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Speaker 1: Runt you by Bank of America Mary Lynch. With virtual reality,

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Speaker 1: virtually everything will change. Discover opportunities in a transforming world.

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Speaker 1: Be of a, mL dot Com, slash VR, Mary Lynch,

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Speaker 1: Pierce Fenner and Smith Incorporated. Welcome to the Bloomberg Surveillance Podcast.

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Speaker 1: I'm Tom Keene with David Gura. Daily we bring you

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Speaker 1: insight from the best in economics, finance, investment, and international relations.

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Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and

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Speaker 1: of course on the Bloomberg Plus. Betoeining our studios today

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Speaker 1: by botting our Delhi, founder and CEO of xl R

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Speaker 1: eight and of course former chairman and CEO of Chrysler,

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Speaker 1: former chairman CEO of Home People. Great to see you

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Speaker 1: once a in here, and let me start with with healthcare.

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Speaker 1: What's going on in Washington? D see the degree to

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Speaker 1: which you're following it. We're kind of watching to see

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Speaker 1: what happens here as we push ahead to Fred, what

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Speaker 1: do you make of how this process is unfolding and

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Speaker 1: the way that healthcare has been prioritized in Washington? Well,

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Speaker 1: I think number one, Uh, it's it's extremely disappointing that

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Speaker 1: we keep watering this thing down to the point where

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Speaker 1: the objective now is to get a YA vote on something,

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Speaker 1: regardless of what it is. You know, we've gone through

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Speaker 1: this whole cycle, and you know we're talking about now

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Speaker 1: now the adjective it's a skinny version. You know, it's

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Speaker 1: it's just very disappointing certainly too, I think the entire

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Speaker 1: population to see the lack of of of success and

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Speaker 1: cooperation on the hill. I think it's, uh, we're reaching

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Speaker 1: a point here that of of unprecedented level of disagreement

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Speaker 1: and political infighting that's disappointing to you know, the average

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Speaker 1: working man and woman in this country. Does DC seem

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Speaker 1: different to you from from your perspective as a as

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Speaker 1: a corporated executive. Is what's happening there radically different from

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Speaker 1: what we've seen here over in the last few decades. Yeah,

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Speaker 1: I think for me, you know I mentioned earlier with

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Speaker 1: Tom is you know, I've been around for forty forty

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Speaker 1: six years now, and and uh, it seems this has

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Speaker 1: reached a cris croscentro, crescendo of of it's as worse

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Speaker 1: as it's ever been, I think relative to again, the

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Speaker 1: partisanship and the lack of success. It's, uh, it's really disappointing.

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Speaker 1: And you know, I don't call August, you know, I

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Speaker 1: shouldn't call it a recess. It's a vacation. I think

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Speaker 1: these guys got to stay there and start working for

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Speaker 1: a living and working for the people that put him

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Speaker 1: in office. You've led companies. I wonder what you make

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Speaker 1: of of leadership in the context of government. Where should

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Speaker 1: that come from? Do you see examples of it in Washington,

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Speaker 1: d C? Today? Where could you see more of it?

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Speaker 1: Where do we need to see more of it? You know? Well,

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Speaker 1: I think what we see is a lot of decisions

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Speaker 1: being made focused on individual re election and uh, really

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Speaker 1: playing to the partisanship out there versus you know, getting

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Speaker 1: the job done. It's not a matter of how many

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Speaker 1: terms you can run, It's a matter of are you really,

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Speaker 1: you know, executing the will of the people that put

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Speaker 1: you into office and making those bold and courageous decisions.

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Speaker 1: I just don't see the same intensity, the same passion,

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Speaker 1: the same commitment that you see in corporate America in

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Speaker 1: Washington today. I look at where there has been success

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Speaker 1: or there has been a lot of focus over these

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Speaker 1: last six months, and it seems like apprenticeships is one

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Speaker 1: part of it. You had a lot of corporate executives

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Speaker 1: coming to the White House talking about it with the President,

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Speaker 1: members of his staff, his daughter, and adviser certainly talking

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Speaker 1: about it a lot as well. You come from ge

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Speaker 1: where that's incredibly important to the to the culture of

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Speaker 1: the company. Why has it been so difficult for US

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Speaker 1: corporations to adopt apprenticeship programs or training programs to make

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Speaker 1: that so woven into the fabric of the way those

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Speaker 1: companies are run. Yeah, well, I think we're starting to

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Speaker 1: see that. You know, I was with Randall Stevenson at

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Speaker 1: the chairman CEO of A T and T, and and

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Speaker 1: here's a leader that you know, stops whining about we

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Speaker 1: don't have talent to hire and is investing a couple

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Speaker 1: of pennies to share to make sure they he does

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Speaker 1: have the talent coming into that company. And I think

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Speaker 1: we're going to see more and more of that. I

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Speaker 1: think we've got to see a better connection between university

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Speaker 1: and corporations to make sure that the core curriculum and

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Speaker 1: the content is really focused on at least guaranteeing an

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Speaker 1: interview for for that corporation versus you know, the traditional

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Speaker 1: four year core curriculum that really may not have the

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Speaker 1: intensity and in the enhancements to get that interview in

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Speaker 1: that specific industry fascinating. I want to come back to that.

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Speaker 1: Bloomberg Servans, good morning, have you want David Garrett, Tom

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Speaker 1: King in New York Skinny repealed that was named after

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Speaker 1: me to club Skinny Skinny. They were a great band, Bob,

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Speaker 1: Now Delhi, let's rip up the script and go right here.

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Speaker 1: One of the most important moments for me in surveillance

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Speaker 1: history was sitting on the deck at Davos, a tough

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Speaker 1: chot where the leader in medical care who one day

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Speaker 1: figured out that the reason people quitted his company as

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Speaker 1: they couldn't pay the rent. Literally the percentage of people

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Speaker 1: it is, big sprawling company that couldn't pay the rent

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Speaker 1: with jaw dropping, when does labor get back pricing power

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Speaker 1: because fancy guys like you figure out the labor can't

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Speaker 1: subsist on serfdom salaries net of taxes, and where we're

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Speaker 1: seeing that shift now, Yeah, I think you know, I'm not.

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Speaker 1: I certainly wouldn't suggest a mandated wage environment Tom, for sure,

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Speaker 1: I think, uh, you know, as competition becomes more competitive

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Speaker 1: for labor. Corporations are going to have to step up

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Speaker 1: and and determine whether the cost of turnover or abandonment

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Speaker 1: is less than or greater than the cost of retention.

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Speaker 1: That's the point of inflection that we have to face.

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Speaker 1: And David, what's so important about this? It's not just

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Speaker 1: about New York City where you know a studio apartment

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Speaker 1: costs four thousand bucks a months. It's nationwide. Staff can't survive.

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Speaker 1: And I hear this in interviews. Let' ask you just

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Speaker 1: about the promise of factory jobs here in the US.

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Speaker 1: We have this announcement yesterday at the White House that

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Speaker 1: Fox Con, the Chinese Tiwinese company, is going to open

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Speaker 1: up a factory in Wisconsin. Of course, a lot of

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Speaker 1: incentives to make that. To make that happen, you gotta

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Speaker 1: think a factory like that is going to rely a

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Speaker 1: lot on automation. And I wonder just how you begin

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Speaker 1: to assess what a deal like that means to the

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Speaker 1: labor economy. Uh, there's promise initially, but you know, how

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Speaker 1: how much does that meet expectations? Yeah? I think first

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Speaker 1: of all, you know, it's a great announcement to have

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Speaker 1: the repatriation of those jobs back into the US market

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Speaker 1: number one. Number two, let's not lose sight of a

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Speaker 1: three billion dollar incentive. And uh also let's not lose

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Speaker 1: sight of where it's being placed. If you think about

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Speaker 1: the speaker and the governor relationship with the president. Uh,

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Speaker 1: it's not surprising and ended up ended up in Wisconsin.

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Speaker 1: I think one of the things that we thought would

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Speaker 1: happened that with the advance of technology, that new jobs

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Speaker 1: would be created in providing those technologies to corporations. And

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Speaker 1: I don't think we have seen that. As a matter

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Speaker 1: of fact, I think it's going to get increasingly more challenging.

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Speaker 1: I saw some demonstrations recently on robots they call them

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Speaker 1: bots to do accounts, payable accounts, receival, and then another

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Speaker 1: bond auditing. So the financial services companies are going to

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Speaker 1: lose the apprenticeship opportunity for these things coming out of school. Tom,

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Speaker 1: I want I want to come back with bot mcdelay, David.

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Speaker 1: We gotta have him back here to talk business and

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Speaker 1: really where the nation's going and it's manufacting. Can I

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Speaker 1: ask you a question came up the other day when

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Speaker 1: you were a stud at home depot, did you get

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Speaker 1: special lumber selection, like when you you when you needed

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Speaker 1: a two by four, a Boise Cascade two by four

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Speaker 1: by eight feet versus stud l VL. Did you get

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Speaker 1: a special selection because of who you were? No? Never, Tom,

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Speaker 1: I mean John Tucker jump any here where did you

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Speaker 1: hear him? First of all? List I got to pick

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Speaker 1: through those two by four. You can't call him out.

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Speaker 1: You never came. That's not that's not. We always bought

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Speaker 1: the highest grade, so we didn't have the lumber to

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Speaker 1: call out. We made sure that that went to the competition. Tom,

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Speaker 1: I beg to tiffer, it takes me. I got a

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Speaker 1: ten percent success rated finding two by four? Is that

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Speaker 1: you know, guys we didn't like because you have all

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Speaker 1: those two by four throwing on the floor that you

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Speaker 1: didn't want. It was very selective and still am you

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Speaker 1: wanted a straight two by four? I asked for so much.

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Speaker 1: We're gonna come back and get straight talk out. American

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Speaker 1: Manufacturing with Robert and delhi Uh formerly with a small

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Speaker 1: lumber company called home Deep ken Land. Going he got

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Speaker 1: straight to by course, he just just run in. I

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Speaker 1: just went in and started yelling and screaming. We were

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Speaker 1: brought to him on a silver silver platter on a

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Speaker 1: forklift truck. This is great, Bob, tell me where this

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Speaker 1: We've had a lot of fun. Richard Clarida will be

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Speaker 1: along later as well from PIMCO. Really great discussions, uh

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Speaker 1: this morning, Robber Robert N. Delhi with us right now.

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Speaker 1: Who um, I guess, I guess, Bobara, I could go

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Speaker 1: and about eight ways to go with you as a

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Speaker 1: president loves to go out to your Midwest speak big.

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Speaker 1: Maybe it's carrier I don't mean to pick on the

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Speaker 1: carrier thing. We're gonna create jobs and then this, that

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Speaker 1: and the other happens, and guys like you say we

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Speaker 1: can't make money, We're gonna move to Mexico. Whatever it is.

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Speaker 1: What's the correct strategy for Washington to help guys like

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Speaker 1: you create jobs in Oklahoma? Yeah, well, I think a

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Speaker 1: couple of things. Certainly, the announcement, uh, you know of

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Speaker 1: Fborough coming back to Wisconsin is a big announcement in

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Speaker 1: the repatriation of jobs and you know, making America great

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Speaker 1: again number one. Number two. I think, uh, rolling back

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Speaker 1: some of the policies that have been stifling over the

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Speaker 1: last eight years and some of the restrictions. I think

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Speaker 1: you know, this administration moving towards reducing those, whether it's

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Speaker 1: the cafe standards or you know, we see this medical

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Speaker 1: tax which I per encountered when they put that on

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Speaker 1: as part of the prior healthcare healthcare bill actually flip

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Speaker 1: some of the companies when they started paying tax on

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Speaker 1: medical devices. I think corporate tax rates will be a

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Speaker 1: big incentive for repatriation along with uh, you know, bringing

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Speaker 1: back reshoring some of that cash that's off shore. Tom So,

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Speaker 1: I think there's you know, three or four or five

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Speaker 1: things that this administration has talked about but needs to

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Speaker 1: do to make this happen. What's the biggest subsidy you

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Speaker 1: ever negotiated where you said I'm gonna go in two

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Speaker 1: North Carolina and Mayor Gura is there and you say,

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Speaker 1: I'm going to give you forty two jobs or whatever,

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Speaker 1: but I need a mom team gazillion dollars a tax

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Speaker 1: rebas what's the biggest number you ever worked with on that? Uh?

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Speaker 1: Quite honestly, you know, I was fortunate to work on

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Speaker 1: several of those, and it resulted in millions of dollars

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Speaker 1: back then, you know, we didn't use the billion word.

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Speaker 1: Three billions they got in Wisconsin, but we did get

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Speaker 1: millions of dollars. It was really competitive at the state level.

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Speaker 1: I know, we moved, you know, the corporate headquarters from

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Speaker 1: Schenectady down to Atlanta, uh INNGE Power Systems, and you know,

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Speaker 1: we were able to go in in a very constructive

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Speaker 1: way and work with the state you know, incentive programs

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Speaker 1: and redevelopment programs and break good paying jobs and they

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Speaker 1: would help with training and relocation and and uh you know,

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Speaker 1: help acclimate people into the community. So it was it

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Speaker 1: was real partnership back then. Tom, How do you assess

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Speaker 1: when something like that works? You mentioned GE and I

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Speaker 1: think about moving to Boston, the incentives that were involved

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Speaker 1: with that part of the package. But there's the tangible benefits,

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Speaker 1: but also maybe enthusiasm or excitement that that comes with that.

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Speaker 1: How do you begin just to assess when a move

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Speaker 1: like that is successful. Yeah, well, I think first of all, uh,

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Speaker 1: you know, you've got to make sure that your core

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Speaker 1: competency is willing to locate. You know, we looked at

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Speaker 1: moving home Depot headquarters at a period in time because

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Speaker 1: we were getting tremendous incentives out of Orlando and working

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Speaker 1: with the governor Governor Bush at the time. And so

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Speaker 1: you got to make sure your team is willing to

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Speaker 1: relocate because you don't want to have a brain train

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Speaker 1: and lose talent. You've got to make sure that there's

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Speaker 1: good sustainable incentives there that makes sense and can be

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Speaker 1: justified to uh, you know, to both the state that

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Speaker 1: you're leaving in the states you're going to that enhance

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Speaker 1: the shareholder value bottom like great this people, Thank you

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Speaker 1: very much for joining us. Always good to talk. Well

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Speaker 1: you had you had a good good chunk on TV

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Speaker 1: as well. Function checked out, kim is online three that's

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Speaker 1: got some two by fours done better answer it, Tomal exactly,

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Speaker 1: Robert Nodeli, thank you very much. I appreciate it for

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Speaker 1: its formerly of Home Depot and Chrysler Brunch you by

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Speaker 1: Bank of America Mary Lynch. With virtual reality, virtually everything

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Speaker 1: will change, discover opportunities in a transforming world. B of A,

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Speaker 1: mL dot Com, slash VR, Mary Lynch, Pierced, Fenner and

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Speaker 1: Smith Incorporated. Joining us now is one of America's most

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Speaker 1: important monetary theorists. Richard Clarata heavily associated with dynamic stochastic

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Speaker 1: general equilibrium theory and the challenges to it and where

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Speaker 1: it is right now. He was at Columbia University forming

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Speaker 1: and founding. They're driving their Columbia economics forward, which is

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Speaker 1: a tough order given Mr Stiglets, Mr Uh, Mr Phelps

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Speaker 1: and and the others, And now at PIMCO is their

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Speaker 1: major global force in strategy. One quick question, because I

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Speaker 1: know David's got a lot, Richard, are we still alter accommodative?

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Speaker 1: Is the Stanley Fisher of eighteen months ago? Is he

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Speaker 1: still warbling ultra accommodative? I think i'd say we're accommodative.

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Speaker 1: Now we've probably moved a little bit beyond ultra accommodative.

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Speaker 1: I think the FED zone models suggest that the neutral

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Speaker 1: funds rates around two percent, and we're about a percentage

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Speaker 1: point below that. So the Fed, I think it's fair

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Speaker 1: to say, is still removing accommodation. Uh. It's not tightening policy. Uh,

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Speaker 1: but not ultra accommodative in terms of the funds rate.

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Speaker 1: We've we've seen the guidance here of how the FED

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Speaker 1: intends to normalize unwind its balance sheet. They taking it

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Speaker 1: relatively soon, according to yesterday's statement. Do we have enough

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Speaker 1: justification for them as to why they want to do

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Speaker 1: it now, you know. I think they want to do

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Speaker 1: it now just because, uh, they've they've had a big

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Speaker 1: balance sheet for a long time. It was an emergency measure.

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Speaker 1: The emergency is over. I think they started talking about

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Speaker 1: shrinking the balance sheet six or seven years ago. And

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Speaker 1: I think also David, it's a good question. I think

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Speaker 1: importantly they want to get it done this year or

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Speaker 1: get it started the year, because we could well have

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Speaker 1: a transition at the FED. And I think they and

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Speaker 1: I and I think it's the right decision. Believe that

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Speaker 1: this is something that Feds should get underway now so

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Speaker 1: that when the next person comes in, if there is

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Speaker 1: a new FED chair, then this process is underway. So

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Speaker 1: I think it's the right call. How confident are you

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Speaker 1: in the continuity? In other words, if this starts in September,

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Speaker 1: starts in December, whenever it starts, while Janet Yellen is

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Speaker 1: still the chair of the FED, how confident are you

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Speaker 1: that whatever she puts into place is going to continue

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Speaker 1: depending on who's their next I believe that at least

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Speaker 1: for the first year of the program that they've laid out,

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Speaker 1: there will be a lot of continuity because essentially they

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Speaker 1: want to really wean the markets off que by and

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Speaker 1: they will continue, as I've said on your program before,

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Speaker 1: they will continue to be buying a lot of treasuries

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Speaker 1: and mortgages even after the balance she begins to shrink

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Speaker 1: it sort of like the fellow who says I want

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Speaker 1: to lose weight, and so instead of having three desserts

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Speaker 1: after dinner, I'm gonna have to They're still gonna be

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Speaker 1: buying treasuries and mortgages for the first year. Your point, however,

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Speaker 1: in the second year of the program basically first sees

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Speaker 1: them stepping out of mortgages. And where that to happen. Uh,

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Speaker 1: It'll be interesting to see how the mortgage market would react.

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Speaker 1: I just want to suggest, Mr Gurra, that the three desserts,

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Speaker 1: two deserts Clarida model is my definition of skinny. Repeal, right, good,

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Speaker 1: we'll come back here to moment. But let me ask

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Speaker 1: you to look ahead to to Jackson Hole. Of course,

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Speaker 1: before the last dc BE meeting, there was this conference

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Speaker 1: in Portugal. Things were sort of thrown out a whack

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Speaker 1: as a result of some of the speeches made there.

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Speaker 1: What stands to change here in Jackson All? How important

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Speaker 1: is that conference going to be this year and the next,

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Speaker 1: and and and and David. It's always potentially important because

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Speaker 1: it's the one chance that all the FED officials are available,

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Speaker 1: and they also mingle with a lot of reporters and

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Speaker 1: on air folks. UH. And obviously Cherry Yelling usually attends.

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Speaker 1: I believe she's attending this year as well. Uh, she

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Speaker 1: will be. If she does attend, she'll be giving a

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Speaker 1: keynote UH speech, but it is an opportunity in that

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Speaker 1: speech for her to highlight UH and signal perhaps what

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Speaker 1: the committee is going to be doing. I imagine what

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Speaker 1: we'll be talking about around Jackson Hall. Is any speculation

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Speaker 1: about whether or not President Trump will reappoint or move

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Speaker 1: on to another FED chair? Are you are you going?

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Speaker 1: I'm not going to Jackson That's a mistake. He would

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Speaker 1: be routed. Drag is going to be up there at

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Speaker 1: that lunch on the law. I'll be in Rhode Island

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Speaker 1: doing Labor Day holidays to be throwing rules something like that.

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Speaker 1: So we're here with Rich Clarida of Pimco, Columbia University

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Speaker 1: and our Bloomberg eleven three oh studios, And as we

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Speaker 1: just heard, UH, there's some action in the Dirkson Senate

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Speaker 1: Office Building today before the Senate Banking, Housing, and Urban

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Speaker 1: Affairs can be Randall Quarrels, nominated to be Vice Chair

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Speaker 1: for Supervision, gonna be testifying before that committee today having

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Speaker 1: his nomination hearing. What are you gonna be listening for?

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Speaker 1: What do we know about Mr Quarrels? What do you

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Speaker 1: want to learn about how he thinks about regulation and

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Speaker 1: monetary policy? Well, let me begin by saying I worked

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Speaker 1: very closely with Randy Quarrels. We were both at the

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Speaker 1: Treasury Department between oh one and oh three in our

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Speaker 1: offices were next to each other, So I on him

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Speaker 1: quite well. Uh. He's a remarkable accomplished individual, obviously, uh,

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Speaker 1: very successful both as a policymaker and then a successful

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Speaker 1: career investing at the Carlisle Group. I think you know

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Speaker 1: Randy will very much take a what I would call

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Speaker 1: a sensible approach to thinking about an appropriate uh scale

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Speaker 1: of regulation. UM. I don't think he's extreme on either

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Speaker 1: side on deregulation or or reregulation. I think in some

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Speaker 1: ways he's the ideal choice to take on a role

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Speaker 1: that has actually never been filled. Dodd Frank created this

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Speaker 1: Advice Chair for Financial Supervision and President Obama never nominated anyone,

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Speaker 1: So I think Randy's an ideal choice for the first

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Speaker 1: person in that position. With the legacy of Dan Tarulo.

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Speaker 1: He was on Bloomberg Television Bloomergrady Liter earlier this week

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Speaker 1: talking with our colleague David Weston. He delivered that valedictory

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Speaker 1: at Woodrow Wilson School just before he left office about

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Speaker 1: the importance of capital ratios and and uh of of

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Speaker 1: not repeating the mistakes of the past. What's his legacy

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Speaker 1: going to be? And when you look at the role

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Speaker 1: that Mr Corals could take up here at the FED,

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Speaker 1: how much is he gonna carry on what Mr Trulo

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Speaker 1: was was working on while he was at the FEDOM. Well, look,

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Speaker 1: I think Dan Trullo, you know that was was in

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Speaker 1: a in a very unique role in the sense that

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Speaker 1: he was in an important position at the FED out

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Speaker 1: of the crisis, uh, and was really delegated that portfolio.

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Speaker 1: And I think, you know his leg It's too soon

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Speaker 1: to tell what his legacy is, but by all accounts,

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Speaker 1: he very ably and skillfully, uh, you know, worked out

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Speaker 1: the necessary approach and compromises coming out of the crisis.

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Speaker 1: I would imagine that what we'll see coming out of

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Speaker 1: FED with with Randy is more of an evolution than

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Speaker 1: a whole. Also, rewriting of of reregulation post Dodd Frank,

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Speaker 1: we would be doing a disservice to our listeners worldwide

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Speaker 1: if we did not point out that one Richard Clareda

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Speaker 1: is by anybody's measure, a candidate for high position at

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Speaker 1: the Federal Reserve, including growing a beard and being like

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Speaker 1: Ben Bernink. But Richard, I'm not going to ask you

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Speaker 1: a techy questions about the chairmanship, and I am going

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Speaker 1: to ask you about the given theme from this president

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Speaker 1: and from other pundit's that we have low rate Janet

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Speaker 1: and low rate Gary. When we talk about Mr Kohane

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Speaker 1: and of course chair yelling. You and I have seen

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Speaker 1: this before many times where we get a business enterprise

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Speaker 1: theory that wants low rate Clarata, low rate Greenspan, on

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Speaker 1: and on and on. What's the trap of that? Well,

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Speaker 1: I think I think the reality is that we are

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Speaker 1: in a in a low rate world. And we've called

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Speaker 1: it the new Neutrals, so we think it's a world

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Speaker 1: that when the Feds done hiking the fund, raid is

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Speaker 1: going to be somewhere between two and three and not

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Speaker 1: four or five. So regardless of who the next FED

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Speaker 1: chairman is, that's that's where we think rates are going

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Speaker 1: to end up. Now. Importantly, however, we're in a low

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Speaker 1: rate world because productivity has been has been slow and

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Speaker 1: the economy has not been growing very rapidly. If we

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Speaker 1: were to get, for example, a big tax reform or

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Speaker 1: a U turn and productivity, if the ECONO were growing faster,

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Speaker 1: we would need higher rates. So you don't want low

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Speaker 1: rates just to have low rates, as some might be suggesting.

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Speaker 1: But so long as the economy continues on the current path,

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Speaker 1: we will be in in a low rate world at

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Speaker 1: least for the next several years, regardless of who FED

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Speaker 1: chairman is. You read the Fed's assessment of the U.

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Speaker 1: S economy and I wonder if if they're if you

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Speaker 1: think they're missing anything. Is there something that FED doesn't

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Speaker 1: get about the state of the U. S economy today?

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Speaker 1: I think that the FED is still very reliant on

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Speaker 1: their models, and they're Phillips curve models. UM tell them

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Speaker 1: that given the unemployment rate is low, and following that

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Speaker 1: they would expect inflation UH to pick up UM. And

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Speaker 1: indeed that is that was consistent what they said in

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Speaker 1: the statement yesterday. I think there's really two way risk here, David.

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Speaker 1: One is that there's something inherently wrong in the models

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Speaker 1: we were talking about it earlier in terms of pricing

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Speaker 1: power are the global economy, it's harder to generate two

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Speaker 1: percent inflation than perhaps the FED thought. I think longer

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Speaker 1: term the David and Tom, there may be a risk

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Speaker 1: on the other side, which is that we've had a

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Speaker 1: period where inflation is low. People are very relaxed. Markets

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Speaker 1: think we can never get inflation above two And if

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Speaker 1: you look at the UK, for example, the UK has

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Speaker 1: gone from one and a half percent inflation to three

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Speaker 1: percent inflation pretty quickly, so it can turn on a dime.

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Speaker 1: In the US we went from one percent inflation to

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Speaker 1: four percent inflation and in the sixties, and so I

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Speaker 1: think there's risk on both sides. Right here, I'd say

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Speaker 1: that is the risk of David. They had the political

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Speaker 1: event of a sterling driven Brexit moment. We have dollar weakness.

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Speaker 1: What's the why of dollar weakness? And not that it's

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Speaker 1: a single impulse of June three, but his dollar weakness

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Speaker 1: brexit light like I should say, well, I I think

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Speaker 1: no Brexit was a discrete, unforeseen event which led to

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Speaker 1: a huge move I think about a twenty or thirty

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Speaker 1: percent move in the in the pound. Uh. The dollar

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Speaker 1: we nous I think is really much less uh dramatic

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Speaker 1: right now. It is reflecting the fact that on balance,

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Speaker 1: the U S data has been soft and inflation has

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Speaker 1: been below target, and on balance the data in the

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Speaker 1: rest of the world has been has been surprising on

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Speaker 1: the upside and dragging. Of course, as David mentioned in Portugal,

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Speaker 1: UH was interpreted as being somewhat hockey. So I think

427
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Speaker 1: these are actually relative moves within a pretty stable range

428
00:23:26,119 --> 00:23:29,440
Speaker 1: for the dollar right right now, I don't I don't

429
00:23:29,440 --> 00:23:33,000
Speaker 1: see the dollar breaking out really on either side, uh,

430
00:23:33,240 --> 00:23:35,320
Speaker 1: compared to what we've seen in the past. That's your

431
00:23:35,400 --> 00:23:37,959
Speaker 1: forecast for for growth. How much have you reevaluated that?

432
00:23:38,200 --> 00:23:40,560
Speaker 1: How much you paying attention to what is reason happening

433
00:23:40,800 --> 00:23:44,320
Speaker 1: in Washington visa the prospect. Yeah, So I'm in the

434
00:23:44,359 --> 00:23:47,520
Speaker 1: camp David that that thinks that unless we get really

435
00:23:47,520 --> 00:23:51,280
Speaker 1: a fundamental reform of the of the tax code, UH,

436
00:23:51,320 --> 00:23:55,240
Speaker 1: that unfortunately we have to extrapolate the past, which is

437
00:23:55,280 --> 00:23:58,520
Speaker 1: basically where two economy, we don't have a lot of

438
00:23:58,560 --> 00:24:02,960
Speaker 1: increase in labor force participant, Asian productivity has been soft

439
00:24:03,320 --> 00:24:07,960
Speaker 1: to be polite. Um, so I think Washington is key

440
00:24:08,000 --> 00:24:11,879
Speaker 1: here to really fundamentally shift your view of the economy.

441
00:24:12,040 --> 00:24:14,359
Speaker 1: And remember we're a late stage. We're entering now the

442
00:24:14,440 --> 00:24:19,560
Speaker 1: ninth year of expansion. And if this recovery continues in

443
00:24:19,560 --> 00:24:21,359
Speaker 1: a year, which I think it will, then will be

444
00:24:21,400 --> 00:24:25,080
Speaker 1: the second longest recovery in US history. So this is

445
00:24:25,320 --> 00:24:27,080
Speaker 1: you know, some would say long in the tooth, and

446
00:24:27,119 --> 00:24:29,920
Speaker 1: typically you don't. Economies don't pick up steam in year

447
00:24:30,000 --> 00:24:32,439
Speaker 1: eight or year nine, or you intend recovery sort of

448
00:24:32,440 --> 00:24:35,200
Speaker 1: really shift gears. You would need sort of a nineteen

449
00:24:35,280 --> 00:24:40,879
Speaker 1: eight six Reagan style tax reform. And unfortunately, because of

450
00:24:41,040 --> 00:24:43,880
Speaker 1: what we're what's coming out of Washington, I'm much less

451
00:24:43,880 --> 00:24:46,040
Speaker 1: optimistic will get that than it would have been six

452
00:24:46,080 --> 00:24:48,960
Speaker 1: months ago. Does Washington have more economic determinism than it

453
00:24:48,960 --> 00:24:50,880
Speaker 1: did in the past, is it Is it more important

454
00:24:50,880 --> 00:24:54,239
Speaker 1: than it than it has been. I'm not sure about that.

455
00:24:54,320 --> 00:24:56,359
Speaker 1: I think I think where we live in a world

456
00:24:56,359 --> 00:24:59,360
Speaker 1: where where Washington is going to be important in the economy,

457
00:24:59,440 --> 00:25:02,840
Speaker 1: sometimes a better uh for better or or or worse.

458
00:25:03,000 --> 00:25:06,159
Speaker 1: I think what what is perhaps a little bit different now, David,

459
00:25:06,600 --> 00:25:08,760
Speaker 1: is the fact that you know, we really had a

460
00:25:08,800 --> 00:25:14,520
Speaker 1: remarkable election in November, and I think, um, I think

461
00:25:14,560 --> 00:25:17,639
Speaker 1: that that caused many people to recalibrate their understanding of

462
00:25:17,680 --> 00:25:20,560
Speaker 1: the US political system. I think where we're sitting here

463
00:25:20,640 --> 00:25:22,960
Speaker 1: now going into August, is that in some ways it

464
00:25:23,000 --> 00:25:27,400
Speaker 1: looks really familiar. It's it's tough to govern with small majorities,

465
00:25:27,680 --> 00:25:30,560
Speaker 1: um um, and it's tough to reach agreement on the

466
00:25:30,600 --> 00:25:33,879
Speaker 1: important issues and alas, that's really been the state of

467
00:25:33,920 --> 00:25:37,159
Speaker 1: play now for a number of years. To thank you

468
00:25:37,280 --> 00:25:51,920
Speaker 1: so much, why don't you bring in Mr Tip David

469
00:25:52,320 --> 00:25:54,520
Speaker 1: Robert Tip Joins is that chief investment strategist at to

470
00:25:54,560 --> 00:25:56,080
Speaker 1: P Jim. He's on our phone lines. Were great to

471
00:25:56,080 --> 00:25:57,600
Speaker 1: speak with you once again. Let's start with that FED

472
00:25:57,640 --> 00:26:00,399
Speaker 1: meeting yesterday. How you processed it as a as an

473
00:26:00,400 --> 00:26:02,119
Speaker 1: investment strategies. What did you make of what was in

474
00:26:02,119 --> 00:26:03,560
Speaker 1: the statement? D What does it tell you about the

475
00:26:03,600 --> 00:26:07,160
Speaker 1: rest of the year. Sure, you know, I think that.

476
00:26:07,520 --> 00:26:09,840
Speaker 1: And by the way, I'm reporting from Newark, New Jersey.

477
00:26:09,880 --> 00:26:15,040
Speaker 1: There you go. Day go Devils said, you know, I

478
00:26:15,040 --> 00:26:18,080
Speaker 1: think the thing the market liked about it was it

479
00:26:18,200 --> 00:26:22,159
Speaker 1: the FED owned the inflation picture. Didn't hedge, they just

480
00:26:22,240 --> 00:26:27,399
Speaker 1: called it as below target. And so they're going to

481
00:26:27,520 --> 00:26:33,159
Speaker 1: start off their their runoff. You know that was clearly implied. Um,

482
00:26:33,240 --> 00:26:36,480
Speaker 1: but there's going to be caution on on raising rates

483
00:26:36,520 --> 00:26:38,680
Speaker 1: and when they do, it's probably not going to be

484
00:26:38,720 --> 00:26:41,639
Speaker 1: based on what we're seeing now the result of inflation

485
00:26:41,720 --> 00:26:45,600
Speaker 1: fears and so as a result, the markets which have

486
00:26:45,680 --> 00:26:48,200
Speaker 1: been setting up for the auctions. Uh, and that's worth

487
00:26:48,240 --> 00:26:51,600
Speaker 1: coming back and discussing the size of the auctions relative

488
00:26:51,680 --> 00:26:54,840
Speaker 1: to the runoff and so on. The markets have been

489
00:26:54,840 --> 00:26:58,280
Speaker 1: setting up for that based on this SAD being in

490
00:26:58,359 --> 00:27:01,920
Speaker 1: no rush to hike, and UH in no rush to

491
00:27:02,000 --> 00:27:04,919
Speaker 1: hike at a rapid pace. That was a big relief,

492
00:27:05,080 --> 00:27:06,880
Speaker 1: especially to the middle of the curve. So we saw

493
00:27:06,920 --> 00:27:09,480
Speaker 1: that big relief rally. Well, let's talk about those auctions.

494
00:27:09,520 --> 00:27:11,440
Speaker 1: Of course, we have this outline for how this process

495
00:27:11,440 --> 00:27:15,040
Speaker 1: is intended to proceed from the Federal Reserve. When you

496
00:27:15,040 --> 00:27:17,440
Speaker 1: look at the market implications of that, explain what you

497
00:27:17,480 --> 00:27:21,800
Speaker 1: mean the auctions? Sure, so you know eventually the runoff

498
00:27:22,080 --> 00:27:24,119
Speaker 1: is going to start it at ten billion a month

499
00:27:24,160 --> 00:27:26,440
Speaker 1: and work its way up to fifty billion a month.

500
00:27:27,119 --> 00:27:32,760
Speaker 1: To put that into the context of the market uh, Tuesday, Wednesday, Thursday,

501
00:27:32,800 --> 00:27:36,920
Speaker 1: you have auctions of two fives and sevens Uh. You're

502
00:27:37,440 --> 00:27:40,800
Speaker 1: looking at sixty billion auction on the combination of Tuesday

503
00:27:40,840 --> 00:27:44,560
Speaker 1: and Wednesday, and on Thursday at billion. I think of

504
00:27:44,640 --> 00:27:47,679
Speaker 1: the numbers for seven years. So there's a massive amount

505
00:27:47,680 --> 00:27:49,880
Speaker 1: of supply. People are trying to set up for that,

506
00:27:50,560 --> 00:27:52,640
Speaker 1: try to go into the auctions a little bit light

507
00:27:52,720 --> 00:27:56,199
Speaker 1: so they're well positioned to take down the supply. You

508
00:27:56,240 --> 00:27:57,920
Speaker 1: have the FED come in in the middle of that

509
00:27:58,400 --> 00:28:02,879
Speaker 1: and signal A. There's posture that sets people scrambling uh

510
00:28:03,080 --> 00:28:06,880
Speaker 1: to uh to square up. So you know, I think

511
00:28:06,920 --> 00:28:08,560
Speaker 1: that had something to do with it, is that the

512
00:28:08,600 --> 00:28:11,480
Speaker 1: markets were a little bit towards the top end of

513
00:28:11,480 --> 00:28:14,160
Speaker 1: their local range going into this when when we look

514
00:28:14,200 --> 00:28:16,240
Speaker 1: at rates, when we look at fixed income, and this

515
00:28:16,320 --> 00:28:18,480
Speaker 1: is just a real general you know, investment one on

516
00:28:18,560 --> 00:28:24,240
Speaker 1: one question should we be investing for coupon, should we

517
00:28:24,320 --> 00:28:29,040
Speaker 1: be defensive on capital loss or can we actually invest

518
00:28:29,080 --> 00:28:33,720
Speaker 1: for total return? Which is it forward? I think it's

519
00:28:33,760 --> 00:28:37,960
Speaker 1: total return number one, and number two it's diversification. I mean,

520
00:28:38,040 --> 00:28:40,760
Speaker 1: most people are are still looking for rates to be

521
00:28:40,800 --> 00:28:44,120
Speaker 1: on a slowly rising track. They're completely missing the picture.

522
00:28:44,640 --> 00:28:48,840
Speaker 1: That US rates are very high relative to Europe, even

523
00:28:48,960 --> 00:28:53,320
Speaker 1: higher relative to Japan. The money is coming here. This

524
00:28:53,440 --> 00:28:56,360
Speaker 1: is not an inflationary world, and so people are not

525
00:28:56,440 --> 00:28:58,720
Speaker 1: going to be earning the two thirty on the tenure note.

526
00:28:59,080 --> 00:29:01,760
Speaker 1: They're going to be getting the two thirty plus whatever

527
00:29:01,800 --> 00:29:04,800
Speaker 1: active management returns out there from spread product. They're going

528
00:29:04,840 --> 00:29:06,680
Speaker 1: to be getting rolled down the curve, roll down the

529
00:29:06,720 --> 00:29:11,160
Speaker 1: spread curve, and those returns are going to be significantly

530
00:29:11,160 --> 00:29:14,080
Speaker 1: above cash over the long term in all likelihood, and

531
00:29:14,080 --> 00:29:17,520
Speaker 1: they're going to diversify people's portfolios relative to the stocks

532
00:29:17,560 --> 00:29:20,120
Speaker 1: and the other riskier things they have. So I think

533
00:29:20,160 --> 00:29:22,040
Speaker 1: that's the thing that people have been missing, is the

534
00:29:22,080 --> 00:29:26,560
Speaker 1: strategic allocation, even in a low range bound rate environment,

535
00:29:26,560 --> 00:29:29,840
Speaker 1: has been a big contributor to people's portfolios over the

536
00:29:29,920 --> 00:29:32,800
Speaker 1: last handful of years for people that have stayed fully engaged.

537
00:29:33,560 --> 00:29:35,000
Speaker 1: But let me ask you lastly. You sent along the

538
00:29:35,080 --> 00:29:37,640
Speaker 1: chart here, the VIX going back to two thousand, what

539
00:29:37,680 --> 00:29:39,680
Speaker 1: are you thinking as you look at volatility where it's

540
00:29:39,680 --> 00:29:42,520
Speaker 1: at today. Yeah, you know, there's a lot of discussion

541
00:29:42,520 --> 00:29:46,200
Speaker 1: about how volatility is low. But I think when you

542
00:29:46,280 --> 00:29:50,080
Speaker 1: have a central bank like the FAD with a dual mandate.

543
00:29:50,960 --> 00:29:54,320
Speaker 1: In a world of low inflation, when they're hiking rates,

544
00:29:54,400 --> 00:29:57,800
Speaker 1: they have very high degree of control. And that's why

545
00:29:57,920 --> 00:30:01,920
Speaker 1: you see low volatility during the last rate hike cycle

546
00:30:02,160 --> 00:30:06,120
Speaker 1: OH four up through UH six and in this rate

547
00:30:06,160 --> 00:30:08,640
Speaker 1: hike cycle, because if you get a little bit slower data,

548
00:30:09,320 --> 00:30:11,560
Speaker 1: they can back off. You get little bit faster data,

549
00:30:12,080 --> 00:30:14,520
Speaker 1: they can ramp it up a little bit. Uh They're

550
00:30:14,600 --> 00:30:17,880
Speaker 1: running a macro prudential policy basically here. Since it's a

551
00:30:17,880 --> 00:30:22,080
Speaker 1: non inflation situation where they're slow, we're running the markets

552
00:30:22,520 --> 00:30:25,680
Speaker 1: appreciate based on fundamental Robert, thank you so much. Robert

553
00:30:25,720 --> 00:30:37,920
Speaker 1: Chip with Pig this morning. Greatly appreciate. Thanks for listening

554
00:30:37,960 --> 00:30:42,680
Speaker 1: to the Bloomberg Surveillance podcast. Subscribe and listen to interviews

555
00:30:42,760 --> 00:30:48,120
Speaker 1: on iTunes, SoundCloud, or whichever podcast platform you prefer. I'm

556
00:30:48,160 --> 00:30:51,160
Speaker 1: out on Twitter at Tom Keene. David Gura is at

557
00:30:51,280 --> 00:30:55,560
Speaker 1: David Gura. Before the podcast, you can always catch us worldwide.

558
00:30:56,040 --> 00:31:11,520
Speaker 1: I'm Bloomberg Radio Ye brought you by Bank of America

559
00:31:11,600 --> 00:31:16,560
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