WEBVTT - Surveillance: Shutdown Won't Impact Economy, Taylor Says 0:00:00.080 --> 0:00:13.040 Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Lee. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:34.680 Bloomberg dot Com, and of course, on the Bloomberg Nalie 0:00:34.680 --> 0:00:37.040 Bassett dropping by a studio here in New York, Bloomberg's 0:00:37.040 --> 0:00:39.400 investment banking reporter to get us up to speed on 0:00:39.400 --> 0:00:41.760 the numbers Shale. Let's just start with a tough tough 0:00:41.840 --> 0:00:45.000 quarter for the capital markets business. It was really tough, 0:00:45.120 --> 0:00:47.720 especially given that JP Morgan is one of the biggest 0:00:47.720 --> 0:00:50.680 bond trading houses across the world. He didn't say much. 0:00:50.800 --> 0:00:53.320 Jamie Diamond didn't say much in the press release yet 0:00:53.360 --> 0:00:57.000 about what the forward looking guidances for this business, but 0:00:57.280 --> 0:00:59.760 he definitely was hurt by the fixed income business and 0:01:00.040 --> 0:01:03.120 Goodies was pretty much in line with an all us expected. 0:01:03.160 --> 0:01:05.760 It definitely wasn't enough to help trading revenues overall. Q 0:01:05.920 --> 0:01:08.160 four's ancient history. Now we expected it to be bad. 0:01:08.240 --> 0:01:10.360 The only thing that's happened is is it's coming worse 0:01:10.440 --> 0:01:12.960 than many people expected it to be. Similar story with 0:01:13.000 --> 0:01:15.959 City Group yesterday City Group traded lower on the numbers. 0:01:16.360 --> 0:01:18.960 Then as the earning school started and we started to 0:01:19.000 --> 0:01:22.920 look forward through to Q one, enthusiasm built up. What 0:01:22.959 --> 0:01:25.720 does look like and could we see a similar story 0:01:25.720 --> 0:01:28.160 today with JP Morgan. We could see a similar story 0:01:28.160 --> 0:01:31.200 with JP Morgan. But at the first glance, at least 0:01:31.280 --> 0:01:34.640 the lending figures are kind of weak. We're gonna want 0:01:34.640 --> 0:01:36.680 to see what Jimmy Diamond says about the strength of 0:01:36.720 --> 0:01:39.440 the economy moving forward. At City Group, they were saying 0:01:39.480 --> 0:01:42.559 trade wars and all this geopolitical turmoil might not hurt 0:01:42.640 --> 0:01:44.440 until the fourth quarter of this year or later in 0:01:44.480 --> 0:01:46.920 the year, So a couple of quarters of stability might 0:01:46.920 --> 0:01:49.080 be really good for these banks. So walk me through 0:01:49.080 --> 0:01:50.800 the long growth story at the moment, because one thing 0:01:50.840 --> 0:01:52.400 that jumps out to a lot of analysts in the 0:01:52.440 --> 0:01:54.720 early part of the release was just the credit provisions, 0:01:54.760 --> 0:01:58.000 more money set aside to cover potentially souring loans. What's 0:01:58.040 --> 0:02:01.280 the story. You're sanctionally within the numbers, right, the provisions 0:02:01.280 --> 0:02:05.160 for credit losses higher is really a problem. Our colleagues 0:02:05.160 --> 0:02:07.840 on top Live point out that it's mostly from the 0:02:07.840 --> 0:02:10.200 credit card business, which is good news that it's not 0:02:10.240 --> 0:02:13.280 all from the mortgages, especially because mortgages have been having 0:02:13.280 --> 0:02:16.600 a tough market, both at JP Morgan and at City Group. 0:02:16.840 --> 0:02:18.600 So you know, we're gonna want to see color about 0:02:18.600 --> 0:02:21.600 the strength of the American consumer, both in the mortgage markets, 0:02:21.600 --> 0:02:24.359 and then how much JP Morgan is extending loans in 0:02:24.400 --> 0:02:26.240 the small business just working our way through the rest 0:02:26.280 --> 0:02:28.160 of the bank. For the investment bank. A thing that's 0:02:28.200 --> 0:02:30.240 emerging at the moment is M and A Advisory is 0:02:30.240 --> 0:02:33.720 doing okay. Debt underwriting is terrible what you'd expect given 0:02:33.760 --> 0:02:36.000 what happened with leverage loans and fixed income in terms 0:02:36.000 --> 0:02:38.480 of supply going into the year end. Just in terms 0:02:38.480 --> 0:02:40.680 of M and A, is a good pipeline here, a 0:02:40.720 --> 0:02:45.919 good story to sell for the pipeline. He's going to 0:02:46.000 --> 0:02:48.000 have to comment on it right now because the SEC 0:02:48.160 --> 0:02:50.560 is not even taking deals and so the first quarter 0:02:50.600 --> 0:02:52.640 of this year there is a bit of a backlog. 0:02:53.040 --> 0:02:55.480 There's a lot of turmoil, and you know, people don't 0:02:55.480 --> 0:02:57.480 like to do deals when the stock market is moving 0:02:57.520 --> 0:02:59.239 all over the place. You don't know what you're paying, 0:02:59.760 --> 0:03:01.120 And we're gonna want to see what he has to 0:03:01.120 --> 0:03:03.080 say about that, and we're gonna want to see equity 0:03:03.160 --> 0:03:06.400 and debt underwriting figures turn around. They're both down at 0:03:06.400 --> 0:03:08.840 the end of the last year. Right to have us 0:03:09.000 --> 0:03:26.800 with us this morning. Brian Levitt, jointing US Openhama Fun 0:03:26.960 --> 0:03:29.880 Senior Investment Strategistic, joined us on the phone here in 0:03:29.919 --> 0:03:32.480 New York. Brian, it's another big consensus over White. We 0:03:32.520 --> 0:03:35.600 saw this story plan in as well. How does it 0:03:35.600 --> 0:03:40.200 plan for you? So? I think the big story in 0:03:41.280 --> 0:03:45.080 is that we're actually having a slowing economy but probably 0:03:45.120 --> 0:03:48.720 a more a better environment for rates and inflation. So 0:03:48.960 --> 0:03:51.400 I actually think the markets will have a good year 0:03:51.880 --> 0:03:55.680 in but it goes back to the point where investors 0:03:55.720 --> 0:03:59.680 are going to be favoring true growth companies over you know, 0:03:59.720 --> 0:04:03.080 more of the cyclical names in the United States or 0:04:03.320 --> 0:04:07.000 names that are more value oriented. So it's a shift. 0:04:07.040 --> 0:04:09.480 I mean, last year was all about better growth but 0:04:09.840 --> 0:04:12.120 not great policy. This year is going to be about 0:04:12.560 --> 0:04:16.800 slower growth. We suspect better policy, but that takes us 0:04:16.839 --> 0:04:19.160 back to an environment where investors, in our mind bid 0:04:19.200 --> 0:04:21.599 up the true growth companies. So, Brom, what does that 0:04:21.640 --> 0:04:23.760 mean for the nation's banks here in America? As we 0:04:23.800 --> 0:04:25.960 get the earnings yesterday from Steady Group and today from 0:04:26.040 --> 0:04:28.280 JP Morgan and both of them, just in terms of 0:04:28.279 --> 0:04:31.040 the numbers for Q four, which we had expectations come 0:04:31.080 --> 0:04:34.640 in for already disappointing. Yeah, I mean I would. I 0:04:34.960 --> 0:04:38.680 would think that in a slowing growth environment and environment 0:04:38.720 --> 0:04:43.440 where the the yield curve remains relatively flat, that's not 0:04:44.040 --> 0:04:46.960 typically an environment where the financial sector of the nation's 0:04:47.040 --> 0:04:49.839 banks um are among the leaders in the market. I 0:04:49.839 --> 0:04:53.279 don't I don't expect that we're going into an environment where, 0:04:54.320 --> 0:04:58.159 you know, financials are a significant drag on the market, 0:04:58.160 --> 0:05:01.200 But I just suspect market leadership will from elsewhere. Brian. 0:05:01.279 --> 0:05:04.279 Fascinating to me that the market is already getting ahead 0:05:04.279 --> 0:05:05.840 of whether the data is coming through. And what I 0:05:05.880 --> 0:05:07.320 mean by that if you just look at the recent 0:05:07.360 --> 0:05:10.799 survey from Bank America, like this fund manager survey showing 0:05:10.880 --> 0:05:15.159 GDP and earnings growth expectations totally plummeting. You see the 0:05:15.320 --> 0:05:18.800 numbers coming out of China absolutely terrible. But what I'm 0:05:18.839 --> 0:05:21.840 seeing is a market adjusting for maybe a rebound later 0:05:21.920 --> 0:05:25.000 this year. I'm looking at the high yield story in 0:05:25.040 --> 0:05:27.840 Asia and China, the junk bond story. A lot more 0:05:27.880 --> 0:05:31.080 people constructive on that. That's a market that's bid Brian, 0:05:31.160 --> 0:05:32.599 Is that a little bit of a head fake? Is 0:05:32.600 --> 0:05:34.599 that the market going too far ahead of the data 0:05:34.760 --> 0:05:37.360 or is that a story you get behind. Now that's 0:05:37.360 --> 0:05:39.279 a story I would get behind, like I think that. 0:05:40.160 --> 0:05:43.320 What's what's transpired is, you know, the US, we had 0:05:43.360 --> 0:05:46.400 a lot of stimulus, the US decoupled from the rest 0:05:46.440 --> 0:05:49.719 of the world. That led to a strengthening dollar, money 0:05:49.760 --> 0:05:51.960 being sucked out of other parts of the world into 0:05:51.960 --> 0:05:54.880 the United States, oil process collapsing, and that all kind 0:05:54.920 --> 0:05:57.960 of fed on itself, and the FED compounded it by 0:05:58.360 --> 0:06:01.000 suggesting they were going to raise interest it's multiple times. 0:06:01.000 --> 0:06:04.600 We're now seeing the flip side of that, in which 0:06:04.640 --> 0:06:08.160 the US is slowing back to trend. Yeah, China, Um, 0:06:08.640 --> 0:06:11.640 China is weakening, but um, you're starting to see some 0:06:11.680 --> 0:06:16.200 stimulus come through. New credit growth looks favorable, So basically 0:06:16.200 --> 0:06:19.000 a stimulant. The catalyst for the rest of the world 0:06:19.120 --> 0:06:21.960 is the US moving back towards a trend level of growth, 0:06:22.200 --> 0:06:26.160 the rest of the world generally hanging in the dollar moderating. 0:06:26.240 --> 0:06:28.880 That's actually a better environment than what we had in 0:06:29.440 --> 0:06:32.640 eighteen when there was really good growth in the United States, 0:06:32.680 --> 0:06:35.120 but policy that was pretty disruptive to the rest of 0:06:35.160 --> 0:06:37.200 the world. There seems to be a hope, Brian, that 0:06:37.360 --> 0:06:39.840 the stimulus coming through from China will be enough to 0:06:39.880 --> 0:06:43.240 stabilize the economy. It was very incremental to me, and 0:06:43.240 --> 0:06:45.000 there seems to be a shift as well over what 0:06:45.080 --> 0:06:47.720 they want to stimulate the economy with, moving away from 0:06:47.760 --> 0:06:51.719 infrastructure spending, moving away from leaning on monetary policy too heavily, 0:06:52.080 --> 0:06:55.640 and leaning into things like tax cuts. Now, have the 0:06:55.680 --> 0:06:59.479 incremental moves been enough, Will they be enough to turn 0:06:59.520 --> 0:07:02.120 the story around? It's a great point because what you 0:07:02.160 --> 0:07:06.159 had in twenty fifteen and twenty sixteen was significant investment 0:07:06.320 --> 0:07:10.160 that led to significant Chinese growth that lifted up growth 0:07:10.200 --> 0:07:13.000 all around the world, and that was the catalyst. We're 0:07:13.040 --> 0:07:15.960 not getting that this time. So in essence, what you're 0:07:16.000 --> 0:07:21.760 getting is um efforts to stabilize Chinese growth near a 0:07:21.880 --> 0:07:26.040 trend level. And so the catalyst for the rest of 0:07:26.080 --> 0:07:28.720 the world and these higher yielding markets that you're talking 0:07:28.760 --> 0:07:32.000 about is not going to be massive Chinese stimulus. It's 0:07:32.000 --> 0:07:36.400 gonna be what we call stimulus light. So that happens, 0:07:36.440 --> 0:07:41.360 that stabilization happens as the US slows towards trend. It 0:07:41.400 --> 0:07:44.720 doesn't look exactly like fifteen and sixteen, but markets could 0:07:44.760 --> 0:07:50.280 play out similarly because similar to the twenty sixteen UM, 0:07:50.280 --> 0:07:53.280 emerging markets have been beaten up UM and you know, 0:07:53.320 --> 0:07:57.040 investor sentiment has gotten really weak, the dollars pretty strong, 0:07:57.600 --> 0:08:00.280 and you know this this stimulus light at it China 0:08:00.360 --> 0:08:02.440 could be the catalyst to unlock some of that volumee, 0:08:02.520 --> 0:08:05.040 said Brian. Final final question for a lot of investors 0:08:05.040 --> 0:08:07.360 out there who are waiting for the data to confirm 0:08:07.400 --> 0:08:10.000 the turnaround, are you saying that by the time they've 0:08:10.040 --> 0:08:11.640 got that, they're going to miss the big chunk of 0:08:11.640 --> 0:08:14.240 the upside. Yeah, I mean that's how it goes. I 0:08:14.600 --> 0:08:17.840 UM like, I don't think that this cycle ends anytime soon. 0:08:17.920 --> 0:08:20.560 There's really not inflation anywhere in the world. I don't 0:08:20.600 --> 0:08:24.600 see significant excess anywhere in the world. So I suspect 0:08:24.680 --> 0:08:27.000 this is a cycle that goes on longer than people expect. 0:08:27.040 --> 0:08:33.000 I think concerns of recession or hyperbole UM investors should 0:08:33.000 --> 0:08:36.439 be investing. This is one of those big bull markets, 0:08:36.559 --> 0:08:39.360 long term secular bowl markets that we get in our lives. 0:08:39.600 --> 0:08:41.360 I've been told you get three of them when you're 0:08:41.360 --> 0:08:43.760 too young, when you're too old to take advantage of 0:08:43.760 --> 0:08:45.800 the one in the middle, and and that's that's what 0:08:45.840 --> 0:08:48.000 I think investors need to be doing. Hey, Brian, always 0:08:48.000 --> 0:08:49.439 great to catch out with you, Ma up and hand 0:08:49.480 --> 0:08:52.000 a fund senior investment strategist to run us through the 0:08:52.000 --> 0:09:09.280 markets and respond to the latest earnings with us now, 0:09:09.400 --> 0:09:12.040 kenn Ley on c f R A, he's been wonderful 0:09:12.080 --> 0:09:15.600 about giving his bank perspective. Kennon looking at the big 0:09:15.679 --> 0:09:20.080 k X of Keith brianton Wood's bank index down. Maybe 0:09:20.160 --> 0:09:24.160 it's worse now down a nice bounce. Frankly, folks, it's 0:09:24.200 --> 0:09:27.920 an elegant chart showing south Ken Can you be long 0:09:28.040 --> 0:09:33.080 banks right now? You have to be cautious. So um, 0:09:33.160 --> 0:09:35.600 these stocks are beaten up the bowl case if you 0:09:35.640 --> 0:09:38.640 are long, would be there trading below book value. The 0:09:38.679 --> 0:09:43.520 return of capital is significant for buybacks and dividends. Um. 0:09:43.559 --> 0:09:46.480 Some of the businesses are stable, but it was a 0:09:46.600 --> 0:09:49.199 risk class environment. It hurt them in the fourth quarter, 0:09:49.600 --> 0:09:52.520 with them significantly in December. Okay, I'm looking at the 0:09:52.600 --> 0:09:54.560 size and folks. One of the things I always get 0:09:54.640 --> 0:09:57.600 upset about media coverage of the banks is we forget 0:09:57.800 --> 0:10:03.120 how large these companies are. For example, JP Morgan's only 0:10:03.160 --> 0:10:06.640 a hundred gazillion dollars it comes in, they take thirty 0:10:06.720 --> 0:10:10.120 six cents UH down to the operating income line. Their 0:10:10.160 --> 0:10:15.679 net income would make GM blush. Net income is extraordinary, Ken. 0:10:15.840 --> 0:10:19.400 Within trading, how much of it is a variable cost 0:10:19.960 --> 0:10:22.640 and how much is it a fixed cost? Is they 0:10:22.760 --> 0:10:27.840 rationalize out two and three years trading to total net 0:10:27.880 --> 0:10:32.200 revenues for JP Morgan is important. It's just under of 0:10:32.280 --> 0:10:36.520 total net revenues UM. You have to feed the beasts 0:10:36.559 --> 0:10:41.719 the infrastructure for both equity and separately fixed income currency UM. 0:10:41.960 --> 0:10:45.679 So essentially, if you don't have that volume, and we 0:10:45.720 --> 0:10:49.640 didn't have that volume in the sixth income side, even 0:10:49.720 --> 0:10:52.840 with some of the ratcheting down over the last six 0:10:52.960 --> 0:10:57.760 seven years with Dodd Frank Uh, still there wasn't enough activity. 0:10:58.160 --> 0:11:01.199 That hurt. And also you've got to get the trade 0:11:01.320 --> 0:11:05.360 right in terms of the higher riskier areas of fixed 0:11:05.440 --> 0:11:08.600 ink on the derivatives. The big story in Q four 0:11:08.679 --> 0:11:10.640 was that it was bad. The debate, I guess, Ken, 0:11:10.720 --> 0:11:13.360 is to what degree was it bad? We're finding out 0:11:13.360 --> 0:11:15.400 it was worse than a lot of people thought. Fine. 0:11:15.520 --> 0:11:18.840 Q four ancient history. Let's get into a lot of 0:11:18.840 --> 0:11:21.120 people are looking for a window into the broader economy, 0:11:21.240 --> 0:11:23.920 show me the loan growth. How's that story progressing? Do 0:11:24.000 --> 0:11:26.280 you see some positive signs so far? From city group? 0:11:26.280 --> 0:11:30.920 From JP Morgan Kent, the first quarter is very important, 0:11:31.120 --> 0:11:34.040 typically one of the strongest quarters of the year for 0:11:34.200 --> 0:11:38.880 JP Morgan. Um, what comes in reliably has been the 0:11:38.960 --> 0:11:43.240 consumer loans up three and fourth quarter driven mostly by 0:11:43.280 --> 0:11:49.520 consumer and credit card. Commercial lending was down two. Um, 0:11:49.880 --> 0:11:53.880 that's mostly on a down tick on construction real estate loans. 0:11:53.960 --> 0:11:57.600 But UM, yeah, I mean long growth, which is of 0:11:57.880 --> 0:12:02.000 large base in terms of revenues, has to do better. Uh. 0:12:02.320 --> 0:12:04.200 You know. The other factor, and Tom gets at this, 0:12:04.720 --> 0:12:08.400 is that you've got two buckets loans banking, and then 0:12:08.440 --> 0:12:11.360 you also got net interest income. Um. And we don't 0:12:11.360 --> 0:12:15.720 have these steep ascension of rates, which means net interest 0:12:15.760 --> 0:12:19.319 income will grow. But the non parts, as you're addressing here, 0:12:19.440 --> 0:12:21.640 loans has to do a little bit better. In two 0:12:21.640 --> 0:12:24.600 thousand nineteen, credit provisions is a story for this morning 0:12:24.840 --> 0:12:27.800 as well. Can the numbers in JP Morgan suggested a 0:12:27.840 --> 0:12:30.280 bit of a provision build. What are your thoughts on that? 0:12:30.320 --> 0:12:34.200 What do you see in the numbers? Um? Too hard 0:12:34.280 --> 0:12:36.800 to go through every one of the segments. I think 0:12:36.800 --> 0:12:39.520 it's kind of mixed. Um, I didn't see there was 0:12:39.559 --> 0:12:44.400 nothing episodic in Q four two eighteen to say that 0:12:44.440 --> 0:12:47.760 they're behind the curve in terms of provisions allowance for 0:12:47.880 --> 0:12:51.400 doubtful accounts or higher reserves. It's another way, of course. 0:12:51.520 --> 0:12:54.240 Also they get better net income. It's just, you know, 0:12:54.600 --> 0:12:57.720 be too aggressive in the old days, Ken, I'd ask 0:12:57.760 --> 0:12:59.920 you this question. So in honor of the old days, 0:13:00.040 --> 0:13:05.280 le'sk it right now agony brings mergers and acquisitions. Are 0:13:05.280 --> 0:13:09.360 we going to see a new consolidation in various sundry banks? 0:13:11.679 --> 0:13:14.920 So M and A in two thousand eighteen was a 0:13:14.960 --> 0:13:19.559 significant year, but it's concentrated to large deals. Large deals 0:13:19.600 --> 0:13:22.760 if they get done from announced to complete, it take 0:13:22.800 --> 0:13:25.800 twelve to eighteen months. Um. That would be I think 0:13:25.840 --> 0:13:29.240 the story in two thousand nineteen as well. It's mostly 0:13:29.480 --> 0:13:32.840 the America's in Europe. Not to worry about Asia for 0:13:33.040 --> 0:13:36.199 M and A. But to be firing on all cylinders 0:13:36.640 --> 0:13:39.760 on JP Morgan today, in City yesterday, they got to 0:13:39.760 --> 0:13:43.360 get fire up higher growth out of equity underwriting. The 0:13:43.400 --> 0:13:46.560 dead underwriting is kind of fading because that was used 0:13:46.640 --> 0:13:50.360 with tax benefits no longer there to fund stock repurchases. 0:13:50.720 --> 0:13:52.680 He can great to catch up with you. Busy morning 0:13:52.720 --> 0:13:54.320 for you. I'm so so thank you very much for 0:13:54.320 --> 0:13:56.959 giving us your time. Kenley on Global Director of Research. 0:13:57.000 --> 0:14:00.160 It see our a so if that Jp Morgan, we 0:14:00.200 --> 0:14:02.040 have had City. We wait on Goldman over the next 0:14:02.040 --> 0:14:05.800 couple of days and Tom, I think Goldmen will be fascinating. 0:14:05.840 --> 0:14:07.760 I keep calling it a non bank. I know that 0:14:07.760 --> 0:14:10.640 that upsets Mr Solomon and Mr blank find but there 0:14:10.640 --> 0:14:15.160 it is, John the Green today Westminster bells ringing drums. 0:14:15.160 --> 0:14:17.760 I couldn't even hear the guests next to us. It was. 0:14:17.840 --> 0:14:20.920 It was on the edge of John bonhom of of 0:14:21.080 --> 0:14:33.480 led Zeppelin. It was drumming John Bontom at Westminster. John, 0:14:33.520 --> 0:14:36.680 you know this is a band from you know, Jimmy 0:14:36.880 --> 0:14:46.440 Page and Plantifs from the Midlands and John no Zeppelin. 0:14:46.560 --> 0:14:48.760 I thought you were gonna give me the history to Zeppelin. 0:14:50.160 --> 0:14:56.360 Oh great album of all time. Don't tell Robert plants 0:14:56.360 --> 0:15:14.080 out of London and John. Now we have Victoria Houston 0:15:14.120 --> 0:15:17.320 with us on the Institute of Economic Affair, Senior Council, 0:15:17.400 --> 0:15:22.480 the International Trade and Competition Unit. Victoria, you are away 0:15:22.520 --> 0:15:27.240 from the politics. You are away from the actual voting 0:15:27.280 --> 0:15:31.400 tonight and on into tomorrow and the next day. At 0:15:31.480 --> 0:15:35.320 what risk is the UK trade right now? What is 0:15:35.320 --> 0:15:38.520 the single thing that the United Kingdom will give up 0:15:38.520 --> 0:15:41.720 in trade with any kind of defeat for Prime Minister 0:15:41.800 --> 0:15:45.680 may Well, let's be here. A defeat for the Prime 0:15:45.720 --> 0:15:49.360 Minister and for the whistaal agreement at this point only 0:15:49.400 --> 0:15:52.160 means that at this point they have to come back 0:15:52.320 --> 0:15:58.040 with another plan um in um three sitting days time. 0:15:58.640 --> 0:16:02.480 So while I'm sure if the vote were to to 0:16:02.560 --> 0:16:05.920 reject the deal today there would be some repercussions in 0:16:06.000 --> 0:16:10.360 market sentiment, it wouldn't in and of itself mean anything. However, 0:16:10.400 --> 0:16:13.920 if it meant that ultimately the deal was rejected and 0:16:14.400 --> 0:16:17.280 the Prime Minister wasn't able to bring it back to 0:16:17.320 --> 0:16:21.760 the House in any renegotiated form, and so the deal 0:16:21.880 --> 0:16:25.120 ultimately couldn't be agreed at all, and come the twenty 0:16:25.200 --> 0:16:29.120 ninth of March and leave the European Union without overstore agreement, 0:16:29.720 --> 0:16:33.560 then you know that's when that's when the possible disruptions 0:16:33.640 --> 0:16:37.760 to trade would kick in. I mean the disruption to 0:16:37.840 --> 0:16:40.560 trade in the messaging and all the newspapers this morning, 0:16:41.240 --> 0:16:44.560 is this measurement of how long the pain will be 0:16:45.040 --> 0:16:48.160 the leave people say, yes, there's going to be pain, 0:16:48.760 --> 0:16:51.720 will get over it and we'll move on. In the 0:16:51.800 --> 0:16:54.840 remaining people in four differentiates from what I can tell 0:16:55.200 --> 0:16:58.720 say no, there's going to be a permanent disruption to 0:16:58.880 --> 0:17:01.800 trade for an eye the nation. Where do you stand 0:17:01.800 --> 0:17:05.879 on that? Well, I think there's two different sort of sides. 0:17:05.960 --> 0:17:10.159 So that there's the question of the immediate disruption at 0:17:10.200 --> 0:17:13.720 the ports because we've introduced we would have to introduce 0:17:14.119 --> 0:17:19.320 a new range of administrative requirements to import and export goods, 0:17:19.880 --> 0:17:23.320 and there are fears being raised of huge queues and 0:17:23.359 --> 0:17:26.200 tailbacks on the roads leading into Dover and Kelley, the 0:17:26.720 --> 0:17:31.480 main cross channel trade ports. And then there's the aspect 0:17:31.600 --> 0:17:35.399 of the more long term structural impact on our trade. 0:17:36.080 --> 0:17:39.560 And I think the first side, the immediate practical steps, 0:17:40.200 --> 0:17:43.200 I think most people probably acknowledge that that would only 0:17:43.280 --> 0:17:49.200 last a couple of months at worst, while businesses adapt 0:17:49.600 --> 0:17:53.960 and the government believedly starts making the necessary steps that 0:17:54.000 --> 0:17:57.240 it should really have been making, um since immediately after 0:17:57.280 --> 0:18:00.719 the referendum to to make the trade flow. Okay, well, 0:18:00.720 --> 0:18:04.960 the government, the government will take quote unquote necessary steps, 0:18:05.000 --> 0:18:10.359 but on a microeconomic basis, almost a microcosm basis, every 0:18:10.400 --> 0:18:14.199 single business will adapt and adjust in the United Kingdom, 0:18:14.240 --> 0:18:17.800 in Ireland, in Scotland, in Europe and around the world 0:18:17.960 --> 0:18:22.320 to the reality of London just separating away from Europe 0:18:22.440 --> 0:18:25.640 or do you doubt that that will happen. Well, we're 0:18:25.680 --> 0:18:28.120 not leaving the continent of Europe or leaving a set 0:18:28.119 --> 0:18:32.200 of political institutions called the European Union. And in fact, 0:18:32.200 --> 0:18:34.959 the number of businesses in the United Kingdom that trades 0:18:35.000 --> 0:18:38.359 with the European Union is extremely small, um in in 0:18:38.880 --> 0:18:42.360 you know, in aggregate terms, there's only a small percentage, 0:18:42.359 --> 0:18:44.439 maybe six per cent of all businesses in in the 0:18:44.480 --> 0:18:48.120 United Kingdom actually do any trade with CEU. And interesting 0:18:48.160 --> 0:18:51.960 doesn't account for that much of our our GDP. Actually, 0:18:52.600 --> 0:18:55.040 um alth, it's a it's a serious and material part 0:18:55.080 --> 0:18:58.560 of our GP. I think it's about ten ten percent 0:18:58.640 --> 0:19:02.040 of our GP is a constitute of trade with the EU. 0:19:02.600 --> 0:19:05.480 So the idea that we can't survive and the economy 0:19:05.520 --> 0:19:09.840 will will fall off a cliff and um everyone will 0:19:10.040 --> 0:19:12.680 you end up scavenging on the streets for food is 0:19:13.280 --> 0:19:16.200 really quite mistaste. Now some of that is out there 0:19:16.240 --> 0:19:21.679 to say the least victory, Thank you so much, greatly 0:19:21.720 --> 0:19:24.960 greatly appreciated this morning a fair senior council to the 0:19:24.960 --> 0:19:43.639 International Trading Competition Unit. We greatly appreciate that. Paul Sweeney 0:19:43.640 --> 0:19:45.560 in New York. I'm Tom Keenan London and with us 0:19:45.680 --> 0:19:50.800 John Taylor, Stanford University, Professor Taylor. I've had the honors 0:19:50.800 --> 0:19:52.879 speaking to you any number of times about this, but 0:19:52.960 --> 0:19:56.800 let's revisit Taylor nine eight. John, this is a few 0:19:56.880 --> 0:20:01.119 years ago. You were sixteen a protege. You remember this well, 0:20:01.840 --> 0:20:05.920 and you and Gary mcelvo talking about sticky price's nominal 0:20:06.000 --> 0:20:11.320 rigidities in wage, in price stickiness, and to bring that 0:20:11.400 --> 0:20:15.640 forward to where we are now, Professor Taylor, the conundrum 0:20:15.680 --> 0:20:19.920 for America has been wages that wouldn't go up. How 0:20:20.000 --> 0:20:24.919 sticky are wages right now? That's thanks for bringing that 0:20:25.000 --> 0:20:28.119 research up, but people still talking about it all after 0:20:28.119 --> 0:20:31.000 all these years. And I think the reason is that 0:20:31.359 --> 0:20:36.040 stickiness really had to reflect underlying fundamentals over time. So 0:20:36.080 --> 0:20:39.520 if you don't have productivity, growth, if you don't have 0:20:39.640 --> 0:20:44.600 the things that earnings, you don't get the wages. That's 0:20:44.680 --> 0:20:47.240 that's what's all about. And this is important from London, 0:20:47.320 --> 0:20:49.879 Professor Taylor, because if I go back to Clement Atlee, 0:20:49.960 --> 0:20:53.760 World War Two, the mystery that Kane's faced of ugly unemployment, 0:20:54.040 --> 0:20:57.600 this election, to this vote tonight. Rather hearkens back to 0:20:57.680 --> 0:21:01.800 the twenties in England, which weren't like the twenties in America. 0:21:01.880 --> 0:21:05.240 We had an industrial revolution. Then maybe they didn't in England, 0:21:05.400 --> 0:21:10.080 Ramsey Donald and the sum of this is, we've been 0:21:10.080 --> 0:21:15.000 here before, haven't we. Yes, Uh, there's an up and 0:21:15.080 --> 0:21:17.840 down similarities in the cycle. I think the big decision 0:21:18.600 --> 0:21:21.800 in uh London right now is key. I think they've 0:21:21.880 --> 0:21:23.520 laid it out. I don't know what's going to happen. 0:21:23.520 --> 0:21:26.639 You're you're closer than I am. But you did have 0:21:26.760 --> 0:21:29.399 some good times in the twenties. They didn't last. Theories 0:21:29.440 --> 0:21:33.399 were terrible on all over the world, Professor. We're experiencing 0:21:33.400 --> 0:21:36.000 this country something you know, I guess a little bit unique. 0:21:36.000 --> 0:21:39.720 That is a partial government shutdown. Do you expect this 0:21:40.119 --> 0:21:43.040 shutdown to have any impact on the economy. The markets 0:21:43.160 --> 0:21:46.800 seem to be, you know, pretty much shrugging it off. Yeah, 0:21:46.880 --> 0:21:49.480 I don't think so. At this point, people talking about 0:21:49.520 --> 0:21:52.400 the FETs not getting the data coming in, but they 0:21:52.400 --> 0:21:54.520 have less of ways to understand what the data is. 0:21:54.560 --> 0:21:57.960 I think there's certain people that are are hurting, that's 0:21:58.000 --> 0:22:01.720 for sure, But the overall economy, UH, thus far, it's 0:22:01.760 --> 0:22:04.520 doing fine. I think there's other other factors, of course 0:22:05.040 --> 0:22:07.440 in the economy that people are talking about, which tend 0:22:07.480 --> 0:22:09.800 to be bigger than the shutdown in terms of the 0:22:09.880 --> 0:22:12.159 overall economy. And what are some of those out on 0:22:12.200 --> 0:22:15.800 the top of your list. Well, I've actually been positive 0:22:16.160 --> 0:22:18.960 that some of the changes we had in the last 0:22:19.000 --> 0:22:22.520 year and a half, the tax reform, regulatory reform. We 0:22:22.560 --> 0:22:26.520 talked about the FED already that the concerns are are 0:22:26.560 --> 0:22:28.800 are just doesn't want to us forever. And we've got 0:22:28.800 --> 0:22:30.600 a lot of alto in the markets, and people are 0:22:30.600 --> 0:22:34.600 talking about the history. John Taylor from and this is 0:22:34.680 --> 0:22:37.280 Stan Fisher, I believe in seventies seven and goes on 0:22:37.359 --> 0:22:41.240 to Manqueu and others. Is if we look at wages 0:22:41.280 --> 0:22:45.160 in the overlays. You mentioned earlier productivity and technology one 0:22:45.160 --> 0:22:47.360 of the new themes, and folks, this is a strange 0:22:47.440 --> 0:22:53.080 word that's not spoken too often. There are monopxanistic tendencies 0:22:53.840 --> 0:22:58.400 within our companies and within the dominance of companies where 0:22:58.440 --> 0:23:02.720 they control the wage now like they used to not 0:23:03.000 --> 0:23:06.360 to do you buy the idea that it's a different 0:23:06.400 --> 0:23:11.720 wage calculus now because of the dominance of business. I 0:23:11.760 --> 0:23:15.960 think there's some evidence, uh that people have pointed to 0:23:16.080 --> 0:23:19.640 about Monopsony orle Ashtonfelder is one of them at Princeton. 0:23:19.920 --> 0:23:23.520 I don't think it's affecting the overall trend and wages. 0:23:23.560 --> 0:23:26.000 I think that really is more productive and that's more 0:23:26.480 --> 0:23:29.280 the basic economy. But yeah, you can find elements of this, 0:23:29.560 --> 0:23:34.520 elements of probably just the differences from competition all the time. 0:23:34.600 --> 0:23:37.680 That's why I have more competitive markets, just because the 0:23:37.760 --> 0:23:40.280 time Paul Sweenia and I Professor Taylor have to switch 0:23:40.320 --> 0:23:44.679 to the acclaim of rules versus discretion. Where are the 0:23:44.800 --> 0:23:47.640 rules right now? Is there a rule book for Chairman 0:23:47.680 --> 0:23:51.879 Paul Well, you know they've written a lot and in 0:23:51.920 --> 0:23:54.160 the last year and a half about rules. In their 0:23:54.160 --> 0:23:57.320 Monterey report, he's talked about it. The new vice chair 0:23:57.880 --> 0:24:00.160 Ric Claren has done fun and metal work about out. 0:24:00.160 --> 0:24:03.000 They're referring to it in there in their speeches, so 0:24:03.040 --> 0:24:05.080 I think they're they're trying to get back to this. 0:24:05.240 --> 0:24:08.840