1 00:00:00,120 --> 00:00:02,920 Speaker 1: Brought you by Bank of America, Mary Lynch. Investing in 2 00:00:03,000 --> 00:00:07,840 Speaker 1: local communities, economies and a sustainable future. That's the power 3 00:00:08,080 --> 00:00:12,360 Speaker 1: of global connections, Mary Lynch, Pierce Fenner and Smith Incorporated 4 00:00:12,760 --> 00:00:27,400 Speaker 1: Member s I p C. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:27,840 --> 00:00:31,520 Speaker 1: I'm Tom Keene with David Gura. Daily we bring you 6 00:00:31,560 --> 00:00:36,600 Speaker 1: insight from the best in economics, finance, investment, and international relations. 7 00:00:37,000 --> 00:00:41,600 Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and 8 00:00:41,680 --> 00:00:49,159 Speaker 1: of course on the Bloomberg Device left which joins us 9 00:00:49,159 --> 00:00:51,720 Speaker 1: now in our Bloomberg eleven three studio, se City Groups, 10 00:00:51,840 --> 00:00:54,920 Speaker 1: Chief US Equity STRTUS. Great to have you with this here. 11 00:00:55,000 --> 00:00:56,560 Speaker 1: Let's pick up the pieces a little bit after what 12 00:00:56,600 --> 00:00:59,920 Speaker 1: we saw last week in Washington. We're wondering about animals, 13 00:01:00,000 --> 00:01:02,920 Speaker 1: earths and degree to which they are fueled by stimulated 14 00:01:02,960 --> 00:01:05,840 Speaker 1: by what's going on in Washington or perhaps not. What 15 00:01:05,880 --> 00:01:07,360 Speaker 1: did you make of what happened last week at the 16 00:01:07,360 --> 00:01:11,399 Speaker 1: conclusion of the debate eight day debate over healthcare reform 17 00:01:11,400 --> 00:01:15,360 Speaker 1: in Washington. There's so many different people, you know, pinting 18 00:01:15,360 --> 00:01:17,399 Speaker 1: on this, and and I guess my sense is that 19 00:01:17,560 --> 00:01:21,240 Speaker 1: people got either too excited or too depressed around it. Um. 20 00:01:21,480 --> 00:01:25,480 Speaker 1: We wrote something overnight saying that just like on November 21 00:01:25,640 --> 00:01:27,560 Speaker 1: ninth or tenth, and you know, people were saying the 22 00:01:27,560 --> 00:01:30,399 Speaker 1: Democratic Party was done for and you know, stick a 23 00:01:30,400 --> 00:01:33,160 Speaker 1: fork in it. Um that the same thing is kind 24 00:01:33,160 --> 00:01:35,360 Speaker 1: of being written kind of the obituaries or of the 25 00:01:35,360 --> 00:01:38,240 Speaker 1: Republicans now over the weekend, given the failure of the 26 00:01:38,520 --> 00:01:41,160 Speaker 1: of the repeal deal. UM. I think both of these 27 00:01:41,160 --> 00:01:45,240 Speaker 1: are highly exaggerated. Both parties have um splits and factions, 28 00:01:45,319 --> 00:01:47,680 Speaker 1: and you know, there were even comments that that I 29 00:01:47,720 --> 00:01:50,520 Speaker 1: thought were pretty well found that the negotiations were kind 30 00:01:50,520 --> 00:01:53,080 Speaker 1: of going on between the different size of the Republican 31 00:01:53,120 --> 00:01:56,080 Speaker 1: Party around the repeal deal. And then once they put 32 00:01:56,120 --> 00:01:58,560 Speaker 1: in this kind of deadline we're voting on Friday, you know, 33 00:01:58,920 --> 00:02:01,560 Speaker 1: take it or leave it. This kind of hardened positions 34 00:02:01,600 --> 00:02:04,120 Speaker 1: as opposed to the compromise. So you can walk away 35 00:02:04,160 --> 00:02:07,520 Speaker 1: and say, hey, the Freedom Caucus has kind of burnished 36 00:02:07,520 --> 00:02:11,080 Speaker 1: its conservative credentials and might be more willing to compromise 37 00:02:11,120 --> 00:02:14,760 Speaker 1: in the future. Endeavor or that's it. They've they've it's worked, 38 00:02:14,840 --> 00:02:16,960 Speaker 1: and they're going to continue to be that hard I 39 00:02:17,000 --> 00:02:18,919 Speaker 1: think time will tell. I think these these kind of 40 00:02:18,919 --> 00:02:23,200 Speaker 1: off the cuff responses and are more I don't know 41 00:02:23,200 --> 00:02:26,560 Speaker 1: if the right word is filtered by partisanship, and therefore 42 00:02:26,600 --> 00:02:29,400 Speaker 1: each side kind of hammers away at it. I still 43 00:02:29,440 --> 00:02:32,480 Speaker 1: believe the Republicans have to deliver on a number of 44 00:02:32,520 --> 00:02:35,799 Speaker 1: their promises before they go to mid terms, otherwise they're 45 00:02:35,800 --> 00:02:38,080 Speaker 1: going to be slaughtered. Um and and they kind of 46 00:02:38,120 --> 00:02:40,560 Speaker 1: know that. I mean they've been telling people, for example, 47 00:02:40,560 --> 00:02:43,720 Speaker 1: in Obamacare Affordable Care Act, that's been a horrible deal 48 00:02:43,760 --> 00:02:46,520 Speaker 1: for seven years, um and then you do nothing to 49 00:02:46,600 --> 00:02:50,320 Speaker 1: address it and we'll let it explode. I don't think 50 00:02:50,320 --> 00:02:53,720 Speaker 1: that sells well in Peoria. Fold this into to your 51 00:02:53,840 --> 00:02:55,800 Speaker 1: your world the equity space. We've been told by so 52 00:02:55,840 --> 00:02:58,280 Speaker 1: many people here that the Trump trade really had very 53 00:02:58,280 --> 00:03:00,240 Speaker 1: little to do with with Trump, the things that had 54 00:03:00,240 --> 00:03:03,160 Speaker 1: begun to to move before he was elected. After we 55 00:03:03,200 --> 00:03:05,360 Speaker 1: saw that happen on Friday, did that change anything? Saying 56 00:03:05,360 --> 00:03:07,560 Speaker 1: the health care sector? Where your your prospects for it? 57 00:03:07,600 --> 00:03:09,799 Speaker 1: For the equities markets? Way forward? So as I agree 58 00:03:09,800 --> 00:03:12,720 Speaker 1: that much of the the activity was already starting before 59 00:03:12,960 --> 00:03:16,119 Speaker 1: for example, uh tenure break evens it started to turn 60 00:03:16,120 --> 00:03:19,399 Speaker 1: in February of last year, um, not February of this year. 61 00:03:19,760 --> 00:03:22,120 Speaker 1: So UM, it's it's hard for people to kind of 62 00:03:22,160 --> 00:03:24,320 Speaker 1: get their heads around that this started twelve months ago 63 00:03:24,400 --> 00:03:27,800 Speaker 1: or thirteen months ago. UM. But there's more than that. 64 00:03:27,840 --> 00:03:29,680 Speaker 1: There's a lot of other piece of evidence that that 65 00:03:29,840 --> 00:03:34,480 Speaker 1: suggests things were improving before the president was elected. UM. 66 00:03:35,080 --> 00:03:38,080 Speaker 1: I do find the the you know, the reactions and 67 00:03:38,200 --> 00:03:42,400 Speaker 1: markets very again kind of off the cuff. UM. It's 68 00:03:42,400 --> 00:03:45,160 Speaker 1: not what I would call real investing. It's trading around 69 00:03:45,480 --> 00:03:48,120 Speaker 1: kind of a news headline. UM. My job is to 70 00:03:48,200 --> 00:03:49,880 Speaker 1: kind of figure out what's going to likely play out 71 00:03:49,880 --> 00:03:52,440 Speaker 1: three or six nine months from now, not what's gonna happen, 72 00:03:52,800 --> 00:03:55,400 Speaker 1: you know, tomorrow morning at that the that the opening 73 00:03:55,400 --> 00:03:57,920 Speaker 1: of trading. UM. And I don't think a lot of 74 00:03:57,960 --> 00:04:01,120 Speaker 1: investors make money on the shoot from the hip type 75 00:04:01,800 --> 00:04:05,320 Speaker 1: uh decisions. Within you know, a week or two, they 76 00:04:05,360 --> 00:04:07,640 Speaker 1: find themselves on the losing end of that transaction. So 77 00:04:08,080 --> 00:04:11,760 Speaker 1: I I get frustrated a little bit by it because 78 00:04:11,760 --> 00:04:13,440 Speaker 1: I think people are spending way too much time on 79 00:04:13,480 --> 00:04:15,720 Speaker 1: it instead of trying to think about it. And what 80 00:04:15,760 --> 00:04:17,760 Speaker 1: we've seen really in the last two weeks talking to 81 00:04:17,760 --> 00:04:21,640 Speaker 1: the institutional investors is this extraordinarily my opic kind of 82 00:04:21,640 --> 00:04:24,320 Speaker 1: what happened in the last week, Will it continue next week? 83 00:04:24,360 --> 00:04:28,120 Speaker 1: And it's stuff that I just get really annoyed at. 84 00:04:28,680 --> 00:04:30,640 Speaker 1: Maybe it's I take it to personally, I don't know. 85 00:04:32,600 --> 00:04:34,800 Speaker 1: On blue gray with the left bach of of sitting here, 86 00:04:34,839 --> 00:04:37,160 Speaker 1: how worried should we be about a flatter yield curve 87 00:04:37,200 --> 00:04:41,440 Speaker 1: at this point? Look, I think people were resisting any 88 00:04:41,520 --> 00:04:45,480 Speaker 1: form of it steepening too, So UM investors are reacting 89 00:04:45,520 --> 00:04:47,200 Speaker 1: to it, and they should. It has impact on the 90 00:04:47,240 --> 00:04:50,000 Speaker 1: financials and how they trade UM, given that the curve 91 00:04:50,200 --> 00:04:54,480 Speaker 1: determines often that that that net interest margin opportunity UM. 92 00:04:54,839 --> 00:04:57,440 Speaker 1: I've heard people, for example, the financials worry more about 93 00:04:57,920 --> 00:05:02,080 Speaker 1: UM the commercial industrial loan growth having decelerating UM. And 94 00:05:02,160 --> 00:05:04,760 Speaker 1: I think it's interesting to note again the miss on 95 00:05:04,800 --> 00:05:07,600 Speaker 1: the fundamental story. The Senior Loan Officer survey from the 96 00:05:07,600 --> 00:05:09,960 Speaker 1: Federal Reserve Board on C and I lending tends to 97 00:05:10,040 --> 00:05:13,839 Speaker 1: lead actual business loans by six quarters, so that that 98 00:05:13,960 --> 00:05:18,080 Speaker 1: deceleration that you're seeing currently is reflective more of the 99 00:05:18,240 --> 00:05:23,000 Speaker 1: very tight financial conditions we were seeing in late UH 100 00:05:23,080 --> 00:05:26,200 Speaker 1: when the credit markets were distorted by energy and that's 101 00:05:26,279 --> 00:05:28,120 Speaker 1: kind of now reversed, and we should see by the 102 00:05:28,200 --> 00:05:31,039 Speaker 1: end of the year improving lending activities. So again it's 103 00:05:31,080 --> 00:05:33,440 Speaker 1: this very myopic to look at what the last data 104 00:05:33,480 --> 00:05:36,800 Speaker 1: point is, don't look about where we're headed. So that's 105 00:05:36,839 --> 00:05:38,400 Speaker 1: the same thing going on in the curve. This is 106 00:05:38,400 --> 00:05:40,320 Speaker 1: really important. It has been written up by any number 107 00:05:40,320 --> 00:05:42,680 Speaker 1: of people, Ambrose, Evans, Pritchard and the Telegraph doing a 108 00:05:42,680 --> 00:05:45,600 Speaker 1: great treatment Tobias. Let's get smarter here and we can 109 00:05:45,600 --> 00:05:49,080 Speaker 1: do this with you because of your securities research background. 110 00:05:49,200 --> 00:05:53,480 Speaker 1: Help me here with what C and eye loans actually are? 111 00:05:53,920 --> 00:05:57,880 Speaker 1: Are they the car loan for David's new Bentley? So 112 00:05:57,880 --> 00:06:00,200 Speaker 1: so the FED breaks out there lending Sir of a 113 00:06:00,480 --> 00:06:02,240 Speaker 1: in three different areas. They look at it in the 114 00:06:02,240 --> 00:06:06,120 Speaker 1: consumer loans, real estate loans, and commercial industrial loans, which 115 00:06:06,120 --> 00:06:09,440 Speaker 1: are business corporate loans. So you know, when we talk 116 00:06:09,480 --> 00:06:12,920 Speaker 1: about the credit card, or we talked about the autois, 117 00:06:12,960 --> 00:06:15,120 Speaker 1: that's consumer loans. When we talk about you know, real 118 00:06:15,200 --> 00:06:18,160 Speaker 1: estate development, it's obvious it's real estate. When we talk 119 00:06:18,200 --> 00:06:20,960 Speaker 1: about business loans with the IBM s of the world 120 00:06:21,000 --> 00:06:24,320 Speaker 1: do or what Caterpillar does that, that's that's the kind 121 00:06:24,360 --> 00:06:26,839 Speaker 1: of thing we're dealing with. How does the CNI loan 122 00:06:27,040 --> 00:06:29,480 Speaker 1: roll over end if we have a three months moving 123 00:06:29,600 --> 00:06:32,920 Speaker 1: average of CNI loans rolling over, which is a chart 124 00:06:33,000 --> 00:06:37,320 Speaker 1: that's ubiquitous now in research. How does it terminate? What 125 00:06:37,440 --> 00:06:40,720 Speaker 1: where do you see the long growth step in so well, 126 00:06:41,080 --> 00:06:44,640 Speaker 1: so it's usually used as a proxy for business activity. Right. 127 00:06:44,839 --> 00:06:48,159 Speaker 1: If companies are boring money to invest, that's great, um 128 00:06:48,680 --> 00:06:50,760 Speaker 1: And when they're not, there must be something wrong. And 129 00:06:50,800 --> 00:06:52,880 Speaker 1: that's why I think everybody's so focused on this business 130 00:06:52,960 --> 00:06:57,320 Speaker 1: lending growth rate slowing. But again that's a lagging of roll. 131 00:06:57,560 --> 00:07:01,240 Speaker 1: It's a lagging indicator for those uh our credit if 132 00:07:01,240 --> 00:07:05,919 Speaker 1: credit standards easing or tightening, and they started easing around 133 00:07:06,000 --> 00:07:08,080 Speaker 1: May of last year, which means by the end of 134 00:07:08,120 --> 00:07:11,240 Speaker 1: this year, given that six quarter lag, we should see 135 00:07:11,240 --> 00:07:13,960 Speaker 1: that we're going soft duns. You're telling me the soft 136 00:07:14,040 --> 00:07:18,720 Speaker 1: data n f IB statistics is more indicative future animal 137 00:07:18,800 --> 00:07:22,120 Speaker 1: spirit only we're going soft dun. It's like the Montreal 138 00:07:22,240 --> 00:07:24,760 Speaker 1: I'm not going soft dust. I just know that that. 139 00:07:25,000 --> 00:07:27,960 Speaker 1: I just know from my experience of thirty years that 140 00:07:28,080 --> 00:07:30,800 Speaker 1: were and looking at data going back years, that this 141 00:07:30,800 --> 00:07:34,920 Speaker 1: stuff always leads business activity. And you're supposed to look 142 00:07:34,960 --> 00:07:37,800 Speaker 1: at the lead indicators, not the lagging indicators. Lagging looking 143 00:07:37,800 --> 00:07:39,800 Speaker 1: backwards doesn't really help you. I don't know anybody who's 144 00:07:39,880 --> 00:07:43,840 Speaker 1: driven successfully by only watching through the review mirror. Can 145 00:07:43,880 --> 00:07:46,040 Speaker 1: we bring us over to an important thing that everybody 146 00:07:46,080 --> 00:07:49,080 Speaker 1: will understand is p K suban a leading or lagging 147 00:07:49,120 --> 00:07:53,760 Speaker 1: indicator for the Montreal is a lacking indicator for national 148 00:07:53,760 --> 00:07:56,600 Speaker 1: predators is a leading indicator. Okay, there we go the 149 00:07:56,720 --> 00:07:58,840 Speaker 1: proper David, did you get that there was a huge 150 00:07:58,920 --> 00:08:02,480 Speaker 1: trade to this summer pek su band? What a great 151 00:08:02,480 --> 00:08:07,480 Speaker 1: response You've got. Nobody in your listening world who actually 152 00:08:07,480 --> 00:08:09,800 Speaker 1: has a clue, who peeks say good morning to all 153 00:08:09,840 --> 00:08:12,680 Speaker 1: of your listening in Canada, and particularly Don CHERRYO, we 154 00:08:12,720 --> 00:08:16,040 Speaker 1: know tunes in every morning, but come on my fashion, 155 00:08:16,200 --> 00:08:19,800 Speaker 1: my fashion model. Yeah yeah, And and Shay Webber went 156 00:08:19,920 --> 00:08:23,600 Speaker 1: over to the Mantra Canadians And it's an example of 157 00:08:23,640 --> 00:08:26,040 Speaker 1: that bet, that big bet David, you've got to take 158 00:08:26,360 --> 00:08:29,040 Speaker 1: like you wonder his business going to take a big bet? 159 00:08:29,040 --> 00:08:31,560 Speaker 1: And Mr Trump love that tics. Let me ask you 160 00:08:31,600 --> 00:08:34,280 Speaker 1: just about the compliment there of soft data and hard data? 161 00:08:34,280 --> 00:08:35,839 Speaker 1: How do you look at them in concert with each other? 162 00:08:35,840 --> 00:08:39,200 Speaker 1: And there is there a disconnect between the two, not really, um, 163 00:08:39,600 --> 00:08:44,200 Speaker 1: I think the the because the lead lag factors. They 164 00:08:44,240 --> 00:08:48,160 Speaker 1: aren't disconnected, they just don't happen simultaneously. UM. And I 165 00:08:48,160 --> 00:08:51,800 Speaker 1: think investors tend to walk in with a particular perspective 166 00:08:51,840 --> 00:08:54,120 Speaker 1: and then they choose the data they want to look at. 167 00:08:54,640 --> 00:08:57,920 Speaker 1: Um it's I look again, I need to figure out 168 00:08:57,960 --> 00:08:59,960 Speaker 1: where I think the world will be in the future 169 00:09:00,080 --> 00:09:02,200 Speaker 1: or not where it is right the second that helps 170 00:09:02,240 --> 00:09:05,080 Speaker 1: me for trading today, but it has nothing to do 171 00:09:05,120 --> 00:09:08,480 Speaker 1: with my investment profile over the next six twelve months. UM. 172 00:09:08,600 --> 00:09:10,960 Speaker 1: So I always look at the leading indicators, even if 173 00:09:10,960 --> 00:09:14,360 Speaker 1: it's soft data. Is is I'm not going soft. I'm 174 00:09:14,400 --> 00:09:16,600 Speaker 1: looking at as the lead indicator for the hard data 175 00:09:17,120 --> 00:09:19,720 Speaker 1: is not certainly not his slap shot. I don't want 176 00:09:19,720 --> 00:09:21,120 Speaker 1: to stand in front of a hundred eight mile per 177 00:09:21,200 --> 00:09:26,679 Speaker 1: hour shot. Um. But the the the notion of you know, 178 00:09:27,040 --> 00:09:30,640 Speaker 1: every time the n f I be hiring intentions has improved, 179 00:09:30,880 --> 00:09:35,080 Speaker 1: twelve months later, the unemployment rate has improved. UM. Every 180 00:09:35,120 --> 00:09:38,040 Speaker 1: time CFO serving from Duke University said they're going to 181 00:09:38,120 --> 00:09:41,599 Speaker 1: spend twelve months later, spending occurs. Every time I s 182 00:09:41,720 --> 00:09:43,480 Speaker 1: M New Order Index is going up three to six 183 00:09:43,559 --> 00:09:47,760 Speaker 1: months later, industrial production is going up. So it's really 184 00:09:47,800 --> 00:09:50,360 Speaker 1: hard to walk away from that and say, now, let's 185 00:09:50,360 --> 00:09:53,520 Speaker 1: ignore this tobias left covicuitous. Let's pin you down on 186 00:09:53,559 --> 00:09:55,959 Speaker 1: the bull call. Where are we twelve months from now? 187 00:09:56,040 --> 00:09:59,480 Speaker 1: Are you more than enthusiastic about equities? So we have 188 00:09:59,559 --> 00:10:03,480 Speaker 1: a year and target the SMP five. We don't have 189 00:10:03,520 --> 00:10:08,280 Speaker 1: a twelve month specifically target UM. And you know, I 190 00:10:08,320 --> 00:10:12,000 Speaker 1: could see an overshoot beyond that if investors really got 191 00:10:12,040 --> 00:10:14,199 Speaker 1: behind us. UM. There's a lot of cash stile in 192 00:10:14,240 --> 00:10:17,280 Speaker 1: the sidelines. Investors haven't truly committed, and as a result, 193 00:10:17,880 --> 00:10:20,520 Speaker 1: you could get the overshoot. It's it's not our forecast, 194 00:10:20,600 --> 00:10:24,360 Speaker 1: but there's reason to believe that investors have just not 195 00:10:24,480 --> 00:10:27,240 Speaker 1: gotten there are panicky four you models still stuck in 196 00:10:27,280 --> 00:10:31,640 Speaker 1: neutral territory. We don't see the four investors generally speaking. 197 00:10:31,679 --> 00:10:33,920 Speaker 1: But when I visit and I've talked about the hundred 198 00:10:33,960 --> 00:10:37,120 Speaker 1: and sixty investors in the last four weeks, UM, you know, 199 00:10:37,120 --> 00:10:39,320 Speaker 1: sitting in front of them, chatting with them around the world, 200 00:10:39,520 --> 00:10:41,719 Speaker 1: and I just don't see. You know, I think I 201 00:10:41,800 --> 00:10:46,480 Speaker 1: found five bulls, that's it now, and then found I 202 00:10:46,720 --> 00:10:48,080 Speaker 1: want to I don't want to suggest I found a 203 00:10:48,120 --> 00:10:50,440 Speaker 1: hundred bears on the other side of it, UM, but 204 00:10:50,480 --> 00:10:51,920 Speaker 1: I don't think people are. I don't think they have 205 00:10:51,960 --> 00:10:55,320 Speaker 1: great conviction either way. So it's more they're they're they're 206 00:10:55,360 --> 00:10:58,240 Speaker 1: frustrated they missed the run. They're kind of happy that 207 00:10:58,280 --> 00:11:00,720 Speaker 1: the reflation trade is kind of weakening because they weren't 208 00:11:00,720 --> 00:11:04,120 Speaker 1: positioned there. And actually the biggest pain they might suffer 209 00:11:04,200 --> 00:11:06,480 Speaker 1: is if the market ran ten percent, because they're not 210 00:11:06,559 --> 00:11:09,319 Speaker 1: ready for You mentioned energy a few moments ago. We're 211 00:11:09,320 --> 00:11:11,920 Speaker 1: talking about sectories, So what do you anticipate. We'll see 212 00:11:11,920 --> 00:11:14,520 Speaker 1: their energy and materials going forward. So on the energy, 213 00:11:14,640 --> 00:11:16,640 Speaker 1: we break that out of materials in the US, just 214 00:11:17,080 --> 00:11:19,880 Speaker 1: for people to understand, the SMP five hunded material sector 215 00:11:20,240 --> 00:11:22,840 Speaker 1: is really chemicals. So when you think of material's, attend 216 00:11:22,880 --> 00:11:24,880 Speaker 1: to think of medals and mining. That's true if you're 217 00:11:24,880 --> 00:11:27,560 Speaker 1: looking at Asia, if you're looking at Europe, Latin America. 218 00:11:27,640 --> 00:11:29,320 Speaker 1: But in the US it's really chemical. So we have 219 00:11:29,320 --> 00:11:31,760 Speaker 1: a different, you know, it's slightly different animal in that 220 00:11:31,800 --> 00:11:36,240 Speaker 1: regard um energy, we've we've we've and I know Tom's 221 00:11:36,280 --> 00:11:39,520 Speaker 1: had had Morrison. Um, he's just great as a commodity 222 00:11:39,559 --> 00:11:41,840 Speaker 1: research guy. He's still looking for sixty two dollar loyal 223 00:11:41,840 --> 00:11:44,240 Speaker 1: at the end of the year. On that basis you 224 00:11:44,520 --> 00:11:46,360 Speaker 1: really do want to own energy and take advantage of 225 00:11:46,360 --> 00:11:49,520 Speaker 1: the pullback here that we've seen. UM. We had anticipated 226 00:11:49,520 --> 00:11:51,560 Speaker 1: there would be some weakness in the first quarter and 227 00:11:51,559 --> 00:11:54,840 Speaker 1: then we'd see strengthening through the balance of the year. UM. 228 00:11:54,880 --> 00:11:57,360 Speaker 1: You know, the Saudis have vested interest here and getting 229 00:11:57,360 --> 00:11:59,840 Speaker 1: prices up, that Russians have an interest in getting it up, 230 00:11:59,840 --> 00:12:04,080 Speaker 1: and we might see some you know, shale cost development inflation, 231 00:12:04,520 --> 00:12:07,440 Speaker 1: as you've got to bring people together here to to 232 00:12:07,480 --> 00:12:11,520 Speaker 1: develop these new fields. UM. But they were laid off 233 00:12:11,520 --> 00:12:13,360 Speaker 1: the last two years and they've got to be brought back, 234 00:12:13,400 --> 00:12:16,280 Speaker 1: and probably some higher costs to doing this than maybe 235 00:12:16,280 --> 00:12:18,880 Speaker 1: some people are anticipating right now. How about the forecast 236 00:12:18,920 --> 00:12:22,199 Speaker 1: for the dollar and dollar strength's that affect them? So 237 00:12:22,240 --> 00:12:25,840 Speaker 1: our guys are fairly neutral on the dollar. UM. I 238 00:12:25,880 --> 00:12:29,240 Speaker 1: think they had better expectations going into the year than 239 00:12:29,280 --> 00:12:31,920 Speaker 1: what we've seen play out. UM. And part of that 240 00:12:32,160 --> 00:12:34,400 Speaker 1: I would say this, I'm not an f X expert 241 00:12:34,440 --> 00:12:36,760 Speaker 1: by any by any measure, but the thing I would watch, 242 00:12:36,840 --> 00:12:39,319 Speaker 1: for example, in dollar euro is more about the spread 243 00:12:39,360 --> 00:12:42,720 Speaker 1: between the tenure bund and the tenure treasury as opposed 244 00:12:42,760 --> 00:12:45,959 Speaker 1: to just looking at the tenure treasury and a vacuum 245 00:12:46,000 --> 00:12:50,000 Speaker 1: as if the yield you know, has no competition around 246 00:12:50,040 --> 00:12:52,679 Speaker 1: the world. And if you go back, let's say summertime 247 00:12:52,840 --> 00:12:56,720 Speaker 1: of of UM last last year, you were looking at 248 00:12:56,760 --> 00:12:59,600 Speaker 1: a one point three six one three seven tenure yield, 249 00:12:59,720 --> 00:13:02,400 Speaker 1: but are looking on minus point for bund yield over 250 00:13:02,440 --> 00:13:05,439 Speaker 1: the same time your timeframe. That's changed as well. As 251 00:13:05,480 --> 00:13:08,120 Speaker 1: we've gone up, so has the BUN yield. So I 252 00:13:08,160 --> 00:13:11,400 Speaker 1: think people forget that at times its dividend growth a 253 00:13:11,520 --> 00:13:15,719 Speaker 1: proxy for yield. Help help all of our listeners with this. 254 00:13:15,800 --> 00:13:19,440 Speaker 1: They're addicted to dividend growth. It's worked like a charm. 255 00:13:19,559 --> 00:13:22,200 Speaker 1: But you and I know the party ends one day, doesn't, 256 00:13:22,520 --> 00:13:25,360 Speaker 1: so dividend growth. Look, we spent thirty five years in 257 00:13:25,400 --> 00:13:27,960 Speaker 1: a bond bull market, so at some point the bond 258 00:13:28,000 --> 00:13:30,800 Speaker 1: bull market ends and the dividends bond bull market ended. 259 00:13:31,200 --> 00:13:35,760 Speaker 1: Our senses, yes, but if you if you think in 260 00:13:35,800 --> 00:13:38,240 Speaker 1: those terms, loss of the work done on Wall Street 261 00:13:38,240 --> 00:13:40,480 Speaker 1: over the last thirty years has been in this kind 262 00:13:40,480 --> 00:13:43,360 Speaker 1: of nice declining interest rate backdrop, and if that were 263 00:13:43,400 --> 00:13:46,600 Speaker 1: to change, then many of the analyses done it's probably 264 00:13:47,040 --> 00:13:49,199 Speaker 1: going to not be as benign as they thought it 265 00:13:49,240 --> 00:13:52,160 Speaker 1: would be. So you know, it made sense to look 266 00:13:52,200 --> 00:13:55,120 Speaker 1: for income growth when you had no alternatives, and dividends 267 00:13:55,120 --> 00:13:57,360 Speaker 1: are one of the ways to generate it. But I 268 00:13:57,440 --> 00:14:00,160 Speaker 1: was talking to our read analyst UM after it and 269 00:14:00,200 --> 00:14:02,040 Speaker 1: just said, you know, the resector has been the worst 270 00:14:02,040 --> 00:14:04,880 Speaker 1: performing sector since it became a sector. And part of 271 00:14:04,880 --> 00:14:08,560 Speaker 1: the reason is UM that yields have shifted from that 272 00:14:08,600 --> 00:14:11,160 Speaker 1: one point three six one point three seven low last summer, 273 00:14:11,480 --> 00:14:14,320 Speaker 1: and there is competition for income. Let's bring this full circle. 274 00:14:14,760 --> 00:14:16,679 Speaker 1: You are frustrated with those who have that myopic view 275 00:14:16,679 --> 00:14:18,240 Speaker 1: of the markets right now, what do you say to them? 276 00:14:18,280 --> 00:14:19,960 Speaker 1: What should they be looking at? What are you looking at? 277 00:14:20,120 --> 00:14:22,520 Speaker 1: What's your vote of encouragement to them? So we look 278 00:14:22,560 --> 00:14:24,120 Speaker 1: at a lobriety of things. We look at what are 279 00:14:24,120 --> 00:14:26,560 Speaker 1: the early indicators of earnings growth? And and I know 280 00:14:26,640 --> 00:14:29,040 Speaker 1: this surprises so many people, and we showed them the 281 00:14:29,080 --> 00:14:32,040 Speaker 1: tightest fit that we're going to find with earnings growth 282 00:14:32,080 --> 00:14:37,800 Speaker 1: is industrial production. And that shocks people. In of um 283 00:14:37,840 --> 00:14:40,760 Speaker 1: of the economy is tied to industrial activity, but it 284 00:14:40,880 --> 00:14:43,520 Speaker 1: is the most cyclical components. So who I describe it 285 00:14:43,600 --> 00:14:46,200 Speaker 1: is you don't buy ten boxes of detergent when the 286 00:14:46,200 --> 00:14:48,800 Speaker 1: economy is good. In one when it's bad, right as 287 00:14:48,840 --> 00:14:51,080 Speaker 1: you need to launch your clothing. So you know what 288 00:14:51,080 --> 00:14:54,880 Speaker 1: what vacillates is industrial activity and that has every indication 289 00:14:54,920 --> 00:14:57,920 Speaker 1: of getting better. David, you didn't bring in full circle. Sorry. 290 00:14:58,200 --> 00:15:01,480 Speaker 1: Anthony from New Jersey sends in a photo of p 291 00:15:01,680 --> 00:15:05,000 Speaker 1: K Suba and doing a Don Cherry invitation. I'm gonna 292 00:15:05,040 --> 00:15:07,640 Speaker 1: put this out on Twitter. Don even were the same 293 00:15:07,720 --> 00:15:10,800 Speaker 1: quote code. I guess the next to night. But it's great, 294 00:15:11,000 --> 00:15:12,600 Speaker 1: uh and we you know, shout out to all of 295 00:15:12,680 --> 00:15:17,400 Speaker 1: Montreal and I did particularly for Montreal medicine. Uh in 296 00:15:17,520 --> 00:15:20,600 Speaker 1: his tenure with the Canadians. And that's too much hockey 297 00:15:20,640 --> 00:15:24,160 Speaker 1: for you. Good news. It will continue, Tobias Loveki, thank 298 00:15:24,160 --> 00:15:35,920 Speaker 1: you so much. With City Group. This is Bloomberg brought 299 00:15:36,000 --> 00:15:39,600 Speaker 1: you by Bank of America, Mary Lynch, dedicated to bringing 300 00:15:39,640 --> 00:15:43,360 Speaker 1: our clients insights and solutions to meet the challenges of 301 00:15:43,360 --> 00:15:47,880 Speaker 1: a transforming world. That's the power of global connections. Mary Lynch, 302 00:15:48,040 --> 00:15:56,480 Speaker 1: Pierce Feeder and Smith Incorporated Member s I PC. It 303 00:15:56,600 --> 00:15:59,840 Speaker 1: is now a great, great pleasure to bring back someone 304 00:15:59,840 --> 00:16:04,120 Speaker 1: we talked to too many times, David Harrow of Harris Associates. 305 00:16:04,120 --> 00:16:06,160 Speaker 1: And we'll do a little bit of politics here on 306 00:16:06,200 --> 00:16:09,360 Speaker 1: the backside. David, what a great conversation earlier this morning 307 00:16:09,400 --> 00:16:14,160 Speaker 1: with Kathy Matsui of Golden Sacks Equities in Tokyo and 308 00:16:14,320 --> 00:16:19,560 Speaker 1: talking with her enthusiasm about obonomics and about the potential 309 00:16:19,720 --> 00:16:26,720 Speaker 1: lift of dirt cheap Japanese big stocks. Are they dirt cheap? Um? 310 00:16:26,840 --> 00:16:31,160 Speaker 1: They are cheap in price, But value just din't uh 311 00:16:31,640 --> 00:16:34,240 Speaker 1: described or defined by price. You have to look at 312 00:16:34,280 --> 00:16:37,200 Speaker 1: what you're getting for what you're paying. So if you 313 00:16:37,280 --> 00:16:41,320 Speaker 1: look at low on the surface multiples for Japanese stocks, 314 00:16:41,320 --> 00:16:43,760 Speaker 1: you have to compare it to low returns on equity 315 00:16:43,840 --> 00:16:46,960 Speaker 1: and returns on capital, which when you add that to 316 00:16:47,160 --> 00:16:50,120 Speaker 1: the formula, they don't look all that cheap. Some are. 317 00:16:50,600 --> 00:16:54,080 Speaker 1: But the problem with Japanese companies in corporate Japan as 318 00:16:54,120 --> 00:16:58,120 Speaker 1: their return structures are persistently low. And I thought you 319 00:16:58,200 --> 00:17:00,240 Speaker 1: you'd be willing. You shouldn't be willing to pay any 320 00:17:00,280 --> 00:17:03,160 Speaker 1: kind of a premium. In fact, you should pay a discount. 321 00:17:03,480 --> 00:17:07,040 Speaker 1: They deserve their law valuations because of the low returns 322 00:17:07,040 --> 00:17:09,600 Speaker 1: companies suffer from. In folks, I sort of knew where 323 00:17:09,600 --> 00:17:12,640 Speaker 1: the answer was going, and I set Mr Harold up here, 324 00:17:13,280 --> 00:17:17,000 Speaker 1: can they finally become more Anglo Saxon, Like, that's what 325 00:17:17,080 --> 00:17:20,280 Speaker 1: I asked, miss Massou MASSOOI let me ask you as well, 326 00:17:20,560 --> 00:17:22,480 Speaker 1: are they you know you talk about returns in r 327 00:17:22,520 --> 00:17:24,919 Speaker 1: o E. Are they going to deploy more cash to 328 00:17:25,000 --> 00:17:28,480 Speaker 1: a shareholder centric company or is it the same old 329 00:17:28,520 --> 00:17:31,880 Speaker 1: same Hold? Oh, Tom, this has been you know, I've 330 00:17:31,880 --> 00:17:37,560 Speaker 1: been doing a since and I first Brewers. One was 331 00:17:37,600 --> 00:17:39,640 Speaker 1: that one of the Brewers go to the World Series. 332 00:17:39,680 --> 00:17:42,520 Speaker 1: I wasn't undergraduate school, so I think that was like 333 00:17:42,600 --> 00:17:48,160 Speaker 1: eight two anyway. Anyway, I mean, here is the problem 334 00:17:48,280 --> 00:17:52,879 Speaker 1: that the Japanese managements and boards often do not view 335 00:17:53,480 --> 00:17:58,639 Speaker 1: the shareholders as a very important constituent. And when you 336 00:17:58,680 --> 00:18:02,760 Speaker 1: add to that the way these boards and managements are 337 00:18:02,800 --> 00:18:07,920 Speaker 1: protected from hospital takeovers, you don't see activity. Even though 338 00:18:08,359 --> 00:18:12,560 Speaker 1: when this GP if the big Japanese pension funds stated 339 00:18:12,560 --> 00:18:16,080 Speaker 1: they're gonna start coming down hard on Japanese companies unless 340 00:18:16,119 --> 00:18:18,800 Speaker 1: they earn an eight or nine percent return on equity, 341 00:18:18,800 --> 00:18:22,040 Speaker 1: which is almost laughable because what's wrong with thirteen, fourteen 342 00:18:22,119 --> 00:18:26,240 Speaker 1: or fifteen percent return on equity, especially given the nature 343 00:18:26,640 --> 00:18:31,280 Speaker 1: of the inefficient balance sheets in corporate Japan. So this 344 00:18:31,359 --> 00:18:33,879 Speaker 1: is a huge problem, and I would love to say 345 00:18:33,920 --> 00:18:38,560 Speaker 1: that we're making huge progress. It's slowly going in the 346 00:18:38,680 --> 00:18:42,160 Speaker 1: right direction, but it's ever so slowly, and it's not 347 00:18:42,359 --> 00:18:45,560 Speaker 1: broad based at all. I mean, you just have companies 348 00:18:45,560 --> 00:18:53,040 Speaker 1: that have of their market cap sitting in cash earning zero. 349 00:18:54,480 --> 00:18:57,879 Speaker 1: That is value destructive in our view. And when you 350 00:18:57,960 --> 00:19:01,880 Speaker 1: have these low returns drip even by poor capital allocation, 351 00:19:02,359 --> 00:19:06,160 Speaker 1: and they're also not so good on expenses and profit margins, 352 00:19:06,720 --> 00:19:10,000 Speaker 1: then you know you deserve these low prices. And I 353 00:19:10,040 --> 00:19:13,280 Speaker 1: really don't know what's going to change it. I'm in 354 00:19:13,359 --> 00:19:15,640 Speaker 1: Japan once or twice a year and you sit there 355 00:19:15,640 --> 00:19:18,320 Speaker 1: and you're literally harp on these people and then not 356 00:19:18,520 --> 00:19:20,320 Speaker 1: to go yeah yeah, yeah, yeah, thank you, thank you, 357 00:19:20,400 --> 00:19:23,600 Speaker 1: thank you, and then they just turn around and do 358 00:19:23,640 --> 00:19:27,320 Speaker 1: the other things. So I don't know. I I wish 359 00:19:27,359 --> 00:19:31,359 Speaker 1: I would be seen better progress, but you know, it's 360 00:19:31,480 --> 00:19:38,480 Speaker 1: it's frustrating, actually very frustrating. This is a remorseful data sad. 361 00:19:38,960 --> 00:19:41,320 Speaker 1: Let me let me pivot to ask you. But I know, 362 00:19:41,520 --> 00:19:43,440 Speaker 1: I know you're investing in emphasis now, and I wonder 363 00:19:43,480 --> 00:19:45,400 Speaker 1: if that is if that is an outlie or company. 364 00:19:45,440 --> 00:19:47,639 Speaker 1: Other words, when you look at the kind of opportunity, 365 00:19:47,720 --> 00:19:50,440 Speaker 1: degree of opportunity in India. Is there a lot there 366 00:19:50,560 --> 00:19:53,560 Speaker 1: or are you taking small steps in? Well, again, there 367 00:19:53,600 --> 00:19:56,639 Speaker 1: are things happening there, but it's so pricey. It is 368 00:19:56,680 --> 00:20:01,200 Speaker 1: so pricey. The government is trying to do the right things. Uh. 369 00:20:01,240 --> 00:20:04,320 Speaker 1: Corporate India is pretty good. Uh. They have some good 370 00:20:04,320 --> 00:20:08,760 Speaker 1: competitive advantages and certain things like what the business InFocus 371 00:20:08,480 --> 00:20:11,480 Speaker 1: is in this outsourcing, which, by the way, the reason 372 00:20:11,520 --> 00:20:14,359 Speaker 1: why prices are lowest. Persives questions about H one, b 373 00:20:14,480 --> 00:20:18,320 Speaker 1: vs as, etcetera. That's a whole another story. But UM 374 00:20:18,720 --> 00:20:20,800 Speaker 1: India is trying to do the right thing, and that 375 00:20:21,080 --> 00:20:24,960 Speaker 1: is really have a more open economy and be have 376 00:20:25,080 --> 00:20:30,359 Speaker 1: more liberal economic policies conventional historical liberal economic free market 377 00:20:30,400 --> 00:20:35,399 Speaker 1: policies and and the UM government was helped there with 378 00:20:35,760 --> 00:20:39,320 Speaker 1: another big election wins, so so hopefully you will start 379 00:20:39,359 --> 00:20:41,920 Speaker 1: to see more of these policies. I mean GDP per 380 00:20:42,000 --> 00:20:45,600 Speaker 1: head in India is still a fraction of that of China, 381 00:20:45,960 --> 00:20:48,520 Speaker 1: and a lot of this is the result of their 382 00:20:48,520 --> 00:20:53,000 Speaker 1: inability to drive through infrastructure projects and to get higher 383 00:20:53,000 --> 00:20:58,159 Speaker 1: productivity in their economy based on simple things like Rhodes highways, plumbing, etcetera. 384 00:20:58,840 --> 00:21:03,000 Speaker 1: I mean, there's a fascinating statistic about just the lack 385 00:21:03,040 --> 00:21:06,920 Speaker 1: of plumbing in India as an example. So, and there's 386 00:21:06,960 --> 00:21:09,000 Speaker 1: so much potential. You have a two to three hundred 387 00:21:09,080 --> 00:21:12,679 Speaker 1: million people middle class there um, but then you do 388 00:21:12,800 --> 00:21:17,560 Speaker 1: have this large, large lower class and large very low 389 00:21:17,680 --> 00:21:22,000 Speaker 1: GDP perhead which they're they're trying to do something about. 390 00:21:22,480 --> 00:21:24,800 Speaker 1: What's your advice to an investor who, like you, sees 391 00:21:24,880 --> 00:21:28,240 Speaker 1: that opportunity in India maybe hasn't played in that market before. 392 00:21:28,280 --> 00:21:29,880 Speaker 1: What are you looking at? What are you advising they 393 00:21:29,880 --> 00:21:32,560 Speaker 1: look at before they get in, But you have to 394 00:21:32,560 --> 00:21:35,199 Speaker 1: look at prices and what they're selling for because a 395 00:21:35,240 --> 00:21:39,840 Speaker 1: lot of times the big picture euphoria just attracts money 396 00:21:39,880 --> 00:21:43,159 Speaker 1: for that very reason without looking at the price you 397 00:21:43,240 --> 00:21:46,359 Speaker 1: are paying. And then it becomes the momentum market, a 398 00:21:46,400 --> 00:21:49,600 Speaker 1: market that just trades on headlines. And again that's just 399 00:21:49,680 --> 00:21:51,680 Speaker 1: kind of counter to how we do things. It might 400 00:21:51,760 --> 00:21:54,520 Speaker 1: work in the short term, is our view, but you know, 401 00:21:54,520 --> 00:21:56,840 Speaker 1: in the medium and long term, you buy quality at 402 00:21:56,840 --> 00:21:58,720 Speaker 1: a low price and you be patient. That's how you 403 00:21:58,800 --> 00:22:01,560 Speaker 1: make money. And the problem with I think that the 404 00:22:01,640 --> 00:22:04,800 Speaker 1: public is they just they see these big themes and 405 00:22:04,840 --> 00:22:07,919 Speaker 1: they want to jump on them, and they do it 406 00:22:08,000 --> 00:22:11,440 Speaker 1: irrespective of price paid. It's like getting out of train 407 00:22:11,520 --> 00:22:15,840 Speaker 1: that's moving, but not knowing where that train's final destination is. 408 00:22:16,880 --> 00:22:18,760 Speaker 1: Let's take the train up to Europe. And we've we've 409 00:22:18,760 --> 00:22:22,480 Speaker 1: seen these capital raising schemes with Credit Swiss and Deutsche Bank. 410 00:22:22,720 --> 00:22:26,359 Speaker 1: That's it. That's why he's still remorse today. It's dilution. 411 00:22:27,480 --> 00:22:29,800 Speaker 1: I wanted to ask him about delusion. Let me let 412 00:22:29,800 --> 00:22:32,920 Speaker 1: me get your perspective on that, David, if I could, well, 413 00:22:32,960 --> 00:22:35,320 Speaker 1: in the case of Deutsche Bank, I think there's there 414 00:22:35,440 --> 00:22:40,000 Speaker 1: was a very solid reason because of you know, relatively 415 00:22:40,040 --> 00:22:45,160 Speaker 1: low capital ratios and and a bit of a patness 416 00:22:45,240 --> 00:22:48,640 Speaker 1: in the whole Deutsche Bank situation, and I would say 417 00:22:48,680 --> 00:22:52,240 Speaker 1: a lack of profitability in their core home banking market Germany. 418 00:22:52,560 --> 00:22:54,840 Speaker 1: You know, I've said before on this show Germany is 419 00:22:54,920 --> 00:22:58,159 Speaker 1: one of the worst markets to be a banker, and 420 00:22:58,200 --> 00:23:01,480 Speaker 1: it's it's just hyper competitive, a low returns. They have 421 00:23:01,560 --> 00:23:04,000 Speaker 1: these things called landa spank in which ruined prices and 422 00:23:04,040 --> 00:23:07,000 Speaker 1: give loans to anyone, and you know you're not a 423 00:23:07,000 --> 00:23:10,120 Speaker 1: good place. Do you own German shares? We don't own 424 00:23:10,160 --> 00:23:13,679 Speaker 1: any We don't own any shares in German banks. And 425 00:23:13,720 --> 00:23:15,359 Speaker 1: in fact, we looked at it into Italian Bank when 426 00:23:15,440 --> 00:23:17,960 Speaker 1: any credit came around. You know, one of the problems 427 00:23:18,000 --> 00:23:19,719 Speaker 1: we didn't invest in that bank. But they have a 428 00:23:19,760 --> 00:23:24,520 Speaker 1: big presence in Germany, and they're big, huge presence in Germany. 429 00:23:24,680 --> 00:23:27,440 Speaker 1: Doesn't make any money. You have all these assets deployed 430 00:23:27,480 --> 00:23:30,120 Speaker 1: that make no money, and it's just it's a very 431 00:23:30,160 --> 00:23:33,760 Speaker 1: difficult market that needs to be restructured. UM, So deut 432 00:23:33,800 --> 00:23:36,160 Speaker 1: your bank. I think that there was a reason why 433 00:23:36,200 --> 00:23:39,199 Speaker 1: they raised capital. Now, don't forget credit suite. On the 434 00:23:39,240 --> 00:23:42,359 Speaker 1: other hand, they did have a capital race, a relatively 435 00:23:42,400 --> 00:23:45,320 Speaker 1: small one a couple of years ago, um, about a 436 00:23:45,359 --> 00:23:49,200 Speaker 1: year and a half ago when Mr Tim just started, 437 00:23:49,560 --> 00:23:53,200 Speaker 1: a few months after he started. And I think there 438 00:23:53,280 --> 00:23:56,760 Speaker 1: was as a result of the UM Swiss national banks 439 00:23:56,920 --> 00:23:59,919 Speaker 1: changing capital requirements and a result of all find they 440 00:24:00,040 --> 00:24:03,000 Speaker 1: had to pay. You saw the RMBS fine they had 441 00:24:03,040 --> 00:24:06,359 Speaker 1: to pay. Um. There's a question of whether they have 442 00:24:06,400 --> 00:24:11,320 Speaker 1: a strong enough capital position. From what we can't see here, 443 00:24:12,160 --> 00:24:16,280 Speaker 1: it appears they appear to be in decent shape, especially 444 00:24:17,080 --> 00:24:20,879 Speaker 1: if they continue to improve their earning stream, which they 445 00:24:20,920 --> 00:24:23,880 Speaker 1: could then build upon capital. I mean, I would rather 446 00:24:24,000 --> 00:24:28,439 Speaker 1: have them look at their dividend policy, for example, before 447 00:24:28,520 --> 00:24:32,119 Speaker 1: they look at raising capital. Shareholders and see what happens 448 00:24:32,119 --> 00:24:34,639 Speaker 1: in the next year or so in terms of earning. 449 00:24:34,800 --> 00:24:38,359 Speaker 1: Should they should? Should? They? Should? They? Should? They just 450 00:24:38,520 --> 00:24:40,720 Speaker 1: get through the pain and actually do M and A. 451 00:24:41,880 --> 00:24:44,080 Speaker 1: I don't think there's a lot of M and A 452 00:24:44,160 --> 00:24:46,360 Speaker 1: they should be doing right now that could be additive. 453 00:24:46,359 --> 00:24:49,320 Speaker 1: There might be a little something here and there. As 454 00:24:49,359 --> 00:24:51,840 Speaker 1: we know in Switzerland, a lot of these small private 455 00:24:51,840 --> 00:24:56,240 Speaker 1: banks are suffering because of the inability to have the 456 00:24:56,320 --> 00:25:00,080 Speaker 1: money to comply with new rules and regulations. Let to 457 00:25:00,160 --> 00:25:03,320 Speaker 1: the state might make sense rolling up some private Let's 458 00:25:03,320 --> 00:25:05,920 Speaker 1: come back and continue this discussion on credit Sweeze with 459 00:25:06,000 --> 00:25:09,639 Speaker 1: David Harold Harris Associates on credit Sueeze, it's a smaller 460 00:25:09,680 --> 00:25:13,240 Speaker 1: transaction than Deutsche Bank. Clearly they're not a comparative to 461 00:25:13,280 --> 00:25:17,080 Speaker 1: Deutsche Bank, but one of the similarities is this desire 462 00:25:17,560 --> 00:25:21,879 Speaker 1: to expense control if they expense to the bone or 463 00:25:21,920 --> 00:25:25,119 Speaker 1: is there more to go from where you sit? I 464 00:25:25,160 --> 00:25:28,600 Speaker 1: think this is the beauty of the new managements approach 465 00:25:28,640 --> 00:25:31,400 Speaker 1: at credit suits. Is this to borrow what you happen 466 00:25:31,480 --> 00:25:37,119 Speaker 1: East term kaison continuous improvement and and their business constantly 467 00:25:37,160 --> 00:25:40,520 Speaker 1: looking for new ways to do business processes better and 468 00:25:40,600 --> 00:25:43,040 Speaker 1: cheaper and by the way, this is how every business 469 00:25:43,040 --> 00:25:46,679 Speaker 1: should function, and unfortunately people can just get a little complacent. 470 00:25:47,200 --> 00:25:50,560 Speaker 1: And I think what what t JAM is doing is 471 00:25:50,960 --> 00:25:54,639 Speaker 1: really putting a focus on being creative with with running 472 00:25:54,680 --> 00:25:57,640 Speaker 1: the business and making sure that we're looking at new 473 00:25:57,640 --> 00:26:00,199 Speaker 1: ways to do things at a lower cost space is 474 00:26:00,640 --> 00:26:04,280 Speaker 1: so I think they will continually be pushing expenses down 475 00:26:04,880 --> 00:26:09,520 Speaker 1: and productivity up. And whether that means doing creative things 476 00:26:09,640 --> 00:26:13,800 Speaker 1: as far as outsourcing some back back office stuff or 477 00:26:13,920 --> 00:26:17,640 Speaker 1: or doing it collectively with some of their peers. Uh, 478 00:26:17,680 --> 00:26:19,679 Speaker 1: They're open to all these things. And I think this 479 00:26:19,840 --> 00:26:23,920 Speaker 1: fresh look at things. You know, historically these investment makes 480 00:26:23,920 --> 00:26:26,359 Speaker 1: it made so much money, they treated as if it 481 00:26:26,400 --> 00:26:28,800 Speaker 1: were just you know, it was coming from the clouds. 482 00:26:29,240 --> 00:26:31,879 Speaker 1: And now I think it's it's not that easy to 483 00:26:31,880 --> 00:26:35,800 Speaker 1: earn money consistently, and so this expense management is a 484 00:26:35,840 --> 00:26:39,119 Speaker 1: good way to help create a nuity like earning stream. 485 00:26:39,240 --> 00:26:42,000 Speaker 1: One more question before David Gura gets to the politics 486 00:26:42,080 --> 00:26:45,399 Speaker 1: of the moment. David Harrow helped me here with the 487 00:26:45,440 --> 00:26:49,359 Speaker 1: gamesmanship of mergers where people talk about credit squeeze and 488 00:26:49,440 --> 00:26:52,600 Speaker 1: Morgan Stanley mating or you can name any other peers 489 00:26:52,960 --> 00:26:56,359 Speaker 1: that you want. I can't get Credit Squeeze to be 490 00:26:56,480 --> 00:26:59,399 Speaker 1: in Peace size or Deutsche Bank size or maybe some 491 00:26:59,480 --> 00:27:02,160 Speaker 1: of the UK bank size. Where do they fit in 492 00:27:02,600 --> 00:27:07,400 Speaker 1: and who would they bolt onto to make a bigger bank? Yeah, 493 00:27:07,400 --> 00:27:10,719 Speaker 1: I don't know if bigger's naturally better. I think what 494 00:27:10,760 --> 00:27:13,240 Speaker 1: we want them to do first and foremost is to 495 00:27:13,400 --> 00:27:17,000 Speaker 1: cement their strength and private wealth management, and the private 496 00:27:17,040 --> 00:27:21,960 Speaker 1: bank is specifically with their franchise in Asia, and I 497 00:27:22,000 --> 00:27:25,680 Speaker 1: believe they do have strong franchises within their investment bank 498 00:27:25,720 --> 00:27:29,560 Speaker 1: and equities and fixed income and even in doing some deals, 499 00:27:30,160 --> 00:27:32,640 Speaker 1: and so the two have to kind of work together, 500 00:27:33,160 --> 00:27:36,320 Speaker 1: and especially in Asia where there is a stronger link 501 00:27:36,400 --> 00:27:40,160 Speaker 1: between wealth management and investment bank with the rich wealthy 502 00:27:40,240 --> 00:27:45,240 Speaker 1: family groups, the billionaire family groups with their businesses aligned 503 00:27:45,280 --> 00:27:48,600 Speaker 1: with their family wealth. So I don't know if big 504 00:27:48,680 --> 00:27:51,919 Speaker 1: is necessarily better. I think let's get better first and 505 00:27:51,960 --> 00:27:54,160 Speaker 1: then look at size and scale, and I think there's 506 00:27:54,200 --> 00:27:57,040 Speaker 1: still plenty of room to get better before you look 507 00:27:57,119 --> 00:27:59,840 Speaker 1: at any kind of major m and a as I 508 00:28:00,040 --> 00:28:03,320 Speaker 1: that some small emanate maybe in the works might make 509 00:28:03,400 --> 00:28:06,560 Speaker 1: sense with some, especially the Swiss and the Swiss private 510 00:28:06,560 --> 00:28:09,080 Speaker 1: banking sector. With this, in these smaller banks, we just 511 00:28:09,119 --> 00:28:12,080 Speaker 1: don't have the funds that can beat anymore given today's 512 00:28:12,119 --> 00:28:15,960 Speaker 1: compliance costs. We've talked an awful lot about what what 513 00:28:16,080 --> 00:28:18,800 Speaker 1: happened with healthcare reform portends for taxi for let me 514 00:28:18,800 --> 00:28:21,560 Speaker 1: just ask you about regulation instead. More in your your 515 00:28:21,560 --> 00:28:24,040 Speaker 1: wheelhouse there when when you look at what might become 516 00:28:24,040 --> 00:28:25,840 Speaker 1: of Dodd Frank, what do you see happening and how 517 00:28:25,880 --> 00:28:28,440 Speaker 1: could that affect banks like a credit suite in Deutsche Bank. 518 00:28:29,240 --> 00:28:32,080 Speaker 1: I think there will be changed. I mean clearly and clearly, 519 00:28:32,119 --> 00:28:34,359 Speaker 1: and I think it was Robert Barrel and time. You 520 00:28:34,480 --> 00:28:36,800 Speaker 1: probably remember this very good essay he wrote in the 521 00:28:36,840 --> 00:28:40,920 Speaker 1: Wall Street Journal a year ago about the cost of regulation, 522 00:28:41,000 --> 00:28:43,760 Speaker 1: and perhaps this is one of the reasons why the 523 00:28:43,800 --> 00:28:48,320 Speaker 1: economic recovery was so weak post the O eight oh nine. 524 00:28:48,720 --> 00:28:51,560 Speaker 1: I mean, it's the old pendulum story. The pendulum, the 525 00:28:51,600 --> 00:28:55,760 Speaker 1: regulatory pendulum swung too swiftly to the wrong side, to 526 00:28:55,800 --> 00:29:02,560 Speaker 1: the overregulation side. Good, transparent, easy to follow regulation is important, 527 00:29:03,120 --> 00:29:07,240 Speaker 1: and it helps businesses can be able to conduct commerce. 528 00:29:07,760 --> 00:29:11,560 Speaker 1: But when you have overly burdensome regulation that it's just 529 00:29:11,760 --> 00:29:16,440 Speaker 1: layers and layers and pages and pages, it prohibits commerce. 530 00:29:16,560 --> 00:29:22,200 Speaker 1: It prohibits people from taking risks because you don't know 531 00:29:22,440 --> 00:29:25,000 Speaker 1: whether what you're going to ultimately do is going to 532 00:29:25,080 --> 00:29:27,560 Speaker 1: be cost effective or if the regulator is going to 533 00:29:27,640 --> 00:29:30,960 Speaker 1: regulate your profits away. And whether it be healthcare, whether 534 00:29:31,000 --> 00:29:34,160 Speaker 1: it be energy, whether it be financial services. All the 535 00:29:34,240 --> 00:29:39,320 Speaker 1: major sectors of our economy were bombarded by the previous 536 00:29:39,360 --> 00:29:44,280 Speaker 1: administration and regulations that often, in my opinion, were senseless. 537 00:29:44,640 --> 00:29:47,960 Speaker 1: No one looked at cost benefit analysis, no one looked at, 538 00:29:48,120 --> 00:29:50,720 Speaker 1: you know, really what the impacts were. They just did 539 00:29:50,760 --> 00:29:54,240 Speaker 1: it because, as our European chairman once told me, regulators 540 00:29:54,280 --> 00:29:57,200 Speaker 1: do what they do. They like to regulate. David, we've 541 00:29:57,280 --> 00:29:59,360 Speaker 1: run out of time. Help me here with speaking Ryan, 542 00:29:59,440 --> 00:30:03,800 Speaker 1: you're with Wi consin. You know, the gentleman from Wisconsin. Uh, 543 00:30:04,200 --> 00:30:05,920 Speaker 1: what does he need to do to write the ship. 544 00:30:07,160 --> 00:30:09,840 Speaker 1: It's a setback, And what he needs to do is 545 00:30:10,240 --> 00:30:13,200 Speaker 1: just find common ground with the people in his own caucus. 546 00:30:13,280 --> 00:30:17,200 Speaker 1: This has always been a rambunctious caucus that he's had 547 00:30:17,240 --> 00:30:20,080 Speaker 1: to deal with. Remember he kind of made a deal 548 00:30:20,120 --> 00:30:22,920 Speaker 1: with him to get elected speaker to begin with. And 549 00:30:22,960 --> 00:30:25,920 Speaker 1: I think you just have to find common ground. And 550 00:30:26,120 --> 00:30:29,520 Speaker 1: you know, people can't forget that if everyone gives a little, 551 00:30:29,520 --> 00:30:31,600 Speaker 1: no one has to give a lot, and this is 552 00:30:31,640 --> 00:30:35,040 Speaker 1: what he has to push with that rambunctious, rowdy caucus. 553 00:30:35,080 --> 00:30:37,720 Speaker 1: Now he has not enough time. David Harro, Let's do 554 00:30:37,720 --> 00:30:41,000 Speaker 1: it again. David Harrow with Harris Associates UH this morning, 555 00:30:41,000 --> 00:30:56,720 Speaker 1: particularly David Girl that the thoughts on Japan. Always a 556 00:30:56,760 --> 00:30:58,520 Speaker 1: pleasure to be joined by Yakum Fels. He's the Global 557 00:30:58,560 --> 00:31:01,680 Speaker 1: Economic advisor at PIMCO. He joins us now here on 558 00:31:01,760 --> 00:31:03,840 Speaker 1: Bloomberg Experience. Great to have you with us, And I 559 00:31:03,920 --> 00:31:06,480 Speaker 1: was taken by your latest March outlook here you're write 560 00:31:06,480 --> 00:31:09,480 Speaker 1: about how there is a theme too Pimco's March two 561 00:31:09,400 --> 00:31:11,920 Speaker 1: thou seventeen cyclical form that's scaling it back, and the 562 00:31:11,920 --> 00:31:15,960 Speaker 1: inspiration for that, perhaps indirectly from the Fed chair Jenny Yell. 563 00:31:15,960 --> 00:31:18,360 Speaker 1: And it's something that doesn't just extend to monetary policy. 564 00:31:18,400 --> 00:31:21,680 Speaker 1: It's it's a broader theme. Yeah, that's right, David. So 565 00:31:21,760 --> 00:31:25,400 Speaker 1: scaling back doesn't only refer to monetary policy. But we 566 00:31:25,400 --> 00:31:27,239 Speaker 1: we also, you know, we looked at the risks that 567 00:31:27,280 --> 00:31:30,520 Speaker 1: we talked about going into the year after our December forum, 568 00:31:30,600 --> 00:31:32,760 Speaker 1: the left tail and the right tail risks. Back then 569 00:31:32,800 --> 00:31:36,440 Speaker 1: we had talked about fat tales and we reassess them, 570 00:31:36,480 --> 00:31:39,000 Speaker 1: and we said, hey, we think it's time to scale 571 00:31:39,040 --> 00:31:41,720 Speaker 1: back a little bit some of those risks because we've 572 00:31:41,800 --> 00:31:44,400 Speaker 1: learned some things over the first few months. You know, 573 00:31:44,480 --> 00:31:49,880 Speaker 1: Trump didn't get aggressive on on protectionism, at least not yet, 574 00:31:50,200 --> 00:31:52,720 Speaker 1: and he could have done so by executive order. So 575 00:31:52,800 --> 00:31:56,040 Speaker 1: at the margin, we thought that is good news. UM. Also, 576 00:31:56,800 --> 00:32:00,240 Speaker 1: it's unlikely that we get a huge, big fist could 577 00:32:00,240 --> 00:32:02,880 Speaker 1: boost anytime soon, which could have led to an overheating 578 00:32:02,920 --> 00:32:05,560 Speaker 1: of the economy and a very aggressive fat response. So 579 00:32:05,600 --> 00:32:07,600 Speaker 1: in that sense, we thought it was time to scale 580 00:32:07,640 --> 00:32:11,160 Speaker 1: back some of those left tail and right tail risks. UM. 581 00:32:11,200 --> 00:32:14,239 Speaker 1: The same also applies to the China risk, where the 582 00:32:14,280 --> 00:32:18,000 Speaker 1: focus really is on stability ahead of the nineteenth Party 583 00:32:18,000 --> 00:32:21,200 Speaker 1: Congress in October of this year. UM. And so overall 584 00:32:21,200 --> 00:32:24,080 Speaker 1: our assessment was, well, let's scale back these left and 585 00:32:24,200 --> 00:32:27,760 Speaker 1: right tail risks a little bit. We've slightly increased our 586 00:32:27,840 --> 00:32:32,320 Speaker 1: outlook for growth this year. But then here's the bad news. 587 00:32:32,360 --> 00:32:35,400 Speaker 1: This means central banks like the FED, like the ECB 588 00:32:36,000 --> 00:32:40,480 Speaker 1: will feel encouraged to scale back accommodation maybe a little 589 00:32:40,480 --> 00:32:44,600 Speaker 1: bit earlier than previously expected. And I think that poses 590 00:32:44,680 --> 00:32:47,760 Speaker 1: some risks for markets going forward. Politics in Washington is 591 00:32:47,760 --> 00:32:50,320 Speaker 1: playing a much bigger role on our program for sure, 592 00:32:50,320 --> 00:32:52,560 Speaker 1: And I imagine that you're quarterly four when you've got 593 00:32:52,560 --> 00:32:54,760 Speaker 1: a Marie Slaughter there from New America and Ben Berniki 594 00:32:55,280 --> 00:32:58,160 Speaker 1: of Brookings. There is a spirited debate about the change 595 00:32:58,200 --> 00:33:00,960 Speaker 1: going on in Washington, d C. How much how much 596 00:33:00,960 --> 00:33:03,920 Speaker 1: of your time we spent talking about what's changed? Well, 597 00:33:04,040 --> 00:33:06,600 Speaker 1: we spent a lot of time on this UM. I 598 00:33:06,680 --> 00:33:10,040 Speaker 1: would say about a quarter, maybe even a third of 599 00:33:10,080 --> 00:33:12,520 Speaker 1: the forum of the economic forum we spent talking about 600 00:33:12,560 --> 00:33:16,560 Speaker 1: the policy outlook. Yes, with Ben bernanke with and Marie Slaughter. 601 00:33:16,720 --> 00:33:20,440 Speaker 1: Gordon Brown also weighed in with his perspective UM not 602 00:33:20,560 --> 00:33:23,560 Speaker 1: only on the US politics, but also on European and 603 00:33:23,560 --> 00:33:27,120 Speaker 1: in UK politics given Brexit. But then UM, at the 604 00:33:27,240 --> 00:33:29,720 Speaker 1: end of the day, politics is only part of what 605 00:33:29,880 --> 00:33:32,640 Speaker 1: drives markets. There's a lot of focus on it, but 606 00:33:32,720 --> 00:33:36,360 Speaker 1: there are other things like central banks. Uh, there's China 607 00:33:36,600 --> 00:33:39,880 Speaker 1: where we had a massive credit impulse last year, a 608 00:33:40,000 --> 00:33:43,440 Speaker 1: positive credit impulse that really lifted all the global boats, 609 00:33:43,480 --> 00:33:46,840 Speaker 1: not only Chinese financial markets but also global financial markets. 610 00:33:46,840 --> 00:33:49,840 Speaker 1: There was a rebound in global trade that we've seen 611 00:33:49,880 --> 00:33:53,160 Speaker 1: over the past six months, probably sparked by this credit impulse. 612 00:33:53,600 --> 00:33:56,280 Speaker 1: So there's a lot more to talk about than just Washington. 613 00:33:56,360 --> 00:33:59,360 Speaker 1: And I think, um, it is very dangerous to only 614 00:33:59,400 --> 00:34:02,800 Speaker 1: watch the wheats um and only look at the political headlines. 615 00:34:03,000 --> 00:34:05,200 Speaker 1: If you look at how markets have done, we've had 616 00:34:05,240 --> 00:34:09,279 Speaker 1: amazingly low volatility despite all the political volatility coming out 617 00:34:09,280 --> 00:34:11,680 Speaker 1: of Washington. You have come help us here, and I 618 00:34:11,760 --> 00:34:14,880 Speaker 1: say this about the United States with your expertise and 619 00:34:14,880 --> 00:34:17,960 Speaker 1: the continent of Europe. And I guess it's a form 620 00:34:18,040 --> 00:34:22,880 Speaker 1: of eurosclerosis, but maybe without the negativity. Do our listeners 621 00:34:22,960 --> 00:34:26,400 Speaker 1: in America do they need to get use to damp 622 00:34:26,400 --> 00:34:31,520 Speaker 1: phenomenal g d P, dampen animal spirits in some American 623 00:34:31,680 --> 00:34:36,360 Speaker 1: form of eurosclerosis. Well, Tommy, you could you could argue 624 00:34:36,400 --> 00:34:39,359 Speaker 1: that this is actually what we have seen in this 625 00:34:39,600 --> 00:34:42,879 Speaker 1: entire economic expansion, which is now in its eighth year. 626 00:34:42,960 --> 00:34:47,359 Speaker 1: We've had very low nominal GDP growth, We've had very 627 00:34:47,480 --> 00:34:49,799 Speaker 1: dampened animal spirits. So this is in a way the 628 00:34:49,920 --> 00:34:53,759 Speaker 1: story of this economic expansion since the Great Financial Crisis. 629 00:34:54,360 --> 00:34:58,480 Speaker 1: So we've had an American sclerosis for a long time, 630 00:34:58,480 --> 00:35:00,800 Speaker 1: and we hear at PIMCO called it the new normal 631 00:35:00,920 --> 00:35:03,440 Speaker 1: and the new neutral, And I think the big debate 632 00:35:03,520 --> 00:35:06,279 Speaker 1: now is has been since the election, whether we can 633 00:35:06,320 --> 00:35:08,520 Speaker 1: break out of the new normal, and we can break 634 00:35:08,600 --> 00:35:10,920 Speaker 1: out of the new neutral and really move back to 635 00:35:11,000 --> 00:35:16,320 Speaker 1: the old normal, higher growth, higher inflation, higher interest rates. 636 00:35:16,719 --> 00:35:19,160 Speaker 1: That was a debate we had in at the December Forum. 637 00:35:19,200 --> 00:35:21,560 Speaker 1: That was a debate we had again in March. But 638 00:35:21,760 --> 00:35:25,160 Speaker 1: our conclusion is no. We think we are still in 639 00:35:25,200 --> 00:35:28,920 Speaker 1: this new normal of low growth, low nominal growth, not 640 00:35:29,080 --> 00:35:30,839 Speaker 1: quite as low as we had it in the last 641 00:35:30,840 --> 00:35:34,880 Speaker 1: few years, but we're way We're far away from going 642 00:35:34,920 --> 00:35:37,200 Speaker 1: back to the old normal. At this stage we spend 643 00:35:37,239 --> 00:35:40,080 Speaker 1: all of our time and I'm hugely biased and wrong 644 00:35:40,120 --> 00:35:43,600 Speaker 1: about this, folks. Is the basic idea of ken Europe 645 00:35:43,640 --> 00:35:47,160 Speaker 1: become more Anglo Saxon, Let me flip it on its head, 646 00:35:47,600 --> 00:35:50,359 Speaker 1: thinking of the great Conrad at an hour in the 647 00:35:50,400 --> 00:35:54,120 Speaker 1: social fabric he established for Germany. Does the US need 648 00:35:54,160 --> 00:35:58,680 Speaker 1: to become more continental European? I think what you've seen 649 00:35:58,719 --> 00:36:02,200 Speaker 1: tom over the past and fifteen, maybe even twenty years, 650 00:36:02,239 --> 00:36:05,560 Speaker 1: is that there has been a certain convergence between the US, 651 00:36:05,640 --> 00:36:08,160 Speaker 1: or what you call the Anglo Saxon model and the 652 00:36:08,200 --> 00:36:11,839 Speaker 1: continental European model. So you could argue the US has 653 00:36:11,920 --> 00:36:15,439 Speaker 1: become a little bit more continental, right, We've built out 654 00:36:15,480 --> 00:36:19,239 Speaker 1: the welfare state also here in the US with Obama Care, etcetera. 655 00:36:19,840 --> 00:36:24,840 Speaker 1: UM and Europe had some market based, market oriented reforms 656 00:36:24,880 --> 00:36:26,879 Speaker 1: at least in the early days of the euro back 657 00:36:26,960 --> 00:36:31,040 Speaker 1: in the ninety nineties. Then sparked by the crisis a 658 00:36:31,080 --> 00:36:34,480 Speaker 1: few years back, some countries in Europe, like Spain for example, 659 00:36:34,520 --> 00:36:37,960 Speaker 1: also became more Anglo Saxon by making their labor markets 660 00:36:37,960 --> 00:36:42,000 Speaker 1: more flexible, allowing more wage flexibility. And you know, Spain 661 00:36:42,040 --> 00:36:46,960 Speaker 1: has been quite successful in regaining growth and regaining competitiveness. 662 00:36:47,000 --> 00:36:49,640 Speaker 1: So I think there has been a convergence that has 663 00:36:49,680 --> 00:36:52,440 Speaker 1: been going on for quite a while. David Gara and 664 00:36:52,480 --> 00:36:54,480 Speaker 1: Tom Keene in New York, this is Bloomberg surveillance on 665 00:36:54,480 --> 00:36:57,280 Speaker 1: bloom Burgardier with Yakum Fell's globe like an armic advisor 666 00:36:58,000 --> 00:37:01,200 Speaker 1: at Pimcogne. You mentioned China a few moments ago. We 667 00:37:01,239 --> 00:37:03,520 Speaker 1: had that meaning a couple of weeks back, and I 668 00:37:03,600 --> 00:37:06,239 Speaker 1: wonder how cognizant the Chinese government is right now of 669 00:37:06,239 --> 00:37:09,400 Speaker 1: its economic situation. Are we see more transparency here, we 670 00:37:09,480 --> 00:37:12,400 Speaker 1: see more of a movement in that direction. Well, I 671 00:37:12,440 --> 00:37:14,360 Speaker 1: think At the moment, we're moving in the other direction 672 00:37:14,400 --> 00:37:17,319 Speaker 1: because the key focus of the Chinese authorities is really 673 00:37:17,360 --> 00:37:22,240 Speaker 1: to ensure stability, both financial stability but also economic stability 674 00:37:22,239 --> 00:37:25,080 Speaker 1: ahead of the Party Congress President. She wants to consolidate 675 00:37:25,120 --> 00:37:28,040 Speaker 1: his power, so the last thing he needs is either 676 00:37:28,080 --> 00:37:32,520 Speaker 1: disruptive markets or too sharp and economic slowdown. So what 677 00:37:32,560 --> 00:37:35,279 Speaker 1: we've seen is they've clamped down on the capital outflows 678 00:37:35,680 --> 00:37:38,319 Speaker 1: quite successfully, at least in the near term, and it 679 00:37:38,360 --> 00:37:41,720 Speaker 1: shows up in a stabilization of the currency. That also 680 00:37:41,760 --> 00:37:45,360 Speaker 1: helps to stabilize domestic financial markets because all the savings, 681 00:37:45,400 --> 00:37:48,960 Speaker 1: the excess savings are bottled up in China, Chinese investors 682 00:37:48,960 --> 00:37:52,160 Speaker 1: have no choice but to invest domestically, so this is 683 00:37:52,200 --> 00:37:55,759 Speaker 1: supporting Chinese assets. And I think what we'll see in 684 00:37:55,760 --> 00:37:59,879 Speaker 1: the economy is just a continuation of relatively decent grow 685 00:38:00,200 --> 00:38:03,000 Speaker 1: It's slowing over the medium term, but they have the 686 00:38:03,120 --> 00:38:07,120 Speaker 1: fiscal wherewithal to stabilize it at least until the end 687 00:38:07,200 --> 00:38:09,200 Speaker 1: of this year. We are more worried about the medium 688 00:38:09,200 --> 00:38:11,640 Speaker 1: and longer term outlook because there is a credible bubble 689 00:38:11,880 --> 00:38:14,920 Speaker 1: credit bubble in the making, and eventually it will be 690 00:38:15,040 --> 00:38:18,200 Speaker 1: very difficult to stop the capital outflows. But for now, 691 00:38:18,640 --> 00:38:23,040 Speaker 1: the buzzword is really stability within any given moment. There's 692 00:38:23,080 --> 00:38:25,480 Speaker 1: some back stories that are percolating, and one of them 693 00:38:25,560 --> 00:38:29,480 Speaker 1: right now, YAKAM is loan demand from banks. See and 694 00:38:29,520 --> 00:38:32,360 Speaker 1: I loans have rolled over. Some people are making a 695 00:38:32,440 --> 00:38:36,200 Speaker 1: big deal about it, and others frankly or dismissing it. Folks, 696 00:38:36,480 --> 00:38:40,120 Speaker 1: what's the spirit the dynamic that you see now in 697 00:38:40,239 --> 00:38:44,319 Speaker 1: banking loans? Yeah, it's quite interesting, Tom, Yes, we have 698 00:38:44,480 --> 00:38:47,919 Speaker 1: seen quite a significant slowdown and see ANI loans here 699 00:38:47,920 --> 00:38:50,680 Speaker 1: in the US. What's behind this, Well, if you look 700 00:38:50,680 --> 00:38:55,279 Speaker 1: at it in more detail, banks have lent less to 701 00:38:55,480 --> 00:38:59,440 Speaker 1: companies for M and A activity. So what has happened 702 00:38:59,520 --> 00:39:02,799 Speaker 1: is M and A activity has somewhat slowed down here 703 00:39:02,840 --> 00:39:06,760 Speaker 1: in the US. We think this probably also reflects uncertainty 704 00:39:07,280 --> 00:39:09,640 Speaker 1: about what exactly is going to happen in terms of 705 00:39:09,680 --> 00:39:13,680 Speaker 1: tax reform. Also, you could argue that for many companies 706 00:39:14,400 --> 00:39:17,319 Speaker 1: it just pays to wait and see what happens on 707 00:39:17,400 --> 00:39:20,960 Speaker 1: tax reform before they put in place business investment. So 708 00:39:21,200 --> 00:39:25,480 Speaker 1: we have this paradoxical situation where business confidence is up 709 00:39:25,719 --> 00:39:30,520 Speaker 1: in the expectation of reforms, but companies don't actually invest 710 00:39:30,560 --> 00:39:33,040 Speaker 1: a lot We have some cyclical rebound of investment in 711 00:39:33,080 --> 00:39:35,359 Speaker 1: the energy sector, but that's related to the oil price. 712 00:39:35,400 --> 00:39:38,880 Speaker 1: But otherwise we see caution and this is why we 713 00:39:38,920 --> 00:39:42,480 Speaker 1: continue to think that three percent or even four percent 714 00:39:42,560 --> 00:39:46,799 Speaker 1: growth anytime soon. It's just unachievable. Yeah, Fell thank you 715 00:39:46,840 --> 00:39:49,160 Speaker 1: so much with PIMCO. Always a great Now you look 716 00:39:49,200 --> 00:39:52,279 Speaker 1: forward to speaking here, particularly your next visit to New York. 717 00:40:00,120 --> 00:40:04,399 Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and 718 00:40:04,520 --> 00:40:09,560 Speaker 1: listen to interviews on iTunes, SoundCloud, or whichever podcast platform 719 00:40:09,719 --> 00:40:13,280 Speaker 1: you prefer. I'm out on Twitter at Tom Keene. David 720 00:40:13,280 --> 00:40:16,960 Speaker 1: Gura is at David Gura. Before the podcast, you can 721 00:40:17,080 --> 00:40:33,319 Speaker 1: always catch us worldwide. I'm Bloomberg Radio, brought you by 722 00:40:33,560 --> 00:40:37,280 Speaker 1: Bank of America Mary Lynch. Dedicated to bringing our clients 723 00:40:37,360 --> 00:40:41,560 Speaker 1: insights and solutions to meet the challenges of a transforming world. 724 00:40:42,000 --> 00:40:45,840 Speaker 1: That's the power of global connections. Mary Lynch, Pierce Federan 725 00:40:45,920 --> 00:40:49,279 Speaker 1: Smith Incorporated, Member s I p C.