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Speaker 1: Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene

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Speaker 1: Jay Lee. We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg Muhammadalarian

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Speaker 1: joins us he drops by the studio here in New

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Speaker 1: York City, Bloomberg Opinion colonists himself. Mohammed, just allow me

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Speaker 1: to read this for our listeners so they get the

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Speaker 1: benefit hearing the first paragraph. This from Bill Dudley, the

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Speaker 1: former New York Fed President in Bloomberg Opinion. US President

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Speaker 1: Donald Trump's trade war with China keeps undermining the confidence

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Speaker 1: of business and consumers, worsening the economic count. Look, this

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Speaker 1: manufactured disaster in the making presents the Federal Reserve with

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Speaker 1: the dilemma, should A mitigate the damage by providing offsetting

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Speaker 1: stimulus or refuse to play along? If the old my

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Speaker 1: goal is a healthy economy, the Fed should seriously consider

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Speaker 1: the latter approach. Wow, Mohammed, should it so? First, John

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Speaker 1: and Tom, thanks for having me on. This is part

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Speaker 1: of a change I call a break of the cognitive

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Speaker 1: entrenchment of central banks, which is, we are doing the

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Speaker 1: right thing and it's going to work. In that same piece,

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Speaker 1: Budley goes on to say that the central banks effort

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Speaker 1: to cushion the blow might be not merely ineffectual, they

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Speaker 1: might make things worse. So now we're talking about the

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Speaker 1: benefits going down, the cost and the risks going up.

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Speaker 1: And I think at Jackson Hall that view which the

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Speaker 1: FED cannot compensate for structural impediment to growth is quite

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Speaker 1: wide spread. What's new here is the political angle, and

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Speaker 1: as Tom said, it's a really notable and significant ex

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Speaker 1: I'm new. I'm excuse, I've been a way sound. I

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Speaker 1: forgot where the mic button was. The last A graph

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Speaker 1: on the electoral process of the nation stunning. I mean,

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Speaker 1: I think it's insane. There's even an argument this is

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Speaker 1: from Bill Dudley. There's even an argument that the election

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Speaker 1: itself falls within the Fed's purview. After all, Trump's reelection

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Speaker 1: arcubly presents a threat to the U S and a

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Speaker 1: global economy, to the fence independence and its ability to

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Speaker 1: achieve its employment and inflation objectives. If the goal of

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Speaker 1: monetary policy is to achieve the best long term economic outcome,

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Speaker 1: then FED officials should consider how their officials affect the

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Speaker 1: political outcome in Mohammed. Surely, respecting political independence needs to

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Speaker 1: work both ways here. The Federal Reserve can't make decisions

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Speaker 1: like that, can they? They cannot and they will not.

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Speaker 1: I think that that last paragraph will cause all sorts

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Speaker 1: of flashing yellow lights within the FED buildings. And I'm

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Speaker 1: talking both in the board in Washington and the regional

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Speaker 1: banks simply because you do not want the FED to

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Speaker 1: be even more politicized. And this will make the FED

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Speaker 1: even more politicized because it comes from a former president

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Speaker 1: of the York Fed, Ryan Gobin sex economics for years

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Speaker 1: of course out of Berkeley, And I would say, what's

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Speaker 1: so interesting here? This is an essay within the scope

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Speaker 1: of our history, Doctor Larrion. We'd accept from the firebrand

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Speaker 1: Wayne Angel from a long time ago. This is not

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Speaker 1: Wayne Angel. This is Bill Dudley. And it leads to

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Speaker 1: the game theory, which is your worldwide acclaim as you

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Speaker 1: dashed the cambridge next year. The game theory here, are

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Speaker 1: we setting the FED up for an abrupt binomial T decision?

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Speaker 1: Or is it going to be more complex than that?

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Speaker 1: So I think it is increasingly towards a t decision.

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Speaker 1: And remember what I suggested to you over the last

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Speaker 1: few years, and it's in my book, is that whether

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Speaker 1: is Economy always selling his book this earlier No. No. Seven,

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Speaker 1: it's seven or five am and hillarians selling his book. Deal,

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Speaker 1: that's part of the day, give us some of his time.

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Speaker 1: He gets to plug his book. But whether this institutional

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Speaker 1: which what we're talking about, economic, financial, political, or social,

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Speaker 1: we are heading towards more and more binary outcomes. That

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Speaker 1: is the reality. Look at what happened overnight in terms

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Speaker 1: of data out of Germany, look at what's happened to

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Speaker 1: the China's exchange rate. It's all telling you that increasingly

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Speaker 1: it is binary. Extend this to the Central Bank that

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Speaker 1: Madame Legard will run. Are they going to be essays

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Speaker 1: like Bill Dudley's for the Bank on the ECB and

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Speaker 1: Mohammedan weigh in on this this is the kind of

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Speaker 1: politics that got Europe into trouble. Well, I'm not going

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Speaker 1: to go I'm not going to say that. I can

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Speaker 1: say it happily. You can file this essay firmly under

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Speaker 1: things you can say once you've left the f O

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Speaker 1: m C. Unfortunately, these are things the e c B

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Speaker 1: did when these officials ran the European Central Bank. They

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Speaker 1: believed over in Germany at the Bundesbank, if you offset

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Speaker 1: some of the policies, the bad policies in Southern Europe,

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Speaker 1: you encouraged them, and all they caused was a much

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Speaker 1: bigger crisis, a crisis, a second crisis in Europe that

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Speaker 1: we're still recovering from right now. And Mahabit, I think

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Speaker 1: the experience of Europe underlines just how dang dress these

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Speaker 1: kinds of ideas are. If you start messing with politics

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Speaker 1: at a central bank, you can cause much bigger problems

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Speaker 1: than the problem run in front of your face. Yeah,

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Speaker 1: if you're on the other side, if you're a politician,

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Speaker 1: and so let me get this right. Is a central

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Speaker 1: bank going to take political consideration making its decision? If

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Speaker 1: the arswer is yes, then you will not give them

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Speaker 1: political autonomy. And they need political autonomy for operational reasons.

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Speaker 1: So I agree with you, this is a dangerous road.

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Speaker 1: Let's talk about the efficacy of policy. I think that's

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Speaker 1: some people listening to this program, Mohammed saying the FED

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Speaker 1: wishes it could have the decision to offset the trade

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Speaker 1: storm or not can they even offset it even if

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Speaker 1: they want to. And I think that's the bigger issue

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Speaker 1: that comes from Jackson Holden. You touched on it. We're

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Speaker 1: now questioning the efficacy of monetary policy. How important is

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Speaker 1: that shift, Mohammed? It's really important because it's come from

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Speaker 1: central bankers themselves. There's been many of US economists saying

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Speaker 1: increasingly central banks are pushing on a string when it

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Speaker 1: comes to economic outcomes, not when it comes to market outcomes,

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Speaker 1: but when it comes to economic outcomes. And now there's

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Speaker 1: a where ignition within the central bank community that that's

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Speaker 1: the case. Having said that, understand the central banks are

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Speaker 1: held hostage by markets, they will deliver. The FED will

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Speaker 1: deliver an interest rate cut in September. The e c

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Speaker 1: B will deliver an interest rate cut and quee not

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Speaker 1: because it's going to have an impact on the economy.

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Speaker 1: It won't, But the alternative is worse. I mean, the

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Speaker 1: Bank of a Louing go back the badge at eighteen

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Speaker 1: eighty and all that In the US nineteen o seven

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Speaker 1: didn't work out so well. We staggered through the war.

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Speaker 1: Nineteen fifty one, mcchesley Martin declared independence with a lot

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Speaker 1: of courage, and then we have the challenges of Vietnam

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Speaker 1: and expanse of dead and now we're at this point.

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Speaker 1: Do you equate the Dudley scream, which is what it

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Speaker 1: really is. Do you equate that with these other historical

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Speaker 1: moments or is it just another essay in the two

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Speaker 1: thousand nineteen continuum. So I think it's another essay so far, Tom,

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Speaker 1: in a continuum of a more polarized world that we

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Speaker 1: live again, and that's spreading and touching many. What will

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Speaker 1: be the response of this, Mohammed, be interesting to see

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Speaker 1: how the White House response. This may add fuel to

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Speaker 1: fired us already been burning. So keep an eye on this.

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Speaker 1: This will cause potentially Chairman Pal even more problems. Mohammed.

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Speaker 1: You've talked about some of the negative headlines around the

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Speaker 1: world at the moment, risking becoming a self fulfilling prophecy,

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Speaker 1: especially here in the United States. Just walk me through

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Speaker 1: the argument there they're thinking currently. So we've got three

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Speaker 1: very important developments. One is trade and over the last

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Speaker 1: few days we've had a cease fire, but it's nothing

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Speaker 1: more than temporary cease fire. The underlying dynamics call for

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Speaker 1: escalation to further evidence today out of Germany that Europe

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Speaker 1: is slowing and slowing very rapidly, and so is Asia.

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Speaker 1: And then the third element that we're getting out of

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Speaker 1: all this is a sense that the inversion of the

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Speaker 1: R curve, while not warranted by US economic developments, may

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Speaker 1: nevertheless sentiment to be more careful. So does a risk

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Speaker 1: of a self fulfilling process. Katherine Man will join us

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Speaker 1: later of City Group Iconic at the O E C.

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Speaker 1: D and brandis before she and that major not to

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Speaker 1: Stephen Roach Morgan Stanley owns this concept of the dysfunction

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Speaker 1: of our international economics. Are we dealing with the domestic

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Speaker 1: FED that has dysfunction? With the White House? I mean,

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Speaker 1: is it so fragile that that Powell has to step

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Speaker 1: every step of the way carefully or can he be

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Speaker 1: more assertive? So I think it's hard for him to

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Speaker 1: be more assertive. But Tom, it's not just the White House,

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Speaker 1: it's with markets too. Markets have been pressing the FED

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Speaker 1: harder and harder, and the FED finds itself in a corner.

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Speaker 1: It's in a lose loser. Is it? Is it a

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Speaker 1: market pressing because of a new lower terminal value, whether

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Speaker 1: on a Fisherian basis. Is it a new lower terminal

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Speaker 1: value of interest rates, of inflation of economic growth? Is

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Speaker 1: that really rationalizing here? So there's no doubt that this

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Speaker 1: is playing a role, but it's it's more basic than this.

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Speaker 1: I think the markets feel empowered and entitled to request

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Speaker 1: ample and predictable liquidity in order to repress volatility. That

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Speaker 1: is the mind the mindset of the market, and the

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Speaker 1: market now rant it over and over. And this is

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Speaker 1: where fogarts Land of Deutsche Bank gets so upset, John,

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Speaker 1: because the outcome of this is a negative interest rate,

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Speaker 1: which Orion still hasn't explained to me. Some have it. Ultimately,

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Speaker 1: the problem is that the Fed policy debate has been

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Speaker 1: hijacked by the counter factual. If they act, it's not

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Speaker 1: going to do much to these financial conditions. It's not

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Speaker 1: going to do much to support the economy. But they

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Speaker 1: have to present us with the counter factual. If we

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Speaker 1: don't act, financial conditions could tighten. We can exacerbate problems,

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Speaker 1: and therefore wherever the market goes they have to follow.

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Speaker 1: Is that where we're at now with the Federal reserve,

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Speaker 1: market pricing dictates the next move. You just put it perfectly, yes,

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Speaker 1: and not only that the more the Fed gives the market,

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Speaker 1: the more the market will will will require not just request,

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Speaker 1: but require from the Fed. So if you're in the

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Speaker 1: bond market, do you just assume yield to going much

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Speaker 1: lower from here? Is that the basic assumption for global

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Speaker 1: fixed income investors at the moment? It is, and you

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Speaker 1: see it playing out day in and day out right

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Speaker 1: with this Mohammed Larry in really a special moment for

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Speaker 1: Bloomberg surveillance, William Dudley writing a scathing essay for Bloomberg

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Speaker 1: Opinion critical of the President, and in Somebody's critical to

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Speaker 1: fat it. It will be the most talked about item

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Speaker 1: within global economics today. And we're honored that Mohammed Elaryan

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Speaker 1: joins us on his path next year to Cambridge and

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Speaker 1: Queen's uh College. Dr Larry, And if if we look

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Speaker 1: at this moment that we're in, we are at a

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Speaker 1: point where all of our listeners, the ones most unsophisticated,

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Speaker 1: our savers getting crushed. You and Bill Gross invented this

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Speaker 1: dialogue of it will go on for a long time.

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Speaker 1: Do you see an end of this? Do you see

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Speaker 1: an end of the folly of negative interest rates and

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Speaker 1: negative real rates? So we have to understand that persistent

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Speaker 1: negative rates break a capitalist system. The system is not

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Speaker 1: wired to operate at negative rates. Agreed. So in the

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Speaker 1: beginning it doesn't look bad, but with time you're creating

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Speaker 1: massive structural damage. Um. That damage is resource misallocation, it

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Speaker 1: is disincentives for good behavior, it is incentives for bad behavior,

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Speaker 1: and it is taking away in in financial protection products.

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Speaker 1: So understand that the world we're on will end in tears.

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Speaker 1: Now how long does it take? I don't know. Um.

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Speaker 1: We have shown that we can be playing extra innings,

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Speaker 1: which we have been doing for a while now. But

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Speaker 1: I get a sense that we're getting to the neck

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Speaker 1: of this t junction where there's either going to be

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Speaker 1: a good policy response I get us out of all this,

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Speaker 1: or we're going to look at financial instability and recession

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Speaker 1: globally Mohammed. Before we let you go, and I know

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Speaker 1: you've got to run. We don't want to get some

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Speaker 1: capital out of case and decisions. If you had a

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Speaker 1: conviction call right now in financial markets Mohammed. Just as

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Speaker 1: a final question, what would that conviction call be? So

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Speaker 1: it's an easier one for the professional investors, much harder

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Speaker 1: for the retail investor for the professional investors about looking

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Speaker 1: for these locations. Look at Argentina today in the emerging

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Speaker 1: the emerging world too completing markets that have broken down,

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Speaker 1: mainly in private credit, and three being more tactical. The

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Speaker 1: retail investor is really hard. And what I tell my

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Speaker 1: retail investor friends is expect volatility. If you cannot stomach

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Speaker 1: that volatility because it's going to make you do the

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Speaker 1: wrong thing at the wrong time, this is a good

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Speaker 1: time to lower your risk exposure. Mohammed is great to

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Speaker 1: catch out with you. What a privilege, what a pleasure,

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Speaker 1: What a way to start in the morning this Tuesday morning.

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Speaker 1: Mohammed al Arian their Bloomberg Opinion columnist and alliance is

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Speaker 1: chief economic advisor. Place to say that joining Tom and

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Speaker 1: I am the studio. Maddie Dressner, JP Morgan Asset Management

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Speaker 1: Managing Director, Maddy, great to have you with us on

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Speaker 1: the program. Great, thank you. Let's just begin with that

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Speaker 1: trade story show where your take is that the current

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Speaker 1: tariffs are set to impact consumers. We haven't seen that

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Speaker 1: in a big way yet. We've seen a hit Manua

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Speaker 1: facturing worldwide in China and Europe and the United States,

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Speaker 1: not the US consumer. Yet why is that about to change? Well,

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Speaker 1: if you look at the actual data in terms of

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Speaker 1: what's what's about to get impact and impact the consumer,

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Speaker 1: it's actually end goods and consumer goods that that will

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Speaker 1: have the tariffs implemented. So the consumer has been resilient here.

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Speaker 1: We've liked the fact that we see tight labor markets

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Speaker 1: and and continuing wage growth. Um. But you will see

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Speaker 1: tariffs on the end consumer. So to the extent that

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Speaker 1: they reduced spending, I think that's still a question for us.

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Speaker 1: We do believe that the U S consumer contain remains resilient.

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Speaker 1: But in the phase of increased expenses your base case

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Speaker 1: for the economy and for FED policy, then the old

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Speaker 1: of that in mind, what is it Maddie. So we

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Speaker 1: are still constructive about the economy again hinging on the

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Speaker 1: consumer and the strength of spending. UM. You know, the

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Speaker 1: Fed we do believe is going to go again in September.

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Speaker 1: That that's certainly uh within the Fed funds futures pricing,

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Speaker 1: and given the comments last week from Powell, we do

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Speaker 1: expect to see that happen. The key question for us

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Speaker 1: is what does a basis point cut and the FED

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Speaker 1: funds rate do for a company that is worried about

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Speaker 1: their supply chain. One of the great things Mattie about

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Speaker 1: you is not only do you do ask allocation in

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Speaker 1: your economics from Buffalo and all that, but you actually

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Speaker 1: helped run money. How strange is that to actually have

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Speaker 1: experience winning and losing in the markets. Right now? Do

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Speaker 1: I want to be with the market or like your

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Speaker 1: real routine fund, do I want to lower our squared

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Speaker 1: and be away from the market index? Which strategy forward

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Speaker 1: at the margin makes the most sense given all the

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Speaker 1: craziness we've got? Yeah, so can I answer that with both? At?

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Speaker 1: What are your econois portfolio manager would say, you know

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Speaker 1: this is the path? Well there, you know you wear

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Speaker 1: multi asset class. There's a lot a lot of different

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Speaker 1: ways to experience upside and experience exposure to some intelligent

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Speaker 1: So I think, you know, having exposure to US equities,

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Speaker 1: but also having exposure to credit. Credit specifically that is

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Speaker 1: that is leverage to the US consumer. So securitize credit

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Speaker 1: that has the backing of the US consumer. I think

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Speaker 1: that is a very nice way to get exposure to

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Speaker 1: what we think is really working in the US economy

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Speaker 1: while side stepping some of the landline. Talk about that

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Speaker 1: with a pout right here. It's a very good guest, Maddie.

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Speaker 1: This sounds a little bit PIMCO esque. I hate this

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Speaker 1: argument from Pimco. Is Well, the problem that we've had

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Speaker 1: so far through nineteen though, is that the performance has

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Speaker 1: come from corporate credit risk. That is where your performance

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Speaker 1: has come. Why is that about to change? Well, again,

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Speaker 1: I think right now, if you look at if you

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Speaker 1: look at corporate credit and you look at corporations within

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Speaker 1: the economy, Uh, they're certainly more leverage than we've seen

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Speaker 1: in the past, but interest coverage ratios look look okay,

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Speaker 1: so we're not running screaming from corporate credit. But we

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Speaker 1: like the U. S consumer here. You know, tight labor markets,

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Speaker 1: wage growth continuing to to to be strong. Uh, there

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Speaker 1: is money in their pockets despite the fact that they

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Speaker 1: are also saving as well. So so we like the U.

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Speaker 1: S consumer and anything that has leveraged to that, um

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Speaker 1: we think is a is a safer way to go.

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Speaker 1: We also like high yield here more so than we

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Speaker 1: like investment grade credit because those companies actually have have

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Speaker 1: been a little bit more reasonable about their borrowing and

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Speaker 1: not overlevering. Well, let's talk about that because you will

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Speaker 1: know that your colleague. But Michael, the CEO of JP

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Speaker 1: Morgan Asset Management, made a lot of headlines about a

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Speaker 1: month or so ago when he talked about selling down

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Speaker 1: high yield credit. Talked to me about why you think

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Speaker 1: high yield? Is it by even here? Think about the

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Speaker 1: perspective that come so your view. My view is of

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Speaker 1: a multi asset class investor. So I have the universe

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Speaker 1: of investments at my fingertips. I could put a dollar

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Speaker 1: into stocks, I could put a dollar into bonds, I

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Speaker 1: could put a dollar into credit. For US, credit has

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Speaker 1: exposure to the US economy and the upside of that

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Speaker 1: with a narrower range of outcomes than US. Okay, well,

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Speaker 1: let's go all Peter Lynch. He mentions pim Cole let's

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Speaker 1: wander up to Boston in fidelity. Is there a risk

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Speaker 1: here within fund of funds and asset allocation of being

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Speaker 1: over diversified of too many choices? I think, and just

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Speaker 1: buy Amazon and be happy. There's a lot of risk

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Speaker 1: in having those concentrated exposures, I think, thinking not to joke,

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Speaker 1: it's Tuesday joke day. Is there a risk of being

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Speaker 1: too diversified? In this tumult, I think there is a

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Speaker 1: risk of being too diversified, which is why when we

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Speaker 1: think about adding allocations to our portfolio, we don't think

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Speaker 1: about market value. We think about the degree to which

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Speaker 1: it adds risk to the portfolio. And we're versifying the

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Speaker 1: source as a risk in portfolios to make sure that

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Speaker 1: it's consistent with our on the right set. What's the

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Speaker 1: systemic risk out there that any of our listeners have

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Speaker 1: to face right now? Certainly the volatility around trade causing

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Speaker 1: the global slowdown and a reduction in the FED funds

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Speaker 1: is not going to do anything to help us there.

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Speaker 1: So to the extent that we see a retrenchment in

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Speaker 1: the US consumer, I think that's the biggest risk. That's

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Speaker 1: the breakdown here that could happen that I think worries everyone.

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Speaker 1: At the moment, the FED is seen as an institution

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Speaker 1: that needs to act just to support financial conditions. But

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Speaker 1: at some point, Maddie, do we get to the point

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Speaker 1: where we start to think the Fed can no longer

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Speaker 1: support financial conditions, regardless of how quickly they drop interest rates?

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Speaker 1: Is that the risk here? Is that something you're really

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Speaker 1: thinking about? That's that's part of the risk I think

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Speaker 1: the question is how far does policy go because monetary

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Speaker 1: policy isn't the only policy tool. We have fiscal policy

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Speaker 1: excuse me, that we can use here to to make

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Speaker 1: sure that we are putting a floor on the economy,

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Speaker 1: not just here but in Europe and other places in Asia.

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Speaker 1: So there is a policy support that we could potentially

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Speaker 1: see beyond monetary We've heard in some conversations, uh the

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Speaker 1: the idea of parsing between goods producing America, manufacturing America,

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Speaker 1: and going pure service sector America. Has JP Morgan made

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Speaker 1: that distinction or are you doing traditional securities analysis. We

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Speaker 1: think it's important to diversify across different segments of the

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Speaker 1: market as opposed to making concentrated sector bets. More defensive

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Speaker 1: sectors are going to are going to find a floor here,

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Speaker 1: particularly as the ten year trades at one fifty, So

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Speaker 1: you're going to see some of those income oriented sectors

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Speaker 1: do well, not necessarily because manufacturing is on the rise,

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Speaker 1: but because those are the sectors that pay you a yield.

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Speaker 1: We think it's better actually to get some of the

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Speaker 1: upside in markets using options, for example, call options, call

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Speaker 1: options to buy call options. WHOA, let's slow down here,

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Speaker 1: this is this is really important to tradition folks. As

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Speaker 1: you have a portfolio, your right options, you bring in

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Speaker 1: the premium or income from those options, and if it

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Speaker 1: you're taken away from me. If the stock goes up, great,

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Speaker 1: you're not doing the traditional options approach now. So that's

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Speaker 1: that's more of an income oriented field oriented's suspect to

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Speaker 1: say the least continue option. It's buying the call option,

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Speaker 1: which means as the market rallies, your call option that

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Speaker 1: you own grows in value, and the beta exposure that

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Speaker 1: you have embedded in that also will grow. But if

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Speaker 1: the market draws down and you go through your strike prices,

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Speaker 1: you shed equity market risks. Are you buying very quickly,

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Speaker 1: well said, are you buying the option against the portfolio

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Speaker 1: or you buying it against cash or near cash equivalence.

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Speaker 1: So we're buying it on indicase, so we're essentially using

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Speaker 1: it to gain some broad market beta. So we'll buy

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Speaker 1: it on US equities, on European equities, on Emergen. People

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Speaker 1: rove off the road in this conversation and they hit

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Speaker 1: the brakes and they stopped a little bit more carefully.

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Speaker 1: We need to get Maddie back. This has been fabulous.

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Speaker 1: We did to group letters that we did up Salon

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Speaker 1: and Beta us. She'll be back on Delta, will do

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Speaker 1: that here in management Management Director. This is a joy

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Speaker 1: over not the certitude but the clarity of his analysis

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Speaker 1: of the economy. Anthony Dwyer is not one to sit

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Speaker 1: in cash. He has enjoyed the lemon low bull market,

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Speaker 1: and he's enjoyed it because he has steadfastly said if

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Speaker 1: there's a recession out there, I guess I'm worried, but

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Speaker 1: I'm not worried because I don't see our recession. Mr

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Speaker 1: Dwyer joins us from can Accord Jenuity. Only things have changed?

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Speaker 1: Have you changed? What things have changed? Credits still flowing

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Speaker 1: pretty good, and the demand is there, you know. For example,

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Speaker 1: I'll give you an idea the moody b double A

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Speaker 1: bond index, which is the lowest measure of investment grade.

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Speaker 1: So there's a lot of debt there and it's kind

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Speaker 1: of the stuff you worried might get downgraded and go

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Speaker 1: negative and create a recession. That made a new load

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Speaker 1: for the cycle and yield yesterday. And for that the listeners.

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Speaker 1: That means that in the last three recessions or every

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Speaker 1: recession what happens is investors get really scared that companies

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Speaker 1: aren't doing well. Not only do they sell their stocks,

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Speaker 1: but they first start selling their bonds because they worry

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Speaker 1: that a company cash flow can't support the amount of

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Speaker 1: death that's out there. You think your own balance sheet

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Speaker 1: for the listener, right, So when that yield is hitting

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Speaker 1: a new law, not only is that showing no fear,

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Speaker 1: they're buying as much as they can. So the things

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Speaker 1: that really create a recession that there's no way, tom

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Speaker 1: and we've done this long enough. You cannot fix debt

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Speaker 1: with exponentially more debt. At some point you're gonna have

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Speaker 1: to pay it off or not be able to afford it.

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Speaker 1: Neither those conditions exist, which is typically what happens in

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Speaker 1: front of a recession. So, Tony, is that what you

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Speaker 1: see is your base case in a short term? Is

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Speaker 1: that what you're starting tactically to position for. Well, technically,

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Speaker 1: we had been looking, we had been looking for a

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Speaker 1: five percent pullback. We got it, and wall streets filled

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Speaker 1: with people like me to come on the radio and

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Speaker 1: TV and say, oh, we expect to pull back, and

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Speaker 1: then all of a sudden you get one, and you

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Speaker 1: run away like your hair is on fire, and you

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Speaker 1: and I John, for the listeners that have ever seen us,

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Speaker 1: can't do that. That's very true. It's very true. Well,

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Speaker 1: what little is left, I gotta still have the blue button, Tony.

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Speaker 1: My vacation was so long, I still don't know where

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Speaker 1: the blue button is in the radio here. So you know,

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Speaker 1: ultimately that pull back we got it, and again because

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Speaker 1: the credit markets are open, I'm still bullish even with

430
00:23:57,080 --> 00:24:01,120
Speaker 1: the two tents spread having inverted here. So this is important, Tony.

431
00:24:01,280 --> 00:24:04,120
Speaker 1: You've said we're in tactical Noman's land. Over the last

432
00:24:04,119 --> 00:24:06,160
Speaker 1: couple of weeks, you've been looking for that five percent

433
00:24:06,240 --> 00:24:09,479
Speaker 1: pull back. We started to get that pull back. Tony,

434
00:24:09,520 --> 00:24:12,040
Speaker 1: Why you're still Bullishit just what underpins that view? Just

435
00:24:12,080 --> 00:24:13,760
Speaker 1: sort of walk us through that with a little bit

436
00:24:13,760 --> 00:24:18,080
Speaker 1: more detail. Well, there's no question that the trade wore

437
00:24:18,280 --> 00:24:21,439
Speaker 1: has head capital spending. So companies aren't been capital spending

438
00:24:21,480 --> 00:24:23,560
Speaker 1: plans because they don't They honestly don't know where to

439
00:24:23,560 --> 00:24:26,639
Speaker 1: do their production. Um. What has kept me bullish is

440
00:24:26,680 --> 00:24:28,960
Speaker 1: to drop an interest rate. How many of the listeners

441
00:24:28,960 --> 00:24:30,480
Speaker 1: I wish I could take a poll where I could

442
00:24:30,520 --> 00:24:33,359
Speaker 1: see them all and have their hands right you know

443
00:24:33,480 --> 00:24:38,040
Speaker 1: raised howny, Tony refinanced their debt because the yields have

444
00:24:38,200 --> 00:24:41,840
Speaker 1: dropped so dramatically. So the market has already done the

445
00:24:41,880 --> 00:24:45,800
Speaker 1: Feds work for them because it's allowed people to take

446
00:24:45,840 --> 00:24:48,520
Speaker 1: out cheaper debt. Tony, you flatter us. We've only got

447
00:24:48,600 --> 00:24:50,760
Speaker 1: twelve listeners, so you know you don't have to you know,

448
00:24:50,800 --> 00:24:56,600
Speaker 1: I don't have to see them all. Yeahs, listeners, Tony.

449
00:24:56,680 --> 00:24:59,320
Speaker 1: Let's get back to square one, which is sector analysis,

450
00:24:59,400 --> 00:25:04,400
Speaker 1: the abilit to hold shares and to acquire new shares.

451
00:25:04,920 --> 00:25:10,760
Speaker 1: Explain that dynamic this strange Tuesday of August. Well, there's

452
00:25:10,880 --> 00:25:14,000
Speaker 1: multiple ways. So the individual investors that you know are

453
00:25:14,040 --> 00:25:17,960
Speaker 1: likely listening. They get their four one k investment every

454
00:25:17,960 --> 00:25:20,560
Speaker 1: month and they put their money and typically that goes

455
00:25:20,600 --> 00:25:24,520
Speaker 1: into index funds. Now because there's been such a shift

456
00:25:24,560 --> 00:25:28,000
Speaker 1: to what's called passive investing, which is index fund investing,

457
00:25:28,320 --> 00:25:30,879
Speaker 1: So every month you have an increasing amount of money

458
00:25:30,920 --> 00:25:33,880
Speaker 1: going into the market, and that's that's really provided support

459
00:25:33,920 --> 00:25:37,520
Speaker 1: there the more active fund managers like your four one

460
00:25:37,600 --> 00:25:42,000
Speaker 1: k um. You know that pick stocks are having a

461
00:25:42,000 --> 00:25:45,760
Speaker 1: little bit of a harder time because that money going

462
00:25:45,800 --> 00:25:48,640
Speaker 1: into the pass that keeps going into the same stocks

463
00:25:49,080 --> 00:25:51,640
Speaker 1: and that's not changing. So I think I think time

464
00:25:51,680 --> 00:25:56,760
Speaker 1: sector analysis hasn't been is important because it's so consistent. Um,

465
00:25:56,880 --> 00:26:00,640
Speaker 1: it's the defensive trade with bondyles going down in software

466
00:26:00,680 --> 00:26:03,520
Speaker 1: companies where you have predictable growth that I think, by

467
00:26:03,520 --> 00:26:05,199
Speaker 1: the way, it's going to shift here. I think we're

468
00:26:05,240 --> 00:26:07,880
Speaker 1: gonna be going back to John's question. I think from

469
00:26:07,880 --> 00:26:11,639
Speaker 1: a sector framework for a temporary period, I think we're

470
00:26:11,640 --> 00:26:14,560
Speaker 1: gonna go back to offense, where you know this drop

471
00:26:14,560 --> 00:26:18,399
Speaker 1: in bond yields kickstarts economic activity. Well, let's ask that question, Sonny.

472
00:26:18,640 --> 00:26:20,720
Speaker 1: If we start to pivot away from self where you

473
00:26:20,760 --> 00:26:23,480
Speaker 1: started to think about, going towards hardware, never mind the

474
00:26:23,520 --> 00:26:25,840
Speaker 1: sector break down within the sect, does That's what I

475
00:26:25,840 --> 00:26:28,760
Speaker 1: think is interesting within tech right now, Tony, As you say,

476
00:26:28,880 --> 00:26:31,480
Speaker 1: people have looked this software almost as a haven from

477
00:26:31,480 --> 00:26:34,080
Speaker 1: what's happening internationally. Do we start to see the pivot

478
00:26:34,080 --> 00:26:36,439
Speaker 1: from self ware to halfway to the chip makers and

479
00:26:36,520 --> 00:26:39,080
Speaker 1: those kind of stories. Again, I don't think it's going

480
00:26:39,119 --> 00:26:41,760
Speaker 1: to be a long term move, John, but yeah I do. So.

481
00:26:41,880 --> 00:26:45,359
Speaker 1: You know, the bond market has done exactly what it

482
00:26:45,400 --> 00:26:48,639
Speaker 1: did in the other two kind of non recession environments

483
00:26:48,640 --> 00:26:51,600
Speaker 1: that we've had the slowdown to almost recession periods. Remember

484
00:26:51,600 --> 00:26:54,480
Speaker 1: the European deck crisis in two thousand eleven, the market

485
00:26:54,480 --> 00:26:58,800
Speaker 1: went down about bond yields didn't finally bottom until July

486
00:26:58,880 --> 00:27:02,119
Speaker 1: of the next year. Right, that's when the offensive trade

487
00:27:02,160 --> 00:27:05,280
Speaker 1: started when bon yields bottomed. Our views that the FED

488
00:27:05,359 --> 00:27:07,960
Speaker 1: is going to become aggressive here they have to become

489
00:27:07,960 --> 00:27:10,600
Speaker 1: aggressive or or honestly, it's really bad if they don't

490
00:27:10,640 --> 00:27:13,920
Speaker 1: get ahead of the market expectations and lower inflation expectations

491
00:27:13,960 --> 00:27:17,399
Speaker 1: by signaling a much more combinative stance. Even if they

492
00:27:17,400 --> 00:27:20,600
Speaker 1: only cut twenty five basis points, we got a bigger problem.

493
00:27:20,600 --> 00:27:22,880
Speaker 1: But I think at this meeting, the September meeting, they're

494
00:27:22,880 --> 00:27:25,680
Speaker 1: going to do just that, which kick starts that same

495
00:27:25,760 --> 00:27:29,159
Speaker 1: offensive trade that happened after the European deck crisis and

496
00:27:29,280 --> 00:27:32,720
Speaker 1: happened after the commodity crisis of two thousand fifteen sixteen.

497
00:27:32,840 --> 00:27:35,560
Speaker 1: So you know, the easiest thought is, Okay, let's just

498
00:27:35,560 --> 00:27:40,040
Speaker 1: put money into the software and and more defensive growth

499
00:27:40,119 --> 00:27:43,000
Speaker 1: kind of names and the bond surrogates. That might not

500
00:27:43,080 --> 00:27:45,760
Speaker 1: be the right the right plan. Right here, Sonny, I

501
00:27:45,760 --> 00:27:47,159
Speaker 1: want to ask you a question and put forward an

502
00:27:47,240 --> 00:27:49,960
Speaker 1: argument of a friend of this programs and a pair

503
00:27:50,040 --> 00:27:53,040
Speaker 1: of yours, And it's Jonathan Golober Credit Sweets who wrote

504
00:27:53,080 --> 00:27:56,199
Speaker 1: the following just yesterday. The conventional wisdom holds that you

505
00:27:56,240 --> 00:27:58,719
Speaker 1: invest in bonds for yield and equity for capital appreciation.

506
00:27:58,800 --> 00:28:01,840
Speaker 1: While this might be true historically with ten your treasury yield,

507
00:28:01,840 --> 00:28:04,360
Speaker 1: it's collapsing to one point five from three point two

508
00:28:04,359 --> 00:28:06,960
Speaker 1: over the past nine months. Stokes, now, all for the

509
00:28:06,960 --> 00:28:09,520
Speaker 1: best of both, Tony, what do you think about that? Stokes, now,

510
00:28:09,560 --> 00:28:11,639
Speaker 1: all for the best of income and the best of

511
00:28:11,720 --> 00:28:16,200
Speaker 1: capital appreciation from here on out. I think it's for

512
00:28:16,320 --> 00:28:18,480
Speaker 1: here on out until the time being, right, until you

513
00:28:18,840 --> 00:28:21,080
Speaker 1: have signs of the credits. So yeah, I have to

514
00:28:21,200 --> 00:28:23,879
Speaker 1: agree with that. I'm not I I will call until

515
00:28:23,920 --> 00:28:26,640
Speaker 1: you shut down the availability of money for the listeners

516
00:28:26,720 --> 00:28:29,919
Speaker 1: and for businesses. I will always be bullish. It's not

517
00:28:30,000 --> 00:28:33,600
Speaker 1: whether you buy it where you're more aggressive and that money.

518
00:28:33,600 --> 00:28:35,480
Speaker 1: I think what Jonathan is talking about is you've had

519
00:28:35,480 --> 00:28:39,840
Speaker 1: that drop in yield that's so significant that households and

520
00:28:40,000 --> 00:28:43,480
Speaker 1: businesses are refinancing their debt and taking out new debt

521
00:28:43,520 --> 00:28:47,160
Speaker 1: at much lower interest levels. Again, this is really bad.

522
00:28:47,200 --> 00:28:50,520
Speaker 1: Down the road you cannot that with exponentially more talking

523
00:28:50,760 --> 00:28:53,360
Speaker 1: just because of time. Then are you suggesting we climb

524
00:28:53,400 --> 00:28:57,200
Speaker 1: on growth, We climb on board revenue growth in twenty

525
00:28:57,520 --> 00:29:05,160
Speaker 1: five multiple consumers because they have persistency. No, I think

526
00:29:05,240 --> 00:29:08,080
Speaker 1: what you have to do time is not necessarily look

527
00:29:08,160 --> 00:29:11,920
Speaker 1: at the valuation of each individual name. I again, you

528
00:29:11,920 --> 00:29:13,840
Speaker 1: know I don't go down to the individual name, but

529
00:29:14,000 --> 00:29:19,560
Speaker 1: I didn't imagine those areas that that where the households

530
00:29:19,560 --> 00:29:23,080
Speaker 1: are like building products, those that go into housing and

531
00:29:23,120 --> 00:29:26,479
Speaker 1: making housing and re redoing your house. Those kind of

532
00:29:26,520 --> 00:29:29,360
Speaker 1: stocks where the yields haven't gone down or what's going

533
00:29:29,400 --> 00:29:31,600
Speaker 1: to collect the revenue, that's where the growth is going

534
00:29:31,640 --> 00:29:34,120
Speaker 1: to be. Right to catch up with the attorney to

535
00:29:34,360 --> 00:29:38,480
Speaker 1: that kind of court genity, chief market strategy, fantastic views.

536
00:29:52,960 --> 00:29:54,920
Speaker 1: We are want to rip up the script. We've done

537
00:29:54,920 --> 00:29:57,880
Speaker 1: that for years with Catherine man to Brandis of O E.

538
00:29:58,000 --> 00:30:02,400
Speaker 1: C D and of course now of economics at City Group.

539
00:30:02,520 --> 00:30:05,560
Speaker 1: Katherine man Is, without question one of our leading international

540
00:30:05,600 --> 00:30:10,040
Speaker 1: economic economists. Was well, question could be considered for any

541
00:30:10,080 --> 00:30:13,920
Speaker 1: federal reserve position to serve her nation, and she joins

542
00:30:14,000 --> 00:30:16,000
Speaker 1: us now and all of this is a backdrop to

543
00:30:16,040 --> 00:30:18,960
Speaker 1: the essay by the former New York Fed President William

544
00:30:19,040 --> 00:30:24,760
Speaker 1: Dudley on the distance between the Fed and our president

545
00:30:24,880 --> 00:30:28,440
Speaker 1: in his trade war. Katherine Man, what was your first reaction,

546
00:30:28,520 --> 00:30:31,320
Speaker 1: knowing Bill Dudley as well as you do, of this

547
00:30:31,600 --> 00:30:36,880
Speaker 1: esteemed PhD from Berkeley writing an essay of that intensity

548
00:30:36,880 --> 00:30:41,360
Speaker 1: paragraph to paragraph. So I think what were we have

549
00:30:41,440 --> 00:30:44,000
Speaker 1: to recognize is that people who serve at the February Reserve,

550
00:30:44,040 --> 00:30:46,000
Speaker 1: and thank you very much for that recommendation. I would

551
00:30:46,000 --> 00:30:48,280
Speaker 1: love to serve at the February Reserve. That's where I

552
00:30:48,280 --> 00:30:50,920
Speaker 1: started my career, and I'd like to go back there.

553
00:30:51,160 --> 00:30:54,000
Speaker 1: But I think what we're seeing here is the intensity

554
00:30:54,080 --> 00:30:59,000
Speaker 1: of belief in the role of that institution as a

555
00:30:59,000 --> 00:31:03,800
Speaker 1: as a steward of the economy and so these things.

556
00:31:03,840 --> 00:31:06,120
Speaker 1: Of course he could never say if he was still

557
00:31:06,160 --> 00:31:10,400
Speaker 1: in his position, but people feel extremely strongly about their

558
00:31:10,560 --> 00:31:14,800
Speaker 1: role at the Federal Reserve as a steward of the

559
00:31:14,800 --> 00:31:18,560
Speaker 1: economy and how it must play that role very very

560
00:31:18,680 --> 00:31:21,480
Speaker 1: and so we see that intensity in this esse. Let's

561
00:31:21,520 --> 00:31:23,680
Speaker 1: back up and go to the Katherine Man wheelhouse. The

562
00:31:23,760 --> 00:31:27,360
Speaker 1: subhead the Central Bank should refuse to play along with

563
00:31:27,560 --> 00:31:32,160
Speaker 1: an economic disaster in the making. You own the high

564
00:31:32,160 --> 00:31:35,680
Speaker 1: ground on this with is the trade deficits sustainable in

565
00:31:35,720 --> 00:31:39,560
Speaker 1: your decades of work on our disfunction with China? Is

566
00:31:39,600 --> 00:31:42,840
Speaker 1: that language too strong? Is this an economic disaster waiting

567
00:31:42,840 --> 00:31:46,080
Speaker 1: to happen in the president's trade war? Well, I think

568
00:31:46,120 --> 00:31:50,960
Speaker 1: we've already seen the consequences of of d globalization, as

569
00:31:51,000 --> 00:31:54,920
Speaker 1: you know, UH City just issued uh a GPS on

570
00:31:55,640 --> 00:31:58,720
Speaker 1: that title that I wrote on global You know, has

571
00:31:58,840 --> 00:32:03,000
Speaker 1: for better or worse? Has globalization? Has there has been

572
00:32:03,000 --> 00:32:07,280
Speaker 1: peak globalization on both trade and we peak dysfunction of

573
00:32:07,400 --> 00:32:10,080
Speaker 1: China in the United States? Or is it just a

574
00:32:10,160 --> 00:32:14,280
Speaker 1: tip for sprawl of politicians? Well, I think the argument

575
00:32:14,400 --> 00:32:19,080
Speaker 1: is that the current policies are designed to disengage with

576
00:32:19,200 --> 00:32:22,240
Speaker 1: the second largest trading partner in the world, the second

577
00:32:22,320 --> 00:32:26,200
Speaker 1: largest market in the world, and that doesn't make sense

578
00:32:26,280 --> 00:32:29,160
Speaker 1: in a world of globalization, you should be engaging more

579
00:32:29,200 --> 00:32:32,480
Speaker 1: deeply with your your partners the use are larger. We

580
00:32:32,520 --> 00:32:35,440
Speaker 1: did not hear that ritz yesterday. Did No, we did

581
00:32:35,440 --> 00:32:41,840
Speaker 1: not m And unfortunately, deglobalization or disengagement is a recipe

582
00:32:41,920 --> 00:32:46,800
Speaker 1: for deterioration UH in economic prospects, and that is the

583
00:32:47,160 --> 00:32:50,240
Speaker 1: consequences of a deterioration of economic prospects is going to

584
00:32:50,240 --> 00:32:52,880
Speaker 1: be born more by the younger people than by the

585
00:32:52,920 --> 00:32:56,000
Speaker 1: older people. If you're just joining us, Catherine Man of

586
00:32:56,080 --> 00:32:59,840
Speaker 1: City po A Vice Chairman Clarida is the anointed monetary

587
00:33:00,000 --> 00:33:03,000
Speaker 1: earrist of Chairman Paul's FED. How should the vice chairman

588
00:33:03,080 --> 00:33:07,240
Speaker 1: respond to this essay by Bill Dudley? Well, I don't

589
00:33:07,240 --> 00:33:10,280
Speaker 1: think that he would be in an appropriate position to

590
00:33:10,280 --> 00:33:14,160
Speaker 1: to respond. Um. The role of the Federal Reserve is

591
00:33:14,200 --> 00:33:17,959
Speaker 1: to achieve its dual mandate. Now, I do think that

592
00:33:17,960 --> 00:33:20,720
Speaker 1: one of the interesting issues that could be brought up

593
00:33:20,760 --> 00:33:25,120
Speaker 1: as important consequences of the potential move at the Federal

594
00:33:25,160 --> 00:33:28,720
Speaker 1: Reserve to cut rates is whether or not that will

595
00:33:28,840 --> 00:33:33,040
Speaker 1: fuel relatively more in the asset price spectrum as opposed

596
00:33:33,080 --> 00:33:36,760
Speaker 1: to support the real economy. This is the chair, We're

597
00:33:36,800 --> 00:33:41,360
Speaker 1: going too fast down. They got a dual mandate price jobs. Yes,

598
00:33:41,840 --> 00:33:45,360
Speaker 1: your suggesting, as Dr Roaches suggested, with your combined efforts

599
00:33:45,360 --> 00:33:49,520
Speaker 1: on dysfunction, that we could see a further asset bubble

600
00:33:49,760 --> 00:33:54,640
Speaker 1: or bubbles given assumed easing by the Fed. Well, so

601
00:33:54,800 --> 00:33:58,040
Speaker 1: we you know we have um. If you look at

602
00:33:58,320 --> 00:34:00,280
Speaker 1: if you look at a lot of the research even

603
00:34:00,320 --> 00:34:02,840
Speaker 1: done within the Federal Reserve, There's been a question about

604
00:34:02,840 --> 00:34:05,800
Speaker 1: a shadow third mandate and financial stability, which doesn't mean

605
00:34:05,840 --> 00:34:09,160
Speaker 1: financial markets are stable. It means financial markets price appropriately

606
00:34:09,280 --> 00:34:12,759
Speaker 1: risk And that shadow third mandate shows up in the

607
00:34:12,800 --> 00:34:15,520
Speaker 1: discussions in the minutes that they informed see. So it's

608
00:34:15,600 --> 00:34:18,080
Speaker 1: already there and we already know this because if you

609
00:34:18,120 --> 00:34:21,040
Speaker 1: have an asset bubble and it bursts, there are consequences

610
00:34:21,120 --> 00:34:24,399
Speaker 1: for your your two official mandates. So there is an

611
00:34:24,440 --> 00:34:28,839
Speaker 1: issue about whether or not the potential easing that is

612
00:34:28,920 --> 00:34:31,719
Speaker 1: in the cards, at least the financial markets believe it's

613
00:34:31,760 --> 00:34:34,319
Speaker 1: in the card. And if you know that potential easy,

614
00:34:34,400 --> 00:34:38,640
Speaker 1: would it actually support the financial markets and not do

615
00:34:38,840 --> 00:34:42,640
Speaker 1: much to support the real economy. Our view that we

616
00:34:42,719 --> 00:34:47,120
Speaker 1: put out in our last Global Economic Outlook and Strategy

617
00:34:47,160 --> 00:34:50,760
Speaker 1: report it was the central bank dilemma. Do you support

618
00:34:50,760 --> 00:34:53,319
Speaker 1: an asset bubble because you think that the feed through

619
00:34:53,360 --> 00:34:57,239
Speaker 1: to the real economy is worth it, or do you

620
00:34:57,280 --> 00:34:59,680
Speaker 1: support the asset bubble when in fact it will not

621
00:35:00,200 --> 00:35:03,120
Speaker 1: support the real economy. And our view is that this

622
00:35:03,480 --> 00:35:08,759
Speaker 1: potential additional easing is principally to support financial markets and

623
00:35:08,800 --> 00:35:13,000
Speaker 1: will not be able to offset the trade consequences of

624
00:35:13,120 --> 00:35:18,359
Speaker 1: the current policies. John Hicks nine, and we construct an

625
00:35:18,360 --> 00:35:20,840
Speaker 1: I S l M structure of the real economy and

626
00:35:20,880 --> 00:35:23,920
Speaker 1: the money economy, the financial system, if you will. And

627
00:35:23,960 --> 00:35:27,000
Speaker 1: then Mondale shows up at Columbia or wherever and brings

628
00:35:27,000 --> 00:35:31,719
Speaker 1: in the currency market. All of a sudden, you're wheelhouse

629
00:35:32,080 --> 00:35:35,160
Speaker 1: is back in vogue, which is a study of unilateral

630
00:35:35,280 --> 00:35:38,960
Speaker 1: or correlated currency interventions. And I assume we're way away

631
00:35:39,000 --> 00:35:42,319
Speaker 1: from a president getting allies to currency intervening if he

632
00:35:42,400 --> 00:35:47,239
Speaker 1: chooses what he is the efficacy of a Trump currency intervention,

633
00:35:47,600 --> 00:35:51,759
Speaker 1: if he starts job owning that, well, what are the

634
00:35:52,040 --> 00:35:55,080
Speaker 1: if we if we look at data on the strength

635
00:35:55,120 --> 00:35:59,760
Speaker 1: of the dollar relative to trading partners, it is relatively stronger.

636
00:36:00,239 --> 00:36:03,560
Speaker 1: It has not achieved previous peaks in terms of real

637
00:36:03,960 --> 00:36:06,840
Speaker 1: real dollar strength, but it is stronger than you know,

638
00:36:07,080 --> 00:36:10,000
Speaker 1: was three or four years ago. So the issue of

639
00:36:10,520 --> 00:36:14,520
Speaker 1: currency wars or currency intervention would be to you know, uh,

640
00:36:14,719 --> 00:36:18,600
Speaker 1: depreciate the dollars so as to be yet another strategy

641
00:36:18,680 --> 00:36:23,120
Speaker 1: to support the US city and the cutable strategy that

642
00:36:23,160 --> 00:36:27,280
Speaker 1: seems to be the question that I hear every conversation. Uh,

643
00:36:27,400 --> 00:36:30,719
Speaker 1: so that the you know, the trade forex markets are

644
00:36:30,760 --> 00:36:33,400
Speaker 1: three trillion dollars a day something like that. Uh, the

645
00:36:33,440 --> 00:36:36,719
Speaker 1: amount of firepower that's in the ex Stabilization Fund is

646
00:36:37,080 --> 00:36:40,279
Speaker 1: a lot smaller. And we also know that, UM, that

647
00:36:40,400 --> 00:36:44,960
Speaker 1: currency intervention does not have any sustainable impact on the

648
00:36:45,040 --> 00:36:50,360
Speaker 1: on the currency unless there is associated policies to to

649
00:36:50,360 --> 00:36:54,239
Speaker 1: to ratify the intervention. And so you would have to

650
00:36:54,280 --> 00:36:59,320
Speaker 1: have not just a deep expansion or policy shift to

651
00:36:59,440 --> 00:37:01,560
Speaker 1: policy cut in the in the US, but you would

652
00:37:01,600 --> 00:37:05,359
Speaker 1: have to have complimentary no policy cuts anywhere else. And

653
00:37:05,440 --> 00:37:08,040
Speaker 1: that's certainly not what has been happening. All of the

654
00:37:08,080 --> 00:37:10,120
Speaker 1: central banks not all of them, but almost all of

655
00:37:10,120 --> 00:37:12,480
Speaker 1: them around the world have been using the period of

656
00:37:12,520 --> 00:37:16,360
Speaker 1: time where the FED has cut in order to cut themselves. Okay,

657
00:37:16,360 --> 00:37:18,480
Speaker 1: I like one final question. I'm out of time. We

658
00:37:18,520 --> 00:37:21,399
Speaker 1: could go for hours here with Catherine mannis City Group. Um.

659
00:37:21,440 --> 00:37:23,759
Speaker 1: The President is not going to call Kathy man I

660
00:37:23,840 --> 00:37:26,440
Speaker 1: know that, but maybe Lawrence Cudlow will. What do you

661
00:37:26,480 --> 00:37:29,719
Speaker 1: say to Larry Cudlow today after this Dudley essay? The

662
00:37:29,719 --> 00:37:33,239
Speaker 1: White House wants to use the Dudley essay to go

663
00:37:33,320 --> 00:37:36,120
Speaker 1: after the FED. What do you say to Lawrence Cudlow

664
00:37:36,160 --> 00:37:42,200
Speaker 1: would be a responsible approach by the President. I don't

665
00:37:42,200 --> 00:37:44,719
Speaker 1: think you know, frankly, I don't think anything that that

666
00:37:44,840 --> 00:37:47,239
Speaker 1: was said in the Dudley essay isn't something that has

667
00:37:47,239 --> 00:37:50,799
Speaker 1: already been said elsewhere. The power of that essay is

668
00:37:50,960 --> 00:37:56,400
Speaker 1: who said it, and um the very um visceral way

669
00:37:56,440 --> 00:37:58,879
Speaker 1: in which it was said. But but I don't think

670
00:37:58,920 --> 00:38:01,760
Speaker 1: there's anything new in there to bring to the table.

671
00:38:01,800 --> 00:38:05,000
Speaker 1: I don't think anybody, even at the FED in in

672
00:38:05,080 --> 00:38:07,759
Speaker 1: its own corridors, I don't think there's anything new in

673
00:38:07,760 --> 00:38:10,040
Speaker 1: that essay that they haven't already thought about. This has

674
00:38:10,080 --> 00:38:12,800
Speaker 1: been wonderful, cats Man, thank you so much with City Group.

675
00:38:12,800 --> 00:38:16,440
Speaker 1: But of course are important essay out on deglobalization, a

676
00:38:16,520 --> 00:38:19,160
Speaker 1: real effort by Catherine Man at City Group to reframe

677
00:38:19,560 --> 00:38:36,719
Speaker 1: where we are into the autumn. This is a joy,

678
00:38:36,960 --> 00:38:39,160
Speaker 1: and it is a double joy because not only is

679
00:38:39,239 --> 00:38:41,920
Speaker 1: my good friend Mario Gabelli joining us here on value

680
00:38:42,440 --> 00:38:44,480
Speaker 1: and on all the other things that you see in

681
00:38:44,560 --> 00:38:48,960
Speaker 1: his important baron's work, and also his work in philanthropy

682
00:38:49,040 --> 00:38:52,960
Speaker 1: and in investment as well. But it's especially important because

683
00:38:52,960 --> 00:38:59,320
Speaker 1: Paul Sweeney is globally acclaimed for media present and media past,

684
00:38:59,480 --> 00:39:02,520
Speaker 1: and we will get the Viacom, CBS and all the

685
00:39:02,560 --> 00:39:05,799
Speaker 1: rest of it in a moment, but the news precedes us.

686
00:39:06,000 --> 00:39:09,759
Speaker 1: March of two thousand and eight, Philip Morris spins off

687
00:39:10,120 --> 00:39:14,960
Speaker 1: Altria and Philip Morris International. It was pretty successful in

688
00:39:15,040 --> 00:39:17,960
Speaker 1: terms of total return to all about two thousand seventeen

689
00:39:18,040 --> 00:39:21,880
Speaker 1: for PM Philip Morris International. They've come down to a

690
00:39:21,960 --> 00:39:24,840
Speaker 1: MOULDI double digit return after a very difficult two and

691
00:39:24,920 --> 00:39:29,080
Speaker 1: a half years. Now moments ago they may mate again.

692
00:39:29,840 --> 00:39:32,000
Speaker 1: Is it? Does it surprise you that these big tight

693
00:39:32,120 --> 00:39:35,960
Speaker 1: companies have a strategy to split apart and then the

694
00:39:36,080 --> 00:39:39,040
Speaker 1: comeback together again. You know, I haven't thought about those

695
00:39:39,040 --> 00:39:41,359
Speaker 1: two companies for a long time. But independent of that,

696
00:39:41,520 --> 00:39:44,720
Speaker 1: the free market system should allow corporate CEOs to figure

697
00:39:44,760 --> 00:39:47,480
Speaker 1: out whether they should have value added by splitting it

698
00:39:47,560 --> 00:39:49,840
Speaker 1: up or value added by putting them. How do you

699
00:39:49,840 --> 00:39:53,600
Speaker 1: respond to craft Mondelese in the the bad will that's

700
00:39:53,600 --> 00:39:57,239
Speaker 1: been written off on that transaction. Um I am a

701
00:39:57,280 --> 00:40:01,040
Speaker 1: big shaholder of Mondelees. I like Irene Rosen, I like

702
00:40:01,160 --> 00:40:04,759
Speaker 1: the new chapter that's running it. Uh, I have no

703
00:40:04,840 --> 00:40:08,240
Speaker 1: problem with regards to whatever they did. And I still

704
00:40:08,320 --> 00:40:11,560
Speaker 1: like Mandalese even though it's fifty four dollars today and

705
00:40:11,680 --> 00:40:17,719
Speaker 1: where where was it? Reminder listen. Uh right, I'd have

706
00:40:17,760 --> 00:40:19,759
Speaker 1: to hit a buttonum on some machine to get that.

707
00:40:19,920 --> 00:40:22,000
Speaker 1: What does Mario good Belly do when he has something

708
00:40:22,040 --> 00:40:24,680
Speaker 1: off the price? Everybody talks about your successes. You were

709
00:40:24,719 --> 00:40:28,200
Speaker 1: with us two days before Calvery swepts was taken up.

710
00:40:28,239 --> 00:40:31,360
Speaker 1: Big success for you and those hopefully. What do you

711
00:40:31,400 --> 00:40:33,719
Speaker 1: do when you have a dog. What's what's Markabilly do

712
00:40:33,760 --> 00:40:37,040
Speaker 1: with a dog in the portfolio? Uh? That is an

713
00:40:37,040 --> 00:40:42,239
Speaker 1: interesting question because essentially we have companies like Superior Industries

714
00:40:42,280 --> 00:40:45,640
Speaker 1: where the management wouldn't listen to their shareholders. The stock

715
00:40:45,719 --> 00:40:47,799
Speaker 1: was twenty five. All they had to do is fix

716
00:40:47,880 --> 00:40:51,960
Speaker 1: the plant in Mexico. The stock is now too. Cincinnati

717
00:40:52,000 --> 00:40:54,720
Speaker 1: Bell went out and bought a system in Hawaii, which

718
00:40:54,800 --> 00:40:57,600
Speaker 1: is not exactly a popular The stock was seventeen, it

719
00:40:57,600 --> 00:41:00,680
Speaker 1: would have been twenty two. Today's it's five. So we

720
00:41:00,800 --> 00:41:02,880
Speaker 1: let you hold them, you take them down and just wait. No,

721
00:41:03,200 --> 00:41:06,200
Speaker 1: it's a combination about we have tax sensitive clients. We

722
00:41:06,239 --> 00:41:08,960
Speaker 1: would double up selves some out. Yeah, in the case

723
00:41:09,000 --> 00:41:11,200
Speaker 1: of Cincinnati Bell, I think they may still be a

724
00:41:11,200 --> 00:41:14,000
Speaker 1: glimmer of hope if they get the right guidance. Let's

725
00:41:14,040 --> 00:41:16,240
Speaker 1: go to what has been so anticipated. I've had many

726
00:41:16,239 --> 00:41:20,080
Speaker 1: many emails Paul Sweeney of CBS and Viacom. Maybe you

727
00:41:20,120 --> 00:41:23,439
Speaker 1: can drive, maybe you could explain to our audience, Mr

728
00:41:23,440 --> 00:41:26,680
Speaker 1: Goobelli's position here exactly. So Mario has been a big

729
00:41:26,719 --> 00:41:28,919
Speaker 1: holder of media stocks in his firm bigholder of media

730
00:41:28,960 --> 00:41:32,120
Speaker 1: stocks for since the beginning, and that include CBS and

731
00:41:32,200 --> 00:41:35,480
Speaker 1: Viacom and in Vicom. It's interesting you're a big shareholder there.

732
00:41:35,480 --> 00:41:38,000
Speaker 1: But what's interesting to me is you're the biggest non

733
00:41:38,480 --> 00:41:42,440
Speaker 1: I guess you know National Amusements, National Amusements shareholder of

734
00:41:42,480 --> 00:41:45,520
Speaker 1: their voting stock. Number one, how you feel about this

735
00:41:45,560 --> 00:41:49,000
Speaker 1: deal getting back together? And number two how about the price? Uh?

736
00:41:49,239 --> 00:41:52,720
Speaker 1: Several dynamics in that question. First, obviously, I started following

737
00:41:52,760 --> 00:41:56,040
Speaker 1: CBS in eight sixties, and I watched vih Coom even

738
00:41:56,080 --> 00:41:59,880
Speaker 1: spun off in vent odd and uh, some of the

739
00:42:00,000 --> 00:42:03,640
Speaker 1: put it together called it Viacom. Fast forward, We're gonna

740
00:42:03,640 --> 00:42:07,120
Speaker 1: have a company with sixty million shares. Of that amount,

741
00:42:07,239 --> 00:42:09,920
Speaker 1: two million approximately going to be voting stock. Of that amount,

742
00:42:10,400 --> 00:42:12,640
Speaker 1: forty one million are going to own by National Amusements.

743
00:42:12,680 --> 00:42:15,680
Speaker 1: So this ten million in public hands. Our clients will

744
00:42:15,719 --> 00:42:18,920
Speaker 1: own about half of that. So if they ever need

745
00:42:19,040 --> 00:42:22,439
Speaker 1: some vote of the majority of the minority. We will

746
00:42:22,480 --> 00:42:25,959
Speaker 1: have an element at the table. Now this particular deal,

747
00:42:27,120 --> 00:42:29,640
Speaker 1: what we might we would like to have gotten a

748
00:42:29,680 --> 00:42:31,880
Speaker 1: premium and we think we deserve one for the voting

749
00:42:31,880 --> 00:42:34,600
Speaker 1: stock on a v I A and we didn't get it.

750
00:42:34,800 --> 00:42:38,319
Speaker 1: So that's an issue, but that's not step back and

751
00:42:38,400 --> 00:42:42,759
Speaker 1: say the following can the management pull it off? I

752
00:42:42,800 --> 00:42:48,160
Speaker 1: think they'll do thirty million dollars of ebita so to speak,

753
00:42:48,200 --> 00:42:51,160
Speaker 1: but only about two d million dollars a capex over

754
00:42:51,200 --> 00:42:54,279
Speaker 1: the next four or five years. Debt will be reduced dramatically.

755
00:42:54,560 --> 00:42:57,480
Speaker 1: What that's not gonna happen. Are they gonna put the

756
00:42:57,520 --> 00:43:02,239
Speaker 1: money into more uh CBS access, more direct to the consumer,

757
00:43:02,480 --> 00:43:05,080
Speaker 1: and they're gonna go more global and put that footprint

758
00:43:05,160 --> 00:43:07,719
Speaker 1: not only in places where they are short terms. They've

759
00:43:07,719 --> 00:43:10,480
Speaker 1: got some problems with an Argentina and the asset. India's

760
00:43:10,520 --> 00:43:15,040
Speaker 1: okay u k is okay and Tom Cruise will his

761
00:43:15,160 --> 00:43:18,600
Speaker 1: movie do well? There's a new top gun coming Tom.

762
00:43:18,800 --> 00:43:23,719
Speaker 1: So if you can think, all, well, it's okay, yeah,

763
00:43:23,760 --> 00:43:25,880
Speaker 1: that's what you get the one one of your So

764
00:43:25,920 --> 00:43:27,879
Speaker 1: did you get taken to the cleaners on this? Is that?

765
00:43:28,239 --> 00:43:32,560
Speaker 1: Not the day the deal was announced, CBS was around

766
00:43:32,560 --> 00:43:36,520
Speaker 1: fifty issues around forty five. CBS is a bargain today,

767
00:43:36,719 --> 00:43:39,200
Speaker 1: and I think the combination, why is it a bargain

768
00:43:39,200 --> 00:43:41,520
Speaker 1: if it's missing streaming? Are they a bargain because they're

769
00:43:41,560 --> 00:43:44,680
Speaker 1: not doing streaming? No, because they've got significant cash flow.

770
00:43:44,719 --> 00:43:47,239
Speaker 1: They've got fifteen billion dollars in net debt and you've

771
00:43:47,239 --> 00:43:49,399
Speaker 1: got you're selling it two and a half times EB

772
00:43:50,080 --> 00:43:55,600
Speaker 1: and I think over time the debt debt excuse, okay?

773
00:43:55,640 --> 00:43:58,000
Speaker 1: And if you take the six hundred million shares and

774
00:43:58,080 --> 00:44:01,440
Speaker 1: multiplied by forty five dollars at a market cap, that

775
00:44:01,480 --> 00:44:03,759
Speaker 1: allows them to be considered a mini even though some

776
00:44:03,800 --> 00:44:06,400
Speaker 1: political guy running for office is saying this is a

777
00:44:06,440 --> 00:44:09,680
Speaker 1: mega merger. I can't believe that somebody knows how to

778
00:44:09,719 --> 00:44:13,600
Speaker 1: do math. Then exactly so can this new Vicom CBS

779
00:44:13,640 --> 00:44:16,960
Speaker 1: combined company compete in the world where there's Disney just

780
00:44:17,000 --> 00:44:22,360
Speaker 1: bought most of Rupert's assets. You've got the obvious questions,

781
00:44:22,400 --> 00:44:24,400
Speaker 1: and that is is the scale and will say how

782
00:44:24,480 --> 00:44:26,320
Speaker 1: much will it cost to get into and the a

783
00:44:26,440 --> 00:44:29,360
Speaker 1: CBSX has directed a consumer, they lay to the party,

784
00:44:29,480 --> 00:44:32,080
Speaker 1: and there's Disney plus way ahead of them, and obviously

785
00:44:32,200 --> 00:44:36,480
Speaker 1: Netflix and the answers maybe, So do you bring another

786
00:44:36,560 --> 00:44:40,319
Speaker 1: big player into the game. Will someone like Apple come

787
00:44:40,360 --> 00:44:42,360
Speaker 1: in and say, hey, I have to own some more content?

788
00:44:42,400 --> 00:44:45,759
Speaker 1: Will Amazon want to do it? What will Sherry do

789
00:44:46,080 --> 00:44:48,680
Speaker 1: with you know, when this thing closes in three to

790
00:44:48,800 --> 00:44:51,000
Speaker 1: four months, Well, what's she gonna do? You're the nor

791
00:44:51,080 --> 00:44:55,040
Speaker 1: of all? Yeah, I I basically think she should step

792
00:44:55,080 --> 00:44:57,880
Speaker 1: back and just a poured Bok and Ilo running the

793
00:44:57,960 --> 00:45:00,920
Speaker 1: business and allowing the cre at the juices of that

794
00:45:01,080 --> 00:45:04,000
Speaker 1: combined enterprise to flow at at an increasing rate. But

795
00:45:04,040 --> 00:45:06,399
Speaker 1: that's not gonna happen. They're gonna have to do more

796
00:45:06,440 --> 00:45:08,879
Speaker 1: in technology, and they'll do something on who they're gonna

797
00:45:08,920 --> 00:45:12,040
Speaker 1: partner with? Tom interesting neither that. I think Pepper Pig,

798
00:45:12,160 --> 00:45:14,640
Speaker 1: that is entertainment one would have been bought by Hasbro.

799
00:45:15,040 --> 00:45:18,719
Speaker 1: So you gotta he's got Pepper Pig and Top Gun

800
00:45:19,000 --> 00:45:21,880
Speaker 1: Tom Cruise all the same interview. Exactly what has that

801
00:45:21,920 --> 00:45:25,880
Speaker 1: occurred before? Big value? There's intellectual property is what it was?

802
00:45:25,920 --> 00:45:28,919
Speaker 1: What the new phrases out there in Hollywood. Marje Belli,

803
00:45:28,960 --> 00:45:31,800
Speaker 1: thank yous so much. I'm Bloomberg Radio. Thanks for listening

804
00:45:31,840 --> 00:45:36,400
Speaker 1: to the Bloomberg Surveillance Podcast. Subscribe and listen to interviews

805
00:45:36,400 --> 00:45:41,640
Speaker 1: on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer.

806
00:45:42,200 --> 00:45:45,560
Speaker 1: I'm on Twitter at Tom Keane before the podcast. You

807
00:45:45,560 --> 00:46:00,279
Speaker 1: can always catch us worldwide. I'm Bloomberg Radio two