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Speaker 2: Jason Furman has committed himself to policy. There are a
Speaker 2: few others equivalent to him, both Republican and Democrat. He's
Speaker 2: associated with democratic politics, but he's I think been ecumenical
Speaker 2: to use the word that Professor Furman uses a lot, Paul.
Speaker 2: One of the key things with Jason Furman is he
Speaker 2: was voted most handsome freshman on his dorm at Harvard.
Speaker 2: He made out his roommate just by a little bit.
Speaker 2: That would have been Matt Damon from a few years ago. Jason,
Speaker 2: thank you so much for joining us this morning. You're
Speaker 2: an ten and you have to teach ambiguity, microeconomic ambiguity,
Speaker 2: and it can go this way and that. What I
Speaker 2: didn't hear from the Secretary of Treasury is a risk
Speaker 2: of a real or nominal GDP slowdown. With all the
Speaker 2: policy upset the nation faces right now, do you see
Speaker 2: that we could have a lessening of real GDP or
Speaker 2: the animal spirit of nominal GDP.
Speaker 3: Yeah, well, right now, the level of uncertainty is just
Speaker 3: incredibly high. That is definitely a minus for the economy.
Speaker 3: I don't know how big a minus it is, and
Speaker 3: a lot of it depends on how the uncertainty ends
Speaker 3: up getting resolved around things like tariffs, or whether it
Speaker 3: gets resolved. It may be that every month there's a
Speaker 3: new threat, it gets withdrawn, a new threat that gets made.
Speaker 3: That makes it hard to do planning on a global basis.
Speaker 3: And that's the success of American corporations is their global reach.
Speaker 2: Well, help us with the equation then, because everybody focuses
Speaker 2: on consumption, we do the FED parlor game. I was
Speaker 2: amazed we did you know the independence of the fedure.
Speaker 2: We'll talk about that in a moment with Professor Firman,
Speaker 2: but ignore Jason. As you know, is the I and
Speaker 2: the equation business investment as you look at CPI and
Speaker 2: analyze it. How do you analyze business investment right now
Speaker 2: in America?
Speaker 3: Yeah, so consumer spending is the majority of GDP, but
Speaker 3: investment is the majority of fluctuations in GDP because it's
Speaker 3: much more volatile and right now investors. Business investment is
Speaker 3: grappling with continued high interest rates, which are likely to
Speaker 3: stay that way, with an appreciated dollar which is likely
Speaker 3: to stay that way, with uncertainty about global trade, which
Speaker 3: is likely to stay that way. On the other side
Speaker 3: of the ledger, there may be some reductions and investment
Speaker 3: in regulations that will matter more in targeted sectors like
Speaker 3: energy than it does generically across the board. So a
Speaker 3: lot of cross currents right now, but from policy they're
Speaker 3: a little bit more minus than plus on that part
Speaker 3: of GDP that is most critical to business cycle fluctuations.
Speaker 4: Professor of the Federal Reserve is obviously focusing on inflation,
Speaker 4: and inflation was a big, big issue in the recent
Speaker 4: presidential elections. Certainly, are you concerned that inflation in some
Speaker 4: of the policies that Trump administration is talking about, whether
Speaker 4: it's tariffs or changes in immigration policy, could fuel another
Speaker 4: round of inflation.
Speaker 3: I think it's certainly possible, but let's define what we
Speaker 3: mean by another round of inflation. Right now, I believe
Speaker 3: underlying inflation is around two and a half percent, and
Speaker 3: the tariffs that have been done to date on China
Speaker 3: and steel will probably add about a tenth of a
Speaker 3: percentage point to that. If you do another big set
Speaker 3: of tariffs, maybe it adds three four tenths of a
Speaker 3: percent to that. Now you might be at three percent inflation.
Speaker 3: That's a big deal for the FED. That means they're
Speaker 3: not cutting rates. It might mean, depending on their theory,
Speaker 3: but whether or not to look through the price level change,
Speaker 3: that rate increases are back on the table.
Speaker 5: But that isn't.
Speaker 3: Necessarily a huge thing that consumers take note of. I
Speaker 3: don't know how much humans notice the difference between two
Speaker 3: and a half and three percent inflation, but the FED
Speaker 3: certainly does.
Speaker 4: Professor you and I and I think much of our
Speaker 4: audience grew up with this whole concept of internationalism globalization.
Speaker 4: Is that still a thing these days or is kind
Speaker 4: of everybody just kind of trying to enshore friendshore everything
Speaker 4: these days.
Speaker 3: Look, I'm unapologetic in my enthusiasm for globalization. Enormous things
Speaker 3: for American consumers, American producers, the strength of the United States.
Speaker 3: There's no question that politically it's on its back heel
Speaker 3: right now. But it is such an incredibly powerful force
Speaker 3: that to me, it's much more like a dandelion that
Speaker 3: will grow no matter what the conditions are than it
Speaker 3: is like a fragile orchid that needs to be watered
Speaker 3: in just the right way. And look, there's been some
Speaker 3: feedback in the system. If we had tried to put
Speaker 3: twenty five percent tariffs on Canada and Mexico, it would
Speaker 3: have been horrible for the US auto industry. I think
Speaker 3: that might be part of why it didn't happen, and
Speaker 3: part of why I hope it doesn't happen.
Speaker 2: Jason Furman, with US folks on your community across the nation,
Speaker 2: good morning, I'm Bloomberg Surveillance and on YouTube. Thank you
Speaker 2: for letting us be in your living rooms, your offices
Speaker 2: as well, even some people in their cars watching. Sure,
Speaker 2: I don't know. I'm not sure about that, Jason. I
Speaker 2: got to go back to where we are. I want
Speaker 2: you to take a bigger picture here, like look at
Speaker 2: the Washington Post, look at the cacophony of Bloomberg Opinion, etc.
Speaker 2: I got Treasury secretaries. I mean, I know, you go
Speaker 2: back to Albert Gallaton, forget about that. I got Robert
Speaker 2: Rubin and a guy named Summers who used to sign
Speaker 2: your paycheck. I got Jack lou I got James Baker,
Speaker 2: and Company. I mean, the Treasury Secretary is at the
Speaker 2: fulcrum of our executive, legislative, and frankly judicial branch of
Speaker 2: making it work within our financial system. Are we at
Speaker 2: risk now that that financial system is run out of
Speaker 2: the Oval Office. Do we have a Treasury secretary who's
Speaker 2: so diminished that he really can't affect Furman like policy?
Speaker 3: I hope not. Scott the sentis a smart guy. He's
Speaker 3: a talented guy. If this policy making were delegated to him,
Speaker 3: I wouldn't agree with all of it, but I wouldn't
Speaker 3: worry fundamentally about being in deeply unsafe hands. But yeah,
Speaker 3: the tariff calls are being made out of the Oval Office,
Speaker 3: The calls about the FED are being made out of
Speaker 3: the Oval offices. He'scott Descent one moment saying, you know,
Speaker 3: we're comfortable with the FED because we're focused on getting
Speaker 3: down the tenure, which is a great thing to say,
Speaker 3: absolutely makes sense. And then the next moment you see
Speaker 3: Donald Trump commenting on the FED funds.
Speaker 2: Right, Okay, Olivia, we're going to rip up the script
Speaker 2: right now. We can do this with the future vice
Speaker 2: chairman or chairman of the FED. Could you see Governor Furman.
Speaker 2: Come on, let's cut to the chase, Jason. Right now,
Speaker 2: we're beginning to see the percolation. I don't want to
Speaker 2: make editorialize your folks of FED independence. We go back
Speaker 2: to McChesney Martin, We go back to LBJ where he
Speaker 2: took He took McChesney Merrin's years and picked him up
Speaker 2: like the dog back then, Jason Ferban, is this FED
Speaker 2: at risk of its independence?
Speaker 3: Look, I'm nervous so far. I'm a little bit reassured.
Speaker 3: They had a sweeping executive order about independent agencies and
Speaker 3: presidential control, and they explicitly included an exception for monetary
Speaker 3: policy and for the FOMC. It's also hard for them
Speaker 3: to do anything about it because he only gets two
Speaker 3: appointments over the next four years. I hope the courts
Speaker 3: would not let him fire to powel with no reason.
Speaker 3: But you know, but I'm nervous. To me, it's a
Speaker 3: it's a tailorant. It's not the most likely scenario. But
Speaker 3: this is the best economic institution we have, So you know,
Speaker 3: a two percent chance something happens to it, we should
Speaker 3: be we should we should be concerned.
Speaker 2: In your ute, you had to carry water from the
Speaker 2: executive branch over to Capitol Hill. How do you frame
Speaker 2: in your head that the legislative branch, when they choose
Speaker 2: to rebuts a unilateral Trump policy, do you see this
Speaker 2: as given committees like I think of arm services in Putin.
Speaker 2: I'm making this up, Folks, stay with me. But Jason,
Speaker 2: the basic idea is, what's the Firman mechanism about a
Speaker 2: legislative branch responds to this moment in our history.
Speaker 3: Look, when your party's in power, you're frustrated by checks
Speaker 3: and balances, You're like, why can't we do everything we
Speaker 3: want to do? Then when the other parties in power,
Speaker 3: you're like, hey, I appreciate these a bit. I don't
Speaker 3: want them to be able to do every single radical
Speaker 3: idea that they want to do. And you know, I
Speaker 3: think you're going to see maybe less checks and balances
Speaker 3: that I might like coming from Congress, but still a
Speaker 3: decent amount of them. And some of that inertia is bad.
Speaker 3: It means we're not going to get done things we
Speaker 3: should get done. But a lot of that inertia is
Speaker 3: the inherent conservatism of the American system, where you don't
Speaker 3: make large, radical, dramatic changes because conservatives themselves since Burke,
Speaker 3: have understood that that's a recipe for all sorts of problems.
Speaker 4: Jason, as you sit back here and you look at
Speaker 4: some of the economic trends, economic data points coming out here,
Speaker 4: what is the biggest economic concern.
Speaker 6: For you for this US economy.
Speaker 3: I just have the conventional one, which is this stubborn,
Speaker 3: persistent inflation and two and a half percent underlying inflation.
Speaker 3: If it's down three tenths, we're golden. If it's up
Speaker 3: three tenths, we're in a certain amount of hurt. And
Speaker 3: everything else is humming along, basically just fine, assuming we
Speaker 3: don't have very disruptive policies.
Speaker 2: Thank you so much for your interest acrassination. Today on YouTube,
Speaker 2: we are commercial free in this hour a conversation with
Speaker 2: the Treasury Secretary with their Anne Marie Horden. We're honored
Speaker 2: to bring you Jason Furman from Harvard University. Wendy Schiller
Speaker 2: will join us from Bown University. In a moment, never
Speaker 2: in the history of media has there been a joint
Speaker 2: conversation Harvard than Brown. We're not asking either of them
Speaker 2: about the hockey game.
Speaker 6: The hot Exams.
Speaker 2: Furman has tickets you should see where they are. One
Speaker 2: more question please to Professor Furman, Paul.
Speaker 4: Sweeney, Professor uh X ten Principles of economics. How do
Speaker 4: you frame out in the tariff's units? What do you
Speaker 4: talk about in the about terroriffs?
Speaker 6: How do you teach that? What's your thoughts there?
Speaker 3: Look, I'm nervous about that. I'm doing that in about
Speaker 3: a month. I'm going to do it the same way
Speaker 3: that i've tom and I will come up the same
Speaker 3: way that I learned it decades ago. But it's going
Speaker 3: to sound like a rebuttal to Donald Trump. Every single
Speaker 3: sentence is going to sound like the only reason I'm
Speaker 3: saying it is because I want to contradict him, when
Speaker 3: the only reason I'm saying it is that's what's been
Speaker 3: in the textbooks for a long time, and it's been
Speaker 3: in textbooks for a long time for very very good reasons,
Speaker 3: some of which were even a grounded in things like
Speaker 3: accounting identities, which I'm one hundred percent sure or true,
Speaker 3: and not every comment President Trump makes respects them.
Speaker 2: Do you have a magnitude tip point one percent of terroriffs?
Speaker 2: Just ad hoc. I'm talking Krugman Furman here, bring over
Speaker 2: like Glenn Hubbard, even in Columbia, Jason Furman, is there
Speaker 2: a percentage tip point where a blended eight of two
Speaker 2: three percent comes up and it's oops, where's that number? Matters?
Speaker 2: A lot?
Speaker 7: Who they're on.
Speaker 3: Canada and Mexico matter are just so much more than
Speaker 3: any other country. You do ten percent tariffs even on
Speaker 3: the two of them, and an awful lot of the
Speaker 3: way US business is conducted, US employment happens, it gets disrupted,
Speaker 3: frankly to the benefit of a number of other countries.
Speaker 2: Jason, thank you so much for your generous time this morning.
Speaker 1: Jason Furman, you're listening to the Bloomberg Surveillance Podcast. Catch
Speaker 1: us Live weekday afternoons from seven to ten am Eastern.
Speaker 1: Listen on Applecarplay and Android Auto with the Bloomberg Business app,
Speaker 1: or watch us live on YouTube.
Speaker 2: With the single best research note I've seen of this moment,
Speaker 2: Libby Cantrell. Is it Pimco get her research note? Is
Speaker 2: it at the website? And it's titled I Love this.
Speaker 2: I mean this is a cynicism of Cantrell. But but
Speaker 2: but everybody's going but but but but but to find
Speaker 2: the butt on Capitol Hill right now between Republicans and Democrats.
Speaker 8: Between Republicans and Democrats, I mean, even between Hill Republicans
Speaker 8: and the administration. I mean, I think a lot of
Speaker 8: what the administration is doing showing that there's a lot
Speaker 8: of bias towards action. But at the end of the day,
Speaker 8: much of what they're talking about really does fall within
Speaker 8: the remit of Congress. This is where you don't you're
Speaker 8: not seeing a lot of Republicans necessarily push back on
Speaker 8: the president. But as you know, Article one at the
Speaker 8: Constitution pretty clear about who has the power of the purse,
Speaker 8: and ultimately, to really achieve significant savings, for instance, you'll
Speaker 8: need Congress. And so this is where the butt but
Speaker 8: buck comes in in terms of the flurry of executive
Speaker 8: actions we've seen and actually the really the move the market.
Speaker 6: You're gonna need Congress, so you have a faith.
Speaker 2: We talked to Wendy Schiller. It's a college up in Providence.
Speaker 2: Bran Well, yes, familiar with there. Let me cantrol. I mean,
Speaker 2: where are the checks and balances? You're expert the legislative process,
Speaker 2: to the committees, hold forth? Is it leadership? Who's gonna do?
Speaker 8: But but Well, Tom, I think, and this is where
Speaker 8: we're we're just waiting. I think it is a question
Speaker 8: of when and not if the Congress starts asserting themselves.
Speaker 8: But they, you know, Republicans understandably, are trying to give
Speaker 8: the president a wide berth. He has a very high
Speaker 8: approval rating, at least relative to them, and so I
Speaker 8: think they're trying to sort of give him the flexibility
Speaker 8: to do what he can. But again, we're on a
Speaker 8: collision course with either Congress or the Supreme Court, because
Speaker 8: at the end of the day, there are both the
Speaker 8: Constitution and then a law called the Empowerment and Control
Speaker 8: Act that limits what the President can do in terms
Speaker 8: of rescinding or holding back money that's already been appropriated
Speaker 8: by Congress. This is going to make everybody's eyes glaze over. Well,
Speaker 8: we're actually really talking about doges, you know, cost savings.
Speaker 8: At the end of the day, there are going to
Speaker 8: be limits to that. And again, I think this will
Speaker 8: probably be litigated in the courts. And I think the
Speaker 8: broader macro picture for investors from a deficit perspective is
Speaker 8: really to get again these real cost reductions that all
Speaker 8: has to go through Congress. And that's why this the
Speaker 8: tax bill that Reconciliation bill that we're seeing headlines is
Speaker 8: going to be really quite inciting.
Speaker 6: That's kind of I want.
Speaker 4: If I'm just imagining, if I were a portfolio manager
Speaker 4: at PIMCO, I think I'd be calling you and emailing.
Speaker 6: You like five or six times a day. Do I
Speaker 6: pay attention to this? Do I pay attention to that?
Speaker 4: What are you telling your pms to really focus on?
Speaker 4: In terms of the news flow that's coming out of Washing, I.
Speaker 8: Mean, there's honestly so much noise, and I do think
Speaker 8: it's been challenging for everyday Americans, but also for investors
Speaker 8: to really pay attention to the signals. I think, you
Speaker 8: know what we're we're obviously, you know, bond investors dead investors.
Speaker 8: So what's going to move the bond market is going
Speaker 8: to be either fiscal stimulus, it is going to be
Speaker 8: these cost reductions. Again, that's really in the purview of
Speaker 8: Congress in terms of the things that move markets. As
Speaker 8: it relates to executive authority, I mean tariffs, the president
Speaker 8: has a lot of as we know and as I
Speaker 8: think has been demonstrated, he has a lot of unbridled
Speaker 8: authorities around around tariffs, and then also moves for deregulation.
Speaker 8: So there are absolutely things that the president can do
Speaker 8: that you know, are really going to be impactful for markets.
Speaker 8: But on the fiscal side, that really does rest with Congress.
Speaker 8: And this is where the butt butt butt comes from.
Speaker 8: Like a lot of noise, but again kind of pay
Speaker 8: attention to the signal, and the signal really on fiscal
Speaker 8: policy is through Congress.
Speaker 7: You know.
Speaker 4: One of the I guess one of the first issues
Speaker 4: that President Trump took up was just immigration policy large here,
Speaker 4: and a lot of people are saying that could have
Speaker 4: some some serious economic impacts as it relates to the
Speaker 4: labor force as to economic growth, that perhaps some of
Speaker 4: these migrants from the last four or five six years
Speaker 4: have in fact gone into the workforce, are contributing our.
Speaker 6: Paying taxes, and that could be an economic headwind.
Speaker 7: How do you guess?
Speaker 8: Yet, I was remiss not to say, because that he
Speaker 8: does actually have a lot of ult authorities around immigration too.
Speaker 8: I mean, it's interesting because we were already penciling in
Speaker 8: somewhat of a headwind to growth just from President Biden's
Speaker 8: policies on immigration. Back to June twenty twenty four, when
Speaker 8: President Biden, I think acknowledged this was a political issue,
Speaker 8: so he started doing things to really slow the migration.
Speaker 8: So we were already penciling in some slow down. But
Speaker 8: to your point, particularly if you get and again these
Speaker 8: sort of massive portations or what have you, are I
Speaker 8: think going to have to go through Congress and get
Speaker 8: some funding for it. But it could be a headwind.
Speaker 8: And this is where I think that the administration might
Speaker 8: not want to reconcile. I mean, some of the stuff
Speaker 8: that they're going to do could be actually could actually
Speaker 8: slow growth. And you know, tariffs and immigration could actually
Speaker 8: be headwinds to growth.
Speaker 2: And I want to get this in quickly here. I
Speaker 2: think it's too important. I've been picking on a Senate
Speaker 2: Armed Services Committee, particularly with what's going on in Europe.
Speaker 2: Mister Putin, I got three members in each party. Fisher
Speaker 2: of Nevada, Cotton of Arkansas, Rounds of South Dakota has
Speaker 2: been very supportive of this show. Shaheena Newhan, I'm sure
Speaker 2: jillibrand New York and Bloomenthal of Connecticut. What are the
Speaker 2: powers of the committees now after the complete zoo we've
Speaker 2: had for ten years, fifteen years, do the committees have
Speaker 2: power like say, houseways of means add thirty forty years
Speaker 2: ago on form policy issues, not sorry for policy, but
Speaker 2: on Libby Cantrell issues. Does the legislative branch have the
Speaker 2: ability to legislate anymore? I think is what our listening
Speaker 2: And I.
Speaker 8: Think that's such a great question, Tom, because.
Speaker 2: What we do to go with it.
Speaker 8: What we're seeing is the president of Republicans and Democratic
Speaker 8: presidents have taken executive authority and they keep pushing the boundaries.
Speaker 8: We saw this under George W. Bush and then under
Speaker 8: This is not new, It is not new, and honestly,
Speaker 8: this has just been an evolution of something that really
Speaker 8: started at the turn of the centry. And I think
Speaker 8: what happened then you just saw Congress sort of slowly
Speaker 8: seed its authorities as you had very tight height divided Congress.
Speaker 8: I think this is also the issue is that like
Speaker 8: no real party has had a significant majority. I mean,
Speaker 8: there's been like you know, right, a bottom in the
Speaker 8: first year, what have you. But really in terms of
Speaker 8: either a filibuster proof majority or large majority in the House,
Speaker 8: it's just hasn't happened. And so I think as a result,
Speaker 8: executive branch has gotten you know, frustrated with Congress and
Speaker 8: they have moved forward.
Speaker 2: Paul, I were talking about you before he came in
Speaker 2: going to be with this. I saw a chart that
Speaker 2: showed Kansas City and everybody else in America rooting for
Speaker 2: the Eagles. You lead the Committee of Hate the Chiefs.
Speaker 2: What was it like to see the Eagles?
Speaker 8: It was And just to be clear, I'm not necessarily
Speaker 8: an Eagles fan, but I am a very staunched Denver
Speaker 8: Broncos fan, and Denver Broncos we've always we've.
Speaker 5: Never liked the Chiefs. You know. It's like we've never
Speaker 5: liked the Raiders.
Speaker 8: We've always been Raiders haters and we've always we've always
Speaker 8: just liked.
Speaker 2: You get past a third momosa.
Speaker 8: It was fantastic.
Speaker 7: I have to say.
Speaker 8: It was just total vindication.
Speaker 5: You know, we were all wearing green and a little
Speaker 5: bit more in just for you know, the head nod
Speaker 5: to the Broncos.
Speaker 8: But it was a great It was a great thanky.
Speaker 2: Thank you so much. Don't thank peace that more off.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 2: This is a tree. We really try to stake out
Speaker 2: a good amount of time here with David Saurby. He
Speaker 2: has a really interesting history working with the City of Detroit,
Speaker 2: among others, the iconic Loomis sales years ago, and now
Speaker 2: with NCORA looking at not only industrial America. You know,
Speaker 2: it's like Canadian National. They got the train across Canada
Speaker 2: and there they go north south, north south down the
Speaker 2: Mississippi River. But just a twisted and different look with
Speaker 2: a tilted mid cap and small cap. David, can you
Speaker 2: explain to me how Walmart makes five six seven cents
Speaker 2: of the dollar and they're trading in a forty multiple? Please?
Speaker 2: Is that in the Wayne State textbook?
Speaker 9: No, it's not an evaluation textbook, Tom, And in a way,
Speaker 9: it's reminiscent, reminiscent of what we saw in Walmart in
Speaker 9: the late nineties early two thousands when its valuation got
Speaker 9: very stretched to the retail group and then it went
Speaker 9: through an extended period of underperformance. So we'll see what
Speaker 9: happens out of this number today.
Speaker 2: Does this end ugly? I mean. What all our listeners
Speaker 2: want to know from David Sowerby is okay, we're all
Speaker 2: fat and happy in our five oh one ks. David Sowerby,
Speaker 2: does this end ugly?
Speaker 7: No, it doesn't at all.
Speaker 9: Companies are still generating above average free cash flow margins.
Speaker 9: Fourth quarter earnings report, I'd give them up solid BB
Speaker 9: plus for earnings cash flow and revenue growth this year
Speaker 9: is the metric you and I like to talk about.
Speaker 7: Tom.
Speaker 9: Free cash flow for the S and P five hundred
Speaker 9: will grow post to fifteen percent. That's not a backdrop
Speaker 9: where it ends ugly. It just simply means some tempered expectations,
Speaker 9: but still bet on the ability of US companies to
Speaker 9: generate shareholder value.
Speaker 4: David, As we think about you know, twenty twenty five,
Speaker 4: and you look back the twenty three twenty four where
Speaker 4: yet north of twenty percent growth in the S and
Speaker 4: P five hundred or gains in the S ANDP of
Speaker 4: five hundred, We think about twenty twenty five, what can
Speaker 4: drive this market? Hired because it doesn't seem like the
Speaker 4: FED is going to do a whole lot for so
Speaker 4: do we really really have to focus on earnings?
Speaker 7: You do?
Speaker 9: Valuations will have a difficult, if not impossible, ability to
Speaker 9: increase higher valuations. So now it comes down to earnings,
Speaker 9: dividend growth, and free cash growth. That will be the drive,
Speaker 9: and then the other I like that this market is
Speaker 9: broadening out. We can all pick our favorite date. I'm
Speaker 9: going to go back to July eleventh of last year
Speaker 9: when the market started to broaden out. And it's been
Speaker 9: a little bit of two steps forward one step back.
Speaker 9: But small caps have outperformed large caps by about three
Speaker 9: percentage points in that seven month time period. And then
Speaker 9: when you find the alpha producer within smaller smid cap
Speaker 9: the ability of good managers to outperform. You've seen returns
Speaker 9: that have doubled. The S and P five hundred for
Speaker 9: good small cap managers VERSUSS ANDP index.
Speaker 2: July eleven of last year. Sorry, the day is no clue.
Speaker 2: I mean Red Sox seven, Oakland a zero, the Red
Speaker 2: Sox for ten games above five hundred. What happened.
Speaker 7: And the Tigers made the playoffs?
Speaker 2: Exactly there you are? Thank you, Hey, David.
Speaker 6: What what screens well for you guys? These days?
Speaker 4: Sit the big growth stocks that have been the darlings
Speaker 4: over the last few years.
Speaker 6: Is it some value names. Is it different market capitalization?
Speaker 4: What screenswall for you guys these days.
Speaker 9: On d often asked mag seven. I don't think it's
Speaker 9: a binary event all or none, so I think, but
Speaker 9: on a margin, those weights have to come down. While
Speaker 9: their free cash flow margins are still quite impressive, their
Speaker 9: valuation is priced for perfection, if not sainthood. So I
Speaker 9: think you want to be trimming them, and you want
Speaker 9: to be moving your portfolio, not just talking my book
Speaker 9: to small MidCap, but also to the value side. And
Speaker 9: that's where I think there's still opportunity recognizing we're in
Speaker 9: this seven month inflection point rotation that's still going.
Speaker 2: On YouTube across the nation. On your commute as well.
Speaker 2: David Sarby with this with a great sense of the Midwest.
Speaker 2: He Michael bars out here. So I'm glad somebody mentioned
Speaker 2: the Detroit Tigers. No one else cares, but David Sarby
Speaker 2: with us here and think, thank you for subscribing to
Speaker 2: youtubeer is I'm going to steal that line the markets
Speaker 2: price the sainthood very I like that. It's just like.
Speaker 4: It's like, you know, it sounds like the seven are Hey,
Speaker 4: So David, talk to me about a name that.
Speaker 6: I'm not sure. Even Tom and I have not spoken about.
Speaker 6: I'm not sure.
Speaker 4: When ware Heiser we're talking lumber here, we'll talk to
Speaker 4: us about that name.
Speaker 9: Three percent dividend yield. Lumber prices are up fifteen percent
Speaker 9: since December. That's giving them a tailwind. You don't own
Speaker 9: it just because maybe tariffs will be beneficial the US
Speaker 9: lumber and timber, But that's an indirect benefit. They're going
Speaker 9: to double their free cash in twenty twenty five. So
Speaker 9: for a stock that's been sitting around thirty dollars a
Speaker 9: share for too long, now there's this I think more
Speaker 9: macro backdrop with a company that's very well run.
Speaker 7: And think about it.
Speaker 9: Trees are an asset that grow unlike other assets that
Speaker 9: don't have mother nature on their side.
Speaker 7: That can be a beneficiary to.
Speaker 9: A lumber timber company like Wirehauser out in Washington, USA.
Speaker 4: Yeah, it's just a name. You don't think about it
Speaker 4: at all. Another one that's.
Speaker 9: My job is My job is not to bring you Microsoft,
Speaker 9: but bring you something a little bit.
Speaker 2: I love it.
Speaker 6: I love it, I mean again based out in Seattle.
Speaker 4: You think about this, Atlanta Braves, this is the name
Speaker 4: near and dear to my heart, because I've basically been
Speaker 4: followed John Malone since you know, the earliest days of
Speaker 4: his cable career, and he's been such a phenomenal allocator
Speaker 4: of capital. And wherever John Malone goes, I tend to
Speaker 4: follow a lot of smart money tends to follow.
Speaker 6: I think, talk to us about the Atlanta Braves. That's
Speaker 6: a publican.
Speaker 9: Traded company, it is, and John Malone has recently bought
Speaker 9: twenty four thousand, five hundred shares. So if you follow
Speaker 9: the money and you believe in John Malone, as Tom knows,
Speaker 9: he's one of the chapters in Thorndyke's.
Speaker 7: Out Outsider's book.
Speaker 9: So plus you have the franchise, the stadium broadcast rights,
Speaker 9: they owned some mixed use retail around the stadium.
Speaker 7: They were one of the first teams.
Speaker 9: Back in the Dale Murphy Atlanta Braves days to go
Speaker 9: on national TV with with TBS. So when you and
Speaker 9: and then you look at sports valuations going higher and
Speaker 9: hire billionaires buying sports franchises, there's the backdrop to the
Speaker 9: Atlanta Braves and only only four analysts follow it. That's
Speaker 9: right in a wheelhouse for an under followed stock.
Speaker 2: Okay, does a sports franchise. I guess the New York
Speaker 2: Giants public that was that was a joke. Good morning
Speaker 2: to the Tish family. Thank you for your support. David Sowerby,
Speaker 2: as simple as I can, does something like the Atlanta
Speaker 2: Braves trade on how the baseball team does, like if
Speaker 2: they win seven in a row, does a stock go.
Speaker 9: Up if they're if they're destined for the playoffs? And
Speaker 9: then you get that moves money. Yeah, that move that
Speaker 9: moves the needle and the brace in the last several
Speaker 9: years has been better than not right, and that's helped
Speaker 9: evaluation on the stock.
Speaker 2: Right. You and I lived this, and I think Paul
Speaker 2: did tangentially, which is boltons and the basic idea that
Speaker 2: a company like in specialty chemical chemicals out in the
Speaker 2: Midwest would say, Okay, we're going to jettison this hunk
Speaker 2: of our company, and there'd be people out there that
Speaker 2: would see this smaller company that was jettison than maybe
Speaker 2: they would bolt it on. Are we going to get
Speaker 2: a lot of m and a action around industrial companies
Speaker 2: right sizing, downsizing, and aggregating.
Speaker 9: It's already taking place in more small cap value You're
Speaker 9: seeing more and more buyouts We're seeing more and more
Speaker 9: buyouts in our successful small and smid cap strategies.
Speaker 7: It's reminiscent of two thousand.
Speaker 9: In two thousand and one, when valuations were more attractive,
Speaker 9: and as companies want to grow, you're.
Speaker 7: Going to see more buyout in that sector.
Speaker 2: Give us another name, right now, come on, just like
Speaker 2: this is like drug Cassidy and banks up in David. Sorry,
Speaker 2: give us a small cap name, you say, shut up
Speaker 2: and buy it.
Speaker 9: Lakeland Industries symbol lak E, Huntsville, Alabama. Only two analysts
Speaker 9: follow this company.
Speaker 7: What do they do? They do fire apparel and equipment.
Speaker 9: So you're seeing fire departments up their budgets sadly out
Speaker 9: of the out of the tragedy in southern California. So
Speaker 9: here's a here's a play on that for apparel and
Speaker 9: equipment in the safety and fire space.
Speaker 7: Lakeland Industries made twelve percent over the last ten years.
Speaker 2: Had a huge moonshot up to a couple of years ago.
Speaker 2: It came down, it's bounced back nicely. I can go
Speaker 2: to the BQ screen because Paul Screening taught me how
Speaker 2: to do this. I mean, I look at eighteen eight.
Speaker 2: This is like Kelvacina stock eighteen hundred employees ready, it's
Speaker 2: trading at one time sales YEP one point two times sales.
Speaker 2: How does it get discovered if only two people on
Speaker 2: the cell side buy it? So I buy it? But
Speaker 2: do I own it forever?
Speaker 9: David Sowerby, Perhaps not, but you can own it at
Speaker 9: least a year. It's up four And how it gets
Speaker 9: discovered is the formula. They've got a good story, They
Speaker 9: get out on the road, they tell their story, they
Speaker 9: go to more investment conferences. Sell side analysts are a
Speaker 9: little bit like sheep. When the stock starts moving up here,
Speaker 9: they come to pick up coverage on it. That's how
Speaker 9: a company with two analysts turns into a company with
Speaker 9: five analysts following it because they're delivering on capital allocation
Speaker 9: and cash flow.
Speaker 2: Shahoulder Value, Michael Dartis shop rough capital. They follow it.
Speaker 7: I look at the robins are very good on small caps.
Speaker 7: They're one of the few that are very good.
Speaker 4: You know, in addition to ancre advisors asatch advisors.
Speaker 2: How do you pronounce? I never known they're out.
Speaker 6: In Salt Lake. They own a million shares. So, David,
Speaker 6: how do you guys find these six.
Speaker 4: How do you screen for a company Lake Lakeland Industries.
Speaker 9: There's there's really two formulas here. One is you know
Speaker 9: with some degree of certainty what stocks are likely to
Speaker 9: be going into the Russell two thousand on a jewelry balancing.
Speaker 9: You want to turn over those stones and find them
Speaker 9: the right companies before they go in. That's the formula.
Speaker 9: The second formula is you buy the spinouts big small
Speaker 9: company spins out of us of a larger company. Since
Speaker 9: that July eleventh inflection point, the Bloomberg Spinoff Index is
Speaker 9: up more than forty percent. Those are the two formulas,
Speaker 9: spinoffs and unfollowed stocks that are going into the index,
Speaker 9: buy and buy them before.
Speaker 2: David, Can we do this every six weeks? Absolutely? The
Speaker 2: huge spots. David Saarvey, thank you so much. Folks. For
Speaker 2: the rest of the week, all we're going to talk
Speaker 2: about is Amazon, Meta and Apple. We got our dose,
Speaker 2: said mister Sarby. David Sarvey, thank you so much.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Applecarplay and Android Auto
Speaker 1: with the Bloomberg Business app. You can also watch us
Speaker 1: live every weekday on YouTube and always on the Bloomberg terminal.
Speaker 2: There is a door stop out there. It's a kind
Speaker 2: of paperback book, paperback novel, paperback rider that you hold
Speaker 2: a window open in a Rhode Island, beautiful summer afternoon.
Speaker 2: It's seven hundred and twenty pages, and it's called Gateway
Speaker 2: to Democracy Gateway to Democracy. One of the authors of
Speaker 2: Gateways to Democracy and Introduction to American Government is Wendy
Speaker 2: Schiller of Brown University. She's been very Wendy. First of all,
Speaker 2: thank you for your patience with the best an interview.
Speaker 2: Greatly thrilled that you're with us today, Wendy, You and I,
Speaker 2: Lisa Matteo and all of our listeners and viewers have
Speaker 2: never seen this. Where are the checks and balances that
Speaker 2: you write about in your classic Gateways to Democracy.
Speaker 10: Well, we're not seeing them yet. Good morning, Tom and Paul,
Speaker 10: but we're seeing some simmers, right So, Governor Kathie Hochel,
Speaker 10: I think some of you might have caught that very
Speaker 10: viral clip now and just to see that the Democrats
Speaker 10: are now the party of states rights and the Republicans
Speaker 10: are the party of federal overreach. Now, when I say overreach,
Speaker 10: you know you're cutting the federal employees. Maybe you're cutting
Speaker 10: federal spending. We haven't quite seen that yet materialize. But
Speaker 10: this is an extraordinary flip from what we've seen in
Speaker 10: the last couple of decades. And it's a an earthquake
Speaker 10: in American politics to see this slip where democratic governors
Speaker 10: will be saying, we are defending our state prerogatives.
Speaker 2: Somebody said to me yesterday, stopped me, and they said,
Speaker 2: who are you watching more than anyone? And I said,
Speaker 2: the minority member of the Senator and Services Committee, with
Speaker 2: his military credibility, Senator read of your Rhode Island. Can
Speaker 2: the committees come to the rescue both Republicans and Democrats?
Speaker 2: Is there a committee coherence and strength, Professor Schiller that
Speaker 2: can bring checks and balances?
Speaker 5: Well, the issue of saying rescue this is the whole point.
Speaker 10: I mean, people are saying, oh, you know, this is
Speaker 10: getting very shaky and scary when you know the president's
Speaker 10: tweeting that he's the king. But on the other hand,
Speaker 10: Trump is excellent political theater. So you know, what is
Speaker 10: actually a threat to civil liberties? What is the threat
Speaker 10: to the breedom of the press, your freedom to have
Speaker 10: financial independence, What are those actual federal threats right now
Speaker 10: versus what the appearances are with the rhetoric is and
Speaker 10: until they catch up to each other and the American
Speaker 10: voter feels concerned or feels threatened by the Trump federal government.
Speaker 5: I don't think you're gonna have a lot of legs
Speaker 5: to stand on.
Speaker 10: I don't think you're gonna have a lot of leverage
Speaker 10: to generate public opposition.
Speaker 5: And without public opposition in.
Speaker 10: Those red states and those red districts, I don't see
Speaker 10: the House or the Senate standing up and opposing this president,
Speaker 10: except they will use the debt ceiling I.
Speaker 5: Think as leverage.
Speaker 10: Maybe not in the House, but I think in the
Speaker 10: Senate they'll say, listen, we don't want to crash the economy,
Speaker 10: but there's got to be a limit. And you're seeing
Speaker 10: grumblings already in the House GOP on the extent of
Speaker 10: cuts that they're proposing for this budget deal. Remember, the
Speaker 10: government has to get funded again at the end of March,
Speaker 10: so really the fundamental congressional tool to fund the government,
Speaker 10: even if the President changes how he's spending the money,
Speaker 10: is still their leverage.
Speaker 5: And you know, six weeks from now, things could look
Speaker 5: quite different.
Speaker 10: In terms of the pressure on them to stop some
Speaker 10: of these Trump initiatives.
Speaker 4: Wendy, are you surprised that we haven't seen a democratic
Speaker 4: vue rise up to challenge President Trump on some of policies,
Speaker 4: maybe some of the rhetoric. It doesn't seem like there
Speaker 4: is a democratic voice.
Speaker 5: Well, again, there's two things, Paul.
Speaker 10: You know, what Kaviokle did was in direct result to
Speaker 10: an action that affects New York City. A lot of
Speaker 10: people live in New York City, so you know, she
Speaker 10: got a big state, a big megaphone, a big media market.
Speaker 10: So when there's that opportunity, I think you're going to
Speaker 10: start to see a more Democrats get out of the gate. Remember,
Speaker 10: you know, twenty six is lum meek reelection. Twenty eight
Speaker 10: is the presidential race.
Speaker 5: So they're going to get out.
Speaker 10: Of the gate when there's something Trump does that they
Speaker 10: can latch onto that won't be popular with their state,
Speaker 10: and if it's a big state, that's going to get
Speaker 10: a lot of attention.
Speaker 5: Otherwise it's like it's like whack a mole.
Speaker 10: You know, you start you plain of one thing, and
Speaker 10: then they'll just move in and focus on something else.
Speaker 5: So I think I think the Russia Ukraine.
Speaker 10: Let's watch to see what the Republicans do in the
Speaker 10: House and the Senate. You know, if Trump shows real
Speaker 10: signs of abandoning Ukraine and just giving it away to Russia,
Speaker 10: I think you will start to see some noise, not
Speaker 10: only from Democrats but also Republicans.
Speaker 4: Well, let's go to that issue, because that's certainly been
Speaker 4: in the news over the last several days. Here are
Speaker 4: you surprised at the way President Trump's approachingess seemingly pro Russia,
Speaker 4: perhaps abandoning Ukraine to some extent, It seems like in
Speaker 4: some of the reporting.
Speaker 6: How do you view that?
Speaker 10: I view it in the very macro sence that Trump
Speaker 10: does not have the allegiance to an ideology like George W. Bush,
Speaker 10: somewhat Barack Obama, but really Bush and maybe Biden of
Speaker 10: what the role of the United States is.
Speaker 5: Supposed to be in the world.
Speaker 10: He doesn't believe that it's worth it to the United
Speaker 10: States to go protect other countries around the world.
Speaker 5: I've quoted John Quincy Adams a number of times. Tom right,
Speaker 5: you know, don't go in search of monsters to destroy.
Speaker 5: So this is his position.
Speaker 10: He doesn't have this ideology and he doesn't think the
Speaker 10: United States should do it.
Speaker 5: I don't know if it's Russia per se. You can
Speaker 5: say he's in.
Speaker 10: Love with Putin, but he's like this around the whole world.
Speaker 10: Why are we paying? Why are we sending our troops?
Speaker 10: They're about to propose cuts to the defense budget. I
Speaker 10: haven't seen Republicans cut the defense budget ever.
Speaker 5: So this is the real.
Speaker 10: Sea change in how he views what the United States
Speaker 10: is responsible to do. Does it make us more dangerous?
Speaker 10: You can argue yes, But has it made us more
Speaker 10: threatened yet?
Speaker 2: No? This is what we invented, folks, Bloomberg surveillance. We
Speaker 2: go beyond the standard conversation, a conversation with a Secretary
Speaker 2: of Treasury and this hour. Thank you Anne Marie Horden
Speaker 2: for that. And then Jason Furman of Harvard University and
Speaker 2: now from Brown University, Wendy Schiller with this, Professor Schiller,
Speaker 2: I was reading of Dean Rusk the other day. Of course,
Speaker 2: from another time in place. Many of our listeners won't
Speaker 2: understand the quiet and the cadence, the pace that Dean
Speaker 2: Rusk brought to JFK into LBJ is well, do you
Speaker 2: look at the coophony now? Is one off of a
Speaker 2: specific president or do you look at it is this
Speaker 2: is a continuance, a new form of dialogue. Is President
Speaker 2: Trump here a one and unique president or is there
Speaker 2: a follows through here for a new Republican Party?
Speaker 10: Well, I mean, I think given the loyalty that the
Speaker 10: Republicans have shown in the House and the Senate to
Speaker 10: President Trump already, whether that holds, we'll have to see.
Speaker 5: I think it's a new Republican party.
Speaker 10: It's a get on this bus, be with us, or
Speaker 10: get out, and that's what And they're counting on this
Speaker 10: to resonate with the American people. So far, his approval
Speaker 10: ratings are holding. I've always said when they start to drop,
Speaker 10: he'll change course. But it's a fundamental shift in how
Speaker 10: they view the United States power and what to do
Speaker 10: with that power. And they still have responsibility of delivering
Speaker 10: to the people who vote for Donald Trump when he
Speaker 10: said he would make things better for them, and you know,
Speaker 10: not supporting Ukraine doesn't actually make anything better in the
Speaker 10: United States. So how is he going to deliver on that?
Speaker 10: And we've got months to go before we see the
Speaker 10: results of that. If he falters and he doesn't make
Speaker 10: things better and his approval ratings drop. You'll see the
Speaker 10: same splinter in the Republican Party you seem for.
Speaker 2: The last decade in Paul Sweedey this David Gerr brought
Speaker 2: this up, and you know, let's be direct here, Mister
Speaker 2: Trump got let's just round it up. Folks. Don't give
Speaker 2: me grave fifty percent of the vote, But what percentage
Speaker 2: of that drifts away from the core Trump for supporters.
Speaker 2: That's a mystery. Yeah, into Q two of this year.
Speaker 4: Yeah, absolutely so, Wendy, what do you think is the
Speaker 4: next major challenge or opportunity for President Trump's min administration?
Speaker 4: Is it the funding of the government, some domestic legislation,
Speaker 4: or is it maybe Ukraine? What are you looking at
Speaker 4: as a next big issue for this administration?
Speaker 10: Well, well, the one thing I'm saying about Trump that
Speaker 10: we've seen is that his attention span is pretty short.
Speaker 10: But that also makes him a multitiasker, right, He'll go
Speaker 10: from one to the next, to the next to the next.
Speaker 10: He wants to be busy doing things, So I don't
Speaker 10: think it's exclusive.
Speaker 5: I don't think it's mutually exclusive.
Speaker 10: I think about the budget and Ukraine, but I do
Speaker 10: think that we haven't seen any major impacts except for
Speaker 10: the people who are losing their jobs on a daily
Speaker 10: basis from the federal government.
Speaker 5: We haven't seen the impacts.
Speaker 10: When the impacts come, when the cuts hit this summer,
Speaker 10: maybe this fall, when the education department cuts hit for
Speaker 10: people going back to school next year, that's going to
Speaker 10: affect people's daily lives. How they respond is and then
Speaker 10: how Trump responds. Does he think he wants to run again,
Speaker 10: even though constitutionally he cannot be elected, doesn't say he
Speaker 10: can't run, can't be elected to serve more.
Speaker 5: Than two terms?
Speaker 10: Then that changes the ballgame also, So it's a time
Speaker 10: of great uncertainty, and I think does that affect investment
Speaker 10: in the United States? Do they think that it's still
Speaker 10: a safe economic bet with such a chaotic president.
Speaker 5: We're about to see that the next couple of months.
Speaker 2: I was thinking to Jonathan Fenbe and all that he's
Speaker 2: written about France, Professor Schiller, and I guess, as a
Speaker 2: general a political statement folks across the nation, Europe's got
Speaker 2: to get its act together. Wendy Schuller, do you see
Speaker 2: any ability in your study of our history, our modern
Speaker 2: Western civilization, that Europe can quote unquote get its act together.
Speaker 10: Europe rebuilt after World War Two, is most people know,
Speaker 10: with a tremendous amount of help from the United States.
Speaker 6: We know that.
Speaker 10: But here's the thing to remember about this Trump Republican
Speaker 10: unity and the swiftness of all these changes. Europe has
Speaker 10: parliamentary democracies. The prime minister when they r in control
Speaker 10: on the party that he controls mostly, he not always
Speaker 10: controls all party policy, all government policy. They change everything
Speaker 10: when they win the government and they see if it works,
Speaker 10: and people say they like it or they don't, and
Speaker 10: then they get thrown out. We are now verging into
Speaker 10: that kind of single party dominance in our federal level.
Speaker 5: We're not used to it. So to say that Europe
Speaker 5: has to get us act.
Speaker 10: Together, we're veering towards a political system that looks just
Speaker 10: like Europe in the way the policy changes so swiftly.
Speaker 10: So it's going to be us that has to adapt,
Speaker 10: us that has to get our act together to the
Speaker 10: kind of government that we're about.
Speaker 5: You know that we're seeing right now.
Speaker 2: That is the single smartest thing ever, whatever your politics, folks,
Speaker 2: what Professor Schuller just said about the wars and the
Speaker 2: roses in the parliamentary system of Europe versus. Here is
Speaker 2: more Kojit than all the babble you're hearing, including on
Speaker 2: this show. Professor Sheller, thank you so much, really really
Speaker 2: appreciate that.
Speaker 1: This is the Bloomberg Surveillance podcast, available on Apple, Spotify,
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