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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

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Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jay Leye. We bring

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Speaker 1: you insight from the best and economics, finance, investment, and

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Speaker 1: international relations. Find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg

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Speaker 1: dot com, and of course, on the Bloomberg terminal. Each

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Speaker 1: of these stories is different. No one better at Bloomberg

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Speaker 1: knows that than Street on a rag and who joins

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Speaker 1: us right now to say is Bloomberg Wall Street reporter

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Speaker 1: barely describes the king of gossip of Wall Street. Who's next?

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Speaker 1: Is Golden Sacks gonna have a shake up? Goldman Sachs

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Speaker 1: is one of the recent films that we've had a

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Speaker 1: CEO shakeup. So you saw that in twenty eighteen when

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Speaker 1: Lloyd Blank find I need to come on, I need

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Speaker 1: some more fun from these fruits. It's Golden. Seriously, it's

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Speaker 1: Golden Sacks next. If Jamie Diamond is gonna take fifteen

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Speaker 1: years and James Gorman one the same time, I bet

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Speaker 1: David Solomon doesn't want to live anytime soon Tree the

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Speaker 1: co president's role. Can we talk about that a little

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Speaker 1: bit more? How on Earth does that work well at

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Speaker 1: least at this firm. It is important that the Morgan

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Speaker 1: Stanley of today is extremely different of the Morgan Stanley

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Speaker 1: from ten fifteen years ago. You have a firm that

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Speaker 1: is not a pure play Wall Street investment bank anymore.

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Speaker 1: It's wealth management arm contributes to nearly fifty pc of

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Speaker 1: its overall revenue. So it kind of makes sense to

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Speaker 1: pick someone like Ted Pick who has charge of the

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Speaker 1: entire investment bank, and Andy Sapperstein, who has really built

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Speaker 1: Morgan Stanley into a wealth management powerhouse, starting from with

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Speaker 1: the Smith Barney purchase through to last year with the

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Speaker 1: Each Trade by which was one of the biggest deal,

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Speaker 1: possibly the biggest bank deals since the financial crisis. That

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Speaker 1: it has become a major center of gravity for the firm.

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Speaker 1: So at Morgan Stanley you had to have a situation

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Speaker 1: even without any inside knowledge. The best guess anyone else

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Speaker 1: out there would have had was the most logical outcome

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Speaker 1: here in trying to figure out who will be the

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Speaker 1: top deputy to James Gorman, would have been these two

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Speaker 1: men in tet picked from the investment bank and Andy

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Speaker 1: Sapustin from the wealth management zone. So three he wants

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Speaker 1: three years, He's told the board another three years as

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Speaker 1: the CEO. Many people reflecting on what happened with City

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Speaker 1: Group in the last couple of years, where Mr Corback

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Speaker 1: said something similar, then all of a sudden, Jane phrases

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Speaker 1: just started to move really quickly. Was the city situation

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Speaker 1: unique or do you expect some people expected to see

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Speaker 1: something similar? Here? City Group and Morgan Stanley two very

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Speaker 1: different places right now. In fact, Margin Stanley's market cap

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Speaker 1: is even higher than City Group right now. Imagine saying

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Speaker 1: that a few years ago that that would not have

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Speaker 1: been considerable. Even now, City Group has twice the assets

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Speaker 1: of Morgan Stanley and City Group has been going through

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Speaker 1: a number of challenges on the regulatory front and elsewhere.

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Speaker 1: Morgan Stanley is a different story. They are in a

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Speaker 1: good position. They are in what James Gorman calls a

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Speaker 1: position of strength, and then whend going is this good?

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Speaker 1: It's hard to imagine you'll want to leave. And that's

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Speaker 1: why it makes sense when James Government is starting the

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Speaker 1: senior man aagement and the boarding saying he wants to

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Speaker 1: hang around for at least three more years. So if

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Speaker 1: you buy the argument that banks are reshuffling senior management

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Speaker 1: ahead of the bank hearings in Washington, d C next week.

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Speaker 1: What is the message being sent by the personnel choices,

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Speaker 1: by the moves being made. I have to take the

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Speaker 1: contrarian side here, Lisa. I'm not sure the Morgan Stanley

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Speaker 1: move necessarily signals much to d C. However, the pandemic

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Speaker 1: could very well have played at all. It is our

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Speaker 1: understanding that James Gorman has been working on this succession

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Speaker 1: plan at least for a good part of the last year.

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Speaker 1: He does this New Year's resolution every year where the

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Speaker 1: start of the year he puts out a list of

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Speaker 1: things he wants to accomplish, and this year it very

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Speaker 1: much was on the list to make sure that it's

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Speaker 1: a smooth transition of power, and that's important for him. Three.

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Speaker 1: It's sort of old school to me when I walls

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Speaker 1: through the biographers of guys. Edward pick is a guy

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Speaker 1: who's seen it all. He went over to the equity

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Speaker 1: capital market side, and then he entered the death star

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Speaker 1: the fixed income shop, which at Morgan Stanley was an

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Speaker 1: absolute train wreck for years. Is he vantaged here because

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Speaker 1: he has equity capital markets, in bond capital markets experience.

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Speaker 1: He certainly does bring big credentials with him. When you

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Speaker 1: say he was started off on the equity capital market side,

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Speaker 1: he helped with the I P of none other than Google,

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Speaker 1: So he's had some big ticket names that he helped

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Speaker 1: take public. Then he took over the equities business and

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Speaker 1: in the aftermath of the financial crisis, that was a

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Speaker 1: big challenge to make sure that they could lift Morgan

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Speaker 1: Stanley's equities business and now it is the number one

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Speaker 1: player in Wall Street. And then he helped to fix

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Speaker 1: income business that was flagging. So he's clearly built up

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Speaker 1: the credentials, he's notched up the winds. So his story

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Speaker 1: is certainly very much on the race. Straight tremendous reporting.

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Speaker 1: As always, I'm gonna catch up with his blimberg Stree

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Speaker 1: Natacha and breaking down the news coming out of More

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Speaker 1: Can Standing. Let's bring in Russ Strict show, black Rock

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Speaker 1: Global Allocation Fund portfolio manager. Russ. Are we talking about

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Speaker 1: talking about it? And should we be talking about it

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Speaker 1: this morning? How significant is it? We're gonna be talking

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Speaker 1: about it one way or the other? Uh, Look, I

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Speaker 1: think this is important. The FED is likely to start

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Speaker 1: to shift their their policy stands in the coming months.

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Speaker 1: It's not unrealistic to think you begin tapering in in

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Speaker 1: Q four. Having said all that, you know, despite all

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Speaker 1: the ink being spilled, you know, a couple of points,

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Speaker 1: long term yields have actually remained remarkably contained. We've never

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Speaker 1: taken out the high from back in February and March.

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Speaker 1: Bond market volatility is down significantly from where it was

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Speaker 1: again back in February and March, despite the biggest inflation

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Speaker 1: printing forty years. So this is a big deal. But

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Speaker 1: you know, the wheels are not coming off the vehicle yet,

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Speaker 1: and I think that's important to realize. We still have

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Speaker 1: a one sixty ten year bond market volatility right now

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Speaker 1: is still modest. So as of today, that helps explain

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Speaker 1: why stocks are only down three I mean, the correction

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Speaker 1: has been a non correction. Russ. Can you buy the

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Speaker 1: big text here? Have they've been on love for a

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Speaker 1: long enough time where they're actually a relative value of

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Speaker 1: relatively unloved. I think there are some opportunities in the

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Speaker 1: big tech, you know, just to be clear, we're talking

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Speaker 1: about I think it is the mega cap high quality tech.

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Speaker 1: It's not necessarily the more speculative names, uh, the ones

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Speaker 1: where earnings are you know five or ten years out,

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Speaker 1: we've actually been trimming those from the portfolio. But yes,

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Speaker 1: if you're talking about high quality tech in man to

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Speaker 1: perform over the next one to two quarters. If we

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Speaker 1: get these gaudy g d P numbers and the cyclical

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Speaker 1: trade continues to three years out, I think you want

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Speaker 1: to own them. You want them in your portfolio. You know.

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Speaker 1: While as we talk about portfolio construction rusts, there is

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Speaker 1: a question of whether treasuries can provide truly a hedge

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Speaker 1: for equities at this point, especially given the negative correlation

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Speaker 1: that's gotten it by one measure to the most since

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Speaker 1: the two thousand's what's your sense right now early two thousands,

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Speaker 1: I should say, what's your sense of how hedge worthy

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Speaker 1: treasuries really are right now? Not much? Uh? You know.

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Speaker 1: The reality is things have changed, and if I look

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Speaker 1: at stock bond correlations, everyone knows they're taking up. What's

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Speaker 1: been let discussed is the fact that equity market volatility

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Speaker 1: has remained elevated compared to bond market volatility. There wasn't

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Speaker 1: a few a couple of months ago. But the reason

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Speaker 1: that's important and the reason it's affecting the efficacy of

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Speaker 1: the hedge is that tells you how convex the hedge

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Speaker 1: it is. You know, what you're seeing is even in

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Speaker 1: these days when the market is down a couple of

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Speaker 1: percent the way it was last week, either bonds are

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Speaker 1: flat or they're up a little bit, they're not giving

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Speaker 1: you that big movement that made them such an efficient

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Speaker 1: hedge the way that we're a couple of years ago.

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Speaker 1: And that's a big change. You know. We don't talk

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Speaker 1: about that a lot. We talked about bitcoin, We talked

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Speaker 1: about the FED. If you're building a portfolio, the degradation

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Speaker 1: and efficacy of bonds as your primary hedge is a

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Speaker 1: big deal. Just to be clear, Hey, Russ, you were

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Speaker 1: the first person to mention bitcoin on this program, So

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Speaker 1: Finn's be rre about that. Rus, just find me in quickly.

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Speaker 1: You still nurse in that cash position. She still sits

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Speaker 1: on that gun. Take Prince of Summer. We do have

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Speaker 1: the cash position again. It's it's the flip side of

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Speaker 1: that being very underweight duration. Everyone's got a volatility. They

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Speaker 1: look to manage their portfolio. Two. In the absence of duration,

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Speaker 1: you need other hedges. Part of it is cash. There

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Speaker 1: are other things as well. There's ball as an asset class. Uh,

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Speaker 1: there's f X pairs. But in a world where you're

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Speaker 1: not getting that convexity from durations at hedge, you're gonna

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Speaker 1: run with more cash. Russ thank you best that I'd saying.

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Speaker 1: Ruskulligh strict that of black Rock. Right now in London,

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Speaker 1: Roger Boodle joined us. He's with Capital Economics or chairman.

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Speaker 1: Very important work of the Telegraph is well, Roger, I

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Speaker 1: really have to ask about the churn that we're seeing

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Speaker 1: right now in this great economy. The Philip Lane comment

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Speaker 1: that John Farrell just had is so important. Uh, you're

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Speaker 1: Ambrose Evans preachers the Telegraph writing up inflation worries. Do

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Speaker 1: you have inflation worries? Yes? I do, actually um for

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Speaker 1: the first time for quite a long time now saying

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Speaker 1: that I've got inflation worries. And I don't think it's

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Speaker 1: going back to the inflation of the nine seventies. But

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Speaker 1: it concerns me that a lot of people in the

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Speaker 1: markets and central banks and governments are becoming I think

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Speaker 1: a bit complacent about this now. At the moment of course,

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Speaker 1: we're seeing you know, particular prices going up, and as

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Speaker 1: some of your people have been saying, this morning, those

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Speaker 1: effects are going to fade out. Frankly that I think

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Speaker 1: the bigger issue is the stance of policy. All this

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Speaker 1: money slashing around, these incredibly low interest rates. I think

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Speaker 1: we risk an inflation surge. Roger, Is there a place

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Speaker 1: around the world where you think that complacency it's more

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Speaker 1: concentrated a region, a country at central bank? Well, I

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Speaker 1: think the danger has put this with the danger's greatest

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Speaker 1: in the States because the economy was not that hard hit.

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Speaker 1: I was hard hit by the pandemic, but not as

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Speaker 1: hard hit as countries in the Eurozone or the UK.

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Speaker 1: And you've had this massive, absolutely massive fiscal stimulus, and

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Speaker 1: the money supply has grown substantially, and you're already at

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Speaker 1: four point two and the latest a give for the CPI.

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Speaker 1: I think you'll see inflation readily at five percent, and

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Speaker 1: I don't think it's going to subside that easily. At

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Speaker 1: the other end of the spectrum, I think the Eurozone

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Speaker 1: is not facing that much of an inflationary danger. Of course,

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Speaker 1: there will be the spikes the result of our commodity

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Speaker 1: prices and energy prices and so on, but I don't

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Speaker 1: think you're going to see anything like five percent in

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Speaker 1: the Eurozone and the UK is I think just about

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Speaker 1: in between those two cases. Do you think there's some

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Speaker 1: fun interal stability risk here along with that? Yes, I do.

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Speaker 1: The big question is what central banks do, and if

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Speaker 1: they don't do anything very much for some considerable time,

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Speaker 1: then I think the risk is that they're going to

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Speaker 1: be bounced into jumping interest rates, and then that has

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Speaker 1: a very substantial stability risk. I think the appropriate thing

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Speaker 1: once we're clear that the economy really is pretty strong

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Speaker 1: and inflation biggers are picking up, I think central banks

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Speaker 1: should start to edge up interest rates pretty soon. Roger,

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Speaker 1: what's going to be the impetus behind higher wages in

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Speaker 1: the United States? To a lot of people who come

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Speaker 1: on this show say, it's sort of a predetermining factor

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Speaker 1: too longer lasting inflation. As you're predicted, what depends how

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Speaker 1: strong the economy is. Uh, and all the signs of

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Speaker 1: the economy is going to be very strong, and that

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Speaker 1: increases the bargaining power of labor. Now, it's not going

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Speaker 1: to appear necessarily immediately, but it does happen, and the

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Speaker 1: economy is very strong. As a shortage of of people,

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Speaker 1: wages are a bit up, but you're right to say

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Speaker 1: that you can't have continuing inflation going mad for a

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Speaker 1: long time unless wages pick up. But I think they will.

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Speaker 1: And after all, wage ournalists will have to pay higher

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Speaker 1: prices in the shops and that will affect their living wage,

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Speaker 1: and they'll want to get some sort of compensation for that.

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Speaker 1: This is how inflation starts. And by the way, in

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Speaker 1: the past, you know, when inflation has got a bit

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Speaker 1: out of control, it's always begun with people saying, oh,

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Speaker 1: these are special factors, don't worry, it will fade out,

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Speaker 1: and with a central bank saying, I know, we're taking

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Speaker 1: a relaxed approach, and then, of course a bit later

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Speaker 1: down the line they find out that it doesn't play.

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Speaker 1: Now I'm sitting here trying to make these two views coherent.

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Speaker 1: This idea that we could get inflation that rises to

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Speaker 1: five and stays there for a while, and the idea

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Speaker 1: of a financial stability risk that torpedoes markets and causes

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Speaker 1: perhaps a return to pressures on the economy. I mean,

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Speaker 1: can you square the trajectory of the inflationary push and

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Speaker 1: perhaps the market crash that subsequently results. So I don't

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Speaker 1: think it's the inflation itself that actually poses the risk

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Speaker 1: to markets. Obviously, it's a risk of bond markets um

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Speaker 1: these incredibly low yields. But as far as equities is

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Speaker 1: a concerned, I don't think inflation itself obviously, which is

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Speaker 1: then sensitive to whatever happens in bond markets. Now the

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Speaker 1: risk is from policy. Now. Of course, if the policy

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Speaker 1: makers decided they're prepared to tolerate five percent inflation for

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Speaker 1: a bit, then fair enough that doesn't materialize, but I

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Speaker 1: would presume that at some point or other five would

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Speaker 1: be seen to be too I now the Fed has

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Speaker 1: altered its target, it's prepared to tolerate inflation, hasn't it explicitly?

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Speaker 1: But phats fill present for a while for a few years.

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Speaker 1: But if this gets bedded in, then I think it

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Speaker 1: has to act. And then if it acts by raising

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Speaker 1: interest rates by anything other than a tiny amount, you've

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Speaker 1: got to wonder. In the financial conditions in which we've

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Speaker 1: been living with very high asset valuations, huge amounts of debt,

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Speaker 1: you've got to wonder what the fallout from that will be,

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Speaker 1: and I think that will be quite ugly. Roger Bruttle

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Speaker 1: very quickly. Here have we've forgotten the joy of nominal

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Speaker 1: g D P. I mean you and I are fossil

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Speaker 1: enough to remember the bright lights of nominal g d

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Speaker 1: P really helping corporations, the corporate spirit, the business spirit,

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Speaker 1: if you will have we've forgotten a little bit of

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Speaker 1: inflation could be a good thing. Well, I hadn't forgotten

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Speaker 1: about that. The trouble with a little bit of inflation

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Speaker 1: is a bit like being a little bit pregnant. Things

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Speaker 1: stay that way, would I play tend not to stay

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Speaker 1: that way? Now in some conditions. In the fift and

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Speaker 1: sixes we had inflation to three. It didn't get out

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Speaker 1: of control, at least not for a long while, but

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Speaker 1: then it did get out of control. I think you're

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Speaker 1: right in the sense that we obviously don't want an

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Speaker 1: economy and that's flat on its back with zero inflation,

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Speaker 1: let alone deflation. And if we've got two percent, that's

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Speaker 1: perfect probably good, better than having one percent or zero,

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Speaker 1: maybe even three. For a few years, it's perfectly okay.

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Speaker 1: But once you get to these higher levels then I

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Speaker 1: think you do begin to get difficulties emerging. And so far,

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Speaker 1: of course, central banks have not wanted to accept something

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Speaker 1: like five. Maybe they will not. The conversation I expected

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Speaker 1: between the two of you to round this up, but

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Speaker 1: we'll leave it there. Roger, thank you, Roger the Caman,

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Speaker 1: I bet you are. But it's not the good kind either.

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Speaker 1: We talked to Senator as we talked to congressman and

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Speaker 1: women sometimes in manufactured. Steve Danes of Montana is the

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Speaker 1: real deal. He is original Montana, growing up in Bozeman,

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Speaker 1: chemical engineer from Montana State University. Ween there within Republican

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Speaker 1: politics and the Senator joins us this morning. Senator Janes

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Speaker 1: is Montana's government site says Montana works. What are you

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Speaker 1: gonna do with the three point eight zero percent unemployment rate? Well,

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Speaker 1: I'll tell you a big shout out to our new

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Speaker 1: governor of Montana, Gratten forty, who has been a friend

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Speaker 1: of mine for twenty years. We were in business together

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Speaker 1: in the Cloud, competing business for twelve years. Greg understands

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Speaker 1: how you make economies work, how you create jobs. In

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Speaker 1: Montana was the very first state that eliminated that three

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Speaker 1: week supplemental federal unemployment insurance benefit. Because when you take

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Speaker 1: a look at the state benefit plus the federal benefit,

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Speaker 1: he was about seventeen bucks an hour to stay home.

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Speaker 1: And this isn't about folks. Being lazy. This is about logic.

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Speaker 1: You just look at the what you could make going

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Speaker 1: to work versus staying home, and you can make more

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Speaker 1: by staying home. Greg stepped out a little over two

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Speaker 1: weeks ago and said no more of that. Twenty states

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Speaker 1: now have followed Montana's lead. We we have right now

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Speaker 1: in this country is primarily a labor crisis, not a

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Speaker 1: job crisis, as evidence by the eight point one million

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Speaker 1: jobs available right now. You know, you get down to

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Speaker 1: the Western Cafe and Boseman, Senator, and that's where you're

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Speaker 1: gonna actually learn what's going on. What does the anecdotal

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Speaker 1: evidence you were the governor's see right now in Montana

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Speaker 1: after this decision was made. I mean it clicks in

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Speaker 1: in late June, I believe June seven. But what have

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Speaker 1: you observed with this policy action? Well, you're talking about

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Speaker 1: the Western Cafe. I'm getting homesick. That's inside baseball there.

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Speaker 1: But you can go to the Western Cafe or go

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Speaker 1: up and down the main streets across Montana. You're gonna

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Speaker 1: hear a couple of things. First, help widened science everywhere,

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Speaker 1: now hiring everywhere. My wife and I were in my

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Speaker 1: pickup driving by a small business recently in Montana, and

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Speaker 1: there were balloons all around this business. I thought, what's

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Speaker 1: going on. It looked like a car lot or something.

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Speaker 1: There was a tent set up with people inside. They

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Speaker 1: were doing live radio hits. It was a hiring promotion.

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Speaker 1: They were trying to find people to work. But here's

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Speaker 1: one of the adults we've already heard in Montana. We've

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Speaker 1: had a business there in Helena that was seeing one

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Speaker 1: to two applicants every few weeks prior to the governor's

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Speaker 1: action to suspend these federal additional benefits. After that happened,

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Speaker 1: they saw sixty applications come in within the first seventy

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Speaker 1: two hours. So it's early, it's anecdotal, but we're gonna

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Speaker 1: keep an eye on that. Clearly, I think we're going

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Speaker 1: in the right direction here of creating incentives to get

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Speaker 1: back to work incentive. You clearly believe this is the

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Speaker 1: right policy for the state of Montana. Do you think

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Speaker 1: that applies to the rest of the country. Well, governors

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Speaker 1: will make that decision, But I think generally, anytime you

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Speaker 1: are paying people more to stay home than to go

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Speaker 1: to work, that's a problem. And I think it does

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Speaker 1: depend certainly when it's an urban versus ural kind of

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Speaker 1: situation as well, so with within the states, there may

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Speaker 1: be differing kinds of incentive issues going on. But again,

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Speaker 1: I think come back to common sense. When you have

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Speaker 1: these very generous benefits that were needed for a time

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Speaker 1: when we hit that crisis last year, it was the

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Speaker 1: right thing to do. But you can't keep people paying

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Speaker 1: people more to stay at home than to go to work. Clearly,

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Speaker 1: people find this an intuitive argument. What do you make

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Speaker 1: of the argument that perhaps because children haven't been able

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Speaker 1: to go back to school in many places still, that

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Speaker 1: that's how the bank participation in this labor force. Yeah,

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Speaker 1: I think that that's a fair point, and I think

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Speaker 1: it's important that there's just not one thing we need

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Speaker 1: to do here to continue to get folks back on

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Speaker 1: the job. I think the child Cares You is a

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Speaker 1: very real issue that's quite so important we get the

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Speaker 1: schools opened up and kids back in the classroom. Parents

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Speaker 1: are upset, they want their kids back in the classroom.

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Speaker 1: They learn better in the classroom, and you know, it

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Speaker 1: allows mom and dad to get back on the job

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Speaker 1: if they need to do that. Senator. When I think

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Speaker 1: of Montana, I think of the c c C back

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Speaker 1: in the nineteen thirties, which helps shaped Yellowstone National Park

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Speaker 1: one of the key national places, uh that are that

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Speaker 1: really represent America's natural history. I'm wondering from your perspective,

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Speaker 1: whether you're becoming more open to the idea of something

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Speaker 1: akin to that, some sort of work program or some

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Speaker 1: sort of info structure spending that goes beyond just fixing

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Speaker 1: certain bridges and tunnels at this point, given where we

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Speaker 1: are in the economic cycle. Yeah. Well, I I've chaired

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Speaker 1: the National Park Subcommittee for the last couple of Congresses,

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Speaker 1: so I'm a big fan of our national parks. So

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Speaker 1: We've spent a lot of time as a family in

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Speaker 1: the wilderness areas in our national parks, as people who

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Speaker 1: love the outdoors, as so many Montana's do. But I

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Speaker 1: think fundamentally, first, remember we passed the Great America Outdoors

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Speaker 1: Act under President of Trump and the very strong bypars

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Speaker 1: of vote, which really was targeted infrastructure for our national

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Speaker 1: parks as well as funding the Land and Water Conservation Fund.

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Speaker 1: So we we've already I think made a down payment

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Speaker 1: on infrastructure for national parks badly needed to repair some

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Speaker 1: of the really the fraying edges of our national parks.

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Speaker 1: But I think stepping back on the infrastructure question, I

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Speaker 1: think we need to come back just to find what

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Speaker 1: infrastructure is. It's roads, it's highways, bridges, waterways, broadband, UH, airports,

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Speaker 1: wastewater systems. And I think there's room for a by

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Speaker 1: parts and comprom eyes if we really defined infrastructure as

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Speaker 1: kind of the man of woman on the street would say,

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Speaker 1: it is not some of these social programs, free community college,

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Speaker 1: free daycare that the Biden administration is saying, that's part

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Speaker 1: of infrastructure. What size bill would you like to see

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Speaker 1: with that bipartisan plan. We've heard a headline number about

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Speaker 1: eight hundred billion dollars. Yeah, I think there's a range somewhere,

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Speaker 1: probably in the five to eight hundred billion dollar U range.

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Speaker 1: That's still a huge amount of money. I think we've

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Speaker 1: been desensitized as we've been talking these trillion dollar numbers

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Speaker 1: now over the last year and a half. Remember these

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Speaker 1: are it's massive amounts of spending, and I think we

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Speaker 1: all have some concerns about what inflation or impacts that

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Speaker 1: might have on our economy to our long term detriment.

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Speaker 1: So I think we want to be measured, but we

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Speaker 1: also want to address the issue that the infrastructure is

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Speaker 1: an investment in America. I think I view that more

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Speaker 1: investing than spending. We'll get a return on that investment.

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Speaker 1: Senator Days, you've been a supporter of President Trump and

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Speaker 1: much of his policy as well. You need to look

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Speaker 1: forward to two thousand twenty two and two thousand twenty four.

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Speaker 1: I want you to find common ground with a retiring

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Speaker 1: Senator from Ohio, Rob Portman. Is there a place for

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Speaker 1: a diverse future Republican Party or is it going to

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Speaker 1: be the party of Trump? No, there's absolutely a diverse party.

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Speaker 1: Rob Portman is a very good friend of mine. You know,

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Speaker 1: I was a proctor and gamble guy for thirteen years

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Speaker 1: of course headquarter Cincinnati, and Rob used to work in

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Speaker 1: ranches during the summer in Montana as a kid growing up,

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Speaker 1: and so Rob and I go back a long ways.

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Speaker 1: Had the utmost respect for Rob Portman. But no, there

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Speaker 1: there there, there's room here for a big ten. I mean,

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Speaker 1: at the end of the day, politics is about addition,

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Speaker 1: not subtraction, and we are stronger when we have those

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Speaker 1: diverse views within the Republican It should be there. So

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Speaker 1: I don't mean to interrupt Senator, But I think this

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Speaker 1: is absolutely critical. What would you like to see from

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Speaker 1: the former president to bring a more diverse Republican Party together?

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Speaker 1: Versus his nine hundred nine page statement to two attorneys

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Speaker 1: in New York yesterday. What does President Trump need to

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Speaker 1: do now? Yeah, we'll tell you if you think about

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Speaker 1: what happened over the course the last several years. The

431
00:22:02,520 --> 00:22:06,760
Speaker 1: President brought so many blue collar workers into the Republican Party.

432
00:22:06,760 --> 00:22:10,120
Speaker 1: They weren't necessarily political or parts, and they really don't

433
00:22:10,119 --> 00:22:12,439
Speaker 1: care there's an R and D behind their name. They

434
00:22:12,520 --> 00:22:16,040
Speaker 1: wanted to see this America first, protecting manufacturing, bringing jobs

435
00:22:16,119 --> 00:22:18,879
Speaker 1: back to our to the United States, and in somebody

436
00:22:18,880 --> 00:22:20,840
Speaker 1: ways he expanded the party as well as with with

437
00:22:21,040 --> 00:22:25,240
Speaker 1: Cuban Americans, with Hispanics. You actually saw very strong numbers

438
00:22:25,480 --> 00:22:27,399
Speaker 1: in this last like and that's part of the untold stories.

439
00:22:27,480 --> 00:22:32,119
Speaker 1: They actually inroads with minorities that was made by Republicans

440
00:22:32,160 --> 00:22:34,440
Speaker 1: and and led by President Trump. Now, I understand that

441
00:22:34,560 --> 00:22:36,119
Speaker 1: some folks don't like some of the mean tweets and

442
00:22:36,200 --> 00:22:38,239
Speaker 1: other things, but take a look what's going on right

443
00:22:38,320 --> 00:22:40,760
Speaker 1: now in our economy with these policies. What it's going on.

444
00:22:40,880 --> 00:22:44,920
Speaker 1: He canceled Biden canceled the Keystone pipeline. Well, uh, well,

445
00:22:45,320 --> 00:22:46,840
Speaker 1: at the same time he's green light in the Nurse

446
00:22:46,880 --> 00:22:48,879
Speaker 1: From two pipeline and helped Russia. And you can't make

447
00:22:48,960 --> 00:22:51,119
Speaker 1: this up. And so these inconsistencies and they're going to

448
00:22:51,280 --> 00:22:53,880
Speaker 1: cause a real problem for many voters or they're gonna

449
00:22:53,880 --> 00:22:55,760
Speaker 1: have some remorse or what they decided to vote for

450
00:22:55,800 --> 00:22:57,720
Speaker 1: President Biden A two thousand twenty. Well, we'll say in

451
00:22:57,720 --> 00:22:59,320
Speaker 1: the midtims in twenty two you send it to let's

452
00:22:59,320 --> 00:23:01,760
Speaker 1: send this commiss Asian by saying up our next conversation

453
00:23:01,800 --> 00:23:03,080
Speaker 1: and hopefully we can do that in a couple of

454
00:23:03,119 --> 00:23:05,879
Speaker 1: weeks time. Bringing Europe along for the ride. For the

455
00:23:05,920 --> 00:23:08,560
Speaker 1: foreign policy goals of this administration. This country has proved

456
00:23:08,600 --> 00:23:11,560
Speaker 1: difficult over the years on both China and Russia with

457
00:23:11,720 --> 00:23:14,520
Speaker 1: North Streams two. As you mentioned, said it to your priorities,

458
00:23:14,600 --> 00:23:17,200
Speaker 1: how they set up with that with that in respect

459
00:23:17,480 --> 00:23:20,960
Speaker 1: with regards to that, yeah, well, of course, the Europeans

460
00:23:20,960 --> 00:23:23,840
Speaker 1: are incredibly important allies and wealth in terms of economic

461
00:23:23,880 --> 00:23:25,840
Speaker 1: allies as well as from the national defense and with

462
00:23:25,920 --> 00:23:28,080
Speaker 1: NATO and so forth. But think about what's going on

463
00:23:28,320 --> 00:23:31,200
Speaker 1: right now. We're we're importing the United States is importing

464
00:23:31,600 --> 00:23:34,359
Speaker 1: more oil from Russia as we speak here today than

465
00:23:34,440 --> 00:23:39,280
Speaker 1: Saudi Arabia. The Keystone pipeline oil would more than replace

466
00:23:39,880 --> 00:23:43,480
Speaker 1: the Russian oil that we're importing. And why present Biden

467
00:23:43,520 --> 00:23:46,600
Speaker 1: would kill that project, that pipeline, while at the same

468
00:23:46,720 --> 00:23:49,520
Speaker 1: time we've heard now green lighting the North Strain to

469
00:23:49,640 --> 00:23:54,480
Speaker 1: pipe lifting those sanctions to create greater dependencies for Germany

470
00:23:54,520 --> 00:23:56,760
Speaker 1: and Europe on Russian natural gas. I'll tell you who

471
00:23:56,880 --> 00:23:59,840
Speaker 1: cheering right now, it's the Kremlin. And that's a real

472
00:24:00,000 --> 00:24:01,840
Speaker 1: albums at least, and not just short term but long

473
00:24:02,000 --> 00:24:04,560
Speaker 1: term geopolitical implications. The sentence, I think we'd all love

474
00:24:04,600 --> 00:24:06,200
Speaker 1: to get your banks soon. So let's sign find some

475
00:24:06,280 --> 00:24:07,800
Speaker 1: time in the timary over the next couple of weeks

476
00:24:07,800 --> 00:24:10,160
Speaker 1: and we'll pick up on this conversation. So the senator

477
00:24:10,400 --> 00:24:17,920
Speaker 1: from Montana, Senator Steve down to that right now. What

478
00:24:18,000 --> 00:24:19,840
Speaker 1: we're gonna do is look at the equity markets when

479
00:24:19,880 --> 00:24:23,440
Speaker 1: we do this to the prism of institutional equity selection,

480
00:24:23,560 --> 00:24:26,600
Speaker 1: and Malotty is kind of get wells Fargo out in

481
00:24:26,680 --> 00:24:29,440
Speaker 1: Milwaukee where was strong years ago she owned the high

482
00:24:29,520 --> 00:24:32,200
Speaker 1: ground of Vailue and Milotty. We could have a three

483
00:24:32,240 --> 00:24:35,879
Speaker 1: hour conversation here on the efficacy of vailue. The basic

484
00:24:36,000 --> 00:24:38,879
Speaker 1: idea is value sits for X number of years and

485
00:24:38,960 --> 00:24:42,600
Speaker 1: then it's go, go go conveil you go moving forward.

486
00:24:43,760 --> 00:24:46,440
Speaker 1: We look, Tom, it's had a great run, and certainly

487
00:24:46,520 --> 00:24:50,440
Speaker 1: it's closed the gap with growth outperforming growth and such

488
00:24:50,480 --> 00:24:53,639
Speaker 1: a wide um by such such a wide margin in

489
00:24:53,800 --> 00:24:57,720
Speaker 1: Q one and pass that. As you know, the challenge

490
00:24:57,760 --> 00:25:00,760
Speaker 1: really here is a million dollar question that the three

491
00:25:00,840 --> 00:25:02,960
Speaker 1: of you have been talking about so much this morning.

492
00:25:03,400 --> 00:25:07,960
Speaker 1: Do we really have inflation ahead of us or is

493
00:25:08,040 --> 00:25:12,439
Speaker 1: it something more like you know, we're in this economy

494
00:25:12,520 --> 00:25:14,560
Speaker 1: that was shut up with a light switch and is

495
00:25:14,600 --> 00:25:17,760
Speaker 1: now being turned on with a dimmer switch. And at

496
00:25:17,800 --> 00:25:20,760
Speaker 1: the end of the year we actually start to see

497
00:25:21,280 --> 00:25:26,120
Speaker 1: this booming economy really look more normalized and much slower,

498
00:25:26,760 --> 00:25:30,960
Speaker 1: and therefore some of the inflation fears that investors have

499
00:25:31,119 --> 00:25:35,720
Speaker 1: today really start to kind of moderate, and you then

500
00:25:35,920 --> 00:25:40,879
Speaker 1: focus on the companies that can outgrow. And so while

501
00:25:41,240 --> 00:25:45,840
Speaker 1: value is still attractive to our investment teams, there are

502
00:25:46,080 --> 00:25:49,560
Speaker 1: some stocks in the growth space that that investors would

503
00:25:49,640 --> 00:25:52,359
Speaker 1: kind of call the growth space that are also starting

504
00:25:52,400 --> 00:25:55,159
Speaker 1: to look attractive to us too. Given some of the

505
00:25:55,240 --> 00:25:58,359
Speaker 1: sell off and given the fact that those stocks have

506
00:25:58,480 --> 00:26:00,520
Speaker 1: started to beat, you know, can he need to beat

507
00:26:00,560 --> 00:26:04,680
Speaker 1: earning's estimates? And the multiples have compressed. So there's a

508
00:26:04,800 --> 00:26:09,000
Speaker 1: lot out there, UM, a lot of moving pieces. But this,

509
00:26:09,359 --> 00:26:11,600
Speaker 1: you know, the recent volatility that we've seen and the

510
00:26:12,080 --> 00:26:16,160
Speaker 1: recent run in the cyclical stocks in particular, UM has

511
00:26:16,720 --> 00:26:19,399
Speaker 1: has made it more interesting and certainly more of a

512
00:26:19,480 --> 00:26:23,000
Speaker 1: stock pickers market. And just quickly I mentioned the surprise

513
00:26:23,040 --> 00:26:25,280
Speaker 1: industries that come from both City and here at Bloomberg

514
00:26:25,359 --> 00:26:27,520
Speaker 1: as well for the US, the fact that they've rolled

515
00:26:27,560 --> 00:26:32,320
Speaker 1: over that we're consistently missing expectations. What signal does an

516
00:26:32,359 --> 00:26:35,639
Speaker 1: equity investor take from a picture like that? You know,

517
00:26:36,000 --> 00:26:38,600
Speaker 1: it's it's interesting because you see, on one hand a

518
00:26:38,720 --> 00:26:42,600
Speaker 1: lot of expectations being beat and then there's some economic

519
00:26:42,720 --> 00:26:45,879
Speaker 1: data that has lagged a little bit more so, you know,

520
00:26:45,960 --> 00:26:48,600
Speaker 1: you've talked about what the FED is probably paying attention

521
00:26:48,680 --> 00:26:53,719
Speaker 1: to wage growth, employment, UM, you know, the right prices,

522
00:26:53,760 --> 00:26:59,800
Speaker 1: et cetera. And those things haven't haven't necessarily surprised on

523
00:26:59,840 --> 00:27:04,119
Speaker 1: the upside, and so UM those are the main focus

524
00:27:04,200 --> 00:27:06,040
Speaker 1: points I think for the FAT when they look out

525
00:27:06,119 --> 00:27:10,800
Speaker 1: long term inflation and UM, that's that's kind of what

526
00:27:10,920 --> 00:27:15,719
Speaker 1: they're focused on. Investors, however, see and hear from companies

527
00:27:16,240 --> 00:27:19,720
Speaker 1: all of the pressures they're seen with commodity costs, with

528
00:27:19,800 --> 00:27:23,520
Speaker 1: all with transportation costs, all of these things that longer

529
00:27:23,720 --> 00:27:27,520
Speaker 1: term will compress margins if they don't get solved. And

530
00:27:27,880 --> 00:27:31,240
Speaker 1: I think they worried that that spillover effect. If the

531
00:27:31,280 --> 00:27:34,640
Speaker 1: economy stays as strong as it is, fueled by all

532
00:27:34,720 --> 00:27:37,760
Speaker 1: of the stimulus that was put behind it, you get

533
00:27:37,880 --> 00:27:41,720
Speaker 1: inflation in those hits scenarios. Well, an and and this

534
00:27:41,880 --> 00:27:44,479
Speaker 1: is one reason why a number of investors have come

535
00:27:44,520 --> 00:27:46,960
Speaker 1: on the show and they've said they're looking for companies

536
00:27:47,040 --> 00:27:50,320
Speaker 1: that have pricing power that can raise their prices on

537
00:27:50,520 --> 00:27:53,760
Speaker 1: consumers effectively without denting their sales. That's something that you

538
00:27:53,840 --> 00:27:57,880
Speaker 1: reiterated in recent research. How much has that already been

539
00:27:57,960 --> 00:28:01,560
Speaker 1: priced in though, that these companies do have that power

540
00:28:01,760 --> 00:28:05,280
Speaker 1: and thus are attracting that much more investor attention. Yeah,

541
00:28:05,400 --> 00:28:07,800
Speaker 1: it's a good point, Lisa. You know, certainly, our our

542
00:28:07,880 --> 00:28:10,600
Speaker 1: investment teams have been very, very focused on pricing power

543
00:28:11,119 --> 00:28:14,080
Speaker 1: over the last quarter. You know, to Tom's point earlier,

544
00:28:14,160 --> 00:28:17,280
Speaker 1: the cyclicals and the value space as you go into

545
00:28:17,560 --> 00:28:20,520
Speaker 1: a recovery phase of the market. That's the place you're

546
00:28:20,520 --> 00:28:22,400
Speaker 1: going to get a lot of bang for your buck

547
00:28:22,560 --> 00:28:26,600
Speaker 1: early on. But the longer the cycle continues, the more

548
00:28:26,720 --> 00:28:30,040
Speaker 1: careful you have to be about where the staying power

549
00:28:30,280 --> 00:28:33,720
Speaker 1: is for that pricing power. And so our teams are now,

550
00:28:34,160 --> 00:28:37,159
Speaker 1: you know, rather than it be an industry or a

551
00:28:37,280 --> 00:28:39,840
Speaker 1: big you know, part of the market that's going to

552
00:28:39,880 --> 00:28:42,760
Speaker 1: get that pricing power, it's really more company by company

553
00:28:43,160 --> 00:28:45,800
Speaker 1: who can sustain it. And that's what they're really paying

554
00:28:45,880 --> 00:28:48,200
Speaker 1: great attention to. And thank you glad to get you

555
00:28:48,240 --> 00:28:49,920
Speaker 1: on the schilf and get your input on the market

556
00:28:49,960 --> 00:28:52,520
Speaker 1: and les see that of last Faco. This is the

557
00:28:52,560 --> 00:28:57,200
Speaker 1: Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays

558
00:28:57,280 --> 00:29:00,640
Speaker 1: from seven to ten AMI Eastern. I'm Bloomberg Radio and

559
00:29:00,840 --> 00:29:04,600
Speaker 1: on Bloomberg Television each day from six to nine am

560
00:29:05,160 --> 00:29:08,880
Speaker 1: for insight from the best in economics, finance, investment, and

561
00:29:09,040 --> 00:29:15,480
Speaker 1: international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud,

562
00:29:15,720 --> 00:29:19,240
Speaker 1: Bloomberg dot com and of course on the terminal. I'm

563
00:29:19,360 --> 00:29:22,000
Speaker 1: Tom Keene and this is Bloomberg