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Speaker 2: Go to Lizzie Saunders. Now the inflation report here in
Speaker 2: four minutes with John Tucker and then finished strong with
Speaker 2: Lizen as we can full disclosure, folks, in honor of
Speaker 2: the Los Angeles Angels, we're playing nickelback at the end
Speaker 2: of the hour. We're giving Lizanna warnings down here, turn
Speaker 2: it down and choose us listen, and I want to
Speaker 2: go to the heart of the matter. And you have
Speaker 2: had leadership on this in the industry, going back to
Speaker 2: your days with lou Rukaiser. In the last ten years,
Speaker 2: a given blended stock fund is up twelve percent per year.
Speaker 2: In the last ten years, a given blended bond fund
Speaker 2: is up two percent per year. Inflation is a friend
Speaker 2: of stock investors right.
Speaker 3: In fact, a lot of people think of asset classes
Speaker 3: like gold is sort of the ultimate inflation hedge, but
Speaker 3: the over the very long term, the only asset class
Speaker 3: that has consistently outperformed inflation is us equity. So you're
Speaker 3: absolutely right, Tom, And.
Speaker 4: Where are we now in that continuum?
Speaker 2: I mean, in honor of pictures and catchers las in
Speaker 2: you know, Ger has given us the innings metaphor, where
Speaker 2: are we in the confidence to be in equities with
Speaker 2: inflation and all.
Speaker 4: The other noise.
Speaker 3: Well, here's here's the tricky thing about inflation. When you're
Speaker 3: in a more volatile inflation backdrop, like was the case
Speaker 3: in the mid sixties to the mid nineteen nineties, that's
Speaker 3: an era where we've been calling the temperamental era. That
Speaker 3: was an era when bond yields and stock press were
Speaker 3: inversely correlated. And that's because inflation was more voladyle you
Speaker 3: had bigger swings in inflation, there was more heightened concern
Speaker 3: about some of those swings in inflation, so as of
Speaker 3: for instance, higher yields and that backdrop often meant inflation
Speaker 3: was reigniting negative for equities. Fast forward to the period
Speaker 3: from the mid nineties up until the first year or
Speaker 3: two of the pandemic, the so called Great Moderation era,
Speaker 3: that relationship was completely opposite, and bond yields and stock
Speaker 3: prices moved consistent with one another, and that was because
Speaker 3: we had very little inflation volatility, not a lot of
Speaker 3: inflation risks, So higher yields was typically a sign of
Speaker 3: stronger growth without the attendant problem of inflation. We're back
Speaker 3: in that negative correlation territory right now, and I do
Speaker 3: think it could mean we're in a different secular backdrop.
Speaker 4: David Girl squeeze one in the ear before CPI.
Speaker 5: Yeah, Lizanne.
Speaker 6: In these data, we're not going to get an indication
Speaker 6: of what Donald Trump's policies might mean for inflation in
Speaker 6: this country. But I wonder if we can go back
Speaker 6: to twenty eighteen when we had the first kind of
Speaker 6: round of a Trump trade war, what can we learn
Speaker 6: sort of from that experience that might be applicable here.
Speaker 3: If anything, Well, we didn't see overall inflation pick up.
Speaker 3: You didn't see it in PCE and PCE goods. But
Speaker 3: if you pull out the tarift goods and track them
Speaker 3: in twenty eighteen into twenty nineteen, a significant amount of
Speaker 3: inflation in those tarifft goods. I think, by the way, guys,
Speaker 3: I think the PPI report might be a better tell
Speaker 3: in terms of terriflated stuff than the CPI report.
Speaker 5: I took tomorrow off time. I'm not going to be
Speaker 5: here for PBI crushed.
Speaker 4: Lizianne and I are prose, We'll be here.
Speaker 2: Lizzie Ane Saunders with US was schwab two point one
Speaker 2: three percent is a seven basis point move there to
Speaker 2: a higher yield regime. Lizzie Sanders, it's unfair to go
Speaker 2: into the minuti here because you know you're doing this
Speaker 2: in real time, and you know I understand that. But
Speaker 2: across the board, Allah what Anna Wang said, This is
Speaker 2: not just one statistic month, critically month over month, which
Speaker 2: is what Mike McKee really looks at.
Speaker 4: Year over year.
Speaker 2: Jason furmaning to give us an ecumenical study in about
Speaker 2: an hour.
Speaker 4: All inflation boats rise here, don't they?
Speaker 5: They do?
Speaker 3: You're right, the core headline, the month over month, the
Speaker 3: year over year, the overall headline all hotter than expected.
Speaker 3: And it's in keeping with some of what we've seen
Speaker 3: in inflation expectations. Now. The University of Michigan version of
Speaker 3: inflation expectations had an extreme divide in terms of along
Speaker 3: party lines, Democrats having a huge expectation for higher inflation
Speaker 3: vice versa for Republicans, but given has gone from one
Speaker 3: point nine percent or so last fall up to you
Speaker 3: in the well end of the mid two. So you're
Speaker 3: seeing it in other areas, and I think this it's
Speaker 3: certainly supportive of what we heard from Powell yesterday, which
Speaker 3: is there in no rush nice to move back to
Speaker 3: easy pology.
Speaker 2: I said the vix would lag. We just had a
Speaker 2: seventeen print in the VIX up a stick. A stick
Speaker 2: is Lizanne Saunders talk for one big figure.
Speaker 4: I have to use that jargon.
Speaker 2: I appreciate that, Lizan here even a bitdog down fifteen
Speaker 2: hundred bitdog now at ninety four thousand is well. David Gerden,
Speaker 2: Tim Keen on YouTube, thank you so much for being
Speaker 2: with us across the nation and your commute and your
Speaker 2: living room and office.
Speaker 4: Honored dev liz Enne Saunders with this. Charles Schwab, David.
Speaker 6: Lizen, let's pull back a little bit here because we
Speaker 6: see the immediate market reaction. It's something I wanted to
Speaker 6: ask you about because we had the Michigan survey last
Speaker 6: week and saw the reaction there. There has been a reaction,
Speaker 6: dare I say, at times an overreaction to some of
Speaker 6: these most recent data points. As you look at it
Speaker 6: more holistically, how is the market processing sort of the
Speaker 6: broader view that we're getting of the US economy.
Speaker 3: Yeah, one of the interesting things, and you're picking this
Speaker 3: up in some surveys of institutional managers engaging what is
Speaker 3: driving stocks? And I think we've actually moved a little
Speaker 3: bit away from things like monetary policy and brawl macro
Speaker 3: trends and more of the connectivity to what stocks are
Speaker 3: doing are the specific fundamentals. But there is that policy
Speaker 3: component too. I think the NFIB data out yesterday was
Speaker 3: pretty compelling, engagingly small businesses reaction to the manner by
Speaker 3: which we get these terror related announcements, and everybody is
Speaker 3: now trying to dig in using the fine tooth comb
Speaker 3: figuring out which industries, which companies are hurt or benefited
Speaker 3: on the import side of things, on the export side
Speaker 3: of things. And I think that's going to come into
Speaker 3: play more and more at the individual stock level because
Speaker 3: of that shift to fundamentals and things like earnings now
Speaker 3: that we're an earning season driving stock prices more than
Speaker 3: just broad monetary policy or just valuation expansion. So I
Speaker 3: think that's an important shift relative to last year.
Speaker 6: I put out to worp Here on the Bloomberg toime.
Speaker 6: I see traders shifting their next FED rate cut prediction
Speaker 6: to December from September, so pushing it back even farther.
Speaker 7: Still.
Speaker 4: Yeah, and you know we're the economist, Lizanne Saunders.
Speaker 2: I mean, are we ready with it in stock market,
Speaker 2: lizan for the shock of stability and rate cuts or
Speaker 2: even the parlor game of rate increases. We're nowhere mentally
Speaker 2: near ready for that, are we.
Speaker 3: I think we're mentally ready for a pause that lasts
Speaker 3: throughout the course of the year. There's been you know,
Speaker 3: even before the CPI report, you had only a little
Speaker 3: more than one cut priced in. Now that's gotten pushed out.
Speaker 3: I think that is the parlor game because a data
Speaker 3: dependent FED, and added to that the policy uncertainty. To say, yeah,
Speaker 3: we're confident that the Fed's going to cut in December,
Speaker 3: that's just the fools errand to do that. I think
Speaker 3: you're absolutely right, though I don't think the market is
Speaker 3: prepared if the Fed feels they actually have to turn
Speaker 3: back into tightening model.
Speaker 4: Right.
Speaker 2: I want to go to Nominal GDP Jason Furman's essay.
Speaker 2: There's the new Foreign Affairs as lights out. Steven Levitsky
Speaker 2: with a great article, David, and I will talk about
Speaker 2: that in a bit, Firman, look take it a look
Speaker 2: back twenty twenty Hindsight on the Biden administration and Liz
Speaker 2: n He mentions nominal GDP. If I get a higher
Speaker 2: or stable inflation component, do you model out ample real
Speaker 2: GDP to keep the corporate animal spirits going well?
Speaker 3: I think nominal GDP is important. That feeds into revenue growth,
Speaker 3: which is a little bit more correlated to things like
Speaker 3: employment trends and also pricing power. So it's the I
Speaker 3: think it's the volatility in the inflation component that matters
Speaker 3: a little bit more than the level because of the
Speaker 3: uncertainty factor that creeps in when you have when you're
Speaker 3: in an era of volatility. In terms of that that deflator.
Speaker 2: Right now reporting on Twitter with a real job, see
Speaker 2: Saunders has an entire team to do Twitter. She hasn't
Speaker 2: done a tweet since I led Zeppelin announcers summer too.
Speaker 2: Catherine Jones out on Twitter, wishwab oof CPI up over
Speaker 2: up court up not what the market was hoping for.
Speaker 2: That report. David Gura from Kathy Jones.
Speaker 6: Well, you've given me a great segue here, because I
Speaker 6: know that Kathy and Lizen have a podcast together on
Speaker 6: investing in Rich Clarita was on that most recent episode.
Speaker 6: He won't return our calls, but he was on with them.
Speaker 6: What did you take away, Lezann from what he had
Speaker 6: to say about inflation? What was the headline from his
Speaker 6: commentary on how he's seeing inflation today.
Speaker 3: There's a tremendous amount of uncertainty, and adding in the
Speaker 3: policy uncertainty makes it a difficult exercise. There certainly is
Speaker 3: a slight bias on the upside, and there's the stickiness
Speaker 3: component of it. But you know he's no longer at
Speaker 3: the FED. But don't I don't envy the folks there,
Speaker 3: Powell coming out yesterday saying we don't take that into consideration,
Speaker 3: but we know some FED members are taking that policy
Speaker 3: uncertainty into consideration and trying to gauge their own outlooks.
Speaker 6: As we wrap up here, I go back to my
Speaker 6: first question to you, that is just noting the fact
Speaker 6: that this isn't reflective of what we've seen in this
Speaker 6: new administration. We've talked this morning all week about the
Speaker 6: kind of inherent inherently inflationary policies we could see put
Speaker 6: in place here, chief among them the terrorist policy from
Speaker 6: this administration. How do you think about that visa v
Speaker 6: inflation going forward here and how that's going to color
Speaker 6: this market in the months to come.
Speaker 3: Well, if we go to sort of the maximum end
Speaker 3: of what's been proposed, and then for what that means
Speaker 3: for inflation, you can look at data out of folks
Speaker 3: like Peterson Institute. You're talking about a close to a
Speaker 3: one percent jump in inflation, but that is really not
Speaker 3: as a step up in prices more so than a
Speaker 3: trigger for ongoing year over year or month over month
Speaker 3: higher inflation rates. I think though, that's important because consumers
Speaker 3: tend to think and level terms, specifically, what were prices
Speaker 3: back in twenty nineteen pre pandemic, what are they now?
Speaker 3: So it is important in the sense that the average
Speaker 3: person thinks in level terms, whereas books like us get
Speaker 3: into the weeds of month over month and year over
Speaker 3: year and core course services x housing. So I think
Speaker 3: the level step up is going to be felt, even
Speaker 3: if it doesn't translate into an ongoing higher inflation rate.
Speaker 2: Lizanne, just you give us a pro tip here. Where
Speaker 2: are you able to buy eggs?
Speaker 4: Right now? Where's Lezianne Saunders buying eggs?
Speaker 3: I really want to know at the supermarket? I just hey,
Speaker 3: what I need to pay for eggs?
Speaker 4: That's it you need to be.
Speaker 3: I haven't gone out and bought my own chickens to.
Speaker 4: Range.
Speaker 2: Yeah, Luzianne Saunders, thank you so much to pick up
Speaker 2: from where Luzanne was, Gina Martin Adams. If we get inflation,
Speaker 2: is it a constructive inflation that can solidify revenue growth
Speaker 2: across the Bloomberg Intelligence world.
Speaker 8: It does look like we're going to see revenue recovery
Speaker 8: in the index. The pace of revenue recovery is probably
Speaker 8: somewhat grim relative to expectations. I think that the really
Speaker 8: big key to twenty twenty five is not that we
Speaker 8: continue to recover. It's that we may not be able
Speaker 8: to recover at the pace that is expected by the
Speaker 8: equity market. There's this really interesting dichotomy in the equity
Speaker 8: market right now as you're seeing it play out real time,
Speaker 8: and that is we're expecting not only very strong revenue growth,
Speaker 8: very strong earnings growth to emerge, but we're also expecting
Speaker 8: the FED to cut and that environment is inconsistent, and
Speaker 8: so that's why you see the market reacts so negatively
Speaker 8: to CPI. But also when we look at the average
Speaker 8: price reaction to earnings growth when stocks are reporting, even
Speaker 8: when they're reporting beats, their price reaction has been fairly grim.
Speaker 8: So I think we've got to work that dichotomy out.
Speaker 8: We've got to work that friction out of the system.
Speaker 8: The market's got to get more rational expectations and also
Speaker 8: generally get in line with what the FED is doing,
Speaker 8: and the FED is saying, we're on hold.
Speaker 5: Can you help me?
Speaker 6: This is a dumb question, but I note the dichotomy
Speaker 6: and wonder why it's persisted as long as it has.
Speaker 6: So Tom asking a very good question. Are we going
Speaker 6: to hear anything different from the FED chairman today? We
Speaker 6: heard him say yesterday a lot of what he said
Speaker 6: the last press conference. He's been sort of reading from
Speaker 6: the same hymnal over and over and over again. How
Speaker 6: has this dichonomy persisted? What's going to be the catalyst
Speaker 6: that gets the market to kind of move away from
Speaker 6: what seems like a fool's expectation that there are going
Speaker 6: to be cuts.
Speaker 5: In the near term.
Speaker 9: Right?
Speaker 8: I think it's a great question, and I think that
Speaker 8: dichotomy can be explained by what's happening in the segments
Speaker 8: inside the equity market. So the greatest expectations really are
Speaker 8: centered around AI tech TMT industries, where we've seen the
Speaker 8: greatest degree of earnings growth. These also tend to be
Speaker 8: less inflation sensitive groups, right, They're more thematic. It's all
Speaker 8: based on AI and our anticipation of AI really changing
Speaker 8: the productivity outcomes for the world, and that is deeply
Speaker 8: embedded in tech expectations. We're seeing those expectations reverse somewhat,
Speaker 8: especially as a result of deep seak, but we've really
Speaker 8: seen he expectations in a process of rationalizing since June
Speaker 8: of last year when MAG seven peaked in terms of
Speaker 8: their performance relative to the S and P five hundred.
Speaker 8: But it's just slowly getting dismantled. People aren't really giving
Speaker 8: up on that. At the same time, the rest of
Speaker 8: the market has been very slow to recover, and the
Speaker 8: rest of the market outside of TMT industries is really story.
Speaker 8: Has really started to count on the FED getting their
Speaker 8: back enabling that recovery, so that two of the two
Speaker 8: story two speed market is still a big story into
Speaker 8: twenty twenty five and.
Speaker 2: Gida Martin Adam's with us here off the inflation report
Speaker 2: with a VICS out over six seventeen point zero five.
Speaker 2: I want to emphasize folks out on Twitter the series
Speaker 2: of charts from our guest Kathy Jones.
Speaker 4: We were just busting our chops.
Speaker 2: She does brilliant work at Schwab and she's got a
Speaker 2: wonderful chart showing the inflation stasis since the kids went
Speaker 2: back to school in September. Michael McDonough owns a high
Speaker 2: ground on this. Everyone in the industry uses Michael McDonough's
Speaker 2: colorful bar charts of the makeup and it's just as
Speaker 2: simple as this. David Gurrol McDonagh goes right to the
Speaker 2: Gurray Index. Super course, CPI month over month is a
Speaker 2: spike up, but further than what many people expected.
Speaker 6: I'm noting here as I think about all of this,
Speaker 6: and Tom, maybe you want to pick up on this.
Speaker 6: As we were talking about sort of what fed chair
Speaker 6: Drumpell might have to deal with. We've talked about the
Speaker 6: tweet from the President this morning, and we've seen this
Speaker 6: FED chair so expertly. Tom bat Away suggestions from reporters
Speaker 6: outside analysts that it could kind of succumb to political pressure.
Speaker 6: Safe to say, this makes this job much more difficult
Speaker 6: that that tweet this morning, coupled with the inflation data today,
Speaker 6: makes it harder still for this fed shair to weather
Speaker 6: that kind of political The.
Speaker 2: Political absolutely, and the question is we know this president's
Speaker 2: beliefs from his business career, and it was only a
Speaker 2: matter of time till we got the kind of tweets
Speaker 2: that we got today is as well, Jane, do businesses
Speaker 2: can they adapt and adjust? My core theme is corporations
Speaker 2: always adapt. Can they adapt given a leveling of inflation
Speaker 2: and not a true disinflation?
Speaker 8: Yeah, I think it's a great question. And what we
Speaker 8: tend to see is that really depends upon the degree
Speaker 8: to which producer prices accelerate. This, I think is the
Speaker 8: crux of the problem for corporations right now, is, at
Speaker 8: least until this data point, producer prices we're accelerating at
Speaker 8: a faster pace than consumer prices. Producer prices of course
Speaker 8: are littered with energy products, but also industrial goods sort
Speaker 8: of those core imports are a huge and input to
Speaker 8: ultimate company costs. So it really is not just necessarily
Speaker 8: about a acceleration or stabilization of inflation. But it's the
Speaker 8: difference between the costs that they're paying for inputs and
Speaker 8: what they can charge the consumer on the other end
Speaker 8: that's been working against them now for two months. We'll
Speaker 8: see the course of this week if it continues to
Speaker 8: work against corporate margin outcomes. But it is a very
Speaker 8: different climate than we've been in for the last two years. Admittedly,
Speaker 8: we not only had disinflating inflation, but we also had
Speaker 8: producer prices decelerating faster than consumer prices. That was the
Speaker 8: idyllic environment for corporates. We're moving past that, and so
Speaker 8: you should expect a period of give and take at
Speaker 8: the very least to emerge. On top of that, you've
Speaker 8: got a lot of business uncertainty right now.
Speaker 5: Even in small.
Speaker 8: Businesses, which vastly celebrated the election post November, have started
Speaker 8: to pull back expectations because they don't know what the
Speaker 8: rules of the road are, and so we need some
Speaker 8: stabilization and policymaking to help enable growth.
Speaker 5: There got to run.
Speaker 4: Let's do this again. Let's get her in the studio again.
Speaker 2: Gina Martinatams Bloomberg Intelligence, Brilliant and double digit earnings growth
Speaker 2: David Kelly's schedule to be with us here with JP Morgan,
Speaker 2: but we're going to e squeeze this sit in right
Speaker 2: now as best we can again. Futures in negative fifty
Speaker 2: six off the CPI report, the vicx's of seventy level,
Speaker 2: I'm gonna call it stasis, but a huge yield reset
Speaker 2: out nine basis points and a ten yure yield four
Speaker 2: point sixty two percent.
Speaker 4: I watched a ten year real.
Speaker 2: Yield as Christi Alcunian does at Blackrock.
Speaker 4: Two point one to three percent is well.
Speaker 2: Joining us now from Blackrock is Christie Acullian, head of
Speaker 2: I Shares Investment Strategy. So you go home and blow
Speaker 2: up the year view because a higher inflation? Are you
Speaker 2: going like, why am I here? I got to go
Speaker 2: back and rewrite forty pages.
Speaker 7: Well, I'm certainly wishing I was on twenty minutes ago,
Speaker 7: but not right now. We all I'd say, you know,
Speaker 7: I think that you know, we came into this year
Speaker 7: pretty bullish. We've been overweight US equities, but I feel
Speaker 7: really good and confident about the places that we've chosen
Speaker 7: to allocate to within that as opposed to just broad based.
Speaker 7: So we've been talking for a long time about the
Speaker 7: need to stay up in quality. We've been staying away
Speaker 7: from small caps. What you saw in the inflation data
Speaker 7: today is that it's on a relative basis, at least,
Speaker 7: it's those higher quality companies that we think can outperform.
Speaker 7: Small caps are going to face the head winds of
Speaker 7: higher exposure to those higher interest rates.
Speaker 2: What is you and guardy when you're a black rock,
Speaker 2: they're on speaking terms when you're.
Speaker 4: A g I hope so boet.
Speaker 2: What is the marginal appetite for equity ETFs right now?
Speaker 4: Is every day like OMG, the money's coming in? Or
Speaker 4: are people scared stiff?
Speaker 5: No?
Speaker 7: I think people are still very much allocating to the
Speaker 7: equity markets. It's been an incredible year for fixed income
Speaker 7: as well, so that's been certainly breaking records. But one
Speaker 7: thing that was so interesting to us is that even
Speaker 7: in a twenty five percent positive year for equity markets
Speaker 7: last year, we saw three times more money allocated to
Speaker 7: cash funds money markets. So we still think there's a
Speaker 7: lot of money on the sidelines. We're still talking to
Speaker 7: investors about putting money to work. And interestingly, even though
Speaker 7: we saw growth underperform value in January we saw one
Speaker 7: of the largest spreads in terms of allocation to growth
Speaker 7: ETFs relative to value. So people are still convicted in
Speaker 7: this market. They're still convicted in the AI theme. Again,
Speaker 7: we just think that it's important to do so in
Speaker 7: a high quality way. So something like qua L has
Speaker 7: been what kind of our top ticker? What is qua
Speaker 7: L is our our quality ETF. So it's it's an
Speaker 7: equity market sector neutral. You get the top quality coming
Speaker 7: from it's eighty.
Speaker 4: Percent of triple leverage dot cash fund. That's how you
Speaker 4: do it. I talked to Larry about its registration.
Speaker 6: Jean Martin Adams a moment ago was talking about this
Speaker 6: different environment that you know, what we've seen here in
Speaker 6: terms of an idyllic environment for corporates is changing, and
Speaker 6: I saw you nodding out of the corner of my eye.
Speaker 6: How do you see that challenge manifesting itself here in
Speaker 6: the months ahead.
Speaker 7: Yeah, absolutely, and certainly it is an environment where we
Speaker 7: see and expect to see a lot of uncertainty, and uncertainty,
Speaker 7: as we know, is bad for markets, it can be
Speaker 7: bad for consumers, it can be bad for companies. But
Speaker 7: we're still really grounded in what we're seeing in terms
Speaker 7: of earning. So you know, broadly, I think the macro
Speaker 7: picture still looks positive and that growth is still really strong.
Speaker 7: Corporate earnings have come back stronger than expected, so we're
Speaker 7: really focused on those fundamentals.
Speaker 4: Tell me about leverage. I keep bringing this up and
Speaker 4: I make jokes about it, folks, but it's not funny.
Speaker 4: Leverage kills you. And the answer is it's all the.
Speaker 2: Rage right now, double leverage, triple leverage, mag seven whatever.
Speaker 2: What do you actually see from people buying or selling leverage?
Speaker 2: And also what do you see in your research.
Speaker 7: Yeah, it's not a space that we play, so you know,
Speaker 7: we are not in the runt director.
Speaker 4: Play triple leverage.
Speaker 7: We like to, you know, we think about the appropriate
Speaker 7: nature of funds for all types of investors. So we
Speaker 7: like to launch institutional quality funds that can be used
Speaker 7: by end investors and direct investors as well. So again
Speaker 7: we're focusing on portfolio building blocks, not necessarily trade.
Speaker 10: So that's that's just not our space.
Speaker 6: Trying to get his triple leverage, don't Cashlio trying to.
Speaker 2: Talk about quality of what I said, it would be
Speaker 2: a perfect blackrock product.
Speaker 6: He's thinking of going to think about that one. I
Speaker 6: do hear still a chorus among managers and advisors talking
Speaker 6: about small caps. This is a moment for small caps.
Speaker 6: Are you singing from that him mill? Are you in
Speaker 6: that chorus as well? Or are you steering clear?
Speaker 7: We have been pushing back against that for a while,
Speaker 7: and I think the modal question we get from investors
Speaker 7: that we speak to is now finally the moment for
Speaker 7: small caps. We saw and sort of anticipated we were
Speaker 7: going to get a short, sharp rally after the election,
Speaker 7: but it wasn't something that we wanted to chase, and
Speaker 7: specifically we didn't want to chase it because we think
Speaker 7: the fundamentals are still against that trade. So small caps
Speaker 7: are more exposed to higher interest rates, and also they
Speaker 7: tend to need accelerating growth, and even though we think
Speaker 7: growth is going to stay positive, we do think it's
Speaker 7: going to decelerate this year. So the sad answer for
Speaker 7: a lot of the folks that we see a lot
Speaker 7: of the positioning data that we look at, investors are
Speaker 7: very overweight small caps. We still don't think that it's
Speaker 7: the moment for that just now.
Speaker 4: This is brilliant. We got to have you back here.
Speaker 2: I want to sign absolutely not yeah, absolutely, Really David
Speaker 2: Kelly with this year in a bit Christy as simple
Speaker 2: as I can the MAG seven in the loveer. Are
Speaker 2: people buying at the margin or is there a new
Speaker 2: test here to the MAG seven.
Speaker 7: I think investors are looking for the broadening out trade,
Speaker 7: but they're still looking for large cap growth. So you know,
Speaker 7: again we're not seeing as many flows into small caps,
Speaker 7: not into index value at least, I think there's opportunity
Speaker 7: in the active space. But you know, when we look
Speaker 7: at the composition of returns last year from twenty to
Speaker 7: twenty four, you know we saw about half of the
Speaker 7: S and P five hundred returns were due to earnings
Speaker 7: per share growth to fundamentals, and half was due to
Speaker 7: valuation expansion. If you look at large cap growth, eighty
Speaker 7: percent of that was driven by fundamentals. If you look
Speaker 7: at at value, it was less than half driven by fundamentals,
Speaker 7: and small cap zero of it driven by fundamentals. So again,
Speaker 7: people are following the earnings, people are following the growth.
Speaker 7: We like the corporate profitability story and where we're saying
Speaker 7: of it away from small guts are you basing I'm
Speaker 7: based in San Francisco.
Speaker 5: It's better there's a time.
Speaker 4: Can you get us good Giants tickets? Take care of you.
Speaker 6: He's going to go over just a little rock to
Speaker 6: French Shields minor league stadium and then hop.
Speaker 2: On over goes back friend Carl did. He went to
Speaker 2: every major league stadium. That's so cool for a summer.
Speaker 2: I think it was several summers.
Speaker 7: You know, you don't want to come in the summer,
Speaker 7: September sometime.
Speaker 2: Early, Christie, thank you, don't be a stranger. Christian with
Speaker 2: Blackrock is well right now. The sixteen point eight three
Speaker 2: and a lot more red on the screen.
Speaker 4: It's like, you nailed that. I mean, my.
Speaker 2: Word, g what he sponds currencies come on and he's
Speaker 2: just absolutely nailing it here. But yields are higher. Seriously,
Speaker 2: the tenure yield out nine basis points. I'm going to
Speaker 2: get right to it now. We're what we're going to
Speaker 2: do here, This is so important. We're going to blow
Speaker 2: out the show open and the song ending here. Nickelback
Speaker 2: to David Kelly or Nickelback.
Speaker 6: Succeeded in getting us to scuttle.
Speaker 4: That's you know, and David knows where I'm going on this.
Speaker 2: When David Kelly and I met, we were younger, to
Speaker 2: say the least. And one of the great moments of
Speaker 2: this bullmarket and the oddities of equities, bonds, currencies, commodities
Speaker 2: is there's not a lot of people with bull market
Speaker 2: experience when it ends. David Kelly joins us now with
Speaker 2: JP Morgan. I just can't say enough about the team
Speaker 2: he's put together there of thinking responsibly about investment. And
Speaker 2: you were weaned on this in Boston at Putnam. You
Speaker 2: and I have tattooed to our soul the collapse of
Speaker 2: the Putnam Voyager Fund.
Speaker 4: It was the go Go fund.
Speaker 2: Now I'm going to suggest, David, we don't have that
Speaker 2: exuberance right now that I don't see it.
Speaker 4: But what's the radar you and your team use so
Speaker 4: that we.
Speaker 2: Can avoid the the Voyagers of this decade.
Speaker 11: You know, there's a there's a very old saying that
Speaker 11: that you don't make the same mistake twice. The problem
Speaker 11: about the family mistakes is a very broad family, and
Speaker 11: there's always some cousin or relative of the mistake you made.
Speaker 11: That's actually, that's actually, that's actually a quote from from
Speaker 11: the book Reminiscences of a Stock Operator, which means which
Speaker 11: everyone should read every five years actually, But if you
Speaker 11: look at the megacap tech companies, it's not the same
Speaker 11: thing as a dot com bubble, of course, but you
Speaker 11: still have very high valuations and you still got and
Speaker 11: you've got more concentration in the S and P five
Speaker 11: found it now than you had back in the dot
Speaker 11: com bubble. So there are bubbly aspects to this market.
Speaker 11: And the market is price for perfection. And then if
Speaker 11: you have an imperfect number like the CPI number today,
Speaker 11: then you take a shillacking. And the thing that the
Speaker 11: thing that gets hit the most at the end of
Speaker 11: a bubble of a bull market, your build markets end
Speaker 11: up being bubble markets is the thing that is the
Speaker 11: area that the bubble is concentrated. And that's the thing
Speaker 11: that's most important different people to think about it. Doesn't
Speaker 11: you know, markets will come, bear markets, building markets will
Speaker 11: come and go, but you don't want to be overweighted
Speaker 11: the overhyped at the peak of a bull market. And
Speaker 11: that's what I think investors need to think about.
Speaker 6: I keep coming back to this, and we've talked a
Speaker 6: lot about the FED being data dependent versus data point dependent.
Speaker 6: How do you view the data that we got today
Speaker 6: in kind of a wider, more holistic lens. We see
Speaker 6: the reaction in the markets thus far, but what does
Speaker 6: it tell us that we didn't know yesterday or a
Speaker 6: week ago.
Speaker 11: Actually not as much as you think that. The thing
Speaker 11: about when you have a surprise on CPI, people forecast
Speaker 11: CPI pretty well because all the core things are pretty
Speaker 11: easy to forecast. What causes a problem is the usual suspects,
Speaker 11: and the usual suspects are auto insurance, airline fares.
Speaker 4: Hotel rates.
Speaker 11: So tail rates were up one point two percentine airline
Speaker 11: fares were up one point four percent, and auto insurance
Speaker 11: is up two percent.
Speaker 5: All things that Thomas been complaining about at length in.
Speaker 2: Recent christ Paris last night versus twelve months ago, I'm
Speaker 2: spending two thousand more dollars.
Speaker 4: Yep, that's a fact from X to X plus two thousand.
Speaker 11: I mean that's the Hampton in Well, yeah, you know,
Speaker 11: that's that's.
Speaker 5: A wealth effect.
Speaker 11: We've both been doing this long enough that you know
Speaker 11: it used to be a wealth effects and consumption weren't
Speaker 11: that important. But there is so much wealth right now
Speaker 11: relative to twenty years ago, thirty years, forty years ago,
Speaker 11: that when you have a wealth surge like we did
Speaker 11: last year. Well, rich people spend money and what to
Speaker 11: rich people spend money taking trips to Paris?
Speaker 2: Joining us here at at the our top. David Kelly
Speaker 2: of JP Morgan, this is so important. We're going to
Speaker 2: forego the festivities of the market open. We forego nickelback.
Speaker 2: You know that was my pictures and Catchers thing you
Speaker 2: should have.
Speaker 5: Seen years ago.
Speaker 2: Kelly would be down to Peter Lynch would be backed
Speaker 2: up twelve rowers back and Kelly's down.
Speaker 4: By the third base. Doug guy, you know rock star seats.
Speaker 2: David, I want you to talk about the moment we're
Speaker 2: in and how people scared participate in the equity markets.
Speaker 2: JP market is this huge platform of measured of a
Speaker 2: measured approach within a new media frenzy you and I
Speaker 2: did live years ago, and.
Speaker 11: Yes, absolutely, and you've just got to watch valuations. There
Speaker 11: are plenty of things in global equity markets who took
Speaker 11: up perfectly reasonable price tax. There's just a few things
Speaker 11: which dominate US markets who don't have reasonable price tags.
Speaker 5: And you've just.
Speaker 11: Got to be determined to focus on I'm going to
Speaker 11: buy stuff at reasonable valuations. This makes sense both US
Speaker 11: stocks and international stocks and I'm going to try to
Speaker 11: do everything I can underweight the stuff that is carrying
Speaker 11: pe ratos of thirty times or thirty five times or
Speaker 11: one there and twenty times.
Speaker 5: You just need to do that.
Speaker 10: We don't.
Speaker 11: You never know the hour or the day that a
Speaker 11: bull market breaks and you end up in a bear market.
Speaker 11: You just don't know how to time that. But you
Speaker 11: do know what you know, how you position yourself before that.
Speaker 11: He determines how you're going to go through it. So
Speaker 11: you know, overall the economy looks good, but we've got
Speaker 11: a lot of a lot of policy uncertainty. The problem
Speaker 11: is the equity marketers price for perfection, and or part
Speaker 11: of the equity marketers price for more than perfection. You
Speaker 11: just need to be underwaigh that.
Speaker 6: I'll show my age here. But does a bull market
Speaker 6: end with a bang or a whimper? Customarily? You said
Speaker 6: you'd know the nearly hour.
Speaker 4: That's a really sophisticated question.
Speaker 5: Seriously, No, it ends, it ends with the bank.
Speaker 9: I'm sorry.
Speaker 5: It's not going to just win bad.
Speaker 11: That's we're past the point where the market can simply
Speaker 11: slide back into a bad year or two. We're going
Speaker 11: to have We're gonna have a significant bear market at
Speaker 11: some stage. We don't know when it's going to start,
Speaker 11: and you don't want to not participate. There's just just
Speaker 11: don't participate in the stuff that looks obviously crazy in
Speaker 11: terms of valuations.
Speaker 2: David kellyers with a JP market, how do you fold
Speaker 2: in Casman and Feroli's work? Michael Feroley making history. I'm
Speaker 2: going to say, a decade eight years ago, with a
Speaker 2: shot wucking potential GDP number under two percent?
Speaker 4: Do you work off of JP?
Speaker 2: Morgan economics modeling still a disinflationary tendency. John Williams yesterday
Speaker 2: reaffirming a path back to two percent? Is that a
Speaker 2: foundational call?
Speaker 4: Still? I agree with them on that.
Speaker 11: You know, I look at their stuff very very very closely.
Speaker 11: We work independently, but I agree with them that because
Speaker 11: if you look yes, we've got a surprising number today,
Speaker 11: but if you look at shelter, shelter was four point
Speaker 11: six percent year over year last month, it's four point
Speaker 11: four percent right now, and it is still too high
Speaker 11: based on what we know is going on in the
Speaker 11: rental market. Auto insurance you know, saw two percent increase,
Speaker 11: but it's a double digit year over year it's not
Speaker 11: going to be double digit year over year by the
Speaker 11: end of the year, so it will that part will
Speaker 11: go away. But what I am concerned about, and I
Speaker 11: think the FED is concerned about, is what happens if
Speaker 11: we have more tariffs, what happens if immigration gets much
Speaker 11: tougher you've got higher wages, And what happens if we
Speaker 11: have physical cinemas in twenty twenty six. And that's what's
Speaker 11: keeping the FED more nervous.
Speaker 2: Thirty seconds, every single parent I know wants their kids
Speaker 2: to go to school in Europe.
Speaker 4: It's the new rage here sell Trinity right now.
Speaker 2: Everybody's looking at Saint Andrew's this and go down to
Speaker 2: Paris and you know the Rome and all that.
Speaker 4: The real academics is at Dublin, isn't it.
Speaker 11: Well it's you actually have a pretty good time there too,
Speaker 11: but you know it, what's a college education?
Speaker 5: Media guys, and you about life in Dublin.
Speaker 2: David Kelly, there were wisdom on his Dublin. Thank you
Speaker 2: so much for JP Morgan. This was a real treat
Speaker 2: to have him in here.
Speaker 1: You're listening to the Bloomberg Surveillance podcast Catch us Live
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Speaker 4: I got a.
Speaker 2: Script with Hugh von Stein is like a plan, Like
Speaker 2: if he and Iron Davos we have a plan, We
Speaker 2: go see Barry at the piano bar and life goes on.
Speaker 2: The President is just got the way of my script,
Speaker 2: President Trump putting out moments ago a tweet interest rates
Speaker 2: should be lowered, something which would go hand in hand
Speaker 2: with upcoming tariffs.
Speaker 4: Let's rack and roll America. So I got to start
Speaker 4: with that.
Speaker 2: Yeah, joining us now the king of British rock and roll,
Speaker 2: steins encyclopedic and banking and of course at however, whyman
Speaker 2: it is?
Speaker 4: Well?
Speaker 2: Can a president force rates lower? Or Chairman Powells speaking
Speaker 2: this morning?
Speaker 10: Gosh, that's a great question to start.
Speaker 9: I was.
Speaker 12: I was happy on the skiing than this.
Speaker 9: Look.
Speaker 12: I think I think central bankers like to move at
Speaker 12: their own speed, don't they, And they ought to like
Speaker 12: to move incrementally where possible. So I think it's going
Speaker 12: to be tough.
Speaker 10: Look taffs it taffs.
Speaker 12: I think the market's still pricing in that they're going
Speaker 12: to be small and surgical rather than broad based.
Speaker 10: If that's right, they're not.
Speaker 12: As inflationary, so that you can see as inflation comes
Speaker 12: down there's an opportunity to cut rates further. Look, you know,
Speaker 12: if I think about it from the bank CEO's and
Speaker 12: see if I as I talked to, they're actually having
Speaker 12: a really good moment.
Speaker 10: They're in a purple patch.
Speaker 2: Why are they in a good moment if the rest
Speaker 2: of us are in chaos?
Speaker 12: Well, so it's a really great question. So look, we've
Speaker 12: got a steeper your curve, so they love that. Deposits
Speaker 12: are building up, so they got grit better funding. The
Speaker 12: credit environment is still really benign. You know, there's very
Speaker 12: few bankruptcies and actually with bars with the bars and
Speaker 12: rules being kicked either into touch or certainly being what
Speaker 12: I think of as a bureaucratic fudge. If there's mere
Speaker 12: bank capital neutral whan it's BKX is up forty three
Speaker 12: percent in the last year. That beats fangs. In fact,
Speaker 12: you would love this. The European bankshop forty seven. The
Speaker 12: European banks are being rehabilitated. You have to come back
Speaker 12: to Europe to talk about them.
Speaker 2: Sometimes in a hero these off life support out and
Speaker 2: get a question, get a question.
Speaker 6: As we get our popcorn and watch the second of
Speaker 6: these two days of hearings, No doubt there will be
Speaker 6: some questions about bars or three in Capital And as J.
Speaker 6: Powell persists without Michael Barr, the other mic bar by
Speaker 6: his side, what does the future look like when it
Speaker 6: comes to sort of the regulatory remit of the Fed Reserve?
Speaker 6: What sense do we have the contours of that post
Speaker 6: Michael Barr.
Speaker 12: It's a great question to look so, so Tom and
Speaker 12: I've discussed before. If we look back in two years
Speaker 12: ago what went wrong, it was a failure of supervision.
Speaker 12: It wasn't actually my failure of the rules. It was
Speaker 12: just they weren't being implemented California. Out in California. That
Speaker 12: the four banks which went, but certainly the first three
Speaker 12: there were just people looking somewhere else rather than looking
Speaker 12: at proper one, good old fashioned risk management and rekignetars.
Speaker 12: So the supervision really needs to be improved, and I
Speaker 12: think there's some work ongoing, and you could say Flick
Speaker 12: needs to be.
Speaker 9: Part of that.
Speaker 10: I think two.
Speaker 12: I think the thing I learned was that the big
Speaker 12: banks were in great shape. And so actually you don't
Speaker 12: need to have bolster them with copper, gold plated, platinum plated,
Speaker 12: you know, cryptoplated, you know.
Speaker 10: Regulation.
Speaker 12: But maybe there's a little bit tightness around the central
Speaker 12: about the smaller banks. Maybe the regional banks do need
Speaker 12: a little bit more supervision. So I think it's quite incremental,
Speaker 12: and I think we're getting back to sanity after this
Speaker 12: nineteen percent proposed increase.
Speaker 6: I had a question for friendship the Congress been in
Speaker 6: chair of the Financial Services Commante didn't have time for it.
Speaker 5: I'll put it to you.
Speaker 6: He talks a lot about how regulation is preventing de
Speaker 6: novo banks from coming under the scene, that he doesn't
Speaker 6: think there were enough kind of smaller community banks. Are
Speaker 6: there too many banks in this country? Where is the
Speaker 6: need for even more banks in the US banking system.
Speaker 12: So I think it's true stateside, but the world over,
Speaker 12: heavy duty regulations have for smaller bank it makes it
Speaker 12: much much tougher to start up. That said, in the state,
Speaker 12: if you think about the banking system, we got your
Speaker 12: top eighteen twenty four banks who are in pretty good shape.
Speaker 12: Then you've got sort of close to three thousand community banks.
Speaker 12: They sit on one of three computer systems they're actually
Speaker 12: have scale because they're drag and drop on a really
Speaker 12: high quality platform. It's the belly in the middle, and
Speaker 12: so in fact the two years ago it was the
Speaker 12: belly which the four banks got in trouble. That's where
Speaker 12: we need to memonade.
Speaker 4: But let me frame this like for.
Speaker 5: Script.
Speaker 2: Why no, Gert, your question was brilliant. Why do we
Speaker 2: need to lean forward here? Hugh von Stein has came
Speaker 2: out of turn Need Oxford, PP and E and he
Speaker 2: had to get a day job, so he went to
Speaker 2: Morgan Stanley where he was definitive on banks in Europe
Speaker 2: but worldwide as well, and took down trophies like twelve
Speaker 2: years in a row or something. They had to force
Speaker 2: him out just so somebody else could win the damn trophy.
Speaker 2: He's herd of Mark Kearney at the Bank of England
Speaker 2: as well. But to your question, is definitive Trump loves
Speaker 2: Andrew Jackson.
Speaker 6: Yes, I mean is that where we're going? Portrait is
Speaker 6: back up on the wall. I know in the Oval office,
Speaker 6: but I don't know if you want to talk about
Speaker 6: Andrew Jackson.
Speaker 5: You should feel free if you.
Speaker 12: Want, well we get we can if you want, but
Speaker 12: you should get Neil Ferguson On. I mean, I think, well,
Speaker 12: Neil always taught me and she had dinner with Dick
Speaker 12: Burner last night, who you may remember, the chief economist
Speaker 12: and Bog and Sandy.
Speaker 9: Back the day.
Speaker 10: I think I owe her money or Dick some great
Speaker 10: form and I'm sure take this.
Speaker 12: But so he said, like, you know, the key lesson
Speaker 12: is that these clever PhDs, they haven't done economic history.
Speaker 12: And actually we learned that in the financial crisis. So actually,
Speaker 12: whether it's Jackson or whether Actu, you got back to
Speaker 12: the nineteenth century and actually, you know, think about the
Speaker 12: impact of Tariff's about counter counters, president deficits history really matters.
Speaker 12: I think Neil's a better guess key on that.
Speaker 4: No, this is really important.
Speaker 2: And to Richard Berner, folks at Morgan Stanley and with
Speaker 2: Stephen Roach changed American economics. I think Dick Berner and
Speaker 2: Iron this forward guidance things.
Speaker 4: Folks.
Speaker 2: You hear me talk about the dot plots McKee and
Speaker 2: I are like, you know, are you kidding me? And
Speaker 2: the answer is maybe they'll go away. A lot of
Speaker 2: that came.
Speaker 4: From the excellence of Richard Berner. Hugh, I got to
Speaker 4: rip up the script.
Speaker 2: Here we have a glorious person at Bloomberg Intelligence, Robert Schiffman,
Speaker 2: who writes on debt and credit and MAGA.
Speaker 4: He has just put out a.
Speaker 2: Brilliant note suggesting that all this angst about capital raised
Speaker 2: there could be done with.
Speaker 4: Debt issue Ince because they don't have any debt and
Speaker 4: they make more money than God and free Kishlow.
Speaker 2: Do you think the bankers like you used to be
Speaker 2: will convince MAGA raising their capital is an easy process
Speaker 2: because of the wonderful financial position they're in, and they
Speaker 2: can raise billions in debt.
Speaker 10: It's a great question.
Speaker 12: So look, let's stick on the bits which I have confidence,
Speaker 12: and let's move to the tricky a bit.
Speaker 4: Please.
Speaker 12: It's raining fixed income up moment. The inflows to fixed income.
Speaker 12: I think this year will Last year was a record
Speaker 12: in the States. I think it's gonna be a new
Speaker 12: record based on what I've seen in January and early February.
Speaker 12: So it's raining fixed income. The demand for yield is huge,
Speaker 12: and I think the way to put it is after
Speaker 12: twenty years where people didn't look at their fixeding come portfolios,
Speaker 12: the last three years, it's come back. So the demand
Speaker 12: side there. But as You've debated tons of times. The
Speaker 12: structure of markets has changed a lot, and so it's
Speaker 12: going to be ETFs or it's private credit, and so
Speaker 12: there's there's a following out. So I think the demand.
Speaker 12: I think you could issue plenty more debts.
Speaker 2: Okay, So like take a round number one hundred billion
Speaker 2: dollars sixty seven companies. In the old days, you'd sit
Speaker 2: at Morgan Stanley and there'd be like four phone calls, right,
Speaker 2: that's right. Can they do one hundred billion in debt
Speaker 2: with seven phone calls?
Speaker 4: And the answers, yes, they could do.
Speaker 12: But it's not necessarily the banks taking it down in
Speaker 12: it ogre, it's actually the investor side which is taking
Speaker 12: it down because the banks don't have that kind of capacity.
Speaker 10: Fair or Lord just sit on it.
Speaker 4: At least come out sovereign.
Speaker 10: But I think let's go back to his street.
Speaker 12: So when Neil, in fact, when Nail and I chatting,
Speaker 12: this is a recycling of Petro dollars. Why is it
Speaker 12: that everyone's in the Middle East? Is because those dollars
Speaker 12: need to find a home and actually they are funding
Speaker 12: the states and actually that could be one of the
Speaker 12: windfalls over the next four years is actually the recycling
Speaker 12: of these petro dollars.
Speaker 6: As Tom Venmo's doctor, Bernard, let me ask you about
Speaker 6: how what we've heard from Mark Rowan and his cohort
Speaker 6: lately is resonating in the c suites of the big
Speaker 6: banks on Wall Street. His ambition to grow private credit
Speaker 6: and to sort of present himself as this not even
Speaker 6: alternative but sort of driving forward for financing. What are
Speaker 6: banks doing in the face of that to compensate or
Speaker 6: compete with with what he's saying.
Speaker 12: Look, so it's fascinating how many banks now talk about
Speaker 12: are prepared to accept there is a partnership model rather
Speaker 12: than just a counterpart. But I think there's two ways
Speaker 12: slice it. The traditional private credit business is higher yielding,
Speaker 12: it's leverage finance, mid market finance. And the way I
Speaker 12: think about it is that there's a retranching or reslicing
Speaker 12: of the banking system. The senior risk is being taken
Speaker 12: by the banks and the junior risk is being sold.
Speaker 12: And I think, I said to Tom, I almost think
Speaker 12: that private credit is the a zen pic to the
Speaker 12: banking industry. It's helping them shad weight. But and here's
Speaker 12: a big butt. The risk now is the private credit
Speaker 12: firms are raising so much insurance money. Over half of
Speaker 12: all inflows to private credit last year I think came
Speaker 12: from insurers. Well, let's we find they need investment grade.
Speaker 12: So there you're now getting into the territory of the banks.
Speaker 12: Private credit only has about five six percent share of
Speaker 12: that asset back lending, right, that's where they're going next,
Speaker 12: and that will put them into more confrontations chilling.
Speaker 2: It's like talking to David Goldman when he was at
Speaker 2: Bank of America in like two thousand and six or
Speaker 2: two thousand and seven to translate this, folks, and he
Speaker 2: will help me out here.
Speaker 4: If private credit.
Speaker 2: Is going to pick up the pieces from the major
Speaker 2: banks and lesser quality what are called junior tranches, is
Speaker 2: there an implied leverage within those tranches?
Speaker 4: I mean, are they pure and clean or is there
Speaker 4: a shadow leverage within the new system.
Speaker 2: Of private credit and frankly private equity that we don't see.
Speaker 12: Look, this is what the number one question from regulators've
Speaker 12: always been having dealing with a lot of central bank governors.
Speaker 1: This is.
Speaker 12: Surveillance dire so but no, that's a great question. Actually
Speaker 12: the banking is doing work on exactly that issue. What's
Speaker 12: interesting though, is if you think about the insurers who
Speaker 12: are putting money to work, they need investment grade assets, right,
Speaker 12: and that's about forty three.
Speaker 10: Percentage pure clean They don't.
Speaker 12: Do let's say nad finance, so fun finance. The insurers
Speaker 12: do none of that. That's all being done by more
Speaker 12: than other parts of the ecosystem. So even if there
Speaker 12: is leverage, it's in sort of hands which are prepared
Speaker 12: to accept risky beds rather than the low risk beds.
Speaker 10: So there is it.
Speaker 12: Kind of It's okay in a way what the good
Speaker 12: always thinking life. We need the right holders the right risk,
Speaker 12: you know, in a way what we learn from let's
Speaker 12: say G capital they had long dated loans, but with
Speaker 12: short deposits, we want long data exactly, so we need
Speaker 12: to pass out loans to pass out the risk.
Speaker 2: So go to the axis with your expert on in
Speaker 2: at private equity. They have not been able to liquidize
Speaker 2: previous investments. Are you optimistic private equity can monetize their
Speaker 2: successes this year and in the next year twenty twenty six,
Speaker 2: and does private credit will? They have the same challenges
Speaker 2: of getting out of the stuff once they get into it.
Speaker 10: It's two great questions.
Speaker 4: So that's a hat trick.
Speaker 5: You guys work this out before.
Speaker 10: This is my script obviously, isn't it.
Speaker 4: I got to rehearse.
Speaker 10: It's tough.
Speaker 12: So all of the bankers that I talked to start,
Speaker 12: we're in November, we're jumping for joy about a huge
Speaker 12: IPO calendar for this year.
Speaker 5: I haven't seen it though.
Speaker 12: Maybe they did it just in time for bonuses and
Speaker 12: they were talking it out.
Speaker 4: Yeah, except there yesterday and said exact so.
Speaker 10: Sorry, okay, your credittionally with that.
Speaker 12: But obviously now they're saying in February it's it's okay,
Speaker 12: but it's a bit slow, and it's that indigestion in
Speaker 12: the sponsor community. In fact, if you got some great data,
Speaker 12: if you look at M and A strategic m and
Speaker 12: A so like company buying company, it's sort of more
Speaker 12: average levels the last fifteen years. It's A it's bouncing.
Speaker 12: It should be a little bit higher mid market M
Speaker 12: and A. Again in line, it's this sponsor M and
Speaker 12: A which is weak, and that's why the private credit
Speaker 12: side are having to strike out for fresh pasture. So
Speaker 12: I think, look, you know, markets are here to embarrass
Speaker 12: and confront us at the moment, it looks like it's
Speaker 12: going to be a reasonable but sluggish year.
Speaker 4: David, give one more in here with Hugh von steinas.
Speaker 6: Just ask you lastly about the kind of relationship between
Speaker 6: public and private and partnerships that might come out of
Speaker 6: this new administration. So we saw the scene in the
Speaker 6: Oval Office with Larry Ellison and Sam Altman and talk
Speaker 6: of financing a big data center project in Texas and elsewhere. Obviously,
Speaker 6: as we talked about in Lampoon a little bit a
Speaker 6: moment ago, there is the speculation about a sovereign wealth
Speaker 6: fund here in the US. How do seasoned private sector
Speaker 6: professionals look at that and navigate these proposals that you know,
Speaker 6: admittedly don't have a lot of meat on the bone
Speaker 6: at this point. But does the notion of a public
Speaker 6: private partnership change under this administration?
Speaker 12: Oh gosh, it's a great question. Well, in some ways
Speaker 12: you do already have a several wealth fund. If I
Speaker 12: might be so bold with Freddie and Fanny, I mean,
Speaker 12: they effectively are for now cheap fantasy moment, So I think.
Speaker 10: You can do that.
Speaker 12: I mean, obviously it depends whether it's through tax credits,
Speaker 12: through structures. How stable are the structures, what's the longevity
Speaker 12: the partnership? But I think everyone's looking at this minute
Speaker 12: they have you have an obligation to look at this seriously.
Speaker 2: Thirty seconds you came up with the phrase asset management.
Speaker 4: Barbell. Hugh von Stein is on the ETF.
Speaker 12: Boom oh, look the fixing committee off the charts. They
Speaker 12: infloced last year in the States, tripled.
Speaker 10: On the free lunch.
Speaker 12: So the bit which is growing is like, let's call
Speaker 12: it active ETF. And it's the same discussion we had
Speaker 12: twenty years ago. Let's say the PIMCO Total Return fun
Speaker 12: They're saying, I'll do the index and a little bit
Speaker 12: of Tabasco too, and the extra Tabasco gets you there.
Speaker 12: And there are Last year there were two I'm not
Speaker 12: doing company names this morning, but two funds who did
Speaker 12: really well in that space. I'm I think that active
Speaker 12: ETF space for fixed income remains really interesting.
Speaker 4: Michael Burr wants to know use Tabasco on your full.
Speaker 12: English right, try not.
Speaker 5: Missus Venstein, thank you so.
Speaker 4: Really.
Speaker 2: With Oliver Wyman and Dante, I should mention the brilliant
Speaker 2: and banks and there they are researching European banks.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Applecarplay and Android Auto
Speaker 1: with the Bloomberg Business app. You can also listen live
Speaker 1: on Amazon Alexa from our flagship New York station, Just
Speaker 1: Say Alexa Play Bloomberg eleven thirty.
Speaker 2: Tina Fordham has provided phenomenal transatlantic perspective over the recent years,
Speaker 2: and she's just continually delivered to us on international relations
Speaker 2: and how it folds into the markets. She becomes ever stronger,
Speaker 2: joined by Ibra Mubari who was at City Group and
Speaker 2: legendary and Fordham and Robari together today is really what
Speaker 2: Bloomberg Surveillance is all about. Tina, the moment that we're
Speaker 2: in right now, I assume your five page report has
Speaker 2: become a twenty page report. Distill it into one observation
Speaker 2: of how, whatever our political persuasion, how we survive this
Speaker 2: testing of an executive branch versus a legislative branch in
Speaker 2: a judicial branch.
Speaker 13: Thank you for the introduction and the low pressure question.
Speaker 13: How do we think about these unprecedented times? We keep
Speaker 13: an open mind and we check our priors because we've
Speaker 13: never been here before.
Speaker 4: We've never been here before, So how do you check
Speaker 4: your priors.
Speaker 13: It's really important to constantly test your expectations, your confirmation bias,
Speaker 13: to seek a wide range of opinions, which is why
Speaker 13: I love working with Ibraham because he keeps me intellectually honest.
Speaker 2: Well, this is a great thank you for selling Ibram
Speaker 2: to us. I'm going to cut to the chase. The
Speaker 2: dollar is the prior. Is the great shock of what
Speaker 2: is to come with this Trump to administration, a fragility
Speaker 2: or super strength to the US dollar.
Speaker 14: I think eventually it'd be a frigidity, actually, and we've
Speaker 14: got a first taste of that over the last couple
Speaker 14: of weeks. So in the currency world, I actually think
Speaker 14: it points to that handing over to the end as
Speaker 14: maybe the place to hide in difficult times. But is
Speaker 14: it's it And as Tina mentioned, many many moving parts.
Speaker 14: So I keep it with Chapale, who we'll hear from
Speaker 14: later today. Be humble and nimble, check your priors and
Speaker 14: try to work out what are the preferences and what
Speaker 14: are the constraints of policymakers along the.
Speaker 5: Way A question for both of you.
Speaker 6: I'll start with you first over him, and that is
Speaker 6: during the campaign, we heard a lot from Scott Besson
Speaker 6: among others about the prospects that they're being a shadow
Speaker 6: fed share, who kind of telegraph what the next fed
Speaker 6: shair would think or do. And I guess we're getting
Speaker 6: a taste of that this morning from the President. He's
Speaker 6: opining on X and Truth Social about these inflation numbers.
Speaker 6: Biden inflation up, he tweeted this morning. He suggested the
Speaker 6: interest rates should be lower before this testimony that you
Speaker 6: just mentioned, perhaps he is the shadow fed share. There
Speaker 6: was so teas during the campaign trail. But in terms
Speaker 6: of what's on precedent, and I go back to a
Speaker 6: question I asked Tom a few minutes ago, and that
Speaker 6: is how much more difficult does it get for Jerome
Speaker 6: Palell to weather the commentary, the critique, the criticism, the
Speaker 6: politics of this moment. He's indicated over and over again
Speaker 6: that he's up for it, but this is going to
Speaker 6: become increasingly difficult for him.
Speaker 14: So form my vantage point, it actually is getting significantly
Speaker 14: more difficult. And we've seen that in J. Powell in
Speaker 14: his last few press conferences. And he used to be
Speaker 14: very effective in communicating and he's become much less effective
Speaker 14: and clearly the new administration is a big reason, but
Speaker 14: I also think it's because he holds a lot less
Speaker 14: effective sway over his committee. The committee seems to be
Speaker 14: a lot more politicized. There's a lot of talk about
Speaker 14: Powell being politicized, but I actually think it's other people
Speaker 14: in the committee and on both sides. So you see
Speaker 14: some unnamed governors being significantly more dubbish, and some people
Speaker 14: speculative they're aiming to be his successor. But maybe more relevantly,
Speaker 14: there are a number of people who have tilted from
Speaker 14: being very dubbish to much less dubbish when we have
Speaker 14: had very little data to speak of so far. So
Speaker 14: I think it is a it's a much more difficult environment.
Speaker 14: He is much less effective as a leader. Some people
Speaker 14: will speak of.
Speaker 6: Lame duck Christ to that point. I mean he's dealing
Speaker 6: with the same uncertainty that we are. He's going to
Speaker 6: field as many questions today as yesterday, perhaps more just
Speaker 6: about the tariff's policy, how that might affect the economy.
Speaker 6: He's going to try to bat that down, but there's
Speaker 6: going to be increasing demand for him to indicate how
Speaker 6: he's thinking through these issues.
Speaker 13: There's a lot of pressure for anybody in a leadership
Speaker 13: rule to both demonstrate their integrity but also not be
Speaker 13: perceived as sending the wrong signal to this administration. I
Speaker 13: think it's important that we don't normalize this, however, because
Speaker 13: what we are talking about as we think about lower
Speaker 13: trust and institutions that includes the FED, that includes the
Speaker 13: courts that in Congress was always low on that list.
Speaker 13: And for investors, that means that the nonlinearities that are
Speaker 13: present in the system make it a lot harder to
Speaker 13: do what market participants like to do, which is say
Speaker 13: signal versus noise.
Speaker 4: In our studios, we are thrilled to bring you this hour.
Speaker 2: Even Rabari and Tina Fordham of for Fordham Global Foresight,
Speaker 2: I can't say enough usually in London, and to have
Speaker 2: them in our studios. Treat it is really really a treat.
Speaker 2: I'm gonna can I do an audible Yeah, you are
Speaker 2: the one I want to talk to on this, and
Speaker 2: that we have a president going through a routine visit
Speaker 2: with the Hashemi King of Jordan, Abdullah the second folks,
Speaker 2: this yes, it takes you back to the movie Lawrence
Speaker 2: of Arabia The Ignorance of America, of where Jordan fits
Speaker 2: in to the matrix of the levant is there's there's
Speaker 2: no measurement of how dumb I am in everybody else.
Speaker 2: I had a very well reported interview with Elcci at
Speaker 2: Davos years ago. Elceci of Egypt said enough, I'm not
Speaker 2: even going explain to Republicans now in support of Trump
Speaker 2: the delicacy of how the president is treating Jordan, Egypt,
Speaker 2: in the rest of the broader Middle East.
Speaker 13: Well, it's consistent with a kind of an American approach
Speaker 13: to the world, which is get them in a room,
Speaker 13: knock heads, and you know, make a deal. And so
Speaker 13: Trump's logic is very, very appealing. But other countries have
Speaker 13: politics too. King Abdullah of Jordan has fifty percent of
Speaker 13: his population is Palestinian. He can't simply roll over and
Speaker 13: expect to stay in power, and his presence in the
Speaker 13: region is very important for his stability.
Speaker 2: And he's been holistic for America from his time at
Speaker 2: Eglebrooke and Deerfield years ago in Western at Massachusetts. I mean,
Speaker 2: this is a guy that's always been on the American team.
Speaker 2: Is he the buffer to Iran? I mean, on the map,
Speaker 2: it tells me that Jordan is the buffer to Persia.
Speaker 2: Am I right on that.
Speaker 13: I think Syria as a wild card and the kind
Speaker 13: of power vacuum there may be more relevant for Iran
Speaker 13: itself in a weak position. And what we don't know
Speaker 13: is what kind of discussion Natan Yahoo of Israel is
Speaker 13: having with the president and this move toward maximum pressure
Speaker 13: what that means, because making it harder for Abdullah to
Speaker 13: sit on that throne, pressuring Cisi in Egypt could cause
Speaker 13: what US political scientists called unintended consequences and make a
Speaker 13: difficult situation worse.
Speaker 4: You were sitting at Ebrahm's going top. Don't ask me
Speaker 4: about the Egyptian David save us.
Speaker 6: Please see presparent in mind what we were talking about
Speaker 6: a moment ago, that there is so much here that's
Speaker 6: unprecedented and not normal. How useful is it for you
Speaker 6: to go back and look at the first term to
Speaker 6: sort of divine what might be happening here? Is this
Speaker 6: Trump two point zero? Is it a revision of the
Speaker 6: manual that we had that first time around, or is
Speaker 6: it simply a very different guidebook.
Speaker 5: I think it's still very useful.
Speaker 14: Yeah, And in fact, the way to approach it is
Speaker 14: to think about what is similar to the first term
Speaker 14: and what is different, And I've continued to highlight that
Speaker 14: there are big macroeconomic differences.
Speaker 4: We are now in the.
Speaker 14: World where the economy is robust, stock markets are at
Speaker 14: all time highs, and inflation is a major concern. So
Speaker 14: that shakes how this administration will respond. It doesn't need
Speaker 14: to stimulate the economy. It will worry about inflation and
Speaker 14: net net that means the less fiscally expansionary than many
Speaker 14: people would have thought. But we've had a number of
Speaker 14: developments that are very much in line with how this
Speaker 14: administration worked the first time around, and I think the
Speaker 14: most relevant of them is it loves to experiment. It
Speaker 14: loves to take risks, it loves to send trial balloons,
Speaker 14: and it's very keen.
Speaker 5: To reverse course.
Speaker 10: It likes to act first.
Speaker 14: See what the response is and then judicate.
Speaker 4: In addition to that.
Speaker 14: It likes to as Tina likes to call it, flood
Speaker 14: the zone, distract and maybe divide potential opposition. So there's
Speaker 14: a number of and confused. So there's a number of
Speaker 14: lessons in the first turn that I think investors in
Speaker 14: the general public would be in a good position to.
Speaker 6: Heat Tina we're seeing that now there's this big confact
Speaker 6: that's going to happen in in the coming days the
Speaker 6: Munich Security Conference, and the Vice President has gone from
Speaker 6: Paris to there. He'll speak there. I look at the
Speaker 6: bloomberg and see a headline this morning. Ukraine NATO membership
Speaker 6: is not a realistic goal, according to Pete Hegseth, the
Speaker 6: new Defense Secretary. From where you sit, what is the
Speaker 6: next chapter of.
Speaker 13: I mean, Ukraine joining NATO, I don't think has been
Speaker 13: a realistic goal. But Ukraine with having a European perspective,
Speaker 13: as the EU likes to say, is a realistic goal,
Speaker 13: and that is an anchor for the European Union. I think,
Speaker 13: you know, the military strategists like to quote the old
Speaker 13: saying that no plan survives first contact with the enemy.
Speaker 13: When Vice President Vance gets to Munich, he'll get an
Speaker 13: earfull and be confronted with the European reality because Russia's.
Speaker 5: On our doorstep.
Speaker 13: We've got several NATAL member states that are very concerned.
Speaker 13: This isn't just about creating a d military rised zone
Speaker 13: in the occupied territories. If it were that simple land
Speaker 13: for peace, it would already have been done.
Speaker 6: What is your counsel to someone like me, someone listening
Speaker 6: who watched what unfolded yesterday in the Oval Office, Donald
Speaker 6: Trump talking about Gaza as a place that's not worth anything.
Speaker 6: It's his to buy, indicating their's, but no thought into
Speaker 6: sort of where people there would go if this essentially
Speaker 6: ethnic cleansing were to happen, people were to be moved out,
Speaker 6: not thinking through all of these steps. How do you
Speaker 6: how much weight do you give to what seemed like
Speaker 6: not thought out, perhaps offhand comments like that versus a
Speaker 6: broader kind of strategic bent when it comes to the
Speaker 6: Middle East or other places.
Speaker 13: Well, first of all, I think he's serious. I think
Speaker 13: he I think he is a real estate developer. He
Speaker 13: made similar comments about North Korea right.
Speaker 5: About you could be the next he sees.
Speaker 13: You know, waterfront, ocean front.
Speaker 4: Ter Putin responded that.
Speaker 13: Mister Putin, President Putin can watch and and wait, just
Speaker 13: like President She right. Remember during We've talked about this,
Speaker 13: during COVID, they thought America was in decline and they're
Speaker 13: just watching to see the chaos ensue.
Speaker 2: I can't say enough about Angela's stent, whether she was
Speaker 2: on fire her book Putin's World, she was really forceful
Speaker 2: about we underestimate putin at this Trump moment, Ibra Mubari,
Speaker 2: Tina Fordham with his foreigner of global foresighted generous amount
Speaker 2: of time and we're going to continue.
Speaker 4: We welcome all of you across the nation and worldwide
Speaker 4: on YouTube subscribe to Bloomberg Podcast.
Speaker 2: I can tell you this is what the show's about.
Speaker 2: Catherine Mann nailed it. She went to the bank. She
Speaker 2: got sick of you guys. She got sick, said Saya
Speaker 2: and Catherine Mann, who folks came up with a whole
Speaker 2: dysfunction of China, us etc.
Speaker 4: Doctor Mann went to the Bank of England and she
Speaker 4: has been a resilient, cautious hawk.
Speaker 2: There is that the new town Ibra Marbury is even
Speaker 2: with this inflation report, even the middle ground or dare
Speaker 2: I say the doves tilt hawkish over the next year.
Speaker 14: Well, I think what everybody really appreciates about Catherine is
Speaker 14: again that she has an open mind, but at the
Speaker 14: same time she is a very structured thinker. And what
Speaker 14: was catching my eye recently with her is she was
Speaker 14: an ardent hawk on the Bank of England's NPC for
Speaker 14: the last you know, probably two years. She was on
Speaker 14: the dubbish end of the spectrum when I worked with her,
Speaker 14: and then in the very last meeting she seemed to
Speaker 14: flip back again and highlighted that there are some points
Speaker 14: of pressure in the UK economy that in fact pulled
Speaker 14: her into the idea that maybe they should be cutting
Speaker 14: by fifty basis points, cut by fifty basis points, when
Speaker 14: previously she was in the you know, in the rear
Speaker 14: guard that suggested that the Bank of England should be
Speaker 14: should be very very cautious. Now the lesson in there
Speaker 14: for me is for somebody like her who is not
Speaker 14: an internal NPC member at the Bank of England, historically
Speaker 14: they've been treated with a bit of a discount by
Speaker 14: markets because they see is less influential.
Speaker 5: I would say, pay a lot more attention.
Speaker 14: To her than you normally would because it's it's times
Speaker 14: of great uncertainty, it's times where people don't really have
Speaker 14: much of an anchor, where these people have more influence.
Speaker 2: I got you just find a question in an honor
Speaker 2: Viillam Bauder, who invented modern city research.
Speaker 4: The debt in the deficit is tangible. Americans love to
Speaker 4: ignore the debt and the deficit.
Speaker 2: Ibra Robari Is this a time where we need to
Speaker 2: focus on the debt, the deficit in our interest expense.
Speaker 5: I think yes and yes for two reasons.
Speaker 14: I think one is you know the need ter One one,
Speaker 14: this administration has actually focused on it, and again I
Speaker 14: think people have been missing how focused they are on
Speaker 14: to some degree, managing what they see as a vulnerability
Speaker 14: in terms of the level of debt and deficit and how.
Speaker 5: Much power they have.
Speaker 14: I mean, the standard answer you get from anybody on
Speaker 14: US fiscal is well, the executive can't really do very much.
Speaker 14: It's Congress's job. Congress is so dysfunctional and divided. We
Speaker 14: are seeing them taking action. They're trying to cut spending.
Speaker 14: They have a lot more power over over Congress than
Speaker 14: previous administrations have had. So there's I think interesting fiscal
Speaker 14: action going on right now, which is different from what
Speaker 14: people expect. There's the bigger question that a lot more
Speaker 14: people ask about, which is, you know, when are we
Speaker 14: entering the period of physical crisis in the US. And
Speaker 14: there I think massive topic to watch, but that timing.
Speaker 14: You know, if anything is actually slightly pushed back relative
Speaker 14: to what we thought a couple of months ago, then
Speaker 14: you know what people were expecting.
Speaker 4: This is we're out of time.
Speaker 5: This is what We'll have many occasions to talk.
Speaker 4: In town.
Speaker 13: Yes, but I don't have to be in town, but yes,
Speaker 13: I will be coming more often.
Speaker 5: Okay, wonder the German election.
Speaker 4: Can we do something to a London hotel process.
Speaker 13: I'd like to speak to you about New York hotel.
Speaker 5: Sterling's unbelievable.
Speaker 13: It's harder, it's harder than ever. But it's wonderful to
Speaker 13: have these conversations. And I think the appetite for this
Speaker 13: kind of open minded you know, checking your priors. It
Speaker 13: has to be the way forward. We haven't seen this
Speaker 13: movie before, No, we haven't.
Speaker 2: And we're working on. David and I are reading as
Speaker 2: much as we can to stay up on this. Stephen
Speaker 2: Levinski and the New Foreign Affairs and Jason Furman and
Speaker 2: of course Tina Fordham writing every day. Tina Fordham, even Bumbari,
Speaker 2: thank you so much for joining Bloomberg.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Apple Corplay and Android
Speaker 1: Auto with the Bloomberg Business app. You can also watch
Speaker 1: us live every weekday on YouTube and always on the
Speaker 1: Bloomberg terminal.
Speaker 2: After decades of service to his constituents in Arkansas, has
Speaker 2: the worst job in Washington. He has had a House
Speaker 2: Financial Services Committee, the Republican from Arkansas, and he joins
Speaker 2: us right now, French, I got eight ways to go here,
Speaker 2: but I got to look to the second third week
Speaker 2: of March, where the challenge is a government shutdown.
Speaker 4: Budget challenges. You're going to be in the heart of this.
Speaker 2: So I'm going to go to someone on your committee
Speaker 2: like Monica de la Cruz, the Latina from Texas. Fine, Okay,
Speaker 2: the conservative southerns that don't want to budget on the budget,
Speaker 2: how are mainstream Republicans like you going to convince them
Speaker 2: to keep the United States of America running.
Speaker 9: Well?
Speaker 15: Thomas, is such an important question. Great to be with
Speaker 15: you this morning. This is something we should have done
Speaker 15: in December, and it was a horrible mistake in my
Speaker 15: judgment not to complete the funding for FY twenty five
Speaker 15: in the previous Congress. Under the Biden administration, we would
Speaker 15: have had roughly the same characteristics we would have had
Speaker 15: an incoming Trump administration and incoming Senate. I think we
Speaker 15: would have gotten substantially the same deal. And now we're
Speaker 15: on trying to do budget reconciliation, which is a much
Speaker 15: more important task, and yet we face, as you point out,
Speaker 15: a government shutdown.
Speaker 9: Republicans have to stick together.
Speaker 15: We should use the Fiscal Responsibility Act numbers from last
Speaker 15: year and negotiate with the Senate now a Republican Senate
Speaker 15: who wants to spend a little bit more on defense,
Speaker 15: and get this behind us so that we could go
Speaker 15: to the main event of focus on reforming regulation, reforming
Speaker 15: productivity in the federal government, reforming spending, extending pro growth
Speaker 15: tax cuts.
Speaker 6: Give us your sense of how much optimism you have
Speaker 6: that's going to happen here. I know there's a lot
Speaker 6: of nervousness and apprehension that time is running short. There
Speaker 6: are different views on this. We were spending the last
Speaker 6: few weeks talking about will be one bill or two biller?
Speaker 4: Three bit three bills.
Speaker 6: I know you've been involved in the same game there
Speaker 6: on the hill. Do you see a path forward here?
Speaker 6: How much clarity do you have at this point?
Speaker 9: Yeah?
Speaker 15: Well, first, on Tom's question about FYY twenty five finishing
Speaker 15: FYY twenty five before March fourteenth, I have medium confidence
Speaker 15: the worst case scenario would be to continue a CR
Speaker 15: till like September thirtieth. First of all, once you hit
Speaker 15: April first, you'll have a one percent across the board
Speaker 15: cut twenty five spending, and crs are terrible for government management.
Speaker 15: We'll end up spending billions more because we operate under
Speaker 15: a CR.
Speaker 9: We won't be able to start.
Speaker 15: Any new programs at the Defense Department, which is a
Speaker 15: priority for the administration. So that makes me lean to yes,
Speaker 15: we'll get something done on March fourteenth, on fiscal twenty five,
Speaker 15: as the budget reconciliation the big game. I do support
Speaker 15: one bill here in the House because I think that's
Speaker 15: how we hold the Republican coalition together best here. And
Speaker 15: as you know, Senator Graham and the Senate's taking a
Speaker 15: different approach.
Speaker 6: Congressman Hill, what is the view from the Longworth House
Speaker 6: Office building of what we're seeing the White House do?
Speaker 6: Of course, the historical precedent has been that Congress controls
Speaker 6: the purse, makes decisions about funding. We are seeing this
Speaker 6: administration take a more active role, shall we say, in
Speaker 6: determining what gets funded and what doesn't. How much comfort
Speaker 6: do you have with seeding some of that power to
Speaker 6: your friends and colleagues in the other brands, the executive
Speaker 6: brand of Pennsylvania Avenue.
Speaker 15: Well, think you found on money that's appropriated. Congress does
Speaker 15: control those purse strings and they direct that spending.
Speaker 9: But in the broad swaths of federal.
Speaker 15: Spending, you have directions to agencies spend this money on
Speaker 15: these general topics, and that's what the appropriated money says.
Speaker 15: And then you have article to authority with a lot
Speaker 15: of discretion about how to spend it. And I think
Speaker 15: that's what President Trump's attempting to look at. Is the
Speaker 15: spending done at the end of the Biden administration and
Speaker 15: proposed to be spent here in the first few weeks
Speaker 15: of his administration.
Speaker 9: Is it in alignment with his goals that he.
Speaker 15: Has in foreign policy, for example, at USAID, And that's
Speaker 15: a classic Article to authority to take a look at that,
Speaker 15: make sure it's in alignment with their policies. With that said,
Speaker 15: you can't do these things without both the legislative branch
Speaker 15: and the executive branch ultimately working together.
Speaker 2: Then, Frenchchill, you know, you and I have known each
Speaker 2: other since time began, and I've never seen a private
Speaker 2: citizen in the Oval office standing there with his arms
Speaker 2: crossed like.
Speaker 4: He owned the high ground. You are one of the
Speaker 4: rare beasts that came.
Speaker 2: To Congress actually running a business in Little Rock. What's
Speaker 2: your advice to your fellow moderate brethren of the Democratic
Speaker 2: and Republican persuasion?
Speaker 4: What do they need to do in the coming days?
Speaker 15: Well, first, let's look at doje Tom. It's a good
Speaker 15: idea to go in and look at for efficiency and
Speaker 15: government in the executive branch and make recommendations to the
Speaker 15: legislative branch when you want to spend money differently or
Speaker 15: have a different number of full time equivalent positions in
Speaker 15: an agency. That's perfectly a good suggestion, and we haven't
Speaker 15: done it in years. I'd say since nine to eleven.
Speaker 15: The government's been focused on growing, not remotely focused on
Speaker 15: productivity or realigning or investing in technology or doing anything
Speaker 15: in a different way. We've been completely distracted by the
Speaker 15: war on terrorism, THEA crisis, and then recovery from that,
Speaker 15: and then the pandemic. So I think it's over time
Speaker 15: to scrape the barnacles from the ship of state when
Speaker 15: it comes to regulatory policy, personnel policy. But there's a
Speaker 15: right way and a wrong way to do it. And
Speaker 15: I would encourage the administration to plan, communicate, and consult
Speaker 15: with Congress on how the best way to do that is.
Speaker 6: As for the right way to do it, I think
Speaker 6: of you as a young man serving as a deputy
Speaker 6: Assistant Secretary of the Treasury departmentunder Nicholas Brady, and I
Speaker 6: wonder if you could have imagined you would have non appointed,
Speaker 6: non confirmed private sector individuals going in and looking at
Speaker 6: the payment system there in the Treasury Department. Does that
Speaker 6: make you uncomfortable having the history that you have with
Speaker 6: the Treasury Department to see the way that Doge has
Speaker 6: been approaching the sort of fiscal health the books, for
Speaker 6: lack of a better word, of the federal government.
Speaker 15: Well, when I heard about that story over the weekend
Speaker 15: last week, called Secretary of Assent. We talked about it
Speaker 15: last Monday, and he assured me that anything that Doge
Speaker 15: was doing was in the control of the Treasury Department,
Speaker 15: and that some people were working there for it review purposes.
Speaker 15: But he implied to me that he's got that under control.
Speaker 15: For making those recommendations, We're going to hold him accountable.
Speaker 15: He's the Treasury Secretary. So anything that Doge is doing
Speaker 15: in a Cabinet agency. We just need to remind the
Speaker 15: American people, Members of Congress, the Trump administration, we're holding
Speaker 15: the Cabinet Secretary accountable for, as I say, planning, efficiency changes,
Speaker 15: budget changes, personnel changes. We're holding them accountable here in Congress.
Speaker 6: We got some news overnight that Jonathan mccurnan, formerly the FDIC,
Speaker 6: has been picked to head the CFPB. And this has
Speaker 6: been an agency that's been in the crosshairs. I think
Speaker 6: it's safe to say you've had your criticisms with that
Speaker 6: agency over these last few years. And I want to
Speaker 6: ask you about some comments that the general lady from Cambridge,
Speaker 6: Massachusetts made on our heir last night, the senior Senator
Speaker 6: from Massachusetts, Elizabeth Warren, and she said, look, it's not
Speaker 6: up to the executive branch to decide whether or not
Speaker 6: an agency like the CFPB exists or what form it takes.
Speaker 6: That's up to Congress. The point that she's making is
Speaker 6: you and other lawmakers, if you don't like what this bureau,
Speaker 6: this agency is doing, you could take action yourselves. Lawmakers
Speaker 6: could decide whether or not it should continue to exist.
Speaker 6: Do you agree with the argument that she's making there
Speaker 6: that fundamentally it's not up to the executive branch, not
Speaker 6: up to this administration to decide what agencies, what parts
Speaker 6: of this government should stick around or be disappeared.
Speaker 15: Well, as a general matter, you'd have to look at
Speaker 15: statute by statute, agent by agency by that. But as
Speaker 15: a general statement, sure, I mean Congress creates agencies, Congress
Speaker 15: can end agencies. There's nothing so permanent though, as a
Speaker 15: temporary government program, as President Reagan reminded us. But let's
Speaker 15: talk about Elizabeth Warren. She's the founding mother of the CFPB.
Speaker 15: She created it to be insulated from oversighted, insulated from appropriations,
Speaker 15: and insulated from any meddling by Congress. And that's what
Speaker 15: irritated Congress, and that's why I support changing the agency dramatically.
Speaker 2: But Frinchell, I had a couple final questions. This is important,
Speaker 2: as you mentioned the senator from the Commonwealth.
Speaker 4: Where do we find a middle ground? You are one
Speaker 4: of the leaders of the middle ground in Washington. How
Speaker 4: does Senator Warren and someone over on the MAGA write
Speaker 4: find a common feature around people like french Hill.
Speaker 15: Well, it's a great question, and I've hearded Senator Warren
Speaker 15: to consider that exactly she's concerned about the big banks
Speaker 15: taking over the world. Well, she's created that with Dodd Frank,
Speaker 15: who concentrates more power into those big banks. I've encouraged
Speaker 15: her to consider tailoring policies for all the rest of
Speaker 15: the banking system, and also considering compromise on the CFPB
Speaker 15: but putting it under congressional appropriations and having a bipartisan
Speaker 15: commission right overseas its work.
Speaker 9: Those are middle ground points.
Speaker 4: French, I don't care. Here's what I care about.
Speaker 2: My father worshiped Bill Dickie of Little Rock, Arkansas, the
Speaker 2: x Yankees.
Speaker 4: Million years ago.
Speaker 2: Your minor league ball team, the Arkansas Travelers Texas League.
Speaker 2: They play in the Dickey Stadium. How's a state of
Speaker 2: minor league baseball in Little Rock? Is we have pitchers
Speaker 2: and catchers today.
Speaker 15: Boy Strong, there's no better place to be on an
Speaker 15: early summer night. The price is right, the fun is great,
Speaker 15: and it's fun to beat the teams in the Texas League.
Speaker 15: And it's something I love doing with not only my
Speaker 15: family but all my friends.
Speaker 2: There were the Seattle Mariners. You think I could see
Speaker 2: the Red Sox, you know, down in Arkansas?
Speaker 6: Kind of maybe every time I feel in on this show.
Speaker 6: We have like three trips we need to take on
Speaker 6: the heels of each show. Do that little baseball sounds
Speaker 6: like it's a plan to me.
Speaker 9: We'll touch you right, We'll put you right behind home plate.
Speaker 4: Of the beloved Barney Frank. I hope you do as
Speaker 4: well as Barney Frank. He's having the Financial Services Committee
Speaker 4: in Washington. The Republican Little Rock Friendshill joining us.
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