WEBVTT - Surveillance: Bear Market Rally with Cronk 0:00:05.120 --> 0:00:08.440 This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:08.480 --> 0:00:12.320 with Jonathan Faroh and Lisa Abramowitz. Join us each day 0:00:12.360 --> 0:00:16.840 for insight from the best and economics, geopolitics, finance and investment. 0:00:17.239 --> 0:00:22.079 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.239 --> 0:00:26.479 anywhere you get your podcasts, and always I'm Bloomberg dot Com, 0:00:26.600 --> 0:00:30.520 the Bloomberg Terminal and the Bloomberg Business App. Tara Crunk 0:00:30.600 --> 0:00:34.240 with us the CIO off and investment management at Wellcot 0:00:34.280 --> 0:00:36.000 to see you, John, Do you have the courage to 0:00:36.040 --> 0:00:39.080 be barished? We have had the courage to be barish 0:00:39.159 --> 0:00:42.199 for all of two you know. Look, I think you'll 0:00:42.280 --> 0:00:46.760 hear to the earlier conversation two mixed messages on jobs. Today. 0:00:46.920 --> 0:00:49.720 You're gonna hear Powell at the at the Economic Club 0:00:50.040 --> 0:00:53.320 say he's concerned about the economy overheating in too many jobs. 0:00:53.520 --> 0:00:55.320 And then President Biden's going to get up at the 0:00:55.320 --> 0:00:57.000 State of Union and tout how he's done such a 0:00:57.000 --> 0:00:59.320 great job creating jobs. Right, So you're gonna have this 0:00:59.520 --> 0:01:02.440 kind of deck economy that's going to happen. Um. I 0:01:02.560 --> 0:01:04.320 think you know you've had a subtle change since the 0:01:04.360 --> 0:01:08.080 FED meeting. Obviously the point about UM thirty five basis 0:01:08.160 --> 0:01:10.920 point move in the in the two year UM the 0:01:11.040 --> 0:01:14.640 dollars reverse course gold has started to come down. Um, 0:01:15.319 --> 0:01:17.120 you do have a you have a different message right 0:01:17.160 --> 0:01:19.800 now on on the equity market between technicals and fundamentals. 0:01:20.080 --> 0:01:23.480 Your path was wrestling economics and finance at Dames Iowa 0:01:23.840 --> 0:01:25.919 and then off you went to v BODI and bu. 0:01:26.760 --> 0:01:30.480 The bottom line is you need courage to buy quality 0:01:30.680 --> 0:01:34.720 right now. All the media razzle dazzles in nonprofit tech, 0:01:35.200 --> 0:01:37.560 what memes stocks is that what they're called? And the 0:01:37.680 --> 0:01:41.000 rest is well and what Wells Fargo was saying, get 0:01:41.080 --> 0:01:45.600 brave and buy quality defined quality. Well quality is everything 0:01:45.680 --> 0:01:47.600 that wasn't this rally at the being of the year. 0:01:47.680 --> 0:01:49.640 So if there's only two themes that have driven this 0:01:49.840 --> 0:01:52.400 entire rally at being a year, including across all assets, 0:01:52.480 --> 0:01:55.280 it's long duration assets. And that's not just equities, you know, 0:01:55.360 --> 0:01:59.280 think tech comm services, discretionary golds along duration asset it's 0:01:59.360 --> 0:02:02.120 rallied hard to here. Right for up until the FED meeting, 0:02:02.160 --> 0:02:03.880 the body the long end of the monk curve was 0:02:03.960 --> 0:02:06.080 still rates were still falling and we're rallying. So eating 0:02:06.160 --> 0:02:09.880 this huge long duration rally and then it's low quality, right, 0:02:10.080 --> 0:02:12.560 it's it's all the things you don't want to own. 0:02:12.720 --> 0:02:16.800 Basically that we're just either some form of a January effect, 0:02:17.040 --> 0:02:20.679 some form of short UH covering, or some form of 0:02:20.800 --> 0:02:23.880 just um reversion to the mean after tax lots selling. 0:02:24.200 --> 0:02:27.400 That's not really the basis for a good sustainable rally 0:02:27.520 --> 0:02:30.680 from here. Right now, you've you coiled the fifty day, 0:02:30.720 --> 0:02:33.239 twenty day and two d day moving averages into a 0:02:33.360 --> 0:02:35.560 tight band that had to break out one or the other. 0:02:35.600 --> 0:02:37.440 They broke to the upside here in the short term, 0:02:37.800 --> 0:02:40.920 but all near term indications suggest you're probably over bought 0:02:40.960 --> 0:02:43.480 at this level, so we would fade this latest rally. 0:02:43.520 --> 0:02:46.640 We still think it's probably a bear market rally allah, 0:02:47.000 --> 0:02:49.600 you know, four or five of them in two and 0:02:49.720 --> 0:02:53.079 probably fails into resistance and and eventually comes back down 0:02:53.160 --> 0:02:55.560 before you move higher. How do you fade it? Do 0:02:55.639 --> 0:02:58.160 you fade it with options? Do you bet against the NASDAC, 0:02:58.240 --> 0:03:00.239 do you bet against specific companies? Do you just sell 0:03:00.600 --> 0:03:02.839 on the margins what's gone up? I think you sell 0:03:02.919 --> 0:03:05.519 on the margins. It's giving you a second chance, you know, 0:03:05.639 --> 0:03:08.079 to unwind that lower quality If you want to, or 0:03:08.160 --> 0:03:10.280 you just reduce your equity positions. You take your risk 0:03:10.360 --> 0:03:13.400 budgets down in portfolios like you need to if you 0:03:13.440 --> 0:03:14.960 don't have them where you want to be, and then 0:03:15.000 --> 0:03:17.520 you hold that dry powder to your point of your 0:03:17.560 --> 0:03:19.959 getting paid handsomely on the short side of the old 0:03:19.960 --> 0:03:22.679 curve to hold dry powder, and you're actually, for the 0:03:22.760 --> 0:03:26.600 first time in a long time, getting positive real rates. 0:03:26.720 --> 0:03:29.840 Right If you look at the three month run rate 0:03:29.919 --> 0:03:32.080 on the PC deflator or the CPI, there a two 0:03:32.120 --> 0:03:34.520 point nine three point one percent. If I'm getting four 0:03:34.560 --> 0:03:37.080 eighty two on a twelve month treasury, real rates are 0:03:37.120 --> 0:03:39.960 finally now in a positive place. They hadn't been for 0:03:40.120 --> 0:03:42.000 much of all of last year and the year before, 0:03:42.360 --> 0:03:44.560 So that gives you some nice carry while you wait 0:03:44.640 --> 0:03:47.240 out as this thing kind of the fundamentals catch up. 0:03:47.360 --> 0:03:51.000 How distorted is your portfolio right now? Waited too fixed 0:03:51.000 --> 0:03:55.600 income waited to short term debt versus equities versus other assets. 0:03:56.280 --> 0:03:59.000 So it is definitely underweight equities, there's no doubt about it. 0:03:59.200 --> 0:04:02.520 Um Uh. We had on the fixed income side, we're 0:04:02.560 --> 0:04:05.960 overweight fixed income, but we barbelled the whole fixed income element. 0:04:06.080 --> 0:04:09.240 So short term makes all kinds of sense the belly 0:04:09.280 --> 0:04:11.080 of the yeld curve. You don't want to be there, 0:04:11.240 --> 0:04:13.240 right because now you have instead of rolled down, you 0:04:13.320 --> 0:04:15.840 have roll up in the yolk curve, which is not 0:04:15.960 --> 0:04:18.560 the place to be. And you know, the tenure peeked 0:04:18.600 --> 0:04:21.440 out in on October twenty four. We went long duration 0:04:21.560 --> 0:04:24.280 on October twenty nine, so we were five days late. 0:04:24.440 --> 0:04:26.440 But that's been just a heck of a trade, right, 0:04:26.520 --> 0:04:29.520 I mean it is really um added, you know, mid 0:04:29.720 --> 0:04:34.240 double digit returns to portfolios. At this level, I'd be 0:04:34.279 --> 0:04:36.840 a little careful legging too far into the backside of 0:04:36.839 --> 0:04:39.240 the ool curve. We think the tenure trades between three 0:04:39.320 --> 0:04:41.920 forty and three ninety for most of this year and 0:04:42.040 --> 0:04:44.160 back and forth. So I'd be a little careful here 0:04:44.160 --> 0:04:46.320 at at the level we're at. If this takes up 0:04:46.320 --> 0:04:48.080 the next question, ready, if they can only say to 0:04:48.120 --> 0:04:50.560 keep surprising to the upside, like the types we got 0:04:50.600 --> 0:04:52.920 on Friday with that change anything for you? How many 0:04:53.040 --> 0:04:55.479 change things for you? Well, the obvious is it has 0:04:55.520 --> 0:04:57.880 to price in more hikes. Right. It brings may into 0:04:57.920 --> 0:05:00.799 the conversation, right which today, Um, it's it's all about 0:05:00.839 --> 0:05:04.760 March is now basically a given and then another basis 0:05:04.800 --> 0:05:06.520 points in May, and it takes out any hope of 0:05:06.600 --> 0:05:09.760 cuts in the back half of the year. Great niece, Yeah, 0:05:09.800 --> 0:05:11.400 I think that's the case right now. I mean, you 0:05:11.600 --> 0:05:13.560 you just have to you have to let this thing 0:05:13.640 --> 0:05:16.839 play out. I mean, earnings growth is just now turning negative. 0:05:17.080 --> 0:05:19.880 Right In the last years, we've only seen that happen 0:05:19.960 --> 0:05:22.000 four times. Every time we've seen it happen, it ends 0:05:22.040 --> 0:05:26.040 up being a recession. Yesterday you saw the FEDS Senior 0:05:26.200 --> 0:05:31.120 Loan Survey. Financial conditions are tightening quickly, right, So every 0:05:31.160 --> 0:05:33.840 time you you think about a recession, you have three 0:05:33.920 --> 0:05:36.320 things that happened. You have um interest rates have to 0:05:36.400 --> 0:05:38.880 go up, you have inflation spikes, and you have lending 0:05:39.120 --> 0:05:41.920 and conditions tighten. I think the chairman is more focused 0:05:41.960 --> 0:05:45.240 on the lone survey than perhaps what's happening in public markets. 0:05:46.440 --> 0:05:49.920 Uh No, I think I think still he's he's focused 0:05:49.960 --> 0:05:52.560 on financial conditions too easy, right, I mean, you can 0:05:52.600 --> 0:05:54.760 look at a whole bunch of financial conditions to this 0:05:54.920 --> 0:05:58.080 time last year and Wednesday about what was that about? 0:05:58.160 --> 0:06:02.600 Well Wednesday? Wednesday was his attempt to be hawkish, but 0:06:02.760 --> 0:06:06.480 the but the market interpreted as dovish yeah, So he's 0:06:06.560 --> 0:06:09.680 going to try and walk that back, I think today 0:06:10.120 --> 0:06:13.560 and in subsequent speeches, to try and just continue to 0:06:13.839 --> 0:06:16.720 pound the pulpit about like we have more work to do, 0:06:16.880 --> 0:06:19.400 We're not there yet. Um. And so I think that's 0:06:19.560 --> 0:06:21.880 that's an important thing for markets to kind of reconcile. 0:06:22.320 --> 0:06:24.320 The reality is the equity markets and the bond market 0:06:24.560 --> 0:06:26.160 have not believed the fed up at this point. They 0:06:26.160 --> 0:06:29.040 just don't believe things like the disinflationary processes starts it. 0:06:29.279 --> 0:06:31.359 I'm not going to hear the rest. Wasn't that the problem? 0:06:32.320 --> 0:06:33.680 And that that was what they were looking at and 0:06:33.760 --> 0:06:35.760 that was what they were hoping about. Is it's just 0:06:35.920 --> 0:06:38.200 you know that he kind of failed at the communication. 0:06:38.480 --> 0:06:45.400 That's right. Do we give you an evil evaluation? Killed 0:06:45.600 --> 0:06:48.880 We've got people we talked to. It wonderful And she 0:06:49.120 --> 0:06:54.680 described better than anyone I know, this path of disinflation down. 0:06:54.800 --> 0:06:58.240 And she used the Amazon challenge of the last mile 0:06:58.360 --> 0:07:01.200 to get to your house dating from three to two. 0:07:02.040 --> 0:07:04.160 When you talk to Sarah House and you listen to 0:07:04.320 --> 0:07:07.120 Sarah House, what's your yield there that you're trying to 0:07:07.200 --> 0:07:09.600 get to three to two? Are you even trying to 0:07:09.640 --> 0:07:12.840 get from four to three. Well, actually, I think that's 0:07:12.920 --> 0:07:14.800 the mistake the markets are making right now. It's an 0:07:14.840 --> 0:07:17.360 excellent point and I agree with you, Sarah, you did great, 0:07:17.560 --> 0:07:22.040 she said a word. So, um, what what the markets 0:07:22.080 --> 0:07:23.880 are missing is they keep using the inflation data on 0:07:23.960 --> 0:07:25.880 year over year? Who cares about last year? Right? Last 0:07:25.960 --> 0:07:28.600 year at this time was irrelevant. Right right now as 0:07:28.640 --> 0:07:30.720 we speak for three month the rolling three months run 0:07:30.840 --> 0:07:33.160 right on pc deflators two point nine and on cp 0:07:33.320 --> 0:07:35.880 I at the core is three point one. So let's 0:07:35.880 --> 0:07:37.920 just call it three at three year of stones throw 0:07:37.960 --> 0:07:39.680 away from two to two and a half with still 0:07:39.800 --> 0:07:42.720 downward pressure on prices. Right, So we're gonna get there 0:07:42.840 --> 0:07:45.320 faster than what people think. That's what we wrote in 0:07:45.360 --> 0:07:49.280 our economic Our outlook was, look, the great surprise of 0:07:49.320 --> 0:07:51.280 this year is how fast inflation is gonna come down. 0:07:51.320 --> 0:07:54.720 And if you think back in November December, people were like, no, way, no, 0:07:54.920 --> 0:07:57.720 how right, and it is it's there already. Well that's 0:07:57.760 --> 0:08:13.559 why this counts. Yes, run, this is a joy force 0:08:13.680 --> 0:08:16.640 right now and a real symbol here, uh John, of 0:08:16.800 --> 0:08:20.680 everything to move beyond the pandemic. To have Gerard Cassidy 0:08:20.720 --> 0:08:23.880 with this remote from Maine is a legend Uh Tucker 0:08:23.920 --> 0:08:27.960 Anthony uh for for years and onto RBC Capital Markets, 0:08:27.960 --> 0:08:29.520 but have them in studio. I think it's a real 0:08:30.440 --> 0:08:33.719 three years almost three years to the moment when we 0:08:33.880 --> 0:08:36.560 last talked to you, A lobster role in Maine costs 0:08:36.679 --> 0:08:41.280 eighteen dollars. Now it's like a bottle of champagne. What happened, Tom, 0:08:41.640 --> 0:08:44.960 Rising costs even the lobstermen a facing higher inflation costs 0:08:45.200 --> 0:08:48.760 obviously fuel also labor costs are very high. And that's 0:08:48.840 --> 0:08:50.600 that's that's what's driving it. And look at the real 0:08:50.720 --> 0:08:53.120 estate pricing. It's right out. Let's get to it right now, 0:08:53.600 --> 0:08:56.599 Gerard Cassidy, I'm gonna look at securities analysis in the 0:08:56.679 --> 0:08:59.040 four percent return over the last ten years I got 0:08:59.120 --> 0:09:02.520 with a dog like City Group versus the fourteen percent 0:09:03.040 --> 0:09:06.199 return I got as Harrison passed off JP Morgan to 0:09:06.320 --> 0:09:10.400 James Diamond, that differential. How do you, with the legend 0:09:10.440 --> 0:09:13.599 that you are, how do you grind out not to 0:09:13.760 --> 0:09:18.080 pick the dogs in banking? It's very interesting, Tom, because 0:09:18.120 --> 0:09:20.840 it's all about execution, as you know, and obviously JP 0:09:20.960 --> 0:09:24.000 Morgan Chase has executed and City Group has not. And 0:09:24.120 --> 0:09:27.520 now under the new leadership, Jane is trying to execute 0:09:27.600 --> 0:09:31.280 and divest many of the businesses outside the United States. 0:09:31.600 --> 0:09:33.520 Mexico is the big one, and I think if they 0:09:33.600 --> 0:09:35.839 get that done this quarter, that will help the style 0:09:35.880 --> 0:09:38.880 will buy Mexican City Group Banking, and there's such an 0:09:38.920 --> 0:09:41.840 emotional loadstone there for the heritage of the company. Back 0:09:41.880 --> 0:09:44.400 to Mr. Read No, you're you're quite right. At either 0:09:44.480 --> 0:09:46.280 a local bank or a spent one of the Spanish 0:09:46.320 --> 0:09:48.240 banks are most likely to be the buyers, not an 0:09:48.240 --> 0:09:50.800 American bank. Though, as we reflect on the last decade 0:09:50.840 --> 0:09:53.199 or side, just how much more defensive are these knips? 0:09:53.559 --> 0:09:56.840 How much of these banks actually changed? John, That's really 0:09:56.880 --> 0:09:58.760 a good question because we're gonna find out. This is 0:09:58.800 --> 0:10:00.800 going to be the true test. We do go through 0:10:00.840 --> 0:10:04.040 a recession and the banks have been derisked because of 0:10:04.120 --> 0:10:06.800 the financial crisis and the stress tests they go through 0:10:06.840 --> 0:10:10.120 every year. This will prove assuming they get through without 0:10:10.200 --> 0:10:13.120 having a major earnings problem, assuming none of them cut 0:10:13.200 --> 0:10:15.839 their dividends, imagine what's gonna what they're gonna look like 0:10:15.960 --> 0:10:19.400 coming out of the next cycle if this all takes place, 0:10:19.480 --> 0:10:21.520 which is what we think could very well. So what 0:10:21.559 --> 0:10:23.360 does that mean for how we should value some of 0:10:23.400 --> 0:10:25.760 these big banks there you go. So then do they 0:10:25.880 --> 0:10:28.760 become so called financial utility. So they'll never trade like 0:10:28.880 --> 0:10:31.120 Doke energy. But should they trade it eight to ten 0:10:31.240 --> 0:10:33.920 times earnings? Maybe they get revalued to twelve and thirteen 0:10:33.960 --> 0:10:36.920 times earnings. They'll they'll never be marking multiple stocks, of course, 0:10:37.120 --> 0:10:39.960 but the point is that we could have a revaluation 0:10:40.080 --> 0:10:42.880 coming out of this whatever we're going into slow down 0:10:42.920 --> 0:10:45.920 slash recession, assuming the banks don't blow up like they 0:10:45.960 --> 0:10:48.320 didn't of course eight or nine. So let's talk about 0:10:48.400 --> 0:10:50.240 one of their main utilities, which is a place to 0:10:50.320 --> 0:10:53.920 part cash right for consumers. Last year, in the second 0:10:54.040 --> 0:10:57.599 third quarters, banks saw the biggest outflow of withdraw of 0:10:57.760 --> 0:11:01.880 of of deposits on record. Going back, at what point 0:11:01.920 --> 0:11:04.680 do they have to start attracting deposits with higher rates. 0:11:05.240 --> 0:11:07.600 It's really going to be the question in this high 0:11:07.720 --> 0:11:10.640 rate environment. But we have to remind ourselves if you 0:11:10.720 --> 0:11:14.000 go back to two thousand nineteen, the system had just 0:11:14.160 --> 0:11:17.920 over thirteen trillion dollars of deposits and they were growing 0:11:18.000 --> 0:11:22.720 approximately six billion a year. Today the system is closer 0:11:22.800 --> 0:11:26.760 to eighteen trillion dollars because of que So I would 0:11:26.880 --> 0:11:30.319 argue the banking system has over three trillion dollars of 0:11:30.440 --> 0:11:33.160 deposits that shouldn't be there. So I think you're going 0:11:33.200 --> 0:11:36.360 to see the continued outflow because of QUI as now 0:11:36.480 --> 0:11:38.959 as QT Well. Another way to put this is do 0:11:39.080 --> 0:11:41.719 they want these deposits? Are banks happy to see them go? 0:11:42.760 --> 0:11:45.240 It's in a way I think they are, because you know, 0:11:45.320 --> 0:11:47.640 they don't want to lose the good cored deposits like 0:11:47.960 --> 0:11:50.240 you know, Tom's account or something like that. Of course 0:11:51.280 --> 0:11:54.640 they you know they will lose some of the hot money, 0:11:54.920 --> 0:11:58.440 and that's okay. But what's interesting is that the loan 0:11:58.520 --> 0:12:01.640 to deposit ratio so still very low, and so a 0:12:01.760 --> 0:12:05.839 normal loan to deposit ratios over and the system today 0:12:05.960 --> 0:12:12.040 is under seven. Can I digress here? This is a 0:12:12.080 --> 0:12:15.760 real hockey history. You and I knew Brian moynihan when 0:12:15.800 --> 0:12:18.440 he was unheard of at the Bank of Boston long 0:12:18.600 --> 0:12:22.000 time ago, correct, And you and I every year would 0:12:22.040 --> 0:12:25.240 go to the St. Patrick's Day party for the Irish banks. 0:12:25.559 --> 0:12:29.760 I remember sitting in one of their drunk fests on St. 0:12:29.800 --> 0:12:33.840 Patrick's Day, four or five people going, this is gonna 0:12:34.080 --> 0:12:37.880 end ugly. You saw the collapse of the regional bank 0:12:38.000 --> 0:12:42.840 experience moynahan and after Ken Lewis helped pick up the pieces. 0:12:42.920 --> 0:12:47.280 Now what's out there right now? That's the same emotion 0:12:47.440 --> 0:12:50.320 that you and I felt on that Sat Patrick's day 0:12:50.400 --> 0:12:53.439 morning long ago. Tom. We asked her to ask that 0:12:53.600 --> 0:12:57.520 question to ourselves all the time, because every cycle we've 0:12:57.600 --> 0:12:59.719 had something blow up. And one of the things that 0:12:59.800 --> 0:13:02.960 I find so amazing is FED funds rates have gone 0:13:03.000 --> 0:13:06.120 from zero twenty five basis points to four and three 0:13:06.200 --> 0:13:09.960 quarters and there hasn't been any debacles yet. Exactly which 0:13:10.000 --> 0:13:13.640 where is it? We're digging, We're turning over, We're turning 0:13:13.679 --> 0:13:16.840 over every rock we ken. We do believe that loans 0:13:17.280 --> 0:13:21.800 to non depository financial institutions could be the place where 0:13:21.800 --> 0:13:25.200 it blows up, meaning loans to private equity companies. That's 0:13:25.200 --> 0:13:28.440 where the valuations have come down dramatically. It's Harvey Shorts 0:13:28.480 --> 0:13:33.120 watching this. It's going to be a conversation about private 0:13:33.160 --> 0:13:39.679 mind that that's we're looking. Anytime you have rapid loan 0:13:39.760 --> 0:13:42.719 growth in a specific asset class, that's where we take 0:13:42.760 --> 0:13:45.760 our nose to and we just haven't really so wait, wait, 0:13:45.800 --> 0:13:48.559 is this the question Paul asked Rubinstein today? Is that 0:13:48.679 --> 0:13:56.559 the rest? But how about that loan about about sixty seconds. Child. 0:13:56.559 --> 0:13:58.079 I want to want to kind of fit this in 0:13:58.720 --> 0:14:02.040 bonuses happening with pay. If these banks are going to 0:14:02.080 --> 0:14:04.240 become utilities, what does that mean for the pay of 0:14:04.280 --> 0:14:06.600 the people that work at these companies? Credit Swace right 0:14:06.600 --> 0:14:10.120 now talking about delaying some bonuses for bankers. What's the 0:14:10.200 --> 0:14:13.080 message for maybe a group of college graduates to want 0:14:13.120 --> 0:14:15.240 to go into this industry. What's the message for them? Now? 0:14:15.600 --> 0:14:17.439 The pay is still quite good, even though the pay 0:14:17.480 --> 0:14:19.200 has come down quite a bit, as you know, John, 0:14:19.280 --> 0:14:22.960 and we have to remember one was all time record years, 0:14:23.280 --> 0:14:26.160 so we're coming off a very high base. That being said, 0:14:26.440 --> 0:14:28.680 pay is not what it was, you know, twelve or 0:14:28.760 --> 0:14:31.640 eighteen months ago. But there's cycles, as we all know, 0:14:32.040 --> 0:14:34.320 and there will be a capital market cycle. E C 0:14:34.600 --> 0:14:36.720 M will come back, I P O S will come back, 0:14:36.960 --> 0:14:39.120 and that's when the bonuses really do grow. So it's 0:14:39.200 --> 0:14:42.480 very cyclical. Let's do this more often. I'd love to. 0:14:43.280 --> 0:14:48.120 I'm thrilled you brought three pounds of lobster. Surprise, Tom 0:14:48.200 --> 0:14:50.680 is not promoting the trip up to Maine. We want 0:14:50.680 --> 0:14:52.680 to fit that in. No, you know, we get that in. 0:14:52.800 --> 0:14:54.840 But May's weather is tough. We're gonna go up to 0:14:55.280 --> 0:14:57.240 He doesn't like the weather, John, that's the reason why 0:14:57.280 --> 0:15:00.320 he has there's better breakfas and bar. You went on 0:15:00.480 --> 0:15:02.760 vacation that the guy didn't you. It was called I 0:15:03.040 --> 0:15:05.400 took one day sabbatical. It was a three day weekend, 0:15:05.560 --> 0:15:07.560 three day week I remember I went up to Bar Harbor. 0:15:07.600 --> 0:15:10.240 We stopped in Portland, looked for Cassidy and he was 0:15:10.320 --> 0:15:16.120 out in this fifty seventh Hinckley picnic boat than Portland Harbor. 0:15:16.360 --> 0:15:19.480 That that that Hinckley boat you've got is gorgeous. I 0:15:19.800 --> 0:15:22.320 wish I had one, But they are gorgeous. I wouldn't 0:15:22.320 --> 0:15:24.200 make that clear. I wish I had one. Those are 0:15:24.240 --> 0:15:26.680 great boats. That's a hedge fun boat there. It's like 0:15:26.760 --> 0:15:29.080 you go sideways in it. Yeah, you got signed ways 0:15:29.120 --> 0:15:31.080 on it. It's got little thrust is on the side. 0:15:31.240 --> 0:15:36.200 Seen the Reefa boats like, yeah, that's the proper bout. Yeah, 0:15:36.240 --> 0:15:38.760 that's a beautiful. But we didn't. More of a lake 0:15:38.840 --> 0:15:40.760 kind of guy than I would be on the open waters. 0:15:41.200 --> 0:15:45.440 That's the way, a kind of a big calma. Yeah. 0:15:45.520 --> 0:15:55.720 This was thank you. Henrietta Treys joins us right now, 0:15:55.800 --> 0:15:58.800 Director of Economic Policy Vada partners here on what we 0:15:58.960 --> 0:16:01.240 just heard from the Speaker the House, Henriette, I want 0:16:01.240 --> 0:16:05.440 to talk about the moral overlay, the moral politics of 0:16:05.600 --> 0:16:09.680 O MG, we're in debt, o MG, we have a deficit. Hile. 0:16:09.760 --> 0:16:14.600 Broner and Bernstein wrote brilliantly about this two lifetimes ago. 0:16:15.360 --> 0:16:18.520 What's the moral debate in the Congress? You know so 0:16:18.760 --> 0:16:24.200 well about our debt and about our deficit. It's a 0:16:24.280 --> 0:16:27.040 great question. Um, and you mentioned Heritage before. I kind 0:16:27.080 --> 0:16:29.200 of want to segue into that a little bit. The 0:16:29.320 --> 0:16:32.560 Heritage Foundation, which is a lynchpin of the sort of 0:16:32.600 --> 0:16:36.680 Republican morality component as you're referencing, is actually just embarking 0:16:36.680 --> 0:16:39.080 on a study to figure out exactly how much defense 0:16:39.120 --> 0:16:42.400 spending Republicans can cut right now in order to balance 0:16:42.440 --> 0:16:46.080 the budget. It's this tremendous morality question that's not just 0:16:46.360 --> 0:16:50.520 Democrat versus Republicans, but also Republicans within their own party. 0:16:50.800 --> 0:16:54.240 Are we a party that is trying to reduce domestic 0:16:54.320 --> 0:16:57.000 spending an increase defense spending? Do we want to keep 0:16:57.040 --> 0:16:59.840 the parody? The Heritage Foundation is about to launch into 0:16:59.880 --> 0:17:02.080 a investigation and to see where the Pentagon can cut, 0:17:02.120 --> 0:17:04.320 where the Defense Department can cut um, and that is 0:17:04.440 --> 0:17:07.720 a pretty unique um segue from the Republican Party. We 0:17:07.800 --> 0:17:10.280 haven't seen and as long as I've been alive for sure. 0:17:10.760 --> 0:17:12.920 UM So, I think that there's a lot of soul 0:17:12.960 --> 0:17:16.040 searching from both sides right now, and especially from Republicans 0:17:16.080 --> 0:17:18.639 before they even enter into conversations with Democrats about what 0:17:18.680 --> 0:17:21.520 to do about this. To the memory of Pete Peterson, 0:17:21.960 --> 0:17:25.440 Sangas of Massachusetts and the other sam none I'll even 0:17:25.520 --> 0:17:28.879 put in here that fought about the debt and the deficit. 0:17:29.480 --> 0:17:32.639 Where do, as President Trump would call them Republicans in 0:17:32.840 --> 0:17:37.800 name only stand, where is the moral fiscal politics of 0:17:37.920 --> 0:17:44.040 the middle ground of Republicans and Democrats? Um, I'll answer 0:17:44.040 --> 0:17:46.440 your question in two phases. One, I think there's a 0:17:46.520 --> 0:17:49.359 middle ground that is achievable. That is about three billion 0:17:49.400 --> 0:17:52.480 dollars in fraud, waste and abuse trimming. That's a drop 0:17:52.560 --> 0:17:54.240 in the bucket compared to the debt ceiling which is 0:17:54.280 --> 0:17:56.960 currently thirty one point three eight one trillion dollars and 0:17:57.040 --> 0:18:00.040 needs to get raised to at least three tri you 0:18:00.040 --> 0:18:04.320 gonna get presidential election. So that's your moral like middle 0:18:04.359 --> 0:18:08.000 ground that's achievable. But then you have Republicans that I 0:18:08.080 --> 0:18:10.719 think they would call them rhinos. Certainly members that they 0:18:10.760 --> 0:18:12.720 have tried this before. They want to do things like 0:18:12.920 --> 0:18:15.399 tether the spending cuts to the debt ceiling hike on 0:18:15.480 --> 0:18:17.440 a one to one ratio, so you see the numbers 0:18:17.480 --> 0:18:20.399 are just relayed. You're looking at cutting one trillion at 0:18:20.440 --> 0:18:24.120 a minimum from federal spending without touching Social Security, without 0:18:24.160 --> 0:18:27.200 touching Medicare, without touching defense to get you two hundred 0:18:27.240 --> 0:18:29.160 eighteen votes in the House and sixty and the Senate. 0:18:29.240 --> 0:18:32.920 It's unworkable. Then there's an even uh more impossible theory 0:18:32.960 --> 0:18:35.520 where you try to tether the debt to GDP ratio 0:18:36.000 --> 0:18:38.800 um and if you get or exceed a certain amount, 0:18:38.840 --> 0:18:41.840 you trigger automatic cuts. The current debt to GDP ratio 0:18:41.960 --> 0:18:44.080 is a hundred and twenty four percent. They've never been 0:18:44.160 --> 0:18:48.159 able to identify a ratio that they're comfortable with, and 0:18:48.359 --> 0:18:51.280 they've certainly never been able to identify an automatic trigger 0:18:51.560 --> 0:18:53.399 of what gets cut in the event you exceed that. 0:18:53.520 --> 0:18:55.720 So there really is no middle ground at least. So 0:18:55.760 --> 0:18:57.399 it's so important about what you use heard there on 0:18:58.680 --> 0:19:00.720 which I was shot by. There's a lot of people 0:19:00.760 --> 0:19:02.440 in that room tonight to think we're on the edge 0:19:02.480 --> 0:19:05.479 of France. That's what this is really about. That's uh, 0:19:05.600 --> 0:19:08.000 that's some of the messaging that we may hear after 0:19:08.359 --> 0:19:10.320 the State of the Union. I am curious just to 0:19:10.400 --> 0:19:13.879 pivot a little bit, Henrietta, not only domestic but internationally. 0:19:13.920 --> 0:19:15.920 What you're looking for when it comes to China and 0:19:16.040 --> 0:19:21.600 what President Biden's responses the latest increase intentions. That's a 0:19:21.680 --> 0:19:23.959 great question. There's gonna be no fewer than three hearings 0:19:24.040 --> 0:19:26.760 today on the House and Senate side, starting at ten am, 0:19:27.080 --> 0:19:29.440 along with briefings of the Gang of Eight around the 0:19:29.560 --> 0:19:33.200 sort of spy balloon fiasco over the weekend. I think 0:19:33.400 --> 0:19:36.159 that what we've heard consistently from everyone from you know, 0:19:36.280 --> 0:19:40.280 former ambassador Ambassador tie at Ustr even going so far 0:19:40.359 --> 0:19:41.720 back is when she was chief of staff on the 0:19:41.760 --> 0:19:44.160 trade subcommittees. This is an area where you can actually 0:19:44.240 --> 0:19:48.000 get agreement from Democrats and Republicans. Especially heading into the 0:19:48.840 --> 0:19:52.760 presidential um, we're gonna see Republicans and Democrats race to 0:19:52.880 --> 0:19:55.040 out hawk each other. So one of the things I'm 0:19:55.040 --> 0:19:57.080 focusing on for investors right now is what that means 0:19:57.119 --> 0:20:00.560 for potential additional sanctions, what that means in terms of 0:20:00.600 --> 0:20:03.960 Treasury auditing, the financial services industry in China, what it 0:20:04.040 --> 0:20:06.360 means for potential ban on TikTok. I think all those 0:20:06.440 --> 0:20:09.719 things are on the table and will be um at 0:20:09.800 --> 0:20:12.920 a minimum headline risk for investors and probably very real 0:20:13.040 --> 0:20:15.080 prospects as we head into the next two years. And 0:20:15.359 --> 0:20:18.000 to just quickly here, what does that mean for large 0:20:18.119 --> 0:20:21.119 international companies based in the US who are betting on 0:20:21.359 --> 0:20:25.760 China's rebound to really help use their profits. You've got 0:20:25.880 --> 0:20:27.880 to really be careful about which sector you're looking at, 0:20:27.960 --> 0:20:32.439 because they're gonna be obviously those macroeconomic headwinds that benefit 0:20:32.520 --> 0:20:35.199 them just from the reopening prospect and the sort of fundamentals, 0:20:35.480 --> 0:20:38.000 but you must layer on the risk of federal intervention 0:20:38.080 --> 0:20:41.000 from the United States, either through siffious Treasury, the Pentagon 0:20:41.560 --> 0:20:45.080 um congressional action. Those risks are very real and present. 0:20:45.080 --> 0:20:47.160 I think the second conductor in the battery space would 0:20:47.200 --> 0:20:50.000 tell you that on a very clear recent illustration. And 0:20:50.080 --> 0:20:53.000 you've got to be able to understand that the American 0:20:53.080 --> 0:20:56.480 administration is ready willing and able and thoroughly prepared to 0:20:57.359 --> 0:21:00.399 maintain existing tariffs, ratchet up existing tariff um you know, 0:21:00.480 --> 0:21:05.160 we just saw the two tariffs on Russian aluminum floating yesterday. 0:21:05.400 --> 0:21:07.240