1 00:00:09,880 --> 00:00:13,800 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley. 2 00:00:13,960 --> 00:00:17,560 Speaker 1: We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:28,200 Speaker 1: Bloomberg dot com, and of course on the Bloomberg stopic 5 00:00:28,240 --> 00:00:31,400 Speaker 1: by Investial Global Orkestragists. Here's Brian Levitt with us with 6 00:00:31,480 --> 00:00:33,520 Speaker 1: Investco and a lot to talk about in the year 7 00:00:33,680 --> 00:00:36,760 Speaker 1: head And what's so interesting to me to work off 8 00:00:36,760 --> 00:00:40,000 Speaker 1: the chairman's comments, it's not a glass half full. That 9 00:00:40,320 --> 00:00:43,640 Speaker 1: was an optimistic speech by this chairman, wasn't it, Brian, Yeah, 10 00:00:43,640 --> 00:00:46,080 Speaker 1: maybe perhaps a little bit too optimistic. I mean it's 11 00:00:46,120 --> 00:00:49,240 Speaker 1: a it's a it's a good it's a good backdrop 12 00:00:49,280 --> 00:00:51,280 Speaker 1: for risk assets, don't get me wrong. I mean to 13 00:00:51,360 --> 00:00:54,000 Speaker 1: think that we're moving to this new greater level of 14 00:00:54,000 --> 00:00:57,880 Speaker 1: economic activity is lightly over is likely overstating it. So 15 00:00:58,240 --> 00:01:02,160 Speaker 1: I think the key story here is we're getting back 16 00:01:02,200 --> 00:01:06,320 Speaker 1: to an environment of more stable growth with a better 17 00:01:06,440 --> 00:01:11,920 Speaker 1: policy mix that is helping business sentiment and you know, 18 00:01:11,959 --> 00:01:15,440 Speaker 1: helping business activity, and so it's an improvement from where 19 00:01:15,440 --> 00:01:18,360 Speaker 1: we were in the summer of twenty nineteen. But but 20 00:01:18,440 --> 00:01:22,200 Speaker 1: to think that we're going to a better, significantly better 21 00:01:22,760 --> 00:01:25,480 Speaker 1: sustained level of growth is overstating it. So, Brian, what 22 00:01:25,520 --> 00:01:28,479 Speaker 1: would you characterize as a sustainable level of growth? I've 23 00:01:28,480 --> 00:01:30,199 Speaker 1: heard ranges from as low as one and a half 24 00:01:30,200 --> 00:01:32,760 Speaker 1: percent GDP two, maybe as high as two and a 25 00:01:32,840 --> 00:01:34,760 Speaker 1: half percent. Kind of where do you think we're going 26 00:01:34,800 --> 00:01:36,480 Speaker 1: to be for the next twelve months? Yeah, I mean 27 00:01:36,480 --> 00:01:38,840 Speaker 1: real GDP should be around two percent, and you and 28 00:01:38,880 --> 00:01:40,920 Speaker 1: you add a bit for inflation to get a nominal 29 00:01:41,000 --> 00:01:45,000 Speaker 1: number somewhere slightly below four percent. And what's most important 30 00:01:45,000 --> 00:01:47,560 Speaker 1: for investors rather than getting that tense place right on 31 00:01:47,680 --> 00:01:50,360 Speaker 1: g d P, is is two percent good enough to 32 00:01:50,400 --> 00:01:52,720 Speaker 1: support corporate earnings? Which I think we would all argue 33 00:01:52,760 --> 00:01:55,360 Speaker 1: the answer is yes, but not so strong to bring 34 00:01:55,440 --> 00:01:58,120 Speaker 1: forward inflation to lead to FED tighten and the cycle. 35 00:01:58,240 --> 00:02:01,520 Speaker 1: So if you get that big story or right, modest growth, 36 00:02:01,560 --> 00:02:05,760 Speaker 1: benign inflation, easy monetary policy, it sets up nicely for 37 00:02:05,880 --> 00:02:08,160 Speaker 1: risk us. I'm trying to rip my wrap my head 38 00:02:08,200 --> 00:02:10,160 Speaker 1: around the idea that a lot of people are saying, 39 00:02:10,160 --> 00:02:12,240 Speaker 1: which is that comps will just be easy. This is 40 00:02:12,360 --> 00:02:15,720 Speaker 1: classic Wall Street. I don't want to say manipulation, but 41 00:02:15,840 --> 00:02:18,720 Speaker 1: manipulation that basically, things aren't going to be as bad 42 00:02:18,720 --> 00:02:20,560 Speaker 1: as they were this year, and so everyone's going to 43 00:02:20,600 --> 00:02:23,640 Speaker 1: be really happy and it's a really low bar to cross. 44 00:02:23,720 --> 00:02:25,840 Speaker 1: Do you buy that? Yeah, I mean the markets starting 45 00:02:25,880 --> 00:02:28,040 Speaker 1: to sniff some of that out right, that's that's all 46 00:02:28,120 --> 00:02:30,960 Speaker 1: time highs. But I think that you know, we we 47 00:02:31,040 --> 00:02:33,200 Speaker 1: had gotten to a place where people had gotten really 48 00:02:33,320 --> 00:02:36,600 Speaker 1: pessimistic amid a bad policy mix, and to the point 49 00:02:36,600 --> 00:02:38,440 Speaker 1: where we inverted the yield curve, and you had some 50 00:02:38,520 --> 00:02:42,160 Speaker 1: pundits and strategists saying we were going into a recession quickly. 51 00:02:42,480 --> 00:02:45,200 Speaker 1: Bad policy mix. You're talking about the FED hiking too soon, 52 00:02:45,240 --> 00:02:48,200 Speaker 1: you're talking about trade tension, talking about both. Okay, I'm 53 00:02:48,240 --> 00:02:51,680 Speaker 1: talking about both. So you know that's not mean specifically 54 00:02:51,680 --> 00:02:54,200 Speaker 1: saying bad policy mix. That's the currency in bond market 55 00:02:54,200 --> 00:02:58,760 Speaker 1: and financial conditions saying bad policy mix. So we created 56 00:02:58,960 --> 00:03:02,880 Speaker 1: in an earnings recession, and we created a very weak 57 00:03:02,919 --> 00:03:05,800 Speaker 1: economic environment. We inverted the yield curve. Now that we've 58 00:03:05,840 --> 00:03:09,720 Speaker 1: backed that off, we've backed away from that directionally, things 59 00:03:09,720 --> 00:03:12,160 Speaker 1: are improving. So yeah, comps are low, but the good 60 00:03:12,200 --> 00:03:15,519 Speaker 1: news is economic activities improving. The yield curve has normalized 61 00:03:15,520 --> 00:03:18,600 Speaker 1: a bit and earning should should carry through, and the 62 00:03:18,639 --> 00:03:20,920 Speaker 1: markets are sniffing that out ahead of time. So, Brian, 63 00:03:20,960 --> 00:03:23,920 Speaker 1: everybody's thinking about twenty right here, we've already had a 64 00:03:24,000 --> 00:03:27,880 Speaker 1: great year in ten. Is I think about should my 65 00:03:27,960 --> 00:03:32,440 Speaker 1: expectations be in terms of returns low single digits, mid 66 00:03:32,520 --> 00:03:35,280 Speaker 1: single digits. I don't think anybody's banking on the kind 67 00:03:35,280 --> 00:03:37,600 Speaker 1: of returns we've had, even off of the you know, 68 00:03:37,640 --> 00:03:40,720 Speaker 1: the highs, the twenty the trailing twelve month highs. Is 69 00:03:40,760 --> 00:03:42,520 Speaker 1: it's still kind of a low to mid single digit 70 00:03:42,560 --> 00:03:45,040 Speaker 1: return expectation for next year. I actually think we can 71 00:03:45,080 --> 00:03:47,400 Speaker 1: do better. I mean, remember the last time we had 72 00:03:47,640 --> 00:03:51,600 Speaker 1: a mid cycle ease in the nineties. Um, you know, 73 00:03:51,640 --> 00:03:53,960 Speaker 1: you had a very good market for a number of 74 00:03:54,040 --> 00:03:57,640 Speaker 1: years now. Ultimately it ended badly in the late nineteen nineties, 75 00:03:57,680 --> 00:04:00,960 Speaker 1: but you got two very excessive valuations and you got 76 00:04:00,960 --> 00:04:04,560 Speaker 1: to a point where everybody loved equities. Right now, we're 77 00:04:04,640 --> 00:04:07,600 Speaker 1: not at a point of overly excessive valuation. Stocks are 78 00:04:07,600 --> 00:04:11,080 Speaker 1: still cheap two bonds, and I don't think everybody loves equities. 79 00:04:11,080 --> 00:04:13,240 Speaker 1: I think we still have more Americans playing the lottery 80 00:04:13,320 --> 00:04:16,120 Speaker 1: than than buying stocks, and your odds in the lottery 81 00:04:16,120 --> 00:04:17,960 Speaker 1: are one and two hundred million. The stock market hits 82 00:04:17,960 --> 00:04:20,480 Speaker 1: a new high every sixteen days, and the superlotos two 83 00:04:20,800 --> 00:04:23,320 Speaker 1: million dollars right exactly, and yet we're at all time 84 00:04:23,640 --> 00:04:26,280 Speaker 1: in the market. Tom, Are you out there buying a 85 00:04:26,360 --> 00:04:35,600 Speaker 1: lot of ticket I'm a lot of skim, a little 86 00:04:35,640 --> 00:04:39,799 Speaker 1: off the top for the hesper set leverage cash plus 87 00:04:39,839 --> 00:04:44,039 Speaker 1: lottery tickets. That is, that is that is a classic strategy. 88 00:04:44,160 --> 00:04:46,919 Speaker 1: Here we're speaking with Brian levit Ivest, global market strategist. 89 00:04:46,960 --> 00:04:50,240 Speaker 1: I'm just wondering setting up for twenty We are seeing 90 00:04:50,320 --> 00:04:52,839 Speaker 1: a bit of a tick up in consumer to falls, 91 00:04:52,839 --> 00:04:56,359 Speaker 1: particularly in the auto loan and credit cards sector. We 92 00:04:56,440 --> 00:04:59,440 Speaker 1: are seeing tightening lending standards. We've seen a little bit 93 00:04:59,440 --> 00:05:02,240 Speaker 1: of stress and the triple C rated credits. At what 94 00:05:02,440 --> 00:05:06,320 Speaker 1: point does that matter? Well, it'll matter if you see 95 00:05:06,440 --> 00:05:10,839 Speaker 1: lending standards tightened significantly and that starts to carry through 96 00:05:11,000 --> 00:05:13,320 Speaker 1: into you know what type of demand you get for 97 00:05:13,360 --> 00:05:15,400 Speaker 1: these loans, and you start to see spreads go out. 98 00:05:15,400 --> 00:05:17,719 Speaker 1: So I think all of this was a part of 99 00:05:18,120 --> 00:05:21,440 Speaker 1: we had to carry through a bad policy mix which 100 00:05:21,839 --> 00:05:25,320 Speaker 1: which strengthened the dollar a bit, hurt commodity prices a bit, 101 00:05:25,640 --> 00:05:28,440 Speaker 1: starts to hurt high yield a bit, and hurts high yield, 102 00:05:28,480 --> 00:05:31,000 Speaker 1: then you start to see some tightening of lending conditions. 103 00:05:31,000 --> 00:05:34,320 Speaker 1: We're we're backing away from that now. So you're right 104 00:05:34,480 --> 00:05:37,719 Speaker 1: if you see the credit cycle deteriorating, meeting, you gotta 105 00:05:37,760 --> 00:05:40,520 Speaker 1: get the credit cycle right. If it starts to deteriorate meaningly, 106 00:05:40,600 --> 00:05:42,400 Speaker 1: then all those pundits in the summer that we're saying 107 00:05:42,440 --> 00:05:44,960 Speaker 1: we're heading to a recession are going to be right. 108 00:05:45,080 --> 00:05:48,480 Speaker 1: If if I'm right, and that a better policy mix 109 00:05:48,880 --> 00:05:53,960 Speaker 1: extends the credit cycle, keeps lending conditions relatively easy, keeps 110 00:05:53,960 --> 00:05:56,400 Speaker 1: spreads relatively tight, then this goes on for longer than 111 00:05:56,440 --> 00:05:59,920 Speaker 1: most people believe it will. Yeah, look, Brian, the expertise 112 00:06:00,000 --> 00:06:04,640 Speaker 1: of Investo and Oppenheimer. With that UH meeting this year, 113 00:06:05,200 --> 00:06:08,680 Speaker 1: the international call, meeting after meeting, interview after interview, we 114 00:06:08,760 --> 00:06:12,560 Speaker 1: have people are saying, finally it's time for internationally catch up. 115 00:06:12,880 --> 00:06:16,680 Speaker 1: What's the why of that? Why will international catch up 116 00:06:16,720 --> 00:06:19,000 Speaker 1: to Amazon? And well, a lot of people, I mean, 117 00:06:19,000 --> 00:06:22,159 Speaker 1: the the valuations are certainly compelling, and particularly in the 118 00:06:22,200 --> 00:06:26,400 Speaker 1: emerging markets, there's some very intriguing growth stories. The challenge 119 00:06:26,520 --> 00:06:28,440 Speaker 1: has been for the last ten years, were in a 120 00:06:28,440 --> 00:06:31,560 Speaker 1: strong dollar environment, and and so when you get to 121 00:06:31,680 --> 00:06:35,480 Speaker 1: a better policy mix in the United States that stabilizes 122 00:06:35,520 --> 00:06:39,040 Speaker 1: the dollar and you have stimulus outside of the United States, 123 00:06:39,320 --> 00:06:43,880 Speaker 1: it starts to feel a bit like sixteen into seventeen, 124 00:06:44,160 --> 00:06:48,960 Speaker 1: where directionally policy was good globally and that started to 125 00:06:49,040 --> 00:06:52,120 Speaker 1: unlock a lot of value and emerging markets and Europe. 126 00:06:52,160 --> 00:06:55,279 Speaker 1: So that's where the optimism comes in. I'm not ready 127 00:06:55,279 --> 00:06:58,640 Speaker 1: to eliminate US. I think true US growth companies are 128 00:06:58,640 --> 00:07:01,200 Speaker 1: going to continue to do well. But for investors that 129 00:07:01,240 --> 00:07:04,559 Speaker 1: have not been in emerging economies, better policy mixed lower 130 00:07:04,640 --> 00:07:08,599 Speaker 1: valuations setting up for better expected long term returns, it 131 00:07:08,640 --> 00:07:11,360 Speaker 1: makes sense to be there. Ohio State, Michigan. This is 132 00:07:11,480 --> 00:07:14,400 Speaker 1: the year that coach was going to get over the hum. 133 00:07:14,440 --> 00:07:16,920 Speaker 1: I mean as a as a as a Michigan grad, 134 00:07:16,960 --> 00:07:21,920 Speaker 1: I should probably say, yes, umred thousand people at the games, 135 00:07:22,000 --> 00:07:26,400 Speaker 1: something crazy. This the the it is my game. My 136 00:07:26,400 --> 00:07:28,680 Speaker 1: my heart says yes, I'm afraid. My head says no, 137 00:07:29,640 --> 00:07:33,160 Speaker 1: this might be it. It's like out there, yes, fan 138 00:07:33,200 --> 00:07:35,080 Speaker 1: out there. Brian Levitt, thanks so much for joining US 139 00:07:35,160 --> 00:07:39,800 Speaker 1: Investgo Global Market Strategist's was a big game perdue Ohio State, 140 00:07:40,320 --> 00:07:50,760 Speaker 1: No Hio State, Michigan. That's a Sweeney neon. This one's 141 00:07:50,800 --> 00:07:53,800 Speaker 1: big and it's a high noon. The TV networks would 142 00:07:53,800 --> 00:07:55,720 Speaker 1: love for it to be in prime time Saturday, but 143 00:07:55,760 --> 00:07:59,200 Speaker 1: Ohio State State, thank you, high noon, and we're gonna 144 00:07:59,200 --> 00:08:01,480 Speaker 1: be watching. We will be watching. Love it. Thank you 145 00:08:01,560 --> 00:08:18,600 Speaker 1: so much. Out of Anne Aarbury. This is an honor. 146 00:08:18,720 --> 00:08:21,880 Speaker 1: Of course, we've done a lot on fashion and retail 147 00:08:22,280 --> 00:08:25,560 Speaker 1: on Bloomberg surveillance. We think someone like Vanessa Freedman at 148 00:08:25,560 --> 00:08:27,880 Speaker 1: The New York Times, at Robert Burke. Of course, with 149 00:08:27,960 --> 00:08:31,640 Speaker 1: all he's done in retail consulting Steve Sade office with us, 150 00:08:31,880 --> 00:08:34,040 Speaker 1: he is the one that brought life to a firm 151 00:08:34,120 --> 00:08:37,800 Speaker 1: called Sex Fifth Avenue. He now works for MasterCard Lending 152 00:08:37,840 --> 00:08:41,640 Speaker 1: Advice Colg. Pamala of air Mark and others. And we 153 00:08:41,720 --> 00:08:44,760 Speaker 1: are thrilled he could join us after this landmark day 154 00:08:44,800 --> 00:08:50,480 Speaker 1: for New York City retail. It's Audrey Hepburn outside of Tiffany's. 155 00:08:51,000 --> 00:08:55,240 Speaker 1: It's gone. What does Tiffany's look for the younger generation? 156 00:08:55,640 --> 00:08:58,360 Speaker 1: They don't know who Audrey Hepburn is, do they now? 157 00:08:58,400 --> 00:09:02,319 Speaker 1: They don't? And Breakfast at Tiffany's has an image, connotes 158 00:09:02,360 --> 00:09:08,160 Speaker 1: and imagery that is uh wonderful for a generation of consumers, 159 00:09:08,200 --> 00:09:11,240 Speaker 1: But the next generation of consumers has to think differently 160 00:09:11,240 --> 00:09:14,440 Speaker 1: about Tiffany's and I think that the opportunity with the 161 00:09:14,440 --> 00:09:18,880 Speaker 1: acquisition by LVMH is to really transform that brand. And 162 00:09:19,040 --> 00:09:21,240 Speaker 1: I think this is gonna be a great one. It's 163 00:09:21,240 --> 00:09:23,679 Speaker 1: a win win for both Lisa Brahmans. Once we're at 164 00:09:23,679 --> 00:09:28,000 Speaker 1: the runway for jewelry, which is which is, you know, 165 00:09:28,080 --> 00:09:30,240 Speaker 1: Tiffany's has to find a new path as well. What 166 00:09:30,360 --> 00:09:35,120 Speaker 1: is their path to sustain revenues given the synergies and 167 00:09:35,200 --> 00:09:39,920 Speaker 1: given the high hurdles of a sixteen times EBA dub price. Well, 168 00:09:40,360 --> 00:09:44,760 Speaker 1: there's so many opportunities with l v m H and Tiffany's. 169 00:09:44,840 --> 00:09:47,760 Speaker 1: I think you look at it from a geographic expansion, 170 00:09:48,000 --> 00:09:52,120 Speaker 1: LVMH has so many capabilities overseas, especially in Asia that 171 00:09:52,160 --> 00:09:55,960 Speaker 1: Tiffany can tap into. I believe that in the US 172 00:09:56,000 --> 00:09:59,040 Speaker 1: there's a lot of opportunity to modern continue to modernize 173 00:09:59,240 --> 00:10:02,000 Speaker 1: the Tiffany b end Uh. The work that Read Craikoff 174 00:10:02,040 --> 00:10:03,920 Speaker 1: and the team did over the last couple of years, 175 00:10:04,000 --> 00:10:05,960 Speaker 1: I think has made some progress, but they need to 176 00:10:06,000 --> 00:10:09,400 Speaker 1: elevate the price points. UH. They've done a good job 177 00:10:09,440 --> 00:10:12,440 Speaker 1: at what I call some of that entrance. Mrs Kings listening, 178 00:10:12,480 --> 00:10:14,480 Speaker 1: don't say that. Actually, hold on a second, Actually this 179 00:10:14,520 --> 00:10:16,880 Speaker 1: is important. You said elevate the price points. I thought 180 00:10:16,920 --> 00:10:19,320 Speaker 1: it was the opposite that to modernize they had to 181 00:10:19,360 --> 00:10:22,120 Speaker 1: create a bigger range with an increasing number of offerings 182 00:10:22,120 --> 00:10:24,360 Speaker 1: on the lower end in addition to the high end. 183 00:10:24,440 --> 00:10:25,920 Speaker 1: I think you got to do both. Now, I think 184 00:10:25,960 --> 00:10:28,400 Speaker 1: that to me Tiffany, and I'm not an expert on 185 00:10:28,440 --> 00:10:30,520 Speaker 1: Tiffany as much, but I think that they've done a 186 00:10:30,520 --> 00:10:33,320 Speaker 1: decent job with what I call the sterly silver. But 187 00:10:33,400 --> 00:10:36,240 Speaker 1: what you need to have is a uh l V 188 00:10:36,400 --> 00:10:38,800 Speaker 1: M a l V. The L Louis Vuitton brand is 189 00:10:38,960 --> 00:10:42,160 Speaker 1: masterful at what I call the good, better, best within 190 00:10:42,440 --> 00:10:45,120 Speaker 1: luxury price points. So you have to win at the 191 00:10:45,160 --> 00:10:49,200 Speaker 1: lower level. LVY has a lot of entry price point product. 192 00:10:49,559 --> 00:10:52,520 Speaker 1: Tiffany needs to play have both that entry but then 193 00:10:52,559 --> 00:10:55,520 Speaker 1: the aspirational higher end price product as well. So you've 194 00:10:55,520 --> 00:10:57,880 Speaker 1: got to play across all the price points of luxury. 195 00:10:58,559 --> 00:11:01,440 Speaker 1: So Steve that Tom mentioned that sixteen times even that evaluation. 196 00:11:01,440 --> 00:11:03,160 Speaker 1: When I saw that yesterday, I was shocked because when 197 00:11:03,200 --> 00:11:05,360 Speaker 1: I think retail, uh you know, I think, you know, 198 00:11:05,400 --> 00:11:10,280 Speaker 1: a struggling industry, shrinking store bases. Why is luxury doing 199 00:11:10,400 --> 00:11:14,280 Speaker 1: so much better than just broader retail. Oh, I'm not 200 00:11:14,320 --> 00:11:16,760 Speaker 1: so sure that that's necessarily true. I think that if 201 00:11:16,760 --> 00:11:19,040 Speaker 1: I look at luxury and aggregate. So if I take 202 00:11:19,080 --> 00:11:22,040 Speaker 1: the master Card spending data, for example, and they're they're 203 00:11:22,120 --> 00:11:24,839 Speaker 1: terrific at laying out what's going on in categories. Uh, 204 00:11:25,040 --> 00:11:28,640 Speaker 1: the overall consumer, let's say the forecast for the season's 205 00:11:28,760 --> 00:11:31,559 Speaker 1: holiday season's about three and a half percent. It's been 206 00:11:31,640 --> 00:11:34,840 Speaker 1: up in the three percent range this year. Luxury is 207 00:11:34,920 --> 00:11:38,160 Speaker 1: down two point seven percent this year. So luxury itself 208 00:11:38,240 --> 00:11:41,400 Speaker 1: isn't in the US isn't performing better than the rest. Actually, 209 00:11:41,440 --> 00:11:43,160 Speaker 1: if I look at the Walmart and the targets of 210 00:11:43,160 --> 00:11:48,160 Speaker 1: the world, they're performing far better than the aggregate of luxury. 211 00:11:48,240 --> 00:11:51,360 Speaker 1: So the opportunity, uh, you know, I look at the 212 00:11:51,480 --> 00:11:56,360 Speaker 1: LV opportunity uh with Tiffany is uh massive. But this 213 00:11:56,440 --> 00:12:00,679 Speaker 1: isn't about retail versus You've got to separate retail versus brands. 214 00:12:01,280 --> 00:12:03,400 Speaker 1: Brands aren't selling, you know, if if we're saying we're 215 00:12:03,400 --> 00:12:07,760 Speaker 1: selling a department store retailer, the multiples are very low, 216 00:12:08,120 --> 00:12:12,560 Speaker 1: but consumers are buying brands where they're distributed is changing. 217 00:12:12,600 --> 00:12:15,280 Speaker 1: It could be the Internet, it can be through omni channel, 218 00:12:15,320 --> 00:12:17,800 Speaker 1: through almost any kind of a channel. Tiffany is a 219 00:12:17,840 --> 00:12:21,199 Speaker 1: brand more so than being a retailer. That's why it's 220 00:12:21,240 --> 00:12:23,319 Speaker 1: commanding the kind of multiple that we're talking and this 221 00:12:23,440 --> 00:12:26,400 Speaker 1: distinction is really important right now, especially there was a 222 00:12:26,440 --> 00:12:31,360 Speaker 1: report that Sacks Fifth Avenues headquarters building on Fifth Avenue 223 00:12:32,000 --> 00:12:35,080 Speaker 1: actually so I decline in its property value of over 224 00:12:35,120 --> 00:12:37,640 Speaker 1: five years and this sort of speaks to the fate 225 00:12:37,720 --> 00:12:41,320 Speaker 1: of retailing. And as the former CEO of SAX and wondering, 226 00:12:41,720 --> 00:12:44,559 Speaker 1: what do you think is the path forward for retailers, 227 00:12:44,720 --> 00:12:49,560 Speaker 1: not brands, Well, it depends upon which retailers we're talking about. Again, 228 00:12:49,960 --> 00:12:53,680 Speaker 1: I look at a Walmart and a Target. They're both 229 00:12:53,800 --> 00:12:59,120 Speaker 1: killing it and they're winning because they're omni channel. Meaning 230 00:12:59,120 --> 00:13:01,440 Speaker 1: the consumer wants any product anywhere, they want to be 231 00:13:01,480 --> 00:13:04,559 Speaker 1: able to to get it. So they've invested in infrastructure, 232 00:13:04,559 --> 00:13:06,920 Speaker 1: single view of the inventory, single view of the customer, 233 00:13:07,120 --> 00:13:09,960 Speaker 1: buy online, pick up, pick up in store. If you 234 00:13:09,960 --> 00:13:13,240 Speaker 1: looked at Target, for example, they said that eighty percent 235 00:13:13,360 --> 00:13:17,200 Speaker 1: of their Internet growth, which was about was being driven 236 00:13:17,320 --> 00:13:19,520 Speaker 1: by pick up in the store, ordering it online, picking 237 00:13:19,520 --> 00:13:21,640 Speaker 1: it up in the store. So they made the technological 238 00:13:21,679 --> 00:13:26,960 Speaker 1: infrastructure investments as a retailer. They're also investing in across 239 00:13:27,160 --> 00:13:31,200 Speaker 1: UH analytics. So big retailers have to make big investments. 240 00:13:31,320 --> 00:13:34,439 Speaker 1: So that's the direction that you're going. But again, small, 241 00:13:34,720 --> 00:13:36,319 Speaker 1: you know, you've got to have scale. You've got to 242 00:13:36,520 --> 00:13:38,480 Speaker 1: and you've got to be offering the product and the 243 00:13:38,520 --> 00:13:41,880 Speaker 1: experience that consumers want. Thank you so much for being 244 00:13:41,880 --> 00:13:44,720 Speaker 1: with Steve. I just think the large turquoise wire place 245 00:13:44,880 --> 00:13:48,680 Speaker 1: bracelet in eighteen carot white gold with the turquoise, says 246 00:13:48,760 --> 00:13:53,000 Speaker 1: farm girl. I mean it really does Tiffany's I mean 247 00:14:01,080 --> 00:14:04,640 Speaker 1: it's not so secret that I like on there's turquoise 248 00:14:04,679 --> 00:14:06,920 Speaker 1: out of Santa Fe for Tiffany. Steve say it off 249 00:14:06,920 --> 00:14:24,400 Speaker 1: with us of course with master Card, Fiona Frick is 250 00:14:24,440 --> 00:14:30,200 Speaker 1: the unigestion of London and they manage based on risk 251 00:14:30,640 --> 00:14:33,560 Speaker 1: and this goes back, folks to the laureate from Stanford 252 00:14:33,600 --> 00:14:37,640 Speaker 1: Williams Sharp and the sharp ratio and the idea of 253 00:14:37,680 --> 00:14:41,600 Speaker 1: the reward you get versus the risk taken. Fiona, we 254 00:14:41,640 --> 00:14:45,160 Speaker 1: are thrilled you with us. Did your firm capture much 255 00:14:45,640 --> 00:14:51,800 Speaker 1: of this up two thousand nineteen, Yes, I must say 256 00:14:51,800 --> 00:14:54,760 Speaker 1: that we did because we turned positive on the economy 257 00:14:54,800 --> 00:15:01,880 Speaker 1: in January. Although the macco environment was the the decreasing. 258 00:15:02,040 --> 00:15:04,400 Speaker 1: We saw the move of the central bank in the 259 00:15:04,520 --> 00:15:07,320 Speaker 1: US as a sign that they would a sort of 260 00:15:07,440 --> 00:15:11,000 Speaker 1: flaw for the equity. And since then we also see 261 00:15:11,040 --> 00:15:14,080 Speaker 1: that macro environment has been getting a bit better. We 262 00:15:14,160 --> 00:15:19,360 Speaker 1: measure economic behavior using what we call diffusion index of 263 00:15:19,400 --> 00:15:23,280 Speaker 1: different characteristics of Nick Michael, and we saw that since 264 00:15:23,360 --> 00:15:26,520 Speaker 1: January there were more news coming up on the positive 265 00:15:26,560 --> 00:15:29,000 Speaker 1: side than there were used on the negative side, which 266 00:15:29,000 --> 00:15:33,760 Speaker 1: showed that although the environment was going down, it was stabilizing. 267 00:15:33,920 --> 00:15:37,360 Speaker 1: Is we went into growth assets in January and we 268 00:15:38,200 --> 00:15:42,120 Speaker 1: went into even more in what's so interesting for you? 269 00:15:42,400 --> 00:15:44,360 Speaker 1: And this is with so many people who have really 270 00:15:44,400 --> 00:15:48,120 Speaker 1: not enjoyed this rally is the now what of it? 271 00:15:48,320 --> 00:15:51,720 Speaker 1: Are your vectors of your diffusion index? Are they still 272 00:15:52,160 --> 00:15:56,960 Speaker 1: moving higher? Moving green? Where you can stay invested in equities? 273 00:15:58,800 --> 00:16:01,800 Speaker 1: So we is a decision on three things, So first 274 00:16:01,800 --> 00:16:05,560 Speaker 1: the macro environment, second valuation and third sentiment. So the 275 00:16:05,600 --> 00:16:08,640 Speaker 1: macro environment we still find it positive. I MF just 276 00:16:08,680 --> 00:16:11,240 Speaker 1: went out with some statistic around three percent we share 277 00:16:11,280 --> 00:16:15,360 Speaker 1: that you and two percent in a decent growth. The 278 00:16:15,360 --> 00:16:19,400 Speaker 1: problem is valuation today. Even we are in the eighties 279 00:16:19,720 --> 00:16:24,840 Speaker 1: eighty percent percentile of valuization valuation for the SMP five hundreds, 280 00:16:25,400 --> 00:16:29,600 Speaker 1: perhaps fifty seven percent for Europe. So obviously stocks are 281 00:16:29,640 --> 00:16:31,840 Speaker 1: much more expensive than there are there were a few 282 00:16:31,880 --> 00:16:36,240 Speaker 1: months ago. So we are positive on the macro, negative, 283 00:16:36,320 --> 00:16:38,400 Speaker 1: we would say on valuation because things that we can 284 00:16:38,480 --> 00:16:42,960 Speaker 1: more more more expensive, but positive on sentiments because sentiment. 285 00:16:43,040 --> 00:16:46,840 Speaker 1: We saw that the rides which took place in markets 286 00:16:46,920 --> 00:16:50,160 Speaker 1: generally was not followed by a lot of people. And 287 00:16:50,760 --> 00:16:54,320 Speaker 1: you can see obviously retail funds were mainly into bonds 288 00:16:54,400 --> 00:17:00,000 Speaker 1: in Stua Uh. The result of companies were quite positive 289 00:17:00,440 --> 00:17:04,760 Speaker 1: on the positive surprise size side. So we remain positive 290 00:17:04,760 --> 00:17:07,760 Speaker 1: on sentiments. So I would say that we remain positive 291 00:17:07,880 --> 00:17:10,800 Speaker 1: on too data, which is the environment and the sentiment, 292 00:17:10,840 --> 00:17:13,760 Speaker 1: and negative on valuation. So we are awaited in equity, 293 00:17:13,840 --> 00:17:17,320 Speaker 1: but we've put some optionality. If there is some correction 294 00:17:17,440 --> 00:17:21,919 Speaker 1: that at some point the backward violence is good, we 295 00:17:22,000 --> 00:17:24,520 Speaker 1: all stay there. I gotta bring in my colleague Paul Sweeney. 296 00:17:24,520 --> 00:17:27,520 Speaker 1: He's in charge of optionality here, Paul, so Fiona, a 297 00:17:27,560 --> 00:17:31,040 Speaker 1: lot of investors are saying they're seeing more value in UH, 298 00:17:31,160 --> 00:17:35,679 Speaker 1: European markets, maybe even emerging markets relative to the US. 299 00:17:35,920 --> 00:17:39,480 Speaker 1: What is your view. I think in the emerging market 300 00:17:39,480 --> 00:17:44,960 Speaker 1: there's more in certainty, UH, depending on political states, etcetera. 301 00:17:45,720 --> 00:17:48,879 Speaker 1: We are still It's true that in terms of valuation 302 00:17:48,960 --> 00:17:51,159 Speaker 1: they are cheaper than US and Europe, but they are 303 00:17:51,200 --> 00:17:54,560 Speaker 1: cheap before reasons, but there is more risk. The growth 304 00:17:54,680 --> 00:17:57,360 Speaker 1: is mainly in the US next year. We are still 305 00:17:57,560 --> 00:18:00,480 Speaker 1: we are positive in Europe with your UH sort of 306 00:18:01,600 --> 00:18:07,720 Speaker 1: stabilization of the economical scenario. Germany floated with with with recession, 307 00:18:07,800 --> 00:18:11,600 Speaker 1: but it's it's getting better. And we saw that we 308 00:18:11,640 --> 00:18:14,480 Speaker 1: could have at one point some fiscal policy in some countries, 309 00:18:14,520 --> 00:18:18,760 Speaker 1: especially in Germany and in the Netherlands, which would UH 310 00:18:19,480 --> 00:18:23,520 Speaker 1: provide perhaps a cap to to if the if this 311 00:18:23,600 --> 00:18:27,159 Speaker 1: micro situation we're getting worse. So we are positive on 312 00:18:27,200 --> 00:18:29,800 Speaker 1: Europe because we think that the situation is stabilizing. We 313 00:18:29,840 --> 00:18:34,480 Speaker 1: saw that the monetary policy has been quite clear. Mrs 314 00:18:34,520 --> 00:18:37,720 Speaker 1: Tagal has been quite clear that race will remain lawful 315 00:18:37,800 --> 00:18:40,920 Speaker 1: quite a long time, and there is more consensus about 316 00:18:40,920 --> 00:18:43,040 Speaker 1: the need of a fiscal policy in some countries. So 317 00:18:43,240 --> 00:18:46,280 Speaker 1: just out looking right now at what you're doing with money. 318 00:18:46,359 --> 00:18:49,960 Speaker 1: I was looking at some of the neiggestions, different different 319 00:18:50,000 --> 00:18:52,960 Speaker 1: moves over the past few years and increasing push into 320 00:18:53,080 --> 00:18:57,159 Speaker 1: private equity direct lending. Uh, what do you think the 321 00:18:57,160 --> 00:19:00,919 Speaker 1: opportunity is there? Where are you investing with those direct 322 00:19:00,960 --> 00:19:06,000 Speaker 1: planting strategies. So we do mainly private equity, and uh, 323 00:19:06,560 --> 00:19:09,000 Speaker 1: we we see strong demand from from clients in the 324 00:19:09,119 --> 00:19:12,960 Speaker 1: period where obviously equity are quite value against that the 325 00:19:13,040 --> 00:19:16,440 Speaker 1: bonds are not delivering the return that would be expected 326 00:19:16,480 --> 00:19:19,600 Speaker 1: for for pension funds insurance. So there really there's really 327 00:19:19,640 --> 00:19:22,639 Speaker 1: a move from our client to private assets and private 328 00:19:22,680 --> 00:19:26,600 Speaker 1: equity being one of the important part of the cycle. 329 00:19:26,680 --> 00:19:29,119 Speaker 1: So it's true that we even we invested at an 330 00:19:29,119 --> 00:19:32,399 Speaker 1: indist you more in private equity to survenment seventeen as 331 00:19:32,440 --> 00:19:35,840 Speaker 1: we did an acquisition of those company basins Zurich. We 332 00:19:35,880 --> 00:19:38,680 Speaker 1: are specialized in the small mid markets because we believe 333 00:19:38,720 --> 00:19:41,680 Speaker 1: that there is a place where you can construct a 334 00:19:41,800 --> 00:19:45,240 Speaker 1: more positive performance due to the fact that when you 335 00:19:45,280 --> 00:19:49,080 Speaker 1: buy a company, the the progress will be done mainly 336 00:19:49,160 --> 00:19:53,159 Speaker 1: by business transformation and not done necessarily on adding leverage. 337 00:19:53,160 --> 00:19:57,000 Speaker 1: On leverage Fanna, thank you so much. Freak with unigestion 338 00:19:57,080 --> 00:20:10,000 Speaker 1: of on I greatly greatly appreciate your turn to today. 339 00:20:12,680 --> 00:20:16,520 Speaker 1: We have joining us the author of economic modeling in 340 00:20:16,520 --> 00:20:20,439 Speaker 1: the post Great Recession era to try to understand whether 341 00:20:20,560 --> 00:20:24,440 Speaker 1: these forecasts are all that accurate or whether they've gotten 342 00:20:24,520 --> 00:20:28,280 Speaker 1: less predictive, Sarah House, well as Fargo Security senior economists 343 00:20:28,320 --> 00:20:30,600 Speaker 1: joining us now. Sarah, I want to go to that 344 00:20:30,640 --> 00:20:33,399 Speaker 1: point because there have been a lot of predictions in 345 00:20:33,440 --> 00:20:35,760 Speaker 1: the past few years that we're going to see a downturn, 346 00:20:35,800 --> 00:20:38,240 Speaker 1: that we're going to see the dollar weekend. They have 347 00:20:38,359 --> 00:20:42,000 Speaker 1: not come to fruition. Do you feel like forecasting has 348 00:20:42,080 --> 00:20:46,240 Speaker 1: become more art and much less science in the post 349 00:20:46,359 --> 00:20:49,680 Speaker 1: Great Recession era? I think we certainly have, just as 350 00:20:49,680 --> 00:20:51,760 Speaker 1: you've seen a lot of the rules change, or at 351 00:20:51,840 --> 00:20:56,000 Speaker 1: least what we thought were previously held assumptions are are 352 00:20:56,080 --> 00:20:59,440 Speaker 1: harder to hold now. And then I think more recently, 353 00:20:59,440 --> 00:21:03,000 Speaker 1: of course, we seen an added dose of political uncertainty 354 00:21:03,320 --> 00:21:06,399 Speaker 1: enter into the forecasting realm, and so you've had to 355 00:21:06,440 --> 00:21:09,480 Speaker 1: make a lot of assumptions about what some of the 356 00:21:09,520 --> 00:21:12,879 Speaker 1: policy environment is, perhaps much more so than than we 357 00:21:12,920 --> 00:21:17,840 Speaker 1: did in prior expansions. So, sir, this economy has really 358 00:21:17,880 --> 00:21:21,480 Speaker 1: been driven by the consumer. We've seen some weakness over 359 00:21:21,520 --> 00:21:25,920 Speaker 1: the last several quarters. Obviously in manufacturing and business investment. 360 00:21:26,160 --> 00:21:29,720 Speaker 1: As you look out to is it's still the consumer 361 00:21:30,000 --> 00:21:33,439 Speaker 1: that's going to push this economy forward. I think it's 362 00:21:33,480 --> 00:21:36,399 Speaker 1: it's still the consumer that's going to be primarily in 363 00:21:36,400 --> 00:21:38,080 Speaker 1: the driver's seat. But I think we're going to see 364 00:21:38,080 --> 00:21:41,879 Speaker 1: some convergence. So there are some tentative signs of the 365 00:21:41,960 --> 00:21:46,280 Speaker 1: industrial sector activity there at least stabilizing. Um it's nothing 366 00:21:46,480 --> 00:21:48,919 Speaker 1: really to write home about, but it's at least no 367 00:21:49,000 --> 00:21:51,679 Speaker 1: longer getting worse. But I think you're also seen some 368 00:21:51,720 --> 00:21:54,080 Speaker 1: moderation in the consumer sector. So we had a really 369 00:21:54,080 --> 00:21:56,960 Speaker 1: good middle part of the year where spenny was growing 370 00:21:57,080 --> 00:22:00,000 Speaker 1: in real terms about three and a half percent UM. 371 00:22:00,119 --> 00:22:02,920 Speaker 1: That's still a little bit better than what disposable incomes doing, 372 00:22:02,920 --> 00:22:05,920 Speaker 1: and so we're we're seeing a bit of a moderation there, 373 00:22:05,960 --> 00:22:07,639 Speaker 1: but it's really just kind of a return to trend 374 00:22:07,680 --> 00:22:11,000 Speaker 1: and fundamental still look pretty good. So UM still expecting 375 00:22:11,040 --> 00:22:12,760 Speaker 1: some good numbers out of the consumer next year. So 376 00:22:12,960 --> 00:22:14,879 Speaker 1: in the time we got left to you, your magic 377 00:22:15,040 --> 00:22:17,399 Speaker 1: is a single page. You're right and left three charts 378 00:22:17,400 --> 00:22:20,000 Speaker 1: in some brilliant text, get the ball out of the 379 00:22:20,040 --> 00:22:25,800 Speaker 1: park on our health insurance costs. The CPI health insurance 380 00:22:25,880 --> 00:22:30,560 Speaker 1: cost is a double digit moonshot. Are we finally, twelve 381 00:22:30,640 --> 00:22:34,600 Speaker 1: years on from a horrific great recession, are we finally 382 00:22:34,640 --> 00:22:40,040 Speaker 1: back to legit four percent plus per year health care inflation? Well? 383 00:22:40,080 --> 00:22:42,680 Speaker 1: I think we're removing that direction, so not nearly to 384 00:22:42,720 --> 00:22:45,680 Speaker 1: the extent that the CPI insurance numbers cover, and those 385 00:22:45,720 --> 00:22:48,879 Speaker 1: don't actually feed into the fens PC too flatter. But 386 00:22:49,000 --> 00:22:52,480 Speaker 1: we we've seen PPI health insurance pickup that is subject 387 00:22:52,480 --> 00:22:55,960 Speaker 1: to to where the PC numbers come from. And basically, 388 00:22:55,960 --> 00:22:58,200 Speaker 1: you know, we've had labor costs in in the healthcare 389 00:22:58,240 --> 00:23:01,879 Speaker 1: space picking up, um where seem faster than than inflation 390 00:23:01,960 --> 00:23:04,439 Speaker 1: for seven years. So you know, there's there's only so 391 00:23:04,520 --> 00:23:06,720 Speaker 1: much margin compression that we can see here before some 392 00:23:06,800 --> 00:23:10,280 Speaker 1: of those costs. This is this is critical, Sarah. Our 393 00:23:10,320 --> 00:23:15,520 Speaker 1: listeners aren't living PC. They're living in healthcare costs, which 394 00:23:15,520 --> 00:23:17,320 Speaker 1: is not the number one or two but maybe it's 395 00:23:17,320 --> 00:23:20,880 Speaker 1: a number three thing. I get mail. I mean, did 396 00:23:20,960 --> 00:23:25,359 Speaker 1: a FED understand our inflation is different than their inflation? 397 00:23:25,520 --> 00:23:27,719 Speaker 1: I think they are. We saw that even Impulse speech 398 00:23:27,800 --> 00:23:31,800 Speaker 1: yet last night where he mentioned that, um, you know 399 00:23:31,920 --> 00:23:34,440 Speaker 1: a lot of households feel inflation is higher, whether it's 400 00:23:34,440 --> 00:23:37,160 Speaker 1: looking at what your housing costs are doing versus how 401 00:23:37,200 --> 00:23:39,960 Speaker 1: it's it's actually measured healthcare costs. You know, we see 402 00:23:40,000 --> 00:23:43,240 Speaker 1: it in the auto sector where nominal transaction prices have 403 00:23:43,280 --> 00:23:47,400 Speaker 1: been rising consistently. But because of the way inflation is calculated. Um, 404 00:23:47,440 --> 00:23:49,080 Speaker 1: you know, the Fed knows that it's a bit lower, 405 00:23:49,160 --> 00:23:51,600 Speaker 1: and they're they're not worried about a few tenths here 406 00:23:51,760 --> 00:23:55,879 Speaker 1: here and there. So sorry, I mean, does that suggest 407 00:23:56,200 --> 00:23:58,480 Speaker 1: that right now the market just discounting one rate cut 408 00:23:58,520 --> 00:24:00,480 Speaker 1: in September? Is that kind of where you're figuring it's 409 00:24:00,480 --> 00:24:03,800 Speaker 1: gonna play out? So right now, we still have one 410 00:24:03,880 --> 00:24:06,760 Speaker 1: more rate cut in in our forecast in Q one, 411 00:24:06,840 --> 00:24:09,840 Speaker 1: but that's predicated on the assumption that we don't get 412 00:24:09,880 --> 00:24:13,960 Speaker 1: any meanful phase phase one deal and we still see 413 00:24:14,000 --> 00:24:17,200 Speaker 1: those December fifteenth tariffs go into place. So trade is 414 00:24:17,240 --> 00:24:20,200 Speaker 1: still the primary driver I think of the near term 415 00:24:20,240 --> 00:24:23,120 Speaker 1: set outlook. Um, if we do get some sort of deal, 416 00:24:23,200 --> 00:24:25,520 Speaker 1: then I think we'd we'd have to revisit that where 417 00:24:25,880 --> 00:24:28,479 Speaker 1: that still is you know, really the significant near term 418 00:24:28,560 --> 00:24:30,639 Speaker 1: risk on the horizon. So it's it's all going to 419 00:24:30,760 --> 00:24:33,040 Speaker 1: lead back to trade, sir House, thank you so much, 420 00:24:33,119 --> 00:24:35,600 Speaker 1: just brilliant on healthcare inflation. Can't say enough by that 421 00:24:35,640 --> 00:24:37,879 Speaker 1: we protect the copyright of our guests. Please get that 422 00:24:38,000 --> 00:24:54,639 Speaker 1: important essay through Wells for our our interview of the 423 00:24:54,720 --> 00:24:57,920 Speaker 1: day in politics, it is with James Travitas, the admiral 424 00:24:58,000 --> 00:25:00,920 Speaker 1: author out with a wonderful new and of course writing 425 00:25:00,960 --> 00:25:05,400 Speaker 1: often for Bloomberg Opinion. He's a Carlisle Group advisor. A well, 426 00:25:05,440 --> 00:25:07,600 Speaker 1: you know, I've wanted to talk to you for days. Here. 427 00:25:08,040 --> 00:25:11,120 Speaker 1: There was a point in seventy four and seventy five 428 00:25:11,160 --> 00:25:14,240 Speaker 1: where it was not cool to do What's Trevidis did. 429 00:25:14,640 --> 00:25:17,560 Speaker 1: And at that point also James trevinas there was a 430 00:25:17,640 --> 00:25:22,959 Speaker 1: marine aviator named Spencer who in nineventy six or whatever 431 00:25:23,440 --> 00:25:26,880 Speaker 1: actually went into the military. It was the opposite. What 432 00:25:26,960 --> 00:25:30,520 Speaker 1: do you and the Secretary Navy Mr? Spencer agree on? 433 00:25:30,680 --> 00:25:34,960 Speaker 1: That is so appalling of his termination? I think it 434 00:25:35,080 --> 00:25:40,399 Speaker 1: is appalling that he's been abruptly terminated over a disagreement 435 00:25:40,480 --> 00:25:43,119 Speaker 1: about good order and discipline in the service. Tom And 436 00:25:43,200 --> 00:25:46,320 Speaker 1: what's happened here is President Trump has chosen, I think 437 00:25:46,440 --> 00:25:51,520 Speaker 1: unwisely to issue pardons to a trio of war criminals. 438 00:25:51,560 --> 00:25:56,120 Speaker 1: One is in the Navy, a man named Edward Gallagher. Uh. 439 00:25:56,160 --> 00:26:02,080 Speaker 1: He was convicted of posing with corpses taking trophy photographs, 440 00:26:02,080 --> 00:26:07,040 Speaker 1: completely unacceptable. UM. Secretary Spencer disagreed with the idea that 441 00:26:07,119 --> 00:26:12,120 Speaker 1: he should continue on with his seal pin that came 442 00:26:12,160 --> 00:26:15,560 Speaker 1: to a head over the weekend. Secretary Spencer was fired. 443 00:26:15,560 --> 00:26:17,440 Speaker 1: Not to put too fine a point on it, a 444 00:26:17,560 --> 00:26:20,760 Speaker 1: seven years into your tenure with the Navy, I got 445 00:26:20,840 --> 00:26:23,399 Speaker 1: my dose of the Navy, like so many of our listeners, 446 00:26:23,800 --> 00:26:26,240 Speaker 1: which was centered on the authority of Richard Gere and 447 00:26:26,280 --> 00:26:30,200 Speaker 1: Deborah Winger, an officer and a gentleman. And the answer 448 00:26:30,320 --> 00:26:32,119 Speaker 1: is there in the in the movie, folks, and for 449 00:26:32,160 --> 00:26:34,040 Speaker 1: those of you younger that haven't seen it, go see 450 00:26:34,040 --> 00:26:36,240 Speaker 1: it for what it is. I'm sure it's dated, but 451 00:26:36,359 --> 00:26:42,159 Speaker 1: that movie was the transition of staff or enlisted over 452 00:26:42,200 --> 00:26:47,280 Speaker 1: to being an officer. Explained the tension here between the 453 00:26:47,400 --> 00:26:52,399 Speaker 1: officers and the enlisted with this seal that President Trump 454 00:26:52,440 --> 00:26:56,800 Speaker 1: is supporting. UM. I think in this particular case, Tom, 455 00:26:56,840 --> 00:26:59,680 Speaker 1: the seals are very distinct from the rest of the 456 00:26:59,760 --> 00:27:04,320 Speaker 1: name be they don't have that kind of abrupt, bright, 457 00:27:04,400 --> 00:27:08,120 Speaker 1: shiny line between enlisted an officer and in fact UM 458 00:27:08,160 --> 00:27:14,080 Speaker 1: accused alongside Chief Petty Officer Edward Gallagher, are both officers 459 00:27:14,160 --> 00:27:18,040 Speaker 1: and fellow enlisted. Those seal teams tend to play very 460 00:27:18,080 --> 00:27:21,680 Speaker 1: loosely across those lines. But here's the point. Here's the point, 461 00:27:21,720 --> 00:27:24,600 Speaker 1: tom Um. With these seals, we asked them to go 462 00:27:24,640 --> 00:27:28,760 Speaker 1: into the worst kind of combat, the harshest hand to hand, um, 463 00:27:28,840 --> 00:27:32,600 Speaker 1: the hardest thing anybody does. So what Secretary Spencer was 464 00:27:32,640 --> 00:27:36,560 Speaker 1: trying to do was say, simply, let's take this case 465 00:27:36,880 --> 00:27:40,040 Speaker 1: and put it in front of a jury of seals 466 00:27:40,400 --> 00:27:44,200 Speaker 1: and let the seals as peers make that determination whether 467 00:27:44,400 --> 00:27:47,879 Speaker 1: or not Chief Gallagher should continue on. I think that 468 00:27:47,960 --> 00:27:51,560 Speaker 1: would have been the right course of action. However, President Trump, 469 00:27:51,720 --> 00:27:54,880 Speaker 1: as is his right, chose to reach in and simply 470 00:27:54,920 --> 00:27:57,800 Speaker 1: execute a pardon in this case, and that undermines good 471 00:27:57,840 --> 00:28:01,240 Speaker 1: order and discipline. That's why Secretary he Spencer left emmon 472 00:28:01,320 --> 00:28:03,640 Speaker 1: before I bringing my colleagues Lisa Brand Wents and Paul 473 00:28:03,680 --> 00:28:08,359 Speaker 1: Sweeney the wonderful new book Sailing True North. As about 474 00:28:08,400 --> 00:28:11,200 Speaker 1: these admirals from the past, let's cut to the chase. 475 00:28:11,440 --> 00:28:16,560 Speaker 1: What would Hyman Rick oversay of this moment for his navy? 476 00:28:16,720 --> 00:28:19,760 Speaker 1: He would say that, above all, we have to follow 477 00:28:19,840 --> 00:28:22,840 Speaker 1: the facts wherever they lead and not be tangled up 478 00:28:22,840 --> 00:28:26,040 Speaker 1: in politics. And this is what Admiral Hyman rick Over did. 479 00:28:26,119 --> 00:28:30,520 Speaker 1: He knew the Navy needed nuclear powered submarines, nuclear powered 480 00:28:30,520 --> 00:28:34,280 Speaker 1: aircraft carriers, and he relentlessly followed the facts. He was 481 00:28:34,320 --> 00:28:37,040 Speaker 1: not a nice guy kind of leader, but he was 482 00:28:37,119 --> 00:28:40,480 Speaker 1: someone who always told the truth, no matter how bitter 483 00:28:40,560 --> 00:28:43,680 Speaker 1: a pill it was to swallow. In these troubled times 484 00:28:43,680 --> 00:28:47,360 Speaker 1: for our Navy, from our ship collisions to this particular case, 485 00:28:47,600 --> 00:28:51,120 Speaker 1: we need to follow the facts with real integrity. Admiral 486 00:28:51,120 --> 00:28:53,800 Speaker 1: Sto reads, I'm wondering what the morale hit is like 487 00:28:54,120 --> 00:28:56,880 Speaker 1: from this, whether there is any impact in the rank 488 00:28:56,920 --> 00:28:59,880 Speaker 1: and file in the Navy from the headlines we've been. 489 00:29:01,840 --> 00:29:04,680 Speaker 1: The Navy would like to just get off the ridge 490 00:29:04,720 --> 00:29:07,120 Speaker 1: line here and not be a target. And this really 491 00:29:07,120 --> 00:29:09,080 Speaker 1: goes back about two years ago and we had those 492 00:29:09,160 --> 00:29:12,480 Speaker 1: terrible collisions. Um we've had before that, a series of 493 00:29:12,520 --> 00:29:16,520 Speaker 1: scandals in the Western Pacific. Admiral's behaving badly. Here, we 494 00:29:16,600 --> 00:29:20,520 Speaker 1: have some seals behaving badly. I think the general position 495 00:29:20,520 --> 00:29:24,040 Speaker 1: of the Navy today is, boy, can't we just get 496 00:29:24,040 --> 00:29:27,920 Speaker 1: off that ridge line and do our business at sea? 497 00:29:28,080 --> 00:29:30,320 Speaker 1: But in order to do that least, So we have 498 00:29:30,480 --> 00:29:33,680 Speaker 1: got to do things right and professionally. And I think 499 00:29:33,680 --> 00:29:36,320 Speaker 1: the real challenge for the brand new Chief of Naval 500 00:29:36,360 --> 00:29:39,880 Speaker 1: Operations at Well, Michael Gilday, will be how he takes 501 00:29:39,960 --> 00:29:43,280 Speaker 1: this moment and turns it into a learning experience for 502 00:29:43,440 --> 00:29:46,000 Speaker 1: the rank and trial Navy. Admiral, can you give us 503 00:29:46,000 --> 00:29:48,680 Speaker 1: a sense and our listeners a sense of what life 504 00:29:48,720 --> 00:29:51,520 Speaker 1: is like within the Seals in terms of our camaraderie, 505 00:29:51,520 --> 00:29:54,120 Speaker 1: in terms of how they work together and how they 506 00:29:54,160 --> 00:29:59,640 Speaker 1: really stick together. It is without question the tightest fraternity 507 00:29:59,800 --> 00:30:02,120 Speaker 1: in the world. To become a Seal, you have to 508 00:30:02,200 --> 00:30:05,800 Speaker 1: undergo a year and a half of unbelievably intense training. 509 00:30:06,120 --> 00:30:12,120 Speaker 1: At times, the attrition rate in those cohorts approaches if 510 00:30:12,120 --> 00:30:16,960 Speaker 1: you can imagine, um, these are extremely skilled officers and 511 00:30:17,080 --> 00:30:20,479 Speaker 1: enlisted men. They bond together, They're going to combat together. 512 00:30:20,840 --> 00:30:23,000 Speaker 1: They're admirable in any way. And I want to make 513 00:30:23,040 --> 00:30:27,480 Speaker 1: a point here the behavior of Chief Gallagher is posing 514 00:30:27,560 --> 00:30:31,040 Speaker 1: with trophy corpses. That is not what our seals are 515 00:30:31,080 --> 00:30:35,320 Speaker 1: all about. They are a superb part of the U. S. Navy. 516 00:30:35,360 --> 00:30:38,320 Speaker 1: We're all very proud of that, but that doesn't mean 517 00:30:38,360 --> 00:30:41,000 Speaker 1: that we don't have to from time to time take 518 00:30:41,080 --> 00:30:45,760 Speaker 1: disciplinary action when something goes wrong. The Defense Secretary isn't normal. 519 00:30:45,880 --> 00:30:48,160 Speaker 1: He was on the left hook into Kuwait. He is 520 00:30:48,200 --> 00:30:51,400 Speaker 1: a lieutenant colonel, he has a bronze star member. Have 521 00:30:51,520 --> 00:30:54,479 Speaker 1: you been surprised that the Secretary of Defense did not 522 00:30:54,680 --> 00:30:58,720 Speaker 1: resign with the Secretary of Navy. I think that's an 523 00:30:58,720 --> 00:31:02,120 Speaker 1: intensely person old decision and I wouldn't want to try 524 00:31:02,160 --> 00:31:05,240 Speaker 1: and put myself in his place, but I will say this, 525 00:31:05,800 --> 00:31:09,040 Speaker 1: By all reports, he has gone to the White House. 526 00:31:09,080 --> 00:31:11,480 Speaker 1: He's gone toe to toe with the President. He's taken 527 00:31:11,520 --> 00:31:14,840 Speaker 1: the Chairman of the Joint Chiefs, Mark Millie, and army officer, 528 00:31:14,960 --> 00:31:18,280 Speaker 1: a very tough combat experience officer. They did everything they 529 00:31:18,320 --> 00:31:20,959 Speaker 1: could to talk to President out of this course of action. 530 00:31:21,440 --> 00:31:24,920 Speaker 1: At this point it becomes uh, the override goes to 531 00:31:25,000 --> 00:31:29,000 Speaker 1: the president. Um. It is an intensely personal moment. I 532 00:31:29,040 --> 00:31:32,440 Speaker 1: think Secretary Esper probably believes that he can do more 533 00:31:32,520 --> 00:31:36,880 Speaker 1: good staying on in this situation, but Secretary Spencer took 534 00:31:36,920 --> 00:31:40,040 Speaker 1: a different course. This is so fascinating. Of course, James 535 00:31:40,080 --> 00:31:42,480 Speaker 1: te Vitas, where this was vetted for Vice president the 536 00:31:42,560 --> 00:31:45,640 Speaker 1: last time around by the Democratic Party, are we at 537 00:31:45,640 --> 00:31:49,520 Speaker 1: a point where the president loses his core military support. 538 00:31:50,720 --> 00:31:52,560 Speaker 1: We are not. And by the way, Tom I was 539 00:31:52,640 --> 00:31:55,720 Speaker 1: also asked to Trump Tower and interviewed by President Trump 540 00:31:56,760 --> 00:31:59,640 Speaker 1: for a for a potential cabinet position. You can look 541 00:31:59,680 --> 00:32:03,520 Speaker 1: it up on the internet. But my point is I'm bipartisan. 542 00:32:03,600 --> 00:32:06,400 Speaker 1: I'm a registered independent. To answer the question, I do 543 00:32:06,440 --> 00:32:09,800 Speaker 1: not believe the President will lose core support over this, 544 00:32:10,280 --> 00:32:13,960 Speaker 1: because again, the military wants to do its job professionally. 545 00:32:14,600 --> 00:32:17,920 Speaker 1: We will. We will soldier up and sail on in 546 00:32:17,960 --> 00:32:21,320 Speaker 1: this particular case. But I think the President needs to 547 00:32:21,400 --> 00:32:25,240 Speaker 1: think long term about the impact of this on the battlefield, 548 00:32:25,520 --> 00:32:29,080 Speaker 1: because we want our soldiers, sailors, airman and marine to 549 00:32:29,280 --> 00:32:31,880 Speaker 1: be different than our opponents. We want to live up 550 00:32:31,880 --> 00:32:36,440 Speaker 1: to those standards. So pardons ought to be very very 551 00:32:36,520 --> 00:32:39,400 Speaker 1: carefully considered in that environment. Admiral, when you talk about 552 00:32:39,400 --> 00:32:42,320 Speaker 1: the battlefield, I'm wondering, just to wrap it all together, 553 00:32:42,440 --> 00:32:44,200 Speaker 1: if you could give us a sense of where you 554 00:32:44,280 --> 00:32:48,120 Speaker 1: see internationally the bigger threat, the biggest threat, or the 555 00:32:48,160 --> 00:32:51,480 Speaker 1: biggest place of a focus where the name of these 556 00:32:51,480 --> 00:32:55,480 Speaker 1: should be centered. I think it is the South China 557 00:32:55,560 --> 00:32:58,960 Speaker 1: see and this is because China claims the entire South 558 00:32:59,040 --> 00:33:01,880 Speaker 1: China see a mass somebody of water the size of 559 00:33:01,920 --> 00:33:05,280 Speaker 1: the Caribbean Sea as territorial waters. We need to be 560 00:33:05,400 --> 00:33:08,800 Speaker 1: forward in those seas. We need to work with our allies, 561 00:33:08,880 --> 00:33:12,400 Speaker 1: partners and friends in Asia because we are entering a 562 00:33:12,440 --> 00:33:15,800 Speaker 1: new era of great power competition. We have gotten to 563 00:33:15,800 --> 00:33:19,720 Speaker 1: work with our allies, partners and friends. South China Sea 564 00:33:19,800 --> 00:33:22,760 Speaker 1: is where I see your navy in the decade ahead. 565 00:33:23,280 --> 00:33:26,800 Speaker 1: Should we or can we show the flag in Hong 566 00:33:26,880 --> 00:33:31,160 Speaker 1: Kong this holiday season? I think it would be very 567 00:33:31,240 --> 00:33:35,040 Speaker 1: difficult because China would not allow us to do so. 568 00:33:35,240 --> 00:33:39,080 Speaker 1: What we should do tom is operate expensively in those waters. 569 00:33:39,120 --> 00:33:45,280 Speaker 1: I would addicate for example port visit Taiwan. Interesting admirals totes. 570 00:33:45,320 --> 00:33:48,120 Speaker 1: Thank you so much, greatly greatly appreciate it for all 571 00:33:48,120 --> 00:33:51,240 Speaker 1: of us at Bloomberg. The new book Sailing Well, Sailing 572 00:33:51,280 --> 00:33:54,680 Speaker 1: True North, I should say ten adimals in the Voyage 573 00:33:54,680 --> 00:33:58,160 Speaker 1: of Character is out. It is extraordinary, particularly for those 574 00:33:58,160 --> 00:34:03,320 Speaker 1: of you older on Apple. Rick Over just extraordinary chapter. 575 00:34:03,440 --> 00:34:06,840 Speaker 1: I'm rick Over stavit this of course with the Carlisle Group. 576 00:34:07,200 --> 00:34:11,440 Speaker 1: Thanks for listening to the Bloomberg Surveillance Podcast. Subscribe and 577 00:34:11,480 --> 00:34:16,799 Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast 578 00:34:16,840 --> 00:34:21,080 Speaker 1: platform you prefer. I'm on Twitter at Tom Keane before 579 00:34:21,120 --> 00:34:24,960 Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg 580 00:34:25,040 --> 00:34:25,360 Speaker 1: Radio