Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot com, and of course on the Bloomberg December
Speaker 1: John and I were working what Yeah, And then there
Speaker 1: was a crater and there was a whole bunch of
Speaker 1: notes that said get on board, but there was one
Speaker 1: note that he had the courage to like get on
Speaker 1: board and also mentioned magnitude and he said up twenty
Speaker 1: And after everybody picked themselves up off the floor laughing,
Speaker 1: said Ben Laidler, you're out of here. Remember this crazy
Speaker 1: guy turns up from HSBC and starts talking about massive
Speaker 1: upside in and everyone's looking at him like his crazy,
Speaker 1: including me. I'm really pleased to say that the former
Speaker 1: chief equity strategist of HSBC and now the CEO of
Speaker 1: Tower Hudson Research, Ben Labor joins us on the phone.
Speaker 1: Been a fantastic call through and as Tom and I
Speaker 1: and least have been discussing for weeks, months, if not
Speaker 1: years now, the courage to stay invested when everybody is
Speaker 1: obsessed with the down side risk, Ben, how important is
Speaker 1: that story right now? Yeah? Very I mean, you know,
Speaker 1: to to Tom's point, you know, I don't really know
Speaker 1: how the coronavirus thing, um, you know, pans out right.
Speaker 1: We have some sort of historical precedent, But you know,
Speaker 1: I ultimately I think I think markets are sort of
Speaker 1: going to be fine here, right. I mean, I think
Speaker 1: the global business cycle is sort of stabilizing. Whether the
Speaker 1: coronavirus um, you know, delays that a quarter, and whether
Speaker 1: we need a bit more policy stimulus, you know, I
Speaker 1: don't know, But ultimately I think this is a macro
Speaker 1: narrative of a sort of stabilization of GDP, a stabilization
Speaker 1: of earnings um, you know, particularly in the US. I
Speaker 1: mean the US earnings or say, and I think is
Speaker 1: now over with the fourth quarter, after after three quarters
Speaker 1: of negative earning UM. And I think and I think
Speaker 1: valuations which people think are super expensive, I actually think
Speaker 1: that I can see here ten minutes and justify them.
Speaker 1: I think they're very well supported by a whole bunch
Speaker 1: of reasons, and this narrative that they're very expensive versus history.
Speaker 1: I think just you know, it's sort of a little
Speaker 1: bit intellectually lazy. And this is the fact that you know,
Speaker 1: we now have a huge tech sector, the bond deals
Speaker 1: are very low, that the US is growing more than
Speaker 1: any other developed market out there, and the BED can
Speaker 1: still cut rates if it if it wants to, no
Speaker 1: one else can. Well, let's stress test that intellectual laziness,
Speaker 1: shall we a little bit? Ben? I won't be as
Speaker 1: brutal as you. I think there's a lot of reasons
Speaker 1: to be cautious, to be less constructive, to be not
Speaker 1: the big over bowl that we saw, perhaps through parts
Speaker 1: of what did they get wrong? Though? Ben? I don't
Speaker 1: want to call them the doom crew because I think
Speaker 1: they're worries, irrational, they're well reason what do they get wrong? Though? Ben? Yeah?
Speaker 1: So I you know, I think what are the two
Speaker 1: big risks out there today? Because they're the same as
Speaker 1: they were back in Q four eighteen, Right, I mean
Speaker 1: you know which is which is that we get a
Speaker 1: big economic slowdown? Um, and you know all the focuses
Speaker 1: on China, right, that's global GDP growth, it's it's it's
Speaker 1: reasonably opaque. We think they have the policy flexibility, but
Speaker 1: they also have a lot of debt, right, so that
Speaker 1: you know, and the coronavirus just plays right into that again.
Speaker 1: So you know, China and how that feeds into the
Speaker 1: global economy is a big one. And the amount of
Speaker 1: policy flexibility that is out there globally, and that's obviously
Speaker 1: been getting less and less over the years of people
Speaker 1: have been getting more and more worried about it. And
Speaker 1: SPED has more than anybody else, you know, you know,
Speaker 1: negative rates in Europe and and and and and and
Speaker 1: essentially in Japan. Um. You know, those are the two issues.
Speaker 1: It's it's policy flexibility and and and global growth. I
Speaker 1: want to pick up on the policy flexibility. How much
Speaker 1: is your bullish call hinged on more stimulus from both
Speaker 1: the FED and the PBOC UM. I mean the p BOC,
Speaker 1: I think is is going to introduce you know, liquidity
Speaker 1: and credit measures here to support GDP at at current levels.
Speaker 1: But I think that's very coronavirus driven. The In terms
Speaker 1: of the FED, I think the FED just needs to
Speaker 1: be flexible. I mean, you know, why do we get
Speaker 1: this big sell off in in Q four eighteen. You
Speaker 1: know a big part of that was you know, people
Speaker 1: thinking the FAD was making a policy mistake by staying
Speaker 1: overly cautious for too long. So I think, um, you know,
Speaker 1: the first just cut three times here now there and
Speaker 1: holds at the moment. I think they just need to
Speaker 1: be um, you know, flexible and and you know growth
Speaker 1: in gend P growth in the US is still above potential. Um,
Speaker 1: you know, there's the stuffing at that and the first
Speaker 1: just kind of fests cut three times. So I think
Speaker 1: there's a lot of sort of insurance out there, um
Speaker 1: for for GDP growth and and and frankly for US earnings.
Speaker 1: I mean not to dwell on US earnings, but you
Speaker 1: know we're gonna get one percent earnings growth this quarter,
Speaker 1: which doesn't sound like very much, but it comes with
Speaker 1: negative drag from the energy sector and a five percentage
Speaker 1: point negative drag from international stocks, So you know, domestic
Speaker 1: corporate USA, well, I would argue it's in pretty rude
Speaker 1: health right now. Then what did Tara Hudson when you
Speaker 1: call on a bunch of fancying people that you're probably
Speaker 1: calling on Henry and Megan over in Vancouver for all
Speaker 1: I know. But then the fancy people, are they over
Speaker 1: owned in equities or not? I mean, are they are
Speaker 1: they all in on this bull market? Are you finding
Speaker 1: real skepticism out there? Yeah, there is a lot of skepticism.
Speaker 1: I mean, you know, I think there's a lot of
Speaker 1: sort of tourist and equities. People have sort of been
Speaker 1: stuck into equities but don't have very much conviction. Uh.
Speaker 1: You know, it's that classic sort of fear of missing
Speaker 1: out trade. So you know, there's a lot of there's
Speaker 1: not a lot of conviction. Um, you know a b
Speaker 1: I think a lot of people are the wrong stuff. Um.
Speaker 1: You know a lot of people in course of text
Speaker 1: run away from a lot of people that you know,
Speaker 1: they're very nervous about chasing it. And and there's this
Speaker 1: sort of siren call of international equity versus versus the US.
Speaker 1: I mean, how can the US just keep out performing
Speaker 1: year after year? Um? Well, I would make the case
Speaker 1: that it can again this year, right, I think growth
Speaker 1: expectations outside the US too high. A real idea of
Speaker 1: someone this bull shot, I meant, some of the bearishness.
Speaker 1: At the same time, we there are a lot of
Speaker 1: people who agree with him, And Ben, does that make
Speaker 1: you worry that a lot of people actually agree that
Speaker 1: it is time to stay invested and invest more? You know,
Speaker 1: you're definitely not going to make because you know, we
Speaker 1: madly decent last year, right, I mean that was a
Speaker 1: complete aberration. I all, I stand essentially arguing that you know,
Speaker 1: the US equities are going to move with earnings here, right,
Speaker 1: I mean we we we have a we have a
Speaker 1: U S earnings recovery which is going to gradually strengthens
Speaker 1: thro that the year. I don't think valuations are expensive.
Speaker 1: I think that you know, I think they're well supported.
Speaker 1: I do think the world has changed enough in terms
Speaker 1: of tech, in terms of discount rate, in terms of
Speaker 1: tax rate that you know, an eighteen times multiple is
Speaker 1: is sort of the new normal role than necessarily something
Speaker 1: to be to be afraid of. Ben. We've gotta get
Speaker 1: back really great stuff. And I don't think we've managed
Speaker 1: to talk since the massive call that you made last year.
Speaker 1: So congratulations on just a stellar coal. Didn't talk about it,
Speaker 1: but you know he missed. He missed about temper cent
Speaker 1: of upside rock. I thank thank you, Ben. Later their
Speaker 1: tower had some research see formerly of hs f C.
Speaker 1: John Yarmouth comes out of National Industries Money in Louisville
Speaker 1: a million years ago. He did what you did if
Speaker 1: you were liberal in nive, he left the Republican Party
Speaker 1: and wandered over to the Democrats as well. Speaker Pelosi
Speaker 1: loves him so much he put him in charge of budget,
Speaker 1: which is a good and beautiful thing. And Mr Yarmouth
Speaker 1: of Louisville joins us this morning, John Yarmouth, what is
Speaker 1: the state of your Democratic Party? Is that the Will
Speaker 1: Rogers Party where it's an ungodly mess? Or can some
Speaker 1: order actually come to your Democrats? Well, I'll tell you what.
Speaker 1: First of all, thanks for having me. I'm a Cleveland
Speaker 1: Indians fan, so long suffering, but we've been getting better
Speaker 1: and better and and uh there's always next season. Um. Well,
Speaker 1: obviously right now we're having uh some uh internal struggles.
Speaker 1: But I think what I pick up in my district
Speaker 1: and all around the country is that the only thing
Speaker 1: Democrats want to do is beat Donald Trump. And I
Speaker 1: really am optimistic that we'll pull together. And um, you know,
Speaker 1: if Bernie Sanders is is the nominee, everybody else is
Speaker 1: going to vote for him. If Bernie Sanders is not
Speaker 1: the nominee, Bernie Sanders, people are going to vote for
Speaker 1: the nominee because everyone knows that from our perspective, Trump
Speaker 1: is a worst fate you are into such a most
Speaker 1: interesting geography, of course, your battles of the Senate majority leader,
Speaker 1: and of course the state of an interesting interesting politics
Speaker 1: of Kentucky as well. Is the prescription here the middle
Speaker 1: ground of Biden Bloomberg as a prescription here something younger,
Speaker 1: hipper like a few of the other candidates. Which way
Speaker 1: do you cut it? You know, I have not resolved
Speaker 1: that in my own head. I've listened to both sides,
Speaker 1: and and I really hate to waffle in this, but
Speaker 1: I'm not sure. Uh. I do know though, that that
Speaker 1: the biggest motivating factor right now is is Donald Trump.
Speaker 1: And so you know, as the pole. The Quinnipiac poll
Speaker 1: showed yesterday all of the top six beat Donald Trump. Uh.
Speaker 1: And and Donald Trump is from so he looks to
Speaker 1: be pretty much kept at that number. So I'm not
Speaker 1: overly worried about our nominee, about who our nominee is.
Speaker 1: I do think, however, that the future of our party
Speaker 1: is going to arrest to a certain extent, on who
Speaker 1: can deliver on the promises of the agenda they make.
Speaker 1: And I worried that m Bernie Sanders or Elizabeth Warren
Speaker 1: will not be able to deliver on their agenda having
Speaker 1: been in Congress now, but this is my fourteenth year. Uh,
Speaker 1: you don't get that kind of revolutionary change in Congress.
Speaker 1: So John two points, you're making care winning and governing,
Speaker 1: And I want to just stress test the winning part
Speaker 1: of it. Do you really think a self proclaimed democratic
Speaker 1: socialist can win over people in places like Kentucky and
Speaker 1: can win other people in the swing tites as well?
Speaker 1: Is this a candidate in Senator Sanders that can really
Speaker 1: the country together? No? But I don't think so. But
Speaker 1: I think what what Bernie Sanders does is he brings
Speaker 1: a lot of new voters into the equation. And I
Speaker 1: think that's the mistake a lot of kind of conventional
Speaker 1: analysis of this election is people are making and that
Speaker 1: is to assume it's going to be the same voting
Speaker 1: uh block, and it's not going to be. There have
Speaker 1: been one point four million new voter registrations in Wisconsin, Michigan,
Speaker 1: in Pennsylvania since six Out of those, four hundred thousand
Speaker 1: registered independent, seven hundred fifty thousand registered Democrats, and two
Speaker 1: hundred fifty thousand Republicans. That's a three to one partisan
Speaker 1: registration advantage that's going to be awfully hard for Donald
Speaker 1: Trump to overcome. One thing I'm struck by Kevin's really
Speaker 1: talking about this is our Bloomberg got Washington correspondent from
Speaker 1: New Hampshire and he was saying, Uh, in Iowa, the
Speaker 1: swing voter, the middle voter was actually looking at either
Speaker 1: Sanders or Trump. It was not necessarily a moderate Democrat.
Speaker 1: And I'm wondering how represents and if that is. In
Speaker 1: other words, is that really the swing vote is to
Speaker 1: a more socialist or more kind of populist Telt, not
Speaker 1: socialist populist Telt, rather than the middle ground. Well, I
Speaker 1: think that is at least I think that is um
Speaker 1: the key those are those are populous motors. Those are
Speaker 1: people who they who think the the economy that the
Speaker 1: advantage they growing economy, the new economy is is passing
Speaker 1: them by, and they're looking for a government that's going
Speaker 1: to uh to pay attention to them and to make
Speaker 1: the economy work for them. So I think that is
Speaker 1: an interesting voting block, and I think that explains Bernie's
Speaker 1: appeal to too many of those people. The state review
Speaker 1: is the Midwest, of course, the key states Michigan, Wisconsin,
Speaker 1: and the rest. But I would really look at Kentucky
Speaker 1: is a really interesting mix of politics as well. How
Speaker 1: can the Northeasterners, the East coast elites, how can they
Speaker 1: do in Kentucky right now? Are you going to sell
Speaker 1: Senator Warren in Kentucky? For that matter, are you gonna
Speaker 1: sell Michael Bloomberg in Kentucky? Well, I think Michael Bloomberg
Speaker 1: actually would sell pretty well in Kentucky. I think Elizabeth
Speaker 1: Warren would. She's been to my district. She sells incredibly
Speaker 1: well in Louisville. She has a rock star there, and
Speaker 1: she would be in Lexington. And you know, we just
Speaker 1: won the governor's race um last fall, and we did
Speaker 1: it based on the votes in Louisville, Lexington and the
Speaker 1: Cincinnati suburbs. I think Elizabeth Warren would appeal very well there.
Speaker 1: So it's gonna be tough in Kentucky. Donald Trump is
Speaker 1: still popular in outside of the urban areas and he
Speaker 1: will remain popular I think through through this election year.
Speaker 1: And of course Mitch has sold his soul uh to
Speaker 1: Donald Trump and and as running as well, So, um,
Speaker 1: you're gonna have a tough tandem they're running in the state.
Speaker 1: John Quick final question, if we can just on the budget,
Speaker 1: if I may, and not on the composition of the budget,
Speaker 1: just on the size. It's being worried about the size
Speaker 1: of the budget popular anymore. Anyway, I don't see it anywhere.
Speaker 1: The President said nobody who cares about the budget. Republicans
Speaker 1: have basically given up as well. McK mulvaney has essentially
Speaker 1: given up the acting cheapest staff has run the OMB
Speaker 1: and and as a real deficit hawk. And I think
Speaker 1: one of the things that we focus on is, yes,
Speaker 1: they're they're sizeable deficits and maybe increased under the Trump administration.
Speaker 1: But we've got sizeable deficits in the in this nation
Speaker 1: deficits and infrastructure deficits, and education and and some other areas,
Speaker 1: and right now, and we've had a number of economists
Speaker 1: across the spectrum come to our committee and say, you know,
Speaker 1: now is the time to make those investments. It's not
Speaker 1: the time to shrink shrink back very quickly. Here, Congressman,
Speaker 1: the Louisville Batts is it the best triple A franchise
Speaker 1: in American baseball? I don't think there's any question about it.
Speaker 1: And we have a great, great, great stadium right on
Speaker 1: the river. The park and uh, and we said attendance
Speaker 1: record every year. It's a it's a wonderful place. And yeah,
Speaker 1: now they don't win much, but yeah, small detail. Cincinnati
Speaker 1: takes all our good players too soon. It has been
Speaker 1: too long, folks. So Louisville Redbirds always the best of
Speaker 1: Triple A baseball. Cox and thank you so much. John
Speaker 1: Yarmouth of Louisville, the Democrat with us this morning from Kentucky.
Speaker 1: Let's do this. Let's set up a different issue of
Speaker 1: foreign affairs. As you all know, I adore it, John
Speaker 1: Farrow the major thing with Gideon Rose effort, as he writes,
Speaker 1: with a big fun see John over here. Even old
Speaker 1: fossils like me can read it. But this time is different.
Speaker 1: It's a theme. It's about coming home America. But far more,
Speaker 1: this is the love affair that we have on international
Speaker 1: relations in foreign policy, and that's exceptionally deep. Gideon Rose
Speaker 1: joins us now the force behind Foreign Affairs magazine. Gideon,
Speaker 1: I want to go to the politics at the moment,
Speaker 1: the vice president, Vice President Biden writing an essay for
Speaker 1: you link New Hampshire and the vote today and the
Speaker 1: desperation of the Biden campaign into what Joe Biden wrote
Speaker 1: for you at Foreign Affairs. So what Biden wants to
Speaker 1: do is to go back to the Obama years, uh,
Speaker 1: not only when he was in power in the White House,
Speaker 1: but when American policies were more cooperative and trying to
Speaker 1: help lead the alliance and the international system rather than
Speaker 1: sort of aggressively assert just US interests alone or America
Speaker 1: first policies. And the details of that are pretty frankly
Speaker 1: common across most of the Democratic candidates. I think that
Speaker 1: they all want to put an emphasis on reducing inequality.
Speaker 1: They all want to put an emphasis on cooperative relations
Speaker 1: with American allies. Um. And the question is will the
Speaker 1: world actually first of all, will the Democrats get back
Speaker 1: in And second of all, will the world be ready
Speaker 1: to let America play a role uh like it used
Speaker 1: to once it has gotten the hack it's desire to getting.
Speaker 1: We always remember that debate of former President Barack Obama
Speaker 1: with Mitt Romney and Senator Romney brought up the risk
Speaker 1: that is Russia, and Barack Obama turned around and said
Speaker 1: the nineteen eighties would want would like its foreign policy back,
Speaker 1: And how wrong the former President Barack Obama was on
Speaker 1: the risk that Russia posed at that given time and
Speaker 1: the risk that Russia would pose in the coming years.
Speaker 1: What strikes me as almost insane watching the debates of
Speaker 1: these Democratic candidates is how little mention of China we
Speaker 1: get right now something stunning, Captain. In the last twenty
Speaker 1: four hours, the d o J announced charges against four
Speaker 1: members of China's People's Liberation Army for the seventeen hack
Speaker 1: of Equifax. And this is what Attorney General William Barr
Speaker 1: had to say. This was a deliberate and sweeping intrusion
Speaker 1: into the private information of the American people. Today, we
Speaker 1: hold p l A Hack as accountable for their criminal actions,
Speaker 1: and we remind the Chinese government that we have the
Speaker 1: capability to remove the Internet cloak of anonymity and find
Speaker 1: the hack because that nation repeatedly deploys against us. Why
Speaker 1: do I hear so little from the Democrats on the
Speaker 1: risk that China poses to the security of this country. Okay,
Speaker 1: first of all, Johnathan, I'm gonna push back a little
Speaker 1: bit on what you said, because Russia has indeed been
Speaker 1: trying to play a major spoiler role. They have not
Speaker 1: just violated borders in places like Ukraine with force and
Speaker 1: annexation of crimea, but they've just tried to mess with
Speaker 1: elections across the board. The Chinese have not done anything
Speaker 1: like that. The Chinese have been much more responsible than
Speaker 1: the Russians. And the threat China poses to American hegemony
Speaker 1: and to the global order is a long term challenge
Speaker 1: rather than a media crisis. This is not an attempt.
Speaker 1: These were individual companies and individual actors. It's not at
Speaker 1: the same level as the direct Russian challenge. But the
Speaker 1: question of what how we should compete with China over
Speaker 1: the long term is a really interesting one. And the
Speaker 1: big question that nobody wants to talk about is now
Speaker 1: that China is so big and strong that it can't
Speaker 1: be UH squashed and can't be put back in its box,
Speaker 1: what do they get from that in power? What is
Speaker 1: the uh is the price that America will have to
Speaker 1: pay for withdrawal. We were dominating the world somewhat. If
Speaker 1: we no longer want to do that, we're gonna have
Speaker 1: to give up certain things we want, either spears of
Speaker 1: influence to other countries, or certain issues we used to
Speaker 1: lecture the world about we won't be able to, or
Speaker 1: various kinds of things. The question becomes if anybody wants
Speaker 1: to deal with China. It's not so much what's your
Speaker 1: policy that's going to protect America in terms of the
Speaker 1: immediate Chinese threat, because we're safe from that. It's what
Speaker 1: is it that you're gonna have to give China to
Speaker 1: accommodate its rise that you don't currently want to give them. Gideon,
Speaker 1: let's clarify a cup of things. I've made the point
Speaker 1: the Russia was a risk. It's transplant that they were
Speaker 1: indeed a very real risk, and it's a risk that
Speaker 1: the former President Barack Obama did not acknowledge at the
Speaker 1: time when he sat across from mit Romney in that
Speaker 1: debate point at one point two, these are not just
Speaker 1: rogue actor? Is this according to the Attorney general? A
Speaker 1: people from the People's Liberation Army of China? This is
Speaker 1: the Unfortunately, at this point, the Chinese government has almost
Speaker 1: at least as much a credibility as the U. S.
Speaker 1: Attorney General, who has been a politicize a person pushing
Speaker 1: administration line. The question for American foreign policy is not
Speaker 1: just how to deal with the Chinese. Equifax and a
Speaker 1: few bunch of hackers who are trying to get commercial
Speaker 1: intelligence in various things The question is, given that China
Speaker 1: is such a major part of the global economy, is
Speaker 1: such a major power in the Pacific, can actually dominate
Speaker 1: certain areas militarily that we used to actually care about,
Speaker 1: what is it that we're going to do about that.
Speaker 1: We can't just confront them, We can't just bully getting
Speaker 1: The point you're making is to be fragmatic. I think
Speaker 1: that's an argument that's going to resonate with some people.
Speaker 1: But we've also made another argument there. Are you saying
Speaker 1: the Attorney General is politicizing the hack of Equifax. I'm
Speaker 1: saying that everything and everybody knows that this administration treats
Speaker 1: it's foreign policy announcements as part of its broader political agenda,
Speaker 1: and I would look to other sources for objective assessments
Speaker 1: of the Chinese threat rather than official American UH diplomats
Speaker 1: and spokesman at this point. And that's quite worrying. Well,
Speaker 1: it is, and it isn't that it's not clear. It's
Speaker 1: it's not clear to me that American officials have had
Speaker 1: a great deal of authority for any time now, and
Speaker 1: this administration has basically continued that process. And so I
Speaker 1: think that the markets and the world, and your listeners
Speaker 1: are more than intelligent and mature enough to make their
Speaker 1: own calls on the substance without necessarily taking guidance from
Speaker 1: the White House kitty. And there's a question sort of
Speaker 1: implicit in the discussion that you're having, which is the
Speaker 1: policy response to China, whether it's national security, Moving on
Speaker 1: to trade, and we talk about the Democratic primaries. We
Speaker 1: have not really heard much on what they will take
Speaker 1: with respect to the trade war and sort of trying
Speaker 1: to take a harder stance with China. What is the
Speaker 1: prevailing line within the Democratic Party right now and how
Speaker 1: they plan to go after China, not from a national
Speaker 1: security standpoint, but from a trade standpoint. So that's a
Speaker 1: great question, and the answer is there is no single
Speaker 1: line because there are two major camps in the party.
Speaker 1: There's the same kind of anti trade forces that have
Speaker 1: gotten dominance in the Republican Party and this administration are
Speaker 1: present in the Democratic Party. UH. Certainly among the standers,
Speaker 1: voters and many on the progressive side who see trade
Speaker 1: as having worked against America's interests, But the mainstream foreign
Speaker 1: policy and trade establishment UH still on the Democratic side,
Speaker 1: the the centrists and most of the policy people whould
Speaker 1: go into the government. Believe that something like the TPP
Speaker 1: was the Trans Satific Partnership a wonderful idea that would
Speaker 1: be a way to respond to China by coordinating all
Speaker 1: the on Chinese forces and countries in the region in
Speaker 1: an anti Chinese alliance. So trade can be a part
Speaker 1: of your national security question. But the question that you're
Speaker 1: gonna fight China on trade and security and everything else
Speaker 1: where is it going to stop. Nobody knows what the
Speaker 1: Democrats are gonna do towards China because there are different
Speaker 1: forces in the party pulling in different directions. Gideon Rose,
Speaker 1: thank you so much. It is coming home in America.
Speaker 1: Just a rave review including important essays from Graham, Allison
Speaker 1: among others, and Thomas Right. Foreign Affairs can't say enough
Speaker 1: about it. I'll do a huge splash on Twitter, U
Speaker 1: and out on LinkedIn on it as well. They used
Speaker 1: to not be a statement to Congress, and then there
Speaker 1: was a thing called the Humphrey Hawkins Full Employment Act
Speaker 1: of eight and we called these testimonies Humphrey Hawkins testimonies,
Speaker 1: and they were great. Sherman Greenspan said nothing in Congress.
Speaker 1: Maybe Phil Graham would get sweaty in the Senate and
Speaker 1: say something. But other than that, John, it was a
Speaker 1: non event until the financial crisis, and I've got to
Speaker 1: say at the moment home, over the last couple of years,
Speaker 1: he's become a non event as well. We talk about
Speaker 1: a grilling on Capitol Hill. What often happens is individual
Speaker 1: lawmakers make it about their individual constituencies and end up
Speaker 1: trying to get a campaign video that they can send
Speaker 1: out to vout in the districts. I don't disagree, and
Speaker 1: it goes on for hours, and then it happens again
Speaker 1: the following day. Steven Stanley Amer's pierpoint with a Stephen,
Speaker 1: let's go to the mathiness of this before we look
Speaker 1: at the other headlines. The chairman seas inflation moving closer
Speaker 1: to two percent over the next few months. Do you agree, Well,
Speaker 1: I think so. I mean, the core PC deflator has
Speaker 1: been the one that's running well below the Fitch target,
Speaker 1: and just we've got three very low monthly readings in
Speaker 1: a row, dropping out of the twelve month window in January,
Speaker 1: silver in March. So I think it's it's really just
Speaker 1: kind of a basis effect. But most of the other
Speaker 1: indicators comple they should have been running much closer to too.
Speaker 1: I mean the statement I guess first do no harm
Speaker 1: is John Bench, you know, don't talk about the virus
Speaker 1: us an inflammatory way. What economics will you listen for today?
Speaker 1: From the chairman? Well, I I think you guys, UM
Speaker 1: covered a lot of it. I mean, I think what
Speaker 1: people want to know is is what's the threshold for
Speaker 1: a material reassessment? And it seems to me that threshold
Speaker 1: is pretty high, and it probably as time passes this
Speaker 1: year it gets higher because I think the closer you
Speaker 1: get to the election, the higher the bar for the
Speaker 1: FED to move in either direction. Um. I think they're
Speaker 1: very comfortable here. Um. You know, I do think that
Speaker 1: the conversation around inflation is very important because there's been
Speaker 1: talk of them kind of changing the uh, the goal
Speaker 1: posts a little bit with regard to inflation. UH that
Speaker 1: I don't think they're ready to talk about that too
Speaker 1: much just yet, but it is important to hear what
Speaker 1: they're saying about inflation, how they view that. UM. And
Speaker 1: I think you're right that they want to say as
Speaker 1: little as possible about the coronavirus. I mean, there was
Speaker 1: one literally one sentence in the whatever it was fifty
Speaker 1: or sixty page monetary policy report that came on Friday
Speaker 1: about the virus, and you know, the news war headlines were,
Speaker 1: you know, virus takes key role and fed's outlook, so
Speaker 1: they can't really say too much about it. The market
Speaker 1: speaking right now, we gotta one to wait on the
Speaker 1: euro right now, one weaker euro off of these headlines.
Speaker 1: You know, Stephen, there's a question, and I think I
Speaker 1: want to go back to the point that John raised,
Speaker 1: which is it becomes an exercise in political punditry on
Speaker 1: the part of the elected officials more than any kind
Speaker 1: of actual information from FED share Powell, and I wonder
Speaker 1: how much that is exacerbated by the repo operation of
Speaker 1: the New York FED. And today we saw yet another
Speaker 1: over subscription of the fourteen day repo operation, the third
Speaker 1: in a row that was oversubscribed, more bids from banks
Speaker 1: than there were available. And I'm wondering a lot of
Speaker 1: people view this as a subsidy for the banks. How
Speaker 1: much will that be at the center of the questioning.
Speaker 1: It sounds like it's going to be a big topic.
Speaker 1: I mean, they were there was a letter sent from
Speaker 1: a number of senators um in advance of the testimony
Speaker 1: about that, So I think it is going to be
Speaker 1: something kind of a populist angle of Hey, you're you know,
Speaker 1: you're subsidized in the banks again, what are you doing? Um?
Speaker 1: And you know, I think Powell has certainly been working
Speaker 1: very hard on making sure he has a good answer
Speaker 1: to that question, because it's definitely gonna come up. Are
Speaker 1: they right? Are the politicians right that the FED has
Speaker 1: been subsidizing the banks? Uh? Well, I mean, I think
Speaker 1: that depends on how you want to look at it.
Speaker 1: I think from the FED standpoint, they would say that
Speaker 1: that that's almost irrelevant in the sense that they had
Speaker 1: to do what they needed to do to make sure
Speaker 1: that the financial system was running smoothly. Um. If it's
Speaker 1: a small subsidient bank to banks, so be it. I
Speaker 1: think in reality, um, the FED had no other choice.
Speaker 1: I mean, if they wanted to uh support and smooth
Speaker 1: over the repo market. Uh, you know, the operations that
Speaker 1: they've conducted were really their only uh way to do
Speaker 1: that in a in a in a timely manner. There's
Speaker 1: been a lot of talk of about a standing repo facility,
Speaker 1: and I think that if they were to go that route,
Speaker 1: it would kind of lessen some of this concern because
Speaker 1: a standing repo facility would be much more broadly available
Speaker 1: than what we have now, which is UM just goes
Speaker 1: through the primary dealers. But that's gonna it's gonna take
Speaker 1: a lot of work to get that going. I mean,
Speaker 1: they have to onboard a whole new group of counterparties
Speaker 1: and set up all the rules and everything, and that
Speaker 1: takes time. So if they do go the route of
Speaker 1: a standing repo facility, I suspect at least part of
Speaker 1: the rationale and their minds will be so that we're
Speaker 1: kind of giving everybody a chance, so to speak, rather
Speaker 1: than just limiting it to the primary dealers as is
Speaker 1: the case now. For many people in this market think
Speaker 1: the FED is conducting QA through its bill buying. The
Speaker 1: FED us of chairman today repeating his pledge that the
Speaker 1: FED will slow built bying. How do they do that
Speaker 1: without a market disruption? Given that there are many many
Speaker 1: people in this market, I'm sure you've spoken to a
Speaker 1: few of them to believe that bill buying is q A. Yeah, Well,
Speaker 1: the only thing they can do really is is to
Speaker 1: be very upfront and and very transparent about what they're
Speaker 1: doing and give us plenty of notice, and and you
Speaker 1: a palace started to do that. We We've got a
Speaker 1: lot of good color at the January press conference, and
Speaker 1: I suspect will here more the same today. But they
Speaker 1: just have to All they can do is make sure
Speaker 1: that people kind of undertand where we're headed and and
Speaker 1: if the market chooses to react to that, and there's
Speaker 1: really not much effect can do. Steve Janey, you're a
Speaker 1: dieing all the optimists. You're brilliant coming out of the
Speaker 1: depths of the financial crisis saying look, we're just gonna survive.
Speaker 1: We're gonna see abandoned GDP better than good. We had
Speaker 1: Benjamin later on this morning from London, who's a very
Speaker 1: optimistic on the equity markets. He's calling about an earnings
Speaker 1: trough as well. Is it the same thing in the
Speaker 1: amirous Pierrepont Woods? Is it? Is it the same you
Speaker 1: know one eight percent g d P and we're just
Speaker 1: grossly misjudging the resiliency of the American economy and we
Speaker 1: get a two point x statistic that surprises, say the
Speaker 1: fourth of July. I would say that's certainly my view,
Speaker 1: and and obviously the you know, the virus situation kind
Speaker 1: of post some clouds on the on the near term horizon.
Speaker 1: But I do believe that the UM, the US China
Speaker 1: trade dispute last year had a pretty significant drag effect
Speaker 1: on the economy, and that coming out of that we
Speaker 1: should do better. We've seen a number of better than
Speaker 1: expected economic releases for January, We've seen a significant improvement
Speaker 1: in consumer and business confidence over the last month or two. UM.
Speaker 1: In the very near term, obviously, we're you know, we're
Speaker 1: kind of struggling through this virus thing and trying to
Speaker 1: get our hands around the how much of an impact
Speaker 1: that's going to have here and globally. But I do
Speaker 1: think that at least in the first half of the year,
Speaker 1: if we can get past the virus, I think the
Speaker 1: economy can do a little better than two And to
Speaker 1: build on that, what does that do for the Federal Reserve?
Speaker 1: How do they respond to that given the fact that
Speaker 1: right now people are expecting at least one rate cut
Speaker 1: by the end of the year. Yeah, I think that
Speaker 1: will probably slowly fade if the day to come in
Speaker 1: the way that I expect. I mean, the fet has
Speaker 1: been very clear that they don't expect to have to
Speaker 1: move anytime soon, and um, you know, I'm on board
Speaker 1: with that. I think right now it's a steady with
Speaker 1: a slight easing bias, right I mean, it's more likely
Speaker 1: if we're going to get a move in the next
Speaker 1: few months, it would be an easy and a titan.
Speaker 1: I think if if the data do play out a
Speaker 1: little better than generally expected, then you just kind of
Speaker 1: move back to um, no bias and and potentially if
Speaker 1: you know, if the data is strong enough, obviously you
Speaker 1: could move to a bias in the direction. But the
Speaker 1: reality is, I just don't see the FED moving before
Speaker 1: the election. The worst business investment right now? Is there
Speaker 1: any spirit to business investment given all these unknowns? Well,
Speaker 1: as I said, I think there was, ah, you know,
Speaker 1: there was a significant pop in business confidence that came
Speaker 1: on the back of the US China jail. I think
Speaker 1: there is scope for a nice improvement in business investment.
Speaker 1: Although you know, if I'm involved in anything in Asia
Speaker 1: right now, I'm probably sitting on my hands again until
Speaker 1: until I get our you know, dispised thing put away.
Speaker 1: Very valuable. Stephen Stanley, thank you so much for them's
Speaker 1: pure pond this morning. Following up on that Sprint T
Speaker 1: Mobile deal. There were four wireless carriers. Now there's gonna
Speaker 1: be three. We finally get this T Mobile Sprint deal done.
Speaker 1: Almost two years in the making. Regulatory hurdles, both at
Speaker 1: the federal and state level all have been cleared. This
Speaker 1: deal is going to go through, giving us what's the
Speaker 1: bottom line here? We talked to a good friend, John Butler,
Speaker 1: recovers all things telecom for Bloomberg Intelligence. John joins us
Speaker 1: here on our Bloomberg Interactive Broker studio. So, John, what's
Speaker 1: the practical implications of T Mobile and Sprint getting together? Finally? So,
Speaker 1: finally the deal is done. It's great news for both
Speaker 1: T Mobile and Sprint. For T Mobile in particular, it
Speaker 1: gives them access to sprints two point five giga hurt spectrum,
Speaker 1: which is a big fat block of nationwide spectrum that
Speaker 1: is ideally suited for five g And so this whole
Speaker 1: deal here, the approval of the deal is going to
Speaker 1: allow T Mobile to really move forward I think, quite
Speaker 1: aggressively on five G. So do consumers, I mean, what's
Speaker 1: gonna what's it gonna mean for consumers? Is there any
Speaker 1: gonna be any real difference in the marketplace? I don't
Speaker 1: think so, you know. I mean that was the concern
Speaker 1: coming in the States, really thought, God, you know, if
Speaker 1: we allow these companies to merge, prices are going to
Speaker 1: go up across the board. The reality is the wireless
Speaker 1: business is a commodity business, and I think there's sort
Speaker 1: of a cap on pricing in general that's out there.
Speaker 1: You know, petit you can see it, particularly a Christmas time,
Speaker 1: you know, the wireless carriers really get into it, and
Speaker 1: so prices tend to fluctuate over the course of the year,
Speaker 1: but on balance they tend to move down over time.
Speaker 1: On a game theory basis, would have Verizon and a
Speaker 1: T and T do if it's a triopoli now and
Speaker 1: they have to merge and go against the pink T
Speaker 1: shirt and all the market share the pink T shirts taking.
Speaker 1: Is there an active visible response from Verizon or A
Speaker 1: T and T. I think for and pushes really hard
Speaker 1: on the C band spectrums coming a year end. You know. Again,
Speaker 1: T Mobile now has access to a big fat chunk
Speaker 1: admit band spectrum, which is ideal for five G. The
Speaker 1: C band spectrum is very similar to that spectrum block
Speaker 1: and I think for Verizon to compete on a level
Speaker 1: of playing field now with T Mobile, they need that spectrum,
Speaker 1: so they're they're actually gonna, I think, really step up
Speaker 1: and be aggressive in most major markets. And I still
Speaker 1: haven't done. I still haven't downloaded Catalina on the Apple,
Speaker 1: you know, the major software upgrade of Apple. Because there's
Speaker 1: so many glitches within it. Why do I need five
Speaker 1: G AM I gonna download, you know, as a phrase
Speaker 1: download to get five G? I think five G. It's
Speaker 1: a great question, Tom. I actually think five G is
Speaker 1: more well suited to enterprise applications, and that's where the
Speaker 1: carriers see a lot of money in margin for you
Speaker 1: and me in the short run. I think it represents
Speaker 1: a step up in capacity, just got much more. This
Speaker 1: is the time I gotta go to Apple and you're
Speaker 1: just omnibus coverage on it. You've been brilliant about staying
Speaker 1: in and the product Apple is going to get out
Speaker 1: of business. They're terrible. And Butler said, wait a minute,
Speaker 1: what's your next essay you're going to write for Bloomberg
Speaker 1: Intelligence on Apple? Is it on is it on services?
Speaker 1: Is it on unit dynamics? I mean, what's the thing
Speaker 1: you're thinking about of Apple into two thousand twenty. So
Speaker 1: in what I'm watching for Apple is number one the
Speaker 1: diversification the iPhone product line. We have a low cost
Speaker 1: iPhone coming out initially they said in March, according to Bloomberg.
Speaker 1: I think that gets pushed out by coronavirus, but not much,
Speaker 1: probably a couple of months. That gives them play at
Speaker 1: the low end of the portfolio, and then we have
Speaker 1: a five G phone coming in September, as you mentioned.
Speaker 1: Longer term, I think Apples trying to make that pivot
Speaker 1: from hardware to software and services. So I'm keeping a
Speaker 1: close eye on the content business and also the fintech
Speaker 1: business and health apps to see what they do there.
Speaker 1: It's it's early days, but I think that's an important
Speaker 1: new vertical for them. So, John, you mentioned kind of
Speaker 1: the vertical, that's exactly so. Kind of this exactly so
Speaker 1: the kind of the mid range phone in terms of
Speaker 1: prices that because we've talked about in the past markets
Speaker 1: like China, like India, mass markets, but not necessarily markets
Speaker 1: where the high end phone is that competitive from a
Speaker 1: consumer perspective. Is this new mid range phone kind of
Speaker 1: targeting some of those international markets. Yes, it is. So
Speaker 1: it's a sequel to the iPhone. See if you remember
Speaker 1: that that was a three phone. This will be priced
Speaker 1: much the same way, and in terms of look and feel,
Speaker 1: I think it's going to be fashioned after the iPhone
Speaker 1: eight in terms of what the body of the phone
Speaker 1: is gonna look like and like the sc the guts
Speaker 1: are going to be all updated, the updated processor, operating system,
Speaker 1: apps and so forth. So you know, it taps the
Speaker 1: high end of that mid range market and it expands
Speaker 1: Apple's addressable market opportunity and gives them a play in
Speaker 1: those markets like India and China where the you know,
Speaker 1: there's sort of iPhone Uh eleven is at a reach
Speaker 1: I think for the average consumer is I don't. I
Speaker 1: don't agree with that because they get that you can
Speaker 1: do the financing and it's like fifties sixty bucks a month,
Speaker 1: right it is. But you know, if you're making a
Speaker 1: fraction of the average income here in the US, it's
Speaker 1: it's still a pricey proposition. Yeah, okay, okay, When when
Speaker 1: do we have to stop buying Apple stuff for our children? Uh,
Speaker 1: there's gotta be And I got my twins are approaching
Speaker 1: birthday and you still feels like the time I need
Speaker 1: to just cut them off right, Okay, that's what yea
Speaker 1: good luck and John Butler brilliant on Apple and of course,
Speaker 1: I mean, what do you buy? Hold sell and busted
Speaker 1: his chops folks three share what was a two hundred
Speaker 1: something and they're going out of business. So I think
Speaker 1: secret is out on the five G phone and the
Speaker 1: low end phone. The key for Apple is they need
Speaker 1: to keep the momentum going in the iPhone product line
Speaker 1: as we get into twenty one because they're gonna lap
Speaker 1: tougher cops. John Butler, thanks so much for joining us,
Speaker 1: John Butler, because all things covers, all things telecom phones,
Speaker 1: all that kind of fun stuff Apple for Bloomberg Intelligence. Uh,
Speaker 1: and we appreciate him for joining us here on Bloomberg
Speaker 1: Interact up Broker Studio. Thanks for listening to the Bloomberg
Speaker 1: Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at
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Speaker 1: World One. I'm Bloomberg Radio s