1 00:00:00,120 --> 00:00:02,920 Speaker 1: Brought you by Bank of America Mary Lynch. Investing in 2 00:00:03,000 --> 00:00:07,800 Speaker 1: local communities, economies and a sustainable future. That's the power 3 00:00:08,080 --> 00:00:12,360 Speaker 1: of global connections, Mary Lynch, Pierce Fenner and Smith Incorporated 4 00:00:12,760 --> 00:00:27,400 Speaker 1: member s I p C. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:27,840 --> 00:00:31,520 Speaker 1: I'm Tom Keene with David Gura. Daily we bring you 6 00:00:31,560 --> 00:00:36,600 Speaker 1: insight from the best in economics, finance, investment, and international relations. 7 00:00:37,000 --> 00:00:41,600 Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and 8 00:00:41,680 --> 00:00:49,120 Speaker 1: of course, on the Bloomberg We've been aving this morning 9 00:00:49,120 --> 00:00:53,680 Speaker 1: a spirited discussion with Stephen Roach of Yale University his 10 00:00:53,800 --> 00:00:56,760 Speaker 1: wonderful book The Next Asia Francine. Why don't you jump 11 00:00:56,800 --> 00:00:59,080 Speaker 1: in here with Dr Roach? I was you know, I 12 00:00:59,120 --> 00:01:01,960 Speaker 1: guess got so much FaceTime with him on television. Why 13 00:01:01,960 --> 00:01:04,160 Speaker 1: don't you lead it off here this morning? Oh? Thank 14 00:01:04,200 --> 00:01:07,080 Speaker 1: you so much, Tom. Gentlemen, Tom, Stephen Roaches want to 15 00:01:07,120 --> 00:01:09,640 Speaker 1: hear once a year. I'm going to take advantage of 16 00:01:09,680 --> 00:01:12,240 Speaker 1: the Stephen Roach. Um. It was great to speak to 17 00:01:12,280 --> 00:01:15,319 Speaker 1: you on TV a little bit earlier from Yale University, 18 00:01:15,360 --> 00:01:18,160 Speaker 1: from our uh Morganstown. They give me a sense of 19 00:01:18,200 --> 00:01:20,960 Speaker 1: what you're seeing out there that the market is miss pricing. 20 00:01:21,520 --> 00:01:23,679 Speaker 1: So we're seeing a little bit of movement on yield's 21 00:01:24,000 --> 00:01:27,600 Speaker 1: political concerns, We're seeing a little bit of dollar movements 22 00:01:27,720 --> 00:01:30,759 Speaker 1: up higher, and yet we don't really have the economic 23 00:01:30,840 --> 00:01:35,240 Speaker 1: plan of President Trump yet. Well you're getting close, Francine. 24 00:01:35,280 --> 00:01:41,920 Speaker 1: I mean, the markets are ignoring, possibly miss pricing or 25 00:01:41,959 --> 00:01:47,119 Speaker 1: possibly brilliant in being able to anticipate what these policies 26 00:01:47,200 --> 00:01:51,040 Speaker 1: are going to look like. And there's there's a fair 27 00:01:51,080 --> 00:01:56,560 Speaker 1: amount of uncertainty that will be resolved in the in 28 00:01:56,600 --> 00:02:01,840 Speaker 1: the next few months over the direction of fiscal policy, 29 00:02:02,080 --> 00:02:07,480 Speaker 1: which is very very important for the market outlook, but 30 00:02:07,600 --> 00:02:13,160 Speaker 1: for this whole um complex of geopolitical, global trade and 31 00:02:13,520 --> 00:02:20,000 Speaker 1: political shifts that are at risk I think of coming 32 00:02:20,000 --> 00:02:23,840 Speaker 1: into focus, uh in a way that leads to a 33 00:02:23,919 --> 00:02:29,600 Speaker 1: very disturbing conclusion for the global economy and the markets 34 00:02:29,639 --> 00:02:33,960 Speaker 1: that ultimately will be shaped by the global economic backdrop. So, 35 00:02:34,720 --> 00:02:38,160 Speaker 1: you know, markets are it's a one way bet right 36 00:02:38,200 --> 00:02:43,760 Speaker 1: now in terms of US equities, the dollar, and implications 37 00:02:43,880 --> 00:02:49,120 Speaker 1: for other major currencies around the world. Uh. And uh, 38 00:02:49,320 --> 00:02:53,639 Speaker 1: you know, the history of markets suggests that one way 39 00:02:53,720 --> 00:02:59,960 Speaker 1: bets don't always end in a particularly easy fashion. Why Mark, 40 00:03:00,000 --> 00:03:02,200 Speaker 1: It's largely ignoring all the risks out there at the moment. 41 00:03:04,600 --> 00:03:08,840 Speaker 1: It's um you know, it's it's a study in human 42 00:03:08,880 --> 00:03:13,760 Speaker 1: behavior of belief in um. Uh. You know, the message 43 00:03:14,639 --> 00:03:19,920 Speaker 1: as opposed to the reality. We've had a real political 44 00:03:20,000 --> 00:03:25,280 Speaker 1: upheaval in the United States, followed by similar uh disruptive 45 00:03:25,280 --> 00:03:30,880 Speaker 1: political events in the UK and potentially in in in Europe. 46 00:03:31,639 --> 00:03:36,000 Speaker 1: Uh and uh. As those political upheavals sort of shatter 47 00:03:36,040 --> 00:03:38,480 Speaker 1: our view, the markets want to say, wait, oh, wait 48 00:03:38,480 --> 00:03:41,600 Speaker 1: a second. You know the guy is pro growth and 49 00:03:41,720 --> 00:03:44,160 Speaker 1: growth is good, and you know we'll but we'll buy 50 00:03:44,200 --> 00:03:49,800 Speaker 1: growth and uh, you know, it's a it's a knee jerk. Ultimately, 51 00:03:49,880 --> 00:03:54,360 Speaker 1: I think an overly simplistic assessment of the prospects that 52 00:03:54,400 --> 00:03:56,600 Speaker 1: are out there. Is it a guilded age? And do 53 00:03:56,640 --> 00:03:58,600 Speaker 1: you see any end of the guilded age? I go 54 00:03:58,640 --> 00:04:01,120 Speaker 1: back to the backdrop. The president has that bright gold 55 00:04:01,160 --> 00:04:03,440 Speaker 1: back drop. I know we got that idea from you 56 00:04:03,480 --> 00:04:06,800 Speaker 1: when you used to give press conferences in China. But 57 00:04:07,840 --> 00:04:11,960 Speaker 1: the idea of a gilded age gold back dropper or others, 58 00:04:12,240 --> 00:04:13,840 Speaker 1: how do you get out of that? How did we 59 00:04:13,880 --> 00:04:16,680 Speaker 1: get out of the first guilded age? I believe we 60 00:04:16,680 --> 00:04:20,080 Speaker 1: did it with the war. Yeah again, Tom, You know, 61 00:04:20,160 --> 00:04:24,680 Speaker 1: these periods of excess don't always uh, and in a 62 00:04:25,279 --> 00:04:31,960 Speaker 1: in a rather comfortable way given given the widening income 63 00:04:31,960 --> 00:04:36,359 Speaker 1: and equalities, the polarization society and political systems, there's a 64 00:04:36,360 --> 00:04:40,359 Speaker 1: lot of tension that is building right now. Uh. And 65 00:04:41,720 --> 00:04:45,320 Speaker 1: you you combine that with a theme we talked about 66 00:04:45,400 --> 00:04:52,479 Speaker 1: on television this morning, this um America first emphasis on protectionism, 67 00:04:52,720 --> 00:04:58,680 Speaker 1: and it does have some unfortunate antecedents in a in 68 00:04:58,720 --> 00:05:01,080 Speaker 1: a darker period. It in our his from the talk 69 00:05:01,080 --> 00:05:03,800 Speaker 1: of the moment, and folks well deserved. I can't say 70 00:05:03,920 --> 00:05:09,640 Speaker 1: enough about commentary magazine Nicholas Eberstat, where he talks about 71 00:05:09,680 --> 00:05:13,440 Speaker 1: the cultural fabric Steve Roach of America, even going into 72 00:05:13,440 --> 00:05:17,760 Speaker 1: our new reduced life expectancies ever so slightly there. I 73 00:05:17,760 --> 00:05:21,120 Speaker 1: don't want to overplay that the opioid crisis that that's 74 00:05:21,120 --> 00:05:25,240 Speaker 1: so much of America is facing. Is it a miserable 75 00:05:25,360 --> 00:05:31,880 Speaker 1: century that we're in? Well, you know, I've certainly been 76 00:05:31,880 --> 00:05:37,560 Speaker 1: accused of being um from time to time, overly negative 77 00:05:37,600 --> 00:05:39,640 Speaker 1: in my assessment of the world. But even I am 78 00:05:39,680 --> 00:05:43,839 Speaker 1: not gonna extrapolate for an entire century. I think what 79 00:05:44,520 --> 00:05:49,800 Speaker 1: the Everstat piece UM identifies are some real tensions in 80 00:05:49,880 --> 00:05:54,480 Speaker 1: the social, political, and economic fabric that must be addressed. Yeah, 81 00:05:54,480 --> 00:05:56,520 Speaker 1: I'm Francy. I want to point out that Dr Roach 82 00:05:56,720 --> 00:06:01,440 Speaker 1: is pushed more than anybody breathing against hard landing in China. 83 00:06:01,720 --> 00:06:04,839 Speaker 1: He loves to play the doom and gloom pessimist that 84 00:06:04,880 --> 00:06:08,360 Speaker 1: he is, but he's been the arch China optimist all 85 00:06:08,400 --> 00:06:13,440 Speaker 1: the way. Yeah, and you still are. But we're looking. So. 86 00:06:13,520 --> 00:06:16,120 Speaker 1: I have a Bloomberg story today which is amongst our 87 00:06:16,160 --> 00:06:19,240 Speaker 1: top breads for our Bloomberg terminal customers, and it's saying 88 00:06:19,560 --> 00:06:22,440 Speaker 1: China maybe about to embark on a very ambitious and 89 00:06:22,560 --> 00:06:26,560 Speaker 1: very perilous campaign to convince investors that they shouldn't depend 90 00:06:26,560 --> 00:06:30,600 Speaker 1: on a bailout when markets go south. How do they 91 00:06:30,680 --> 00:06:34,760 Speaker 1: convince investors that China is safe when it comes to 92 00:06:34,800 --> 00:06:38,640 Speaker 1: their investments? Well, what type of investments are you? Are 93 00:06:38,680 --> 00:06:45,839 Speaker 1: you referring to, like domestic investment for asset management products, right, 94 00:06:45,920 --> 00:06:50,919 Speaker 1: which may make it clear that they don't have government guarantees. Well, 95 00:06:51,320 --> 00:06:55,359 Speaker 1: you know, there there certainly are some moral hazard risks 96 00:06:55,520 --> 00:06:59,160 Speaker 1: in China, whether it's the wealth management products which has 97 00:06:59,760 --> 00:07:03,960 Speaker 1: been very very popular in UM the last few years. 98 00:07:04,279 --> 00:07:09,320 Speaker 1: UM or whether it's the the state on enterprises which 99 00:07:09,360 --> 00:07:15,920 Speaker 1: continue to get um enormous support from the government. And 100 00:07:15,760 --> 00:07:19,800 Speaker 1: in both of those areas, I think, um, if the 101 00:07:19,840 --> 00:07:23,040 Speaker 1: government is going to put a floor under the uh, 102 00:07:23,080 --> 00:07:26,720 Speaker 1: the asset values, it's also going to interfere with the 103 00:07:26,760 --> 00:07:29,680 Speaker 1: efficient allocation of capital, which China needs to go to 104 00:07:29,680 --> 00:07:33,880 Speaker 1: the next step of its development journey. So I wouldn't say, uh, 105 00:07:34,240 --> 00:07:39,120 Speaker 1: you know, this is particularly good news for a rebalanced, 106 00:07:39,200 --> 00:07:42,920 Speaker 1: more of a market driven Chinese economy going forward. If 107 00:07:42,960 --> 00:07:46,600 Speaker 1: in fact this is correct, is it a zero some society? 108 00:07:46,600 --> 00:07:48,280 Speaker 1: I want to come back and talk about the bigger 109 00:07:48,280 --> 00:07:51,920 Speaker 1: immigration picture and some trade theory here. But you know, 110 00:07:51,960 --> 00:07:54,640 Speaker 1: going back to Ricardo, we all read it cover to cover. 111 00:07:54,720 --> 00:07:57,000 Speaker 1: It was always a difficult read. I thought to read 112 00:07:57,040 --> 00:08:00,520 Speaker 1: the original Ricardo. But from the original Ricard to where 113 00:08:00,560 --> 00:08:03,800 Speaker 1: we are now, is it a zero sum society? Is 114 00:08:03,840 --> 00:08:08,680 Speaker 1: it just mercantilism that's going on? Well, you know, the 115 00:08:09,280 --> 00:08:15,120 Speaker 1: big globalization debate talks about you know, massive poverty reduction 116 00:08:15,920 --> 00:08:19,880 Speaker 1: over the last fifty years, and um, that is there's 117 00:08:19,920 --> 00:08:24,600 Speaker 1: nothing zero sum about that. That's a positive sum development. 118 00:08:24,760 --> 00:08:27,720 Speaker 1: And and you know, as poverty has been reduced and 119 00:08:27,840 --> 00:08:31,560 Speaker 1: his education levels and once impoverished countries are increasing and 120 00:08:31,640 --> 00:08:34,760 Speaker 1: work where skills are growing, then there's a lot of 121 00:08:34,800 --> 00:08:37,880 Speaker 1: competition to do the things that we used to do 122 00:08:37,960 --> 00:08:40,640 Speaker 1: and we used to do alone. And you know that, 123 00:08:40,920 --> 00:08:45,480 Speaker 1: coupled with a secular decline in our manufacturing sector, has 124 00:08:45,640 --> 00:08:50,320 Speaker 1: created this drumbeat for viewing the world in a tougher 125 00:08:50,480 --> 00:08:53,920 Speaker 1: zero some way, and that's unfortunate. David G. Francie Laquire 126 00:08:54,520 --> 00:08:57,839 Speaker 1: very kindly has come in for our American four day 127 00:08:57,840 --> 00:09:01,920 Speaker 1: work week. Um, Steve Roach with this, Stephen, it is 128 00:09:02,000 --> 00:09:05,160 Speaker 1: the President's day. I believe the papers is February twenty seconds. 129 00:09:05,200 --> 00:09:07,839 Speaker 1: You know the number of younger people, Stephen Roach, that 130 00:09:07,960 --> 00:09:11,600 Speaker 1: don't know. February twelve is Lincoln's birthday and today is 131 00:09:11,679 --> 00:09:15,880 Speaker 1: the first President's birthday. It's just because you get both 132 00:09:15,920 --> 00:09:20,760 Speaker 1: those days off. We were in school. Martin van Buren 133 00:09:20,800 --> 00:09:22,240 Speaker 1: did that. That was when you were in fifth or 134 00:09:22,280 --> 00:09:25,800 Speaker 1: sixth grade? Was no, I voted for him? I'm sure 135 00:09:25,840 --> 00:09:28,839 Speaker 1: you did. Time. I just need to correct one answer 136 00:09:28,880 --> 00:09:32,480 Speaker 1: to the question Francy asked me on the wealth management 137 00:09:32,480 --> 00:09:36,640 Speaker 1: issue in China. I misheard her question. It looks on 138 00:09:36,679 --> 00:09:38,760 Speaker 1: the basis of the story that the government is going 139 00:09:38,800 --> 00:09:42,400 Speaker 1: to really introduce more of a two way risk perception 140 00:09:42,440 --> 00:09:44,839 Speaker 1: into these markets. That's a good thing. And I think 141 00:09:44,880 --> 00:09:47,760 Speaker 1: I missed it and said the office okay, okay, well 142 00:09:47,800 --> 00:09:50,120 Speaker 1: that's a good We call that a surveillance correction, which 143 00:09:50,120 --> 00:09:52,439 Speaker 1: we do I do too often. Fancy has never made 144 00:09:52,440 --> 00:09:56,960 Speaker 1: a mistake in her years here. That would be true, 145 00:09:57,240 --> 00:09:59,880 Speaker 1: um Our President. I just got a note from Mike 146 00:10:00,000 --> 00:10:04,320 Speaker 1: Well in Austin and he says, dr Roach, please discuss 147 00:10:05,280 --> 00:10:09,719 Speaker 1: the border tax. It's tossed around like you know, a 148 00:10:09,800 --> 00:10:14,679 Speaker 1: tequila whatever one of Michael and Austin's parties and sware's 149 00:10:15,240 --> 00:10:18,680 Speaker 1: what does a border text due to this nation and 150 00:10:18,760 --> 00:10:22,920 Speaker 1: due to the fabric of our trade, it's it's another 151 00:10:23,200 --> 00:10:27,280 Speaker 1: you know, in this long stream of protectionist moves Michael 152 00:10:27,360 --> 00:10:36,320 Speaker 1: in Austin. It taxes imports UH and UH subsidizes exports. 153 00:10:36,320 --> 00:10:43,200 Speaker 1: So it's a functional equivalent of raising the price of 154 00:10:43,280 --> 00:10:46,280 Speaker 1: goods that we purchased from overseas under the guise of 155 00:10:46,360 --> 00:10:51,120 Speaker 1: well everybody does it, well people, not everybody does it 156 00:10:51,600 --> 00:10:55,240 Speaker 1: in in the fashion that's being contemplated by the tax 157 00:10:55,280 --> 00:10:58,600 Speaker 1: reform measures of the U. S. House of Representatives. UH. 158 00:10:58,640 --> 00:11:01,240 Speaker 1: And so when you you couple this with the the 159 00:11:01,360 --> 00:11:06,440 Speaker 1: other UM initiatives that are being talked about, whether it's 160 00:11:06,800 --> 00:11:13,720 Speaker 1: currency manipulation, charges outright tariffs on major training partners, backing 161 00:11:13,760 --> 00:11:20,720 Speaker 1: away from TPP, renegotiating NAFTA, building a wall, the America 162 00:11:20,880 --> 00:11:27,880 Speaker 1: first mantra of protectionist trunk administration UH. It's it's part 163 00:11:27,960 --> 00:11:31,480 Speaker 1: and parcel of the same UH story and inward looking 164 00:11:31,559 --> 00:11:37,000 Speaker 1: isolationist America that UH is not facing up to the 165 00:11:37,040 --> 00:11:40,680 Speaker 1: consequences of what this means for the prices of goods 166 00:11:41,040 --> 00:11:46,680 Speaker 1: purchased UH in UM Walmart's either UH in stores or 167 00:11:46,720 --> 00:11:51,520 Speaker 1: online or uh in in in broader platforms. So this 168 00:11:51,600 --> 00:11:56,320 Speaker 1: is a real reversal of the forces that have been 169 00:11:56,360 --> 00:12:01,360 Speaker 1: shaping and driving America's role in the global economy over 170 00:12:01,400 --> 00:12:05,200 Speaker 1: the last thirty five forty years. Stephen, is there one 171 00:12:05,360 --> 00:12:09,280 Speaker 1: initiative from the new administration that you would applaud or 172 00:12:09,320 --> 00:12:13,880 Speaker 1: that or that you would use well and and they 173 00:12:13,920 --> 00:12:18,920 Speaker 1: haven't really rolled out fancying any initiatives yet that we 174 00:12:19,000 --> 00:12:22,520 Speaker 1: can speak to. There's there's been a lot of feelers 175 00:12:22,640 --> 00:12:28,000 Speaker 1: and ideas that they've talked about. And so when when 176 00:12:28,040 --> 00:12:31,760 Speaker 1: the President gives his State of the Union message next 177 00:12:31,800 --> 00:12:34,120 Speaker 1: week to the Congress will have a little bit more 178 00:12:34,200 --> 00:12:40,080 Speaker 1: clarity in terms of concrete proposals that he's looking for. 179 00:12:41,720 --> 00:12:44,000 Speaker 1: Can they do anything? Is there anything the good that 180 00:12:44,040 --> 00:12:48,480 Speaker 1: could come out of the tax reform? Well, you know, 181 00:12:48,679 --> 00:12:53,199 Speaker 1: I personally, I think that the the debate that we're 182 00:12:53,240 --> 00:12:55,360 Speaker 1: having right now in tax reform in the United States 183 00:12:55,400 --> 00:13:01,319 Speaker 1: putting the relief of corporate America ahead of the UH 184 00:13:02,080 --> 00:13:07,120 Speaker 1: the queue here is is misplaced. UH. Corporate profit tax 185 00:13:07,240 --> 00:13:13,240 Speaker 1: Corporate profits are are high, corporate profit taxes are low 186 00:13:13,400 --> 00:13:17,679 Speaker 1: if you look at them historically. UH, there's an image 187 00:13:17,720 --> 00:13:23,360 Speaker 1: that UM is being painted of a US business sector 188 00:13:23,400 --> 00:13:26,440 Speaker 1: that's lost its competitive edge, that we just you know, 189 00:13:26,480 --> 00:13:30,200 Speaker 1: have dropped the ball, and that's why we need protection. Yet, 190 00:13:30,320 --> 00:13:32,920 Speaker 1: if you look at the results of the World Economic 191 00:13:33,000 --> 00:13:37,160 Speaker 1: Forums competitiveness sweepstakes, we're at number three. We're behind Switzerland 192 00:13:37,320 --> 00:13:40,840 Speaker 1: and Singapore, but you know, big deal, and we've been 193 00:13:40,880 --> 00:13:43,720 Speaker 1: a number three for a decade. We we don't score 194 00:13:43,760 --> 00:13:46,600 Speaker 1: well on taxes, but we score well on innovation in 195 00:13:46,640 --> 00:13:51,160 Speaker 1: our market structures, and UH, you know, we're as competitive 196 00:13:51,200 --> 00:13:54,160 Speaker 1: today as we have been UH in in a long time. 197 00:13:54,200 --> 00:14:00,320 Speaker 1: We don't need special uh protectionist measures to UM UH 198 00:14:00,920 --> 00:14:03,719 Speaker 1: enhance our role in the global economy. Steven Rhodes, thank 199 00:14:03,720 --> 00:14:06,320 Speaker 1: you for the time to the dr Roach is at 200 00:14:06,559 --> 00:14:22,520 Speaker 1: Yale University, and this is a great pleasure. He has 201 00:14:22,600 --> 00:14:26,080 Speaker 1: single handedly taken credit for the victory of the Chicago 202 00:14:26,760 --> 00:14:31,640 Speaker 1: uh Cubs joining us. He is Chicago, Sam Zell, where 203 00:14:31,640 --> 00:14:33,600 Speaker 1: were you in the Chicago Cubs? Were you at the 204 00:14:33,600 --> 00:14:37,760 Speaker 1: park the night they wont No, I don't. I thank 205 00:14:37,800 --> 00:14:41,120 Speaker 1: you for the for the compliment. I don't take any 206 00:14:42,320 --> 00:14:45,640 Speaker 1: role in that. I owned the Cubs for a while. Yeah, 207 00:14:45,680 --> 00:14:48,640 Speaker 1: for a cup of coffee. You owned him. And it's 208 00:14:48,680 --> 00:14:53,480 Speaker 1: just great for the city and terrific, terrific for this 209 00:14:53,520 --> 00:14:55,920 Speaker 1: is an historic day, and like there's always good days 210 00:14:56,000 --> 00:14:57,680 Speaker 1: to talk to Sam's l and you and I should 211 00:14:57,680 --> 00:15:00,400 Speaker 1: talk about commercial real estate. We should t talk about 212 00:15:00,400 --> 00:15:03,200 Speaker 1: internal rates and return Maybe we'll get to that. I'm 213 00:15:03,200 --> 00:15:05,480 Speaker 1: looking at the cover of the New York Times or 214 00:15:05,520 --> 00:15:09,600 Speaker 1: the cover of Chicago Tribune. Your parents showed up in 215 00:15:09,720 --> 00:15:13,640 Speaker 1: Chicago from Poland two years before you were born, right 216 00:15:14,440 --> 00:15:17,480 Speaker 1: four months four months before you were born. You you 217 00:15:17,600 --> 00:15:22,720 Speaker 1: grew up in all American immigrant household with great academic 218 00:15:22,760 --> 00:15:27,800 Speaker 1: achievement in etcetera. Through your filter, how do you observe 219 00:15:28,280 --> 00:15:34,800 Speaker 1: Trump immigration policy. Well, I'm a big fan of immigration. 220 00:15:36,320 --> 00:15:42,040 Speaker 1: I believe that immigration is a self selective process. So 221 00:15:42,800 --> 00:15:46,400 Speaker 1: in effect, the people who have the guts to leave 222 00:15:46,480 --> 00:15:52,520 Speaker 1: where they are and start anew our entrepreneurial stronger and 223 00:15:52,520 --> 00:15:55,840 Speaker 1: have been the core of what I built this country. 224 00:15:55,880 --> 00:16:00,400 Speaker 1: Can you affect policy as a president suggests to throw 225 00:16:00,520 --> 00:16:04,960 Speaker 1: the bums out and keep the grain producer from Poland 226 00:16:05,360 --> 00:16:08,760 Speaker 1: that prospered in Chicago. And I believe your sister was 227 00:16:08,800 --> 00:16:12,480 Speaker 1: a valedictorian as well. How do you keep the zells 228 00:16:12,600 --> 00:16:15,080 Speaker 1: and throw the bums out at the same time, I 229 00:16:15,120 --> 00:16:19,560 Speaker 1: think my parents came to this country legally. They followed 230 00:16:19,560 --> 00:16:22,880 Speaker 1: all the procedures and they did what it took to 231 00:16:23,000 --> 00:16:28,320 Speaker 1: get a visa. I think the importance and of America 232 00:16:29,360 --> 00:16:32,000 Speaker 1: in the past and in the future is all about 233 00:16:32,040 --> 00:16:37,640 Speaker 1: the rule of law. And consequently, I think we can't 234 00:16:37,640 --> 00:16:42,000 Speaker 1: we can't have a two systems where half two people 235 00:16:42,920 --> 00:16:47,440 Speaker 1: apply and and become uh Green card or whatever, and 236 00:16:47,480 --> 00:16:51,840 Speaker 1: others just do it so illy like. That's the challenge 237 00:16:52,080 --> 00:16:54,840 Speaker 1: and it's a serious conundrum. Mr. So let me bring 238 00:16:54,840 --> 00:16:57,600 Speaker 1: in my colleague in London, Francing Laqui, with us this morning. 239 00:16:57,640 --> 00:17:00,360 Speaker 1: Francing Hi, Sam's l I see it tire with exit. 240 00:17:00,400 --> 00:17:02,440 Speaker 1: I hear it is here with marine lupin in France. 241 00:17:02,960 --> 00:17:05,520 Speaker 1: Why is it easy and why is it acceptable now 242 00:17:05,920 --> 00:17:11,479 Speaker 1: to bash the foreigner. I don't think that this is 243 00:17:11,520 --> 00:17:14,520 Speaker 1: a bashing of a foreigner. As far as the United 244 00:17:14,560 --> 00:17:18,040 Speaker 1: States is concerned, I think the challenge in the United 245 00:17:18,080 --> 00:17:24,240 Speaker 1: States is what do we do to quote, make our 246 00:17:24,359 --> 00:17:28,719 Speaker 1: country a rule of law and have everybody abide by 247 00:17:28,760 --> 00:17:32,199 Speaker 1: the same rules. I think that's the issue in the 248 00:17:32,320 --> 00:17:36,159 Speaker 1: United States. I don't think it is foreigner versus the 249 00:17:36,200 --> 00:17:39,320 Speaker 1: anti foreigner, but what do the economics tell us? So 250 00:17:39,480 --> 00:17:42,359 Speaker 1: I'm looking at some research saying that actually some of 251 00:17:42,400 --> 00:17:46,600 Speaker 1: the moves the crackdown on undocumented immigrants, first of all, 252 00:17:46,640 --> 00:17:49,840 Speaker 1: will strain a very tight US job market, but also 253 00:17:49,880 --> 00:17:53,080 Speaker 1: would cost economy some five trillion dollars over ten years. 254 00:17:54,440 --> 00:17:58,080 Speaker 1: I'm not familiar with the statistics that you're referring to, 255 00:17:59,040 --> 00:18:01,640 Speaker 1: but I would yes to you that I could come 256 00:18:01,720 --> 00:18:06,800 Speaker 1: up with other statistics that would show other objectives. I 257 00:18:06,840 --> 00:18:09,960 Speaker 1: think when it's all said and done, the question is 258 00:18:10,440 --> 00:18:15,399 Speaker 1: what is or isn't legal? And you know what precedent 259 00:18:15,520 --> 00:18:20,600 Speaker 1: do we say? Uh? In the past, we've had administrations 260 00:18:20,640 --> 00:18:25,000 Speaker 1: that have ignored the issue. That's why we have as 261 00:18:25,040 --> 00:18:28,840 Speaker 1: many illegal immigrants in this country as we have. I 262 00:18:28,880 --> 00:18:30,840 Speaker 1: could go for hours with you, but I've got to 263 00:18:30,880 --> 00:18:34,440 Speaker 1: ask about commercial real estate. Your first property was until 264 00:18:34,480 --> 00:18:38,960 Speaker 1: you don't right, um afrihanah, Yeah, I mean a few 265 00:18:39,080 --> 00:18:42,560 Speaker 1: a few years ago. Can you do commercial real estate 266 00:18:42,600 --> 00:18:46,320 Speaker 1: in the financial distortion of our low rate environment? Or 267 00:18:46,480 --> 00:18:50,480 Speaker 1: is commercial real estate heading for another crisis because money 268 00:18:50,560 --> 00:18:54,439 Speaker 1: is free? Um? I think the answer is yes, you 269 00:18:54,520 --> 00:18:57,719 Speaker 1: can be in the real commercial real estate business in 270 00:18:57,800 --> 00:19:05,080 Speaker 1: this environment. I think low interest rates might encourage people 271 00:19:05,119 --> 00:19:08,080 Speaker 1: to do things they shouldn't do. I think the issue 272 00:19:08,160 --> 00:19:13,399 Speaker 1: in commercial real estate today is not rights but availability. 273 00:19:13,520 --> 00:19:18,399 Speaker 1: And we are growing our commercial real estate size in 274 00:19:18,440 --> 00:19:23,280 Speaker 1: this country very significantly. I mean we're I think in 275 00:19:23,359 --> 00:19:27,760 Speaker 1: two thousand and sixteen we uh started three hundred and 276 00:19:27,800 --> 00:19:32,560 Speaker 1: seventy eight thousand multi families. I believe if it's not 277 00:19:32,680 --> 00:19:36,920 Speaker 1: the largest single year in history, that we're seeing that 278 00:19:36,960 --> 00:19:39,600 Speaker 1: in New York City right now, Sam's I gotta ask 279 00:19:39,680 --> 00:19:43,359 Speaker 1: one final question. The bloodshed and your Chicago is a 280 00:19:43,480 --> 00:19:46,959 Speaker 1: national tragedy. Everybody's focused on it. Take me away from 281 00:19:47,000 --> 00:19:51,280 Speaker 1: the political rhetoric, what do the people of Chicago want 282 00:19:51,480 --> 00:19:56,239 Speaker 1: is a solution to the gang violence in Chicago. I 283 00:19:56,280 --> 00:20:03,080 Speaker 1: think the in the whole issue is extremely overstated. Yes, 284 00:20:03,359 --> 00:20:08,959 Speaker 1: there is very serious gang violence. It's very serious, uh 285 00:20:09,800 --> 00:20:15,200 Speaker 1: killing of people. But the impact on the rest of Chicago, 286 00:20:15,400 --> 00:20:21,159 Speaker 1: other than this very narrow area is relatively limited. So 287 00:20:21,240 --> 00:20:24,159 Speaker 1: I think it's much more a story of the press 288 00:20:24,600 --> 00:20:28,560 Speaker 1: than it is, uh, you know, some kind of degradation 289 00:20:28,640 --> 00:20:33,800 Speaker 1: of the city. The city is operating beautifully and frankly 290 00:20:33,880 --> 00:20:36,360 Speaker 1: it's one of the best places in the country. List 291 00:20:36,720 --> 00:20:38,320 Speaker 1: to speak to you. Sam's eel on this day of 292 00:20:38,320 --> 00:20:42,040 Speaker 1: an immigration to paid across all of America. Mr zell 293 00:20:42,920 --> 00:20:54,120 Speaker 1: is from Chicago, brought you by Bank of America. Mary 294 00:20:54,200 --> 00:20:58,520 Speaker 1: Lynch dedicated to bringing our clients insights and solutions to 295 00:20:58,600 --> 00:21:02,119 Speaker 1: meet the challenges of a transforming world. That's the power 296 00:21:02,240 --> 00:21:08,199 Speaker 1: of global connections. Marylynch, Pierce Federan Smith Incorporated, Member s 297 00:21:08,240 --> 00:21:14,520 Speaker 1: I P. C. Francine. I see negative yields and I 298 00:21:14,560 --> 00:21:19,440 Speaker 1: see a little bit of migration negative in Switzerland is well. 299 00:21:19,480 --> 00:21:23,359 Speaker 1: And the linkage to euro what would it mean for 300 00:21:23,440 --> 00:21:28,080 Speaker 1: a parody euro Franccene, Well, I would mean that people 301 00:21:28,320 --> 00:21:31,240 Speaker 1: believe that the Fed is ready to hike rates pretty soon, 302 00:21:31,280 --> 00:21:34,440 Speaker 1: and they believe that something ugly will rear its head 303 00:21:34,520 --> 00:21:38,720 Speaker 1: here in Europe. So what would it take political risk people, 304 00:21:38,760 --> 00:21:41,600 Speaker 1: I guess getting you know, freaked out about the Eurozone 305 00:21:41,640 --> 00:21:44,879 Speaker 1: possibly breaking apart, or the election of Marine le Pin 306 00:21:45,040 --> 00:21:47,440 Speaker 1: or something happening in grease. Yeah, I like the way 307 00:21:47,480 --> 00:21:49,280 Speaker 1: you put that in this, folks. It's not just about 308 00:21:49,320 --> 00:21:53,680 Speaker 1: the euro, but it's always pairs in dollar strength. Off 309 00:21:53,720 --> 00:21:57,879 Speaker 1: of February one is two point one percent up on 310 00:21:58,000 --> 00:22:00,480 Speaker 1: d X well excuse me, yes, and d X y 311 00:22:00,880 --> 00:22:03,639 Speaker 1: the blended currency. So we're not out to the dollar 312 00:22:03,720 --> 00:22:05,520 Speaker 1: strength at the end of the year, but we're getting 313 00:22:05,520 --> 00:22:08,920 Speaker 1: there quickly. Stewart, where they're where this with b mp 314 00:22:09,560 --> 00:22:13,080 Speaker 1: uh Perry, but inequities and deruveds right now all of 315 00:22:13,119 --> 00:22:16,600 Speaker 1: a sudden, negative rates Again, is this negative rate conversation 316 00:22:17,040 --> 00:22:20,040 Speaker 1: different than the negative rate conversation of a year ago? 317 00:22:20,600 --> 00:22:22,120 Speaker 1: You know, Tom, thanks for having me on. I think 318 00:22:22,119 --> 00:22:24,280 Speaker 1: it really is, especially because now we're in an environment 319 00:22:24,320 --> 00:22:26,440 Speaker 1: where potentially, you know, over the last few years it's 320 00:22:26,440 --> 00:22:29,280 Speaker 1: been a policy divergence environment where we have really the 321 00:22:29,280 --> 00:22:32,479 Speaker 1: FED being the only bank heading towards normalization. But now 322 00:22:32,480 --> 00:22:35,399 Speaker 1: we're in a situation where um, yes, there's a you know, 323 00:22:35,440 --> 00:22:38,280 Speaker 1: access risk premium embedded in a lot of these zero 324 00:22:38,280 --> 00:22:41,560 Speaker 1: assets because of the French election, other things kind of 325 00:22:41,600 --> 00:22:44,360 Speaker 1: on the horizon, the German election, the Dutch election, etcetera. 326 00:22:44,440 --> 00:22:46,359 Speaker 1: But you know, as we go to the end of 327 00:22:46,400 --> 00:22:48,320 Speaker 1: this year, we're going to see that the Bank of 328 00:22:48,400 --> 00:22:52,199 Speaker 1: Japan is uh, you know, potentially raising its tenure target, 329 00:22:52,440 --> 00:22:57,240 Speaker 1: the ECB is potentially tapering towards you know, kind of 330 00:22:57,359 --> 00:23:00,280 Speaker 1: picking up that conversation in September and December, and we're 331 00:23:00,280 --> 00:23:01,840 Speaker 1: in a we're in an environment where it's really a 332 00:23:01,880 --> 00:23:04,040 Speaker 1: two sided coin, what rather than a one sided coin 333 00:23:04,080 --> 00:23:06,720 Speaker 1: for the last few years. I mean, I mean within 334 00:23:06,880 --> 00:23:10,480 Speaker 1: this is the whole jumble of oil and the equities. 335 00:23:10,480 --> 00:23:14,840 Speaker 1: But the overwhelming observation is equities are a movie shot. 336 00:23:14,920 --> 00:23:18,280 Speaker 1: I mean, that's your specific focus. When we talk about 337 00:23:18,320 --> 00:23:24,240 Speaker 1: convexity or acceleration in a given curve. How accelerated is 338 00:23:24,280 --> 00:23:27,520 Speaker 1: equity the equity vector right now? Is it like you've 339 00:23:27,560 --> 00:23:31,040 Speaker 1: never seen or is it just another bowl market? So 340 00:23:31,400 --> 00:23:33,120 Speaker 1: I think one way that we gauge this is kind 341 00:23:33,119 --> 00:23:35,280 Speaker 1: of you know, when we get to these levels that 342 00:23:35,320 --> 00:23:37,040 Speaker 1: are so elevated, we go back all the way to 343 00:23:37,040 --> 00:23:39,520 Speaker 1: the basics and think, Okay, let's look at earnings expectations, 344 00:23:39,520 --> 00:23:42,000 Speaker 1: and let's look at multiples um and then compare that 345 00:23:42,040 --> 00:23:43,840 Speaker 1: to where where we are on a spot level right now. 346 00:23:43,880 --> 00:23:46,560 Speaker 1: And what surprises me is that the dividend futures, which 347 00:23:46,920 --> 00:23:49,320 Speaker 1: are a great way to kind of gauge the market's 348 00:23:49,400 --> 00:23:52,520 Speaker 1: risk adjested expectation of earnings over the next few years. Uh, 349 00:23:52,640 --> 00:23:55,719 Speaker 1: these have actually outple formed equity spot market. So if 350 00:23:55,760 --> 00:23:59,200 Speaker 1: you look at the dividend futures contract, it's pricing in 351 00:23:59,320 --> 00:24:02,359 Speaker 1: eight point three present a competent annual growth rate. So 352 00:24:02,480 --> 00:24:06,000 Speaker 1: if we apply that to earnings, we get to somewhere 353 00:24:06,000 --> 00:24:08,040 Speaker 1: around a hundred forty dollars a share. And if we 354 00:24:08,040 --> 00:24:11,359 Speaker 1: apply a seventeen a half multiple to the equity market, 355 00:24:11,760 --> 00:24:14,600 Speaker 1: we get to something like now that gives us about 356 00:24:14,600 --> 00:24:17,120 Speaker 1: three and a half percent outside. So I think we're 357 00:24:17,160 --> 00:24:20,160 Speaker 1: getting to fully priced. But if you kind of put 358 00:24:20,200 --> 00:24:22,119 Speaker 1: all these things together, if you have a constructive view 359 00:24:22,160 --> 00:24:25,160 Speaker 1: on tax reform, then the equity market still makes sense 360 00:24:25,160 --> 00:24:27,680 Speaker 1: at this point, right your how do you model the 361 00:24:27,720 --> 00:24:29,600 Speaker 1: trade war? Right? And what I kind of understand is 362 00:24:29,640 --> 00:24:31,920 Speaker 1: the market doesn't seem correlated anymore. You have a two 363 00:24:32,000 --> 00:24:37,439 Speaker 1: year yield in Germany at a record level in negative territory, 364 00:24:37,560 --> 00:24:40,359 Speaker 1: and then on the flip side you have these record 365 00:24:40,440 --> 00:24:43,399 Speaker 1: highs for U S equities. It makes little sense if 366 00:24:43,440 --> 00:24:47,320 Speaker 1: you look at risk capitite. Yeah, no, I understand that, 367 00:24:47,320 --> 00:24:48,760 Speaker 1: And I think part of this has to do with 368 00:24:48,760 --> 00:24:52,159 Speaker 1: the fact that UM, head of Brexit, for instance, all 369 00:24:52,240 --> 00:24:55,639 Speaker 1: risk assets around the world, UM, We're sorry, access risk 370 00:24:55,640 --> 00:24:57,680 Speaker 1: premium was kind of price into all assets around the world, 371 00:24:57,760 --> 00:24:59,639 Speaker 1: and that's what's happening right now. So that's what's happening. 372 00:24:59,680 --> 00:25:01,960 Speaker 1: You see in the V two x curve in eurostocks, 373 00:25:01,960 --> 00:25:04,880 Speaker 1: which is essentially eurostox equivalent of the Vick's futures curve. 374 00:25:05,119 --> 00:25:06,960 Speaker 1: You also see it in German to your yields, but 375 00:25:07,040 --> 00:25:09,680 Speaker 1: you don't see it in US equities because potentially the 376 00:25:10,040 --> 00:25:13,359 Speaker 1: spillover from a French election fallout or something like that 377 00:25:13,640 --> 00:25:16,359 Speaker 1: is not necessarily apparent on how that would happen in 378 00:25:16,359 --> 00:25:18,159 Speaker 1: the U S at least, So I think this is 379 00:25:18,200 --> 00:25:19,640 Speaker 1: a really good way to think about it, at least 380 00:25:19,680 --> 00:25:22,280 Speaker 1: as far as kind of pricing this excess premium V 381 00:25:22,359 --> 00:25:25,760 Speaker 1: two x March April May calendar spread. So if you 382 00:25:25,800 --> 00:25:28,080 Speaker 1: look at the two times the April contract, one times 383 00:25:28,080 --> 00:25:30,280 Speaker 1: the March contract, and one times the May contract is 384 00:25:30,280 --> 00:25:32,920 Speaker 1: pricing at thirteen points. Ahead of Brexit, that was only 385 00:25:32,960 --> 00:25:35,640 Speaker 1: pricing at eight points. So what is that signal? So 386 00:25:35,680 --> 00:25:38,960 Speaker 1: the market is extremely concerned about a fallout from a 387 00:25:39,000 --> 00:25:41,280 Speaker 1: French election, but only in European assets. That's not being 388 00:25:41,280 --> 00:25:43,520 Speaker 1: priced into the U S curve. That's not being priced 389 00:25:43,520 --> 00:25:45,919 Speaker 1: into really anything else outside of Europe. All right, but 390 00:25:45,960 --> 00:25:47,840 Speaker 1: how do you measure if you look at earnings and 391 00:25:48,080 --> 00:25:50,959 Speaker 1: let's not talk about tariffs, but let's just talk about 392 00:25:51,000 --> 00:25:54,679 Speaker 1: a dollar strength. Let's talk about people being a nervy 393 00:25:54,720 --> 00:25:58,000 Speaker 1: in America first, actually meaning France first and UK first. 394 00:25:58,400 --> 00:26:02,920 Speaker 1: That should automatically impact your models when looking at earnings. No, exactly, 395 00:26:02,960 --> 00:26:05,399 Speaker 1: So you know, I think the rule of thumb that 396 00:26:05,400 --> 00:26:07,440 Speaker 1: we operate with is an increase in the trade weighted 397 00:26:07,480 --> 00:26:10,760 Speaker 1: dollar of one percent yields roughly in earnings response in 398 00:26:10,800 --> 00:26:15,280 Speaker 1: the negative side of just under fifty basis points. So um, 399 00:26:15,480 --> 00:26:17,600 Speaker 1: that was a key concern. However, what I think is 400 00:26:17,640 --> 00:26:20,440 Speaker 1: different now than versus maybe a few months ago when 401 00:26:20,440 --> 00:26:23,040 Speaker 1: the Trump shade really started to gain steam, is that 402 00:26:23,160 --> 00:26:26,000 Speaker 1: real rates have actually gone down from their peak they're 403 00:26:26,000 --> 00:26:28,439 Speaker 1: down about months from their peak, and that's keeping the 404 00:26:28,440 --> 00:26:31,359 Speaker 1: dollar sub dued. And this is this is brilliant And 405 00:26:31,440 --> 00:26:33,919 Speaker 1: the heart of the matter is is the rate of 406 00:26:34,040 --> 00:26:38,880 Speaker 1: change of the inflation dynamic versus the nominal dynamic? Are 407 00:26:38,920 --> 00:26:40,880 Speaker 1: we going to get a set of outcomes as you've 408 00:26:40,920 --> 00:26:45,800 Speaker 1: just described, of reduced real wages because wage growth doesn't 409 00:26:45,840 --> 00:26:48,479 Speaker 1: go up as fast as inflation goes up. I mean, 410 00:26:48,520 --> 00:26:52,520 Speaker 1: nobody can control or time inflation. Maybe maybe sure yelling can, 411 00:26:52,600 --> 00:26:55,399 Speaker 1: but nobody else. But as a joke, folks, but the 412 00:26:55,720 --> 00:26:59,120 Speaker 1: basic idea here, as you've just observed, is in the 413 00:26:59,200 --> 00:27:04,480 Speaker 1: inflation adjusted space, you get some really bad outcomes exactly. 414 00:27:04,480 --> 00:27:06,480 Speaker 1: And this is what actually is surprising me in the 415 00:27:06,520 --> 00:27:09,920 Speaker 1: fact that the energy sector is underperformed year today, discretionary 416 00:27:09,920 --> 00:27:13,160 Speaker 1: consumer stocks have actually outperformed. And if you look forward 417 00:27:13,400 --> 00:27:15,359 Speaker 1: a year from now, what really is kind of the 418 00:27:15,440 --> 00:27:19,480 Speaker 1: risk scenario is that headline inflation goes higher, core inflation 419 00:27:19,920 --> 00:27:22,360 Speaker 1: moves slightly higher, and then real wages are actually compressed. 420 00:27:22,680 --> 00:27:25,760 Speaker 1: Exactly what will it mean for oil BNP Perryabo has 421 00:27:25,800 --> 00:27:28,359 Speaker 1: done a lot of work on this. Yeah, so actually, 422 00:27:28,440 --> 00:27:30,399 Speaker 1: right now, what's interesting that the market is if you 423 00:27:30,400 --> 00:27:33,320 Speaker 1: look at kind of positioning in oil, it's extremely long, 424 00:27:33,800 --> 00:27:36,080 Speaker 1: so like net managed money is extremely long. And on 425 00:27:36,119 --> 00:27:37,760 Speaker 1: that basis, um, you know, I think there was an 426 00:27:37,760 --> 00:27:41,880 Speaker 1: interesting statement today as far as from Tall CEO regarding 427 00:27:42,080 --> 00:27:45,080 Speaker 1: the need for OPEC to continue their supply cuts, um 428 00:27:45,240 --> 00:27:47,960 Speaker 1: and so on that basis, it's it's a situation where 429 00:27:47,960 --> 00:27:50,560 Speaker 1: oil can trade sideways even slightly positive. But this could 430 00:27:50,600 --> 00:27:54,280 Speaker 1: be actually massively positive for oil producers, especially given that 431 00:27:54,320 --> 00:27:57,400 Speaker 1: there have this positive convexity when oil prices are above 432 00:27:57,440 --> 00:28:01,159 Speaker 1: their break evens. You got ready to phrenzy, this is critical, Stewart. 433 00:28:01,200 --> 00:28:04,199 Speaker 1: Further BMP Perry, you have to take the cool a 434 00:28:04,280 --> 00:28:07,640 Speaker 1: you're supposed to say in the Totel interview today led 435 00:28:07,680 --> 00:28:11,199 Speaker 1: by your John Michelis. Wait then that's how you do it, okay, Frenzy, 436 00:28:11,800 --> 00:28:14,120 Speaker 1: all right, thank you for the correction. There's a shameless 437 00:28:14,119 --> 00:28:16,760 Speaker 1: plug from our very own Tom Keene Stewart. When you 438 00:28:16,760 --> 00:28:18,840 Speaker 1: look at oil, how much does OPEC actually have to 439 00:28:18,880 --> 00:28:21,080 Speaker 1: cut for it to make a difference given what we've 440 00:28:21,080 --> 00:28:23,400 Speaker 1: seen with shale oil. Well, you know, I think that's 441 00:28:23,440 --> 00:28:25,640 Speaker 1: the key question. So far, it's been a net positive, 442 00:28:25,680 --> 00:28:27,560 Speaker 1: but you know, part of the issue is, especially when 443 00:28:27,560 --> 00:28:30,359 Speaker 1: you're looking at uh, you know, non OPEC cuts like Russia, 444 00:28:30,400 --> 00:28:33,320 Speaker 1: for instance, there is a massive seasonal decline that generally 445 00:28:33,359 --> 00:28:35,879 Speaker 1: happens in January, and I think that partially helped in 446 00:28:35,960 --> 00:28:38,640 Speaker 1: the overall compliance UM as far as cuts so far. 447 00:28:39,040 --> 00:28:41,320 Speaker 1: But on a going forward basis, we have seen a 448 00:28:41,360 --> 00:28:44,120 Speaker 1: massive response to supply response which is likely to continue 449 00:28:44,160 --> 00:28:48,440 Speaker 1: both in the Permian basin and in golf oil production. So, 450 00:28:48,760 --> 00:28:50,000 Speaker 1: you know, I think if we look at like the 451 00:28:50,080 --> 00:28:52,760 Speaker 1: last i e A estimate, expectant production in the US 452 00:28:52,760 --> 00:28:54,560 Speaker 1: was supposed to be up about a hundred twenty thousand 453 00:28:54,560 --> 00:28:57,520 Speaker 1: barrels a day seventeen and roughly three hundred thousand barrels 454 00:28:57,560 --> 00:29:00,720 Speaker 1: a day UM. But I think the risk is to 455 00:29:00,720 --> 00:29:03,760 Speaker 1: the upside in this scenario, and in that scenario we 456 00:29:03,800 --> 00:29:07,000 Speaker 1: could have multiple years of range bound prices. This is brilliant. 457 00:29:07,000 --> 00:29:08,880 Speaker 1: We're gonna come back. Stewart were the folks. I really 458 00:29:08,880 --> 00:29:11,160 Speaker 1: hope you like this if it's a little bit technical 459 00:29:11,200 --> 00:29:13,239 Speaker 1: what he was talking about there, but sometimes I let 460 00:29:13,320 --> 00:29:16,200 Speaker 1: him go. He's so damn smart that Global Wall Street 461 00:29:16,240 --> 00:29:19,440 Speaker 1: loves it. And maybe it's the idea that we've failed 462 00:29:19,440 --> 00:29:22,400 Speaker 1: and it got a little bit too technical, But nevertheless 463 00:29:22,480 --> 00:29:28,480 Speaker 1: interesting on the equity markets, there doesn't seem to a belief. 464 00:29:28,760 --> 00:29:31,720 Speaker 1: Does sentiment matter to a guy like you? And what 465 00:29:31,880 --> 00:29:35,360 Speaker 1: is the sentiment right now? Um? You know, it really 466 00:29:35,360 --> 00:29:37,760 Speaker 1: does because in an environment like this, it seems like 467 00:29:37,800 --> 00:29:39,880 Speaker 1: the market. You know, when the market breaks out and 468 00:29:40,080 --> 00:29:43,360 Speaker 1: starts trending, there is a degree of serial correlation on 469 00:29:43,400 --> 00:29:46,480 Speaker 1: the market, and all of a sudden, UM, you know, 470 00:29:46,520 --> 00:29:52,240 Speaker 1: trend following becomes more important than potentially macro fundamentals. However, UM, 471 00:29:52,280 --> 00:29:54,880 Speaker 1: I do think that a number of things such as 472 00:29:54,960 --> 00:29:58,600 Speaker 1: sent positive sentiment about fundamental factors such as both you know, 473 00:29:59,360 --> 00:30:05,600 Speaker 1: UM upticks and p M I s better GDP that 474 00:30:06,280 --> 00:30:10,640 Speaker 1: folds into it when you dovetail equity research into this, 475 00:30:10,920 --> 00:30:16,280 Speaker 1: does that good feeling actually fall down to a better 476 00:30:16,320 --> 00:30:19,320 Speaker 1: free cash flow? Um? It does in the sense that 477 00:30:19,440 --> 00:30:22,800 Speaker 1: corporations do more capex right. UM. One of the things 478 00:30:22,840 --> 00:30:28,960 Speaker 1: that was suppressed during SEEN was equipment investment and structures investment, 479 00:30:28,960 --> 00:30:31,040 Speaker 1: and that was one of the reasons why UM, you know, 480 00:30:31,080 --> 00:30:34,120 Speaker 1: g d P UM was not stronger than it was 481 00:30:34,280 --> 00:30:37,600 Speaker 1: even though we had some very strong personal consumption measures, 482 00:30:38,040 --> 00:30:41,200 Speaker 1: and that very strong was that the Q three export sprint. 483 00:30:41,480 --> 00:30:43,960 Speaker 1: But aside from that we saw that, you know, investment 484 00:30:43,960 --> 00:30:46,280 Speaker 1: overall this very week. Now, if that picks up because 485 00:30:46,280 --> 00:30:49,800 Speaker 1: of better sentiment, because of better intentions to UM to 486 00:30:49,920 --> 00:30:52,960 Speaker 1: do CAPEX, then I think that has a positive implication 487 00:30:53,120 --> 00:30:56,600 Speaker 1: on the bottom line and a positive implication for SMP rings. 488 00:30:56,680 --> 00:31:00,000 Speaker 1: So on that basis, it is it is something that matters, 489 00:31:00,080 --> 00:31:02,120 Speaker 1: maybe not as much as hard data, but it is 490 00:31:02,160 --> 00:31:04,480 Speaker 1: a great forward looking indicator. But Stuart, what would be 491 00:31:04,480 --> 00:31:06,880 Speaker 1: the catalyst of this? We can go back to animal spirits. 492 00:31:06,920 --> 00:31:08,960 Speaker 1: You spend capics when you feel very comfortable about the 493 00:31:09,040 --> 00:31:13,160 Speaker 1: future exactly, and I think you know in the U 494 00:31:13,280 --> 00:31:17,440 Speaker 1: S at least that is somewhat being constrained by the 495 00:31:17,440 --> 00:31:20,120 Speaker 1: fact that we don't have a good outlook on what 496 00:31:20,200 --> 00:31:22,680 Speaker 1: infrastructure spending plans might be in place or what kind 497 00:31:22,680 --> 00:31:25,800 Speaker 1: of tax environment will be in But you know, the 498 00:31:25,840 --> 00:31:28,120 Speaker 1: expectation is that both of those environments will be better 499 00:31:28,120 --> 00:31:30,520 Speaker 1: than they were right And if that's the case, then 500 00:31:30,560 --> 00:31:35,200 Speaker 1: there still is potentially some positive ramifications UM before we 501 00:31:35,280 --> 00:31:38,000 Speaker 1: get a final view on what these items might look like, 502 00:31:38,800 --> 00:31:40,719 Speaker 1: and when do you expect these animal spirits and so 503 00:31:40,800 --> 00:31:42,920 Speaker 1: that this capics to actually start when we can see 504 00:31:42,920 --> 00:31:44,960 Speaker 1: it in the numbers, does it take six months from 505 00:31:44,960 --> 00:31:47,640 Speaker 1: now or a year? So, you know, as far as 506 00:31:47,680 --> 00:31:49,880 Speaker 1: corporate taxile form, that's something that I think the market 507 00:31:49,960 --> 00:31:52,440 Speaker 1: is beginning to price in. As far as happening in 508 00:31:52,840 --> 00:31:56,520 Speaker 1: seen but effective in and as far as infrastructure spending, 509 00:31:56,560 --> 00:31:58,080 Speaker 1: I think this is actually one of the key areas 510 00:31:58,120 --> 00:32:01,560 Speaker 1: that potentially could have a disappointing effect on markets as 511 00:32:01,600 --> 00:32:03,880 Speaker 1: it may not be larger or have as much take 512 00:32:03,920 --> 00:32:07,040 Speaker 1: up as expected. But our economists are actually really pricing 513 00:32:07,080 --> 00:32:11,680 Speaker 1: that in twenty rather than seventeen, so it's still kind 514 00:32:11,680 --> 00:32:13,680 Speaker 1: of a year ahead. And that's what I think we 515 00:32:13,720 --> 00:32:16,080 Speaker 1: see as well. You know, as mentioned before in dividend futures, 516 00:32:16,080 --> 00:32:19,000 Speaker 1: where the pickup in growth, the compundent annual growth rate 517 00:32:19,000 --> 00:32:21,360 Speaker 1: for eighteen is higher than it is in seventeen, which 518 00:32:21,400 --> 00:32:24,880 Speaker 1: is higher than it was in twenty sixteen. So is 519 00:32:24,880 --> 00:32:27,840 Speaker 1: going to be the climactic year. As far as um 520 00:32:27,880 --> 00:32:32,200 Speaker 1: both corporate tax reform and infrastructure spending potentially meeting together 521 00:32:32,520 --> 00:32:37,000 Speaker 1: within your mathewness, can you pick a correction? Can you 522 00:32:37,200 --> 00:32:41,760 Speaker 1: pick a bearer market? That is the million dollar question, 523 00:32:41,840 --> 00:32:45,040 Speaker 1: and I think, um, you know, the corrections that we've 524 00:32:45,080 --> 00:32:48,360 Speaker 1: had over the past few a few years have been 525 00:32:48,440 --> 00:32:51,360 Speaker 1: very event driven and related to a single asset class 526 00:32:51,400 --> 00:32:53,880 Speaker 1: or a single driver. For instance, you know, in two 527 00:32:53,880 --> 00:32:57,360 Speaker 1: thousand fourteen it was the high yield market um crashing um. 528 00:32:57,440 --> 00:33:01,320 Speaker 1: In two thousand uh sixteen, it is the fact that 529 00:33:01,400 --> 00:33:04,560 Speaker 1: we had a dollar strength weakness, the same thing in 530 00:33:04,600 --> 00:33:06,520 Speaker 1: two thousand fifteen as well for that matter, And then 531 00:33:06,560 --> 00:33:08,880 Speaker 1: we had a couple of events like Brexit. But as 532 00:33:08,920 --> 00:33:10,960 Speaker 1: you see, the kind of the half life of the 533 00:33:11,040 --> 00:33:13,959 Speaker 1: events continues to shrink and shrink and shrink until all 534 00:33:13,960 --> 00:33:15,680 Speaker 1: of a sudden we got to the election and it's 535 00:33:15,720 --> 00:33:18,400 Speaker 1: just an overnight move to John Michael twit's interview whether 536 00:33:18,480 --> 00:33:21,920 Speaker 1: to tell ceo or for you know, our Buyer interview today. 537 00:33:22,240 --> 00:33:25,680 Speaker 1: That was hilarious folks that the new CEO from Buyer 538 00:33:25,800 --> 00:33:28,400 Speaker 1: suggested he hadn't taken a phone call from Mr Buffett, 539 00:33:28,960 --> 00:33:32,840 Speaker 1: which I thought was was was really was outrageous that 540 00:33:32,880 --> 00:33:35,920 Speaker 1: I brought that up. I was so rude. But Stewart, 541 00:33:35,920 --> 00:33:40,440 Speaker 1: what a shock Stewart uh to me? The corporate guys 542 00:33:40,440 --> 00:33:46,240 Speaker 1: are almost reviewed removed from the politics news flow. Do 543 00:33:46,280 --> 00:33:49,160 Speaker 1: you buy that idea or will it finally come back 544 00:33:49,160 --> 00:33:52,760 Speaker 1: to haunt him? You know? Um, I think here's here's 545 00:33:52,760 --> 00:33:55,200 Speaker 1: a little anecdote. I was actually listening to an advertisement 546 00:33:55,360 --> 00:33:57,440 Speaker 1: will listening to surveillance the other morning. I was listening 547 00:33:57,480 --> 00:34:01,760 Speaker 1: to an advertisemental life. I hope Cone Resnick it was, 548 00:34:02,040 --> 00:34:04,600 Speaker 1: I think actually, and there was an advertisement about you know, 549 00:34:04,880 --> 00:34:06,720 Speaker 1: talk to us and will help you guide you through 550 00:34:06,760 --> 00:34:09,640 Speaker 1: the tax reform. And I think, for I love it 551 00:34:09,680 --> 00:34:11,839 Speaker 1: an impact on the real world outside of a Wall 552 00:34:11,840 --> 00:34:14,719 Speaker 1: Street analyst research report, and I thought from that perspective, 553 00:34:14,760 --> 00:34:16,480 Speaker 1: it is something that you know, if we're spending I'm 554 00:34:16,520 --> 00:34:18,600 Speaker 1: spending this much time talk thinking about it and putting 555 00:34:18,640 --> 00:34:22,000 Speaker 1: together custom baskets and trade ideas around tax reform, then 556 00:34:22,040 --> 00:34:24,520 Speaker 1: I'm sure CEOs are thinking about it as well. And 557 00:34:24,560 --> 00:34:26,840 Speaker 1: so you would suggest that people go to Cone Resneck 558 00:34:26,880 --> 00:34:30,680 Speaker 1: Accounting Tax Advisory, uh so their business can break through. 559 00:34:30,800 --> 00:34:33,799 Speaker 1: Cone Resneck can help guide Stewart Worther and b MP 560 00:34:33,920 --> 00:34:38,880 Speaker 1: Perry forward find right by doing Okay, I think that 561 00:34:38,960 --> 00:34:41,160 Speaker 1: was the gist of the that was called the shameless 562 00:34:41,160 --> 00:34:43,359 Speaker 1: plug in this world. Stewart Worther, thank you so much 563 00:34:43,600 --> 00:34:45,879 Speaker 1: with BEMP Perry. And of course I might point out 564 00:34:46,040 --> 00:34:50,760 Speaker 1: Mr Whether is not advocating that BMP Perry or others 565 00:34:51,200 --> 00:34:53,319 Speaker 1: a tend Cone residec we'll do that for you. We 566 00:34:53,360 --> 00:34:56,520 Speaker 1: think Reisdick for their support, and we think Stewart Worther 567 00:34:56,920 --> 00:35:01,040 Speaker 1: for smart, smart conversation on oil and on the equity markets. 568 00:35:13,760 --> 00:35:17,640 Speaker 1: Vincent Reinhart joining us right now is standish as we 569 00:35:17,680 --> 00:35:19,640 Speaker 1: dive into the economics and we've not done enough in 570 00:35:19,719 --> 00:35:22,959 Speaker 1: the FED. We need to circle back to that. Vince 571 00:35:23,000 --> 00:35:27,080 Speaker 1: wonderful to speak to you. The the immediate surveillance debate 572 00:35:27,880 --> 00:35:32,439 Speaker 1: is a well known vice chairman telling me that we're 573 00:35:32,440 --> 00:35:36,200 Speaker 1: fully employed in a large number of economists pushing back 574 00:35:36,880 --> 00:35:41,000 Speaker 1: and saying, no, we're not. Why does the FED look 575 00:35:41,120 --> 00:35:46,120 Speaker 1: at conventional statistics that discuss and observed fully employed America 576 00:35:46,600 --> 00:35:51,239 Speaker 1: versus the reality that so many Americans see. They're conventional 577 00:35:51,239 --> 00:35:54,880 Speaker 1: statistics for a reason. They helped explain the Kime series 578 00:35:55,000 --> 00:36:00,640 Speaker 1: relationship between resource flack and inflation. And in some of 579 00:36:00,640 --> 00:36:03,240 Speaker 1: the sense, the FED is looking under the lamp post 580 00:36:04,000 --> 00:36:08,200 Speaker 1: to find its keys. Uh, it works. It is true 581 00:36:08,320 --> 00:36:11,879 Speaker 1: that you know, Cherry Yellen has said on many occasions 582 00:36:11,960 --> 00:36:17,160 Speaker 1: there's no single measure to summarize labor labor markets. But 583 00:36:17,280 --> 00:36:20,000 Speaker 1: at the end of the day, UH, something beats nothing, 584 00:36:20,280 --> 00:36:24,520 Speaker 1: and the conventional measure of unemployment helps explain inflation in 585 00:36:24,560 --> 00:36:29,399 Speaker 1: the US. But the idea of two America's, I mean, 586 00:36:29,520 --> 00:36:33,840 Speaker 1: it's not the unimodal single mode state that you worked 587 00:36:33,840 --> 00:36:39,280 Speaker 1: in school. There's two stark Americas out there, isn't there uh, 588 00:36:39,400 --> 00:36:43,640 Speaker 1: no question about it. We've had, you know, increased inequality, 589 00:36:43,760 --> 00:36:48,440 Speaker 1: we have a marked decline in labor share of income, uh, 590 00:36:48,480 --> 00:36:54,040 Speaker 1: And that there are dislocations associated particular with the form 591 00:36:54,120 --> 00:36:57,479 Speaker 1: of our technological progress. And in some sense, I think 592 00:36:57,520 --> 00:37:00,760 Speaker 1: the big story is when the pie is not growing 593 00:37:00,880 --> 00:37:04,400 Speaker 1: very quickly, people arguing more about how it's sliced up 594 00:37:04,960 --> 00:37:08,080 Speaker 1: and potential output is growing slowly on the order of 595 00:37:08,120 --> 00:37:11,520 Speaker 1: one and a half percent. Both Terry Allen and Vice 596 00:37:11,640 --> 00:37:15,640 Speaker 1: Terry Fishers, you know, uh, you know noted that it's 597 00:37:15,800 --> 00:37:21,040 Speaker 1: it's fundamental to the political discourse. Vincent, talk to me 598 00:37:21,080 --> 00:37:23,640 Speaker 1: about how the FED would look at these Donald Trump 599 00:37:23,719 --> 00:37:26,880 Speaker 1: deportation threats. After all, I don't know whether they would, 600 00:37:27,160 --> 00:37:30,400 Speaker 1: whether the crackdown would put a strain one and already 601 00:37:30,400 --> 00:37:34,320 Speaker 1: taught US job market. So I think there's a couple 602 00:37:34,400 --> 00:37:36,600 Speaker 1: issues there. The one is what does it mean for 603 00:37:36,640 --> 00:37:40,000 Speaker 1: the macro economy? And the second is what does it 604 00:37:40,040 --> 00:37:43,760 Speaker 1: mean for your assessment of risks for the maclar economy, 605 00:37:43,760 --> 00:37:47,760 Speaker 1: Why is potential output growing slowly? We have an aging 606 00:37:47,840 --> 00:37:51,680 Speaker 1: population that isn't increasing that much, and we're not adding 607 00:37:51,760 --> 00:37:55,560 Speaker 1: much to output per hour. If you are deporting people, 608 00:37:55,719 --> 00:38:00,440 Speaker 1: you're actually making the labor force grow even more slowly. 609 00:38:00,560 --> 00:38:05,360 Speaker 1: And so that's not a recipe for growing the economy faster. 610 00:38:05,840 --> 00:38:08,920 Speaker 1: So that's the macro part of the story that, however, 611 00:38:08,960 --> 00:38:13,400 Speaker 1: in the scheme of things, is small because we're a 612 00:38:13,440 --> 00:38:18,359 Speaker 1: big place. And uh, even if we deport people at 613 00:38:18,400 --> 00:38:21,520 Speaker 1: the rate of the Obama administration, it's going to only 614 00:38:21,640 --> 00:38:27,359 Speaker 1: change the needle pretty slowly. From the cold blooded macro calculation. Uh, 615 00:38:27,560 --> 00:38:33,000 Speaker 1: the more uh, immediate concern is about risks. What does 616 00:38:33,000 --> 00:38:38,400 Speaker 1: it due to um investor's attitude toward risk taking? What 617 00:38:38,520 --> 00:38:41,600 Speaker 1: does it do to foreign investor's attitude towards the for 618 00:38:41,800 --> 00:38:44,680 Speaker 1: the US? And remember, you know, over the last couple 619 00:38:44,719 --> 00:38:51,360 Speaker 1: of years, the FLMC on several occasions heighted highlighted heightened 620 00:38:51,400 --> 00:38:56,040 Speaker 1: geo political risk or heightened of financial strains as a 621 00:38:56,120 --> 00:39:00,680 Speaker 1: reason not to deliver policy renormalization. So I think it's 622 00:39:00,680 --> 00:39:05,000 Speaker 1: at the risk part that is more considerable, Right, And Vincent, 623 00:39:05,040 --> 00:39:08,520 Speaker 1: what does dollar strength, or does the dollar strengthen from here? 624 00:39:08,520 --> 00:39:11,840 Speaker 1: And what does that mean for FED policy? So dollar 625 00:39:12,000 --> 00:39:15,320 Speaker 1: strength is the good news. It's a mechanism and a 626 00:39:15,400 --> 00:39:18,920 Speaker 1: market economy in which you get to share some of 627 00:39:18,960 --> 00:39:23,400 Speaker 1: your strength or your trading partners. The reality is data 628 00:39:23,480 --> 00:39:26,680 Speaker 1: have been running on the strong side. Uh, look at 629 00:39:26,800 --> 00:39:31,640 Speaker 1: the Bloomberg Surprise Index. Economic data have been running stronger 630 00:39:31,640 --> 00:39:37,040 Speaker 1: than economist expectations. We're growing stronger, we're sharing some of 631 00:39:37,360 --> 00:39:40,640 Speaker 1: trading partners because stronger growth is kind of associated with 632 00:39:40,680 --> 00:39:43,840 Speaker 1: a tighter fit policy than you might have thought a 633 00:39:43,840 --> 00:39:46,879 Speaker 1: couple of months ago. Why should you listen to Vincent Reinhardt. 634 00:39:47,120 --> 00:39:51,919 Speaker 1: He drove research for Chairman Greenspan and did it grinding 635 00:39:52,200 --> 00:39:57,040 Speaker 1: out research item after research item at the FED. Tell 636 00:39:57,080 --> 00:40:01,480 Speaker 1: me about just Vince just quickly here, Mr Orphan did 637 00:40:01,480 --> 00:40:03,799 Speaker 1: a series of papers. I believe it was under your 638 00:40:03,840 --> 00:40:08,200 Speaker 1: watch about the toolbox and the tool kit that any 639 00:40:08,239 --> 00:40:12,040 Speaker 1: given central bank has. How how did those papers come about? 640 00:40:12,440 --> 00:40:17,480 Speaker 1: It is a toolbox still extent. Well, luckily Athanacio has 641 00:40:17,480 --> 00:40:19,800 Speaker 1: got to use him because he was voting on ECB 642 00:40:20,000 --> 00:40:23,759 Speaker 1: monetary policy when the Governor of the Bank of Cyprus. Uh. 643 00:40:23,800 --> 00:40:26,000 Speaker 1: And it was a lot of staff working on it 644 00:40:26,800 --> 00:40:30,040 Speaker 1: for a couple of reasons. One is, we saw the 645 00:40:30,080 --> 00:40:33,040 Speaker 1: Bank of Japan's brushed with the zero lower bound in 646 00:40:33,160 --> 00:40:39,960 Speaker 1: the in the first party exactly the century after basically 647 00:40:40,040 --> 00:40:43,960 Speaker 1: a decade and a half of bad macro economic performance, 648 00:40:44,000 --> 00:40:48,480 Speaker 1: and that gave a spurt of research. Uh. Also, remember 649 00:40:48,640 --> 00:40:52,320 Speaker 1: that there was a new governor around that time, namely 650 00:40:52,360 --> 00:40:57,640 Speaker 1: Ben Bernanke, who had a abiding interest in the topic 651 00:40:58,560 --> 00:41:01,800 Speaker 1: because of his experience economic history, which turned out to 652 00:41:01,840 --> 00:41:04,160 Speaker 1: be a good training. I'm gonna put this chart out 653 00:41:04,200 --> 00:41:07,080 Speaker 1: folks on Twitter. I'll use it on TV tomorrow and 654 00:41:07,120 --> 00:41:09,560 Speaker 1: in Facebook Live if we do it today. On remorse, 655 00:41:09,640 --> 00:41:12,560 Speaker 1: and that is that Bank of Japan got the call 656 00:41:12,640 --> 00:41:15,120 Speaker 1: wrong on inflation. Okay, Vince, I knew you were going 657 00:41:15,200 --> 00:41:17,800 Speaker 1: to go there. And it sets up beautifully the debate 658 00:41:17,880 --> 00:41:22,520 Speaker 1: right now of March versus September. Goldman, Sachs and Janahatzis 659 00:41:22,560 --> 00:41:27,360 Speaker 1: are talking about shifting the probability over to March. Morgan, 660 00:41:27,480 --> 00:41:30,919 Speaker 1: Stanley and Ellen Zetner flat out don't agree, and they're 661 00:41:30,960 --> 00:41:34,319 Speaker 1: looking for a delay, don't. I don't care about the 662 00:41:34,360 --> 00:41:37,560 Speaker 1: guestimate of you on the parlor game. But set up 663 00:41:37,640 --> 00:41:43,000 Speaker 1: the distinction between a March action in waiting, waiting, waiting 664 00:41:43,239 --> 00:41:47,280 Speaker 1: until September or even later. Okay, if you tighten in March, 665 00:41:47,480 --> 00:41:50,080 Speaker 1: then you've got three more press conferences in which you 666 00:41:50,160 --> 00:41:55,240 Speaker 1: can tighten some more. If your ambition is to close 667 00:41:55,360 --> 00:41:59,600 Speaker 1: the committee up, then you probably want to delay the 668 00:41:59,640 --> 00:42:02,800 Speaker 1: first action. It's as simple as that. If the passage 669 00:42:02,800 --> 00:42:06,960 Speaker 1: of time, UH, the FLMC is indicated they'd like to 670 00:42:07,000 --> 00:42:11,200 Speaker 1: tighten about three times in two thousand and seventeen. I 671 00:42:11,239 --> 00:42:13,120 Speaker 1: don't put a lot of weight in that, because they 672 00:42:13,160 --> 00:42:15,680 Speaker 1: also told us they had wanted to tighten four times 673 00:42:15,680 --> 00:42:19,720 Speaker 1: in two thousand sixteen UH and intact in the event 674 00:42:20,120 --> 00:42:24,279 Speaker 1: they tightened only once. So the key issue is if 675 00:42:24,320 --> 00:42:27,479 Speaker 1: you were a chair Yawn, if you were FMC Vice 676 00:42:27,600 --> 00:42:34,000 Speaker 1: chair Dudley and probably would prefer a more gradual pace 677 00:42:34,120 --> 00:42:38,080 Speaker 1: of renormalization. Can you slow up the committee when you can? 678 00:42:38,360 --> 00:42:41,000 Speaker 1: And March might be an opportunity to slow them up, 679 00:42:41,600 --> 00:42:44,759 Speaker 1: because the more you backload the tighten names, the more 680 00:42:44,800 --> 00:42:47,719 Speaker 1: they may never come events. Do you worry about inflation 681 00:42:47,800 --> 00:42:49,680 Speaker 1: in the US, And if you do worry about inflation, 682 00:42:49,800 --> 00:42:53,280 Speaker 1: would it not make more sense to start tightening earlier 683 00:42:53,400 --> 00:42:56,440 Speaker 1: rather than later. Well, if you were worried about inflation. 684 00:42:56,440 --> 00:42:58,480 Speaker 1: It might have made sense to tighten in two thousands, 685 00:42:58,480 --> 00:43:02,440 Speaker 1: fifteen or sixteen. The fact is you can't look at 686 00:43:02,480 --> 00:43:06,000 Speaker 1: the January print on the consumer price Index and not 687 00:43:06,080 --> 00:43:11,800 Speaker 1: be concerned. We've got core CPI and headline CPI above 688 00:43:11,880 --> 00:43:16,640 Speaker 1: the f mcs UH prefer goal of two percent. Yes, 689 00:43:16,719 --> 00:43:20,440 Speaker 1: I know it's not their preferred measure, but it predicts 690 00:43:20,480 --> 00:43:23,680 Speaker 1: what they're where their preferred measure will be headed And 691 00:43:23,760 --> 00:43:29,360 Speaker 1: so there is an issue how uh and by most 692 00:43:29,480 --> 00:43:34,160 Speaker 1: estimates were we've exhausted all resource slack. But the bottom 693 00:43:34,200 --> 00:43:38,640 Speaker 1: line is at the dollars appreciating some uh, the effects 694 00:43:38,640 --> 00:43:43,040 Speaker 1: on resource slack on inflation is are pretty gradual and 695 00:43:43,160 --> 00:43:46,400 Speaker 1: seem to be attenuated over the last decade or so, 696 00:43:46,400 --> 00:43:48,719 Speaker 1: so they probably think they have some time. I do 697 00:43:48,840 --> 00:43:52,080 Speaker 1: think inflation is gonna overshoot. That's why we're telling our 698 00:43:52,160 --> 00:43:56,560 Speaker 1: investors that break evens are are are are still an 699 00:43:56,600 --> 00:44:01,359 Speaker 1: attractive investment. Uh And but it's a risk, and it's 700 00:44:01,440 --> 00:44:03,680 Speaker 1: part of the reason why you have a lot of 701 00:44:03,719 --> 00:44:07,680 Speaker 1: effluency participants trying to tug their chairman along to the 702 00:44:07,800 --> 00:44:10,360 Speaker 1: tighten more right, what is the one what's priced in 703 00:44:10,400 --> 00:44:13,120 Speaker 1: the dollar right now? Are any trade wars priced in 704 00:44:14,760 --> 00:44:17,879 Speaker 1: a tough question because you have you know how much 705 00:44:17,880 --> 00:44:19,520 Speaker 1: of it is already there and how much of it 706 00:44:19,600 --> 00:44:22,280 Speaker 1: is more to come. You can't look at the Mexican 707 00:44:22,320 --> 00:44:25,560 Speaker 1: past so and not think that that there is UH, 708 00:44:25,680 --> 00:44:30,000 Speaker 1: you know, concerns about trade UH embedded in that price 709 00:44:30,440 --> 00:44:34,439 Speaker 1: more generally, don't think so UM. I think the key 710 00:44:34,480 --> 00:44:39,840 Speaker 1: issue here is how much of President Trump's interventions in 711 00:44:40,080 --> 00:44:43,040 Speaker 1: trade are going to be on a case by case, 712 00:44:43,320 --> 00:44:48,879 Speaker 1: week by week UH dealings with individual firms, and how 713 00:44:48,960 --> 00:44:50,560 Speaker 1: much of it is going to be in across the 714 00:44:50,600 --> 00:44:54,239 Speaker 1: board taraful border adjustment tax. If it's the former. If 715 00:44:54,280 --> 00:44:57,520 Speaker 1: it's case by case, then the equity markets mediate that 716 00:44:57,800 --> 00:45:01,800 Speaker 1: the price of the target very If however, it's tariffed in, 717 00:45:01,880 --> 00:45:04,360 Speaker 1: the exchange rate's got to change. Won't you start changing 718 00:45:04,400 --> 00:45:06,840 Speaker 1: the exchange rate your effective balance sheets as well as 719 00:45:06,880 --> 00:45:09,640 Speaker 1: tradefo was Vince? Let me ask one final question for 720 00:45:09,800 --> 00:45:14,920 Speaker 1: my good colleague Michael McKee, the idea of how politics 721 00:45:14,920 --> 00:45:19,000 Speaker 1: in the regime change of Cherry yelling out vice Chairman 722 00:45:19,000 --> 00:45:22,040 Speaker 1: Fisher out whatever. Later in the year and in the 723 00:45:22,200 --> 00:45:27,560 Speaker 1: early two thousand eighteen, does that fold into rate timing 724 00:45:28,200 --> 00:45:32,040 Speaker 1: and just the daily posturing of good people at Defense. 725 00:45:33,160 --> 00:45:36,799 Speaker 1: I don't think it influences Cherry Yellen or Vice Chair 726 00:45:37,000 --> 00:45:42,720 Speaker 1: Fisher's decisions in the least. I think that it. Uh 727 00:45:42,760 --> 00:45:47,480 Speaker 1: it will matter when people actually show up at in 728 00:45:47,880 --> 00:45:52,000 Speaker 1: board seats because they'll be voting and they'll be influencing, uh, 729 00:45:52,040 --> 00:45:55,880 Speaker 1: the FMC president. So it's gonna matter over time. But 730 00:45:56,360 --> 00:46:00,759 Speaker 1: they're not doing any strategic rate setting based on their 731 00:46:00,840 --> 00:46:03,240 Speaker 1: knowledge that they won't be there in a year. Vincent, 732 00:46:03,239 --> 00:46:05,640 Speaker 1: Thank you so much. Vince Reyner with Stanish mellon this 733 00:46:05,719 --> 00:46:16,600 Speaker 1: morning out of Boston as well. Thanks for listening to 734 00:46:16,640 --> 00:46:22,719 Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on iTunes, SoundCloud, 735 00:46:23,120 --> 00:46:27,400 Speaker 1: or whichever podcast platform you prefer. I'm out on Twitter 736 00:46:27,480 --> 00:46:31,280 Speaker 1: at Tom Keene. David Gura is at David Gura. Before 737 00:46:31,280 --> 00:46:35,640 Speaker 1: the podcast, you can always catch us worldwide. I'm Bloomberg Radio, 738 00:46:48,120 --> 00:46:51,640 Speaker 1: brought you by Bank of America Mary Lynch, dedicated to 739 00:46:51,760 --> 00:46:55,600 Speaker 1: bringing our clients insights and solutions to meet the challenges 740 00:46:55,760 --> 00:47:00,840 Speaker 1: of a transforming world. That's the power of global connections. Arlynch, Pierce, 741 00:47:00,960 --> 00:47:04,800 Speaker 1: Fenner and Smith Incorporated Member s I p C