1 00:00:00,040 --> 00:00:02,640 Speaker 1: Who you put your trust in matters. Investors have put 2 00:00:02,680 --> 00:00:07,040 Speaker 1: their trust and independent registered investment advisors to the two 3 00:00:07,040 --> 00:00:10,680 Speaker 1: and four trillion dollars. Why learn more at find your 4 00:00:10,760 --> 00:00:26,360 Speaker 1: Independent Advisor dot com. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:26,760 --> 00:00:30,480 Speaker 1: I'm Tom Keene with David Gura. Daily we bring you 6 00:00:30,520 --> 00:00:35,560 Speaker 1: insight from the best in economics, finance, investment, and international relations. 7 00:00:35,960 --> 00:00:40,559 Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and 8 00:00:40,640 --> 00:00:48,640 Speaker 1: of course on the Bloomberg. We want to bring Lionel 9 00:00:48,720 --> 00:00:51,720 Speaker 1: Lauren back with Bloomberg gad Fly in London to talk 10 00:00:51,760 --> 00:00:54,320 Speaker 1: to us about Italian banking and the mystery of Montopost. 11 00:00:54,560 --> 00:00:57,920 Speaker 1: Here's the chart quickly on Monte Apost and this is 12 00:00:57,960 --> 00:01:02,320 Speaker 1: a thousand euros and then two hundred euros and then 13 00:01:02,400 --> 00:01:05,840 Speaker 1: one hundred euros and we're down here at eighteen right now. 14 00:01:05,880 --> 00:01:09,080 Speaker 1: I mean, it's been a total collapse of this bank, Leonel. 15 00:01:09,120 --> 00:01:12,559 Speaker 1: What I'm frustrated about is I have not seen one 16 00:01:12,760 --> 00:01:17,040 Speaker 1: iota of discussion about what it's going to cost the 17 00:01:17,080 --> 00:01:21,400 Speaker 1: price of this transaction, whether it's the price of bond 18 00:01:21,520 --> 00:01:24,720 Speaker 1: to equity, whether it's the yield taken on some form 19 00:01:24,760 --> 00:01:28,640 Speaker 1: of bond or whether it's the actual dollar or euro 20 00:01:28,760 --> 00:01:31,480 Speaker 1: figure that's going to be happened. Is there any price 21 00:01:31,720 --> 00:01:38,360 Speaker 1: being discussed? That's a that's a good question. Um I Look, 22 00:01:38,840 --> 00:01:42,360 Speaker 1: the difficulty here is that all all Italian banks have 23 00:01:42,440 --> 00:01:45,000 Speaker 1: taken a big it. It's not just Montepasky the the 24 00:01:45,200 --> 00:01:48,280 Speaker 1: change that you mentioned. There has been market cat destruction 25 00:01:48,880 --> 00:01:52,280 Speaker 1: across the board. Um, we don't even know. Investors don't 26 00:01:52,320 --> 00:01:54,720 Speaker 1: even know what's the balance sheet is worth, what these 27 00:01:54,720 --> 00:01:57,960 Speaker 1: on flolans are worth. Even appetite for the equity at 28 00:01:58,000 --> 00:02:03,040 Speaker 1: these incredibly cheat bats levels of zero point one times 29 00:02:03,600 --> 00:02:07,440 Speaker 1: at times book has not attracted the investors. So right 30 00:02:07,480 --> 00:02:11,440 Speaker 1: now we're twenty billion euros right, twenty billion euros could 31 00:02:11,480 --> 00:02:15,800 Speaker 1: get you thirty Montpaskys. Um, it's it's completely unclear as 32 00:02:15,800 --> 00:02:17,840 Speaker 1: to what you would spend the money on. So right 33 00:02:17,880 --> 00:02:21,600 Speaker 1: now it's it's really complete lack of faith in in 34 00:02:21,639 --> 00:02:25,239 Speaker 1: these balance sheets, in these valuations, and really the lack 35 00:02:25,240 --> 00:02:28,120 Speaker 1: of mark to market going on here. For our global audience, 36 00:02:28,160 --> 00:02:31,560 Speaker 1: particularly in London and particularly in New York and Washington, 37 00:02:32,040 --> 00:02:36,640 Speaker 1: this is beyond odd. Are there outside institutions coming to 38 00:02:36,840 --> 00:02:44,919 Speaker 1: bear upon an original Italian dialogue? And discourse. I'm skeptical. 39 00:02:45,000 --> 00:02:47,240 Speaker 1: I really wish there was, but I feel like we 40 00:02:47,240 --> 00:02:49,160 Speaker 1: we were here at the start of this year, we're 41 00:02:49,200 --> 00:02:53,160 Speaker 1: here at the end of this year twenty billion euros. Again, 42 00:02:54,120 --> 00:02:56,239 Speaker 1: you could do a lot, You could buy un credit 43 00:02:56,320 --> 00:02:59,359 Speaker 1: with twenty billion, But I feel that this is not political, 44 00:02:59,560 --> 00:03:01,960 Speaker 1: and that the whole discussion will be about whether you 45 00:03:02,000 --> 00:03:04,480 Speaker 1: can avoid a bailon of investors, whether you can get 46 00:03:04,480 --> 00:03:06,520 Speaker 1: a political solution to kick the can down the road. 47 00:03:06,960 --> 00:03:09,480 Speaker 1: It will require the ECB, it will require Europe, it 48 00:03:09,520 --> 00:03:13,800 Speaker 1: will require Germany agreeing something with Italy. My my concern 49 00:03:13,880 --> 00:03:15,400 Speaker 1: is that we're still going to be talking about Italian 50 00:03:15,440 --> 00:03:18,160 Speaker 1: banks and we still want to fix this solution well 51 00:03:18,200 --> 00:03:23,080 Speaker 1: into next year. What would I have to do to 52 00:03:23,200 --> 00:03:27,680 Speaker 1: get some degree of clarity on a bag of assets 53 00:03:27,720 --> 00:03:30,079 Speaker 1: that I made buy from one of these institutions. How 54 00:03:30,120 --> 00:03:34,000 Speaker 1: difficult would it be? It's it's difficult because there's so 55 00:03:34,080 --> 00:03:35,960 Speaker 1: much that goes on. I mean, you do want to 56 00:03:35,960 --> 00:03:39,160 Speaker 1: get some value right, and and and trying to work 57 00:03:39,160 --> 00:03:41,280 Speaker 1: out how you can actually get that tiny bit of 58 00:03:41,360 --> 00:03:46,040 Speaker 1: value left. That takes some security on getting those cash flow. 59 00:03:46,040 --> 00:03:47,960 Speaker 1: They've got villas in Tuscany, they've got they've got all 60 00:03:48,040 --> 00:03:49,880 Speaker 1: kinds of stuff on their books, They've got buildings around 61 00:03:49,880 --> 00:03:52,200 Speaker 1: the corner from our bureau in Rome. How do how 62 00:03:52,200 --> 00:03:54,400 Speaker 1: do we value this stuff? But but the issue is 63 00:03:54,400 --> 00:03:56,320 Speaker 1: how do you retrieve the cash flows? Whereas the legal 64 00:03:56,320 --> 00:03:59,280 Speaker 1: certainty some of these loans have been kicking around for 65 00:03:59,360 --> 00:04:02,360 Speaker 1: ten years and unique political reform and legal from which 66 00:04:02,360 --> 00:04:06,120 Speaker 1: you started to actually get the infrastructure behind getting the 67 00:04:06,120 --> 00:04:09,640 Speaker 1: cash flows back for these vulture funds. There is appetite there. Absolutely, 68 00:04:10,000 --> 00:04:13,680 Speaker 1: it's starting to change, but in terms of the discount 69 00:04:13,720 --> 00:04:15,520 Speaker 1: that you would have to apply to get any concertancy 70 00:04:15,600 --> 00:04:18,960 Speaker 1: on on getting the cash flows back, it's it still 71 00:04:19,000 --> 00:04:22,000 Speaker 1: remains a big question. Leono, very valuable, Thank you so much. 72 00:04:22,040 --> 00:04:24,719 Speaker 1: Look for Lionel Laura with Bloomberg gad flying no doubt 73 00:04:24,800 --> 00:04:40,560 Speaker 1: on European banking. He was former chairman of Morgan Stanley Asia, 74 00:04:40,600 --> 00:04:43,000 Speaker 1: from a chief economist at Morgan Stanley, now a Senior 75 00:04:43,080 --> 00:04:45,760 Speaker 1: Fellow at the Jackson Institute of Global Affairs at the University, 76 00:04:45,800 --> 00:04:48,240 Speaker 1: also a senior lecturer at the Yale School of Management. 77 00:04:48,240 --> 00:04:50,680 Speaker 1: Stephen Roach joins us here in our studios in New York, 78 00:04:50,720 --> 00:04:54,760 Speaker 1: recently returned from China. Great to have you here. And 79 00:04:54,960 --> 00:04:56,839 Speaker 1: as someone who has traveled to China before, I know 80 00:04:56,880 --> 00:04:59,599 Speaker 1: that the conversation plays itself out over and over and 81 00:04:59,600 --> 00:05:02,000 Speaker 1: over again. People ask you while you're there for your 82 00:05:02,040 --> 00:05:04,680 Speaker 1: sense of what US policy towards China is. And imagine 83 00:05:04,680 --> 00:05:07,440 Speaker 1: there was some particular difficulty answering those questions this time 84 00:05:07,440 --> 00:05:09,200 Speaker 1: while you were over there. If people were asking you 85 00:05:09,480 --> 00:05:11,880 Speaker 1: what Donald Trump's policy towards China is, I want to 86 00:05:11,880 --> 00:05:13,880 Speaker 1: ask you how many times you had to feel that question? 87 00:05:13,960 --> 00:05:17,800 Speaker 1: But what do you find yourself saying when asked? Well, 88 00:05:17,839 --> 00:05:22,920 Speaker 1: you know, I I talk about them some of the 89 00:05:23,800 --> 00:05:27,200 Speaker 1: challenges that this new administration is going to face in 90 00:05:28,200 --> 00:05:33,839 Speaker 1: delivering on its promises to get America growing again, deliver jobs, 91 00:05:33,920 --> 00:05:36,919 Speaker 1: and make the country great again. And is it? Is 92 00:05:36,960 --> 00:05:40,839 Speaker 1: it a challenge It's going to come in China's expense 93 00:05:41,000 --> 00:05:44,360 Speaker 1: or ultimately in America's expense or the world's expense. And 94 00:05:45,160 --> 00:05:48,920 Speaker 1: I guess the point that I make is that Trump 95 00:05:48,960 --> 00:05:53,320 Speaker 1: inherits a difficult set of circumstances because the United States 96 00:05:53,360 --> 00:05:56,000 Speaker 1: is a low savings economy that's going to be expanding 97 00:05:56,000 --> 00:06:00,360 Speaker 1: its budget deficit under the Trump regine, and that budget 98 00:06:00,360 --> 00:06:02,719 Speaker 1: deficit is going to push our low savings right, even 99 00:06:02,760 --> 00:06:06,600 Speaker 1: lower create more problems with respect to our current account 100 00:06:07,120 --> 00:06:11,440 Speaker 1: and multilateral trade and balances. Tom So that puts pressure 101 00:06:11,920 --> 00:06:15,880 Speaker 1: more and more on China and the US to find 102 00:06:15,880 --> 00:06:18,479 Speaker 1: a way out that doesn't create issues for the dollar 103 00:06:18,600 --> 00:06:20,400 Speaker 1: or U S interest rate. David I thought that was 104 00:06:20,400 --> 00:06:23,479 Speaker 1: a key sentence within Dr Roaches note was a bilateral 105 00:06:23,600 --> 00:06:27,039 Speaker 1: fix in a multilateral world, which really captured some of 106 00:06:27,040 --> 00:06:30,760 Speaker 1: those tensions when you you're over there, How is news 107 00:06:30,800 --> 00:06:33,359 Speaker 1: about the transition being communicated? In other ways? What what 108 00:06:33,480 --> 00:06:37,280 Speaker 1: is of interest to the press in China about about 109 00:06:37,400 --> 00:06:41,000 Speaker 1: Donald Trump's China policy? In code as it is, what's 110 00:06:41,000 --> 00:06:43,920 Speaker 1: being communicated? How has it been communicated? Well? I mean, 111 00:06:43,960 --> 00:06:47,360 Speaker 1: and you know, the big shock was the phone call 112 00:06:47,560 --> 00:06:52,800 Speaker 1: from Sighing, when President of Taiwan to Donald Trump, which 113 00:06:52,960 --> 00:06:59,080 Speaker 1: really took the discussion US China into a realm that 114 00:06:59,200 --> 00:07:04,400 Speaker 1: the Chinese work completely unprepared for. UH. They understand the 115 00:07:04,480 --> 00:07:08,440 Speaker 1: broad constellation of forces, whether it's the South China Sea, 116 00:07:08,720 --> 00:07:13,160 Speaker 1: the UH, some of the currency capital outflow related issues, 117 00:07:13,680 --> 00:07:19,559 Speaker 1: but Taiwan was not a topic that was thought about 118 00:07:19,600 --> 00:07:22,600 Speaker 1: ahead of time by the Chinese, and it's not quite 119 00:07:22,600 --> 00:07:24,960 Speaker 1: clear that it was something that was thought about by 120 00:07:24,960 --> 00:07:27,880 Speaker 1: the Trump administration either. But it is what it is, 121 00:07:28,080 --> 00:07:33,800 Speaker 1: and this is, you know, touches on the key perceptions 122 00:07:34,000 --> 00:07:38,720 Speaker 1: of territorial sovereignty for for China, and so I think 123 00:07:38,760 --> 00:07:45,040 Speaker 1: the risk here is that the incoming Trump administration doesn't 124 00:07:45,120 --> 00:07:48,720 Speaker 1: fully appreciate the waters that they are waiting into with 125 00:07:48,800 --> 00:07:50,960 Speaker 1: respect to this issue. And I'm not sure the Chinese 126 00:07:51,320 --> 00:07:54,960 Speaker 1: fully understand it either. How will they adapt to the 127 00:07:55,040 --> 00:07:59,560 Speaker 1: general nous of the cabinet and of the senior administration 128 00:07:59,600 --> 00:08:03,680 Speaker 1: of fish choices, the idea of the military within a 129 00:08:03,760 --> 00:08:08,640 Speaker 1: Trump administration, Well, it's it's a great question, Tom. I 130 00:08:08,640 --> 00:08:12,000 Speaker 1: mean that sort of changes the character by which the 131 00:08:12,480 --> 00:08:16,960 Speaker 1: by which this new administration is going to address global issues. 132 00:08:17,080 --> 00:08:21,080 Speaker 1: Is it going to be one of uh negotiating a 133 00:08:22,160 --> 00:08:24,280 Speaker 1: a safer and saner worlds? Are going to be a 134 00:08:24,320 --> 00:08:28,800 Speaker 1: more muscular The United States is going to demand uh 135 00:08:28,840 --> 00:08:33,800 Speaker 1: that UM allies and adversaries alike, UH play according to 136 00:08:34,000 --> 00:08:39,800 Speaker 1: its rules. Uh. These are these are tough strategic issues. 137 00:08:40,360 --> 00:08:44,199 Speaker 1: One of the issues that that I found being addressed 138 00:08:44,480 --> 00:08:47,400 Speaker 1: when I was there last week was, uh, what is 139 00:08:47,440 --> 00:08:50,840 Speaker 1: the U. S Gonna do with respect to enforcing its 140 00:08:50,920 --> 00:08:58,520 Speaker 1: treaties with h Japan? Korea, Taiwan, UH, and another Southeast 141 00:08:58,559 --> 00:09:03,920 Speaker 1: Asian Assian economies. Is it gonna walk away? David, Girl, 142 00:09:04,000 --> 00:09:05,760 Speaker 1: This is really important. This goes to what we talked 143 00:09:05,800 --> 00:09:09,280 Speaker 1: about before, which is adjacencies and that we have such 144 00:09:09,280 --> 00:09:14,240 Speaker 1: a simplistic bilateral dealmaking tone. Frankly, not just Mr Trump. 145 00:09:14,240 --> 00:09:17,319 Speaker 1: I don't mean to criticize the President elect without the 146 00:09:17,440 --> 00:09:21,920 Speaker 1: nuances of those adjacencies. How does to David's question, how 147 00:09:21,960 --> 00:09:27,120 Speaker 1: does Singapore look at the new administration and the pivot 148 00:09:27,120 --> 00:09:33,880 Speaker 1: to Asia? Well, the new administration is UH pivoting away 149 00:09:33,880 --> 00:09:39,280 Speaker 1: from the pivot under the Obama doctrine that won the 150 00:09:39,679 --> 00:09:45,920 Speaker 1: Secretary Clinton very much. UH supported that UMU. The US 151 00:09:46,640 --> 00:09:51,800 Speaker 1: focus on Asia, especially through t PP was designed to 152 00:09:51,840 --> 00:09:56,440 Speaker 1: put leverage on on on China and possibly contain what 153 00:09:56,480 --> 00:10:00,840 Speaker 1: they worried to be a arise of China that was 154 00:10:01,280 --> 00:10:04,480 Speaker 1: going well beyond something that UH, the United States was 155 00:10:04,520 --> 00:10:11,599 Speaker 1: comfortable with strategically. UH and I think under if Clinton presidency, 156 00:10:11,679 --> 00:10:16,400 Speaker 1: which will not occur, that that pressure that China containment 157 00:10:16,440 --> 00:10:20,320 Speaker 1: strategy would have been an important feature of the next 158 00:10:20,400 --> 00:10:24,000 Speaker 1: four years. That is taking a different form right now 159 00:10:24,200 --> 00:10:27,800 Speaker 1: under under Trump, China containment appears to be shifting from 160 00:10:27,800 --> 00:10:31,160 Speaker 1: the economic realm to more of a military strategy. And 161 00:10:31,200 --> 00:10:36,400 Speaker 1: that's a worrisome UH development to think about. Stephen Roach, 162 00:10:36,480 --> 00:10:38,480 Speaker 1: of course, with Morgan Stanley for years and now at 163 00:10:38,559 --> 00:10:42,760 Speaker 1: Yale University. A beginning question is, David, and I ask 164 00:10:42,840 --> 00:10:45,560 Speaker 1: you and quizz you on our central banks. Is the 165 00:10:45,679 --> 00:10:52,120 Speaker 1: Phillips curve alive? And well, this odd relationship, this guestimate, this, 166 00:10:52,600 --> 00:10:55,920 Speaker 1: if it was Newtonian nineteenth century, would be multiple plug 167 00:10:55,960 --> 00:11:00,800 Speaker 1: in belief in a relationship of jobs, an inflation and 168 00:11:00,840 --> 00:11:06,719 Speaker 1: a greater economy is a Phillips curve working? No, it's 169 00:11:06,760 --> 00:11:10,480 Speaker 1: not working, but that doesn't prevent central banks from pretending 170 00:11:10,480 --> 00:11:12,240 Speaker 1: that it will. I mean, why else did the Fed 171 00:11:12,720 --> 00:11:17,440 Speaker 1: UH move um UH last week? There's a belief that, 172 00:11:17,480 --> 00:11:21,160 Speaker 1: you know, inflation is moving back to their target, and 173 00:11:21,240 --> 00:11:25,040 Speaker 1: so they want they want to align interest rates with 174 00:11:25,120 --> 00:11:30,520 Speaker 1: a commitment to price stability. So using short term interest 175 00:11:30,600 --> 00:11:35,040 Speaker 1: rates to address um UH inflation control is at the 176 00:11:35,080 --> 00:11:39,040 Speaker 1: heart of what central banks UH have long done in 177 00:11:39,200 --> 00:11:41,800 Speaker 1: this country and and probably around the world as well. 178 00:11:41,840 --> 00:11:44,600 Speaker 1: Tom what did you make of of what Jennet Yellen Fitcher? 179 00:11:44,679 --> 00:11:48,480 Speaker 1: Jennet Yellen said internews conference last week about the reader, 180 00:11:48,480 --> 00:11:50,120 Speaker 1: which she and her colleagues has been thinking about the 181 00:11:50,120 --> 00:11:53,520 Speaker 1: prospects for big fiscal policy, big fiscal spending. The fact 182 00:11:53,559 --> 00:11:55,600 Speaker 1: that this decision was based at least in part on 183 00:11:55,640 --> 00:11:58,160 Speaker 1: the sense that that might be coming down the line. 184 00:11:58,320 --> 00:12:00,200 Speaker 1: How how active a role do you see the FED 185 00:12:00,240 --> 00:12:02,319 Speaker 1: playing here if we are to see a big spending 186 00:12:02,320 --> 00:12:05,880 Speaker 1: package like the ones that the President elect has proposed. Well, 187 00:12:05,960 --> 00:12:09,400 Speaker 1: you know, David, the FETE has always said that, you know, 188 00:12:09,679 --> 00:12:14,400 Speaker 1: they uh don't believe that monetary policy can do the 189 00:12:15,440 --> 00:12:17,480 Speaker 1: job alone. I mean, I used to work at the 190 00:12:17,520 --> 00:12:22,239 Speaker 1: fedback in the Jurassic era, and that was something that was, uh, 191 00:12:22,480 --> 00:12:25,640 Speaker 1: you know, always in the template of anything you wrote 192 00:12:25,679 --> 00:12:28,240 Speaker 1: in terms of official statements, you know, you know, way 193 00:12:28,280 --> 00:12:31,280 Speaker 1: back then. Uh. And and and still is the case 194 00:12:31,920 --> 00:12:34,920 Speaker 1: right now. And the and the Ft has argued in 195 00:12:35,040 --> 00:12:42,600 Speaker 1: more recent times that the unconventional uh monetary ease and 196 00:12:42,679 --> 00:12:45,880 Speaker 1: the swollen balance sheets reflect the fact that fiscal policy 197 00:12:46,840 --> 00:12:49,760 Speaker 1: is not doing the heavy lifting. Well, guess what. Trump 198 00:12:49,760 --> 00:12:53,000 Speaker 1: has promised to be much more proactive in terms of 199 00:12:53,000 --> 00:12:56,760 Speaker 1: fiscal policy to so, uh does that mean that the 200 00:12:56,760 --> 00:13:03,840 Speaker 1: FED has to accelerate? Uh, it's withdrawal from the current stance. 201 00:13:03,920 --> 00:13:07,080 Speaker 1: And and I think that's what Janet Yellen was alluding to. 202 00:13:07,200 --> 00:13:10,240 Speaker 1: If in fact that the fiscal authorities are going to 203 00:13:10,320 --> 00:13:13,880 Speaker 1: play a more active role as the President actors promised, 204 00:13:13,920 --> 00:13:16,920 Speaker 1: and you know that suggests a different approach for central 205 00:13:16,960 --> 00:13:19,000 Speaker 1: banks in the US. Well, we're speaking with John Taylor 206 00:13:19,320 --> 00:13:23,320 Speaker 1: last week and he was the next chair Perhaps we 207 00:13:23,320 --> 00:13:25,760 Speaker 1: could get him to say so, but he was very 208 00:13:25,800 --> 00:13:27,640 Speaker 1: optimistic that we would see reform to the way the 209 00:13:27,720 --> 00:13:30,040 Speaker 1: FED is structured and the way that the FED interacts 210 00:13:30,080 --> 00:13:31,640 Speaker 1: with with the Congress, going for what he thinks the 211 00:13:31,640 --> 00:13:34,120 Speaker 1: appetite is there for for that to happen. Do you 212 00:13:34,160 --> 00:13:36,440 Speaker 1: foresee that happening as well? A change here in that 213 00:13:36,559 --> 00:13:41,360 Speaker 1: in that relationship. Principally, I would be surprised if if 214 00:13:41,400 --> 00:13:45,120 Speaker 1: there would be legislation passed to sort of codify a 215 00:13:45,240 --> 00:13:51,120 Speaker 1: rules based framework that Professor Taylor has long advocated. On 216 00:13:51,160 --> 00:13:56,880 Speaker 1: the other hand, if he is appointed the next chairman 217 00:13:57,520 --> 00:13:59,920 Speaker 1: of the Federal Reserve, you better believe that's where the 218 00:14:00,040 --> 00:14:02,360 Speaker 1: that is headed. So I think it's going to be 219 00:14:02,440 --> 00:14:08,439 Speaker 1: more personality driven rather than um driven by a new 220 00:14:08,480 --> 00:14:12,840 Speaker 1: piece of legislation that reformulates the mandate. How do you feel, then, 221 00:14:13,040 --> 00:14:17,920 Speaker 1: personality driven about let's even assume not the chairman, not 222 00:14:18,040 --> 00:14:22,680 Speaker 1: the vice chairman, but the governors in the President's with 223 00:14:22,800 --> 00:14:26,720 Speaker 1: the president's having a heritage of business, not being fancy 224 00:14:26,760 --> 00:14:30,440 Speaker 1: pants macro economists like Stephen Roach. We all agreed there's 225 00:14:30,440 --> 00:14:32,520 Speaker 1: got to be a couple. Kevin Warsh comes to mind 226 00:14:33,000 --> 00:14:36,760 Speaker 1: of people outside the normal economic boom. But a lot 227 00:14:36,840 --> 00:14:39,680 Speaker 1: of people supporting the president elect would say down with 228 00:14:39,720 --> 00:14:43,080 Speaker 1: a macro economist, wouldn't they. Well, they I think they 229 00:14:43,120 --> 00:14:48,680 Speaker 1: say down with experts, down with facts, down with truth. Okay, 230 00:14:48,680 --> 00:14:50,680 Speaker 1: I'll go there. So I mean, you know, you've got 231 00:14:50,680 --> 00:14:55,200 Speaker 1: to be careful, uh, in this um type of mindset 232 00:14:55,240 --> 00:14:57,000 Speaker 1: that you know, when we go into where you can 233 00:14:57,040 --> 00:14:59,800 Speaker 1: sort of say whatever you want and defend it as 234 00:15:00,000 --> 00:15:04,400 Speaker 1: the new post truth reality. But but you know, I 235 00:15:04,760 --> 00:15:08,720 Speaker 1: think that um, you know, getting back to the FED, 236 00:15:09,320 --> 00:15:12,840 Speaker 1: the FED historically from you know, the years that I 237 00:15:12,920 --> 00:15:17,880 Speaker 1: work there under uh, people like Arthur Burns remember him, 238 00:15:17,960 --> 00:15:23,360 Speaker 1: Tom too, Uh, Paul Vulker to Alan Greenspan and Janet Yelling. 239 00:15:23,760 --> 00:15:28,880 Speaker 1: The chairman has played a disproportionate role in shaping Monty. 240 00:15:28,880 --> 00:15:31,360 Speaker 1: You'd like to see less of that and FED decision making. 241 00:15:31,400 --> 00:15:34,120 Speaker 1: I certainly think that this is a committee that should 242 00:15:34,800 --> 00:15:37,760 Speaker 1: be ruled by a democracy. Very quickly here you mentioned 243 00:15:37,760 --> 00:15:40,800 Speaker 1: Sherman Burns. Folks, he used to do it unmeasured. Should 244 00:15:40,840 --> 00:15:42,600 Speaker 1: we have a FED that has occuraged to do more 245 00:15:42,640 --> 00:15:45,720 Speaker 1: than twenty five basis points if they're gonna act act 246 00:15:45,760 --> 00:15:49,040 Speaker 1: with a little more power into the system, or should 247 00:15:49,200 --> 00:15:54,119 Speaker 1: they stay green spanning and measured. Large measures are designed, 248 00:15:54,280 --> 00:15:59,240 Speaker 1: I think to surprise markets. Greenspan wanted to uh sort 249 00:15:59,280 --> 00:16:04,120 Speaker 1: of out of the markets, and that it depends on 250 00:16:04,200 --> 00:16:06,840 Speaker 1: you know where where we're how how far the markets 251 00:16:06,880 --> 00:16:10,080 Speaker 1: go uh in taking us to unpleasant places, and if 252 00:16:10,440 --> 00:16:13,360 Speaker 1: the markets are turned out to be a problem, which 253 00:16:13,400 --> 00:16:17,320 Speaker 1: is clearly a risk in terms of some of the 254 00:16:17,360 --> 00:16:20,400 Speaker 1: dislocations that we're seeing now in markets, and then will 255 00:16:20,480 --> 00:16:24,880 Speaker 1: require larger actions. David, can you imagine young Roach sitting 256 00:16:24,960 --> 00:16:29,640 Speaker 1: at the FED with a pipe and never smoked a pipe, Tom, 257 00:16:29,680 --> 00:16:33,080 Speaker 1: but certainly had you know, a great experience in dealing 258 00:16:33,080 --> 00:16:37,640 Speaker 1: with characters like Arthur Burns character that goes back to 259 00:16:37,680 --> 00:16:42,960 Speaker 1: the personalization about his chairman. Burns battled with the Nixon 260 00:16:43,880 --> 00:16:59,640 Speaker 1: White House. Steven Roach always enjoyed David Gurr and Tom Keene. 261 00:17:00,000 --> 00:17:03,240 Speaker 1: The Penguins beat the Rangers last night, which I think 262 00:17:03,280 --> 00:17:05,159 Speaker 1: is the only reason. Stephen as here. Did you go 263 00:17:05,200 --> 00:17:08,119 Speaker 1: to the hockey game last night? You did not go 264 00:17:08,160 --> 00:17:10,560 Speaker 1: to the hockey game. I did not. I'm waiting. I'm 265 00:17:10,600 --> 00:17:13,240 Speaker 1: saving my energy for the Giants game on Thursday. That 266 00:17:13,280 --> 00:17:16,920 Speaker 1: will be very exciting. Absolutely, Stephen A with us, uh 267 00:17:17,200 --> 00:17:20,400 Speaker 1: with with Federated, tell us give us an update Unfederated. 268 00:17:20,400 --> 00:17:24,040 Speaker 1: A long time ago, Federated owned the money market short 269 00:17:24,119 --> 00:17:26,560 Speaker 1: term paper business. Do you still own it? I mean, 270 00:17:26,680 --> 00:17:29,800 Speaker 1: even with all that's changed, we don't think we ever 271 00:17:29,840 --> 00:17:31,800 Speaker 1: owned it, but we have a decent share of it. 272 00:17:31,880 --> 00:17:33,560 Speaker 1: You know, we're still one of the top ranked money 273 00:17:33,560 --> 00:17:39,000 Speaker 1: market players. Uh in the United States. We're becoming a 274 00:17:39,040 --> 00:17:42,600 Speaker 1: pretty big equity player, which is where I where. Um. Yes, yeah, 275 00:17:42,880 --> 00:17:45,720 Speaker 1: I know you're focused on the equity view and we're 276 00:17:45,760 --> 00:17:49,240 Speaker 1: just beginning or two thousand seventeen views. Are you surprised 277 00:17:49,240 --> 00:17:54,639 Speaker 1: by the double digit wonderment of two thousand and sixteen? Uh? 278 00:17:54,680 --> 00:17:57,159 Speaker 1: I am a little bit surprised. Tom. We We've been 279 00:17:57,240 --> 00:18:01,520 Speaker 1: cautious all year up until the day after the try. Yeah. 280 00:18:01,520 --> 00:18:04,400 Speaker 1: Things changed, effects change, and we shifted at that point 281 00:18:04,440 --> 00:18:07,320 Speaker 1: to a more at least neutral stance from an underweight 282 00:18:07,320 --> 00:18:10,080 Speaker 1: stance on equities. But yeah, it's been a tough year. 283 00:18:10,080 --> 00:18:13,359 Speaker 1: I mean we've been through really an eighteen month bear 284 00:18:13,520 --> 00:18:15,919 Speaker 1: mini bear market, really going all the way back to 285 00:18:16,000 --> 00:18:20,400 Speaker 1: May fifteen, and we've now we think we've now exited 286 00:18:20,440 --> 00:18:22,960 Speaker 1: that one of these It's interesting, David, is to have 287 00:18:23,080 --> 00:18:26,560 Speaker 1: someone of such grizzled experience as Mr Arth, who was 288 00:18:26,680 --> 00:18:30,000 Speaker 1: enjoyed being wrong before, so talking about it is not painful. 289 00:18:30,359 --> 00:18:32,120 Speaker 1: It's like, you know, you're a little underweight this year, 290 00:18:32,119 --> 00:18:34,720 Speaker 1: and that's what happens when you when you look at 291 00:18:34,600 --> 00:18:42,240 Speaker 1: a sort of what changed scars me too. Uh, let's 292 00:18:42,280 --> 00:18:44,040 Speaker 1: go to the election, that's or what changed after that? 293 00:18:44,080 --> 00:18:47,080 Speaker 1: We saw this impulse here to get into things that 294 00:18:47,160 --> 00:18:49,280 Speaker 1: might be in line with it with an introduction spending plan. 295 00:18:49,359 --> 00:18:52,400 Speaker 1: We sew people going to financials. How in that rush 296 00:18:52,480 --> 00:18:54,720 Speaker 1: were you? And and now a few months after that, 297 00:18:54,720 --> 00:18:57,840 Speaker 1: a few weeks after that, at least, how much sense 298 00:18:57,880 --> 00:18:59,760 Speaker 1: did that make? How much of that was just exuberance? 299 00:19:00,840 --> 00:19:02,560 Speaker 1: There's a little bit of exuberance in there. I wrote 300 00:19:02,560 --> 00:19:05,919 Speaker 1: a piece last weekend called wall of hope. You know, 301 00:19:06,000 --> 00:19:09,119 Speaker 1: usually markets climb walls of worry, and right now this 302 00:19:09,200 --> 00:19:14,919 Speaker 1: market is climbing a wall of hope. We're awesome, and 303 00:19:14,960 --> 00:19:18,000 Speaker 1: it's it's unusual because you know, if you think about 304 00:19:18,000 --> 00:19:20,680 Speaker 1: it against the context of a long period now where 305 00:19:20,720 --> 00:19:25,840 Speaker 1: we've been told we can't grow, productivities declining, we just 306 00:19:26,119 --> 00:19:30,320 Speaker 1: keep carving up the pie. Uh and business is really 307 00:19:30,400 --> 00:19:34,639 Speaker 1: under attack. Really, I think we're seeing something different now. 308 00:19:34,880 --> 00:19:36,480 Speaker 1: There's something in the air. You can see it in 309 00:19:36,480 --> 00:19:39,639 Speaker 1: the confidence indicators, you can see it in the stock market. 310 00:19:40,160 --> 00:19:43,960 Speaker 1: You've got a businessman running the bully pulpit, if you will. 311 00:19:44,720 --> 00:19:49,720 Speaker 1: And I think his proposals are somewhat misunderstood. Actually, in fact, 312 00:19:49,760 --> 00:19:53,479 Speaker 1: people keep talking about fiscal package as if it is 313 00:19:54,800 --> 00:19:56,960 Speaker 1: and I have every political anilist in the country in 314 00:19:57,040 --> 00:20:00,360 Speaker 1: my offices over the course of the year. Obviously um 315 00:20:00,400 --> 00:20:03,000 Speaker 1: and you know Hillary Trump didn't matter. We're gonna get 316 00:20:03,000 --> 00:20:05,479 Speaker 1: a big fiscal stimulus. I think we're in this world 317 00:20:05,520 --> 00:20:08,840 Speaker 1: where we think, since the private sector can grow, the 318 00:20:08,880 --> 00:20:10,960 Speaker 1: only to make it grow is the government either fed 319 00:20:11,280 --> 00:20:14,320 Speaker 1: or the government spends money it doesn't have and somehow 320 00:20:14,520 --> 00:20:17,399 Speaker 1: hires people and gets them to work. And that is 321 00:20:17,440 --> 00:20:21,720 Speaker 1: precisely not what Trump is thinking about. He doesn't articulate it. Well, 322 00:20:21,760 --> 00:20:25,440 Speaker 1: he's a businessman. He's an entrepreneur. But what I would 323 00:20:25,440 --> 00:20:32,040 Speaker 1: like to use the term restructuring economic restructuring to define 324 00:20:32,200 --> 00:20:36,399 Speaker 1: the Trump program. And if you think about that, deregulation, 325 00:20:36,560 --> 00:20:38,960 Speaker 1: getting out of the way of making business is more efficient, 326 00:20:39,000 --> 00:20:43,359 Speaker 1: cutting their costs, cutting their tax burdens, making the tax 327 00:20:43,400 --> 00:20:47,840 Speaker 1: code simpler, infrastructure spending from the perspective of making the 328 00:20:47,880 --> 00:20:52,760 Speaker 1: economy more efficient, to raise productivity. All of those things 329 00:20:53,440 --> 00:20:57,760 Speaker 1: can improve economic growth, maybe bump inflation a little. But importantly, 330 00:20:57,880 --> 00:21:00,480 Speaker 1: I think, and this is the real up here with 331 00:21:00,520 --> 00:21:04,959 Speaker 1: the Trump plan. Uh the but the bond bears, and 332 00:21:05,000 --> 00:21:06,880 Speaker 1: you know they've been out in force in the last 333 00:21:06,880 --> 00:21:11,359 Speaker 1: twenty four hours even right the bond bears would say, look, 334 00:21:11,600 --> 00:21:17,680 Speaker 1: this is full stop inflationary when you apply fiscal stimulus 335 00:21:17,760 --> 00:21:21,240 Speaker 1: to an economy that's at full employment. But if you're 336 00:21:21,280 --> 00:21:25,359 Speaker 1: providing structural reform to an economy and full employment, maybe 337 00:21:25,400 --> 00:21:28,879 Speaker 1: you can increase the growth rate and not have inflation 338 00:21:28,960 --> 00:21:31,640 Speaker 1: go through the roof, not have the ten year bond 339 00:21:31,640 --> 00:21:35,359 Speaker 1: you'll go to five. And in that context, you're in 340 00:21:35,440 --> 00:21:39,080 Speaker 1: another leg of the equity bull market, and for now 341 00:21:39,480 --> 00:21:42,960 Speaker 1: I think that's what we're in. Obviously, things don't go 342 00:21:43,080 --> 00:21:46,520 Speaker 1: straight up, We're due for a pullback, some accident, something, 343 00:21:46,880 --> 00:21:51,080 Speaker 1: but our view is that this wall of hope is 344 00:21:51,080 --> 00:21:53,400 Speaker 1: going to keep us going for most of the next year. 345 00:21:53,520 --> 00:21:55,399 Speaker 1: How much of this is attributable to the plans that 346 00:21:55,440 --> 00:21:57,840 Speaker 1: you were talking about their the infrastructure plans versus something 347 00:21:58,200 --> 00:22:02,720 Speaker 1: more ineffable, just a new sense of optimism, the fact 348 00:22:02,760 --> 00:22:04,320 Speaker 1: that we're going to see a change in Washington, the 349 00:22:04,359 --> 00:22:06,919 Speaker 1: fact that we're going to see at Republicans controlling at 350 00:22:06,920 --> 00:22:10,080 Speaker 1: the legislative branch and the executive branch. Less based on 351 00:22:10,119 --> 00:22:13,359 Speaker 1: the granular nature of these plans. So I don't have 352 00:22:13,359 --> 00:22:15,399 Speaker 1: the granular nature plans that, but but more just on 353 00:22:15,440 --> 00:22:18,680 Speaker 1: a feeling. Well, one of the things I've learned from 354 00:22:18,720 --> 00:22:22,400 Speaker 1: the various scars on my back, David, is that I'm 355 00:22:22,440 --> 00:22:25,080 Speaker 1: not a lot smarter than everybody else. So part of 356 00:22:25,080 --> 00:22:27,080 Speaker 1: me thinks, oh, I have an insight here that no 357 00:22:27,119 --> 00:22:29,800 Speaker 1: one else has figured out, because I hear when talking 358 00:22:29,840 --> 00:22:33,720 Speaker 1: about this fiscal spending, and particularly the infrastructure in the 359 00:22:33,760 --> 00:22:35,399 Speaker 1: roll focus, how big it's going to be, how many 360 00:22:35,440 --> 00:22:38,440 Speaker 1: dollars it's gonna get spent. How quickly are I think 361 00:22:38,480 --> 00:22:41,960 Speaker 1: the markets and businesses actually smell out what I smell 362 00:22:42,000 --> 00:22:45,800 Speaker 1: out that this is something more than just that. And um, 363 00:22:45,840 --> 00:22:47,800 Speaker 1: I think that's part of what's going on. And look 364 00:22:47,840 --> 00:22:50,719 Speaker 1: what's moving. I mean, you know the stocks that are 365 00:22:50,760 --> 00:22:54,200 Speaker 1: really in the heart the cross hairs of these reforms, 366 00:22:54,240 --> 00:22:59,440 Speaker 1: like the bank spooks. You've got deregulation, you've got lower taxes. Uh, 367 00:22:59,520 --> 00:23:02,400 Speaker 1: you know, you've got nominal GDP growth picking up. These 368 00:23:02,400 --> 00:23:05,840 Speaker 1: are all things that helped the banks. Uh. You know, 369 00:23:05,920 --> 00:23:09,240 Speaker 1: the sector the right sectors are moving in this sort 370 00:23:09,240 --> 00:23:12,760 Speaker 1: of different view of the world. So I think actually 371 00:23:12,800 --> 00:23:17,120 Speaker 1: people are sniffing this out. We are evaluations. I mean 372 00:23:17,160 --> 00:23:21,800 Speaker 1: just on a trailing p basis. I mean, I mean 373 00:23:22,160 --> 00:23:24,040 Speaker 1: not that you and I want to recite Graham Dot 374 00:23:24,040 --> 00:23:27,560 Speaker 1: and Coddle, not the coronozoo Graham dot and or Coddle 375 00:23:27,720 --> 00:23:31,479 Speaker 1: is but where are valuations right now? Graham dot I 376 00:23:31,520 --> 00:23:34,960 Speaker 1: think that might have been a bill or something. Uh. Well, 377 00:23:35,560 --> 00:23:39,960 Speaker 1: on a trailing basis, valuations look very extended. And you 378 00:23:40,000 --> 00:23:43,400 Speaker 1: could say, in a way, this entire move post Trump 379 00:23:43,520 --> 00:23:46,480 Speaker 1: has been a value a reevaluation of equities. I don't 380 00:23:46,480 --> 00:23:50,120 Speaker 1: think that's the case. I think we think markets are 381 00:23:50,119 --> 00:23:54,119 Speaker 1: being valued about eighteen times where they believe earnings are 382 00:23:54,160 --> 00:23:56,840 Speaker 1: gonna be in twelve to eighteen months to me, I 383 00:23:56,840 --> 00:24:00,359 Speaker 1: mean interrupt. This is critical because you said eighteen months. Yeah, 384 00:24:00,400 --> 00:24:03,040 Speaker 1: I agree, it's not a I mean the media does 385 00:24:03,080 --> 00:24:05,879 Speaker 1: a one year view. I agree. The Trump is um 386 00:24:06,200 --> 00:24:09,920 Speaker 1: has moved us out exactly in a wall of hope environment. 387 00:24:10,000 --> 00:24:12,879 Speaker 1: People are willing to look eighteen months out in a 388 00:24:13,200 --> 00:24:16,840 Speaker 1: things are going nowhere environment. Everyone wants to know. Tell 389 00:24:16,880 --> 00:24:19,320 Speaker 1: me what the trailing earnings are. I can't convey enough, 390 00:24:19,320 --> 00:24:21,639 Speaker 1: folks how important this is. This is called theta on 391 00:24:21,720 --> 00:24:25,240 Speaker 1: the X axis, which is a time continuum of the 392 00:24:25,320 --> 00:24:29,160 Speaker 1: belief from confidence, and all of a sudden everybody reaches out. 393 00:24:29,359 --> 00:24:34,280 Speaker 1: The middle syllable of economy is con confidence. It could 394 00:24:34,320 --> 00:24:40,680 Speaker 1: be that's where the cynic for Brooklyn Commy doesn't go 395 00:24:40,680 --> 00:24:44,640 Speaker 1: anywhere without confidence. So yeah, eighteen times one forty, which 396 00:24:44,680 --> 00:24:47,480 Speaker 1: is where we think we easily get to by sometime 397 00:24:47,520 --> 00:24:50,199 Speaker 1: in two thousands. Are we going back to a cell side? 398 00:24:50,480 --> 00:24:53,040 Speaker 1: The security analysts that come on the show all good people, 399 00:24:53,440 --> 00:24:56,800 Speaker 1: where they're ordered by their research directors to start, well, 400 00:24:56,840 --> 00:24:58,960 Speaker 1: can you give me a two thousand and eighteen view 401 00:24:59,720 --> 00:25:03,040 Speaker 1: in you know, February of two thousand seventeen. That's you 402 00:25:03,040 --> 00:25:05,399 Speaker 1: and I remember this. Yeah. The thing is about the 403 00:25:05,400 --> 00:25:09,280 Speaker 1: cell side is they are hesitant to put out numbers 404 00:25:09,560 --> 00:25:11,800 Speaker 1: that they don't have facts to support the great in 405 00:25:11,800 --> 00:25:14,879 Speaker 1: the New world, Like really, they've got the Attorney General 406 00:25:14,920 --> 00:25:17,439 Speaker 1: chasing after whatever. So, but are we going back with 407 00:25:17,480 --> 00:25:19,399 Speaker 1: Donald Trump? Are we going back to what you and 408 00:25:19,440 --> 00:25:23,320 Speaker 1: I remember our five year view on international business machines? 409 00:25:23,480 --> 00:25:26,960 Speaker 1: I think it is. It is changing now. It's very 410 00:25:26,960 --> 00:25:29,320 Speaker 1: horizon is changing. Wall of Hope? Do you have any 411 00:25:29,320 --> 00:25:32,639 Speaker 1: idea what we're talking about? David? You know, I follow, 412 00:25:32,800 --> 00:25:35,480 Speaker 1: I could follow here climbing that wall of hope with you, 413 00:25:36,040 --> 00:25:42,160 Speaker 1: Stephen Federated Investors. Of course, I'm doing equity investments. They're 414 00:25:42,160 --> 00:25:44,920 Speaker 1: forcing us to continue with Mr Author so much fun, 415 00:25:45,040 --> 00:25:47,760 Speaker 1: Like really, I mean seriously, folks trying to figure out 416 00:25:48,040 --> 00:25:52,600 Speaker 1: the time continuum and the changes of Mr Mr Oths 417 00:25:52,600 --> 00:25:56,240 Speaker 1: phrase the wall of Hope. I love that with audacity. 418 00:25:56,320 --> 00:25:59,360 Speaker 1: We will use that. Did you get that? David? Which 419 00:26:02,880 --> 00:26:05,640 Speaker 1: David got it? I haven't started by Christmas shopping yet. 420 00:26:05,640 --> 00:26:17,520 Speaker 1: Help Who you put your trust in matters? Investors have 421 00:26:17,640 --> 00:26:21,560 Speaker 1: put their trust in independent registered investment advisors to the 422 00:26:21,600 --> 00:26:24,479 Speaker 1: two and of four trillion dollars. Why they see their 423 00:26:24,560 --> 00:26:28,040 Speaker 1: roles to serve, not sell. That's why Charles Schwab is 424 00:26:28,040 --> 00:26:33,200 Speaker 1: committed to the success over seven thousand independent financial advisors 425 00:26:33,440 --> 00:26:39,240 Speaker 1: who passionately dedicate themselves to helping people achieve their financial goals. 426 00:26:39,600 --> 00:26:50,679 Speaker 1: Learn more and find your independent advisor dot com. Alan Krueger, 427 00:26:50,800 --> 00:26:53,560 Speaker 1: Princeton economist, teacher of public policy at Princeton, has written 428 00:26:53,560 --> 00:26:57,000 Speaker 1: a piece with his colleague there at the university, Alan Blinder, 429 00:26:57,040 --> 00:26:59,159 Speaker 1: from a vice chair at the Fed Reserve, looking at 430 00:26:59,200 --> 00:27:02,440 Speaker 1: Donald Trump's in structure mistake. As they put it, We've 431 00:27:02,440 --> 00:27:04,439 Speaker 1: been talking about the infrastructure plan this morning, so much 432 00:27:04,480 --> 00:27:06,960 Speaker 1: as we know about it. And before we get into that, Alan, 433 00:27:07,000 --> 00:27:08,439 Speaker 1: I want to ask you. I mean, I think right 434 00:27:08,480 --> 00:27:10,840 Speaker 1: after the election, I was asking every guest without fail 435 00:27:10,880 --> 00:27:14,640 Speaker 1: here for a definition of trump ponomics. Uh, let's reprise 436 00:27:14,720 --> 00:27:17,280 Speaker 1: that here on December the twenty three, wenty closer to 437 00:27:17,320 --> 00:27:20,040 Speaker 1: having a sort of standardized definition of what trump ponomics is. 438 00:27:21,080 --> 00:27:27,639 Speaker 1: No good. We see that Ellen Krueger has continued to 439 00:27:27,760 --> 00:27:34,119 Speaker 1: not take the surveillance radio course for emphasis. Give us 440 00:27:34,119 --> 00:27:39,639 Speaker 1: a sense of maybe saut who knows uh? Donald Trump said, 441 00:27:39,960 --> 00:27:42,320 Speaker 1: uh thought wages were too high. The next day he 442 00:27:42,359 --> 00:27:46,240 Speaker 1: said he was misheard UH many todays for ten dollar 443 00:27:46,320 --> 00:27:49,720 Speaker 1: federal minimum wage, and apparently he plans to nominate someone 444 00:27:49,760 --> 00:27:52,360 Speaker 1: for labor secretary was opposed to the minimum wage altogether. 445 00:27:53,160 --> 00:27:58,200 Speaker 1: So I think it's very hard to divide exactly where 446 00:27:58,200 --> 00:28:01,600 Speaker 1: he stands on economic policy, and it's a moving partment. 447 00:28:01,920 --> 00:28:05,160 Speaker 1: Walk us through here what we know of the infrastructure 448 00:28:05,160 --> 00:28:08,240 Speaker 1: proposal we expect to be on the table here when 449 00:28:08,280 --> 00:28:10,040 Speaker 1: he takes office. You point out in your piece that 450 00:28:10,080 --> 00:28:13,240 Speaker 1: Peter Navarro and wilber Ross has outlined in some detail 451 00:28:13,320 --> 00:28:15,640 Speaker 1: what that's going to look like. Give us a sense 452 00:28:15,640 --> 00:28:19,480 Speaker 1: of a shape. Well, that's one area where the campaign 453 00:28:19,520 --> 00:28:24,040 Speaker 1: actually was specific, um, one of the few areas, and 454 00:28:24,440 --> 00:28:27,159 Speaker 1: what they proposed I think could be a component of 455 00:28:27,240 --> 00:28:30,199 Speaker 1: a robust infrastructure plan, but just a component of it. 456 00:28:30,800 --> 00:28:33,720 Speaker 1: So I think the problem is that the plan is 457 00:28:33,720 --> 00:28:38,480 Speaker 1: really lacking, as opposed to UH being a mistake to 458 00:28:38,560 --> 00:28:40,640 Speaker 1: have an infrastructure plan, or even for this to be 459 00:28:40,680 --> 00:28:44,600 Speaker 1: a component of the infrastructure plan. What Peter Navarro and 460 00:28:44,640 --> 00:28:49,760 Speaker 1: wilber Ross proposed in their ten page white paper is 461 00:28:50,880 --> 00:28:54,960 Speaker 1: to have the federal government provide a very large tax 462 00:28:55,000 --> 00:29:01,560 Speaker 1: credit tax credit to encourage private investors to invest in infrastructure. 463 00:29:02,280 --> 00:29:05,120 Speaker 1: UM there are some projects, probably a small number, where 464 00:29:05,120 --> 00:29:09,000 Speaker 1: that makes some sense to have h private sector participation 465 00:29:09,400 --> 00:29:16,040 Speaker 1: in the design and construction of the infrastructure. U subsidies 466 00:29:16,120 --> 00:29:19,880 Speaker 1: drives us as awfully generous. But more importantly, there are 467 00:29:19,920 --> 00:29:23,000 Speaker 1: many other projects where there's no revenustry, so there's no 468 00:29:23,080 --> 00:29:26,000 Speaker 1: incentive for private investors to make an investment in public 469 00:29:26,040 --> 00:29:30,080 Speaker 1: infrastructure projects like schools or hospitals, roads that don't have 470 00:29:30,280 --> 00:29:36,200 Speaker 1: Told Allen, the hallmark of your work is granular with concept, 471 00:29:36,880 --> 00:29:40,120 Speaker 1: and in the back of your important essay with Professor Blinder, 472 00:29:40,880 --> 00:29:43,840 Speaker 1: you bring up something that I'm going to suggest worked 473 00:29:43,840 --> 00:29:49,040 Speaker 1: like a charm, which was Build America Bonds. Educator audience 474 00:29:49,160 --> 00:29:54,000 Speaker 1: on the success the proven success of Build America bonds. 475 00:29:56,280 --> 00:30:02,080 Speaker 1: Both America Bonds were one of secrets of the Recovery Act. 476 00:30:03,880 --> 00:30:07,320 Speaker 1: The Recovery Act provided for a new type of municipal bond, 477 00:30:07,800 --> 00:30:14,640 Speaker 1: one where the federal government encouraged subsidized UH municipal government 478 00:30:14,680 --> 00:30:18,320 Speaker 1: state government to do infrastructure projects by giving them a 479 00:30:18,400 --> 00:30:23,000 Speaker 1: thirty direct subsidies to cover their interest costs. So instead 480 00:30:23,040 --> 00:30:27,800 Speaker 1: of taxing them bonds which worked through wealthy investors who 481 00:30:27,800 --> 00:30:33,240 Speaker 1: get interest tax free, these work by providing a direct 482 00:30:33,240 --> 00:30:36,120 Speaker 1: subsidy to the state and local governments to pay their 483 00:30:36,760 --> 00:30:41,240 Speaker 1: interest costs. These were taxable bonds, so they were appealing 484 00:30:41,280 --> 00:30:46,080 Speaker 1: to investors from abroad, they were appealing to nonprofits depending funds, 485 00:30:46,120 --> 00:30:49,160 Speaker 1: to any investors who don't have tax liabilities in the US. 486 00:30:50,320 --> 00:30:52,920 Speaker 1: They were available for just two years, tom and in 487 00:30:52,960 --> 00:30:56,360 Speaker 1: that period almost two billion dollars to Build America bonds 488 00:30:56,360 --> 00:31:00,520 Speaker 1: were issued. And remember two thousand that at the time 489 00:31:00,640 --> 00:31:04,240 Speaker 1: when the bond markets were frozen. So there's new innovation 490 00:31:04,680 --> 00:31:08,960 Speaker 1: enabled infrastructure to go forward up at a time when 491 00:31:09,080 --> 00:31:13,720 Speaker 1: financing was extremely challenged. The state local governments say, by 492 00:31:13,720 --> 00:31:17,560 Speaker 1: my calculations, over thirteen billion dollars because of the subsidy 493 00:31:17,560 --> 00:31:20,360 Speaker 1: and the lower interest rate that they were paying. Why 494 00:31:20,360 --> 00:31:22,480 Speaker 1: were they paying a lower interest rates? They paid a 495 00:31:22,480 --> 00:31:25,360 Speaker 1: lower interest rate because there were many more buyers and 496 00:31:25,440 --> 00:31:29,360 Speaker 1: these bonds than municipal bombs. Because foreign investors and tension 497 00:31:29,400 --> 00:31:34,520 Speaker 1: funds and and and UH nonprofits endowment funds, UH all 498 00:31:34,600 --> 00:31:38,480 Speaker 1: desired these bonds. And I'm looking back on that Recovery Act. 499 00:31:39,280 --> 00:31:41,280 Speaker 1: What are some some lessons learned here that this new 500 00:31:41,320 --> 00:31:44,880 Speaker 1: administration could change or do things differently going forward here 501 00:31:44,920 --> 00:31:46,720 Speaker 1: in terms of what what what didn't work about that 502 00:31:46,760 --> 00:31:51,640 Speaker 1: Recovery Act that could that could be different this time around. Well, 503 00:31:51,680 --> 00:31:53,880 Speaker 1: you know, when you're talking about an eight billion dollar act, 504 00:31:54,240 --> 00:31:57,200 Speaker 1: and I think there were many many different components for 505 00:31:57,240 --> 00:31:59,800 Speaker 1: the cup REACT that was a very different time. Unemployment 506 00:31:59,880 --> 00:32:01,920 Speaker 1: rate was on its way up ten percent at that time, 507 00:32:02,280 --> 00:32:06,320 Speaker 1: probably higher without the Recovery Act. UM. But just as 508 00:32:06,320 --> 00:32:10,960 Speaker 1: far as infrastructure is concerned, UM, I think one has 509 00:32:11,000 --> 00:32:14,400 Speaker 1: to recognize that infratrustre infrastructure spending does go out slowly. 510 00:32:14,800 --> 00:32:17,080 Speaker 1: It takes a while to get the projects spot the ground. 511 00:32:17,680 --> 00:32:20,440 Speaker 1: One aspect of infrastructure that does go out quickly, however, 512 00:32:20,520 --> 00:32:23,000 Speaker 1: is maintenanced, and we have an enormous need in this 513 00:32:23,080 --> 00:32:27,400 Speaker 1: country for maintaining our roads and our bridges and our highways, 514 00:32:27,480 --> 00:32:33,240 Speaker 1: for fixing UH structurally damaged bridges for example. UM maintenance 515 00:32:33,280 --> 00:32:37,160 Speaker 1: also has a very high economic return, and it's particularly 516 00:32:37,200 --> 00:32:42,200 Speaker 1: difficult to see how having a private equity investment is 517 00:32:42,200 --> 00:32:46,000 Speaker 1: going to help prepare existing roads where it's already very 518 00:32:46,000 --> 00:32:48,520 Speaker 1: difficult to collect more revenue in terms of tolls from 519 00:32:48,520 --> 00:32:53,440 Speaker 1: those roads. So UM, I think I would emphasize if, if, 520 00:32:53,520 --> 00:32:57,440 Speaker 1: if the administration is interested in investing in infrastructure to 521 00:32:57,520 --> 00:33:02,400 Speaker 1: generate a high return and to um generate more economic activity, 522 00:33:02,440 --> 00:33:05,880 Speaker 1: and to focus on me Alan Krueger with US of 523 00:33:05,960 --> 00:33:11,880 Speaker 1: Princeton University. Always there are eight ways to go, David, 524 00:33:11,920 --> 00:33:16,400 Speaker 1: can I rip up the script Alan Krueger among minimum 525 00:33:16,400 --> 00:33:20,360 Speaker 1: wage with card, among your teaching, among your public service, 526 00:33:20,880 --> 00:33:24,600 Speaker 1: your discussion with Professor Blinder, and infrastructure. You wrote a 527 00:33:24,640 --> 00:33:27,400 Speaker 1: little book that I read every word of It was 528 00:33:27,520 --> 00:33:35,120 Speaker 1: a jewel on terror. I found it exceptionally illuminating. Back then, 529 00:33:35,160 --> 00:33:39,520 Speaker 1: it was new, it was different, and yet terror has endured. 530 00:33:40,080 --> 00:33:42,440 Speaker 1: As you look at Berlin, as you look at the 531 00:33:42,600 --> 00:33:46,600 Speaker 1: assassination and Anchora. What have you learned since you wrote 532 00:33:46,640 --> 00:33:52,160 Speaker 1: that beautiful monograph about terror? Oh, thanks for asking me 533 00:33:52,200 --> 00:33:54,960 Speaker 1: about it. Tom actually sitting right in front of me. 534 00:33:55,040 --> 00:33:58,680 Speaker 1: I'm about to revise the book because it's now almost 535 00:33:58,680 --> 00:34:00,640 Speaker 1: ten years old and it needs it. It needs to 536 00:34:00,680 --> 00:34:05,440 Speaker 1: be revised. That's wonderful. What's new? Well, I think what 537 00:34:05,480 --> 00:34:10,080 Speaker 1: we've seen since I wrote What Makes a Terrorist is 538 00:34:10,200 --> 00:34:15,000 Speaker 1: a very large expansion of lone wolf terrorism. People are 539 00:34:15,040 --> 00:34:17,759 Speaker 1: acting on their own, may be inspired by some of 540 00:34:17,800 --> 00:34:22,360 Speaker 1: the terrorist organizations, but not guided by them, not trained 541 00:34:22,360 --> 00:34:25,160 Speaker 1: by them, not deployed by them. And I think that's 542 00:34:25,160 --> 00:34:28,279 Speaker 1: a very different type of terrorism. They tend to be 543 00:34:28,560 --> 00:34:31,799 Speaker 1: people who have run into problems in their lives who 544 00:34:31,800 --> 00:34:35,640 Speaker 1: are carrying out these acts, whereas the nine eleven type terrorists, 545 00:34:35,680 --> 00:34:39,640 Speaker 1: the terrorists who are sent by the terrorist organizations, are 546 00:34:40,360 --> 00:34:43,720 Speaker 1: much more disciplined. They're much more dangerous in the types 547 00:34:43,719 --> 00:34:45,719 Speaker 1: of act that they can carry act out. All of 548 00:34:45,840 --> 00:34:48,839 Speaker 1: the loan terrorists are also dangerous, of course. Uh, And 549 00:34:48,880 --> 00:34:50,879 Speaker 1: it's more of an existential threat and when it comes 550 00:34:50,880 --> 00:34:53,680 Speaker 1: from a terrorist organization as opposed to these loan wolts, 551 00:34:54,800 --> 00:34:57,200 Speaker 1: you know. I imagine wrapped into all of that is 552 00:34:57,200 --> 00:34:59,640 Speaker 1: the role of the media and social media and the 553 00:35:00,000 --> 00:35:02,480 Speaker 1: way that a lone wolf now can be radicalized with 554 00:35:02,920 --> 00:35:07,319 Speaker 1: more ease than in the past. Absolutely. Uh, there's the 555 00:35:07,360 --> 00:35:11,920 Speaker 1: way information spreads on the internet. Also, I don't think 556 00:35:11,960 --> 00:35:15,040 Speaker 1: we've learned that the media should stay cool after these 557 00:35:15,120 --> 00:35:18,520 Speaker 1: terrorist attacks and wait for the facts to come in. Invariably, 558 00:35:18,760 --> 00:35:22,000 Speaker 1: the initial reporting is wrong, Even the best initial reporting 559 00:35:22,040 --> 00:35:24,680 Speaker 1: tends to be wrong, and that just rates his fear 560 00:35:24,680 --> 00:35:28,160 Speaker 1: in the public and blows the fear beyond beyond the 561 00:35:29,600 --> 00:35:34,680 Speaker 1: risk that we're actually facing the line here between radicalism 562 00:35:34,719 --> 00:35:38,919 Speaker 1: and terrorism and your economics is that still a huge 563 00:35:38,920 --> 00:35:45,399 Speaker 1: motivating factor here? Just economic disparity, economic dissatisfaction. I think 564 00:35:45,400 --> 00:35:49,440 Speaker 1: economic disparity has actually very little to do with it. UM. 565 00:35:49,480 --> 00:35:53,120 Speaker 1: The terrorist organization seemed to be driven by geopolitical concerns, 566 00:35:54,120 --> 00:35:58,080 Speaker 1: by occupations and conflicts and being on often the wrong 567 00:35:58,120 --> 00:36:01,959 Speaker 1: side of history and using the only means they have. UM. 568 00:36:02,000 --> 00:36:06,000 Speaker 1: The terrorists themselves are not people who are desperately poor 569 00:36:06,239 --> 00:36:08,600 Speaker 1: even alone. Wolves tend to be people who look like 570 00:36:08,680 --> 00:36:12,120 Speaker 1: the populations that they're coming from. UM, and certainly go 571 00:36:12,120 --> 00:36:15,120 Speaker 1: back to nine eleven, it was people who were well educated, 572 00:36:15,360 --> 00:36:18,680 Speaker 1: from from very wealthy families, from the countries that they 573 00:36:18,680 --> 00:36:22,640 Speaker 1: came from. UM. So I think we tend to look 574 00:36:22,680 --> 00:36:26,120 Speaker 1: at events through a lens of economics and tend to 575 00:36:26,160 --> 00:36:29,719 Speaker 1: attribute too much to economic motivations. How about through the 576 00:36:29,800 --> 00:36:32,080 Speaker 1: lens of public policy and how we respond to this, 577 00:36:32,160 --> 00:36:35,040 Speaker 1: how we prevented from happening. How much better are we 578 00:36:35,120 --> 00:36:36,640 Speaker 1: at it now than we were when you first wrote 579 00:36:36,640 --> 00:36:40,640 Speaker 1: the book? Well, I think we're about to take a 580 00:36:40,640 --> 00:36:42,480 Speaker 1: giant leak to being worse at it. I mean, I 581 00:36:42,520 --> 00:36:49,480 Speaker 1: think provoking UH religious groups UM and criticizing entire religious 582 00:36:49,480 --> 00:36:55,880 Speaker 1: groups is not a way UH to prevent radicalization. UM. 583 00:36:55,960 --> 00:36:58,000 Speaker 1: You know, I admire what George Bush did in many 584 00:36:58,000 --> 00:37:03,120 Speaker 1: respects by going to a mosque and saying that our 585 00:37:03,280 --> 00:37:07,640 Speaker 1: enemy are these terrorist groups. I think we need to 586 00:37:07,680 --> 00:37:13,000 Speaker 1: focus on terrorist organizations and try to degrade their capabilities. Um, 587 00:37:13,520 --> 00:37:17,520 Speaker 1: and need to take security precautions against the lone wolves. 588 00:37:17,600 --> 00:37:20,000 Speaker 1: But that's not the biggest threat that we faced. That's 589 00:37:20,040 --> 00:37:23,680 Speaker 1: not an existential threat I think to the US. On 590 00:37:23,719 --> 00:37:26,759 Speaker 1: the other hand, the terrorist group being able uh to 591 00:37:27,000 --> 00:37:29,200 Speaker 1: use weapons of mass destruction, that is a threat to 592 00:37:29,239 --> 00:37:32,120 Speaker 1: the US. Yeah. I look, Allan. And to bring it 593 00:37:32,200 --> 00:37:36,200 Speaker 1: back to I guess where we are right now. There's 594 00:37:36,239 --> 00:37:39,239 Speaker 1: a construction of a cabinet. I've got to ask a 595 00:37:39,239 --> 00:37:43,440 Speaker 1: difficult question. Lawrence Cudlow has been a terrific market economist 596 00:37:43,520 --> 00:37:47,040 Speaker 1: with a steam track record at bear Stearns. Mr Eisenboys 597 00:37:47,080 --> 00:37:49,400 Speaker 1: down at the Atlanta Fed documented it's a number of 598 00:37:50,200 --> 00:37:52,759 Speaker 1: years ago. And of course the rap that will be 599 00:37:52,800 --> 00:37:55,920 Speaker 1: put out by critics of President elect Trump is that 600 00:37:55,960 --> 00:38:00,160 Speaker 1: he's not a fancy pants PhD economist like Allen Krueger. Uh, 601 00:38:00,440 --> 00:38:03,120 Speaker 1: with great candor and respect for your work. And frankly, 602 00:38:03,280 --> 00:38:06,960 Speaker 1: Mr Cardlos, Larry Cardlos, do you think it's a requirement 603 00:38:07,400 --> 00:38:09,600 Speaker 1: to be an academic and a PhD to be the 604 00:38:09,719 --> 00:38:15,279 Speaker 1: chairman of the President's Council of Economic Advisors. It's not 605 00:38:15,320 --> 00:38:18,880 Speaker 1: a requirement, Tom, And at the very beginning of the council, 606 00:38:19,440 --> 00:38:21,960 Speaker 1: in fact, there was a lawyer who was the chairman. 607 00:38:22,480 --> 00:38:26,720 Speaker 1: Beginning with President Eisenhower. He asked Arthur Burns to review 608 00:38:27,520 --> 00:38:30,560 Speaker 1: the Council Economic Advisors, and it was Arthur Burns's view 609 00:38:31,440 --> 00:38:37,759 Speaker 1: that the council should be run by UH research economists 610 00:38:38,080 --> 00:38:42,239 Speaker 1: economics who are familiar with the literature. UH doesn't have 611 00:38:42,280 --> 00:38:44,440 Speaker 1: to be an academic, of course, and hasn't always been 612 00:38:44,440 --> 00:38:47,480 Speaker 1: an academic. UM. So I don't think there's a requirement 613 00:38:48,000 --> 00:38:51,279 Speaker 1: that it is UH fancy pants PhD as you put it. 614 00:38:51,920 --> 00:38:54,520 Speaker 1: But I think it is helpful for the person to 615 00:38:54,560 --> 00:38:57,799 Speaker 1: be knowledgeable of certainly of the economy, but also of 616 00:38:57,920 --> 00:39:01,759 Speaker 1: what the uhsearch has found about the economy. Let me 617 00:39:01,760 --> 00:39:04,359 Speaker 1: interject your David as you jump in and suggested by 618 00:39:04,400 --> 00:39:09,240 Speaker 1: fancy pants PhD, Mr Gurt, I understand that Alan Krueger 619 00:39:09,239 --> 00:39:12,920 Speaker 1: works more than fifty one work week, where the stereotype 620 00:39:12,920 --> 00:39:15,879 Speaker 1: of his work at Princeton is about eighteen a week. 621 00:39:16,000 --> 00:39:18,799 Speaker 1: You know, you sort of Wanders on Thursday to teach, 622 00:39:18,840 --> 00:39:22,200 Speaker 1: you know, undergraduate very quickly here, Allan, when when you 623 00:39:22,200 --> 00:39:25,080 Speaker 1: look at that role of c e A chair, how 624 00:39:25,160 --> 00:39:26,920 Speaker 1: much of it is is baked in other ways? How 625 00:39:26,960 --> 00:39:29,200 Speaker 1: much determinism do you have when you inherit that role 626 00:39:29,239 --> 00:39:33,440 Speaker 1: to shape at what that council does? Well? Certainly at 627 00:39:33,480 --> 00:39:36,080 Speaker 1: the beginning of the administration you do. Um, it's a 628 00:39:36,080 --> 00:39:40,280 Speaker 1: great job, and I should say I think very highly 629 00:39:40,480 --> 00:39:45,920 Speaker 1: Uh Larry Cutlo as television persona. I've always enjoyed interacting 630 00:39:45,920 --> 00:39:53,000 Speaker 1: with him. You've never called me persona. Continue, Allen, I'm 631 00:39:53,000 --> 00:39:54,600 Speaker 1: still holding out and hope for you that there's a 632 00:39:54,640 --> 00:39:56,879 Speaker 1: job for you. You know, there's a bow tie. There's 633 00:39:56,920 --> 00:40:02,279 Speaker 1: a bow tie restriction. Uh. At the beginning of administration, 634 00:40:02,480 --> 00:40:05,240 Speaker 1: when procedures are getting set, I think that's the time 635 00:40:05,280 --> 00:40:08,200 Speaker 1: when individuals in any of these top level jobs going 636 00:40:08,239 --> 00:40:11,640 Speaker 1: to have the greatest influence. Um, the council is a 637 00:40:11,760 --> 00:40:14,240 Speaker 1: terrific job. Being chairman of the CEA is a terrific 638 00:40:14,320 --> 00:40:17,000 Speaker 1: job because you're basically heading a think tank right next 639 00:40:17,000 --> 00:40:19,760 Speaker 1: to the president. You have an outstanding, hard working staff. 640 00:40:20,280 --> 00:40:22,239 Speaker 1: They come for a year. Again, this is the way 641 00:40:22,239 --> 00:40:25,800 Speaker 1: that Arthur Burne set it up for President Eisenhower. Um, 642 00:40:25,880 --> 00:40:30,520 Speaker 1: the staff usually doesn't care too much about uh stepping 643 00:40:30,520 --> 00:40:32,600 Speaker 1: on people's toes because they're gonna go back to their 644 00:40:32,600 --> 00:40:37,920 Speaker 1: previous jobs. And UM, you get to weigh in basically 645 00:40:37,920 --> 00:40:41,520 Speaker 1: on any economic policy that you want to the second 646 00:40:41,640 --> 00:40:43,640 Speaker 1: Arthur Burns reference of the of the show there, I 647 00:40:43,680 --> 00:40:47,359 Speaker 1: know it's too much. Alan Krueger, with great respect, thank 648 00:40:47,400 --> 00:40:50,520 Speaker 1: you so much, and congratulations early for any and all 649 00:40:50,560 --> 00:40:55,400 Speaker 1: of whatever persuasion Trump's infrastructure mistake. Blinder and Krueger in 650 00:40:55,400 --> 00:40:57,160 Speaker 1: the Wall Street Journal, and we look forward to the 651 00:40:57,200 --> 00:40:59,239 Speaker 1: new new edition of What Makes a Terrorist? When that 652 00:40:59,280 --> 00:41:01,879 Speaker 1: when the Ling book, I remember when he brought it out, 653 00:41:01,920 --> 00:41:04,960 Speaker 1: and to be blunt, David, it was so brutal that 654 00:41:05,080 --> 00:41:06,920 Speaker 1: a lot of people couldn't read it. You know, it 655 00:41:07,000 --> 00:41:12,600 Speaker 1: was just so shockingly direct about what his research showed 656 00:41:12,640 --> 00:41:27,759 Speaker 1: in the mindset of those that commit terra. Let me 657 00:41:27,800 --> 00:41:35,799 Speaker 1: get your attention, Americans. Imports would be more expensive, exports 658 00:41:35,840 --> 00:41:39,880 Speaker 1: would be cheaper, which I guess means the President elect 659 00:41:39,920 --> 00:41:43,839 Speaker 1: wants to buy a BMW or Mercedes or something like that. 660 00:41:44,400 --> 00:41:47,759 Speaker 1: Sebastian Galley has done terrific work on this. Deutsche Bank. 661 00:41:48,640 --> 00:41:52,000 Speaker 1: Let's talk about something I don't know about, and I 662 00:41:52,239 --> 00:41:55,520 Speaker 1: guess as most of our listeners don't know about. Sebastian, 663 00:41:55,520 --> 00:41:59,600 Speaker 1: Good morning. The Better Way Reform package in a border 664 00:41:59,719 --> 00:42:04,799 Speaker 1: to its proposal discuss it's a it's an interesting and 665 00:42:05,040 --> 00:42:08,240 Speaker 1: UH and because the groundbreaking proposal made by the incoming 666 00:42:08,239 --> 00:42:12,680 Speaker 1: administration UH to tax imports essentially an equivalent of putting 667 00:42:12,680 --> 00:42:14,840 Speaker 1: on a duty. That means if you would be shopping 668 00:42:14,880 --> 00:42:18,520 Speaker 1: in Walmart, it would be significantly more expensive under the 669 00:42:18,600 --> 00:42:21,640 Speaker 1: new plan. On the other hand, there's really no penalty 670 00:42:21,719 --> 00:42:24,560 Speaker 1: for for exports for net net and theory it should 671 00:42:24,600 --> 00:42:27,960 Speaker 1: be a positive for the U S economy. Unfortunately, it 672 00:42:28,000 --> 00:42:31,120 Speaker 1: also probably means a bit of inflation coming through some 673 00:42:31,160 --> 00:42:33,919 Speaker 1: more appeal for UH the U S because it looks 674 00:42:34,120 --> 00:42:37,000 Speaker 1: essentially better in terms of balance sheet. It's to some 675 00:42:37,080 --> 00:42:40,200 Speaker 1: extent a good reform um and the outcome would be 676 00:42:40,480 --> 00:42:43,000 Speaker 1: a stronger dollar and more inflation coming into the US. 677 00:42:43,080 --> 00:42:46,359 Speaker 1: It it's a radical plan. UH, it's an interesting plan 678 00:42:46,760 --> 00:42:49,920 Speaker 1: and UH it's it's very sizable in terms of its 679 00:42:49,920 --> 00:42:54,440 Speaker 1: implication for mistic the mix of industries within the United States, 680 00:42:54,440 --> 00:42:58,080 Speaker 1: and maybe some restoring of activity in the US. What's 681 00:42:58,120 --> 00:42:59,680 Speaker 1: your sense of of whether or not this is going 682 00:42:59,719 --> 00:43:01,800 Speaker 1: to be come policy. I mentioned are we speaking with 683 00:43:01,960 --> 00:43:05,160 Speaker 1: and Morris of City yesterday about the oil market, and 684 00:43:05,200 --> 00:43:07,680 Speaker 1: he brought this up in that context as well, that 685 00:43:07,800 --> 00:43:10,640 Speaker 1: a border tax adjustment could result in a boon here 686 00:43:10,680 --> 00:43:14,840 Speaker 1: for US producers. What sectors do you see this affecting 687 00:43:14,840 --> 00:43:19,200 Speaker 1: the most, well, anybody who's exporting, and including the the 688 00:43:19,200 --> 00:43:22,800 Speaker 1: oil sector. But the export sector in the United States 689 00:43:22,800 --> 00:43:25,480 Speaker 1: is relatively weak, so pretty much anybody who starts to 690 00:43:25,800 --> 00:43:27,680 Speaker 1: develop these kind of activity and it will probably take 691 00:43:27,719 --> 00:43:30,360 Speaker 1: a few quarters for that to happen well well benefit 692 00:43:30,440 --> 00:43:33,040 Speaker 1: from this. There are basically low added value type of 693 00:43:33,640 --> 00:43:36,319 Speaker 1: producers sign I T sectors and the likes which would 694 00:43:36,320 --> 00:43:39,920 Speaker 1: benefit very strongly because their margins are very poor. On 695 00:43:39,960 --> 00:43:42,080 Speaker 1: the other side, there there are those who import a lot, 696 00:43:42,120 --> 00:43:44,960 Speaker 1: and that's actually right now. They the majority um and 697 00:43:45,160 --> 00:43:46,960 Speaker 1: they would suffer and they would have to take a 698 00:43:47,040 --> 00:43:51,160 Speaker 1: hit on their earnings. You, of course, are are deeply 699 00:43:51,200 --> 00:43:53,440 Speaker 1: involved with for ex strategy. And let's let's talk a 700 00:43:53,440 --> 00:43:55,239 Speaker 1: little bit about China. We kicked off the show talking 701 00:43:55,239 --> 00:43:58,280 Speaker 1: to Stephen Roach about the Chinese economy, and I wonder 702 00:43:58,320 --> 00:44:02,000 Speaker 1: if you're you're forecasting here a s Groundhog Day in 703 00:44:02,040 --> 00:44:05,120 Speaker 1: the new year. Just in January and February of this year, 704 00:44:05,640 --> 00:44:07,560 Speaker 1: there was so much trouble with China's reserves and we 705 00:44:07,560 --> 00:44:10,279 Speaker 1: saw so much movement in the Chinese currency. What's your 706 00:44:10,280 --> 00:44:13,239 Speaker 1: your sense of where we're headed here in the new year, Well, 707 00:44:13,280 --> 00:44:15,680 Speaker 1: what is what we've seen is the Chinese essentially been 708 00:44:15,719 --> 00:44:19,160 Speaker 1: puts and more and more capital controls domestically UH to 709 00:44:19,160 --> 00:44:22,720 Speaker 1: to stand the risk of outshows, including UM many marchers 710 00:44:22,719 --> 00:44:25,480 Speaker 1: in acquisitions which we're going from China, particularly going into 711 00:44:25,560 --> 00:44:28,360 Speaker 1: into Europe to acquire technology so that they could renovate 712 00:44:28,400 --> 00:44:31,719 Speaker 1: the basically the industries within China. UH that has been cut, 713 00:44:31,719 --> 00:44:33,560 Speaker 1: which tells you that there's a lot of pain. That 714 00:44:33,600 --> 00:44:37,399 Speaker 1: means in terms of potential outflows, they're they're still there, 715 00:44:37,400 --> 00:44:39,960 Speaker 1: but they simply are not realized. What will happen in 716 00:44:40,000 --> 00:44:42,399 Speaker 1: the beginning of the year is as pointed off by 717 00:44:42,400 --> 00:44:45,279 Speaker 1: our colleagues in Asia, is that the retail investors will 718 00:44:45,320 --> 00:44:49,080 Speaker 1: be allowed to export such fifty sum per person and 719 00:44:49,120 --> 00:44:52,000 Speaker 1: that typically means us some upper pressure on the dollar 720 00:44:52,120 --> 00:44:54,880 Speaker 1: versus that remimbi. So there might be UH some some 721 00:44:55,200 --> 00:44:57,560 Speaker 1: weakening of the remimbia in the beginning of the year. 722 00:44:57,920 --> 00:45:00,120 Speaker 1: It might also be used as a signal to all 723 00:45:00,120 --> 00:45:03,399 Speaker 1: the to the incoming administration, but that's not very clear. 724 00:45:03,400 --> 00:45:05,480 Speaker 1: It's a bit playing with fire. If it's a very 725 00:45:05,560 --> 00:45:09,800 Speaker 1: large evaluation. If it's a medium one, that it's more debatable. 726 00:45:09,800 --> 00:45:12,319 Speaker 1: And so you know that when the big guys are 727 00:45:12,320 --> 00:45:14,560 Speaker 1: playing in playing poker it so it can be a 728 00:45:14,560 --> 00:45:17,160 Speaker 1: difficult game. Are there indications when you when you look 729 00:45:17,160 --> 00:45:18,960 Speaker 1: at the currents, when you look at the Chinese currency, 730 00:45:19,400 --> 00:45:22,160 Speaker 1: are you confident here that the Chinese government is letting 731 00:45:22,200 --> 00:45:25,719 Speaker 1: it is willing to let it float. Well, they can't 732 00:45:25,800 --> 00:45:28,160 Speaker 1: let it float. They are not not fast enough because 733 00:45:28,160 --> 00:45:31,160 Speaker 1: they would effectively be a form of extreme tightening of 734 00:45:31,400 --> 00:45:34,560 Speaker 1: monetary conditions within China. So what it's trying to do 735 00:45:34,640 --> 00:45:37,920 Speaker 1: is achieve a reasonable pace of of the evaluation. Its 736 00:45:37,960 --> 00:45:41,600 Speaker 1: currency is a cyclically overvalue it even though in long 737 00:45:41,680 --> 00:45:43,440 Speaker 1: term and say it's actually quite cheap, they do have 738 00:45:43,520 --> 00:45:46,560 Speaker 1: significant problems and as a fat Titans is driving a 739 00:45:46,560 --> 00:45:48,400 Speaker 1: lot of demand for the dollar, plus the issue that 740 00:45:48,440 --> 00:45:51,000 Speaker 1: they have in China um and and so the outcome 741 00:45:51,040 --> 00:45:53,160 Speaker 1: is they're they're doing their best to to have a 742 00:45:53,200 --> 00:45:56,439 Speaker 1: moderate evaluation, but that comes into the face of an 743 00:45:56,440 --> 00:45:59,360 Speaker 1: incoming administration, which has decided to something ex actly for 744 00:45:59,400 --> 00:46:02,040 Speaker 1: now to concern sun China. So it might be difficult 745 00:46:02,760 --> 00:46:05,920 Speaker 1: from where you said, what does the ability to quote 746 00:46:06,000 --> 00:46:09,600 Speaker 1: unquote make money or maybe make alpha and e M 747 00:46:09,719 --> 00:46:13,160 Speaker 1: currencies right now? Is that a context bard and hazards 748 00:46:14,000 --> 00:46:17,120 Speaker 1: or is there a real opportunity and the travails of 749 00:46:17,280 --> 00:46:23,080 Speaker 1: emerging markets given President Trump, well, I mean particularly I 750 00:46:23,120 --> 00:46:24,840 Speaker 1: feel if we're going to get trade wars in that, 751 00:46:25,000 --> 00:46:28,920 Speaker 1: which seems somewhat likely on the emerging markets are particularly vulnerable. 752 00:46:29,000 --> 00:46:30,640 Speaker 1: Then then again, some of them are are doing a 753 00:46:30,640 --> 00:46:33,760 Speaker 1: little bit better. Higher old prices are helping some oil producers, 754 00:46:33,760 --> 00:46:35,320 Speaker 1: and some of our colleagues are putting out to the 755 00:46:35,360 --> 00:46:38,360 Speaker 1: Russian ruble is maybe being not so unappealing as it 756 00:46:38,520 --> 00:46:41,279 Speaker 1: used to be. So there are some marginal opportunity within 757 00:46:41,320 --> 00:46:44,960 Speaker 1: emerging markets, but the ways of risk coming from the 758 00:46:44,960 --> 00:46:47,239 Speaker 1: fact that the FED is tightening, that there is significant 759 00:46:47,320 --> 00:46:51,280 Speaker 1: risk and it's propagating in different ways through emerging markets 760 00:46:51,680 --> 00:46:54,160 Speaker 1: is not over and so you could get further shock 761 00:46:54,239 --> 00:46:57,839 Speaker 1: going through emerging markets, whether it's Mexico, whether um, it's 762 00:46:58,080 --> 00:47:01,879 Speaker 1: it's other part of the emerging market spectrum, which which 763 00:47:01,920 --> 00:47:04,319 Speaker 1: will still be coming in in the in the next 764 00:47:04,480 --> 00:47:07,239 Speaker 1: a few quarters. Difficult to time them, but there are 765 00:47:07,280 --> 00:47:11,040 Speaker 1: some pockets which maybe are of value, and Russian roubles 766 00:47:11,040 --> 00:47:14,319 Speaker 1: have been identified by our colleagues. You mentioned Mexico and 767 00:47:14,400 --> 00:47:17,479 Speaker 1: it was a currency we were following so closely during 768 00:47:17,480 --> 00:47:20,799 Speaker 1: the presidential campaign. What is the legacy of that band 769 00:47:20,840 --> 00:47:23,440 Speaker 1: when you look at here the Mexican currency versus the 770 00:47:23,480 --> 00:47:26,600 Speaker 1: dollarance or what the future of that area is, what 771 00:47:26,680 --> 00:47:29,640 Speaker 1: do you see? Well, first, I have to apologize because 772 00:47:29,960 --> 00:47:31,680 Speaker 1: a few years ago it was so bullish on the 773 00:47:31,800 --> 00:47:34,680 Speaker 1: Mexican baso reforms and all the likes, and it has 774 00:47:34,719 --> 00:47:38,799 Speaker 1: been essentially a disaster. The occurrency has been devaluing and 775 00:47:39,000 --> 00:47:43,120 Speaker 1: at a steady pace, and it's extremely linked to expectations 776 00:47:43,160 --> 00:47:45,479 Speaker 1: of offset tightening. It's been used as a proxy given 777 00:47:45,520 --> 00:47:48,400 Speaker 1: it's a it's high correlation and uh and it also 778 00:47:48,480 --> 00:47:51,600 Speaker 1: means that even though the risk have faded recently in 779 00:47:51,600 --> 00:47:53,839 Speaker 1: the Mexican bay so that they still can can come 780 00:47:53,880 --> 00:47:57,680 Speaker 1: back in in the next few quarters. So unfortunately, whatever 781 00:47:57,719 --> 00:48:01,120 Speaker 1: the fundamentals on Mexican Mexico are, they they are driven 782 00:48:01,160 --> 00:48:05,360 Speaker 1: by the FETE into a secondary extent of the potential 783 00:48:05,400 --> 00:48:09,200 Speaker 1: for some confrontation with a Trump adsinistration, which thankfully set 784 00:48:09,280 --> 00:48:20,279 Speaker 1: a diminition. Thanks for listening to the Bloomberg Surveillance podcast. 785 00:48:20,640 --> 00:48:25,759 Speaker 1: Subscribe and listen to interviews on iTunes, SoundCloud, or whichever 786 00:48:25,880 --> 00:48:30,320 Speaker 1: podcast platform you prefer. I'm out on Twitter at Tom Keene. 787 00:48:30,400 --> 00:48:34,200 Speaker 1: David Gura is at David Gura. Before the podcast, you 788 00:48:34,239 --> 00:48:50,400 Speaker 1: can always catch us worldwide on Bloomberg Radio. Who you 789 00:48:50,440 --> 00:48:53,200 Speaker 1: Put your trust in matters. Investors have put their trust 790 00:48:53,560 --> 00:48:57,480 Speaker 1: and independent registered investment advisors to the two and four 791 00:48:57,520 --> 00:49:02,800 Speaker 1: trillion dollars. Why learn more? Find your independent adviser dot 792 00:49:02,840 --> 00:49:03,520 Speaker 1: com