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Speaker 1: Runt you by Bank of America Mary Lynch. With virtual reality,

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Speaker 1: virtually everything will change. Discover opportunities in a transforming world

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Speaker 1: VI of a mL dot Com slash VR, Mary Lynch,

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Speaker 1: Pierced Fenner, and Smith Incorporated. 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 of economics, finance, investment, and international relations.

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Speaker 1: Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com,

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Speaker 1: and of course, on the Bloomberg. Dr Neil Sauce, the

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Speaker 1: Vice chairman of Global Fixed income and Economics Research at

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Speaker 1: Credit Swiss, who joins us now in our Bloomberg eleven

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Speaker 1: three oh studios. Let's start. If we could Dr Sauce

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Speaker 1: with this news out of London this morning. If I

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Speaker 1: could Doctor sus looking at what they're doing with their

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Speaker 1: capital buffers here, What does this say about the Brexit

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Speaker 1: process and the Bowiese attitude towards what's happening with Brexit. Oh,

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Speaker 1: I think they would have been doing this either way.

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Speaker 1: I think it's a pretty sensible uh substitute for having

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Speaker 1: volatile interest rates instead that is cyclically a volatile interest rates. Instead,

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Speaker 1: you have a cyclically varying capital requirement, so that when

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Speaker 1: banks are tempted to make the bad loans in good times,

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Speaker 1: you hold them back. Conversely, when bad times arrive and

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Speaker 1: everybody gets more nervous than is socially useful, you relax

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Speaker 1: those standards a bit. Um brexits and mores. What should

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Speaker 1: I say? Uh, slow moving, ongoing process. It's not cyclical

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Speaker 1: per se. So I don't think this is a particular

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Speaker 1: response to to Brexit, but Brexit sits in the background

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Speaker 1: and colors every decision that has to be made in

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Speaker 1: the UK. Yeah, when you when you look at what

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Speaker 1: Mark Carney is is doing at this point, how he's

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Speaker 1: assessing all of this is is it a sort of

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Speaker 1: wait and see approach? Is there more that he could

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Speaker 1: be doing? More that he has been doing here in

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Speaker 1: light of that slow moving process that you you describe. Um,

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Speaker 1: so what what what role is he playing right now?

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Speaker 1: What's the Bank of England doing at this point? Well,

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Speaker 1: it's not the Bank of England's responsibility. It's not their

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Speaker 1: job to be involved in this in a direct way.

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Speaker 1: They're responding to the symptoms or or to the consequences

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Speaker 1: of the Brexit process. One of those is a weaker

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Speaker 1: sterling than you otherwise would have had. And since a

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Speaker 1: lot of the standard of living of an island nation

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Speaker 1: is imported, that weaker sterling gives rise to a certain

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Speaker 1: amount of inflation, and they have to make a judgment

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Speaker 1: about what certain amount is required so to speak, for

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Speaker 1: the Brexit process, and what amount is too much and

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Speaker 1: therefore should be resisted. That's that's their role in it,

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Speaker 1: so to speak. With respect to financial the financial sector,

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Speaker 1: the financial industry, which is after all a big piece

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Speaker 1: of the London economy, they have some opinions, if you will,

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Speaker 1: but no particular authority in that respect. That's part of

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Speaker 1: the negotiation that the governments are doing, not the central banks.

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Speaker 1: Talking with Dr Neil Sauce of Credits with right now

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Speaker 1: and Mario Draggy speaking earlier today in Portugal talking about

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Speaker 1: the continued need for stimulus in later the inflation, the

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Speaker 1: inflation that we're seeing in Eupe. How already case is

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Speaker 1: it for him to make not to be talking about tapering,

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Speaker 1: but to continue to talk about the need for for

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Speaker 1: stimulus in Europe right now well, unemployment in in the

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Speaker 1: Euro Area has been coming down as it has in

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Speaker 1: a lot of other places. That's good. On the other hand,

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Speaker 1: we talked about being near full employment somewhere in the fours.

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Speaker 1: Japan maybe thinks of itself as being near full employment

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Speaker 1: somewhere in the twos, but Europe is in the nines.

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Speaker 1: So there's plenty of room yet plenty of run room,

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Speaker 1: particularly because inflation, of course, is very far away from

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Speaker 1: anything that's target from their point of view or irritating

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Speaker 1: to the body politics. So I'm not sure there was needful,

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Speaker 1: so to speak, to talk about being stimulative. But I

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Speaker 1: think it's pret self evident that any kind of true

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Speaker 1: withdrawal a tightening of policy is likely to be a

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Speaker 1: delayed or or later, not sooner. And frankly, I don't

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Speaker 1: see how anybody does a whole lot of tightening until

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Speaker 1: the FED has gone much farther than it has so far,

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Speaker 1: because there is, after all, international arbitrage. Good morning everyone,

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Speaker 1: Bloomberg Surveillance live on radio. David Gera, good morning, good

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Speaker 1: point time, a little bit of news, slow, just a

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Speaker 1: little bit, absolutely overwhelmed thanks to our team that really

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Speaker 1: have been juggling since hours ago. Mark Kearney and Margaret

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Speaker 1: Vesti are on the screen. There's some competition among the

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Speaker 1: European principles there this morning. Yeah, I mean just just

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Speaker 1: crazy in Europe. But of course cher Yelling speaking in

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Speaker 1: London at one pm. I think we'll be doing that

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Speaker 1: across Bloomberg Radio and television as well. David, what's amazing

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Speaker 1: is we really begin with Dr Sauce today a look

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Speaker 1: back of ten years to the beginning of the financial crisis.

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Speaker 1: Dr Sauce was hugely important and just trying to figure

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Speaker 1: you're out the third week of August two thousand seven,

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Speaker 1: and then the fourth week of August two thousand seven,

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Speaker 1: then let them take one day off, and then we

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Speaker 1: got into September of two thousand seven. Go back there.

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Speaker 1: It discussed ring fence. What were we ring fencing? Where

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Speaker 1: did the phrase come from? Well, we didn't, in the

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Speaker 1: event do that. We talked about doing it, and we

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Speaker 1: didn't get around to doing it in any official sort

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Speaker 1: of capacity for for rather a while. But the idea

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Speaker 1: that I had at the time was that the essence

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Speaker 1: of what had gone wrong in financial markets was an imbalance,

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Speaker 1: if you will, between certain mortgage related assets and the

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Speaker 1: way in which they were held. If those things had

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Speaker 1: been owned by people, so to speak, Then okay, it's

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Speaker 1: a pity sometimes you lose, But they weren't owned. They

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Speaker 1: were borrowed. That is to say, they were supported on

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Speaker 1: the other side of the balance sheet by overnight money,

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Speaker 1: very short term obligations, which people thought of quite literally

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Speaker 1: as money. Problem with those short term obligations is the

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Speaker 1: only reason that you're willing to lend somebody money overnight

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Speaker 1: is your figure. If you want to, you can get

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Speaker 1: out tomorrow. And it was the effort to get out

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Speaker 1: that then caused the collateral values to go down, and

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Speaker 1: so forth and so on. And so what I had

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Speaker 1: in mind that at the time you and I had

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Speaker 1: talked about then was well, why don't we just somehow

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Speaker 1: buy up those assets, hold onto them, and let that

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Speaker 1: short term stuff roll off. And in particular at the time,

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Speaker 1: I was sort of hoping we could make a grand

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Speaker 1: bargain with the with the pension programs around the country,

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Speaker 1: give those assets and for all these a long dated

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Speaker 1: assets mortgages against houses and houses last a long time

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Speaker 1: and so forth in return for some kind of grand

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Speaker 1: bargain about pension obligations. Well, that was way too ambitious

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Speaker 1: to be achieved. And it took another year anyway before

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Speaker 1: TARP came along, which, when you think about the words

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Speaker 1: that gave rise to that acronym, it was supposed to

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Speaker 1: be about holding onto those assets um taking him off

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Speaker 1: the market for a period of time, which of course

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Speaker 1: is not precisely how it was used in the event.

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Speaker 1: And I continue to be worried about the pensions. I

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Speaker 1: continue to be worried about the imbalance between what promises

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Speaker 1: were made and the ability to to fulfill those UM.

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Speaker 1: It's not terribly different in character from the potholes in

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Speaker 1: the streets. It's deferred maintenance. I promised to do something

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Speaker 1: and I didn't do it this year because I needed

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Speaker 1: the cash for other purposes. And next year will come

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Speaker 1: when it comes, and then the future arrives very quickly.

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Speaker 1: Or do you have a view on our healthcare debate?

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Speaker 1: And I say that Dr Sauce and the Pie you

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Speaker 1: give a view on this, well, I think it's pretty

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Speaker 1: self evident that that's a very large fraction by global standards,

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Speaker 1: So something about that needs to to be brought under control.

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Speaker 1: I'm a little concerned about the idea that medicaid is

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Speaker 1: the vehicle for bringing it under control. Because it I

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Speaker 1: think really wounds up trans ring the burden from the

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Speaker 1: federal government, which actually is capable of an of an

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Speaker 1: elastic or expansive budget, to the state and local governments

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Speaker 1: who are not capable of coming an elastic budget. So

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Speaker 1: I'm not sure that it's solved that larger problem. Why

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Speaker 1: don't you bring in our esteemed guest, you we've ring

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Speaker 1: defensive for the everywire. True. Neil thoughts here with with

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Speaker 1: credits with our Bloomberg eleven three. Oh, Steve, let's talk

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Speaker 1: a bit about infrastructure if we could. The White House

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Speaker 1: has had these theme weeks over the last month or so.

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Speaker 1: There was Infrastructure Week and of course other events that

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Speaker 1: you're seated on. The White House is able to focus

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Speaker 1: on that as much as they'd like to, and of

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Speaker 1: course on Capital Hill to focus now squarely on health care,

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Speaker 1: maybe a little bit on taxi? From where where do you?

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Speaker 1: Where do you see things going? How important is getting

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Speaker 1: a big fiscal package through? What do we know about

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Speaker 1: what the White House that would like to see in,

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Speaker 1: what the odds are of getting something through? Well forgetting

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Speaker 1: the cyclical question of are we at full employment? Can

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Speaker 1: we afford more? Literally at this moment, but on an

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Speaker 1: ongoing basis, we want a trend growth of g d

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Speaker 1: P higher than the two percentage that we've been achieving

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Speaker 1: of late UM. To create that, you can't manufacture a workforce.

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Speaker 1: It takes a long time, twenty years or so, even

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Speaker 1: if you had an increase in fertility, takes twenty years

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Speaker 1: to get workers. UM. So you've got to have more productivity,

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Speaker 1: more capital available for the workers. And I think the

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Speaker 1: infrastructure is is kind of a self evident, uh, way

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Speaker 1: of achieving that. As a culture, we seem to be

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Speaker 1: pretty good at building things, but not so good at

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Speaker 1: maintaining things, and so it's the it's the maintaining piece.

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Speaker 1: I suspect that is pretty consequential right now. But you

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Speaker 1: could use a certain amount of new as well. So

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Speaker 1: the question is how do you finance that in a

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Speaker 1: context where the state and local governments historically have been

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Speaker 1: the main conduit, if you will, for for infrastructure activity.

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Speaker 1: They've got plenty of issues of their own. Is significantly

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Speaker 1: the pension issues um nominal growth is not so terrific,

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Speaker 1: so their revenues are not so terrific. How do you

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Speaker 1: organize that? And I think there's a very real role

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Speaker 1: for the federal government in that regard, whether that's public

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Speaker 1: private partnerships or more generous matching programs. And there are

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Speaker 1: all sorts of ways of achieving it, But I do

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Speaker 1: think infrastructure would make a very big difference for the

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Speaker 1: next generation's future. Is there money there for this? I

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Speaker 1: remember a couple of years back pitching a series of

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Speaker 1: stories on infrastructure reform, and uh, and editor, take me

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Speaker 1: take me aside saying when a bridge collapses in the

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Speaker 1: Twin Cities, say, there is widespread interest in the maintenance

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Speaker 1: of infrastructure. But when that's not happening, when you and

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Speaker 1: I acknowledge that a bridge is old or a road

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Speaker 1: has problems with it, Uh, it's it's hard to get

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Speaker 1: people to stay interested in in the subject. Is that

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Speaker 1: true investors as well? Is it going to take some

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Speaker 1: initiative from the government to get investors who have money

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Speaker 1: to want to put it into infrastructure projects. Well, you

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Speaker 1: have sovereign wealth funds and pension plans and so forth

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Speaker 1: who have very long duration liabilities and they need long

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Speaker 1: duration assets. So that's part of the Yeel curve story.

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Speaker 1: They've been bidding up the prices of long bonds. But

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Speaker 1: that bids down their returns. They need more returns than that,

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Speaker 1: So infrastructure might be a pretty good marriage. Let's talk

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Speaker 1: about this. It's a little bit of jargon. The duration

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Speaker 1: is called the calculated maturity of a mature bond, etcetera.

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Speaker 1: Everybody wants yield, and so what do you mean that

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Speaker 1: they go out and they buy longer term bonds when

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Speaker 1: they really don't want to. Yeah, they're buying buy a

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Speaker 1: tenure instead of a seven year. They're buying longer dated

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Speaker 1: securities because they offer an increment of yield, but also

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Speaker 1: because it matches the liability that they've got. But the

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Speaker 1: real return of that said piece doesn't match that the

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Speaker 1: hope and expectation. That is the very real problem in

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Speaker 1: all of this. There's an accounting convention that says that

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Speaker 1: you discount your liabilities by observed market interest rates, and

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Speaker 1: so when gest rates go down, it makes your liabilities

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Speaker 1: look higher. Therefore you need even more return on the assets.

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Speaker 1: You need more assets, and of course this thing chases itself,

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Speaker 1: as we've been observing, um to this kind of an apple.

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Speaker 1: So so one way to change that would be to

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Speaker 1: find a long, a long lived asset that would have

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Speaker 1: a higher return, and that's part of the story of

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Speaker 1: infrastructure begging you come back. And we've got a tenure

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Speaker 1: anniversary with financial Courses. Love to have you back in

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Speaker 1: August or into September as well. Neil Sauce is with

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Speaker 1: Credit Squeez. He told us he would not come back

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Speaker 1: on the show unlessaid Milwaukee Brewers were in first place.

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Speaker 1: We welcome David Harrow of Wisconsin in Chicago and Harris

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Speaker 1: Associates right now. David Harrow, good morning, Good morning Tom. Yes,

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Speaker 1: and how good they are looking now? They're looking very

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Speaker 1: good Chica. The Chicago's are doing better. I would note

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Speaker 1: the last couple of weeks all the white socks I

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Speaker 1: think are looking at they're they're looking awfully, awfully wobbly there, wobbly.

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Speaker 1: But the Cubs play in the same division. Mr herrows

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Speaker 1: the Milwaukee Nationally Brewers. The Cubs are catching up. This

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Speaker 1: market is overvalued, the same as the prodiction predictions on

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Speaker 1: the Milwaukee Brewers. How does our audience by the pe

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Speaker 1: multiples of two thousand seventeen, David Well, it depends where

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Speaker 1: you're looking, because though there are some areas that appear

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Speaker 1: stretched in valuation, there are other areas that still look

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Speaker 1: rather attractive. And this is the beauty of the position

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Speaker 1: that we're in. It's kind of bottom up, long terrent

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Speaker 1: value investors. We have the whole globe to look for,

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Speaker 1: and we have a plenty of companies that really meet

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Speaker 1: our value criteria. I've spoken in the past about still

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Speaker 1: the value that's available in the European financial sector and

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Speaker 1: some of the industrials, even some of the material companies. UM,

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Speaker 1: we are finding it difficult to find things in emerging markets.

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Speaker 1: We have a little bit of awaiting there. And in

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Speaker 1: the United States, you know, there's still a few areas

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Speaker 1: where we have have you know, decent opportunities to make money.

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Speaker 1: Now the uspe multiple s and p s around seventeen times.

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Speaker 1: It's I wouldn't say given given works seem to be

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Speaker 1: growing earnings double digits. It's not expensive, but it's not cheap.

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Speaker 1: That's that's there's no fire sales, uh if you look

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Speaker 1: at the broad US market. But there's still opportunities. And

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Speaker 1: that's what investors do. They look for opportunities, look for

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Speaker 1: companies that fit their investment criteria. Give us a sense

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Speaker 1: of what you you're looking at now, where you see

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Speaker 1: opportunity what fits your your investment criteria. Yeah, I mentioned

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Speaker 1: the European financials, and if you've got to take a

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Speaker 1: little up back in in history, three or four years ago,

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Speaker 1: the investing community was obsessed with Greece and the impact

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Speaker 1: that had on sovereign rates. Remember it wasn't all that

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Speaker 1: too long ago when you heard a lot of pregnasticators

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Speaker 1: talking about a default in Spain and default and Portugal,

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Speaker 1: default in Italy and maybe even France. The low interest

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Speaker 1: rates and negative rates of Europe. Certainly have heard the

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Speaker 1: financial sector, the slow growth, he said, the financial sector,

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Speaker 1: and now what we have is the grease issue appears.

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Speaker 1: I don't think we've heard anything about Greece in the year,

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Speaker 1: even though I think they recently got a debt payment um.

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Speaker 1: European growth is picking up. Low losses are are down,

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Speaker 1: costs are down, capital is strong for most of the

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Speaker 1: big European banks, and proctice haven't moved all that much.

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Speaker 1: I think the market still doesn't really leave and perhaps

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Speaker 1: it's these low interest rates that Europe still experience. And

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Speaker 1: now that's way. I think this is a good opportunity now,

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Speaker 1: the opportunity of reviewing Mr Harrow's track record eighteen percent

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Speaker 1: in banks. He owns a whole bunch of banks that

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Speaker 1: can't pronounce uh. And and David gurd might might point out,

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Speaker 1: in the last twelve months, Mr Harrow's in percent dial

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Speaker 1: percent dial, and in the last five years he's slacked off.

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Speaker 1: He's in the ninety one percentile. We call that upper

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Speaker 1: death stile. Have to pass to see a fad to

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Speaker 1: just figure out that's upper death style. This is rarefied

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Speaker 1: air for young Arrow. David, let me ask you about

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Speaker 1: what you take away from what we saw in Italy

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Speaker 1: here earlier this week, the intervention that we've seen into

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Speaker 1: these two Italian banks. What does it tell you about

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Speaker 1: the Italian banking sector, or more broadly about banking in Europe. Well,

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Speaker 1: this this was a good thing, and by the way,

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Speaker 1: something not so similar, but they're worth a bail out

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Speaker 1: in Spain as well. The European banking system finally has

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Speaker 1: found a way to proactively address issues which in the

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Speaker 1: asked have lingered. Now they are being a lot more proactive. Uh.

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Speaker 1: This Italian banking situation was the perfect example where actually

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Speaker 1: one of our banks in Tessa sal Paolo um took

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Speaker 1: over to Ailien Veneto banks um and it looked like

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Speaker 1: a good deal for Intessa, but it would have been

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Speaker 1: a worse deal for the government if Intessa would not

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Speaker 1: have done it. I mean, Intesta estimates maybe it would

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Speaker 1: have cost the government over ten billion euros. But this

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Speaker 1: was a good deal because basically in Tessa was allowed

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Speaker 1: to absorb the better parts of the business for one

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Speaker 1: euro There. You know, there will be some loan losses

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Speaker 1: and I'm sure what they absorbed, but Intessa is a

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Speaker 1: strong bank, very well provided for. So this was a

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Speaker 1: very good deal for Intessa. But more importantly, it shows

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Speaker 1: that finally we're seeing movement and proactive, proactive behavior in

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Speaker 1: the European banking system, which then the European banking system

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Speaker 1: on own footing. It will allow more credit expansion, which

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Speaker 1: fuels economic growth. So this is a big positive for Europe.

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Speaker 1: Is this what we saw in Italy and indeed what

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Speaker 1: we saw with Banco Popular in Spain a couple of

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Speaker 1: weeks ago. A new model for for bailing out banks.

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Speaker 1: Do you think is it something that's going to be

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Speaker 1: replicated going forward? Yeah? Well, hopefully, David hopefully won't have

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Speaker 1: to be replicated too much, because we don't want bank

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Speaker 1: solves need to be bailed out, but when they do

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Speaker 1: need it, it is important to address it rapidly and

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Speaker 1: quickly so as not to impact confidence in the economic

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Speaker 1: system and in the banking system, because confidence kills the system.

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Speaker 1: You know, if if people are afraid to make deposits,

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Speaker 1: and if they're afraid of the security of their assets,

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Speaker 1: you know this is not a good thing. And so

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Speaker 1: what we hope for is, yes that if if there

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Speaker 1: is a problem, they get addressed without a ton of squabbling.

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Speaker 1: I was a little surprised at the European Union didn't

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Speaker 1: do this a state aid, which of course is kind

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Speaker 1: of unknown. No, and you're in the banks lenders were

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Speaker 1: allowed to be basically made whole, So you know, I

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Speaker 1: think it's it's really important in banking issues to reacts

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Speaker 1: with late and this is finally starting to see. David,

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Speaker 1: I think we treasure your opinion, maybe away from your expertise.

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Speaker 1: You own a lot of banks, boring banks. Google is

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Speaker 1: not a David Herold kind of entity, I would suggest,

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Speaker 1: But you do spend a lot of time in Europe.

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Speaker 1: You're hugely europhilic, I would say, please comment on this

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Speaker 1: competition debate where the EU was going after Google where

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Speaker 1: Wisconsin is not going after Google. Does it show that

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Speaker 1: the European Union just doesn't understand modern capitalism. Well, I

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Speaker 1: think there is a question whether the European Union understands

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Speaker 1: modern capitalism. I don't know if this is the best

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Speaker 1: example to demonstrate that, but I mean clearly I have

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Speaker 1: problems with the European regulators and over regulators and Mann

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Speaker 1: eights and all of this stuff, everything from naming cheeses

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Speaker 1: to directing what board directors should look like. I have

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Speaker 1: big problems with this. The Google question is very sticky.

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Speaker 1: Now we hold Google, We hold Google and some of

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Speaker 1: our global accounts, some of our domestic accounts, is because

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Speaker 1: we think it has an extremely strong virtuous business uh

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Speaker 1: set up where the larger you get, the better you get,

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Speaker 1: the more competitive you get, etcetera, etcetera. Now there are

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Speaker 1: antitrust issues, of course, there are one one there's just

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Speaker 1: no competition or very little or no competition. There are

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Speaker 1: also privacy issues. You know, some people make this argument

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Speaker 1: that Google should be regulated and more like a monopoly

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Speaker 1: if it is one. Um, I'm actually more concerned about

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Speaker 1: privacy issues just as an aside, almost as a non

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Speaker 1: investor as those person in the world than I am of.

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Speaker 1: You know, the competitive issues, but you know you're always

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Speaker 1: going to have differences and how sovereign's view regulation. I mean,

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Speaker 1: I just read today that Germans are going to do

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Speaker 1: something with emission testing, and you just don't have You'll

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Speaker 1: never have a unified You'll never have a unified globe.

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Speaker 1: As far as regulation, which makes it difficult for global businesses.

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Speaker 1: By the way, there's any global business has to pay

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Speaker 1: attention to the rules and regulations of where they operate

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Speaker 1: very very quickly. Or do you own Google? Do you

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Speaker 1: own Google? Not not personally, but it's it's own in

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Speaker 1: some of our global accounts and some of our mark

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Speaker 1: domestic accounts. We Old Court with David Harrow Oakmart Harris

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Speaker 1: Associates as we look at value internationally, David, I want

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Speaker 1: to pick on one stock, Lloyd's. You've got a bunch

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Speaker 1: of European banks. I guess Lloyd's is a European bank,

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Speaker 1: but they're really in the United Kingdom. We got all

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Speaker 1: the Brexit news, the world's coming to an end. Have courage.

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Speaker 1: Why do you own Lloyd's? If you look at Lloyd's

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Speaker 1: historically it has been one of the premier banks in

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Speaker 1: the United Kingdom. It's basically just a commercial bank. No

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Speaker 1: investment bank attached to it. Right after the Great Financial Crisis,

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Speaker 1: they made a huge mistake. They bought h Boss Halifax

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Speaker 1: Building Society, huge, huge mistake. Because of the bad own book,

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Speaker 1: they required a government bailout. We actually sold our shares

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Speaker 1: in Lloyd's shortly thereafter. But after the after the government

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Speaker 1: bailout and injection of equity and new management, we went

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Speaker 1: back in, especially at a significant lower price than we thought.

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Speaker 1: All the bad news is in this and now they're

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Speaker 1: finally attacking the bad debts, the bad loans, and they're

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Speaker 1: going to be able to focus on their core. And

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Speaker 1: that's where we are today. It's a company that focuses

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Speaker 1: on high net worth small businesses, small corporates as a

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Speaker 1: nice niche. It's an extremely high quality credit book um

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Speaker 1: and it and it just trades that extremely attractive valuation

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Speaker 1: levels given their low cost high spreads. By the way,

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Speaker 1: their interesting average interest rate spread, it's over two. Okay,

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Speaker 1: So it's like a chemical bank. Readucts, David grow You're

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Speaker 1: too young to remember this, but there's a bank called

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Speaker 1: Chemical Bank, which is sort of what Mr Harrold just

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Speaker 1: described do you own this dog for people to figure

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Speaker 1: out it's worth something? Or do you own Lloyd's Bank

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Speaker 1: because it's an M and a take out candidate? Now

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Speaker 1: we own it because it's I don't I doubt it's

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Speaker 1: an M and a take over candidate. It's always possible,

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Speaker 1: but I doubt it. We own it because of our

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Speaker 1: belief and its ability to generate a good earning stream

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Speaker 1: over the future. And given the price we're paying today,

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Speaker 1: you know four of this basically nine times earnings, that

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Speaker 1: yields it's a very safe yield and almost six percent,

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Speaker 1: and that dividends going up even higher. So we we

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Speaker 1: own it because it represents good value or buying a good,

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Speaker 1: safe income stream. Notwithstanding what might happen to the United Kingdom.

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Speaker 1: We think they're prepared for that. Yeah, David Gurra one

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Speaker 1: year dividend growth rate ten point nine percent. To get

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Speaker 1: your intention, David, let me ask you about the regulatory landscape.

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Speaker 1: I was talking with Bill Cohen yesterday about his latest

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Speaker 1: piece and Vanity Fair, looking at all of the Golden

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Speaker 1: Sacks alumni who are in this administration now and picking

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Speaker 1: up on some distance when it comes to what banks

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Speaker 1: should be like, what regulation should be like. It seems

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Speaker 1: like they're still trying to figure a lot of that out.

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Speaker 1: Do you have a clear sense from this administration of

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Speaker 1: how it regards the banks, what it wants to see

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Speaker 1: when it comes to regulating the banks. Was that hundred

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Speaker 1: fifty page document from the Treasury Secretary at all illuminating

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Speaker 1: to you. Well, I did have a conversation with a

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Speaker 1: member of Congress just recently who's on the Senate Banking Committee,

430
00:24:37,080 --> 00:24:39,119
Speaker 1: and this is the kind of the question I asked

431
00:24:39,160 --> 00:24:42,200
Speaker 1: him about the administration, and he seems to think that

432
00:24:42,359 --> 00:24:46,400
Speaker 1: they have a very good, strong grasp on what needs

433
00:24:46,440 --> 00:24:51,680
Speaker 1: to be done to facilitate regulatory change. Now we need regulation,

434
00:24:51,720 --> 00:24:55,359
Speaker 1: there's no doubt about that. But clearly the regulation today

435
00:24:55,359 --> 00:25:00,680
Speaker 1: has gone overboard overboard. This too complex, too complicated, and

436
00:25:00,720 --> 00:25:04,320
Speaker 1: it makes it very very difficult to follow. We need simple,

437
00:25:04,640 --> 00:25:08,159
Speaker 1: transparent regulation. We need regulation, but it needs to be

438
00:25:08,200 --> 00:25:12,560
Speaker 1: done correctly, and it was, you know, and from the

439
00:25:12,560 --> 00:25:15,880
Speaker 1: things I'm seeing, I think they're taking the right steps,

440
00:25:15,920 --> 00:25:19,320
Speaker 1: but this needs to be done. Dodd Frank was an overdoing.

441
00:25:19,359 --> 00:25:21,639
Speaker 1: You know, when you overdo a correction, it becomes a

442
00:25:21,720 --> 00:25:25,440
Speaker 1: mistake and the pendulum on regulation has has swung too far.

443
00:25:26,480 --> 00:25:31,480
Speaker 1: You know, these banks and financial institutions, UH can't continually

444
00:25:31,520 --> 00:25:34,159
Speaker 1: be burdened or they won't do what they're supposed to do.

445
00:25:34,240 --> 00:25:38,760
Speaker 1: They are supposed to be the oil in the financial system,

446
00:25:38,800 --> 00:25:41,520
Speaker 1: in the in the economy there, it's the oil that

447
00:25:41,600 --> 00:25:44,720
Speaker 1: makes commerce take place. And if you muck it up,

448
00:25:45,240 --> 00:25:48,240
Speaker 1: the oil doesn't flow. You don't have lending, and you

449
00:25:48,359 --> 00:25:51,639
Speaker 1: need lending for growth. As I mentioned earlier, what's the

450
00:25:51,880 --> 00:25:53,800
Speaker 1: first thing that you would change when when it comes

451
00:25:53,800 --> 00:25:56,320
Speaker 1: to to Dodd Frank when it comes to the overregulation

452
00:25:56,359 --> 00:25:59,760
Speaker 1: that you describe from from your perspective, what's the greatest

453
00:25:59,760 --> 00:26:02,080
Speaker 1: miss step? What needs to be scaled back? Well, there's

454
00:26:02,119 --> 00:26:06,280
Speaker 1: just so much compliance and reporting. Every single thing you

455
00:26:06,400 --> 00:26:10,720
Speaker 1: do has to be reported and all these compliance officers,

456
00:26:10,760 --> 00:26:13,479
Speaker 1: and it makes people afraid to do things um and

457
00:26:13,560 --> 00:26:16,159
Speaker 1: so you have to really go through the whole compliance

458
00:26:16,160 --> 00:26:21,119
Speaker 1: and reporting process. We have. We have higher capital requirements today.

459
00:26:21,240 --> 00:26:24,720
Speaker 1: That's good because perhaps the capital requirements in the past

460
00:26:24,760 --> 00:26:27,399
Speaker 1: were low. Where we failed in the past is the

461
00:26:27,440 --> 00:26:30,760
Speaker 1: banks have had two old capital and they were allowed

462
00:26:30,840 --> 00:26:34,760
Speaker 1: to make loans and this was part of the federal

463
00:26:34,800 --> 00:26:37,159
Speaker 1: reserves problem of course, this is one of the causes

464
00:26:37,160 --> 00:26:40,040
Speaker 1: of the great financial prices. They were encouraged to make

465
00:26:40,080 --> 00:26:43,120
Speaker 1: bad loans because those loans are going to be packaged. Well,

466
00:26:43,160 --> 00:26:47,440
Speaker 1: we have this problem basically addressed and solved. So now

467
00:26:47,480 --> 00:26:50,320
Speaker 1: do we need layers and layers of compliance and reporting

468
00:26:50,359 --> 00:26:53,919
Speaker 1: for everything you do? Um? It just gums things up.

469
00:26:54,400 --> 00:26:57,480
Speaker 1: It makes reaction time slow. David. Great to speak with

470
00:26:57,520 --> 00:27:07,040
Speaker 1: you as always. That's David Harrow joining us. Brought you

471
00:27:07,119 --> 00:27:11,200
Speaker 1: by Bank of America Mary Lynch with virtual reality. Virtually

472
00:27:11,400 --> 00:27:16,639
Speaker 1: everything will change. Discover opportunities in a transforming world VI

473
00:27:16,760 --> 00:27:21,240
Speaker 1: of a mL dot Com slash VR, Mary Lynch, Pierce,

474
00:27:21,320 --> 00:27:29,320
Speaker 1: Fenner and Smith Incorporated. David Garral, Why don't you bring

475
00:27:29,320 --> 00:27:33,280
Speaker 1: in our next guest on fishing. We were just talking

476
00:27:33,280 --> 00:27:35,720
Speaker 1: about his trip up to Man. David co talk joins

477
00:27:35,800 --> 00:27:37,760
Speaker 1: us now the co founder, chairman and chief investment officer

478
00:27:37,800 --> 00:27:40,360
Speaker 1: of Cumberland Advisors. He's here on his way back from

479
00:27:40,359 --> 00:27:42,840
Speaker 1: Maine in our Bloomberg eleven three studios in New York.

480
00:27:42,840 --> 00:27:45,000
Speaker 1: Great too, great to see where to speak with you again.

481
00:27:45,240 --> 00:27:47,000
Speaker 1: Nice to be here, David. I wanted to bring a

482
00:27:47,040 --> 00:27:52,159
Speaker 1: container of black fly, but I couldn't get enough of

483
00:27:52,240 --> 00:27:54,080
Speaker 1: him in the box. I was looking for the ice chest,

484
00:27:54,119 --> 00:27:56,000
Speaker 1: but the black flies would have been good as well.

485
00:27:56,240 --> 00:27:57,840
Speaker 1: Let's just start by asking what you're looking at these

486
00:27:57,920 --> 00:27:59,879
Speaker 1: days where you see opportunity. We're talking with David har

487
00:28:00,080 --> 00:28:02,959
Speaker 1: about his sense of financials, European financials. When you when

488
00:28:02,960 --> 00:28:05,320
Speaker 1: you look at opportunities for investment right now, what excites

489
00:28:05,400 --> 00:28:08,240
Speaker 1: you at this point? I do get excited, not too

490
00:28:08,240 --> 00:28:12,800
Speaker 1: excited about anything, but we have chaos in Washington and entertainment,

491
00:28:12,800 --> 00:28:17,399
Speaker 1: and that dampens an investment excitement. But I like banks.

492
00:28:17,520 --> 00:28:20,919
Speaker 1: I really like the banks, the big banks. I use

493
00:28:20,960 --> 00:28:24,800
Speaker 1: an e t F which is KBWB and the regional

494
00:28:24,920 --> 00:28:30,080
Speaker 1: banks kr E. Those two are outperforming the other financials,

495
00:28:30,160 --> 00:28:34,919
Speaker 1: the wide financial e t F the symbols XLF, and

496
00:28:34,960 --> 00:28:38,400
Speaker 1: they are doing so for a reason. They are getting deregulated,

497
00:28:38,440 --> 00:28:42,160
Speaker 1: they are getting relief from headwinds, their profit margins are widening,

498
00:28:42,400 --> 00:28:46,520
Speaker 1: and I would say they have another built in advantage.

499
00:28:46,760 --> 00:28:51,040
Speaker 1: They can collect large amounts of US dollar deposits at

500
00:28:51,040 --> 00:28:56,480
Speaker 1: low cost and redeployed them, and the redeployment is easing

501
00:28:56,800 --> 00:29:00,640
Speaker 1: and easing burden more profitable. And there is no other

502
00:29:00,760 --> 00:29:05,480
Speaker 1: sector that can collect that mass of US cash. So

503
00:29:05,520 --> 00:29:10,480
Speaker 1: I'm I think we're in a very long bank stock cycle.

504
00:29:10,880 --> 00:29:13,800
Speaker 1: I'm overweight and I haven't sold to share fair to

505
00:29:13,800 --> 00:29:15,720
Speaker 1: say their time has come. I remember hearing in the

506
00:29:15,760 --> 00:29:19,080
Speaker 1: conversation about regulation a lot of concern and anger from

507
00:29:19,080 --> 00:29:22,640
Speaker 1: community banks and regional banks about the burden of regulation.

508
00:29:23,440 --> 00:29:25,360
Speaker 1: I say, has their time come? Because it seems like

509
00:29:26,040 --> 00:29:28,440
Speaker 1: there have now been steps legislatively and within the administration

510
00:29:28,440 --> 00:29:30,120
Speaker 1: how to recognize that that. We hear talk now of

511
00:29:30,200 --> 00:29:33,080
Speaker 1: bringing in more regional community bankers into into the decision

512
00:29:33,080 --> 00:29:36,920
Speaker 1: making process. We hear talk in terms of bringing in

513
00:29:37,040 --> 00:29:42,160
Speaker 1: personalities at all levels, Randy quarrels or top unknown individuals.

514
00:29:42,200 --> 00:29:48,520
Speaker 1: At the bottom. We see reap peel or retraction or retracement,

515
00:29:49,080 --> 00:29:55,200
Speaker 1: or a diminution of regulatory headwinds. All those pieces together

516
00:29:55,640 --> 00:30:00,280
Speaker 1: determined profitability of a bank. So profitabily, which has been

517
00:30:00,320 --> 00:30:06,080
Speaker 1: restrained in the face of a headwind is reversing, and

518
00:30:06,120 --> 00:30:08,640
Speaker 1: the headwind is reversing to a tail wind. There's a

519
00:30:08,720 --> 00:30:13,120
Speaker 1: very powerful force for the sector. In our opinion. You

520
00:30:13,240 --> 00:30:17,400
Speaker 1: have a sentence buried in your report which is so Kotakian.

521
00:30:18,120 --> 00:30:20,720
Speaker 1: This is the basic idea of folks is always make

522
00:30:20,800 --> 00:30:23,680
Speaker 1: me an armenia. All of us were in cash, and

523
00:30:23,760 --> 00:30:28,320
Speaker 1: David was saying, have courage, quote a rising stock market

524
00:30:28,440 --> 00:30:33,280
Speaker 1: through the entire decade. I was thunderstruck. David Friday of

525
00:30:33,320 --> 00:30:37,680
Speaker 1: the knee jerk gloom reports throughout all the Internet space.

526
00:30:37,720 --> 00:30:40,520
Speaker 1: The doom and gloom was really off the chart. How

527
00:30:40,520 --> 00:30:43,160
Speaker 1: do you get to a rising stock market through the

528
00:30:43,320 --> 00:30:50,200
Speaker 1: entire decade? Suppose we have two growth inflation rates under two,

529
00:30:52,360 --> 00:30:57,600
Speaker 1: a liquid system which is going to very slowly withdraw

530
00:30:57,720 --> 00:31:04,520
Speaker 1: access liquidity of a trillion or more, and therefore a

531
00:31:04,760 --> 00:31:09,440
Speaker 1: GDP growth rate without stresses, no liquidity crunch, and we

532
00:31:09,480 --> 00:31:12,120
Speaker 1: don't get some outside shock like a war or something.

533
00:31:13,280 --> 00:31:17,560
Speaker 1: What happens to asset prices, what happens to stock prices?

534
00:31:17,560 --> 00:31:21,000
Speaker 1: Their earnings rise faster than the g d P. We

535
00:31:21,040 --> 00:31:24,840
Speaker 1: are seeing Ernie's expansion now, and we don't have a

536
00:31:24,880 --> 00:31:28,040
Speaker 1: headwin of higher interest rates or an inverted yield curve

537
00:31:28,160 --> 00:31:31,280
Speaker 1: or the kinds of things which stopped this. I think

538
00:31:31,360 --> 00:31:33,760
Speaker 1: we can have three thousand on SNP. I put it

539
00:31:33,800 --> 00:31:36,200
Speaker 1: in the report by the end of the decade or

540
00:31:36,240 --> 00:31:39,400
Speaker 1: a year after. Sure we'll have volatility, but I think

541
00:31:39,440 --> 00:31:43,280
Speaker 1: we're headed higher. We've had three years of no earnings growth,

542
00:31:43,680 --> 00:31:46,400
Speaker 1: and that looks to me to be over look at

543
00:31:46,440 --> 00:31:48,040
Speaker 1: your note you talk about Reads a little bit, and

544
00:31:48,040 --> 00:31:49,480
Speaker 1: of course there was the news here in the last

545
00:31:49,520 --> 00:31:51,880
Speaker 1: twenty four hours, so that Warren Buffett took out a

546
00:31:51,880 --> 00:31:53,920
Speaker 1: big steak where Berkshire Hathway took out a nine point

547
00:31:53,960 --> 00:31:58,240
Speaker 1: eight percent steak and store capital. So a commercial realty read,

548
00:31:58,960 --> 00:32:02,680
Speaker 1: what's your hesitation comes to Reads? The big box retailers

549
00:32:02,680 --> 00:32:08,520
Speaker 1: are under pressure, so you have a shrinking UH in

550
00:32:08,640 --> 00:32:13,800
Speaker 1: the entire country. You have this pressure on retailers because

551
00:32:13,840 --> 00:32:17,719
Speaker 1: of the substitution of an electronics sale from a physical sale.

552
00:32:18,520 --> 00:32:23,040
Speaker 1: That to me is a headwind for real estate. Vacant

553
00:32:23,480 --> 00:32:29,480
Speaker 1: large spaces mean troubles for the communities they're in. They

554
00:32:29,600 --> 00:32:33,719
Speaker 1: do not expand hiring. They there's a headwind there, and

555
00:32:33,800 --> 00:32:36,960
Speaker 1: so I worry about it. The decision is in the financials.

556
00:32:37,000 --> 00:32:38,680
Speaker 1: I like the banks, but I don't like the reads.

557
00:32:39,240 --> 00:32:40,880
Speaker 1: What do you make of of what we've seen from

558
00:32:40,920 --> 00:32:43,560
Speaker 1: Amazon here over these last a couple of weeks, the

559
00:32:44,840 --> 00:32:47,400
Speaker 1: news that they're intending to to buy Whole Foods here

560
00:32:47,440 --> 00:32:51,120
Speaker 1: for fourteen billion dollars and plan to embrace the sort

561
00:32:51,120 --> 00:32:53,920
Speaker 1: of bricks and mortar model as well. What does that

562
00:32:53,960 --> 00:32:55,760
Speaker 1: tell you about where retail is headed, the fact that

563
00:32:55,800 --> 00:32:59,480
Speaker 1: they're going in that direction. Well, Amazon did not buy

564
00:32:59,480 --> 00:33:03,440
Speaker 1: a books are about a food star. And if you

565
00:33:03,480 --> 00:33:06,400
Speaker 1: look at the technique of Amazon, we use Amazon. I

566
00:33:06,400 --> 00:33:08,680
Speaker 1: don't know anybody in the world it doesn't use Amazon

567
00:33:10,120 --> 00:33:14,520
Speaker 1: for some form of shopping and we get well, that's right. No,

568
00:33:14,840 --> 00:33:17,720
Speaker 1: I have never ordered black flies in Amazon. But you

569
00:33:17,760 --> 00:33:22,120
Speaker 1: know I I thought Amazon's move made sense, and I

570
00:33:22,160 --> 00:33:25,800
Speaker 1: think we'll see more of this kind of unusual consolidation.

571
00:33:25,840 --> 00:33:28,600
Speaker 1: We seeing the autos and self driving cars. We're gonna

572
00:33:28,600 --> 00:33:31,800
Speaker 1: see it everywhere. You spend a lot of time talking

573
00:33:31,840 --> 00:33:35,520
Speaker 1: to people with pots of money about getting courage to

574
00:33:35,640 --> 00:33:37,320
Speaker 1: be in the market. I know you do it. Three

575
00:33:37,320 --> 00:33:39,720
Speaker 1: E T F s and all that. Where's the courage

576
00:33:39,720 --> 00:33:43,280
Speaker 1: come from? Right now? You mentioned the economic backdrop, but

577
00:33:43,360 --> 00:33:45,400
Speaker 1: where is it from a corporate standpoint? Is it just

578
00:33:45,440 --> 00:33:49,120
Speaker 1: a belief they're going to continue to distribute rising dividends

579
00:33:49,160 --> 00:33:52,480
Speaker 1: and share buy backs In the investors class that we

580
00:33:52,560 --> 00:33:54,760
Speaker 1: talked to, which is a top two or three percent

581
00:33:54,800 --> 00:33:57,200
Speaker 1: of income people in the country, So it's it's a

582
00:33:57,320 --> 00:34:02,320
Speaker 1: very narrowed sample, but a large man as they still

583
00:34:02,360 --> 00:34:06,400
Speaker 1: are remembering the crisis. They are afraid of higher interest rates,

584
00:34:06,440 --> 00:34:08,399
Speaker 1: have been afraid of higher interest rates for the last

585
00:34:08,440 --> 00:34:12,920
Speaker 1: decade almost and they don't trust the stock price levels.

586
00:34:13,120 --> 00:34:17,440
Speaker 1: And as long as they have that hesitancy, prices will rise.

587
00:34:17,960 --> 00:34:20,440
Speaker 1: In the business community and a lot of our clients,

588
00:34:20,440 --> 00:34:24,480
Speaker 1: our business people, they are uncertain about this tax code.

589
00:34:24,520 --> 00:34:26,800
Speaker 1: They have no idea what the policy is going to

590
00:34:26,880 --> 00:34:30,799
Speaker 1: be now out of Washington and all of the outlook,

591
00:34:30,840 --> 00:34:35,120
Speaker 1: which was positive six months ago, seems to be dissipated.

592
00:34:35,200 --> 00:34:37,600
Speaker 1: So how do you know what to do, how to

593
00:34:37,680 --> 00:34:40,239
Speaker 1: borrow for it, what to build, what to invest in?

594
00:34:40,320 --> 00:34:43,440
Speaker 1: Whola I or you don't And so there's a slow

595
00:34:43,520 --> 00:34:47,960
Speaker 1: down in decisions. I find businesses after businesses and our

596
00:34:47,960 --> 00:34:54,239
Speaker 1: client base deferring decisions if they can because they are unsure.

597
00:34:55,080 --> 00:34:58,440
Speaker 1: And that is another reason why the economy is so slow.

598
00:34:58,719 --> 00:35:02,759
Speaker 1: Decision deferral, well, decision to furrow. But mostly it's people

599
00:35:02,800 --> 00:35:05,360
Speaker 1: saying get me out and never finding a way to

600
00:35:05,440 --> 00:35:10,640
Speaker 1: mentally get back into this most unloved of all bullmarkets.

601
00:35:10,640 --> 00:35:14,120
Speaker 1: Will continue with Mr Kotalk. David Garran enjoying speaking with

602
00:35:14,239 --> 00:35:20,320
Speaker 1: David Kotok of of uh Philadelphia and Florida with Cumberland Advisors.

603
00:35:20,360 --> 00:35:24,400
Speaker 1: We've been talking up Banks and his enthusiasm. Um. I

604
00:35:24,440 --> 00:35:26,360
Speaker 1: see a headline here that we we I guess we

605
00:35:26,400 --> 00:35:31,080
Speaker 1: could fold right into our coverage with Mr kotak Um.

606
00:35:31,080 --> 00:35:33,600
Speaker 1: This just out from our Brendan Murray in Washington. I

607
00:35:33,640 --> 00:35:37,680
Speaker 1: am f lower's US economic growth forecast for this year.

608
00:35:37,840 --> 00:35:39,640
Speaker 1: We don't have much more than that. I don't know.

609
00:35:40,000 --> 00:35:43,200
Speaker 1: That must be like a mid year PREENI here, I didn't.

610
00:35:43,200 --> 00:35:45,879
Speaker 1: Did you talk to Madam Leguard this morning, David Well?

611
00:35:45,960 --> 00:35:47,920
Speaker 1: I think they just heard the interview we did four

612
00:35:47,960 --> 00:35:50,880
Speaker 1: minutes and that could have been. I mean, here we

613
00:35:50,920 --> 00:35:53,680
Speaker 1: are with the whole Seattle slew headlines like that, David

614
00:35:55,360 --> 00:35:59,840
Speaker 1: into with fed most well telegraphed balance sheet reduction plans,

615
00:36:00,120 --> 00:36:05,440
Speaker 1: must accept moderate temporary inflation overshoot needs to cut tax rate,

616
00:36:05,520 --> 00:36:08,960
Speaker 1: reduce taxpayers, on and on. It's a laundry list of

617
00:36:09,040 --> 00:36:12,680
Speaker 1: Laguardian comments. Um, I'm looking for one that actually matters.

618
00:36:12,719 --> 00:36:16,760
Speaker 1: There's care, there's case. I love this one. There's case

619
00:36:16,800 --> 00:36:21,919
Speaker 1: for increasing US infrastructure spending. That from Madame Legarde this morning.

620
00:36:22,000 --> 00:36:24,359
Speaker 1: David safe to say not a believer in the three

621
00:36:24,400 --> 00:36:26,719
Speaker 1: or four percent economic growth forth at the White House

622
00:36:26,719 --> 00:36:30,880
Speaker 1: has put into into place. Seriously, next year's growth outlook

623
00:36:31,000 --> 00:36:35,040
Speaker 1: is a stunning two point from prior to point five.

624
00:36:35,120 --> 00:36:39,600
Speaker 1: David Kotok. Seriously, that's a gloomy eighteen months forward view

625
00:36:39,719 --> 00:36:41,600
Speaker 1: from the I m F. Well it is, but that's

626
00:36:41,600 --> 00:36:44,400
Speaker 1: where we are, and I happen to agree with that.

627
00:36:44,560 --> 00:36:47,279
Speaker 1: We've been around two percent growth. We don't think it

628
00:36:47,320 --> 00:36:49,839
Speaker 1: gets very robust. We we don't see this three four

629
00:36:49,960 --> 00:36:52,640
Speaker 1: pineus guy number from the White House, and we don't

630
00:36:52,640 --> 00:36:57,320
Speaker 1: see an inflation pressure. It stays low and this kind

631
00:36:57,360 --> 00:37:00,640
Speaker 1: of characteristic may not be that robost, but it is

632
00:37:00,800 --> 00:37:03,880
Speaker 1: very stable and you see it in the vix and volatilities.

633
00:37:03,960 --> 00:37:06,200
Speaker 1: Because here's the here's what all the I m F

634
00:37:06,280 --> 00:37:08,759
Speaker 1: critics are gonna say. Okay, there's the number two point

635
00:37:08,840 --> 00:37:13,160
Speaker 1: one this year, the same number for next year. That's gloomy.

636
00:37:13,280 --> 00:37:17,200
Speaker 1: And then there's a single headline feller reserves should continue

637
00:37:17,280 --> 00:37:21,960
Speaker 1: gradually raising interest rates. How do you gradually raise interest

638
00:37:22,080 --> 00:37:25,080
Speaker 1: rates when the inflation vector in frankly the I m

639
00:37:25,120 --> 00:37:28,319
Speaker 1: F growth vectors going in the wrong direction. Well that's

640
00:37:28,360 --> 00:37:30,359
Speaker 1: why I mean the Fed I don't think looks very

641
00:37:30,440 --> 00:37:34,640
Speaker 1: much at the I m f but so so what

642
00:37:34,719 --> 00:37:37,400
Speaker 1: does the FAT do? The FAT is trying to raise

643
00:37:37,760 --> 00:37:41,000
Speaker 1: rates to get to whatever they think is normal. They

644
00:37:41,040 --> 00:37:43,640
Speaker 1: had a free shot by the markets which priced in

645
00:37:43,680 --> 00:37:48,080
Speaker 1: the quarter point after months of rhetoric and minute moving

646
00:37:48,160 --> 00:37:51,359
Speaker 1: and data, and they took the free shot. If we'd

647
00:37:51,360 --> 00:37:53,560
Speaker 1: have been voting on the FED and the markets give

648
00:37:53,600 --> 00:37:55,920
Speaker 1: you a free shot in basketball, you take it, and

649
00:37:55,920 --> 00:37:59,640
Speaker 1: in central banking you taken. If the market set up

650
00:37:59,680 --> 00:38:02,319
Speaker 1: an o the free shot for quarter point between now

651
00:38:02,360 --> 00:38:04,040
Speaker 1: and the end of the year, the Federal take it

652
00:38:04,080 --> 00:38:08,480
Speaker 1: again because they want to move away from the lower bound,

653
00:38:08,840 --> 00:38:12,319
Speaker 1: and they will not take a shot and raise rates

654
00:38:12,360 --> 00:38:15,959
Speaker 1: at the same time. They will start this very very

655
00:38:16,000 --> 00:38:20,800
Speaker 1: gradual balance sheet shrinkage. Dudley has used the word pause.

656
00:38:21,760 --> 00:38:25,040
Speaker 1: So that's where we are. That says to me, we're

657
00:38:25,040 --> 00:38:27,600
Speaker 1: going to be in that mode for a couple more years.

658
00:38:28,040 --> 00:38:32,800
Speaker 1: That is a very benign monetary environment. It is bullish

659
00:38:33,000 --> 00:38:37,560
Speaker 1: for asset prices which are tied to interest rate some

660
00:38:37,640 --> 00:38:41,040
Speaker 1: monetary policy. In the second element here is there's this

661
00:38:41,200 --> 00:38:45,200
Speaker 1: massive excess liquidity in excess reserves, and the FET is

662
00:38:45,239 --> 00:38:48,839
Speaker 1: pointing to financial conditions as being very easy and easy.

663
00:38:49,680 --> 00:38:52,839
Speaker 1: What do you expect if you create a trillion dollars

664
00:38:52,880 --> 00:38:58,360
Speaker 1: excess dollars, how would you ever expect financial conditions to tighten?

665
00:38:58,960 --> 00:39:02,240
Speaker 1: They have to be easy, So you have a circular issue.

666
00:39:02,440 --> 00:39:05,400
Speaker 1: Direction of causality is not clear, but the feed is

667
00:39:05,480 --> 00:39:09,919
Speaker 1: pointing too easy financial conditions as the reason it can

668
00:39:10,000 --> 00:39:13,360
Speaker 1: raise rates by a quarter point? Do you understand you

669
00:39:13,400 --> 00:39:15,520
Speaker 1: have a good understanding of why the Fed is so

670
00:39:15,640 --> 00:39:17,960
Speaker 1: keen to unwind this balance sheet? Now we had the

671
00:39:17,960 --> 00:39:21,000
Speaker 1: FED sheer outlining what she intends to do, indicating in

672
00:39:21,040 --> 00:39:22,880
Speaker 1: some vague terms it's going to happen at some point

673
00:39:23,320 --> 00:39:26,040
Speaker 1: this year. Have they made the rationale clear enough for

674
00:39:26,120 --> 00:39:27,880
Speaker 1: doing it? At this point? I don't know that the

675
00:39:27,960 --> 00:39:30,960
Speaker 1: rational has been made clear enough. I think there's another agenda.

676
00:39:31,000 --> 00:39:32,799
Speaker 1: It worked because you look at the feed and you say,

677
00:39:32,840 --> 00:39:34,640
Speaker 1: what are they going to do? But you have to

678
00:39:34,680 --> 00:39:37,440
Speaker 1: look at who they are, and you look at Yelling

679
00:39:37,520 --> 00:39:40,160
Speaker 1: and Fisher and they say, you know, they're looking around

680
00:39:40,239 --> 00:39:42,680
Speaker 1: saying we don't have many months left and there's going

681
00:39:42,760 --> 00:39:44,520
Speaker 1: to be a new FED and a Trump FED, and

682
00:39:44,600 --> 00:39:47,479
Speaker 1: so to the extent we can normalize things before we leave,

683
00:39:48,360 --> 00:39:50,600
Speaker 1: that should be our task, and there's less than a

684
00:39:50,719 --> 00:39:54,480
Speaker 1: year to do it. In doing that, How confident are

685
00:39:54,480 --> 00:39:55,920
Speaker 1: you that what they put in place is going to

686
00:39:55,920 --> 00:39:58,040
Speaker 1: stay in place? You mentioned the personnel change we're likely

687
00:39:58,080 --> 00:40:01,120
Speaker 1: to see here over these next few months. Does the

688
00:40:01,400 --> 00:40:04,280
Speaker 1: guidance they're giving about the balance sheet unwined really matter

689
00:40:04,400 --> 00:40:08,200
Speaker 1: if all of that could be scrapped entirely when somebody

690
00:40:08,200 --> 00:40:10,480
Speaker 1: else comes in. I don't think it matters a lot.

691
00:40:10,520 --> 00:40:13,000
Speaker 1: I don't think dots mean anything a year from now.

692
00:40:13,080 --> 00:40:15,799
Speaker 1: I don't think forecasts mean a lot. I think that

693
00:40:16,120 --> 00:40:21,120
Speaker 1: the present players are the ones who have a few

694
00:40:21,160 --> 00:40:24,640
Speaker 1: months left with their hands on the policy, and within

695
00:40:24,680 --> 00:40:28,520
Speaker 1: a year the likely person to be there's j Pal

696
00:40:28,800 --> 00:40:31,560
Speaker 1: and everybody else has gone. One of your charms besides

697
00:40:31,560 --> 00:40:33,640
Speaker 1: putting the worm out of my hook when you go fishing,

698
00:40:34,400 --> 00:40:36,879
Speaker 1: is you don't live in New York, You don't live

699
00:40:36,920 --> 00:40:40,520
Speaker 1: in London. You live in a part of America. It

700
00:40:40,560 --> 00:40:46,239
Speaker 1: has huge income disparities dealing with the opioid epidemic, the

701
00:40:46,280 --> 00:40:49,080
Speaker 1: heroin epidemic, whatever you want to call it. What do

702
00:40:49,160 --> 00:40:53,640
Speaker 1: you observe in scenic Florida right now? Given a two

703
00:40:53,680 --> 00:40:57,600
Speaker 1: point one or two point three GDP that David Kotok

704
00:40:57,640 --> 00:40:59,759
Speaker 1: suggests where we're at, I live in a town with

705
00:41:00,000 --> 00:41:03,319
Speaker 1: massive wealth in equality, like one side long Boat Key

706
00:41:03,360 --> 00:41:05,759
Speaker 1: in the Bay. I live in a nice place. We

707
00:41:05,840 --> 00:41:09,719
Speaker 1: have a nice view, go half a mile a mile half. Yeah,

708
00:41:10,000 --> 00:41:15,080
Speaker 1: very huge income inequality. That's true on both coasts. You

709
00:41:15,160 --> 00:41:18,400
Speaker 1: see it more and more in the data, this widening mass.

710
00:41:18,640 --> 00:41:21,560
Speaker 1: And we talk about tax cuts and tax rates. I

711
00:41:21,600 --> 00:41:27,440
Speaker 1: don't hear a single politician saying, let's reduce permanently fica

712
00:41:27,520 --> 00:41:31,919
Speaker 1: the employee withholding tax on the first hundred thousand dollars

713
00:41:31,960 --> 00:41:34,560
Speaker 1: of every working person in America. I did that chart,

714
00:41:34,640 --> 00:41:36,520
Speaker 1: I got you almost got a death threat off of

715
00:41:36,560 --> 00:41:39,400
Speaker 1: it a while back. But I mean, David, what is

716
00:41:39,440 --> 00:41:42,400
Speaker 1: so important here is you've had the courage over the

717
00:41:42,440 --> 00:41:45,960
Speaker 1: year to attack outside things like bird flu. You you

718
00:41:46,120 --> 00:41:49,040
Speaker 1: became an expert on and this or that you're in

719
00:41:49,120 --> 00:41:52,000
Speaker 1: in America that's struggling, not in the three zip codes

720
00:41:52,080 --> 00:41:56,400
Speaker 1: David and I in Michael McKee live in. What is

721
00:41:56,440 --> 00:42:00,920
Speaker 1: your take on the national battle over this heroin epidemic

722
00:42:00,960 --> 00:42:03,560
Speaker 1: that we're doing. I think it's terrible. It's not being addressed.

723
00:42:03,600 --> 00:42:09,560
Speaker 1: There are center aportman in a while on down to anybody,

724
00:42:09,560 --> 00:42:12,399
Speaker 1: it's we're not talking about it. Yeah, we don't talk

725
00:42:12,400 --> 00:42:14,600
Speaker 1: about it. We don't talk about those kinds of issues

726
00:42:14,680 --> 00:42:17,279
Speaker 1: as shame to be talked about in Florida. I guess

727
00:42:17,280 --> 00:42:20,480
Speaker 1: it's my ultimate question. Well, sure, people who will, but

728
00:42:20,520 --> 00:42:23,880
Speaker 1: who's gonna listen? You know that we're very much involved

729
00:42:23,960 --> 00:42:28,720
Speaker 1: in Florida with what to do about Cuba. Well, okay,

730
00:42:28,800 --> 00:42:32,799
Speaker 1: Cuba's important, but I think the divide you mentioned is

731
00:42:32,880 --> 00:42:36,319
Speaker 1: more important. I ask you what you value more at

732
00:42:36,360 --> 00:42:37,960
Speaker 1: this point? Is that the soft data or the hard

733
00:42:38,040 --> 00:42:40,120
Speaker 1: data we talked about, which is catching up to what?

734
00:42:40,880 --> 00:42:42,600
Speaker 1: But when you're looking, when you're trying to assess the

735
00:42:42,600 --> 00:42:45,560
Speaker 1: health of this economy and of this market, does one

736
00:42:45,600 --> 00:42:48,279
Speaker 1: matter more than the other at this point? Hugely hard

737
00:42:48,360 --> 00:42:53,239
Speaker 1: data and obscure hard data that's high frequency, more than

738
00:42:53,400 --> 00:42:57,880
Speaker 1: opinions and assertions and collections of opinions and assertions. Hugely

739
00:42:57,960 --> 00:43:00,360
Speaker 1: our data. David K, thank you so much. Don't be

740
00:43:00,360 --> 00:43:03,200
Speaker 1: a strange fun way way too long. And yes, somebody

741
00:43:03,239 --> 00:43:05,120
Speaker 1: emailed it. Yes he does put the worm on it.

742
00:43:05,840 --> 00:43:10,920
Speaker 1: He buys these crawlers that have teeth on him big.

743
00:43:23,440 --> 00:43:26,680
Speaker 1: We're joined by Margaret Investiger. She is the EU Competition Commissioner,

744
00:43:26,760 --> 00:43:29,279
Speaker 1: the woman behind the fine levied against Google this morning

745
00:43:29,280 --> 00:43:32,040
Speaker 1: at two point four billion euro two point seven billion

746
00:43:32,080 --> 00:43:35,879
Speaker 1: dollar fine. Uh focused here on Google's shopping service. Great

747
00:43:35,880 --> 00:43:37,040
Speaker 1: to have you with us, Great to speak with you

748
00:43:37,040 --> 00:43:40,680
Speaker 1: once again, Mada Investigord. Let me let me ask you

749
00:43:40,719 --> 00:43:43,880
Speaker 1: first of all here about what you outlined in your

750
00:43:43,880 --> 00:43:46,799
Speaker 1: press conference, indeed in the fine that was levied. Here's

751
00:43:46,800 --> 00:43:48,480
Speaker 1: all you said, it's up to Google to find their

752
00:43:48,520 --> 00:43:51,120
Speaker 1: way of complying with the order you've put in place today.

753
00:43:51,120 --> 00:43:53,120
Speaker 1: What would you like to see the company do differently?

754
00:43:53,120 --> 00:43:54,719
Speaker 1: How specific are you going to be in terms of

755
00:43:54,760 --> 00:43:59,680
Speaker 1: your expectations. Well, what we expect is, of course, for

756
00:44:00,280 --> 00:44:04,319
Speaker 1: to to compete on the marriage, not to abuse its

757
00:44:04,360 --> 00:44:10,200
Speaker 1: dominant position in in dieneral search, to favor Google Shopping,

758
00:44:10,360 --> 00:44:15,640
Speaker 1: and to demote rivals, because competition on the marriage that's

759
00:44:15,719 --> 00:44:20,240
Speaker 1: what serves competition and consumers best competition on the merriage.

760
00:44:20,280 --> 00:44:22,800
Speaker 1: This has been an investigation that's lasted for seven years.

761
00:44:22,800 --> 00:44:25,600
Speaker 1: How much has Google Shopping changed over the course of

762
00:44:25,600 --> 00:44:28,520
Speaker 1: your investigation? Is it today different than it was when

763
00:44:28,560 --> 00:44:34,640
Speaker 1: this investigation began? Oh? Yes, definitely. It has changed its

764
00:44:34,719 --> 00:44:38,880
Speaker 1: name two times and the appearance is also very different.

765
00:44:39,280 --> 00:44:42,520
Speaker 1: What you see today, is there much richer format than

766
00:44:42,560 --> 00:44:46,640
Speaker 1: what you sold maybe uh five years ago. And this

767
00:44:46,719 --> 00:44:49,040
Speaker 1: is of course also one of the reasons why we

768
00:44:49,120 --> 00:44:52,040
Speaker 1: leave it completely to Google to find a way to comply,

769
00:44:52,280 --> 00:44:55,040
Speaker 1: because it is forgole to figure out how to do

770
00:44:55,120 --> 00:44:57,560
Speaker 1: the format, how to do the display, how to do

771
00:44:57,640 --> 00:45:02,120
Speaker 1: the equal treatment in a way that suits uh their

772
00:45:02,200 --> 00:45:06,120
Speaker 1: technical solutions. What are the barriers to entry them now

773
00:45:06,200 --> 00:45:09,320
Speaker 1: in the future of others competing with Google and Denmark

774
00:45:09,719 --> 00:45:14,239
Speaker 1: and the rest of Europe. Well, you know, in in

775
00:45:14,320 --> 00:45:19,360
Speaker 1: a market like the digital market of course search in particular,

776
00:45:20,080 --> 00:45:23,360
Speaker 1: the barriers to entry they are, they're quite high. Because

777
00:45:23,440 --> 00:45:27,600
Speaker 1: once you're in there, if you're successful, well then you

778
00:45:27,600 --> 00:45:30,000
Speaker 1: you get a lot of data, you get a lot

779
00:45:30,040 --> 00:45:35,320
Speaker 1: of visibility, and therefore it also generates more revenue, revenue

780
00:45:35,360 --> 00:45:39,560
Speaker 1: that can be transferred into making your services better, and

781
00:45:39,600 --> 00:45:43,120
Speaker 1: therefore you can have a very very promising circle. But

782
00:45:43,480 --> 00:45:46,319
Speaker 1: others should have the chance to be the next us,

783
00:45:46,640 --> 00:45:51,879
Speaker 1: do the minister? Do they have that chance now? Now,

784
00:45:52,040 --> 00:45:56,560
Speaker 1: what we find today is that when Google has given

785
00:45:56,600 --> 00:45:59,880
Speaker 1: this sort of significantly better treatment to his own se

786
00:46:00,160 --> 00:46:05,319
Speaker 1: risks by plas in Google shopping box on top of

787
00:46:05,320 --> 00:46:09,800
Speaker 1: of your search results and devoting rivals on average to

788
00:46:10,200 --> 00:46:14,759
Speaker 1: page four. Well, then the visibility of rivals is almost

789
00:46:15,280 --> 00:46:20,359
Speaker 1: non existent. And we have proven that visibility UH and

790
00:46:20,960 --> 00:46:24,520
Speaker 1: UH and traffic and therefore clicks and revenues, well, they

791
00:46:24,520 --> 00:46:29,040
Speaker 1: are literally two sides of the same coin. Very quickly here,

792
00:46:29,080 --> 00:46:30,520
Speaker 1: how do you set the fine? How do you set

793
00:46:30,520 --> 00:46:32,520
Speaker 1: a two point four billion euro fine? How do you

794
00:46:32,520 --> 00:46:36,520
Speaker 1: come up with the number? What we have guidelines and

795
00:46:36,520 --> 00:46:38,920
Speaker 1: and the level of the fine reflect that this has

796
00:46:38,960 --> 00:46:41,880
Speaker 1: been going on into two thousand and eight, but a

797
00:46:41,960 --> 00:46:45,480
Speaker 1: lot of markets are involved, and of course that but

798
00:46:45,600 --> 00:46:51,160
Speaker 1: this is a very abusive behavior. A lot of of

799
00:46:51,160 --> 00:46:55,800
Speaker 1: of citizens and potential customers has been affected and the

800
00:46:55,880 --> 00:46:59,320
Speaker 1: died denied before benefits of competition, and and that is

801
00:46:59,400 --> 00:47:01,960
Speaker 1: reflected in the level of the fine. I'm Gonnaves too

802
00:47:01,960 --> 00:47:03,879
Speaker 1: short with you today, Thank you very much for the time.

803
00:47:03,960 --> 00:47:06,400
Speaker 1: She's of course the EU European at the ETHER European

804
00:47:06,400 --> 00:47:18,400
Speaker 1: Competition Commissioner joining us. Thanks for listening to the Bloomberg

805
00:47:18,400 --> 00:47:24,759
Speaker 1: Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,

806
00:47:25,120 --> 00:47:28,960
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at

807
00:47:28,960 --> 00:47:33,000
Speaker 1: Tom Keene. David Gura is at David Gura. Before the

808
00:47:33,040 --> 00:47:37,360
Speaker 1: podcast you can always catch us worldwide. I'm Bloomberg Radio

809
00:47:48,200 --> 00:47:52,040
Speaker 1: Brunch You by Bank of America Mary Lynch. With virtual reality,

810
00:47:52,320 --> 00:47:57,720
Speaker 1: virtually everything will change. Discover opportunities in a transforming world,

811
00:47:58,120 --> 00:48:02,439
Speaker 1: be of a mL dot com, slash VR, Mary Lynch,

812
00:48:02,520 --> 00:48:04,880
Speaker 1: Pierced Fenner and Smith Incorporated,