1 00:00:00,240 --> 00:00:04,040 Speaker 1: Runt you by Bank of America Mary Lynch. With virtual reality, 2 00:00:04,320 --> 00:00:09,719 Speaker 1: virtually everything will change. Discover opportunities in a transforming world. 3 00:00:10,119 --> 00:00:14,440 Speaker 1: Be of a, mL dot Com, slash VR, Mary Lynch, 4 00:00:14,520 --> 00:00:29,240 Speaker 1: Pierced Fenner and Smith Incorporated. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:29,280 --> 00:00:32,760 Speaker 1: I'm Tom Keene with David Gura. Daily we bring you 6 00:00:32,840 --> 00:00:37,640 Speaker 1: insight from the best of economics, finance, investment, and international relations. 7 00:00:38,120 --> 00:00:43,640 Speaker 1: Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com, 8 00:00:43,640 --> 00:00:53,160 Speaker 1: and of course on the Bloomberg. Right now, in Jerusalem, 9 00:00:53,159 --> 00:00:56,720 Speaker 1: President Trump meeting with the President of Israel, Ruben Rivlin. 10 00:00:56,800 --> 00:00:59,120 Speaker 1: He fought in the Six Days War fifty years ago. 11 00:00:59,520 --> 00:01:03,440 Speaker 1: Here is the President of the United States together and 12 00:01:03,520 --> 00:01:06,120 Speaker 1: now today being in Israel is just very very special 13 00:01:06,200 --> 00:01:12,080 Speaker 1: for us. So we expect to have some very interesting talks. Absolutely, 14 00:01:13,520 --> 00:01:15,760 Speaker 1: we are praying for peace, and we are pushing for 15 00:01:15,880 --> 00:01:19,280 Speaker 1: peace for the last one other tears and with God's head, 16 00:01:19,560 --> 00:01:24,080 Speaker 1: somebody will bring us peace all together, all together. Thank you, 17 00:01:24,600 --> 00:01:31,800 Speaker 1: Thank you very much, thank you, thank you, thank you. Yeah, 18 00:01:31,840 --> 00:01:35,200 Speaker 1: a photo opportunity. Now you can hear the cameras going 19 00:01:35,280 --> 00:01:40,760 Speaker 1: behind the United States and Israel flags. Israeli flags and attendance. 20 00:01:41,120 --> 00:01:43,640 Speaker 1: UM can't really guess the crowd size. I would guess 21 00:01:44,080 --> 00:01:49,080 Speaker 1: maybe a hundred journalists as well. And we're again shifting 22 00:01:49,120 --> 00:01:52,160 Speaker 1: to another scene where perhaps we'll have more formal comments 23 00:01:52,600 --> 00:01:55,840 Speaker 1: by Mr Trump. He is in Jerusalem, landing at Tel 24 00:01:55,840 --> 00:02:02,840 Speaker 1: Aviv earlier today and by helicopter to Jerusalem. Uh and uh. 25 00:02:04,240 --> 00:02:06,840 Speaker 1: Right now with David Gurray in Boston. I'm Tom keenan 26 00:02:06,920 --> 00:02:11,080 Speaker 1: New York Jerome Schneider with us with Pimco in our 27 00:02:11,120 --> 00:02:13,520 Speaker 1: New York studios. Jerome, thank you for all of us 28 00:02:13,520 --> 00:02:17,160 Speaker 1: for being so patient with the news flow up this morning. 29 00:02:17,320 --> 00:02:20,560 Speaker 1: Let's get basic here on a Monday, we've seen the 30 00:02:20,600 --> 00:02:24,920 Speaker 1: Trump trade fade, steeper yield curve we've rolled over clearly 31 00:02:24,960 --> 00:02:28,000 Speaker 1: based on news events. To a pro like you, what 32 00:02:28,040 --> 00:02:31,480 Speaker 1: does curve flattening mean? Ultimately, it means that we should 33 00:02:31,520 --> 00:02:34,000 Speaker 1: be expecting rates to move higher over the over the 34 00:02:34,040 --> 00:02:36,240 Speaker 1: new yer term. And I think that you know with 35 00:02:36,360 --> 00:02:39,640 Speaker 1: that mind, it's also a relatively healthy economy that one 36 00:02:39,680 --> 00:02:42,800 Speaker 1: could point to, and and and and ultimately that what 37 00:02:42,880 --> 00:02:46,160 Speaker 1: we see in the market is very different, very different 38 00:02:46,200 --> 00:02:48,280 Speaker 1: than what we should project to the market. Let maybe 39 00:02:48,280 --> 00:02:50,720 Speaker 1: be clear about that ultimately, when you look at short 40 00:02:50,800 --> 00:02:53,760 Speaker 1: term interest rate expectations, that we've seen a very drastic 41 00:02:53,760 --> 00:02:55,760 Speaker 1: move over the past week or two in terms of 42 00:02:55,760 --> 00:02:58,680 Speaker 1: the expectations of a June rate hike. The reality is 43 00:02:58,680 --> 00:03:00,680 Speaker 1: is that when you look at the ottening of the yolker, 44 00:03:00,720 --> 00:03:03,280 Speaker 1: specifically over the past few days, we should expect those 45 00:03:03,360 --> 00:03:07,120 Speaker 1: rates to move higher more more probably probability awaited than 46 00:03:07,160 --> 00:03:09,600 Speaker 1: the market is expecting. So simply put, rates are moving 47 00:03:09,680 --> 00:03:12,600 Speaker 1: higher and we should be preparing for that. Well, we 48 00:03:12,639 --> 00:03:14,560 Speaker 1: should be preparing for that, and I guess I see 49 00:03:14,600 --> 00:03:16,520 Speaker 1: it with a one point two nine percent two year 50 00:03:16,600 --> 00:03:19,440 Speaker 1: yield as well. It's away from your remit in short 51 00:03:19,560 --> 00:03:23,800 Speaker 1: term paper. But nevertheless, I know you're wired at PIMCO 52 00:03:23,960 --> 00:03:28,239 Speaker 1: on weaker dollar, stronger oil. Which is the horse and 53 00:03:28,360 --> 00:03:30,919 Speaker 1: which is the cart? Well, ultimately, you know, I think 54 00:03:30,919 --> 00:03:33,160 Speaker 1: you have to look at the dollar because that, ultimately 55 00:03:33,240 --> 00:03:35,320 Speaker 1: is what the FED is going to key off of. 56 00:03:35,720 --> 00:03:39,280 Speaker 1: When you look at the Fed's transition from this data 57 00:03:39,320 --> 00:03:42,800 Speaker 1: dependent model to more of a conditions dependent model, financial 58 00:03:42,800 --> 00:03:45,880 Speaker 1: conditions dependent model back in two thousand sixteen, that's really 59 00:03:45,880 --> 00:03:47,600 Speaker 1: what we have to focus on. The data is there 60 00:03:47,640 --> 00:03:50,000 Speaker 1: for the for the rate hike The only reason that 61 00:03:50,040 --> 00:03:52,119 Speaker 1: the FED doesn't increase rates over the next six months 62 00:03:52,240 --> 00:03:54,640 Speaker 1: or so by one or maybe even two times is 63 00:03:54,680 --> 00:03:58,720 Speaker 1: that the financial conditions tightened. So being being conditions dependent 64 00:03:58,800 --> 00:04:03,880 Speaker 1: is simply driven by data, I'm sorry, driven by volatility 65 00:04:03,880 --> 00:04:06,440 Speaker 1: and currency, specifically the view of the dollar. So I 66 00:04:06,480 --> 00:04:08,600 Speaker 1: put more weight on the dollar than oil right now. 67 00:04:08,640 --> 00:04:11,560 Speaker 1: But it is interesting, Tom, and this is noteworthy, is 68 00:04:11,600 --> 00:04:14,960 Speaker 1: that we basically have seen whatever it takes policy from 69 00:04:14,960 --> 00:04:17,719 Speaker 1: OPEC and and some of the producers, and that sort 70 00:04:17,720 --> 00:04:19,480 Speaker 1: of found a floor and that could have actually pretty 71 00:04:19,520 --> 00:04:23,040 Speaker 1: positive implications potentially for not only global comedy but really 72 00:04:23,080 --> 00:04:26,440 Speaker 1: the domestic economy as you looked forward to that stabilization, 73 00:04:26,480 --> 00:04:30,240 Speaker 1: it could lead to other things including capex, capital expenditures increasing, 74 00:04:30,520 --> 00:04:33,039 Speaker 1: and ultimately you know that that creates stability and upward 75 00:04:33,040 --> 00:04:35,960 Speaker 1: propensity for the economy. Let's play that a little bit here. 76 00:04:36,000 --> 00:04:38,840 Speaker 1: We saw news from the Saudi oil minister over the weekend. 77 00:04:38,880 --> 00:04:41,080 Speaker 1: That's Audi rabing other participants in that OPEQ and non 78 00:04:41,080 --> 00:04:43,880 Speaker 1: opic dealer willing and eager to continue it. What does 79 00:04:43,920 --> 00:04:47,159 Speaker 1: that mean for the economy going forward? Well, ultimately, the 80 00:04:47,279 --> 00:04:50,560 Speaker 1: downside risk if you will, to lower oil prices, UH 81 00:04:50,880 --> 00:04:53,599 Speaker 1: is something that domestic producers are going to be willing 82 00:04:53,640 --> 00:04:56,240 Speaker 1: to increase their capital expenditures or at least maintain it. 83 00:04:56,279 --> 00:04:57,880 Speaker 1: We've seen it sort of seen it in Rigg growth 84 00:04:58,360 --> 00:05:01,560 Speaker 1: here over the past few months. But ultimately it's sort 85 00:05:01,600 --> 00:05:03,680 Speaker 1: of been a seesaw, you know, when when one when 86 00:05:03,720 --> 00:05:06,719 Speaker 1: one party producing party has cut the other sort of 87 00:05:06,760 --> 00:05:10,240 Speaker 1: increase slightly or vice versa. And I think, what we 88 00:05:10,400 --> 00:05:12,520 Speaker 1: what what the goal is to try to achieve a 89 00:05:12,520 --> 00:05:15,840 Speaker 1: healthy balance centered around fifty dollars, maybe it depths slightly below, 90 00:05:16,080 --> 00:05:18,840 Speaker 1: but ultimately create that stability and that and that's ultimately 91 00:05:18,880 --> 00:05:21,640 Speaker 1: what all producers want so that they can forecast and 92 00:05:21,880 --> 00:05:24,680 Speaker 1: maintain profit margins without being whip sled in terms of 93 00:05:24,720 --> 00:05:27,120 Speaker 1: putting out lays that may ultimately prove to be at 94 00:05:27,200 --> 00:05:29,440 Speaker 1: least in the near term, unprofitable. I want to go 95 00:05:29,480 --> 00:05:31,599 Speaker 1: back to that distinction you were drawing between data dependence 96 00:05:31,640 --> 00:05:33,919 Speaker 1: and conditions dependence. Is this something that we see the 97 00:05:33,960 --> 00:05:37,520 Speaker 1: FED embracing talking about. Help me understand just the difference 98 00:05:37,560 --> 00:05:40,279 Speaker 1: a little bit more well, Yes, And and ultimately you 99 00:05:40,279 --> 00:05:42,919 Speaker 1: can look at even you know, the speeches from you 100 00:05:42,960 --> 00:05:46,360 Speaker 1: know Cleveland President Meister and and and others, you know, 101 00:05:46,520 --> 00:05:49,880 Speaker 1: from even the most dubbish to the to the most hawkish. 102 00:05:50,040 --> 00:05:53,960 Speaker 1: Everybody points to, here's the situation, but if this happens, 103 00:05:54,120 --> 00:05:57,360 Speaker 1: then we may not be moving. Everybody wants to normalize 104 00:05:57,400 --> 00:06:00,560 Speaker 1: the balance sheet. Everybody wants that normalization process to continue, 105 00:06:00,720 --> 00:06:03,279 Speaker 1: but if that you know, does if a certain situation 106 00:06:03,320 --> 00:06:05,360 Speaker 1: at all, then they might have to react. So that 107 00:06:05,440 --> 00:06:10,400 Speaker 1: conditions dependency is critical to the markets, and we can 108 00:06:10,520 --> 00:06:13,080 Speaker 1: we know, generally speaking the data it's sort of firm. 109 00:06:13,120 --> 00:06:15,919 Speaker 1: We sort of no idea sure. Q one GDPs was 110 00:06:15,960 --> 00:06:19,680 Speaker 1: a bit disappointing, but jobs data, even even even wage 111 00:06:19,680 --> 00:06:23,200 Speaker 1: pressures are are relatively stable, although inflation, immittedly from the 112 00:06:23,240 --> 00:06:26,520 Speaker 1: headline perspective is a bit disappointing. Those are things that 113 00:06:26,520 --> 00:06:28,559 Speaker 1: they can quote look through and we're all well aware 114 00:06:28,560 --> 00:06:31,480 Speaker 1: of that. But this conditions is the factor that toggles 115 00:06:31,640 --> 00:06:34,280 Speaker 1: the decision making process of the Fed. This June, within 116 00:06:34,320 --> 00:06:36,560 Speaker 1: the debate, drump sider of PIMCO with us within the 117 00:06:36,600 --> 00:06:41,680 Speaker 1: debated PIMCO about how the American economy will prosper. We 118 00:06:41,720 --> 00:06:45,479 Speaker 1: can all agree their gains occurring right now, but once again, 119 00:06:45,520 --> 00:06:49,040 Speaker 1: are the gains going to the few versus being spread 120 00:06:49,080 --> 00:06:52,480 Speaker 1: across a wider part of the American populace. Well that 121 00:06:52,480 --> 00:06:54,400 Speaker 1: that has to be Ultimately, there's gonna be a few 122 00:06:54,400 --> 00:06:56,960 Speaker 1: policy implications in this, and you can look at it 123 00:06:57,000 --> 00:06:59,960 Speaker 1: and from retrospect, and clearly, you know, since the financial crisis, 124 00:07:00,080 --> 00:07:02,640 Speaker 1: it's been skewed one way. But I think ultimately we've 125 00:07:02,800 --> 00:07:05,760 Speaker 1: looked tom about what the policy is looking forward. You know, 126 00:07:05,839 --> 00:07:08,719 Speaker 1: we have a period of time here where animal spirits 127 00:07:08,720 --> 00:07:11,720 Speaker 1: have been relatively constructive. Therefore, you know, they've basically been 128 00:07:11,760 --> 00:07:14,760 Speaker 1: fermenting over periods of time, and we see that in 129 00:07:15,200 --> 00:07:17,760 Speaker 1: both the corporate world and also in the retail the 130 00:07:17,760 --> 00:07:20,400 Speaker 1: individual investor world. But as we move forward, we have 131 00:07:20,480 --> 00:07:23,520 Speaker 1: to really look and see if there's risks on the horizon. 132 00:07:23,600 --> 00:07:25,880 Speaker 1: You know, we were very concerned about at the beginning 133 00:07:25,880 --> 00:07:28,600 Speaker 1: of the Trump presidency about things like protectionism and trans 134 00:07:28,640 --> 00:07:32,960 Speaker 1: to deglobalization. But it's quite possible those don't materialize to 135 00:07:33,000 --> 00:07:35,840 Speaker 1: the severe point that people had expected, and so those 136 00:07:35,880 --> 00:07:38,920 Speaker 1: are positive implications ultimately that that sort of tilt to 137 00:07:39,000 --> 00:07:42,160 Speaker 1: the positive site. I'm not being I'm not being pollyannish here, 138 00:07:42,240 --> 00:07:46,320 Speaker 1: and I'm not being overly optimistic. It's not allowed, of course, 139 00:07:46,400 --> 00:07:48,400 Speaker 1: not if you've been to any one of our investment 140 00:07:48,440 --> 00:07:50,800 Speaker 1: committee meetings. You know, we we we all, we all 141 00:07:50,800 --> 00:07:53,080 Speaker 1: have to put our real hats on and sometimes our 142 00:07:53,120 --> 00:07:55,720 Speaker 1: hard hats. But at the same time, this is something 143 00:07:55,840 --> 00:07:58,600 Speaker 1: that is going to be the tradeoff. If animal spirits 144 00:07:58,600 --> 00:08:00,840 Speaker 1: are going to continue, how does it off? And policy 145 00:08:00,880 --> 00:08:02,840 Speaker 1: implications of one of the key factors in the next 146 00:08:02,880 --> 00:08:05,720 Speaker 1: six months to drive that. Final thoughts with Jerome Schneider 147 00:08:06,160 --> 00:08:08,880 Speaker 1: of PIMCO this morning, are are we just clipping coupons? 148 00:08:09,160 --> 00:08:12,120 Speaker 1: Is is the gold chrome? Given all the noise that's 149 00:08:12,160 --> 00:08:15,440 Speaker 1: out there in your statement of a higher rate environment, 150 00:08:15,920 --> 00:08:18,240 Speaker 1: is a goal just to make the coupon and defend 151 00:08:18,760 --> 00:08:21,880 Speaker 1: the goals preserve capital, the goals to preserve capital with 152 00:08:22,000 --> 00:08:25,280 Speaker 1: the notion that inflation is gently increasing, so purchasing power 153 00:08:25,280 --> 00:08:28,560 Speaker 1: and preserving and purchasing power is the essential element of 154 00:08:28,600 --> 00:08:31,840 Speaker 1: proper investing these days, specifically with those bent for fixed 155 00:08:31,880 --> 00:08:34,640 Speaker 1: income allocations. And I think once you moved to a 156 00:08:34,679 --> 00:08:37,720 Speaker 1: higher rate paradigm, which we're clearly moving and edging towards 157 00:08:37,760 --> 00:08:40,360 Speaker 1: that over the next one to maybe even three years, 158 00:08:40,679 --> 00:08:43,760 Speaker 1: you know, it becomes ever more apparent that that becomes attractive. 159 00:08:43,840 --> 00:08:48,480 Speaker 1: So maintaining optionality to defend against higher rates by having 160 00:08:48,520 --> 00:08:53,120 Speaker 1: limited exposure to effectively two interest rates at the same time. 161 00:08:53,200 --> 00:08:56,880 Speaker 1: Ability to embrace those higher interest rates predominantly through items 162 00:08:56,920 --> 00:08:59,600 Speaker 1: such as hedging and even as simple as owding floating 163 00:08:59,640 --> 00:09:03,040 Speaker 1: rate floating rate notes is essential. One thing just to 164 00:09:03,120 --> 00:09:05,360 Speaker 1: highlight tom here is you know, we see libelar and 165 00:09:05,400 --> 00:09:08,240 Speaker 1: sort of the money market instruments, although it's clearly not 166 00:09:08,760 --> 00:09:12,200 Speaker 1: a harbinger of doom or stress in the marketplace, but 167 00:09:12,360 --> 00:09:15,240 Speaker 1: one month libelar crossed one percent for the first time 168 00:09:15,280 --> 00:09:18,000 Speaker 1: since December of two thousand eight. Last week, and so 169 00:09:18,160 --> 00:09:21,000 Speaker 1: it's a noteworthy that we are finally seeing some tip 170 00:09:21,080 --> 00:09:23,640 Speaker 1: of the hat at least to a normalization happening in 171 00:09:23,760 --> 00:09:27,200 Speaker 1: front end markets as we moved to to the FED. 172 00:09:27,280 --> 00:09:30,360 Speaker 1: That is, obviously, as I mentioned previously, more conditions dependent. 173 00:09:30,920 --> 00:09:33,600 Speaker 1: Jerome Pimco had this big confab a couple of weeks back, 174 00:09:33,640 --> 00:09:37,920 Speaker 1: the secular form uh Newt Gingrich was there, Larry Summers 175 00:09:37,960 --> 00:09:39,640 Speaker 1: was there, the whole lot. What did you take away 176 00:09:39,679 --> 00:09:41,880 Speaker 1: from that about where things are headed in Washington, How 177 00:09:41,920 --> 00:09:44,280 Speaker 1: that's going to devetail with the work that you do. Yeah, well, 178 00:09:44,280 --> 00:09:45,920 Speaker 1: you know, once every year we'd like to bring in 179 00:09:46,320 --> 00:09:50,040 Speaker 1: bringing folks on the outside to help help show shut 180 00:09:50,080 --> 00:09:52,080 Speaker 1: some light on the corners of the realm, corners of 181 00:09:52,040 --> 00:09:54,600 Speaker 1: the universe that we normally don't see. And as you mentioned, 182 00:09:54,679 --> 00:09:58,120 Speaker 1: and we did have our normal normal lineup of you, uh, Bernankey, 183 00:09:58,200 --> 00:10:00,760 Speaker 1: Entriche and Gordon Brown. But at the same time, we're 184 00:10:00,800 --> 00:10:03,600 Speaker 1: really focused on how the world will evolve, looking at 185 00:10:03,640 --> 00:10:07,480 Speaker 1: ultimately at animal spirits with that and how they'll effectively 186 00:10:07,520 --> 00:10:10,840 Speaker 1: move move the economy going forward, both domestically and globally. 187 00:10:11,120 --> 00:10:14,199 Speaker 1: Implications of things we obviously are well aware of populism, 188 00:10:14,200 --> 00:10:17,640 Speaker 1: political populism, uh ebbing and flowing, you know, obviously France 189 00:10:17,679 --> 00:10:20,160 Speaker 1: and the election outcome there was very was very it 190 00:10:20,240 --> 00:10:22,760 Speaker 1: was very pointing in that and then ultimately, you know, 191 00:10:22,840 --> 00:10:24,840 Speaker 1: figuring out where we stand in the world. We're at 192 00:10:24,840 --> 00:10:29,360 Speaker 1: a point where clearly we've been utilizing monetary policy in 193 00:10:29,480 --> 00:10:32,720 Speaker 1: excess for the past seven eight nine years and is 194 00:10:32,760 --> 00:10:35,000 Speaker 1: that remain or or how do we evolve out of 195 00:10:35,040 --> 00:10:38,720 Speaker 1: that situation? And those aren't uh, those aren't concurrent clearly 196 00:10:38,760 --> 00:10:41,679 Speaker 1: as the Fed debates one side of it and other another. Uh, 197 00:10:41,960 --> 00:10:45,719 Speaker 1: monetary policy committees are debating the other side. But ultimately 198 00:10:45,920 --> 00:10:48,800 Speaker 1: that quote endgame will be very important so we debated 199 00:10:48,840 --> 00:10:50,960 Speaker 1: that as well. So those ideas will be forthcoming, and 200 00:10:51,080 --> 00:10:53,360 Speaker 1: we encourage everybody to look at the PIMCO website for 201 00:10:53,400 --> 00:10:55,800 Speaker 1: them to be published in the forthcoming days. There was 202 00:10:55,840 --> 00:11:00,319 Speaker 1: a shameless plug I teed that up. But we get 203 00:11:00,320 --> 00:11:03,720 Speaker 1: a budget tomorrow, We're headed toward a government shutdown in 204 00:11:03,720 --> 00:11:07,040 Speaker 1: September if we don't have a spending figured out by that. 205 00:11:07,080 --> 00:11:09,640 Speaker 1: How worried are you about all of that? Yeah? Ultimately 206 00:11:09,760 --> 00:11:11,920 Speaker 1: am I worried right this second? No, But this is 207 00:11:11,960 --> 00:11:14,840 Speaker 1: a sort of festering in the background, and ultimately, you know, 208 00:11:14,920 --> 00:11:17,880 Speaker 1: you cannot overlook the debt ceiling implications later on this year. 209 00:11:18,040 --> 00:11:20,160 Speaker 1: So when we come back later on this summer, you know, 210 00:11:20,160 --> 00:11:22,800 Speaker 1: while we might view it as a quiet summer, uh, 211 00:11:22,840 --> 00:11:24,600 Speaker 1: you know, this is going to be at the forefront 212 00:11:24,600 --> 00:11:26,920 Speaker 1: of the implications for us to pay attention to Truro. 213 00:11:27,120 --> 00:11:29,240 Speaker 1: Thank you so much, Rup Schneider. I'm more than patient 214 00:11:29,280 --> 00:11:45,520 Speaker 1: with the global news flow this morning. He is with Pimcom, 215 00:11:45,559 --> 00:11:49,360 Speaker 1: impatiently waiting in Boston with the Red Sox one game 216 00:11:49,360 --> 00:11:53,280 Speaker 1: above five, losing three straight grow to the Oakland A's. 217 00:11:53,720 --> 00:11:57,160 Speaker 1: He's up there to assist John Ferrell, David Gurral yes, Tom, 218 00:11:57,200 --> 00:11:58,400 Speaker 1: thanks a much here with her and timber Of the 219 00:11:58,400 --> 00:12:00,559 Speaker 1: director of Global Macro Fideli Investment. He was given me 220 00:12:00,600 --> 00:12:02,080 Speaker 1: the lay of the land here, beautiful bureau. You are 221 00:12:02,120 --> 00:12:05,800 Speaker 1: Bloomberg Studios, high up overlooking a lot of the city. 222 00:12:05,800 --> 00:12:08,360 Speaker 1: You're great to have you with us. And let's start 223 00:12:08,400 --> 00:12:10,280 Speaker 1: with with oil. We heard Karen Mosko a few moments 224 00:12:10,360 --> 00:12:13,120 Speaker 1: go talking about the potential for an exten extension of 225 00:12:13,160 --> 00:12:16,720 Speaker 1: that opaque and non OPEC production freeze agreement. Gives your 226 00:12:16,720 --> 00:12:19,080 Speaker 1: sense of your optimism for that and sort of what 227 00:12:19,120 --> 00:12:21,880 Speaker 1: that means for for markets going forward. Yes, well, a 228 00:12:21,960 --> 00:12:25,160 Speaker 1: very good morning to you. You know, I'm pretty bullish 229 00:12:25,240 --> 00:12:28,200 Speaker 1: on oil. I think eventually we're going to go higher. 230 00:12:28,320 --> 00:12:31,960 Speaker 1: The oil complex will be trading indeficit, which will be 231 00:12:31,960 --> 00:12:34,640 Speaker 1: a big change from where it has been. And most 232 00:12:34,679 --> 00:12:36,800 Speaker 1: people probably agree with that. It's just a matter of 233 00:12:37,200 --> 00:12:39,360 Speaker 1: timing and how long does it take to work off 234 00:12:39,400 --> 00:12:43,000 Speaker 1: all of that excess inventory. So certainly the news out 235 00:12:43,000 --> 00:12:46,400 Speaker 1: of OPEC is helpful if you're if you're bullish, and 236 00:12:46,800 --> 00:12:48,439 Speaker 1: you know, one of the communicators I tend to look 237 00:12:48,480 --> 00:12:50,959 Speaker 1: at is a CRB ROW industrial CRB. You know R 238 00:12:51,000 --> 00:12:53,200 Speaker 1: I N D on your Bloomberg again, that's been in 239 00:12:53,240 --> 00:12:56,160 Speaker 1: a pretty sustained up trend, and I think it's a 240 00:12:56,200 --> 00:12:58,880 Speaker 1: better measure than for instance, coppera iron or which have 241 00:12:58,960 --> 00:13:02,480 Speaker 1: been under pressure lately as well as oil. So um, 242 00:13:02,520 --> 00:13:04,640 Speaker 1: I think commodities are in a good place here to 243 00:13:04,679 --> 00:13:07,040 Speaker 1: continue to rally. Is in a good place You look 244 00:13:07,040 --> 00:13:09,960 Speaker 1: at the the U S economy overall, what's your sensitive 245 00:13:10,000 --> 00:13:12,440 Speaker 1: what's what's still lacking? We're lagging when you look at 246 00:13:12,480 --> 00:13:16,240 Speaker 1: it now. So there's so much noise and headlines and 247 00:13:16,320 --> 00:13:19,320 Speaker 1: you know, tweeting and this and that, and um, I 248 00:13:19,360 --> 00:13:21,840 Speaker 1: think a lot of people tend to attribute everything that's 249 00:13:21,840 --> 00:13:24,960 Speaker 1: happening to the latest headlines, and the way I see 250 00:13:25,000 --> 00:13:27,600 Speaker 1: it sort of sort of the force through the trees, 251 00:13:27,640 --> 00:13:30,280 Speaker 1: if you will. There are really two major issues that 252 00:13:30,360 --> 00:13:32,640 Speaker 1: we have to get right. One is China. You know, 253 00:13:32,760 --> 00:13:35,240 Speaker 1: China just pumped a lot of credit into the system 254 00:13:35,280 --> 00:13:38,360 Speaker 1: to reflate yet again. Uh, there are credit impulse, which 255 00:13:38,360 --> 00:13:41,199 Speaker 1: actually is an indicator that you guys developed on Bloomberg 256 00:13:41,480 --> 00:13:44,440 Speaker 1: is running at airt of GDP rate. But the year 257 00:13:44,480 --> 00:13:46,680 Speaker 1: over your change has gone from plus ten to now 258 00:13:47,080 --> 00:13:49,760 Speaker 1: minus one, so that credit impulse has come and gone. 259 00:13:50,160 --> 00:13:52,839 Speaker 1: So one question is what is the aftermath that I'm 260 00:13:52,840 --> 00:13:55,320 Speaker 1: going to look like? My sentence at the global reflation 261 00:13:55,840 --> 00:13:59,400 Speaker 1: is still intact. And I have liked non US equities 262 00:13:59,520 --> 00:14:01,840 Speaker 1: all year and I continue to do. And the other 263 00:14:01,840 --> 00:14:04,320 Speaker 1: one is what kind of late cycle in the US 264 00:14:04,400 --> 00:14:06,679 Speaker 1: are we actually heading in? And this is where the 265 00:14:06,720 --> 00:14:10,120 Speaker 1: fiscal stuff comes in, because the wrong fiscal kind of 266 00:14:10,160 --> 00:14:13,679 Speaker 1: stimulus that foot pushes the demand side could actually shorten 267 00:14:13,760 --> 00:14:16,800 Speaker 1: the cycle, which is kind of ironic because they could 268 00:14:16,840 --> 00:14:19,680 Speaker 1: push the FED into overdrive and therefore earth the cave 269 00:14:19,760 --> 00:14:22,960 Speaker 1: and then lead us into a recession. But less actually 270 00:14:22,960 --> 00:14:25,680 Speaker 1: could be more in that sense, you're in timor with 271 00:14:25,760 --> 00:14:29,080 Speaker 1: us with fidelity. Out of Babs in colleges, you know 272 00:14:29,440 --> 00:14:31,960 Speaker 1: you're in. There is no bad house in the neighborhood 273 00:14:31,960 --> 00:14:35,560 Speaker 1: around Babs in college. It's in a pretty fancy climb 274 00:14:35,680 --> 00:14:39,240 Speaker 1: of Boston, Massachusetts. I like in your note you provide 275 00:14:39,240 --> 00:14:42,240 Speaker 1: clarity by saying the US is the best house in 276 00:14:42,280 --> 00:14:45,320 Speaker 1: the neighborhood, but there are other places to buy right now. 277 00:14:45,400 --> 00:14:49,200 Speaker 1: Why the shift, because we are in a global reflation 278 00:14:49,480 --> 00:14:53,080 Speaker 1: from since about five quarters ago, so from twenty from 279 00:14:54,920 --> 00:14:57,480 Speaker 1: the US was the best house in the neighborhood, but 280 00:14:57,560 --> 00:15:01,000 Speaker 1: now it's actually only one of a number of good houses. 281 00:15:01,120 --> 00:15:03,720 Speaker 1: And this is why non US equities, whether it's developed 282 00:15:03,800 --> 00:15:06,920 Speaker 1: or emerging markets, have actually done very well. They're actually 283 00:15:07,000 --> 00:15:09,440 Speaker 1: up more since the election in the US market, which 284 00:15:09,560 --> 00:15:12,320 Speaker 1: very few people would have would have predicted six months ago. 285 00:15:12,720 --> 00:15:15,080 Speaker 1: So I do think this is a global story. China 286 00:15:15,240 --> 00:15:17,840 Speaker 1: is very much behind it, and as long as China 287 00:15:17,880 --> 00:15:20,760 Speaker 1: can sort of keep it it's it's stuff together, I 288 00:15:20,800 --> 00:15:24,360 Speaker 1: think global equities will continue to not only go up, 289 00:15:24,400 --> 00:15:28,560 Speaker 1: but actually I'll perform the US. Do you see cash 290 00:15:28,600 --> 00:15:31,200 Speaker 1: flows sustained? I mean one of the big surprises here 291 00:15:31,240 --> 00:15:35,920 Speaker 1: has been UH the rise in UH earnings and revenues. 292 00:15:35,960 --> 00:15:38,720 Speaker 1: I mean they were pretty good, weren't they. Yes. Q 293 00:15:38,920 --> 00:15:42,360 Speaker 1: one earnings for the SMP are of four year over 294 00:15:42,480 --> 00:15:45,000 Speaker 1: year UM, and that's in that that force. Those are 295 00:15:45,040 --> 00:15:47,040 Speaker 1: easy comps, of course, because the Q one of last 296 00:15:47,120 --> 00:15:49,160 Speaker 1: year was the bottom of the cycle when earnings were 297 00:15:49,160 --> 00:15:53,160 Speaker 1: falling at seven. But it's a global story. Earnings are 298 00:15:53,240 --> 00:15:57,000 Speaker 1: inflecting higher everywhere, and you have a pretty significant p 299 00:15:57,280 --> 00:15:59,440 Speaker 1: discount you know in e M at twelve, which of 300 00:15:59,480 --> 00:16:01,400 Speaker 1: course is is justified. You just have to look at 301 00:16:01,440 --> 00:16:04,560 Speaker 1: Brazil last week to know why. But even non US 302 00:16:04,760 --> 00:16:07,800 Speaker 1: um equities are training at a fourteen multiple, whereas the 303 00:16:07,880 --> 00:16:11,200 Speaker 1: US is at an eighteen multiple on a forward earning spaces. 304 00:16:11,240 --> 00:16:13,440 Speaker 1: So the earning story is good if if you look 305 00:16:13,480 --> 00:16:17,600 Speaker 1: at the county year numbers for seventeen and you adjust 306 00:16:17,680 --> 00:16:21,440 Speaker 1: for the normal downward drift that happens to estimates, earning 307 00:16:21,440 --> 00:16:24,760 Speaker 1: should be up eight percent over sixteen, and in twenty eighteen, 308 00:16:24,800 --> 00:16:28,440 Speaker 1: which of course is still miles away, would be up 309 00:16:28,480 --> 00:16:31,360 Speaker 1: six percent on on that math, And those numbers don't 310 00:16:31,400 --> 00:16:35,720 Speaker 1: really reflect any potential boost from either tax cuts and 311 00:16:35,880 --> 00:16:38,880 Speaker 1: or deregulations. So UM, I don't think it's fair to 312 00:16:38,920 --> 00:16:41,880 Speaker 1: say that on the earnings estimate side people have um 313 00:16:42,360 --> 00:16:46,600 Speaker 1: unusually optimistic expectations. If there if there's a premium built in, 314 00:16:46,680 --> 00:16:49,120 Speaker 1: it's on the valuation side, which I do think can 315 00:16:49,160 --> 00:16:51,720 Speaker 1: be an issue going forward. There was for such a 316 00:16:51,760 --> 00:16:54,720 Speaker 1: time for many months now political risk driving so much 317 00:16:55,200 --> 00:16:57,120 Speaker 1: has that dissipated. Now are you returning now to to 318 00:16:57,160 --> 00:17:01,040 Speaker 1: a sense that monetary policy, central banking is back in 319 00:17:01,080 --> 00:17:03,200 Speaker 1: the driver's seat once again? It's political risk off the 320 00:17:03,240 --> 00:17:06,280 Speaker 1: table to agree that it was with France with the 321 00:17:06,280 --> 00:17:09,080 Speaker 1: French election now over with Yes, I've been very bullish 322 00:17:09,119 --> 00:17:11,560 Speaker 1: on on Europe, sort of expecting that to be the 323 00:17:11,600 --> 00:17:15,600 Speaker 1: sleeper hit of teen. And you know, but people were 324 00:17:15,680 --> 00:17:19,160 Speaker 1: very focused on election risk, certainly after Bregson and after 325 00:17:19,240 --> 00:17:22,000 Speaker 1: the U S election and when that didn't materialize, and 326 00:17:22,040 --> 00:17:24,560 Speaker 1: actually the Dutch election a few months earlier was already 327 00:17:24,560 --> 00:17:29,360 Speaker 1: a hint that that populism might actually be contained in Europe. 328 00:17:29,359 --> 00:17:31,679 Speaker 1: And I suspect that that seems to be that that 329 00:17:31,800 --> 00:17:35,640 Speaker 1: is the case. So but there is political risk always, 330 00:17:35,720 --> 00:17:38,400 Speaker 1: of course, but when we're seeing on the trade front, 331 00:17:38,440 --> 00:17:41,600 Speaker 1: which is really where the international risk is, so far, 332 00:17:41,800 --> 00:17:44,280 Speaker 1: things have been pretty benign. You know, We've had summits 333 00:17:44,280 --> 00:17:48,120 Speaker 1: and meetings with international leaders and uh, it's been kind 334 00:17:48,119 --> 00:17:51,399 Speaker 1: of dovish on the trade side and on the fiscal side. Domestically, 335 00:17:51,760 --> 00:17:53,800 Speaker 1: we're we're still waiting and there doesn't seem to be 336 00:17:53,840 --> 00:17:56,960 Speaker 1: a lot of momentum. So it's steady as she goes 337 00:17:57,080 --> 00:18:01,240 Speaker 1: right now, Very good room. You're into timor with this 338 00:18:01,359 --> 00:18:06,200 Speaker 1: with fidelity in Jerusalem at the Presidential Residents with the 339 00:18:06,280 --> 00:18:11,000 Speaker 1: garden is assembled, the US delegation with President Trump, and 340 00:18:11,080 --> 00:18:14,919 Speaker 1: this includes comments by Reuben Rivlin, the President of Israel, 341 00:18:15,000 --> 00:18:18,040 Speaker 1: not the Prime Minister. Mr you know, the president and 342 00:18:18,080 --> 00:18:22,440 Speaker 1: of course with Mr Trump, it is UH to podium 343 00:18:22,480 --> 00:18:24,600 Speaker 1: with the U. S. Flag on the left, the Israeli 344 00:18:24,680 --> 00:18:27,399 Speaker 1: flag on the right, UH, and the President's flag I 345 00:18:27,440 --> 00:18:29,680 Speaker 1: believe in the center of the national flag. I should 346 00:18:29,720 --> 00:18:33,200 Speaker 1: state as well, it is a spectacular backdrop at the 347 00:18:33,240 --> 00:18:38,640 Speaker 1: presidential residence. And of course this creates great residents within Israel, 348 00:18:38,800 --> 00:18:43,200 Speaker 1: really pretty much in the heart of Jerusalem. So the 349 00:18:43,200 --> 00:18:47,240 Speaker 1: President President Rivlin uh speaking right now. I think we'll 350 00:18:47,280 --> 00:18:49,480 Speaker 1: wait on that and wait for Mr Trump to begin 351 00:18:49,600 --> 00:18:55,080 Speaker 1: his comments. Uh. Here in a moment, David Gura, all 352 00:18:55,119 --> 00:18:58,240 Speaker 1: of Washington is watching his trip, but busy on an 353 00:18:58,280 --> 00:19:01,679 Speaker 1: airplane returning as Mr pre Mr Bannon. Do we know 354 00:19:01,840 --> 00:19:06,000 Speaker 1: David this morning wide Prebous and Bannon are returning to Washington. 355 00:19:06,280 --> 00:19:08,080 Speaker 1: I don't think that we have a great sense of that. 356 00:19:08,119 --> 00:19:10,040 Speaker 1: The White House is saying that that was in the 357 00:19:10,080 --> 00:19:12,360 Speaker 1: plans all along. Secretary of Commerce S. Woolber Ross also 358 00:19:12,400 --> 00:19:14,720 Speaker 1: heading back to to Washington as well. Marty Shank and 359 00:19:14,760 --> 00:19:17,000 Speaker 1: I were talking a little earlier about the complement of 360 00:19:17,040 --> 00:19:19,679 Speaker 1: staff the President brought with him to Saudi Arabia. Of course, 361 00:19:19,720 --> 00:19:21,680 Speaker 1: through a number of big business deals that were announced there. 362 00:19:21,680 --> 00:19:26,280 Speaker 1: The President cave that speech to regional leaders on Sunday afternoon. 363 00:19:26,320 --> 00:19:27,960 Speaker 1: So the White House maintaining here this was in the 364 00:19:28,000 --> 00:19:29,800 Speaker 1: cards all along for those two men to have back. 365 00:19:29,800 --> 00:19:33,080 Speaker 1: But you're right in pointing out the drama that exists 366 00:19:33,080 --> 00:19:36,800 Speaker 1: in Washington continues to exist and persist. Uh. There will 367 00:19:36,840 --> 00:19:38,840 Speaker 1: be the reports here that there could be hearing with 368 00:19:38,920 --> 00:19:41,040 Speaker 1: James Coby this week on on Capitol Hill, the former 369 00:19:41,080 --> 00:19:44,439 Speaker 1: FBI director. So that story, which the White House had 370 00:19:44,440 --> 00:19:47,000 Speaker 1: desperately wanted to leave behind, is certainly continuing in Washington, 371 00:19:47,080 --> 00:19:49,920 Speaker 1: d C. This week. Now, the symbolism from Saudi Arabia 372 00:19:50,000 --> 00:19:52,280 Speaker 1: to Israel and then on to the Roman the Vatican 373 00:19:52,800 --> 00:19:56,160 Speaker 1: on an extended trip. I will point out that the President, 374 00:19:56,960 --> 00:19:59,400 Speaker 1: just as a casual observer from a distance like all 375 00:19:59,440 --> 00:20:02,119 Speaker 1: of us, looks a lot more rested today than he 376 00:20:02,160 --> 00:20:04,760 Speaker 1: did when he gave his speech to David in Saudia. 377 00:20:04,800 --> 00:20:08,959 Speaker 1: There's no question that he looked exhausted here twelve and 378 00:20:08,960 --> 00:20:11,800 Speaker 1: twenty four hours, a nine day trip with two summits. 379 00:20:12,000 --> 00:20:14,439 Speaker 1: Marty Shanko commenting earlier as well, you know, foreign travel 380 00:20:14,560 --> 00:20:16,399 Speaker 1: is difficult, as is the first foreign trip that the 381 00:20:16,440 --> 00:20:19,840 Speaker 1: president has taken, the first official trip that he's taken overseas. 382 00:20:19,840 --> 00:20:23,080 Speaker 1: It has jam packed, involves a lot of geographical breath 383 00:20:23,080 --> 00:20:24,680 Speaker 1: as you're as you're mentioning, and just it's a lot 384 00:20:24,720 --> 00:20:27,080 Speaker 1: to get one's head around. Anyone who's traveled with the 385 00:20:27,119 --> 00:20:29,560 Speaker 1: government official at that kind of rank knows that everything 386 00:20:29,640 --> 00:20:32,680 Speaker 1: is tightly scheduled. You're in a bubble um. Everything, every 387 00:20:32,680 --> 00:20:34,840 Speaker 1: minute is taken kind of like when you go to Davos, 388 00:20:34,880 --> 00:20:39,280 Speaker 1: tom every minute is pre scheduled in. But I I 389 00:20:39,359 --> 00:20:42,000 Speaker 1: will take issue and that I once to the trip 390 00:20:42,040 --> 00:20:44,560 Speaker 1: where it was every day day here, day yere day there. 391 00:20:45,160 --> 00:20:48,560 Speaker 1: The moving city to city is a whole another level exhaustion, 392 00:20:48,640 --> 00:20:52,640 Speaker 1: whether it's Asia, Europe and North America. As a presence 393 00:20:52,640 --> 00:20:54,760 Speaker 1: doing and of course many of our listeners, particularly C 394 00:20:54,960 --> 00:21:11,560 Speaker 1: class officers are doing as well. Yeah, thank you very 395 00:21:11,640 --> 00:21:16,600 Speaker 1: much and shalom. I'm honored to be in the great 396 00:21:16,640 --> 00:21:21,639 Speaker 1: State of Israel, the homeland of the Jewish people. I 397 00:21:21,640 --> 00:21:24,640 Speaker 1: am awed by the beauty and majesty of this sacred 398 00:21:25,800 --> 00:21:33,719 Speaker 1: and very holy land. President Rivlin, Mrs Rivlin, thank you 399 00:21:33,760 --> 00:21:39,160 Speaker 1: so much, thank you, thank you for opening your wonderful 400 00:21:39,200 --> 00:21:45,040 Speaker 1: home and welcoming Milani and myself to your amazing country, 401 00:21:45,040 --> 00:21:47,720 Speaker 1: and that's what it is. It is an amazing country. 402 00:21:47,760 --> 00:21:52,879 Speaker 1: What you've done is perhaps has virtually never been done before. 403 00:21:54,440 --> 00:21:57,520 Speaker 1: When my first trip overseas, I've come to this ancient 404 00:21:57,640 --> 00:22:02,760 Speaker 1: land to reaffirm the during friendship between the United States 405 00:22:03,600 --> 00:22:06,920 Speaker 1: and the State of Israel. And it will always be enduring. 406 00:22:08,720 --> 00:22:13,920 Speaker 1: And that's number one to me. We're not only longtime friends, 407 00:22:14,000 --> 00:22:18,000 Speaker 1: we are great allies and partners. We stand together always. 408 00:22:19,359 --> 00:22:22,040 Speaker 1: This moment in history calls for us to strengthen our 409 00:22:22,040 --> 00:22:28,080 Speaker 1: cooperation as both Israel and America face common threats from 410 00:22:28,160 --> 00:22:33,359 Speaker 1: ISIS and other terrorist groups. Two countries like Iran that 411 00:22:33,480 --> 00:22:39,720 Speaker 1: sponsor terrorism and fund and foment terrible violence not only 412 00:22:39,760 --> 00:22:45,000 Speaker 1: here but all over the world. Together, we can work 413 00:22:45,040 --> 00:22:48,639 Speaker 1: to end the scourge of violence that has taken so 414 00:22:48,760 --> 00:22:55,000 Speaker 1: many lives here in Israel and around the world. Most importantly, 415 00:22:55,080 --> 00:22:59,000 Speaker 1: the United States and Israel can declare with one voice, 416 00:22:59,840 --> 00:23:02,919 Speaker 1: the Iran must never be allowed to possess a nuclear weapon, 417 00:23:03,000 --> 00:23:08,080 Speaker 1: never ever, and must seize it's deadly funding training and 418 00:23:08,119 --> 00:23:16,120 Speaker 1: equipping of terrorists and malicious and a must cease immediately 419 00:23:17,960 --> 00:23:21,000 Speaker 1: on those issues. There is a strong consensus among the 420 00:23:21,080 --> 00:23:24,680 Speaker 1: nations of the world, including many in the Muslim world. 421 00:23:24,720 --> 00:23:30,159 Speaker 1: I was deeply encouraged by my conversations with Muslim world 422 00:23:30,280 --> 00:23:38,879 Speaker 1: leaders in Saudi Arabia, including King Solomon, who I spoke 423 00:23:38,920 --> 00:23:45,720 Speaker 1: to at great length. King Salmon feels very strongly and 424 00:23:45,800 --> 00:23:50,080 Speaker 1: I can tell you would love to see peace between 425 00:23:50,160 --> 00:23:54,000 Speaker 1: Israel and the Palestinians. Many expressed their resolve to help 426 00:23:54,720 --> 00:24:01,679 Speaker 1: and terrorism and the spread of Radicalizai. Many Muslim nations 427 00:24:01,720 --> 00:24:05,760 Speaker 1: have already taken steps to begin following through on this commitment. 428 00:24:06,400 --> 00:24:10,199 Speaker 1: There is a growing realization among your Arab neighbors that 429 00:24:10,320 --> 00:24:13,639 Speaker 1: they have common cause with you and the threat posed 430 00:24:13,680 --> 00:24:16,240 Speaker 1: by Iran, and it is indeed a threat, there is 431 00:24:16,280 --> 00:24:20,720 Speaker 1: no question about that. I thank both you and Prime 432 00:24:20,760 --> 00:24:28,320 Speaker 1: Minister net for your commitment to achieving peace between the 433 00:24:28,440 --> 00:24:33,080 Speaker 1: Israelis and the Palestinians. I also look forward to discussing 434 00:24:33,080 --> 00:24:41,320 Speaker 1: the peace process with Palestinian President a Bus. Young Israeli 435 00:24:41,359 --> 00:24:46,159 Speaker 1: and Palestinian children deserve to grow up in safety and 436 00:24:46,200 --> 00:24:49,760 Speaker 1: to follow their dreams free from the violence that has 437 00:24:49,840 --> 00:24:57,119 Speaker 1: destroyed so many lives. The United States and Israel can 438 00:24:57,160 --> 00:25:02,000 Speaker 1: also bring safety and greater presberry to our people through 439 00:25:02,080 --> 00:25:07,320 Speaker 1: stronger ties of trade and commerce. Already our two countries 440 00:25:07,359 --> 00:25:10,960 Speaker 1: do a great deal of business together. We have a 441 00:25:11,000 --> 00:25:15,440 Speaker 1: strong foundation on which to build an even closer trading 442 00:25:15,520 --> 00:25:21,000 Speaker 1: relationship that benefits both of our countries. I'm gonna try 443 00:25:21,000 --> 00:25:23,399 Speaker 1: and narrow that trade deficit just a little bit. Is 444 00:25:23,440 --> 00:25:27,520 Speaker 1: that okay? Unless he doesn't mind. He wants to keep 445 00:25:27,520 --> 00:25:31,040 Speaker 1: it the weather. As I understand today, we have so 446 00:25:31,119 --> 00:25:35,240 Speaker 1: many incredible opportunities before us, and my hope for this 447 00:25:35,400 --> 00:25:39,879 Speaker 1: visit is that we seize every single one of them. 448 00:25:39,920 --> 00:25:41,800 Speaker 1: I am thrilled to be here on behalf of the 449 00:25:41,840 --> 00:25:46,960 Speaker 1: American people. I know Israel and America share the same goals, 450 00:25:47,000 --> 00:25:51,440 Speaker 1: and I have great confidence that we can achieve tremendous 451 00:25:51,480 --> 00:25:55,720 Speaker 1: success together. We can achieve all of our goals together. 452 00:25:57,240 --> 00:26:01,600 Speaker 1: President Rivlin, I look forward to working with you and 453 00:26:01,680 --> 00:26:04,480 Speaker 1: just seeing more of the sacred land and getting to 454 00:26:04,560 --> 00:26:11,639 Speaker 1: spend time with the remarkable people of Israel. Thank you 455 00:26:11,760 --> 00:26:17,080 Speaker 1: very much. Thank you the President United States, shaking hands 456 00:26:17,080 --> 00:26:19,359 Speaker 1: with the President of Israel, Mr Rivlin. This at the 457 00:26:19,400 --> 00:26:23,879 Speaker 1: Presidential Residence in the heart of Jerusalem, in the rows 458 00:26:23,960 --> 00:26:26,879 Speaker 1: and chairs, the first Lady in the front row listening 459 00:26:26,920 --> 00:26:31,919 Speaker 1: to the comments, with a beautiful backdrop of flags and 460 00:26:32,160 --> 00:26:37,720 Speaker 1: artwork in Jerusalem. President uh looks more spirited than he 461 00:26:37,760 --> 00:26:39,760 Speaker 1: looked in Riad. To be honest, it looks like he's 462 00:26:39,760 --> 00:26:41,399 Speaker 1: had a little bit of rest, which you can do 463 00:26:41,440 --> 00:26:45,760 Speaker 1: on air force one miles roughly from Riad to Tel 464 00:26:45,760 --> 00:26:49,240 Speaker 1: Aviv and then thirty six miles by helicopter from Tel 465 00:26:49,280 --> 00:26:54,480 Speaker 1: Aviv to Jerusalem to the UH southeast as well. The 466 00:26:54,520 --> 00:26:59,280 Speaker 1: President just now making comments with Mr Rivlin, is some 467 00:26:59,320 --> 00:27:01,600 Speaker 1: people gather, not too many in the first lady we 468 00:27:01,680 --> 00:27:04,560 Speaker 1: see as well. I saw Secretary Tillerson as well in 469 00:27:04,560 --> 00:27:07,760 Speaker 1: the front row out for what appears to be photo 470 00:27:07,840 --> 00:27:12,520 Speaker 1: opportunities with flags right down a sun drenched patio in Jerusale. 471 00:27:12,520 --> 00:27:15,320 Speaker 1: I'm enough of the travel UH lawd Greg Delier just 472 00:27:15,440 --> 00:27:17,600 Speaker 1: out with his note. We had the courtesy of speaking 473 00:27:17,600 --> 00:27:20,719 Speaker 1: with him earlier this morning. He says, an epic battle 474 00:27:20,800 --> 00:27:26,960 Speaker 1: over fiscal policy begins this week. Urian Timor is with Fidelity. Urian, 475 00:27:27,080 --> 00:27:30,959 Speaker 1: how do you link fiscal policy and the raging battle 476 00:27:31,040 --> 00:27:35,680 Speaker 1: to come on it into investment? How does that work? Well? 477 00:27:35,720 --> 00:27:38,840 Speaker 1: When you look at all the things that are unfolding 478 00:27:38,840 --> 00:27:42,800 Speaker 1: in the markets of the dollar, nominal yields, real rates, tips, 479 00:27:42,840 --> 00:27:47,960 Speaker 1: break evens, financial conditions, commodities of the relative performance of 480 00:27:48,000 --> 00:27:51,840 Speaker 1: the Russell versus the SMP. They're all manifestations of the 481 00:27:51,920 --> 00:27:56,080 Speaker 1: same theme, and that theme is what kind of late 482 00:27:56,119 --> 00:27:59,480 Speaker 1: cycle will the USC So we've been in this prolonged 483 00:27:59,520 --> 00:28:04,360 Speaker 1: midside expansion of the Goldilocks period really from two thousand 484 00:28:04,320 --> 00:28:07,320 Speaker 1: and ten until now, and we're still in it, and 485 00:28:07,359 --> 00:28:10,480 Speaker 1: I don't expect to transition into late cycle, you know, tomorrow, 486 00:28:10,560 --> 00:28:13,920 Speaker 1: but it is usually the next phase in the business cycle. 487 00:28:13,960 --> 00:28:17,359 Speaker 1: You go early, mid, laid down, and the late cycle 488 00:28:17,440 --> 00:28:20,720 Speaker 1: is when things get kind of messy, because no late 489 00:28:20,800 --> 00:28:24,120 Speaker 1: cycle is is the same. And so where the fiscal 490 00:28:24,520 --> 00:28:28,240 Speaker 1: question comes in, um A, when is it going to happen? 491 00:28:28,560 --> 00:28:31,199 Speaker 1: Is it going to happen? How much? What kind right? 492 00:28:31,240 --> 00:28:34,400 Speaker 1: If it pushes up the demand side with an economy 493 00:28:34,440 --> 00:28:37,280 Speaker 1: at full employment eight years into an expansion, the risk 494 00:28:37,400 --> 00:28:40,440 Speaker 1: is that the FED has to offset that and therefore 495 00:28:40,680 --> 00:28:43,920 Speaker 1: not only lower the fiscal multiplier of that stimulus, but 496 00:28:44,000 --> 00:28:47,560 Speaker 1: also raise rates and you know, get us closer to 497 00:28:47,600 --> 00:28:49,760 Speaker 1: the risk of an inverted yield curve down the road, 498 00:28:49,800 --> 00:28:52,120 Speaker 1: and then you know, you know the relationship between inverted 499 00:28:52,160 --> 00:28:56,000 Speaker 1: curves and recessions. So that's one potential playbook the other 500 00:28:56,040 --> 00:28:58,840 Speaker 1: one is that the fiscal either is less than we 501 00:28:58,920 --> 00:29:01,840 Speaker 1: think or it's more supply side oriented, because we need 502 00:29:01,880 --> 00:29:04,880 Speaker 1: productivity to go up in order for the economy speed 503 00:29:04,920 --> 00:29:07,680 Speaker 1: limit to go up. And if that happens, the FED 504 00:29:07,760 --> 00:29:09,840 Speaker 1: doesn't have to offset it as much, and we may 505 00:29:09,880 --> 00:29:14,280 Speaker 1: have a more benign environment, more benign late cycle environment 506 00:29:14,280 --> 00:29:16,680 Speaker 1: where the curve is not overred. So this, I think 507 00:29:16,840 --> 00:29:20,480 Speaker 1: is the big question other than China and it's stimulus. 508 00:29:20,520 --> 00:29:23,000 Speaker 1: This is really the big question. And that's why whenever 509 00:29:23,040 --> 00:29:25,600 Speaker 1: we see headlines going to or fro in terms of 510 00:29:25,640 --> 00:29:28,520 Speaker 1: when we get how much fiscal all of these market 511 00:29:28,600 --> 00:29:32,280 Speaker 1: components move in unison because it's all one trade. Basically 512 00:29:32,520 --> 00:29:34,880 Speaker 1: you're in termor where this fidelity And we will continue 513 00:29:34,880 --> 00:29:37,840 Speaker 1: the President of the First Lady Walking where the President 514 00:29:37,840 --> 00:29:42,280 Speaker 1: and Mrs Rivlin within the Presidential Residents, they visited the garden. 515 00:29:42,280 --> 00:29:45,920 Speaker 1: They take immense pride in Israel with the Presidential Garden 516 00:29:46,080 --> 00:29:50,040 Speaker 1: at the Residents. It was completely restored in two thousand 517 00:29:50,160 --> 00:29:53,600 Speaker 1: nine to represent the flora of the land of Israel. 518 00:29:53,640 --> 00:29:57,240 Speaker 1: Looks now like a red carpet in flags assembled as 519 00:29:57,240 --> 00:30:00,360 Speaker 1: a president moves on to the next moment. Believe I 520 00:30:00,400 --> 00:30:03,520 Speaker 1: see a car in the distance, Urine. When I look 521 00:30:03,560 --> 00:30:06,880 Speaker 1: at investment right now, do you know where the risk 522 00:30:06,920 --> 00:30:11,160 Speaker 1: free return is? It's so important to your managers, your 523 00:30:11,200 --> 00:30:14,600 Speaker 1: portfolio managers in the great distortion? Do I know where 524 00:30:14,600 --> 00:30:18,040 Speaker 1: the risk free rate is? Yes? And this is no, 525 00:30:18,240 --> 00:30:21,200 Speaker 1: we don't act well, we can guess right because we're 526 00:30:21,200 --> 00:30:24,080 Speaker 1: supposed to say, Peter Lynch knows, but no one else does. 527 00:30:25,160 --> 00:30:27,640 Speaker 1: Where is it? So when you when you look at 528 00:30:27,720 --> 00:30:32,760 Speaker 1: valuation right, valuation is driven by the numerator in the 529 00:30:32,800 --> 00:30:35,640 Speaker 1: discount of cashlow model, which is earnings growth, and then 530 00:30:35,680 --> 00:30:38,920 Speaker 1: the denominator which is the discount rage which rate, which 531 00:30:38,960 --> 00:30:41,360 Speaker 1: is the sum of the risk free rate and the 532 00:30:41,400 --> 00:30:44,240 Speaker 1: equity risk premium. And right now, one of the issues 533 00:30:44,320 --> 00:30:46,160 Speaker 1: that I have in the market is that not only 534 00:30:46,200 --> 00:30:49,000 Speaker 1: is the equity risk freamum very low because it basically 535 00:30:49,040 --> 00:30:51,800 Speaker 1: collapsed after the election. The risk preum is about two 536 00:30:51,800 --> 00:30:54,160 Speaker 1: point three percent, which is almost half of what it 537 00:30:54,320 --> 00:30:57,520 Speaker 1: historically has been. But also the rest free rate, as 538 00:30:57,560 --> 00:31:01,200 Speaker 1: you just indicated, is depressed because we had multiple years 539 00:31:01,240 --> 00:31:04,640 Speaker 1: of financial repression. And you know ZURP and QWI and 540 00:31:05,120 --> 00:31:07,600 Speaker 1: where does the ten year yield belong? Because that is 541 00:31:07,640 --> 00:31:10,400 Speaker 1: the risk free rate, and once we know that, then 542 00:31:10,440 --> 00:31:12,680 Speaker 1: we can sort of figure out what the valuation is 543 00:31:12,720 --> 00:31:15,400 Speaker 1: of of all these other asset classes. But because the 544 00:31:15,520 --> 00:31:20,640 Speaker 1: risk free rate is artificially depressed, all asset classes become 545 00:31:20,840 --> 00:31:22,800 Speaker 1: you know, more highly valued as a result, you know, 546 00:31:22,880 --> 00:31:27,080 Speaker 1: from bonds to cash, to equities to credit, and so 547 00:31:27,160 --> 00:31:29,760 Speaker 1: we can we can make some analyses on where the 548 00:31:29,880 --> 00:31:32,720 Speaker 1: term premium is and should be if the FED was 549 00:31:32,760 --> 00:31:37,080 Speaker 1: completely in a normalized environment where GDP growth was historically 550 00:31:37,160 --> 00:31:39,520 Speaker 1: at trent, which of course it isn't. You know, real 551 00:31:39,560 --> 00:31:42,120 Speaker 1: GDP growth over the last ten year ten years is 552 00:31:42,160 --> 00:31:45,800 Speaker 1: at one point three percent. It's very very low. Um So, 553 00:31:45,880 --> 00:31:48,920 Speaker 1: but if if growth returned to something normal three four 554 00:31:49,000 --> 00:31:52,240 Speaker 1: percent real or five six percent nominal, you could argue 555 00:31:52,280 --> 00:31:54,120 Speaker 1: that the ten years should be you know, four percent 556 00:31:54,200 --> 00:31:56,720 Speaker 1: or four and a half percent. But but we're not there. Uran, 557 00:31:56,840 --> 00:31:58,920 Speaker 1: thank you so much, and particularly for the back and 558 00:31:59,000 --> 00:32:01,640 Speaker 1: forth through the President in Jerusalem, Mr timur Is with 559 00:32:01,680 --> 00:32:12,680 Speaker 1: Fidelity in Boston. Runch you by Bank of America, Mary 560 00:32:12,800 --> 00:32:18,440 Speaker 1: Lynch with virtual reality, virtually everything will change. Discover opportunities 561 00:32:18,760 --> 00:32:22,400 Speaker 1: in a transforming world, be of a mL dot com, 562 00:32:22,440 --> 00:32:33,240 Speaker 1: slash VR. Mary Lynch pierced Fenner and Smith Incorporated. There's 563 00:32:33,280 --> 00:32:36,840 Speaker 1: something new from Bloomberg. It's called Lens. Starting right now, 564 00:32:36,920 --> 00:32:40,280 Speaker 1: you can use the Bloomberg iOS app off your iPhone 565 00:32:40,400 --> 00:32:45,000 Speaker 1: or iPad, or our new Google Chrome extension to read 566 00:32:45,080 --> 00:32:49,000 Speaker 1: any news story on any website, scan it, and then 567 00:32:49,040 --> 00:32:53,160 Speaker 1: instantly see the news stories relevant market data from Bloomberg. 568 00:32:53,520 --> 00:32:56,600 Speaker 1: In addition, see all the bios of the key people 569 00:32:57,040 --> 00:33:00,280 Speaker 1: mentioned in the story. It's called Lens, and it is 570 00:33:00,360 --> 00:33:03,400 Speaker 1: just that, a lens into the people and the data 571 00:33:03,520 --> 00:33:07,760 Speaker 1: of any story you may be reading. Again. Lens brings 572 00:33:07,800 --> 00:33:11,000 Speaker 1: you the power of Bloomberg's news and data. Download or 573 00:33:11,080 --> 00:33:14,440 Speaker 1: io s app or search for the Bloomberg extension at 574 00:33:14,480 --> 00:33:17,760 Speaker 1: the Chrome Store to try lens out. Learn more at 575 00:33:17,800 --> 00:33:25,480 Speaker 1: bloomberg dot com slash lens. Michael McKee a studio with 576 00:33:25,600 --> 00:33:29,480 Speaker 1: us right now. Mr Guras on assignment in Boston. Good morning, Michael, 577 00:33:29,800 --> 00:33:31,920 Speaker 1: Good morning. It's nice to be back in Richard Truman 578 00:33:32,040 --> 00:33:35,440 Speaker 1: Is is produced. It's like the old day. It's like nostalgia. 579 00:33:35,520 --> 00:33:41,040 Speaker 1: They put back together. It's final tap. This show goes 580 00:33:41,080 --> 00:33:44,600 Speaker 1: to eleven. It may go to eleven. Uh, We're gonna 581 00:33:44,600 --> 00:33:46,400 Speaker 1: get to Bruce Barlett here in a moment. I just 582 00:33:46,440 --> 00:33:49,640 Speaker 1: want to continue with the day's events. In Jerusalem. We're 583 00:33:49,640 --> 00:33:52,640 Speaker 1: seeing images now on our feed of the Church of 584 00:33:52,680 --> 00:33:55,800 Speaker 1: the Holy sepul Curve back to the fourth century. Mr 585 00:33:55,800 --> 00:33:58,520 Speaker 1: Trump and the First Lady schedule to visit, as well 586 00:33:58,560 --> 00:34:01,840 Speaker 1: as the Western Wall. No activity there's yet, but we'll 587 00:34:01,840 --> 00:34:05,840 Speaker 1: bring you a dialogue of that as we see uh 588 00:34:05,840 --> 00:34:08,960 Speaker 1: it on our images here right now. A dialogue is 589 00:34:09,040 --> 00:34:12,959 Speaker 1: necessary on the future of the Republican Party. I turned 590 00:34:13,000 --> 00:34:15,600 Speaker 1: to our care and Buchanan a week ago and I said, 591 00:34:15,640 --> 00:34:18,680 Speaker 1: I want to talk to one person only, the guy 592 00:34:18,760 --> 00:34:22,080 Speaker 1: that helped Jack Kemp, Bruce Bartlett a few years ago 593 00:34:22,400 --> 00:34:29,120 Speaker 1: out of Georgetown, assisted Mr Kemp in moving tax reform forward. Bruce, 594 00:34:29,160 --> 00:34:32,759 Speaker 1: take us back to that moment. How impossible was it 595 00:34:32,800 --> 00:34:38,120 Speaker 1: to do tax reform then? In his same impossibility now? Well, 596 00:34:38,560 --> 00:34:41,439 Speaker 1: for one thing, a lot of people knew a lot 597 00:34:41,520 --> 00:34:44,560 Speaker 1: more about the idea of tax reform because we've been 598 00:34:44,600 --> 00:34:48,520 Speaker 1: talking about it since the late nineteen sixties. We had 599 00:34:48,520 --> 00:34:51,120 Speaker 1: a big tax reform bill in nineteen sixty nine and 600 00:34:51,200 --> 00:34:54,360 Speaker 1: another one in nineteen seventy six. So in the nineteen 601 00:34:54,480 --> 00:34:58,640 Speaker 1: eighties when Kemp started talking about doing another tax reform, 602 00:34:59,440 --> 00:35:02,840 Speaker 1: the ground was pretty well plowed. People had an understanding 603 00:35:02,880 --> 00:35:07,439 Speaker 1: about the problem of tax loopholes and how they could 604 00:35:07,480 --> 00:35:12,960 Speaker 1: be UH harmful to the economy by causing investment to 605 00:35:13,040 --> 00:35:17,919 Speaker 1: be misallocated and things of that sort. And UH and 606 00:35:18,080 --> 00:35:21,640 Speaker 1: he started working on a tax reform plan with Senator 607 00:35:22,960 --> 00:35:29,200 Speaker 1: Bob Caston of Wisconsin, and simultaneously Senator Bill Bradley of 608 00:35:29,239 --> 00:35:33,600 Speaker 1: New Jersey and Congressman Dick Gephardt we're working on something similar. 609 00:35:33,600 --> 00:35:38,200 Speaker 1: And they were both Democrats. Kemping uh casting we're both Republicans. 610 00:35:38,200 --> 00:35:41,359 Speaker 1: And when they finally came up with their legislation and 611 00:35:41,400 --> 00:35:44,840 Speaker 1: put them, people put him side by side. They discovered 612 00:35:44,840 --> 00:35:47,319 Speaker 1: there was a lot of overlap, and I think that 613 00:35:47,480 --> 00:35:51,600 Speaker 1: was the real impetus that got things going, the the 614 00:35:51,719 --> 00:35:57,920 Speaker 1: idea that this was potentially a win win bipartisan deal. 615 00:35:58,719 --> 00:36:03,160 Speaker 1: Since course Congress has meddled in the tax code, you 616 00:36:03,200 --> 00:36:06,839 Speaker 1: won't get any argument I don't think from any economists 617 00:36:06,880 --> 00:36:11,560 Speaker 1: that the tax code exemptions and UH and loophole's distroyt 618 00:36:11,600 --> 00:36:17,800 Speaker 1: economic activity. So what's the difference between two thousand seventeen 619 00:36:18,600 --> 00:36:22,279 Speaker 1: and the early eighties when this was just dating in 620 00:36:22,400 --> 00:36:25,040 Speaker 1: terms of why we need to do taxes? Why why 621 00:36:25,080 --> 00:36:29,359 Speaker 1: are people in so much disagreement about tax cuts now 622 00:36:29,920 --> 00:36:33,880 Speaker 1: compared to them. Well, the problem is that the Tax 623 00:36:33,880 --> 00:36:38,000 Speaker 1: Reform Act of eighties six was essentially a deal whereby 624 00:36:38,320 --> 00:36:43,560 Speaker 1: taxes were raised on corporations and that revenue was used 625 00:36:43,920 --> 00:36:48,719 Speaker 1: to reduce tax rates on individuals. That's a political deal 626 00:36:48,840 --> 00:36:53,920 Speaker 1: that that worked. The problem today is almost everybody in 627 00:36:53,960 --> 00:36:57,040 Speaker 1: the tax field thinks that the most important thing we 628 00:36:57,080 --> 00:37:00,959 Speaker 1: need to do is lower the corporate at tax rate. 629 00:37:01,440 --> 00:37:06,600 Speaker 1: But there aren't enough corporate tax loopholes to pay for 630 00:37:07,080 --> 00:37:10,279 Speaker 1: more than a small reduction in rates, which means that 631 00:37:10,760 --> 00:37:15,520 Speaker 1: in principle, you'd have to raise taxes on individuals to 632 00:37:15,760 --> 00:37:19,440 Speaker 1: pay for a corporate tax cut, assuming it was done revenue. 633 00:37:19,480 --> 00:37:21,960 Speaker 1: Neutrals want to come back on the Republican Party, but 634 00:37:22,040 --> 00:37:24,319 Speaker 1: just one more tax question, if we could, do you 635 00:37:24,320 --> 00:37:29,440 Speaker 1: have any optimism we can see, Speaker Ryan Ronald Reagan, 636 00:37:29,560 --> 00:37:33,640 Speaker 1: tax reform not really. I think we're still at too 637 00:37:33,880 --> 00:37:39,080 Speaker 1: earliest stage of discussion, and you're seeing to be to 638 00:37:39,440 --> 00:37:45,240 Speaker 1: a fault line of a group of Republicans say screw reform, 639 00:37:45,400 --> 00:37:50,040 Speaker 1: we just want another style, big tax cut. We don't 640 00:37:50,080 --> 00:37:52,879 Speaker 1: give a damn what happens to the deficit, and then 641 00:37:52,920 --> 00:37:55,960 Speaker 1: you have another side which says, you know, we're concerned 642 00:37:56,000 --> 00:37:57,759 Speaker 1: about the deaths that we want to pay for this 643 00:37:57,960 --> 00:38:01,360 Speaker 1: tax reform. But more wortantly, there's a rule in the 644 00:38:01,480 --> 00:38:06,239 Speaker 1: Senate which says, if you pass legislation that reduces that 645 00:38:06,400 --> 00:38:10,680 Speaker 1: increases the deficit in over a ten year budget window, uh, 646 00:38:10,680 --> 00:38:15,040 Speaker 1: it can't be made permanent. And and so this is 647 00:38:15,080 --> 00:38:19,839 Speaker 1: a very powerful argument for doing something reform that would 648 00:38:19,880 --> 00:38:23,120 Speaker 1: be paid for that would be revenue neutral, because then 649 00:38:23,160 --> 00:38:27,960 Speaker 1: it would be permanent and businesses could plan beyond that 650 00:38:28,040 --> 00:38:31,600 Speaker 1: ten year window. Bruce Bartlett is a Republican, and he 651 00:38:31,680 --> 00:38:37,200 Speaker 1: has been harshly critical of modern Republican theology. Bruce Bartlett 652 00:38:37,360 --> 00:38:41,239 Speaker 1: is the president a Republican. Well, of course he is. 653 00:38:41,239 --> 00:38:45,040 Speaker 1: He used a nominee of the Republican Party, which means 654 00:38:45,120 --> 00:38:50,000 Speaker 1: he is a Republican insofar as the Republican Party itself 655 00:38:50,280 --> 00:38:52,920 Speaker 1: is concerned. Is he a conservative, I guess is the 656 00:38:52,960 --> 00:38:56,560 Speaker 1: real question. Well, he's certainly much more of a populist, 657 00:38:56,640 --> 00:39:00,840 Speaker 1: I think, than a traditional conservative. On the other hand, 658 00:39:01,080 --> 00:39:04,759 Speaker 1: it's quite clear that he is pursuing an agenda that 659 00:39:04,920 --> 00:39:10,040 Speaker 1: is very much in the mainstream of the conservative movement 660 00:39:10,600 --> 00:39:14,160 Speaker 1: as it exists today. Which may or may not have 661 00:39:14,239 --> 00:39:20,719 Speaker 1: any connection whatsoever to historical conservatism or the conservatism of 662 00:39:20,880 --> 00:39:24,160 Speaker 1: the Reagan era, which was was my era. Well, that's 663 00:39:24,160 --> 00:39:27,720 Speaker 1: an interesting um point you make, because in your book 664 00:39:27,719 --> 00:39:32,319 Speaker 1: in two thousand nine, UM, The New American Economy, the 665 00:39:32,320 --> 00:39:35,200 Speaker 1: Failure of Reagonomics in a New Way Forward. Um, you 666 00:39:35,320 --> 00:39:39,320 Speaker 1: suggest supply side economics was appropriate for the nineteen seventies 667 00:39:39,320 --> 00:39:43,120 Speaker 1: and eighties but doesn't do not work today. Um. Do 668 00:39:43,160 --> 00:39:46,200 Speaker 1: you still feel that way, And if so, tell us 669 00:39:46,239 --> 00:39:51,080 Speaker 1: why given that that's being cited by many people around 670 00:39:51,080 --> 00:39:53,680 Speaker 1: the administration for what they want to do. Well. I 671 00:39:53,719 --> 00:39:57,200 Speaker 1: don't believe in cookie cutter economics, Okay. I think you 672 00:39:57,480 --> 00:40:01,560 Speaker 1: look at the situation, you analyze new developed policies that 673 00:40:01,600 --> 00:40:05,440 Speaker 1: are appropriate for those circumstances. And I think there's a 674 00:40:05,480 --> 00:40:07,719 Speaker 1: lot of people out there, such as my old friend 675 00:40:07,840 --> 00:40:10,600 Speaker 1: Larry cut Low, who just say task cuts, task cuts, 676 00:40:10,600 --> 00:40:13,799 Speaker 1: task cuts. No matter what the situation is, you know, 677 00:40:13,840 --> 00:40:17,959 Speaker 1: it's always time to cut taxes. And I think sometimes, uh, 678 00:40:18,000 --> 00:40:21,560 Speaker 1: it isn't. And I think cutting taxes in the early 679 00:40:21,680 --> 00:40:25,400 Speaker 1: eighties was something that was clearly necessary. The fact that 680 00:40:25,440 --> 00:40:29,680 Speaker 1: we had inflation, uh, was was strong evidence that the 681 00:40:29,760 --> 00:40:33,759 Speaker 1: supply side of the economy needed to be built up. 682 00:40:34,239 --> 00:40:36,880 Speaker 1: But I think in the in the twenty one century, 683 00:40:36,920 --> 00:40:42,560 Speaker 1: we've had mostly the opposite problem. We've had a very uhh. 684 00:40:42,920 --> 00:40:46,799 Speaker 1: We have not had inflation, We've had a borderline deflation. 685 00:40:46,920 --> 00:40:50,120 Speaker 1: I think we're still suffering from a lack of aggregate demand. 686 00:40:50,320 --> 00:40:54,400 Speaker 1: I think we need different policies for a different situation, Bruce. 687 00:40:54,640 --> 00:40:57,600 Speaker 1: When you look at the present dynamics, in the present politics, 688 00:40:57,640 --> 00:41:00,640 Speaker 1: it's out there. I guess it's great luck. I've called 689 00:41:00,680 --> 00:41:03,480 Speaker 1: it Trump luck as well. It's good luck, a good 690 00:41:03,520 --> 00:41:06,480 Speaker 1: thing right now. Or do you feel there's a huge 691 00:41:06,520 --> 00:41:10,680 Speaker 1: pressure by Republicans to actually find the compromise you've called 692 00:41:10,719 --> 00:41:15,120 Speaker 1: forward for decades. Uh, it's hard to see Republicans compromising 693 00:41:15,200 --> 00:41:20,320 Speaker 1: even with themselves at this point on some key issues. Uh. 694 00:41:20,360 --> 00:41:23,960 Speaker 1: Taxes is a key one. Uh. It looks as if 695 00:41:23,960 --> 00:41:27,680 Speaker 1: the administration has adopted a let's just cut taxes and 696 00:41:27,719 --> 00:41:31,040 Speaker 1: forget about all this reform stuff. But the House of 697 00:41:31,080 --> 00:41:34,600 Speaker 1: Representatives at least seems to be quite determined to do 698 00:41:34,960 --> 00:41:39,600 Speaker 1: a meaningful tax reform bill. And H it's not entirely 699 00:41:39,600 --> 00:41:42,480 Speaker 1: clear where the House or the Senate is. And again, 700 00:41:42,520 --> 00:41:45,399 Speaker 1: I think you've got differences among the Administration, the House, 701 00:41:45,440 --> 00:41:47,759 Speaker 1: and the Senate on health reform and a number of 702 00:41:47,800 --> 00:41:51,080 Speaker 1: other issues. So I think just getting Republicans on the 703 00:41:51,160 --> 00:41:55,480 Speaker 1: same page is going to be an enormous effort. Uh. 704 00:41:55,600 --> 00:41:56,960 Speaker 1: Before we let you go, I have to go back 705 00:41:56,960 --> 00:41:59,160 Speaker 1: to Texas for a second and ask a question. I've 706 00:41:59,160 --> 00:42:01,319 Speaker 1: been dying to find an expert who could tell me, 707 00:42:01,719 --> 00:42:05,759 Speaker 1: and you're probably exactly the person. The administration goes out, 708 00:42:05,800 --> 00:42:08,640 Speaker 1: we want to cut taxes. They put out a rough 709 00:42:08,680 --> 00:42:10,759 Speaker 1: idea of what they want to do, and everybody says, 710 00:42:11,040 --> 00:42:13,480 Speaker 1: tax cuts for the rich, tax cuts for the rich. 711 00:42:14,080 --> 00:42:16,040 Speaker 1: And when you look at obviously the rich pay more 712 00:42:16,440 --> 00:42:19,640 Speaker 1: in taxes, so dollar wise, they pay more. But why 713 00:42:19,680 --> 00:42:23,040 Speaker 1: can't somebody design a tax plan that gives the same 714 00:42:23,120 --> 00:42:27,080 Speaker 1: percentage gain to everybody. Well, for one thing, you've got 715 00:42:27,080 --> 00:42:31,000 Speaker 1: a huge percentage of the population that pays no federal 716 00:42:31,040 --> 00:42:34,440 Speaker 1: income taxes at all. So you've got a problem with 717 00:42:34,480 --> 00:42:38,160 Speaker 1: how to in effect give them a tax cut when 718 00:42:38,200 --> 00:42:40,719 Speaker 1: they don't pay any And the answer has been over 719 00:42:40,760 --> 00:42:45,799 Speaker 1: the last several years, let's give them refundable tax credits. Uh. 720 00:42:45,840 --> 00:42:48,920 Speaker 1: And so you you and once you do that, you 721 00:42:49,040 --> 00:42:53,640 Speaker 1: blurred the distinction between taxes and spending. You're sending checks 722 00:42:53,680 --> 00:42:56,960 Speaker 1: to people who pay no taxes and saying we're going 723 00:42:57,000 --> 00:43:00,120 Speaker 1: to give you a rebate on your taxes, and and 724 00:43:00,120 --> 00:43:03,480 Speaker 1: and this has kind of opened the door to a 725 00:43:03,600 --> 00:43:07,839 Speaker 1: spig at a spending that that many Republicans in fact 726 00:43:07,840 --> 00:43:10,160 Speaker 1: are concerned about. First, thank you so much for your time, 727 00:43:10,160 --> 00:43:14,120 Speaker 1: and a busy newsday, Bruce Bartlett, UH of Virginia. And 728 00:43:14,120 --> 00:43:18,440 Speaker 1: of course a Republican symbolism. And at the Church of 729 00:43:18,520 --> 00:43:21,520 Speaker 1: the Holy Spolker right now in Jerusalem is remarkable the 730 00:43:21,520 --> 00:43:25,719 Speaker 1: President and Mrs Trump entering the church along with their 731 00:43:25,800 --> 00:43:28,799 Speaker 1: daughter and Mr. Kushner as well, and a few of 732 00:43:28,800 --> 00:43:32,319 Speaker 1: the American dignitaries. And they are surrounded Michael McKee by 733 00:43:32,360 --> 00:43:36,400 Speaker 1: that imagery of Jerusalem, of the Greek Orthodox, the Armenian Orthodox, 734 00:43:36,719 --> 00:43:53,360 Speaker 1: and the Catholic Church joining us now in Boston. Karen Mills. 735 00:43:53,360 --> 00:43:59,839 Speaker 1: She is a former Small Business Administration Administrator three head 736 00:43:59,840 --> 00:44:05,040 Speaker 1: of s p A now at the Harvard County School. Uh, Karen, 737 00:44:05,280 --> 00:44:08,640 Speaker 1: good morning. What did you learn in small it's a 738 00:44:08,760 --> 00:44:13,160 Speaker 1: small business administrator? What was the shock? If there's always 739 00:44:13,160 --> 00:44:17,680 Speaker 1: a shock when you enter the bureaucracy, what you learn? Oh, 740 00:44:17,719 --> 00:44:20,400 Speaker 1: Tom it's it's great to talk to you. I think 741 00:44:20,440 --> 00:44:23,640 Speaker 1: the thing that UM I learned in that we really 742 00:44:23,719 --> 00:44:26,680 Speaker 1: learned in the recession in this country is how important 743 00:44:26,719 --> 00:44:30,880 Speaker 1: small businesses are to the economy, because half the people 744 00:44:31,000 --> 00:44:33,719 Speaker 1: who work in this country own to work for a 745 00:44:33,719 --> 00:44:35,600 Speaker 1: small business. So I used to say, I woke up 746 00:44:35,640 --> 00:44:39,440 Speaker 1: at night worrying about half of America's jobs. The issue 747 00:44:39,600 --> 00:44:44,000 Speaker 1: is that small business doesn't really have a big voice 748 00:44:44,080 --> 00:44:48,000 Speaker 1: in Washington because big businesses voice is much more at 749 00:44:48,000 --> 00:44:50,839 Speaker 1: the table. So my job was to be allowed voice 750 00:44:50,880 --> 00:44:53,040 Speaker 1: at the table for small business. Karen, We're going to 751 00:44:53,120 --> 00:44:55,239 Speaker 1: interrupt right now and go to a big business. Eight 752 00:44:55,280 --> 00:44:59,760 Speaker 1: miles west of Detroit is Dearborn, Michigan. Here is Bill Ford. 753 00:45:00,760 --> 00:45:03,879 Speaker 1: And he did that and of course they still made 754 00:45:03,880 --> 00:45:06,920 Speaker 1: furniture throughout the whole and they still make furniture. But 755 00:45:07,040 --> 00:45:09,239 Speaker 1: in doing so, he grew the company, took them to 756 00:45:09,320 --> 00:45:13,440 Speaker 1: first in the in the industry UM worldwide. Uh. And 757 00:45:13,840 --> 00:45:19,080 Speaker 1: the culture was one of optimism and a feeling that 758 00:45:19,120 --> 00:45:22,279 Speaker 1: they could get things done easily because they had a 759 00:45:22,360 --> 00:45:26,839 Speaker 1: very clear view of the future. Then Jim went to 760 00:45:26,920 --> 00:45:29,840 Speaker 1: the University of Michigan, and you can say, well, is 761 00:45:29,880 --> 00:45:34,520 Speaker 1: that relevant to Wentford has got going, I would say yeah, 762 00:45:34,560 --> 00:45:37,360 Speaker 1: and a couple of respects. Look at what again? What 763 00:45:37,520 --> 00:45:39,800 Speaker 1: he did? He walked into an athletic First of all, 764 00:45:40,040 --> 00:45:43,880 Speaker 1: it shows his loyalty because having played football for boun 765 00:45:43,960 --> 00:45:47,600 Speaker 1: Bechler UM, he loved the University of Michigan and when 766 00:45:47,640 --> 00:45:51,360 Speaker 1: they asked him could he come fix the athletic department, 767 00:45:52,560 --> 00:45:55,400 Speaker 1: Jim said sure, you know I'd be happy to Um. 768 00:45:55,440 --> 00:45:58,560 Speaker 1: You know, walking into a very difficult and very public situation. 769 00:45:59,080 --> 00:46:01,960 Speaker 1: So what did he do there? Um? He first got 770 00:46:01,960 --> 00:46:05,320 Speaker 1: the students back because they were feeling alienated. Then he 771 00:46:05,440 --> 00:46:08,680 Speaker 1: got the all the volunteers that are the heart of 772 00:46:08,719 --> 00:46:11,879 Speaker 1: any program like that they were feeling alienated. He got 773 00:46:11,920 --> 00:46:18,200 Speaker 1: them back. Um, he negotiated UH and brought home the 774 00:46:18,320 --> 00:46:24,799 Speaker 1: Nike deal, which was groundbreaking for any university. UM. He 775 00:46:25,000 --> 00:46:30,960 Speaker 1: then hired Jim Harbaugh UM and UH, and then he 776 00:46:30,960 --> 00:46:35,840 Speaker 1: helped select his successor and then left the athletic department 777 00:46:36,360 --> 00:46:39,799 Speaker 1: in much better shape than he found it. So you say, well, 778 00:46:39,800 --> 00:46:42,040 Speaker 1: what does that have to do with Ford? Well, nothing 779 00:46:42,040 --> 00:46:45,600 Speaker 1: directly except I think it shows that Jim can be 780 00:46:45,760 --> 00:46:51,120 Speaker 1: successful and operate in multi environments m a corporate manufacturing 781 00:46:51,200 --> 00:46:55,319 Speaker 1: environment and steelcase where he reimagined it and delivered a 782 00:46:55,480 --> 00:46:59,800 Speaker 1: very uh not only solid set of results, but delivered 783 00:46:59,840 --> 00:47:02,520 Speaker 1: a very convincing future. By the way, he also got 784 00:47:02,560 --> 00:47:05,280 Speaker 1: them through oh eight oh nine, which in the furniture 785 00:47:05,320 --> 00:47:09,239 Speaker 1: business was tougher even than the auto business. UM. So 786 00:47:09,280 --> 00:47:14,600 Speaker 1: it shows his operating acumen as well as his visionary thinking. Um. 787 00:47:14,680 --> 00:47:17,759 Speaker 1: And then you know he's been a part of our 788 00:47:17,800 --> 00:47:20,279 Speaker 1: board for he was for three years. And then I 789 00:47:20,320 --> 00:47:23,480 Speaker 1: asked him, I said, hey, you know we need to 790 00:47:24,160 --> 00:47:28,799 Speaker 1: um build a new business and you know, could you 791 00:47:28,840 --> 00:47:31,040 Speaker 1: help us do that or frankly, would you go do 792 00:47:31,200 --> 00:47:35,040 Speaker 1: that for us? And so again very selflessly. And you 793 00:47:35,080 --> 00:47:37,560 Speaker 1: see that there's a pattern here. He left our board, 794 00:47:38,600 --> 00:47:41,520 Speaker 1: joined our management team when again when he didn't have 795 00:47:41,600 --> 00:47:44,800 Speaker 1: to do that and life had more probably appealing options. 796 00:47:45,320 --> 00:47:49,560 Speaker 1: But and he's in a year he's done an amazing 797 00:47:49,640 --> 00:47:53,479 Speaker 1: job at Ford Smoth. Little technical difficulty there with Bill 798 00:47:53,560 --> 00:47:58,240 Speaker 1: Ford and his discussion really something won a story of course. Uh. 799 00:47:58,239 --> 00:48:03,920 Speaker 1: He was born like other's uh, with every advantage and 800 00:48:03,920 --> 00:48:06,400 Speaker 1: it was pretty much ignored. And then out of Hotchkiss 801 00:48:06,400 --> 00:48:09,480 Speaker 1: Princeton and m I T has dazzled people with his 802 00:48:09,560 --> 00:48:12,719 Speaker 1: ability to avoid bankruptcy a number of years ago, and 803 00:48:12,760 --> 00:48:15,600 Speaker 1: of course with the ascendency and management of Mr Malally 804 00:48:16,200 --> 00:48:18,880 Speaker 1: and then challenges as we hear from the board with 805 00:48:19,080 --> 00:48:21,839 Speaker 1: Mr Fields and they go on to new management. This 806 00:48:21,880 --> 00:48:25,280 Speaker 1: morning he mentioned in the University of Michigan UH linkage 807 00:48:25,320 --> 00:48:28,680 Speaker 1: there we continue with Ms Mills, Karen Mills, the former 808 00:48:28,840 --> 00:48:33,440 Speaker 1: SPA administrator UH joining us UH this morning. Karen I, 809 00:48:33,440 --> 00:48:35,319 Speaker 1: I look at all of this, and you know, whether 810 00:48:35,320 --> 00:48:38,120 Speaker 1: it's Bill Ford in big business or Karen Mills and 811 00:48:38,200 --> 00:48:40,400 Speaker 1: small business, at the end of the day, it's all 812 00:48:40,440 --> 00:48:44,120 Speaker 1: about people, isn't it. How did you manage the expectations 813 00:48:44,160 --> 00:48:46,680 Speaker 1: of you need people to make the sp A go. 814 00:48:46,880 --> 00:48:51,480 Speaker 1: How did you do that? Well, you know with Bill Ford, 815 00:48:51,600 --> 00:48:54,720 Speaker 1: this is actually really important for a small business too 816 00:48:54,760 --> 00:48:58,000 Speaker 1: because UM, as you see there, you know they're making 817 00:48:58,040 --> 00:49:00,719 Speaker 1: a change there. So you're right, people are everything. But 818 00:49:00,800 --> 00:49:03,120 Speaker 1: when you look at the number of suppliers for it 819 00:49:03,239 --> 00:49:05,640 Speaker 1: has they have to get it right or we're in 820 00:49:05,719 --> 00:49:08,880 Speaker 1: real trouble. And small business land, particularly in the Midwest. 821 00:49:09,400 --> 00:49:13,680 Speaker 1: One of the great things UM I did was travel 822 00:49:13,760 --> 00:49:17,960 Speaker 1: all around the country and talk to small business suppliers 823 00:49:18,000 --> 00:49:21,760 Speaker 1: and what you really need in Washington if somebody who's 824 00:49:21,800 --> 00:49:25,000 Speaker 1: got the sensibility of the small business owner and can 825 00:49:25,040 --> 00:49:28,680 Speaker 1: help Congress figure out how to make a bill that 826 00:49:28,840 --> 00:49:32,319 Speaker 1: actually works for small business. It's not about the big 827 00:49:32,360 --> 00:49:36,160 Speaker 1: top headline. It's about the nuts and bolts and how 828 00:49:36,239 --> 00:49:39,200 Speaker 1: much you know, pain and suffering the small business owner 829 00:49:39,239 --> 00:49:42,319 Speaker 1: has to go through. There's a question what would help 830 00:49:42,400 --> 00:49:45,240 Speaker 1: the small business owner? And I asked that because everybody 831 00:49:45,239 --> 00:49:47,640 Speaker 1: says cut their taxes, cut their taxes. When you when 832 00:49:47,680 --> 00:49:51,720 Speaker 1: you look at the list of things that small business 833 00:49:51,719 --> 00:49:56,080 Speaker 1: owners tell, uh, you know the polsters on a regular basis, 834 00:49:56,080 --> 00:50:00,040 Speaker 1: that's not at the top of the list. Well, I 835 00:50:00,080 --> 00:50:03,360 Speaker 1: actually have a list, but I have a plan for 836 00:50:03,520 --> 00:50:06,920 Speaker 1: sort of getting it through Congress. So while the President 837 00:50:07,320 --> 00:50:12,000 Speaker 1: is out traveling in um around the world, I think 838 00:50:12,160 --> 00:50:16,360 Speaker 1: his economic team should get together and go to Congress 839 00:50:16,560 --> 00:50:20,440 Speaker 1: and work with both parties in Congress and do a 840 00:50:20,640 --> 00:50:24,480 Speaker 1: small business bill. And maybe we would call it the 841 00:50:24,520 --> 00:50:29,200 Speaker 1: Small Business Growth Act of and we could stuff it 842 00:50:29,280 --> 00:50:33,319 Speaker 1: with all these things that small businesses like. Um, you know, 843 00:50:33,400 --> 00:50:36,960 Speaker 1: start with a few tax credits, because that's the best 844 00:50:37,000 --> 00:50:40,120 Speaker 1: thing for small business. Rather than wait for a big 845 00:50:40,160 --> 00:50:45,120 Speaker 1: tax bill, small businesses really getting anxious. I think waiting 846 00:50:45,320 --> 00:50:49,759 Speaker 1: for tax legislation. So let's do some taxes, let's do 847 00:50:49,920 --> 00:50:55,040 Speaker 1: some regulatory simplification, and make sure there's taccess to capital 848 00:50:55,600 --> 00:50:58,160 Speaker 1: things that people agree on already. One of the things 849 00:50:58,160 --> 00:51:00,239 Speaker 1: that Michael McKee and I agree on, Karen, and we 850 00:51:00,239 --> 00:51:02,640 Speaker 1: can ask you this because you're living it, is the 851 00:51:02,719 --> 00:51:05,480 Speaker 1: value of a liberal arts education. Bill Ford has a 852 00:51:05,560 --> 00:51:08,400 Speaker 1: history degree out of a small school in New Jersey. 853 00:51:08,800 --> 00:51:10,480 Speaker 1: I believe you did the right thing and took a 854 00:51:10,680 --> 00:51:14,120 Speaker 1: ten at Harvard a few years ago, and you're you 855 00:51:14,280 --> 00:51:18,080 Speaker 1: very much know the efforts of Bowden College. How important 856 00:51:18,160 --> 00:51:24,520 Speaker 1: is liberal arts to small business and any business education today. Well, 857 00:51:24,520 --> 00:51:27,319 Speaker 1: I'm a big believer in liberal arts education. You know, 858 00:51:27,800 --> 00:51:30,719 Speaker 1: it really helps you figure out how to think. And 859 00:51:30,760 --> 00:51:33,560 Speaker 1: as you said, at Bowden and at Harvard and really 860 00:51:33,719 --> 00:51:37,200 Speaker 1: around the community, you want somebody who can have a 861 00:51:37,320 --> 00:51:41,080 Speaker 1: sense of, you know, what is what is the way 862 00:51:41,200 --> 00:51:44,879 Speaker 1: the path forward? And that's not just figuring out how 863 00:51:44,920 --> 00:51:48,600 Speaker 1: to do the numbers. That's about making judgments and studying 864 00:51:48,760 --> 00:51:53,360 Speaker 1: history and thinking about how other people have coped um 865 00:51:53,360 --> 00:51:57,640 Speaker 1: with difficult situations. And when you look at Boden College, 866 00:51:57,760 --> 00:51:59,759 Speaker 1: I think that's one of the reasons why they have 867 00:51:59,840 --> 00:52:05,040 Speaker 1: its proportionate number of leaders Joshua Chamberlain, George Mitchell for 868 00:52:05,160 --> 00:52:08,200 Speaker 1: a very small college in Maine. It's set up how 869 00:52:08,280 --> 00:52:12,239 Speaker 1: you think about living a principal of life and making decisions. 870 00:52:12,520 --> 00:52:15,480 Speaker 1: Plus you have to survive the black Frau flies every spring. 871 00:52:15,600 --> 00:52:22,640 Speaker 1: Karen Mills thanks. Yeah, the winder goes some October to 872 00:52:22,719 --> 00:52:25,480 Speaker 1: the third week of June. Karen Mills, thank you so much, 873 00:52:25,480 --> 00:52:29,080 Speaker 1: greatly appreciate it. Uh the former administrator for the Small 874 00:52:29,160 --> 00:52:42,360 Speaker 1: Business Administration, Thanks for listening to the Bloomberg Surveillance podcast. 875 00:52:42,840 --> 00:52:48,040 Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or 876 00:52:48,120 --> 00:52:52,440 Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom Keene. 877 00:52:52,560 --> 00:52:56,920 Speaker 1: David Gura is at David Gura. Before the podcast, you 878 00:52:56,920 --> 00:53:11,320 Speaker 1: can always catch us worldwide. I'm Bloomberg. Ray. You brought 879 00:53:11,400 --> 00:53:14,920 Speaker 1: you by Bank of America Mery Lynch. With virtual reality, 880 00:53:15,160 --> 00:53:20,600 Speaker 1: virtually everything will change. Discover opportunities in a transforming world. 881 00:53:21,000 --> 00:53:25,279 Speaker 1: Be of a mL dot Com, slash VR, Mary Lynch, 882 00:53:25,360 --> 00:53:27,720 Speaker 1: Pierced Fenner and Smith Incorporated,