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Speaker 1: Who you put your trust in matters. Investors have put

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Speaker 1: their trust and independent registered investment advisors to the two

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Speaker 1: and four trillion dollars. Why learn more and find your

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Speaker 1: independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast.

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Speaker 1: I'm Tom Keene with David Gura. Daily we bring you

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Speaker 1: insight from the best in economics, finance, investment, and international relations.

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Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and

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Speaker 1: of course, on the Bloomberg. We start this morning with

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Speaker 1: the markets. Jason Turner, chairman of Fertiguous Research Partners, who

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Speaker 1: join us here in the studio in New York. Morning. Jason,

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Speaker 1: good morning. Let's start with just the peculiarity of this

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Speaker 1: particular market, the rhythms of course cycles to the market,

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Speaker 1: especially the beginning of the year. When you look at

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Speaker 1: the market today at positioning at the beginning of two

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Speaker 1: thousand seventeen, how different is the beginning of this year

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Speaker 1: from years past, well, certainly compared to last year. I

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Speaker 1: don't think it could be more different. As you might remember,

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Speaker 1: the Fed tightened December of two thousand fifteen, and then

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Speaker 1: it's signal that it was going to tighten four more

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Speaker 1: times UH, and that uh, you know, to use a

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Speaker 1: technical term, freaked out the emerging markets and the commodity markets. UH.

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Speaker 1: And the FED had to be level too, I believe.

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Speaker 1: But and you wind up having oil down to twenty

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Speaker 1: six dollars before too long and the FED reserving um

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Speaker 1: reverting course. This is very different. Of course. I think

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Speaker 1: there's a lot of attendant optimism about the new administration

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Speaker 1: in terms of what it might do with regulatory policy,

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Speaker 1: what will do with fiscal policy. Trade obviously remains a

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Speaker 1: big question mark. But the FED is i think, content

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Speaker 1: to once normalize rates, but is content to uh let

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Speaker 1: inflation run a little hot. I'm looking at your most

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Speaker 1: recent note and politics right up there at the top.

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Speaker 1: But you note here that two sixteen a year in

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Speaker 1: which a well established political class learned that democracy was

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Speaker 1: its achilles heels. You're talking about the FED wiser if

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Speaker 1: you've got politics. So what's the bigger driver here in

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Speaker 1: two thousand seventeen of those two things? Yeah, I I

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Speaker 1: think central banks, and I think correctly we'll take a

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Speaker 1: back seat to UH to fiscal and regulatory and trade policy.

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Speaker 1: And I think it's it's high time Certainly, the Fed's

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Speaker 1: balance sheet UH quintuppling over the past past eight years. Certainly,

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Speaker 1: I think it was for all the right intentions. I

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Speaker 1: think there was a sense in which, and I think

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Speaker 1: Japan indicated this last year with its experimentation and negative

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Speaker 1: interest rates, that there were limits to what you could

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Speaker 1: expect monetary policy to achieve. I'm very much of the

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Speaker 1: view that monetary policy UH should be used to set

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Speaker 1: the potential UH for economic growth. It's it's a very

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Speaker 1: imperfect way of creating a economic growth itself. It winds

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Speaker 1: up creating misallocations of capital, which is what we've seen,

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Speaker 1: and I think it's better to have a more balanced

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Speaker 1: policy approach policy mix in two thousand seventeen, Jason, do

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Speaker 1: you get the sense that central bankers are reckoning with

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Speaker 1: that tectonic shift the minutes out yesterday? As I said, UH,

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Speaker 1: some acknowledgement there of the uncertainty amount the potential for

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Speaker 1: for fiscal policy in the new year. UH. Do do

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Speaker 1: you think that they're coming to terms with the changing

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Speaker 1: dynamics between a fiscal policy and monetary policy? I think

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Speaker 1: a little, while little, and I don't want to be

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Speaker 1: overly critical of the FED it's it's very kind of

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Speaker 1: do regord to to do that. But I think that

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Speaker 1: there's I think people have realized that central bankers are

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Speaker 1: not some pride of superman. Uh they're they're men and women.

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Speaker 1: They may have PhDs, but um, there are limits to

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Speaker 1: what they can actually achieve. And I think it's it's

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Speaker 1: far better, frankly, if we're not discussing from an investment

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Speaker 1: point of view, if we're not discussing the central banks

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Speaker 1: at every minute of every day, it's you're discussing people

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Speaker 1: are actually putting capital at risk. The most important person

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Speaker 1: that works for you right now, it's not Jason trentnerd.

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Speaker 1: It's one D Clifton, that's right, who was down and

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Speaker 1: he must be a little busy right Oh my goodness standards.

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Speaker 1: I mean it doesn't smoke anymore, but he still probably

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Speaker 1: drinks about a case of diet cocod So, uh, yeah,

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Speaker 1: it's good and good for you. What is what has

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Speaker 1: he learned about the change in Washington just in the

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Speaker 1: last four weeks. Well, I think he's learned that h

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Speaker 1: Obviously things are going to be very different in terms

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Speaker 1: be communicating with both the press and market participants. UH

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Speaker 1: and UH. I think a lot of the standard um,

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Speaker 1: you know, the standard modes of communication, avenues of communication

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Speaker 1: are going to be very very different, and so that

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Speaker 1: is going to take some getting used to. UH. Probably

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Speaker 1: the most among Washington insiders. I think the rest of

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Speaker 1: us might not notice much of a difference in you know,

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Speaker 1: we live in a social media world. I think Washington,

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Speaker 1: at least as far as the interactions between the insiders

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Speaker 1: had been concerned, has largely been um, you left out

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Speaker 1: of that. We sort of go here, John Tucker, are

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Speaker 1: bites this for me and David Gura. Folks, we see

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Speaker 1: Trump treats and we decide if it's news. Yes. Here

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Speaker 1: we are in real time with Jason Trunner. For those

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Speaker 1: of you, we recommend you do not tweet in your car.

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Speaker 1: We've had two tweets in the last four minutes, in

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Speaker 1: eight minutes, including David gurn I've got to bring this

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Speaker 1: up with respect to the senior senator from New York

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Speaker 1: quote head clown, Chuck Schumer. I'm trying to think of

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Speaker 1: Richard Nixon tweeting that head clowns. Sam Irvins, right, Mr

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Speaker 1: Gurrow pick up on this observation of our last two

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Speaker 1: president elect tweets. You know, it's interesting because we've had

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Speaker 1: so many conversations with the with the Great Valier, among others,

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Speaker 1: about the role that Chuck Schumer will play here. He

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Speaker 1: actually has a very close relationship with head clown had

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Speaker 1: Cloud and from yes, thank you, So you know, I

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Speaker 1: I uh keep it, I'm plumbing. I'm not okay, Chuck Schumer.

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Speaker 1: I got in an airplane once, folks, and here's a

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Speaker 1: guy who's got every lobbyist in his pocket, and he

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Speaker 1: gets on with a plastic bag from a grocery store

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Speaker 1: and to you know, from Brooklyn or where Queens are,

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Speaker 1: and they were an artisanal apples. This guy's down to earth.

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Speaker 1: Whatever whatever anybody's politics, Chuck Schumer is a basic guy.

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Speaker 1: How's he going to adapt to the majority republicanist? I

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Speaker 1: have a feeling though that I think, Chuck Young, we're

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Speaker 1: also as a pragmatist. I'm certainly not a political expert,

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Speaker 1: but but I think, um, you know, politicians are entrepreneurs

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Speaker 1: in their own right, and they can you know, they're

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Speaker 1: they're political entrepreneurs and and they'll understand the way the

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Speaker 1: winds are blowing and right now like it or whether

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Speaker 1: the winds are blowing in Donald Trump's direction, and so

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Speaker 1: I think that there's going to be more There may be. Uh.

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Speaker 1: The positive surprise this year is that there may be

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Speaker 1: more common ground between the Democrats and Donald Trump. Donald

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Speaker 1: Trump may have more problems with his own caucus uh

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Speaker 1: than he he might have with Democrats. And that might

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Speaker 1: seem like an outlandish thing to say, but again, I

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Speaker 1: think most politicians job number one is getting re elected. Uh.

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Speaker 1: And and certainly U, this election took a lot of

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Speaker 1: people by surprise. That's been easy over the last eight, twelve,

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Speaker 1: sixteen years to sort of roll your eyes at Washington.

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Speaker 1: Not a lot has been happening in Washington. It's been

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Speaker 1: a glacial pace. There's been a lot of discord and

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Speaker 1: in fighting. Do you expect Washington to play a more

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Speaker 1: important role to Wall Street after we get through the

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Speaker 1: first three agenda items here, the tax reform, the infrastructure spending, UH,

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Speaker 1: perhaps that a change to Obamacare. Do you think that

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Speaker 1: Washington is going to remain important throughout this throughout these

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Speaker 1: next four years. It's a very good question. I certainly, Um,

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Speaker 1: I hope so for I certainly think for the first

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Speaker 1: year it will be extraordinarily important. I think after that

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Speaker 1: one hopes that that Washington becomes less important, and especially

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Speaker 1: you know, if you're a fan of free markets and

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Speaker 1: think that free markets are better ways to allocate capitals,

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Speaker 1: okay capital than than relatively small groups of people. UM,

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Speaker 1: I think that would be a welcome, welcome change. I

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Speaker 1: have a feeling that will be the case, just to

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Speaker 1: the extent to which uh, the president les political capital

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Speaker 1: will never be greatest as it as it is on

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Speaker 1: on day one of his presidency. Uh, he'll have both

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Speaker 1: houses of Congress in which to effect change. I think

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Speaker 1: after that it's I think it's President Obama found it

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Speaker 1: gets hot. Once you kind of go long ball in

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Speaker 1: the first couple of years of your administration, it's hard.

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Speaker 1: It's harder to get big things done after that. Can

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Speaker 1: we bring it back? And when did the next sexual

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Speaker 1: adjacent try will bring him back? To the equity markets?

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Speaker 1: Are you fully invested now? I'm I'm pretty only invested.

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Speaker 1: I have some cash available, But I also think that

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Speaker 1: this is not a market in which I would start

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Speaker 1: fooling around on the short side, because, as we discussed, UH,

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Speaker 1: this has been a bull market. No one's loved that

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Speaker 1: you're at all time highs, and yet it's not part

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Speaker 1: of the zeitgeist of the of the culture. No one's talking,

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Speaker 1: you know, cocktail parties. People are not talking about stocks,

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Speaker 1: although choice of Trump Trump Trump Trump Trump Trump Trump

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Speaker 1: trump Trump for their smartphone or you know, yeah, real estate, right,

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Speaker 1: you know, but people are not talking about the last

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Speaker 1: stock they bought. Jason Trenitt with this final thoughts with

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Speaker 1: Frutiguous Research Partners, let's go back to the equity markets.

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Speaker 1: Does Graham, Dot and Coddle matter anymore? It's something you

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Speaker 1: and I mean, you and I are the only two

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Speaker 1: people who actually read the puppy starts on railroad stocks

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Speaker 1: in or whatever. Does all this stuff you and I

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Speaker 1: learned matter anymore? Well, it hasn't. Unfortunately, it hasn't mattered

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Speaker 1: a lot over several several years, and one hopes right

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Speaker 1: that it becomes more important once again. Ultimately, stock prices

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Speaker 1: are a function of future cash flows and an interest rates.

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Speaker 1: That's that's what they you know, That's that's what we

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Speaker 1: should we should be focused on. Um I think part

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Speaker 1: of the problem with financial repression, part of the problem

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Speaker 1: with with quantitative easing is that you've essentially enforced a

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Speaker 1: certain purgatory on companies in which everyone had a low

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Speaker 1: cost of capital, and it makes it very very difficult

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Speaker 1: to outperform and pick stocks. And and David, what I

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Speaker 1: would point out here is it's getting long in the tooth.

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Speaker 1: For us to make jokes about it is fine, but

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Speaker 1: our listeners who are savers and retirees, there's nothing funny

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Speaker 1: about this. Walk me through your your asset allocation matrix

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Speaker 1: as it stands right now. I'm looking here at what

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Speaker 1: your bullish on your mid cap stocks. If what have

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Speaker 1: you adjusted here going into the New y Yeah, I

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Speaker 1: think it's good quite I and I generally have I

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Speaker 1: would say throughout my career part of its worth, I've

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Speaker 1: had a general bias towards being overweight large cap over

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Speaker 1: small and mid I think this this time maybe a

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Speaker 1: little bit different because small and MidCap stocks obviously have

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Speaker 1: more domestic content, probably have a little bit less of

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Speaker 1: the risk that may be associated with a change in

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Speaker 1: the world order. Put it kindly, as far as trade

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Speaker 1: UH is concerned, UM, I also think that they're probably

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Speaker 1: gonna benefit the most at the margin from changes in

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Speaker 1: regulatory policy as well as corporate taxes. A lot of

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Speaker 1: large companies already have relatively low effective tax rates. They're

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Speaker 1: able to use um the three and half million words

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Speaker 1: in the U. S tax Code to get their their

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Speaker 1: their taxes lower. Small MidCap companies don't have that flexibility

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Speaker 1: and should benefit more in my opinion, UH this year

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Speaker 1: as we make some of those structural changes. And here

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Speaker 1: I'm looking at your your list here the best and

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Speaker 1: worst performers at the last quarter, the fourth quarter two

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Speaker 1: thousand and sixteen. What stands out to me in the

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Speaker 1: best category financials and industrials and in the worst it's healthcare.

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Speaker 1: Do you expect that to persist here as we move

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Speaker 1: into two thousand and seventeen. I think that seems fair.

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Speaker 1: I mean, certainly, UM, I'm very bullish and financials, especially

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Speaker 1: because of rates or it's because of I think net

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Speaker 1: interest margins are going to expand. And I think also

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Speaker 1: again you're gonna have a very significant change as far

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Speaker 1: as the regulatory UH regulatory regime is concerned. The stocks

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Speaker 1: have gone up a lot, but they're still trading probably

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Speaker 1: at a round book value. So in my view, there

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Speaker 1: there's quite quite a bit of room. Industrials are interesting

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Speaker 1: because they're outperforming while the dollar, you're generally speaking, who's

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Speaker 1: been strengthening. UH. That is a change. I think that's

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Speaker 1: probably a bet on the fact that you're going to

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Speaker 1: have UH. The US may lead the global economy out

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Speaker 1: of its dold rooms, and the global economy may do

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Speaker 1: a little bit better healthcare. I think the headline risk

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Speaker 1: is is very significant, certainly in the in the next

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Speaker 1: you know, three to six months, and we're going to

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Speaker 1: see what we're going to get. UH. Certainly repealing Obamacare

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Speaker 1: seems to be number one on the on the list.

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Speaker 1: It will be replaced at some future date, will be announced,

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Speaker 1: and that will start a whole new round of lobbying,

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Speaker 1: in a whole new round of of I guess questions

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Speaker 1: about the sector in the way it's going to be structured,

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Speaker 1: good for lawyers. Yeah, and you you like Japan right now,

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Speaker 1: I'm looking at tell again at let's see one sixteen

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Speaker 1: fifty seven. Is it? Is it principally because of the

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Speaker 1: weak currency that Japan is attractive to you right now?

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Speaker 1: It's yeah. I think there are other things to that

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Speaker 1: recommend Japanese equities, like valuation, like a low dividend pay

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Speaker 1: out ratio. But the fact that they have reverse course

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Speaker 1: on negative interest rates, at least for the time being,

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Speaker 1: by focusing on targeting the yield curve as supposed to inflation,

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Speaker 1: I think is a very meaningful, meaningful change. I do

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Speaker 1: think their experimentation with negative interest rates last year was

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Speaker 1: a policy error, and I think the fact that they're

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Speaker 1: moving away from that as a positive. Jason, trying to

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Speaker 1: thank you so much. Thank you. It was fatiguaus Razors

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Speaker 1: with their Cherman. And of course is it ten years?

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Speaker 1: It's ten and a half, ten and a half. I'm

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Speaker 1: still like a little kid. I count the half of years.

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Speaker 1: It's over ten, ten and a half years. Jason, thank

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Speaker 1: you so much, sir. Please to have in studio with

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Speaker 1: his new Stupet Warrior. He's a drivtive strategist at BNP

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Speaker 1: Para BA out with his outlook for two thousand seventeen.

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Speaker 1: Always created speak these two. Thanks for coming in. Thank

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Speaker 1: you very much. Let's start with volatility. I'm looking at

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Speaker 1: VIX right now at twelve, settling around twelve. We've seen

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Speaker 1: this degree of complacency for a few weeks now. When

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Speaker 1: you're looking at volatility in the year, head is that

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Speaker 1: the indicator that you look to, how how useful is

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Speaker 1: the VIX to you? And what do you foresee with

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Speaker 1: regard to volatility here in two thousand and seventeen. Yeah,

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Speaker 1: So I think a couple of things are really interesting,

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Speaker 1: especially when you look at the price action at the

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Speaker 1: end of last year, particularly the fact that we've had consecutively,

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Speaker 1: i think two years in a row now of higher

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Speaker 1: real life volatility and the markets also drifting higher. So

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Speaker 1: that is in stark contrast to the QII period where

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Speaker 1: we had the market drifting higher on lower volatility. So

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Speaker 1: I think that trends likely to continue in the future.

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Speaker 1: And as far as the VIX is concerned, Um, you know,

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Speaker 1: the key driver of that that measure is short data

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Speaker 1: realized volatility. And what we've seen both in the SMP

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Speaker 1: and the indices globally if you look at you know,

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Speaker 1: the v two X in Europe, UM in the eurostocks,

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Speaker 1: or the VIX in the SPIRE is the fact that

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Speaker 1: correlation is solo sectors are diverse. Um, there's this dispersed

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Speaker 1: performance and that's really kind of dampening volatility in really

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Speaker 1: either direction. You look at financials in particular, in your

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Speaker 1: outlook how are they how are you us financials looking

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Speaker 1: to you right now? Yeah, so on on the ball side,

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Speaker 1: it's interesting that quite rich, and especially when we look

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Speaker 1: at et fs that are linked to financials, uh, those

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Speaker 1: are rich as well. And I think part of that

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Speaker 1: has to do with the fact that whenever you have

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Speaker 1: an asset that really breaks out of a historical range

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Speaker 1: range trading which financials had been in some time, the

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Speaker 1: valve resets higher and you you have to kind of

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Speaker 1: wait to settle into a new price range before the

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Speaker 1: mark really settles into into a more comfortable environment. In

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Speaker 1: your research note, and folks, we need a math warning here,

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Speaker 1: we're not going to do the legitimate math that Mr

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Speaker 1: Worther does. From there a lot of great characters. Everything's vague, gamma,

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Speaker 1: you know, blah blah blah. But down at the bottom

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Speaker 1: of your note you bury the headline, which is what

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Speaker 1: pros like you do is try to game sector rotation.

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Speaker 1: I find in the media pundits are either clueless or

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Speaker 1: glib about sector rotation. This is a great way to

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Speaker 1: enjoy losing money. How do I not lose money gaming

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Speaker 1: sector rotation? Well, I think you know, and I've mentioned

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Speaker 1: this before, is One of the key things is that

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Speaker 1: you need to look at when looking at sector rotation

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Speaker 1: is trying to find the right variable that describes the

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Speaker 1: rotation itself. So one of the things that we look at, um,

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Speaker 1: you know, a couple of things. We look at our

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Speaker 1: terms of trade, UM, economic surprise, dollar strength, etcetera. And

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Speaker 1: we try to figure out from those variables, UM, you

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Speaker 1: know what that actually means and what's the real driver?

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Speaker 1: You know, is it sector rotation itself is a value

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Speaker 1: versus growth UM. And I think what we've really seen

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Speaker 1: over the past a couple of weeks or months, first say,

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Speaker 1: is value versus growth rather than actual sector sector rotation.

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Speaker 1: So it's a matter of how you break up the

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Speaker 1: SMP complex. But but I think in this in this context,

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Speaker 1: it's really the kind of cyclicals versus defensives, value versus growth.

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Speaker 1: You highlight the big macro event of the year ahead,

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Speaker 1: that being the elections in France. Of course, been more

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Speaker 1: elections and votes across Europe. I wonder what we've learned,

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Speaker 1: what you've learned from the string of votes we've had

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Speaker 1: here in two thousand and sixteen, the breaks a vote,

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Speaker 1: the referentument Italy, the US presidential election. What has that

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Speaker 1: taught you and how has that affected the way that

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Speaker 1: you strategize you're going into the election France. So I

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Speaker 1: think it's really interesting in the context, especially in the

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Speaker 1: volatility contexts, in the sense that implied tends to be

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Speaker 1: elevated ahead of the event, and regardless of what happens

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Speaker 1: in the event itself, Implied collapses thereafter. Rather whether the

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Speaker 1: event was well hedged, whether the event was underhedged, as

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Speaker 1: it was in Brexit. Um. You know, we seen that

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Speaker 1: investors have paid up ahead of the event, and you really,

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Speaker 1: regardless of the outcome, UM, you know, Implied has been crushed. Um.

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Speaker 1: And I think that has to do partly with the

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Speaker 1: fact that all these events are so well televised that UM,

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Speaker 1: you know. And yeah, I don't know, continue please, I

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Speaker 1: don't mean to interrupt him. I would say, with risk managers, UM,

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Speaker 1: you know, both on the buy side and the cell

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Speaker 1: side being um, more stringent than they were maybe a

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Speaker 1: few years ago, it's you know, how do you go

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Speaker 1: in the day after the event, having said I didn't

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Speaker 1: hedge or I didn't buy protection, how the event. This

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Speaker 1: goes to from electrical engineering, the idea of slew rights,

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Speaker 1: which is the rated change of an electrical circuit. This

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Speaker 1: was in the movie The Big Short David. The idea

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Speaker 1: here that your world was always gained by having an

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Speaker 1: information advantage. Just in the last six or seven years

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Speaker 1: his your information advantage shrunk because of digital media, digital

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Speaker 1: information and of course the fact that everyone listening owns

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Speaker 1: a Bloomberg terminal not. That's actually a very good question

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Speaker 1: and something we think about pretty much on a daily basis,

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Speaker 1: because um, I would say the you know, financial media

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Speaker 1: has become um much more aware, UM and you know,

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Speaker 1: cognizant of some of these other indicators, looking at the VIX,

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Speaker 1: looking at certain applied volatility metrics, UM. And really that

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Speaker 1: kind of initial high level analysis that a lot of

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Speaker 1: people would do is taken down one or two steps.

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Speaker 1: So on that basis that there really is less informational

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Speaker 1: advantage per se, and you really have to kind of

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Speaker 1: do your work. So I think it really differentiates to

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Speaker 1: investor classes between those who do it and those who don't.

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Speaker 1: We're talking yesterday, you and I about the prospects here

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Speaker 1: for a move of overseas profits back to these US

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Speaker 1: companies to have a sort of holiday. They would allow

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Speaker 1: them to bring some those profits back into the the US.

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Speaker 1: Walk us through how you see the that that playing

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Speaker 1: out with the effects would be on the bottom lines

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Speaker 1: for for these companies. Were they to do that, we're

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Speaker 1: we to get that kind of holiday. So this is

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Speaker 1: actually one of the interesting things, especially from a volatility perspective,

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Speaker 1: when you when you think about buy backs and the

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Speaker 1: way that they're generally um orchestrated their VALL dampening because

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Speaker 1: companies tend to buy back more stock on than the

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Speaker 1: stocks lower the you know, on an intra day basis,

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Speaker 1: and and um buy back less when the stocks higher.

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Speaker 1: So on that basis you have this this effect of

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Speaker 1: the implied VALL of those names are actually tend to

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Speaker 1: be lower than the implied VAUL of other names that

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Speaker 1: aren't aren't actually conducting a buyback. So from that basis,

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Speaker 1: if we have a number of large caps that bring

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Speaker 1: back um, you know, say, of the trillion dollars of

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Speaker 1: overseas cash they bring back between um you know, two

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Speaker 1: hundred and five hundred billion of that um in of

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Speaker 1: of that sixty cents in the dollar is actually spent

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Speaker 1: on buy backs and special dividends, then I think that

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Speaker 1: would be vall dampening and that would be positive for

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Speaker 1: the market. That's likely to happen. I mean you when

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Speaker 1: when you think about how much of this could be

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Speaker 1: for buyback versus capital expenditure, you satisfied with that ratio

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Speaker 1: there So, and this is the key question I think.

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Speaker 1: You know, with the proposed tax reform under the Better

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Speaker 1: Way plan, if capex is expensed immediately, then you have

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Speaker 1: you have a situation where companies will actually be incentivized

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Speaker 1: to do more capex. And on that basis, so you know,

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Speaker 1: in the two thousand four tax repay creation holiday you

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Speaker 1: had sixty cents in the dollar actually returned to shareholders.

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Speaker 1: This time around, you might see Stewart, thank you so much, Stewart,

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Speaker 1: Orther BMP Perry Boad. We're looking at at retail here

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Speaker 1: in the wake of the holiday season, obviously looking at

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Speaker 1: Macy's as we just heard uh prospects there were some

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Speaker 1: big layoffs at Macy's. I want to bring him now,

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Speaker 1: John curn and he is with Collen forres a retail

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Speaker 1: and let's se John, great to speak with you, great

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Speaker 1: to be on. Let's let's start with Macy's. If if

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Speaker 1: we could hear obviously some big headline number jobs going

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Speaker 1: away here. What has changed for Macy's here in the

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Speaker 1: last couple of quarters, if anything? Or is this the

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Speaker 1: continuation of the trouble that department store chain has been

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Speaker 1: seeing here for a while. Well, there's a big shift

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Speaker 1: to digital and the Amazon's leading that. We at Collen

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Speaker 1: we actually forecast Amazon to be the largest apparel retailer

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Speaker 1: in North America by the end of two thousand seventeen.

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Speaker 1: You have maltrafect declining it essentially a mid single digit

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Speaker 1: rate year on year after year since two thousand and fourteen,

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Speaker 1: and seeing a big shift away from breaking mortar to digital,

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Speaker 1: and Macy's casually in that shift. What are they doing

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Speaker 1: to to curb that? We know about the rivalry here

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Speaker 1: between Amazon and Walmart. Walmart investing heavily to the tune

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Speaker 1: of billions in building up and changing its website. Is

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Speaker 1: Macy's trying to do anything to to change its online presence?

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Speaker 1: I actually don't cover Macy's myself, my colleague Oliver chen does.

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Speaker 1: But everyone's trying to move more towards digital, is trying

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Speaker 1: to shut brick and mortar doors. There's way too much

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Speaker 1: square footage in general in North America. So you're going

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Speaker 1: to continue this is um this is just the beginning

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Speaker 1: of a door closure across retail. Two quick questions here

428
00:22:45,040 --> 00:22:47,000
Speaker 1: in the time we got John that's so important. We're

429
00:22:47,000 --> 00:22:50,640
Speaker 1: thrilled that you're on with us with Urine Oliver Chen's work.

430
00:22:50,880 --> 00:22:55,360
Speaker 1: First of all, within the analysis, are we underweighing the

431
00:22:55,440 --> 00:22:58,360
Speaker 1: impact of Amazon? Is this just really, at the end

432
00:22:58,359 --> 00:23:03,160
Speaker 1: of the day, just about Amazon. That's not all about Amazon,

433
00:23:03,200 --> 00:23:04,840
Speaker 1: but certainly a lot of it is. And it's a

434
00:23:04,840 --> 00:23:07,520
Speaker 1: lot about the growth of the director consumer platforms of

435
00:23:07,560 --> 00:23:08,800
Speaker 1: a lot of the brands are out there like a

436
00:23:08,880 --> 00:23:12,520
Speaker 1: Nike and on their armor. Um, as more brands expand

437
00:23:12,520 --> 00:23:15,639
Speaker 1: their own online efforts, it's it's obviously negative. If I

438
00:23:15,680 --> 00:23:17,800
Speaker 1: go to the back of a cow and sheet and

439
00:23:17,840 --> 00:23:22,000
Speaker 1: I'm gonna look at a given retail operation, revenues ain't

440
00:23:22,040 --> 00:23:26,080
Speaker 1: happen in negative two point same s sales, etcetera, etcetera, etcetera.

441
00:23:26,480 --> 00:23:31,200
Speaker 1: Where down the income statement do they get this fixed

442
00:23:31,320 --> 00:23:33,800
Speaker 1: or is it over in the balance sheet with real estate?

443
00:23:34,359 --> 00:23:38,440
Speaker 1: What's the solution for retail America to intition this to

444
00:23:38,480 --> 00:23:41,359
Speaker 1: have product that people want to buy? You sound like

445
00:23:42,840 --> 00:23:45,440
Speaker 1: you take it doesn't work in the consumer space if

446
00:23:45,440 --> 00:23:47,560
Speaker 1: we just haven't seen it, at least in the retail space.

447
00:23:48,320 --> 00:23:51,000
Speaker 1: We've seen seer struggle to monetize their real estate. The

448
00:23:51,040 --> 00:23:54,120
Speaker 1: market caps down to eight hundred million from a peak

449
00:23:54,160 --> 00:23:57,680
Speaker 1: of north ny billion, you know, a decade ago. Um,

450
00:23:57,760 --> 00:24:01,480
Speaker 1: But financial engineering in retail we've yet to ever really

451
00:24:01,520 --> 00:24:05,080
Speaker 1: see work. Um. So that you have to have product,

452
00:24:05,119 --> 00:24:07,439
Speaker 1: you go on, you go back, forget about you know,

453
00:24:07,600 --> 00:24:11,359
Speaker 1: closing a thousand stores, laying off x thousands of people.

454
00:24:11,440 --> 00:24:14,320
Speaker 1: As an industry, they're supposed to find the mother of

455
00:24:14,359 --> 00:24:17,639
Speaker 1: all products. How do you do that? Well, you have

456
00:24:17,640 --> 00:24:20,480
Speaker 1: to own Brandon intellectual property. That's how you do it. Um.

457
00:24:20,600 --> 00:24:24,080
Speaker 1: That's those are That's who's winning now, whether it's the Nikes,

458
00:24:24,080 --> 00:24:26,760
Speaker 1: the under Armors, or the other you know, the brands

459
00:24:26,760 --> 00:24:29,240
Speaker 1: that are out there. But the brick and mortar retail

460
00:24:29,280 --> 00:24:33,000
Speaker 1: community continues to struggle. Help us understand here how retailers

461
00:24:33,000 --> 00:24:35,760
Speaker 1: are looking ahead to Donald Trump's policies. We talk a

462
00:24:35,800 --> 00:24:39,200
Speaker 1: lot about the effective of those potential policies on the

463
00:24:39,240 --> 00:24:41,760
Speaker 1: economy large, but when it comes to retailers, what are

464
00:24:41,800 --> 00:24:44,360
Speaker 1: they most concerned about? What could make the biggest difference

465
00:24:44,400 --> 00:24:47,120
Speaker 1: for them? Here? Going forward. Yeah, it's funny this year.

466
00:24:47,800 --> 00:24:51,200
Speaker 1: I think usually it's fashion trends, consumer trends, they drive

467
00:24:51,680 --> 00:24:55,199
Speaker 1: stock price performance in retail consumer discretionary, but changes in

468
00:24:55,240 --> 00:25:00,760
Speaker 1: Washington policy, those potential changes have a norm of simplications

469
00:25:00,760 --> 00:25:03,440
Speaker 1: for retail in the consumer discretionary space. If border tax

470
00:25:03,480 --> 00:25:08,440
Speaker 1: adjustments are put through indiscriminately and you're just taxing imported

471
00:25:08,520 --> 00:25:11,280
Speaker 1: goods from China and the Far East, it will have

472
00:25:11,400 --> 00:25:14,159
Speaker 1: major negative implications for everybody in this group, and you

473
00:25:14,160 --> 00:25:18,080
Speaker 1: can start slashing your earnings estimates pretty much indiscriminately. He's immigration,

474
00:25:18,119 --> 00:25:20,000
Speaker 1: A big issue? Is that something that is it all

475
00:25:20,040 --> 00:25:24,040
Speaker 1: on the horizon here for retailers. People are thinking about it,

476
00:25:24,080 --> 00:25:26,560
Speaker 1: but there's there's other issues like the border adjustments that

477
00:25:26,600 --> 00:25:28,240
Speaker 1: I think people should be worried about. I think the

478
00:25:28,280 --> 00:25:31,080
Speaker 1: other issue people should be very worried about, at least

479
00:25:31,119 --> 00:25:36,200
Speaker 1: the retail management teams. You're an absolutely booming consumer macro environment.

480
00:25:36,240 --> 00:25:39,040
Speaker 1: Two thousand sixteen saw on acceleration and wages. It's all

481
00:25:39,080 --> 00:25:41,800
Speaker 1: on acceleration and consumer spending. You're seeing a lot of

482
00:25:41,800 --> 00:25:44,320
Speaker 1: really bad numbers from a lot of retailers. So what

483
00:25:44,480 --> 00:25:47,400
Speaker 1: actually happens when the cycle does inevitably roll over. Things

484
00:25:47,400 --> 00:25:50,879
Speaker 1: are going to get really ugly in retail. John Gore,

485
00:25:51,000 --> 00:25:52,520
Speaker 1: thank you very much for joining us here. Again, a

486
00:25:52,520 --> 00:25:55,840
Speaker 1: lot of big news. It's a gloomy that's gloomier than

487
00:25:55,880 --> 00:25:59,920
Speaker 1: Howard divided. Holidays are over. Yeah, it's gloomier than Howard divisied.

488
00:26:00,000 --> 00:26:05,399
Speaker 1: It's difficult commentary er anyway. John cronin there with the

489
00:26:05,600 --> 00:26:08,520
Speaker 1: accounting company joining us. Song all the retail news we've

490
00:26:08,520 --> 00:26:18,399
Speaker 1: done here in the last twenty four hours. Who you

491
00:26:18,480 --> 00:26:21,960
Speaker 1: put your trust in matters. Investors have put their trust

492
00:26:22,000 --> 00:26:25,800
Speaker 1: in independent registered investment advisors to the tune of four

493
00:26:25,840 --> 00:26:29,840
Speaker 1: trillion dollars. Why. They see their roles to serve, not sell.

494
00:26:30,359 --> 00:26:33,640
Speaker 1: That's why Charles Schwab is committed to the success over

495
00:26:33,760 --> 00:26:40,000
Speaker 1: seven thousand independent financial advisors who passionately dedicate themselves to

496
00:26:40,119 --> 00:26:44,919
Speaker 1: helping people achieve their financial goals. Learn more at find

497
00:26:45,119 --> 00:26:53,600
Speaker 1: your Independent Advisor dot com. I'm gonna bring in Drew

498
00:26:53,600 --> 00:26:56,280
Speaker 1: Madis now he's deputy chief US economist at U B

499
00:26:56,440 --> 00:26:57,760
Speaker 1: S Troop. Thanks very much for being with us. I

500
00:26:57,760 --> 00:27:00,440
Speaker 1: know you're processing the the unemployment numb as we got

501
00:27:00,440 --> 00:27:02,439
Speaker 1: this morning, so we'll give you time to do that.

502
00:27:02,520 --> 00:27:04,920
Speaker 1: Let me start by asking you about what we learned

503
00:27:04,920 --> 00:27:06,879
Speaker 1: from the Federatory of yesterday. We've been talking about the

504
00:27:06,960 --> 00:27:09,280
Speaker 1: role of these minutes from that meeting at which that

505
00:27:09,400 --> 00:27:12,159
Speaker 1: that did decide to raise rates. What was unclear to

506
00:27:12,200 --> 00:27:14,679
Speaker 1: you going into getting those minutes yesterday and what did

507
00:27:14,680 --> 00:27:17,000
Speaker 1: you learn when they came out at two o'clock. Well,

508
00:27:17,040 --> 00:27:19,880
Speaker 1: I mean, I think what people were mainly concerned about

509
00:27:19,960 --> 00:27:22,520
Speaker 1: was why there were three rate hikes all of a sudden, um,

510
00:27:22,640 --> 00:27:25,600
Speaker 1: and there had been two. Uh. And I think the minutes,

511
00:27:26,000 --> 00:27:27,960
Speaker 1: you know, what the minute suggested was that that wasn't

512
00:27:28,000 --> 00:27:29,800
Speaker 1: some sort of error, that that was in fact what

513
00:27:29,840 --> 00:27:32,679
Speaker 1: they meant to do, or that it was consistent with

514
00:27:32,760 --> 00:27:35,400
Speaker 1: what what how they were thinking of the world. Uh.

515
00:27:35,440 --> 00:27:37,120
Speaker 1: You know, our view is that they'll still be two

516
00:27:37,200 --> 00:27:40,240
Speaker 1: rate hikes next year. Uh. They they've talked a pretty

517
00:27:40,240 --> 00:27:43,399
Speaker 1: aggressive rate hike schedule pretty much every year. Uh, and

518
00:27:43,440 --> 00:27:45,560
Speaker 1: they haven't been able to get it done. Um. And

519
00:27:46,040 --> 00:27:47,840
Speaker 1: you know, we can debate why that why they haven't

520
00:27:47,840 --> 00:27:49,680
Speaker 1: been able to get done, but I think it's because

521
00:27:49,720 --> 00:27:51,959
Speaker 1: they tend to focus more on financial conditions than they

522
00:27:52,000 --> 00:27:54,720
Speaker 1: have in the past. Um, and that that creates a

523
00:27:54,800 --> 00:27:58,320
Speaker 1: circularity and kind of the whole structure, which which really

524
00:27:58,359 --> 00:28:02,480
Speaker 1: prevents them from moving that much more restie circularity, uncertainty

525
00:28:02,520 --> 00:28:05,000
Speaker 1: that the fit acknowledging that that exists. And it's a

526
00:28:05,000 --> 00:28:07,520
Speaker 1: complicating factory. How complicating is it for you here? Has

527
00:28:07,560 --> 00:28:09,360
Speaker 1: you come up with your growth forecast as you try

528
00:28:09,400 --> 00:28:11,239
Speaker 1: to forecast at what you think is gonna happen here

529
00:28:11,240 --> 00:28:13,960
Speaker 1: in two thousand seventeen, I've tried to make it simple

530
00:28:13,960 --> 00:28:17,280
Speaker 1: on myself. Uh, and so I've only done the work

531
00:28:17,359 --> 00:28:20,320
Speaker 1: on things that have been kind of fully fleshed out. Uh,

532
00:28:21,000 --> 00:28:24,679
Speaker 1: you're you're in a vacuum. Well, you know, the problem

533
00:28:24,680 --> 00:28:26,960
Speaker 1: is there's there's a lot of numbers out there, but

534
00:28:27,040 --> 00:28:29,679
Speaker 1: there's not a lot of detail behind some of the numbers.

535
00:28:29,760 --> 00:28:32,520
Speaker 1: And you know, I think until we get more clarity

536
00:28:32,520 --> 00:28:34,800
Speaker 1: on some on some of the proposals that you know,

537
00:28:35,160 --> 00:28:38,040
Speaker 1: the more cautious approach is probably the one that's best warranted.

538
00:28:38,120 --> 00:28:43,000
Speaker 1: I mean, we have penciled in some acceleration growth from Trump, uh,

539
00:28:43,440 --> 00:28:48,840
Speaker 1: from some of his policies for next year. And we have, um,

540
00:28:49,200 --> 00:28:52,560
Speaker 1: we've penciled in a little more in two thousand eighteen,

541
00:28:52,880 --> 00:28:55,760
Speaker 1: um from his policies. But you know, at the end

542
00:28:55,760 --> 00:28:59,520
Speaker 1: of the day. We have an economy operating towards full capacity.

543
00:28:59,720 --> 00:29:02,040
Speaker 1: The employment rate is pretty much as low as you

544
00:29:02,280 --> 00:29:06,440
Speaker 1: anyone probably wants to see it get um and you know,

545
00:29:06,480 --> 00:29:08,800
Speaker 1: the inflation numbers are moving back up towards the fence

546
00:29:08,880 --> 00:29:11,440
Speaker 1: target zone. So it's pretty you know, for us, it's

547
00:29:11,440 --> 00:29:13,800
Speaker 1: hard to argue that we're far away from some sort

548
00:29:13,840 --> 00:29:17,120
Speaker 1: of you know, natural state and the economy, and that

549
00:29:17,160 --> 00:29:19,520
Speaker 1: means any sort of further stimulus just of and has

550
00:29:19,560 --> 00:29:22,600
Speaker 1: the same bank Ford Spock drew. What's the twelve months

551
00:29:22,600 --> 00:29:27,320
Speaker 1: forward GDP view of UBS. We are just below too

552
00:29:27,320 --> 00:29:29,880
Speaker 1: and a half percent, so about a hundred basis points

553
00:29:29,880 --> 00:29:33,520
Speaker 1: of acceleration versus this year. You are optimistic compared to

554
00:29:33,640 --> 00:29:37,080
Speaker 1: many we speak to our sub two and a half percent.

555
00:29:37,880 --> 00:29:41,840
Speaker 1: What is the requirement to attain your optimism or to

556
00:29:42,040 --> 00:29:46,200
Speaker 1: exceed it? Is it just about investment? You know, to

557
00:29:46,240 --> 00:29:48,400
Speaker 1: be honest with you, Tom, it doesn't take a lot.

558
00:29:48,480 --> 00:29:52,520
Speaker 1: Our hundred basis point acceleration is pretty much. We don't

559
00:29:52,560 --> 00:29:56,320
Speaker 1: have ay repeat in UH energy price movements that could

560
00:29:56,360 --> 00:30:00,480
Speaker 1: generate the same kind of CAPEX decline, which doesn't seem

561
00:30:00,560 --> 00:30:02,960
Speaker 1: like it's likely that we could make that happen, even

562
00:30:03,000 --> 00:30:07,560
Speaker 1: if we wanted to um and uh that we uh,

563
00:30:07,640 --> 00:30:10,280
Speaker 1: you know, we don't you know, effectively, It's just that

564
00:30:10,440 --> 00:30:14,240
Speaker 1: we don't repeat the bad news twice. Uh. You know,

565
00:30:14,320 --> 00:30:17,120
Speaker 1: So that acceleration and growth has nothing to do with

566
00:30:17,160 --> 00:30:20,240
Speaker 1: anything getting better. It has things to do. It has

567
00:30:20,280 --> 00:30:24,680
Speaker 1: everything to do with two things inventory, uh, inventory movements

568
00:30:24,760 --> 00:30:30,480
Speaker 1: and capex not repeating what we're completely unusual years. Uh.

569
00:30:30,520 --> 00:30:32,760
Speaker 1: And so you know, when I look at the fact

570
00:30:32,760 --> 00:30:35,480
Speaker 1: that you know, we are above consensus, I kind of

571
00:30:35,520 --> 00:30:41,120
Speaker 1: wonder what implicitly people are assuming on the consensus about

572
00:30:41,160 --> 00:30:44,360
Speaker 1: the future that you know that they are confident enough

573
00:30:44,360 --> 00:30:47,040
Speaker 1: about that they can put it into their forecasts. I

574
00:30:47,360 --> 00:30:49,560
Speaker 1: think a lot of the consensus is, let's put it

575
00:30:49,680 --> 00:30:51,640
Speaker 1: this way, a lot of the consensus is penciling and

576
00:30:51,800 --> 00:30:54,520
Speaker 1: something bad happening, but they wouldn't be able to define

577
00:30:54,560 --> 00:30:57,480
Speaker 1: what that something bad is. And I think that that's

578
00:30:57,480 --> 00:31:01,160
Speaker 1: a dangerous way to forecasts. When you look at me,

579
00:31:01,280 --> 00:31:03,560
Speaker 1: let me play off of that a little bit. It's

580
00:31:03,600 --> 00:31:05,440
Speaker 1: unclear what the something bad maybe, but I mean we

581
00:31:05,480 --> 00:31:07,560
Speaker 1: have some we have some possibilities here. Trade is certainly

582
00:31:07,600 --> 00:31:08,920
Speaker 1: a big one. I mean, that must be a huge

583
00:31:08,920 --> 00:31:13,320
Speaker 1: weight on you as your forecasting well except for the

584
00:31:13,320 --> 00:31:16,400
Speaker 1: fact that you know, we don't really know what's going

585
00:31:16,440 --> 00:31:19,440
Speaker 1: to happen there. We don't know how much of this

586
00:31:19,920 --> 00:31:22,480
Speaker 1: um you know, how much is talking, how much is

587
00:31:22,520 --> 00:31:24,880
Speaker 1: going to be We're seeing contours this week, though, aren't

588
00:31:24,880 --> 00:31:28,760
Speaker 1: we with GM and Ford and and the rest. Well,

589
00:31:28,800 --> 00:31:32,960
Speaker 1: we'll see. I mean, you know, I'm hesitant to basically

590
00:31:32,960 --> 00:31:36,000
Speaker 1: say that voluntary actions by by firms are should be

591
00:31:36,000 --> 00:31:37,760
Speaker 1: thought of in one direction or the other. I mean,

592
00:31:37,880 --> 00:31:41,400
Speaker 1: that's that's not policy, that's that's firms responding in ways

593
00:31:41,440 --> 00:31:44,200
Speaker 1: that they think our best. UM. So you know, I

594
00:31:45,000 --> 00:31:47,440
Speaker 1: hesitated to comment on anything that they're doing individually, but

595
00:31:47,480 --> 00:31:51,080
Speaker 1: I would say that, you know, until we see a

596
00:31:51,160 --> 00:31:56,240
Speaker 1: tariff or until we see something concrete um that you know,

597
00:31:56,560 --> 00:31:58,400
Speaker 1: I think it's you know, first of all, I mean,

598
00:31:58,480 --> 00:32:00,280
Speaker 1: this could take six months, it could take a year.

599
00:32:00,640 --> 00:32:02,640
Speaker 1: You know, you don't know the time frame for getting

600
00:32:02,840 --> 00:32:05,440
Speaker 1: for for making some of these things happening. Let's talk

601
00:32:05,440 --> 00:32:08,440
Speaker 1: about employment. Here's we look ahead to Jobs Day at tomorrow.

602
00:32:08,440 --> 00:32:10,240
Speaker 1: What are you gonna be looking for here? We're talking

603
00:32:10,240 --> 00:32:12,720
Speaker 1: with Annie Blanche Flowers. Tom said a few moments ago

604
00:32:12,760 --> 00:32:16,040
Speaker 1: about part time is um about wage growth, that what's

605
00:32:16,040 --> 00:32:18,360
Speaker 1: going to attract your your attention tomorrow when those numbers

606
00:32:18,440 --> 00:32:21,560
Speaker 1: come out, well, I'll be blown. I'm not gonna worry

607
00:32:21,600 --> 00:32:24,240
Speaker 1: too much about part time employment because part time employment

608
00:32:24,280 --> 00:32:28,280
Speaker 1: isn't particularly elevated right now. UM. So I'm gonna be

609
00:32:28,320 --> 00:32:30,680
Speaker 1: just looking at the at the overall jobs numbers. I'm

610
00:32:30,680 --> 00:32:33,280
Speaker 1: gonna be focusing probably more on the household survey of

611
00:32:33,320 --> 00:32:35,960
Speaker 1: the unemployment rate. I want to see what's going on

612
00:32:36,000 --> 00:32:39,920
Speaker 1: there with participation, um, and with the employment of population ratio.

613
00:32:40,840 --> 00:32:43,400
Speaker 1: I think we are in a stage in the labor

614
00:32:43,440 --> 00:32:46,520
Speaker 1: market where we should be seeing lower levels of payroll

615
00:32:46,520 --> 00:32:50,800
Speaker 1: growth because we're running out of the easy people to hire. Uh.

616
00:32:50,840 --> 00:32:52,640
Speaker 1: And so now in order to hire someone, you have

617
00:32:52,640 --> 00:32:55,600
Speaker 1: to look a little harder. Uh. And we see that

618
00:32:55,600 --> 00:32:58,960
Speaker 1: that's consistent with the job openings number, the quits ratio,

619
00:33:00,520 --> 00:33:02,080
Speaker 1: and kind of the amount of time it takes to

620
00:33:02,120 --> 00:33:05,440
Speaker 1: fill position. All of you know, in particular that last

621
00:33:05,440 --> 00:33:08,400
Speaker 1: one has been less quite substantially. We saw that sort

622
00:33:08,400 --> 00:33:11,160
Speaker 1: of precipitous drop last month for the month before, and

623
00:33:11,200 --> 00:33:13,239
Speaker 1: I wonder what you think that portends for for this

624
00:33:13,280 --> 00:33:15,200
Speaker 1: month going forward? Here where at four point six now

625
00:33:15,240 --> 00:33:18,000
Speaker 1: surveys four point seven percent, do you think we'll see

626
00:33:18,000 --> 00:33:21,920
Speaker 1: an uptake here. Well, it's funny because uh, you know,

627
00:33:22,120 --> 00:33:25,760
Speaker 1: when you um, you know, you know, my guess is

628
00:33:25,800 --> 00:33:28,200
Speaker 1: that it will stay where it's at. Uh. One of

629
00:33:28,240 --> 00:33:31,479
Speaker 1: the interesting risks though, is that usually are not usually,

630
00:33:31,520 --> 00:33:33,800
Speaker 1: but you know, it's not inconceivable when you see a

631
00:33:33,880 --> 00:33:36,680
Speaker 1: drop like that, that that's the start of a faster

632
00:33:36,760 --> 00:33:40,440
Speaker 1: pace of decline. Uh. And if you look back historically speaking,

633
00:33:40,440 --> 00:33:43,960
Speaker 1: when you see big drops in the unemployment rate, oftentimes

634
00:33:44,000 --> 00:33:45,960
Speaker 1: what economists will do will be the pencil in a

635
00:33:46,040 --> 00:33:48,120
Speaker 1: rebound kind of normalize it back to some sort of

636
00:33:48,120 --> 00:33:52,600
Speaker 1: trend they had in the back of their mind. Historically speaking, though,

637
00:33:52,880 --> 00:33:55,440
Speaker 1: you're just as likely to see a further decline or

638
00:33:55,560 --> 00:33:57,840
Speaker 1: or an acceleration on on the process. And that that

639
00:33:58,000 --> 00:33:59,800
Speaker 1: is just the first step if you want to call

640
00:33:59,840 --> 00:34:03,320
Speaker 1: it to dam breaking um for a more rapid decline

641
00:34:03,320 --> 00:34:06,920
Speaker 1: and unemployment rate. So, uh, we are anticipating an unchanged

642
00:34:07,000 --> 00:34:09,640
Speaker 1: unemployment rate, which which means that we're saying it's it's

643
00:34:09,719 --> 00:34:12,600
Speaker 1: neither the dam breaking nor is it some sort of

644
00:34:13,160 --> 00:34:16,920
Speaker 1: false reading. Um. But if it were to drop further,

645
00:34:17,239 --> 00:34:19,040
Speaker 1: that would be something that would that would make us

646
00:34:19,080 --> 00:34:21,680
Speaker 1: really have to question, like how much further, the fact

647
00:34:21,719 --> 00:34:23,920
Speaker 1: can watch that thing drop before they have to get

648
00:34:24,000 --> 00:34:26,880
Speaker 1: serious potentially moving more quickly. Can I read into your

649
00:34:26,920 --> 00:34:29,480
Speaker 1: prescription then that you think we're full unemployment? Then if

650
00:34:29,600 --> 00:34:32,200
Speaker 1: you think we're going to stay where we are, to

651
00:34:32,239 --> 00:34:33,719
Speaker 1: be honest with you, I think we're probably a low

652
00:34:33,719 --> 00:34:37,240
Speaker 1: full employment. I think you know we have the people

653
00:34:37,320 --> 00:34:41,560
Speaker 1: in the labor force, um we have, we we don't

654
00:34:41,640 --> 00:34:44,640
Speaker 1: have enough. What's been going on in the labor forces.

655
00:34:44,680 --> 00:34:47,759
Speaker 1: We have this nice steady pace of job growth, but

656
00:34:47,840 --> 00:34:50,880
Speaker 1: that's been happening because we've had fewer layoffs and fewer

657
00:34:50,960 --> 00:34:53,960
Speaker 1: higher less hiring. So the dynamics of the labor force

658
00:34:54,000 --> 00:34:57,600
Speaker 1: are actually pretty low right now, even though the labor

659
00:34:57,719 --> 00:35:01,120
Speaker 1: market itself looks pretty healthy. The net numbers look good,

660
00:35:01,120 --> 00:35:04,600
Speaker 1: but the gross numbers look bad. Uh. And what I

661
00:35:04,640 --> 00:35:07,080
Speaker 1: would like to see is a little more job switching.

662
00:35:07,120 --> 00:35:09,640
Speaker 1: I'd like to see a few more people getting fired

663
00:35:09,760 --> 00:35:12,400
Speaker 1: and a few more people getting hired, because that's a

664
00:35:12,400 --> 00:35:15,200
Speaker 1: more dynamic market. That's one that's better for everyone. How

665
00:35:15,239 --> 00:35:18,799
Speaker 1: do you respond to the wonderful aggregate analysis you has

666
00:35:18,840 --> 00:35:22,760
Speaker 1: just given us versus the partitioning of the American labor

667
00:35:22,840 --> 00:35:27,879
Speaker 1: force into those employable those on the margin that want

668
00:35:27,920 --> 00:35:30,560
Speaker 1: to be employable all the analysis should do every day

669
00:35:30,640 --> 00:35:32,560
Speaker 1: and a huge body of Americans that aren't part of

670
00:35:32,600 --> 00:35:37,279
Speaker 1: the discussion. Do you fold that in? Uh, you know,

671
00:35:37,400 --> 00:35:40,360
Speaker 1: it's it's hard to separate it out when you're trying.

672
00:35:40,400 --> 00:35:45,520
Speaker 1: I mean, we're trying to predict policy, right and so um, certainly,

673
00:35:46,480 --> 00:35:49,359
Speaker 1: you know, I mean from a philosophical perspective, what you

674
00:35:49,400 --> 00:35:54,800
Speaker 1: want is a labor market where everyone can find work

675
00:35:55,080 --> 00:35:58,239
Speaker 1: if they're willing to work. Um. And that's that's the

676
00:35:58,280 --> 00:36:01,200
Speaker 1: idea of full employment, right that you that you've reached

677
00:36:01,200 --> 00:36:04,320
Speaker 1: a frictional level of unemployment, and then there's some people

678
00:36:04,360 --> 00:36:07,520
Speaker 1: who are temporarily unemployed because they need to be for

679
00:36:07,600 --> 00:36:11,399
Speaker 1: whatever reason. Um, and the rest of everyone who wants

680
00:36:11,400 --> 00:36:14,279
Speaker 1: to work can work. Uh. And and that's the that's

681
00:36:14,360 --> 00:36:16,759
Speaker 1: you know, probably you know, ideal is probably the wrong

682
00:36:16,760 --> 00:36:18,759
Speaker 1: way of putting. But I'll go I'll go with what

683
00:36:18,800 --> 00:36:21,120
Speaker 1: you just said, Drew. But are we getting the jobs

684
00:36:21,160 --> 00:36:23,160
Speaker 1: if we want to work that we want? Or is

685
00:36:23,239 --> 00:36:27,759
Speaker 1: David Blancheflower said yesterday, is it about getting marginally more

686
00:36:27,920 --> 00:36:31,440
Speaker 1: hours of work? And we can't get that. I mean,

687
00:36:31,520 --> 00:36:36,760
Speaker 1: have we become almost two labor efficient? Well, The problem

688
00:36:36,800 --> 00:36:40,120
Speaker 1: is that that's been encouraged. Right, So we have policies

689
00:36:40,120 --> 00:36:43,160
Speaker 1: in place that have defined full work weeks as being

690
00:36:43,160 --> 00:36:47,120
Speaker 1: below thirty hours or being thirty hours, which is a

691
00:36:47,719 --> 00:36:51,319
Speaker 1: sharp change from kind of historical norms. Uh. And that

692
00:36:51,360 --> 00:36:56,960
Speaker 1: has probably led to a bifurcation of labor force between

693
00:36:57,000 --> 00:37:00,839
Speaker 1: skilled and unskilled labor because why would any firm pay

694
00:37:01,000 --> 00:37:04,320
Speaker 1: for the thirtieth hour of work in an unskilled environment

695
00:37:04,320 --> 00:37:06,680
Speaker 1: when that thirtieth hour of work has a marginal cost.

696
00:37:06,800 --> 00:37:10,960
Speaker 1: It's significant. So giving some of that thirtieth hour of

697
00:37:10,960 --> 00:37:13,880
Speaker 1: work is no longer paying them the extra ten to

698
00:37:13,960 --> 00:37:17,239
Speaker 1: fifteen an hour. It's paying them the fifteen dollars an

699
00:37:17,239 --> 00:37:21,359
Speaker 1: hour and a whole range of mandated benefits um. And

700
00:37:21,400 --> 00:37:24,120
Speaker 1: So because we put a break point in, we've created

701
00:37:24,120 --> 00:37:29,800
Speaker 1: an artificial um stress in the system that encourages firms

702
00:37:29,840 --> 00:37:33,040
Speaker 1: to think in terms of not giving anyone thirty hours

703
00:37:33,160 --> 00:37:37,120
Speaker 1: unless you can justify it from a skills perspective. Let

704
00:37:37,160 --> 00:37:39,120
Speaker 1: me ask you just to to to pivot here a

705
00:37:39,160 --> 00:37:41,320
Speaker 1: little bit here at the beginning of two thousand and seventeen,

706
00:37:41,320 --> 00:37:43,600
Speaker 1: after the holiday season, how's the consumer looking to you

707
00:37:44,280 --> 00:37:47,239
Speaker 1: in the US right now? I mean, I think the

708
00:37:47,280 --> 00:37:51,680
Speaker 1: consumer looks good. Uh. You know when I said, when

709
00:37:51,719 --> 00:37:54,120
Speaker 1: I was talking about the the the gross flows into

710
00:37:54,160 --> 00:37:56,440
Speaker 1: another labor force, you know, and we saw it in

711
00:37:56,480 --> 00:38:00,319
Speaker 1: claims today. No one's being fired. They're very low levels

712
00:38:00,360 --> 00:38:04,840
Speaker 1: of layoffs in the economy relative to the population size. UM.

713
00:38:04,880 --> 00:38:09,040
Speaker 1: There are decent wage gains. They're not they're not incredibly great,

714
00:38:09,120 --> 00:38:14,719
Speaker 1: but they're decent given that environment. UM. And uh, you

715
00:38:14,840 --> 00:38:19,759
Speaker 1: have expanding access to credit for consumers. UM. You add

716
00:38:19,760 --> 00:38:22,239
Speaker 1: all that up and you have a very steady consumption

717
00:38:23,040 --> 00:38:25,399
Speaker 1: profile going forward. And that's one of the reasons why

718
00:38:25,400 --> 00:38:28,279
Speaker 1: our growth forecast accelerates is because we do have that

719
00:38:28,360 --> 00:38:33,440
Speaker 1: steady consumer built into our outlook. That just seems to

720
00:38:33,440 --> 00:38:35,600
Speaker 1: be the most basic case. And of course, with the

721
00:38:35,640 --> 00:38:39,600
Speaker 1: consumer being the economy, UM, that provides you with a

722
00:38:39,680 --> 00:38:43,439
Speaker 1: nice four momentum into the into two thousand seventeen. Thank

723
00:38:43,480 --> 00:38:59,200
Speaker 1: you so much, dramatics UBS greatly appreciate it. Here pleased

724
00:38:59,239 --> 00:39:01,600
Speaker 1: to be joined out by Mark Kiesel. He's the CEO

725
00:39:01,680 --> 00:39:05,239
Speaker 1: for Global Credit at PIMCO, joining us from Newport Beach, California,

726
00:39:05,360 --> 00:39:08,520
Speaker 1: with a new note navigating change Opportunities and quality credit,

727
00:39:08,560 --> 00:39:12,640
Speaker 1: Specialty finance and Mortgages. Great to speak with you. Mark. Hi, David,

728
00:39:12,680 --> 00:39:15,759
Speaker 1: good morning. Let's start with your appetite for credit, how

729
00:39:15,760 --> 00:39:18,200
Speaker 1: it's changed your in the new year, and I'm wondering

730
00:39:18,200 --> 00:39:22,520
Speaker 1: if your appetite for quality credit has changed in particular. Well, David,

731
00:39:22,560 --> 00:39:25,960
Speaker 1: a year ago, we were quite optimistic on credit. UM

732
00:39:26,160 --> 00:39:29,320
Speaker 1: high yield in two thousands sixteen was the strongest performing

733
00:39:29,360 --> 00:39:33,400
Speaker 1: market up fifteen sixt So a year ago, when energy

734
00:39:33,440 --> 00:39:36,600
Speaker 1: prices were hitting the lows, we were buying aggressively high yield.

735
00:39:37,120 --> 00:39:40,880
Speaker 1: Now we're de risking. We basically think under Trump the

736
00:39:40,920 --> 00:39:44,160
Speaker 1: market faces a lot more two way risks. There's positive

737
00:39:44,160 --> 00:39:48,480
Speaker 1: scenarios under Trump, with tax reform and confidence picking up,

738
00:39:48,520 --> 00:39:51,480
Speaker 1: but also there's negative. So we have been de risking.

739
00:39:51,480 --> 00:39:53,880
Speaker 1: We think a lot of good news is christ then, folks.

740
00:39:53,960 --> 00:39:56,360
Speaker 1: De risking is sort of like in the airline business

741
00:39:56,400 --> 00:40:01,239
Speaker 1: when you deplane. What the hell is de risking? Mark? So, Tom,

742
00:40:01,239 --> 00:40:04,040
Speaker 1: what we've been doing is we have been selling into strength.

743
00:40:04,239 --> 00:40:08,320
Speaker 1: UM energy markets have basically gone from twenty six on

744
00:40:08,440 --> 00:40:11,640
Speaker 1: oil to fifty two. We've been selling into that strength,

745
00:40:11,640 --> 00:40:15,040
Speaker 1: and we've been upgrading the overall quality of our portfolio. Mark, Mark,

746
00:40:15,239 --> 00:40:18,440
Speaker 1: I'm marketing as I'm busting his chopped folks, because there's

747
00:40:18,480 --> 00:40:22,279
Speaker 1: a general council it ogre, ogre and miserable out in

748
00:40:22,360 --> 00:40:26,920
Speaker 1: Newport Beach, California, saying, don't say we sell bonds, but

749
00:40:27,200 --> 00:40:29,560
Speaker 1: marks a good sport about it. Let me de risk

750
00:40:29,600 --> 00:40:33,960
Speaker 1: over to David, when when you look at that, at

751
00:40:34,000 --> 00:40:36,759
Speaker 1: the reasons for de risking as you put it in,

752
00:40:36,840 --> 00:40:38,719
Speaker 1: what what are the major ones? Is it? Is it

753
00:40:38,800 --> 00:40:41,440
Speaker 1: the prospect from more political risk here in the new year?

754
00:40:41,560 --> 00:40:44,320
Speaker 1: Is it? Is it central bank policy? What's the driving

755
00:40:44,320 --> 00:40:47,040
Speaker 1: force there behind you doing that? So David just just

756
00:40:47,160 --> 00:40:50,839
Speaker 1: on bonds alone, if you go pre election, we were

757
00:40:50,840 --> 00:40:54,440
Speaker 1: really globally hitting limits of global que There were trends

758
00:40:54,480 --> 00:40:57,279
Speaker 1: in place already for higher rates even before Trump. The

759
00:40:57,280 --> 00:41:01,600
Speaker 1: global economy was gradually healing from very depressed levels. We

760
00:41:01,719 --> 00:41:06,160
Speaker 1: have rising global p m I data, PPI data OPEC

761
00:41:06,280 --> 00:41:09,040
Speaker 1: deal to me was a big game changer. That that

762
00:41:09,200 --> 00:41:12,360
Speaker 1: is the return of the cartel. You're seeing earnings bottom

763
00:41:12,600 --> 00:41:15,600
Speaker 1: and then you have Trump surprise with the win. Now

764
00:41:15,640 --> 00:41:19,200
Speaker 1: you've got animal spirits kicking in, you've got business confidence improving,

765
00:41:19,239 --> 00:41:22,560
Speaker 1: consumer confidence improving, and you've got the prospect for the

766
00:41:22,600 --> 00:41:25,920
Speaker 1: first time in eight years of a very pro business

767
00:41:25,920 --> 00:41:28,879
Speaker 1: pro growth initiatives going through. So to me, I think

768
00:41:28,920 --> 00:41:32,480
Speaker 1: you want to be more defensive. The trend towards higher rates,

769
00:41:32,560 --> 00:41:35,320
Speaker 1: I think is had had been in place even before Trump.

770
00:41:35,320 --> 00:41:39,080
Speaker 1: Trump just accelerates that trend, but critically, and I mean

771
00:41:39,120 --> 00:41:41,320
Speaker 1: it's seriously, Mark, do you have in your head a

772
00:41:41,520 --> 00:41:47,239
Speaker 1: tip point on tenure yield which signals the Trump reflation?

773
00:41:47,320 --> 00:41:49,680
Speaker 1: I know it's not two point four one per cent,

774
00:41:49,800 --> 00:41:51,799
Speaker 1: but is there a number where you say, hey, this

775
00:41:51,880 --> 00:41:55,799
Speaker 1: is for real. Well, we have been basically starting to

776
00:41:55,880 --> 00:41:58,080
Speaker 1: add a little bit of bonds here because we have

777
00:41:58,200 --> 00:42:01,040
Speaker 1: seen the tenure back up a hundred by basis points.

778
00:42:01,040 --> 00:42:02,799
Speaker 1: But I think a lot of this has to do

779
00:42:02,840 --> 00:42:06,440
Speaker 1: with the Fed and will the Fed shift more hawkish

780
00:42:06,520 --> 00:42:09,200
Speaker 1: or more dubbish over time? In my mind, they're gonna

781
00:42:09,239 --> 00:42:12,239
Speaker 1: likely shift more hawkish, and that was clear yesterday in

782
00:42:12,280 --> 00:42:16,080
Speaker 1: the minutes. They clearly highlighted that the risks of growth

783
00:42:16,120 --> 00:42:20,160
Speaker 1: surpassing their forecasts have grown because there is this possibility

784
00:42:20,160 --> 00:42:23,799
Speaker 1: of expansionary fiscal policy. This is happening, by the way,

785
00:42:23,840 --> 00:42:25,880
Speaker 1: Tom at the top at a time when the labor

786
00:42:25,880 --> 00:42:29,279
Speaker 1: markets already tight, So there's this right tail risk out

787
00:42:29,280 --> 00:42:33,719
Speaker 1: there of inflation. I think potentially surprising the FED. And

788
00:42:33,760 --> 00:42:37,279
Speaker 1: also they even mentioned in the minutes yesterday that that

789
00:42:37,280 --> 00:42:41,080
Speaker 1: that has implications for the reinvestment of treasuries and mortgages.

790
00:42:41,120 --> 00:42:43,640
Speaker 1: So I think the market right now, it's priced in

791
00:42:44,280 --> 00:42:47,440
Speaker 1: is two hikes this year and only two hikes next year.

792
00:42:47,480 --> 00:42:49,520
Speaker 1: So you've only got a hundred basis points of hikes

793
00:42:49,560 --> 00:42:52,160
Speaker 1: over the next two years. In my mind, I think

794
00:42:52,239 --> 00:42:54,560
Speaker 1: the risks are that they could go faster. Are you

795
00:42:54,640 --> 00:42:56,640
Speaker 1: going to cash? What role is cash playing in your

796
00:42:56,680 --> 00:42:59,560
Speaker 1: portfolio right now? Well, what we want to do is

797
00:42:59,760 --> 00:43:03,480
Speaker 1: what two thousand sixty improved is the bond managers who

798
00:43:03,520 --> 00:43:07,920
Speaker 1: outperformed most were flexible, nimble, and they capitalized on the

799
00:43:08,000 --> 00:43:11,360
Speaker 1: key moments throughout the year, whether it was the energy crisis, Brexit,

800
00:43:11,480 --> 00:43:13,600
Speaker 1: or Trump. What we want to do now is we

801
00:43:13,640 --> 00:43:17,120
Speaker 1: want to take profits, build up a significant cash position,

802
00:43:17,680 --> 00:43:20,000
Speaker 1: and hang out in what we call the best risk

803
00:43:20,080 --> 00:43:23,920
Speaker 1: reward investments in global fixed income. That would be tips

804
00:43:24,000 --> 00:43:28,760
Speaker 1: because basically we want this this inflation protection. We're upgrading

805
00:43:28,840 --> 00:43:33,279
Speaker 1: quality and corporate bonds, favoring the consumer banks, financials and pipelines,

806
00:43:33,680 --> 00:43:38,880
Speaker 1: and importantly, non agency mortgages and agency mortgages have cheapened

807
00:43:38,920 --> 00:43:42,000
Speaker 1: considerably and offer a very good risk reward right now.

808
00:43:42,040 --> 00:43:45,800
Speaker 1: So these higher quality bonds within global fixed income actually

809
00:43:45,800 --> 00:43:47,360
Speaker 1: are the best place to be right now on a

810
00:43:47,440 --> 00:43:50,319
Speaker 1: risk adjusted basis. David Gern time King were with Mark

811
00:43:50,360 --> 00:43:57,080
Speaker 1: kisel Mark. You know, did it's a migration of yield

812
00:43:57,280 --> 00:44:01,160
Speaker 1: and inflation? Which comes for and what's it mean for

813
00:44:01,239 --> 00:44:05,759
Speaker 1: the return? The inflation adjusted return that our listeners will

814
00:44:05,800 --> 00:44:10,960
Speaker 1: get to yield move higher and then inflation catches up.

815
00:44:11,280 --> 00:44:14,760
Speaker 1: Or do we risk yields moving up but inflation moving

816
00:44:14,840 --> 00:44:18,239
Speaker 1: up faster. That's not good, is it? No, Tom, that's

817
00:44:18,239 --> 00:44:20,680
Speaker 1: not And I think you just highlighted, you know, the

818
00:44:20,760 --> 00:44:24,120
Speaker 1: reason why we have been selling into strength and de risking.

819
00:44:24,200 --> 00:44:27,319
Speaker 1: A main risk for the US economy is that we

820
00:44:27,360 --> 00:44:30,080
Speaker 1: could get a pick up of inflation as a result

821
00:44:30,120 --> 00:44:32,960
Speaker 1: of higher wages. This labor market is very tight, You've

822
00:44:33,000 --> 00:44:37,360
Speaker 1: got rising confidence, animal spirits, and this new fiscal policy.

823
00:44:37,400 --> 00:44:39,400
Speaker 1: We don't know really what's gonna unfold here, but it

824
00:44:39,400 --> 00:44:44,080
Speaker 1: could be quite inflationary. Uh So, the important point is

825
00:44:44,120 --> 00:44:47,959
Speaker 1: that US fiscal stimulus normally works best coming out of recessions.

826
00:44:47,960 --> 00:44:51,880
Speaker 1: This economic expansion is eight years in the making and

827
00:44:51,920 --> 00:44:54,359
Speaker 1: it's coming at a time when the labor markets already tight,

828
00:44:54,400 --> 00:44:57,160
Speaker 1: and that's why the inflation risk is higher today. Are

829
00:44:57,200 --> 00:45:00,680
Speaker 1: you writing the obituary for globalization now in light of

830
00:45:00,680 --> 00:45:02,840
Speaker 1: what we've seen, what we are seeing here when it

831
00:45:02,840 --> 00:45:04,759
Speaker 1: comes to trade, when it comes to this income administration's

832
00:45:04,800 --> 00:45:08,920
Speaker 1: policy towards China, towards Mexico, Are you worried that we

833
00:45:09,000 --> 00:45:12,000
Speaker 1: are going to see a less globalized world. We are worried.

834
00:45:12,080 --> 00:45:15,640
Speaker 1: And in fact, you know, part of pimco secular thinking

835
00:45:16,200 --> 00:45:20,040
Speaker 1: has been that the rise of populism is creates this

836
00:45:20,080 --> 00:45:24,239
Speaker 1: inflationary risk tail. Uh. There has been a shift even

837
00:45:24,280 --> 00:45:28,839
Speaker 1: before the US election away from monitory policy. There are

838
00:45:28,880 --> 00:45:33,400
Speaker 1: limits of global QUEI were shifting gradually towards fiscal Trump,

839
00:45:33,560 --> 00:45:36,200
Speaker 1: you know, could be more reasonable than the market sphere.

840
00:45:36,280 --> 00:45:39,840
Speaker 1: At the same time, his legislative agenda could get deluded.

841
00:45:39,880 --> 00:45:43,480
Speaker 1: As you know, Washington is very unpredictable. There are implementation

842
00:45:43,640 --> 00:45:45,680
Speaker 1: risks with a lot of his policies. So I think

843
00:45:45,680 --> 00:45:47,920
Speaker 1: the big point here is that this is a market

844
00:45:48,000 --> 00:45:50,080
Speaker 1: that can go either way. It can go positive or

845
00:45:50,080 --> 00:45:53,880
Speaker 1: it can go negative. Okay, we got Alicia Manilla on tomorrow, folks.

846
00:45:54,120 --> 00:45:58,160
Speaker 1: I can't begin to describe the excellence of her shop

847
00:45:58,239 --> 00:46:02,760
Speaker 1: at Boston College and their effort on America's retirement planning.

848
00:46:02,760 --> 00:46:05,400
Speaker 1: And I say this with great respect mark for PIMCO

849
00:46:05,520 --> 00:46:10,000
Speaker 1: with your terrific retirement coverage. Uh there help me here

850
00:46:10,280 --> 00:46:14,160
Speaker 1: with Marco Witz the efficient market frontier of where your

851
00:46:14,280 --> 00:46:17,440
Speaker 1: bonds fit in. I mean, if I got equities, I

852
00:46:17,520 --> 00:46:21,799
Speaker 1: got bonds, I got cash. And there's that parabola that

853
00:46:22,040 --> 00:46:27,680
Speaker 1: sideways parabola of most efficient optimal places. How can that

854
00:46:27,760 --> 00:46:31,719
Speaker 1: work given the great distortions we're in right now? So, Tom,

855
00:46:31,760 --> 00:46:34,120
Speaker 1: I think the importance of bonds is that if you

856
00:46:34,200 --> 00:46:36,800
Speaker 1: look all over the developed markets all over the world,

857
00:46:36,960 --> 00:46:40,640
Speaker 1: the populations are aging. Uh no more in the world.

858
00:46:40,719 --> 00:46:44,880
Speaker 1: Is this more apparent than in in Japan, in Europe,

859
00:46:44,960 --> 00:46:47,440
Speaker 1: and and will become a big issue in the United States.

860
00:46:47,480 --> 00:46:50,600
Speaker 1: People are going to need income to retire. Bonds provide

861
00:46:50,680 --> 00:46:54,960
Speaker 1: stability of income, and there's not enough income producing assets

862
00:46:54,960 --> 00:46:57,480
Speaker 1: in the world relative to the demand for those assets.

863
00:46:57,480 --> 00:47:00,520
Speaker 1: So equities are going to do well in a growth spurt.

864
00:47:00,960 --> 00:47:05,200
Speaker 1: But with Trump, you've got this negative scenario of trade restrictions,

865
00:47:05,239 --> 00:47:10,600
Speaker 1: of uh, deterioration in geopolitical bonds will protect investors from

866
00:47:10,680 --> 00:47:13,640
Speaker 1: downside risk and equities. That's the key to bonds is

867
00:47:13,680 --> 00:47:16,960
Speaker 1: because yes, there is upside with Trump and that could

868
00:47:17,040 --> 00:47:19,800
Speaker 1: mean equities do well. But at the same time, Trump

869
00:47:19,840 --> 00:47:23,160
Speaker 1: has a lot of bad risks UH that that the

870
00:47:23,200 --> 00:47:25,279
Speaker 1: market i think is not focused on. And in that

871
00:47:25,480 --> 00:47:29,319
Speaker 1: environment where where the negatives of Trump resurface, bonds will

872
00:47:29,360 --> 00:47:33,799
Speaker 1: then protect UH investors by providing high quality income and

873
00:47:33,840 --> 00:47:37,960
Speaker 1: protect protect from downside if the economy slows. Give us

874
00:47:38,000 --> 00:47:40,680
Speaker 1: the mark case alant look thet PIMCO outlook on European

875
00:47:40,719 --> 00:47:43,640
Speaker 1: corporate credit. We've been following the back and forth the

876
00:47:43,640 --> 00:47:47,120
Speaker 1: the chapter after chapter of the Monte de Pasky situation

877
00:47:47,120 --> 00:47:50,879
Speaker 1: in Italy. What's your attitude toward European corporate credit right now?

878
00:47:51,440 --> 00:47:54,440
Speaker 1: So again similar to what we were talking about earlier,

879
00:47:54,480 --> 00:47:57,680
Speaker 1: we have been selling into strength. So basically, credit spreads

880
00:47:57,719 --> 00:48:00,160
Speaker 1: are at two year tights right now. There's a lot

881
00:48:00,160 --> 00:48:02,600
Speaker 1: of good news priced into the market. That's true not

882
00:48:02,680 --> 00:48:06,279
Speaker 1: only of Europe, but but in the United States as well. UH.

883
00:48:06,320 --> 00:48:09,879
Speaker 1: Within Europe right now, Europe is growing at a slower pace.

884
00:48:09,960 --> 00:48:14,400
Speaker 1: There's more economic upside risk in the United States. With Europe,

885
00:48:14,440 --> 00:48:17,440
Speaker 1: we want to stay in very high quality sectors. We

886
00:48:17,560 --> 00:48:20,319
Speaker 1: have been focused on cable. We have been focused on

887
00:48:20,360 --> 00:48:23,279
Speaker 1: the consumer there because we are seeing a modest improvement

888
00:48:23,680 --> 00:48:27,040
Speaker 1: in the economic data. And banks, really, banks are really

889
00:48:27,120 --> 00:48:31,320
Speaker 1: a pure play on economic growth. As growth gradually heals

890
00:48:31,400 --> 00:48:33,800
Speaker 1: through Europe, banks should do well. They're going to benefit

891
00:48:33,840 --> 00:48:36,920
Speaker 1: from steeper yield curves, higher rates, and in the US

892
00:48:37,400 --> 00:48:40,320
Speaker 1: less regulations. So so banks are a favorite of ours

893
00:48:40,320 --> 00:48:43,000
Speaker 1: in Europe and also in the United States. How about

894
00:48:43,000 --> 00:48:46,040
Speaker 1: that U S China relationship. We haven't talked about China.

895
00:48:46,200 --> 00:48:48,360
Speaker 1: We mentioned at the top of the program the stress

896
00:48:48,400 --> 00:48:50,759
Speaker 1: test the Chinese government has been doing on the what's

897
00:48:50,800 --> 00:48:53,680
Speaker 1: your outlook for China in this year ahead? Are we

898
00:48:53,719 --> 00:48:55,160
Speaker 1: going to see a repeat of what we saw last

899
00:48:55,200 --> 00:48:57,040
Speaker 1: year in two thousand and sixteen with the issues with

900
00:48:57,080 --> 00:49:01,160
Speaker 1: its currency? Do you think so? Fascinating? Uh, David, because

901
00:49:01,200 --> 00:49:03,040
Speaker 1: that was the first two weeks of two thousand and

902
00:49:03,080 --> 00:49:05,920
Speaker 1: sixteen and the markets focused on it again. China over

903
00:49:05,920 --> 00:49:08,360
Speaker 1: the last two days has been intervening. We've seen the

904
00:49:08,400 --> 00:49:12,360
Speaker 1: currency strengthen. The key has been the capital outflow data.

905
00:49:12,960 --> 00:49:17,719
Speaker 1: As the US outlook improves and China is slowing from

906
00:49:17,719 --> 00:49:21,480
Speaker 1: a higher growth level, but albeit slowing, capital is moving

907
00:49:21,520 --> 00:49:24,120
Speaker 1: into the United States. And out of China. Also, their

908
00:49:24,160 --> 00:49:27,360
Speaker 1: property market, you know, is pretty overheated in some of

909
00:49:27,400 --> 00:49:29,680
Speaker 1: these Tier one cities, and so there's a lot of

910
00:49:30,200 --> 00:49:33,200
Speaker 1: capital that is looking to get out of China into

911
00:49:33,200 --> 00:49:37,879
Speaker 1: the United States seeking higher, higher potential returns, and that's

912
00:49:37,960 --> 00:49:40,680
Speaker 1: creating a huge dilemma for China. They've had to now

913
00:49:40,719 --> 00:49:44,319
Speaker 1: put in limits on this fifty thousand dollar limit for

914
00:49:44,320 --> 00:49:46,600
Speaker 1: for capital outflows. Mark, thank you so much for the

915
00:49:46,640 --> 00:49:58,360
Speaker 1: brafing with him. Thanks for listening to the Bloomberg Surveillance podcast.

916
00:49:58,719 --> 00:50:03,840
Speaker 1: Subscribe and listen to interviews on iTunes, SoundCloud, or whichever

917
00:50:03,960 --> 00:50:08,359
Speaker 1: podcast platform you prefer. I'm out on Twitter at Tom Keene.

918
00:50:08,480 --> 00:50:12,279
Speaker 1: David Gura is at David Gura. Before the podcast, you

919
00:50:12,320 --> 00:50:28,480
Speaker 1: can always catch us worldwide. I'm Bloomberg Radio. Who you

920
00:50:28,520 --> 00:50:31,280
Speaker 1: put your trust in matters? Investors have put their trust

921
00:50:31,640 --> 00:50:35,600
Speaker 1: and independent registered investment advisors to the two and four

922
00:50:35,600 --> 00:50:40,040
Speaker 1: trillion dollars. Why Learn more at find your Independent Advisor

923
00:50:40,640 --> 00:50:41,600
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