Speaker 1: basically say, wash your hands a lot and you'll be fine.
Speaker 1: I mean, what do we actually know still at this
Speaker 1: point about how to prevent it in order to live
Speaker 1: your life to some degree as more people get vaccinated.
Speaker 1: You know, absolutely, you know the mitigation measures that have
Speaker 1: have held us up this long masking distancing. Um, you
Speaker 1: know those those measures are still in effect. And so
Speaker 1: it is fine. You know, you can make sure your
Speaker 1: children wear a mask, make sure they know not to
Speaker 1: lick the back of the plane seat in front of them. Um.
Speaker 1: And you can make the trip, yeah, don't do that. Um,
Speaker 1: you can make the trip as safe as possible. But
Speaker 1: you have to be adherent to this and and and
Speaker 1: you know, if your state has travel quarantine rules when
Speaker 1: you go somewhere whereas vaccinated individuals don't have to quarantine,
Speaker 1: you may not send your children back to school or
Speaker 1: on play dates after they come back from a state
Speaker 1: on a quarantine. So let's talk about some of the
Speaker 1: science behind this first. I'd like to get your sense
Speaker 1: on how severe the diseases some of these variants could
Speaker 1: be for children. And also the idea of kids aged
Speaker 1: twelve to fifteen getting vaccinated before the school year starts. Again,
Speaker 1: how likely is that? Given our advisor for the key
Speaker 1: to the Brahm Boys households, there you go, were Sad's
Speaker 1: help us. Yeah, you know, um, I think we do
Speaker 1: have to keep the risks in perspective. Children contract COVID,
Speaker 1: they do become ill from COVID, but by and laws,
Speaker 1: the leading cause of hospitalization and death and children are
Speaker 1: unintentional injuries. So let's think about that. Certainly your child
Speaker 1: can contract COVID, the likelihood that they'll be hospitalized from
Speaker 1: a car accident, a bicycle accident remains higher. So you know,
Speaker 1: it is all in perspective, but you know, you never know.
Speaker 1: You don't want your child to be that child. I
Speaker 1: do look forward to the progress that we're making in
Speaker 1: vaccination of younger children. The twelve to fifteen year olds
Speaker 1: are soon to become eligible. You think about sports leagues
Speaker 1: and performance theater and the things that are really important
Speaker 1: to the mental health of children. Mercedes, I just want
Speaker 1: to know if they can do a day trip to Sephora.
Speaker 1: I mean, that's all aslutely I got. You know, we
Speaker 1: talked to all sorts of muckety MUCKs on this show.
Speaker 1: You get more mail than anyone. This in from Western Indiana,
Speaker 1: Baby Charles, is not a hell you in. We were
Speaker 1: sorry if we insulted anybody in West Indiana. And also
Speaker 1: they go on to say Baby Charles must see Turks
Speaker 1: and Caikos. Mercedes cut to the chase. I need to
Speaker 1: travel this weekend. It's on the Gulf Stream. I'm taking
Speaker 1: Baby Charles to the Turks and Caikos. Is that a
Speaker 1: wise thing to do? Seriously? You know what, Everything was
Speaker 1: a calculated risk, and I would never deign to say
Speaker 1: somebody absolutely shouldn't do something. And it's a terrible idea.
Speaker 1: The likelihood of your child becoming severely ill is low,
Speaker 1: but it does happen, you know if and just be aware,
Speaker 1: you know, you could end up getting quarantined down in
Speaker 1: Turks and Coast and not be able to come back
Speaker 1: if somebody tests positive down there. Well, because then you
Speaker 1: get locked in your room. Oh that's terribly pool. Yeah,
Speaker 1: they'll send an email back, Mercedes, go away, and you're
Speaker 1: giving them away. You're giving them away too many ideas. Oh,
Speaker 1: I'm sorry, Charles, is a headache. I can't come back,
Speaker 1: you know, doing my public health best and I was
Speaker 1: I had to quarantine. In the accounts, I read a
Speaker 1: not fun Mercedes Carnathan go away with Northwestern and seriously
Speaker 1: their university professor of profunitive medicine. She is literally best
Speaker 1: in class. I'm talking about the social aspects, the hardcore
Speaker 1: medical data aspects of what this means for society. David
Speaker 1: Rubenstein joins the Carlisle Group and of course is a
Speaker 1: claim peer to peer conversations. I'm Bloomberg, I believe tonight
Speaker 1: at nine pm and David, thank you, thank you for
Speaker 1: so doing this interview. Because Westmore is one of the
Speaker 1: great screw ups of all time. His father died at
Speaker 1: three years old, He had a really difficult childhood, finally
Speaker 1: ended up in military academy, and a switch went off
Speaker 1: at Johns Hopkins. What did Westmore do in that path?
Speaker 1: And when he finally got to Johns Hopkins, what was
Speaker 1: the switch that got him going? He decided to turn
Speaker 1: his life around and became a Rhodes scholar at Johns Hopkins,
Speaker 1: went to Oxford, got a degree at Oxford, and then
Speaker 1: just started to give his time to the military, and
Speaker 1: he went to Afghanistan as a officer there, served in
Speaker 1: several years in Afghanistan, came back and got involved with
Speaker 1: another other activities. But now for the last four years
Speaker 1: been running robin Hood and he will at the end
Speaker 1: of May. And then he was playing the run for
Speaker 1: governor of Maryland. I mean this is absolutely extraordinary, folks,
Speaker 1: to all of you on radio and television. This is
Speaker 1: the kid that turned it around and made good of it.
Speaker 1: What has he done at robin or the foundation, Let's
Speaker 1: be cleared, David. I believe robin Hood every year gives
Speaker 1: all the money away. It's a true conduit for charity. Yes,
Speaker 1: the financial community basically puts up all the money for
Speaker 1: the administrative costs. All the donations of them are actually
Speaker 1: go are given away every year. It's about four or
Speaker 1: five hundred million dollars a year. And uh, this is
Speaker 1: going to largely uh deal with the poverty problems in
Speaker 1: New York City and the environment and the environment environs
Speaker 1: around New York City. UM, and it has been replicating
Speaker 1: other parts of the country as well. And robin Hood
Speaker 1: has been the the i'd say, the signature type of
Speaker 1: anti poverty action that the financial community can claim a
Speaker 1: good deal of credit for for helping to get started.
Speaker 1: Is Westmore electable? No African American has been elected statewide
Speaker 1: in Maryland, uh um, other than his lieutenant governor on
Speaker 1: a governor's ticket. So you know, Maryland's a democratic state,
Speaker 1: has a large black population. Obviously you would appeal to
Speaker 1: more than than blacks. But he's a Democrat and I
Speaker 1: there are a lot of people seeking the nomination, So
Speaker 1: too early to say. He's never run for office before,
Speaker 1: but he was certainly a strong, articulate candidate, no doubt
Speaker 1: about that. James Diamond today, David Rubinstein kiss six. I'd
Speaker 1: love to see you David Rubinstein sixties six page annual letter.
Speaker 1: That would be great. David. Mr Diamond out with a
Speaker 1: letter and he talks about fortitude is being part of leadership.
Speaker 1: What is the fortitude you've observed from Westmore? Well, he's
Speaker 1: overcome some some real disadvantages of life. He was handed
Speaker 1: hand handcuffed by police when he was eleven or twelve,
Speaker 1: sent to a military academy. Was you know, had some
Speaker 1: real challenges as a youth, but then turned it around
Speaker 1: it at Johns Hopkins and went on to Rhodes Scholarship,
Speaker 1: and now at the age of forty three, I think
Speaker 1: he has a pretty promising political career ahead of him
Speaker 1: if he wants to pursue that, and I think he will.
Speaker 1: David of was down on this day where Mr Diamond
Speaker 1: writes his annual letter. There's been lots of discussion about
Speaker 1: Jamie Diamond is appointed or elected political official? Can CEOs
Speaker 1: like James Diamond become politicians in this modern America? It's
Speaker 1: tough because now everything you've ever done over twenty years
Speaker 1: or so has looked at every business deal, every transaction.
Speaker 1: So it's more complicated to to do that as an
Speaker 1: elected official. Maybe as an appointed official it might be
Speaker 1: a little bit easier. What do you see, David right now?
Speaker 1: On travel? The other great thing we see and Mr
Speaker 1: Diamond was talking about this the opening up of America,
Speaker 1: the international economy much delayed as well. What does Carlisle
Speaker 1: observe in the opening up of America as we end
Speaker 1: this pandemic. Let me just give you my own observation.
Speaker 1: My observations are that people want to go back and
Speaker 1: to their office, maybe not five days a week. People
Speaker 1: want to go back and travel, maybe not as much
Speaker 1: as before. I think vacation travel and leisure travel will
Speaker 1: come back ahead of business travel. Business travel will come back,
Speaker 1: but probably not at the pace that it once was,
Speaker 1: where you would fly around the world for a half
Speaker 1: hour meeting. I think that probably can be done through
Speaker 1: zoom or the equivalent. But I do think people have
Speaker 1: a pent up desire to go back and meet with
Speaker 1: other people and see the rest of the world they
Speaker 1: haven't seen for last year or so. What is the
Speaker 1: character of higher yields that you see I've done so much,
Speaker 1: you know, the narrowness of internal rates to return on
Speaker 1: a transaction or a combination. But what do higher yields
Speaker 1: due to the mindset of C e O s and
Speaker 1: C class officers. Well, higher yields, uh, you know, obviously
Speaker 1: make people a little bit nervous because it means that, uh,
Speaker 1: you know, inflation might be around the corner, and we
Speaker 1: haven't had serious inflation for for quite a while. People
Speaker 1: are worried about modest inflation relative to what we have
Speaker 1: in the nineteen seventies. I do think the U. S
Speaker 1: economy is in pretty good shape because of the stimulus
Speaker 1: we've had. Within the enormous amount of stimulus we've had.
Speaker 1: It's difficult for the US economy not to grow at
Speaker 1: five or six percent this year, and I suspect next
Speaker 1: year I'll be in pretty good shape as well. Who
Speaker 1: can predict two or three years down the road. We'll
Speaker 1: probably have some inflation, but I don't think it's gonna
Speaker 1: be reflation. It's gonna be anything close to what we've
Speaker 1: seen in the companies. David rubin Stein, thank you so much,
Speaker 1: greatly appreciated. Congratulations on a spirited original interview with Westmore
Speaker 1: of Robin Hood the charity. Westmore really a unique person.
Speaker 1: Look for that tonight. Peer to Peer Conversations. Nine pm, uh,
Speaker 1: this evening. This is the Bloomberg Surveillance Podcast. Thanks for listening.
Speaker 1: Join us live weekdays from seven to ten am Eastern
Speaker 1: on Bloomberg Radio and on Bloomberg Television each day from
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Speaker 1: the terminal. I'm Tom Keene and this is bloomberg S