WEBVTT - Surveillance: Trumponomics Not Unlike Mussolini, Posen Says 0:00:00.320 --> 0:00:04.160 Who you put your trust in matters. Investors have put 0:00:04.200 --> 0:00:07.640 their trust in independent registered investment advisors to the tune 0:00:07.640 --> 0:00:12.240 of four trillion dollars. Why learn more and find your 0:00:12.240 --> 0:00:28.040 independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast. 0:00:28.440 --> 0:00:32.159 I'm Tom Keene with David Gura. Daily we bring you 0:00:32.200 --> 0:00:37.240 insight from the best in economics, finance, investment, and international relations. 0:00:37.640 --> 0:00:42.239 Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and 0:00:42.320 --> 0:00:49.199 of course on the Bloomberg So a good amount of 0:00:49.240 --> 0:00:52.360 time this morning with Adam Posen of the Peterson Institute. 0:00:52.960 --> 0:00:55.760 He has taken over from Fred Burgston brought in all 0:00:55.760 --> 0:01:00.160 sorts of top like talent, including Olivia Blanchard of I 0:01:00.160 --> 0:01:04.000 am f in the Massachusetts Institute of Technology. Dr Posen, 0:01:04.040 --> 0:01:06.800 Good morning, eighteen things to speak to you about. Let 0:01:06.800 --> 0:01:09.000 me start with Europe because I know David wants to 0:01:09.040 --> 0:01:15.440 get to American economics as well. You are a congenital optimist. 0:01:15.640 --> 0:01:20.800 Can you be optimistic on Italy clearing its social and 0:01:20.920 --> 0:01:26.200 political psyche and markets? Of a genital optimist? Mr Keane 0:01:26.240 --> 0:01:30.920 with low expectation, so I'm always satisfied. Um, I think 0:01:30.959 --> 0:01:35.200 Italy can clear this mess in the banking system. I 0:01:35.240 --> 0:01:41.000 think Italy can continue to be aggressive about its fiscal situation, 0:01:41.040 --> 0:01:43.600 as it has been running a primary surplus for quite 0:01:43.640 --> 0:01:49.240 some time. I think getting Italy beyond that into a growing, vital, 0:01:49.400 --> 0:01:52.600 lively economy is a much harder task. I mean, David, 0:01:52.640 --> 0:01:55.880 this is a critical issue. Just Stiglets among others taking 0:01:55.880 --> 0:01:59.640 a basic Frankly blench had like equation and in the 0:01:59.680 --> 0:02:03.880 denial dominator David Gurry is this strange little g and 0:02:03.960 --> 0:02:07.160 if the little G doesn't go, the rest of the 0:02:07.200 --> 0:02:11.000 equation doesn't matter. That's all there is to it. Let 0:02:11.000 --> 0:02:13.280 me bring it to to the US is as Tom promised, 0:02:13.320 --> 0:02:16.040 and and Dr Posen. I wonder if we are any 0:02:16.040 --> 0:02:18.960 closer to having a definition of what trump ponomics is. 0:02:20.160 --> 0:02:23.360 I think we are. Um, we can always hope it changes, 0:02:24.040 --> 0:02:26.120 both in the sense that what it is isn't very 0:02:26.160 --> 0:02:29.480 good and in the sense that every president shouldn't be 0:02:29.560 --> 0:02:32.760 stuck with accusations of hypocrisy when we want them to 0:02:32.840 --> 0:02:36.400 learn and adapt. But trump ponomics right now seems to 0:02:36.440 --> 0:02:41.560 have several components, and the key guiding philosophy is that 0:02:41.720 --> 0:02:46.799 it's actually a very arbitrary interventionist for economics, it's far 0:02:46.840 --> 0:02:50.320 from conservative, far from market. Whether it's in trade deals 0:02:50.360 --> 0:02:53.920 they're trying to target particular deals about particular countries on 0:02:53.960 --> 0:02:59.320 a bilateral basis, in particular industries, whether it's deregulating specific 0:02:59.400 --> 0:03:02.480 industry in specific ways, like they plan to do with energy, 0:03:02.520 --> 0:03:06.040 including coal, Whether it's a tax code that's designed to 0:03:06.120 --> 0:03:10.919 favor specific groups of people, like people with large inheritances. 0:03:11.240 --> 0:03:15.080 I mean it is it is a economics that either 0:03:15.480 --> 0:03:20.960 genuinely believes or rationalizes such behavior as better outcomes than 0:03:21.040 --> 0:03:24.440 letting either the market work or having general economic principles, 0:03:24.480 --> 0:03:28.520 and most economists don't buy it. Is it something wholly 0:03:28.600 --> 0:03:30.600 new or can you trace its evolution to to other 0:03:30.639 --> 0:03:36.320 schools of economics? Um you, I'm about to say something 0:03:36.400 --> 0:03:39.080 that that is going to sound more political than I 0:03:39.120 --> 0:03:42.840 mean it to be. It is not dissimilar from what 0:03:43.440 --> 0:03:47.520 Peron did in Argentina, or Mussolini did in Italy, or 0:03:47.680 --> 0:03:51.560 various more recent Latin American populist movements did in the 0:03:51.640 --> 0:03:55.160 seventies and eighties nineties. My colleague at Peterson Institute, thanks 0:03:55.160 --> 0:03:58.320 Tom for the shout out. Monica Dbolah just wrote a 0:03:58.480 --> 0:04:01.200 very prerogative essay for us that's gotten a lot of play. 0:04:01.720 --> 0:04:04.280 Taking lessons from the crack up in Brazil over the 0:04:04.320 --> 0:04:07.680 last few years, where they used the bnd S National 0:04:08.560 --> 0:04:13.040 Bank as a piggy bank for particular projects and chrony capitalism, 0:04:13.640 --> 0:04:17.160 We've seen something similar occasionally in Asia Indonesia before the 0:04:17.160 --> 0:04:21.400 the economic crisis. I mean, again, I'm not trying to 0:04:21.480 --> 0:04:23.440 just put labels on things, but when you have a 0:04:23.520 --> 0:04:32.200 government that is committed to targeting specific industries, deals, businesses 0:04:32.880 --> 0:04:38.040 through individual deal making by the people in power, even 0:04:38.080 --> 0:04:41.480 if you don't accuse them of corruption, you are distorting 0:04:41.480 --> 0:04:46.480 the economic system. When you look at this infrastructure package, Uh, 0:04:46.720 --> 0:04:49.080 it's been floated, hasn't been proposed, but it's been floated. 0:04:49.640 --> 0:04:51.039 Do you do you think that it's too light to 0:04:51.040 --> 0:04:53.040 have a debate over its its merits and efficacy or 0:04:53.080 --> 0:04:56.080 we will pass that. No. No, I think it's absolutely 0:04:56.120 --> 0:04:57.800 the right time to have a debate about it. It 0:04:57.880 --> 0:05:01.359 hasn't gone to Congress yet, and hope that Speaker Ryan 0:05:01.560 --> 0:05:04.080 and the leadership on both sides of the Aisle gives 0:05:04.160 --> 0:05:07.679 us a constructive debate. I mean, broadly speaking, the idea 0:05:07.760 --> 0:05:10.200 that there is a huge load of infrastructure to be 0:05:10.320 --> 0:05:13.040 done in the US, that we haven't kept up with 0:05:13.120 --> 0:05:15.200 needs and that there could be job benefits from doing 0:05:15.240 --> 0:05:18.240 so in an environmental low interest rates is something I 0:05:18.320 --> 0:05:21.720 think almost everybody can agree on. The question is how 0:05:21.800 --> 0:05:24.240 much of the money is spent on things that are 0:05:24.279 --> 0:05:27.680 targeted that our finite and involved maintenance and rebuilding, as 0:05:27.760 --> 0:05:30.200 my colleague of a blood Chart has said, versus how 0:05:30.200 --> 0:05:33.880 many things are handouts to private sector people who were 0:05:33.880 --> 0:05:36.240 going to do projects anyways, and you just subsidize the 0:05:36.279 --> 0:05:39.039 projects they're doing. It's also a question of how much 0:05:39.040 --> 0:05:42.320 productivity gain you get out the other end, and you 0:05:42.360 --> 0:05:44.919 know some you're never going to get a winner on 0:05:45.000 --> 0:05:47.120 every project, but you want to have a portfolio of 0:05:47.160 --> 0:05:50.760 projects that's broadly conducing to productivity gains. That remains to 0:05:50.800 --> 0:06:04.560 be debated and specificy rat felt choice that he's the 0:06:04.560 --> 0:06:06.760 CEO of NASDAC head of an event this morning the 0:06:06.800 --> 0:06:08.640 Council inform E Legends will be speaking with our editor 0:06:08.640 --> 0:06:11.919 in chief John mcilcoy about the the effective the U 0:06:12.000 --> 0:06:15.000 S presidential election, the Bregs referendum and and all of 0:06:15.040 --> 0:06:17.360 that on market. So let's start there, and with all 0:06:17.400 --> 0:06:21.440 the volatility we've seen. Is this the new normal? The 0:06:21.480 --> 0:06:23.839 volatle markets? We've been saying, well, I think we've been 0:06:23.839 --> 0:06:26.680 through a period of time of depressed volatility, so I 0:06:26.720 --> 0:06:28.880 think the new normal would be back to what I 0:06:28.920 --> 0:06:32.080 would call normal. So we expect volatility to be higher 0:06:32.080 --> 0:06:33.960 than it has been the last three to four years. 0:06:34.560 --> 0:06:36.680 What you know, You you look at the Brekes reference, 0:06:36.720 --> 0:06:38.240 you look at what we we've seen here after the 0:06:38.320 --> 0:06:42.719 US presidential election telegraph for us. What you think investors 0:06:42.720 --> 0:06:45.680 are thinking of what they were thinking on election night? Well, 0:06:45.720 --> 0:06:47.960 I think what was impressive to me is the market 0:06:48.040 --> 0:06:51.159 quickly realized that they had elected a pro business president. 0:06:51.240 --> 0:06:54.320 So you had the emotion associated with other issues that 0:06:54.480 --> 0:06:57.120 quickly went to the background said okay, we have now 0:06:57.000 --> 0:06:59.120 a president who wants to be pro business, and the 0:06:59.160 --> 0:07:03.640 market responded accordingly. I also think the market responded intelligently 0:07:03.720 --> 0:07:06.680 in that certain stocks to particularly well, uh, you know, 0:07:06.760 --> 0:07:10.080 better than the market recognizing where the pro business policies 0:07:10.160 --> 0:07:12.560 might lead us. It wasn't long after the election that 0:07:12.600 --> 0:07:15.240 you saw on the transition team's website their first priority. 0:07:15.280 --> 0:07:18.080 The first thing they posted was about their desire to 0:07:18.240 --> 0:07:21.720 do away with with Dodd Frank. What is the regulatory landscape. 0:07:21.760 --> 0:07:24.760 What does that terrain look like once Donald Trump becomes president. Well, 0:07:24.800 --> 0:07:27.520 I believe when Donald Trump becomes president, you'll see a 0:07:27.520 --> 0:07:30.840 period of refinement as opposed to replacement. So clearly Dodd 0:07:30.880 --> 0:07:34.200 Frank has many areas that need improvement, and hopefully the 0:07:34.240 --> 0:07:37.480 focus is on that. But like anything else, there's parts 0:07:37.480 --> 0:07:40.040 of there are fine, parts of it are okay or good, 0:07:40.400 --> 0:07:42.480 and hopefully that stays. Take through a few of those 0:07:42.520 --> 0:07:44.680 if you would, you you've watched this unfold, You've watched 0:07:44.680 --> 0:07:47.120 the implementation of that law through the rule writing and 0:07:47.160 --> 0:07:50.320 the votes and the more rule writing. What should stay 0:07:50.480 --> 0:07:52.280 in your mind? What's worked well and what are the 0:07:52.320 --> 0:07:54.760 deficits as you see in Well, I would say anything 0:07:55.000 --> 0:07:58.880 that brings transparency to markets is good. Right as NAZAC, 0:07:59.000 --> 0:08:01.920 we believe in trans parent markets. So we saw increased 0:08:01.920 --> 0:08:06.040 transparency in the market. Anything that restricts liquidity coming into 0:08:06.080 --> 0:08:07.880 the markets we put in the bad categories. So you 0:08:07.960 --> 0:08:11.320 have different rules Vulker and others that really hamper the 0:08:11.360 --> 0:08:14.760 bank's ability to support and really make the markets more 0:08:14.840 --> 0:08:17.760 deep and liquid. What's your relationship been like thus far 0:08:17.840 --> 0:08:19.800 with the with the President elect, with the transition team, 0:08:19.840 --> 0:08:22.480 I imagine they are curious about what you and others 0:08:22.480 --> 0:08:25.480 think should happen. Have come January? Well, I think they're 0:08:25.560 --> 0:08:27.760 very busy and not so much focused on where the 0:08:27.800 --> 0:08:30.080 exchanges are right now, but I think that will be 0:08:30.480 --> 0:08:32.560 uh An increased topic is some of the you know 0:08:32.600 --> 0:08:36.199 what i'll call the headline and appointments and our issues 0:08:36.240 --> 0:08:38.880 have put to bed? Is that is the relationship between 0:08:39.040 --> 0:08:42.240 New York other financial capitals in Washington better than it 0:08:42.280 --> 0:08:45.040 had been? Or do is that that geographic divide still 0:08:45.120 --> 0:08:47.679 something that needs to be overcome. I think it's somewhat 0:08:47.720 --> 0:08:50.240 needs to be overcome. I mean, we definitely had a period, 0:08:50.559 --> 0:08:52.440 We've been through a period of time where everything has 0:08:52.480 --> 0:08:56.320 been centered around Washington and US in the financial center 0:08:56.360 --> 0:08:59.520 in New York has seen as somewhat the big evil. Uh. 0:08:59.559 --> 0:09:02.000 So hopefully we'll enter a time where you have a 0:09:02.000 --> 0:09:06.520 more productive working relationship with the policymakers down in Washington. Bob, 0:09:06.520 --> 0:09:10.679 I see Hunter Maritime acquisition, which I guess was an 0:09:10.679 --> 0:09:12.840 I p O that the NAS deck did a week 0:09:12.960 --> 0:09:14.400 or so ago, And I don't want to nail you 0:09:14.400 --> 0:09:16.600 on it because it's all the detail here. I don't 0:09:16.600 --> 0:09:19.600 really don't understand it's a ball dry shipping thing, and 0:09:19.640 --> 0:09:24.400 that the exchanges in the markets are driven it seems 0:09:24.400 --> 0:09:28.400 by ETFs and by closed end funds and all that. 0:09:28.559 --> 0:09:30.959 Are they your friend or enemy at the NAS deck 0:09:31.080 --> 0:09:36.319 to financial engineered instruments get in the way of a 0:09:36.360 --> 0:09:40.920 better market in a better marketplace, I I don't believe so. 0:09:40.920 --> 0:09:43.760 So certainly you see the rise of passive investing, and 0:09:43.800 --> 0:09:47.040 I think that trend line will continue. I think you'll 0:09:47.080 --> 0:09:50.080 see a greater acceleration of what we call smart beta, 0:09:50.160 --> 0:09:54.040 that is passive, passively managed with some degree of intelligence 0:09:54.040 --> 0:09:57.200 to that. So I think that's represented a innovation in 0:09:57.240 --> 0:10:01.200 the marketplace I think has served investors very well. But 0:10:01.360 --> 0:10:04.720 the lifeblood of the market still is operating companies that 0:10:04.760 --> 0:10:06.839 come to market I pos that come to market, and 0:10:06.880 --> 0:10:10.600 obviously our established companies as they continue to grow. There 0:10:10.679 --> 0:10:12.160 was a period of time when I was talking with 0:10:12.160 --> 0:10:14.320 our ip O reporter here, Alex Brinka, and she was 0:10:14.360 --> 0:10:16.920 desperately hoping there would be some I p O action. 0:10:17.040 --> 0:10:19.680 We have a bit of a lull there for a while. 0:10:19.720 --> 0:10:22.360 What's what's the outlook for companies going public? Well, I 0:10:22.360 --> 0:10:25.160 would say two thousand sixteen is a year of quality. 0:10:25.320 --> 0:10:26.480 So If you look at the i p o s 0:10:26.520 --> 0:10:29.839 have come public this year, certainly they're down. We've had 0:10:29.880 --> 0:10:32.319 eighty five, so it's not non existent. We've made eighty 0:10:32.320 --> 0:10:34.960 five I p o s this year, but they're up. 0:10:35.080 --> 0:10:37.439 What do you something per cent since the I p 0:10:37.559 --> 0:10:40.520 O date and that's different shares you gave us were great? 0:10:41.080 --> 0:10:45.080 You know you know anything? Twins? Do you know that 0:10:45.160 --> 0:10:48.559 your twins? Your twins are all blind trusted with bob Byfield. 0:10:48.600 --> 0:10:51.400 There we go, We're we aimed to please Tom, so 0:10:51.480 --> 0:10:54.400 we're we're pleasing. So we've we've seen quality and I 0:10:54.440 --> 0:10:56.440 believe that the quality of the i p os in 0:10:56.440 --> 0:10:59.080 a given year is a predictor of the quantity of 0:10:59.120 --> 0:11:01.120 the I p o s in the following year. So 0:11:01.160 --> 0:11:03.559 I think two thousand seventeen, based on the quality of 0:11:03.600 --> 0:11:05.640 this year, will be a strong year fry p os. 0:11:05.640 --> 0:11:08.240 And we do see the calendar picking up, the backlog 0:11:08.360 --> 0:11:11.360 picking up. Obviously, external events can change that. If you 0:11:11.360 --> 0:11:14.719 look at it today, we're saying some building momentum. As 0:11:14.720 --> 0:11:17.320 you talked to two executives that companies considering going public, 0:11:17.360 --> 0:11:20.600 what's the biggest hurdle still is an uncertainty. What are 0:11:20.600 --> 0:11:22.120 they what are they saying to you, is they as 0:11:22.160 --> 0:11:24.880 they weigh that decision to go public. Well, one is 0:11:24.960 --> 0:11:28.079 you have to have structural reasons why you should go public, 0:11:28.520 --> 0:11:31.199 and uh you should not be focused on the particular 0:11:31.280 --> 0:11:33.720 openings of the windows or not. Right. We tend to 0:11:33.720 --> 0:11:36.120 focus then on the week or two before. But you know, 0:11:36.160 --> 0:11:39.240 do you need currency to make acquisitions, you need to 0:11:39.240 --> 0:11:43.240 provide liquidity for employees, you need liquidity to grow Those 0:11:43.280 --> 0:11:46.640 are the real reasons why you should come uh come public. 0:11:46.920 --> 0:11:48.600 One of the reasons you stop by today was to 0:11:48.600 --> 0:11:51.400 talk about technology and the idea of where does let's 0:11:51.440 --> 0:11:55.720 bring it to the nasdack. What's the next next for 0:11:55.800 --> 0:12:00.000 the exchanges in technology, particularly wrapped around dovetailing equity, more 0:12:00.000 --> 0:12:02.760 markets into derivative markets. Yeah, I would say this when 0:12:02.840 --> 0:12:05.200 we think about ourselves, we think of ourselves as a 0:12:05.240 --> 0:12:08.520 technology company, and we're spending a lot of time, effort, 0:12:08.559 --> 0:12:13.840 and money with respect to machine learning, big data. Uh, 0:12:13.920 --> 0:12:16.600 not so much artificial intelligence, but close to it. So 0:12:16.679 --> 0:12:20.520 you're seeing the ability of machine learning to really change 0:12:20.559 --> 0:12:24.320 the nature of how work is produced in financial services. 0:12:24.320 --> 0:12:27.840 So we're like that was the record jargon to learn 0:12:27.920 --> 0:12:31.199 for November. But there what translate that for us. I'm 0:12:31.200 --> 0:12:33.520 gonna try, Tom, I'm gonna try as far as I can. 0:12:33.640 --> 0:12:37.319 So the low hanging fruit we have is a surveillance. 0:12:37.480 --> 0:12:39.800 So right now, there's so much activity going on in 0:12:39.840 --> 0:12:43.679 the marketplace, and we have tools today that recognize patterns 0:12:44.040 --> 0:12:47.440 and say, okay, this pattern looks like something suspicious might 0:12:47.480 --> 0:12:51.320 be happening. There are so many false positives in those patterns. 0:12:51.679 --> 0:12:54.280 So now we want to put machine intelligence to that's 0:12:54.360 --> 0:12:58.360 okay based upon what I've learned in a dynamic fashion. 0:12:58.679 --> 0:13:00.960 This is not a positive of this is a negative, 0:13:01.040 --> 0:13:03.480 and then isolate down to things that should be focused on. 0:13:03.520 --> 0:13:07.520 The machine intelligence means a Bloomberg terminal, definitely, okay to 0:13:07.600 --> 0:13:11.800 the top of every pyramid table. You have been incredibly 0:13:11.800 --> 0:13:15.720 acquisitive over these last few years, acquiring exchanges and other companies. Yeah. 0:13:15.840 --> 0:13:17.760 Do you expect more of that to continue here as 0:13:17.800 --> 0:13:20.200 you look to become more focused on technology. We do. 0:13:20.360 --> 0:13:22.520 We have two types of acquisitions. The one that we 0:13:22.720 --> 0:13:25.720 focus on those that really add to our core business. 0:13:25.800 --> 0:13:28.720 So if you we've done four acquisitions so far this year, 0:13:29.080 --> 0:13:31.480 and there are businesses that we're in, and then we 0:13:31.520 --> 0:13:34.800 have obviously expense synergies associated with it, and its strengthens 0:13:34.840 --> 0:13:38.600 our strengthens our market positions in markets we've chosen to 0:13:38.640 --> 0:13:42.200 be leading competitors, and so yes, we'll expect that to continue. 0:13:42.360 --> 0:13:44.920 Robert Rai felt with nasty. Of course, thank you so much. 0:13:44.960 --> 0:13:53.160 Appreciate your great greatly greatly appreciate it as well. Who 0:13:53.240 --> 0:13:56.920 you put your trust in matters. Investors have put their 0:13:56.960 --> 0:14:00.320 trust in independent registered investment advisors to the tune of 0:14:00.440 --> 0:14:05.240 four trillion dollars. Why they see their role is to serve, 0:14:05.720 --> 0:14:08.960 not sell. That's why Charles Schwab is committed to the 0:14:09.000 --> 0:14:13.679 success of over seven thousand independent financial advisors who passionately 0:14:13.760 --> 0:14:18.120 dedicate themselves to helping people achieve their financial goals. Learn 0:14:18.160 --> 0:14:28.880 more and find your independent advisor dot com. George Bori 0:14:29.000 --> 0:14:32.000 is in charge of medication at Willis Figo. Kind of 0:14:32.040 --> 0:14:35.600 credit strategy. How bad he is it, George? How much 0:14:35.640 --> 0:14:38.240 blood is on the street or is it really a 0:14:38.280 --> 0:14:41.200 non event? What we've seen the last uh, I'll call 0:14:41.240 --> 0:14:45.080 it twenty days. Good morning everyone, h Well, there's been 0:14:45.160 --> 0:14:47.280 quite a bit of blood. Um. If you look at 0:14:47.320 --> 0:14:51.040 total returns across fixed income, they're down. They're down markedly. 0:14:51.120 --> 0:14:54.560 If you own a diversified treasury. You're down almost four 0:14:55.200 --> 0:14:58.440 on the quarter. Uh, And that's a pretty healthy loss 0:14:58.480 --> 0:15:01.480 for folks that are really not expecting a lot of losses. 0:15:01.800 --> 0:15:03.880 And the same can be said for you know, high 0:15:04.000 --> 0:15:07.600 quality bonds, the ones that are most closely attached or 0:15:07.680 --> 0:15:11.800 most closely linked to that sort of government like risk. 0:15:12.320 --> 0:15:15.480 But as you go further down the spectrum, as you 0:15:15.520 --> 0:15:20.360 go towards more risks in areas like high yield. The 0:15:20.440 --> 0:15:23.520 high yield bond markets down a quarter of a percent. 0:15:23.680 --> 0:15:27.080 It's still negative, and people don't want negative returns, but 0:15:27.160 --> 0:15:29.720 a quarter of a percent is not that bad in 0:15:29.760 --> 0:15:32.760 the world of bonds, when the highest quality bond is 0:15:32.800 --> 0:15:36.520 down almost four percent, and that kind of gives people 0:15:36.520 --> 0:15:39.520 some solace. David, good morning to Jack Vogel Vanguard. I 0:15:39.560 --> 0:15:42.080 just used folks as a proxy. The Vanguard Total Bond 0:15:42.080 --> 0:15:48.120 Market Fund down three point seven percent, David, down annualized 0:15:48.600 --> 0:15:51.760 from that third week of August where used my vacation. 0:15:54.760 --> 0:15:57.920 You mentioned Mr Vogel too, But I wonder, George, so 0:15:58.120 --> 0:16:00.480 how the institutional investor is playing us looking at what 0:16:00.520 --> 0:16:04.240 we're seeing in the spreads. So institutional investors they like 0:16:04.440 --> 0:16:07.000 higher yields. So you know, if you're a pension fund 0:16:07.040 --> 0:16:10.200 or if you're an insurance company, you're actually thankful that 0:16:10.200 --> 0:16:12.920 that yields are moving higher. You've probably harbored a lot 0:16:12.920 --> 0:16:15.680 of cash and you've been waiting for this moment. And 0:16:15.720 --> 0:16:19.360 so we've seen institutional investors actually start to buy the market. 0:16:19.760 --> 0:16:22.520 It's really the retail investor. The folks, the folks that 0:16:22.600 --> 0:16:25.320 maybe had money in a cash account or money market 0:16:25.360 --> 0:16:28.120 account and have been slowly creeping out what we'd call 0:16:28.160 --> 0:16:31.720 the risk spectrum, were now looking at some negative returns 0:16:31.720 --> 0:16:35.120 in their portfolio, and they've actually started a whole money 0:16:35.160 --> 0:16:38.320 out of out of mutual funds and even out of 0:16:38.360 --> 0:16:40.400 some of the e t f So there's there's a 0:16:40.440 --> 0:16:42.360 little bit of a battle, if you will, going on 0:16:42.480 --> 0:16:46.440 between the institutional investor and the retailers. Well well explained, 0:16:46.520 --> 0:16:49.320 but help me here. The institutional pros got cash for 0:16:49.480 --> 0:16:52.360 seven percent whatever they start putting it to work. I 0:16:52.440 --> 0:16:57.960 get that. But aren't they marking to at sixteen loss 0:16:58.680 --> 0:17:03.240 or decline in their port Uh? Not yet? Not yet. 0:17:04.760 --> 0:17:08.680 Full year returns are still are still strongly positive both 0:17:08.800 --> 0:17:11.960 in the in the world of corporate bonds, at least, 0:17:12.680 --> 0:17:16.240 Treasury is a little bit less so um and and 0:17:16.240 --> 0:17:18.479 and the addition to the other, the other sort of 0:17:18.680 --> 0:17:21.879 thing to consider. An institutional investor does tend to have 0:17:22.000 --> 0:17:24.920 a slightly long we're all short term investors at the 0:17:25.000 --> 0:17:27.080 end of the day, but they do tend to have 0:17:27.160 --> 0:17:32.480 a longer term horizon our profile. So a life insurance company, 0:17:32.760 --> 0:17:37.760 you know, is matching liabilities against long dated um UH investments, 0:17:37.840 --> 0:17:42.560 so they can take a slightly longer term UH time horizon. 0:17:42.960 --> 0:17:45.800 Not everyone can do it, but some can. What's your 0:17:45.840 --> 0:17:48.680 your outlook here, George, for for volatility and credit spread, 0:17:48.720 --> 0:17:51.400 what do you think they're gonna start to tighten? Well, 0:17:51.520 --> 0:17:55.000 credit spreads themselves have actually started to tighten um and 0:17:55.480 --> 0:17:58.320 again in at the higher end of the rating spectrum, 0:17:58.320 --> 0:18:01.520 where you're very closely linked to trade injuries, they've tightened 0:18:01.560 --> 0:18:04.080 a bit, you know, call it five to ten basis 0:18:04.119 --> 0:18:07.760 points um and and that's kind of to be expected. 0:18:07.800 --> 0:18:11.600 As as as negative returns kind of forced people out 0:18:11.600 --> 0:18:14.960 of the asset class, spreads will only tighten a little bit. 0:18:14.960 --> 0:18:17.679 So what we would say they're they're grinding tighter. But 0:18:17.760 --> 0:18:21.080 in the world of high yield, where your spreads can 0:18:21.119 --> 0:18:24.080 be anywhere from four to five to six hundred basis 0:18:24.080 --> 0:18:29.160 points above a typical treasury, those spreads can move much further. Uh, 0:18:29.200 --> 0:18:32.040 and they also tend to be kind of shorter in duration, 0:18:32.160 --> 0:18:36.440 so further further down the maturity spectrum. And we've actually 0:18:36.440 --> 0:18:40.520 seen high yield spreads, you know, come in thirty basis points, 0:18:40.880 --> 0:18:43.040 and I think there's plenty of potential for that to 0:18:43.080 --> 0:18:47.000 continue into next year. And the point about kind of 0:18:47.000 --> 0:18:50.960 institutional versus retail I think is critically important. The institutional 0:18:51.000 --> 0:18:54.480 investor base is bigger than the retail institutional base, but 0:18:54.520 --> 0:18:57.679 they just move more slowly. They're more disciplined in the 0:18:57.720 --> 0:19:01.280 sense that they have very specific investment requirement. So we're 0:19:01.359 --> 0:19:05.440 optimistic that credit spreads should do well. Um, they're going 0:19:05.480 --> 0:19:07.760 to be volatile when you have negative returns in the 0:19:07.760 --> 0:19:10.280 asset class, there's a lot of movement of money, but 0:19:10.520 --> 0:19:14.840 over time credit spreads should should tighten as yields going. 0:19:15.320 --> 0:19:19.200 Do you have a ten year yield equivalent to where 0:19:19.280 --> 0:19:22.760 retail says I can't take any more price decline? If 0:19:22.800 --> 0:19:25.480 we had two point four zero or two point five 0:19:25.600 --> 0:19:28.919 zero or two point seven zero, do you begin to 0:19:28.920 --> 0:19:32.080 see a lot of selling. So that's a great question 0:19:32.640 --> 0:19:36.480 historically about a negative a negative return of about three 0:19:36.600 --> 0:19:40.399 percent over a three month period, so it's's very easy 0:19:40.400 --> 0:19:43.879 to remember. Negative three over three months tends to start 0:19:44.040 --> 0:19:46.520 the flow of money out of the asset class. And 0:19:46.600 --> 0:19:49.680 that's exactly what's happened this time around. Are we seeing 0:19:49.680 --> 0:19:53.679 it yet? Yep, we've seen about right now you're running, 0:19:54.000 --> 0:19:56.879 uh roughly, let's call it. About a billion dollars a 0:19:56.920 --> 0:19:59.520 week is coming out of coredit. Okay, George, boy where 0:19:59.560 --> 0:20:02.600 us was all farger? That's exceptionally important, folks. I can't 0:20:02.640 --> 0:20:05.399 say enough, folks, how the street and the median and 0:20:05.560 --> 0:20:10.520 certainly Bloomberg surveillance quotes yield quotes, yield quotes, yield and 0:20:10.520 --> 0:20:13.320 there's a point where yields go up and all of 0:20:13.400 --> 0:20:15.920 a sudden, everybody, David Girls looking at their ship, going 0:20:16.000 --> 0:20:19.200 what's the price of that? David Gray here with Tom 0:20:19.280 --> 0:20:21.560 Keane on Bloomberg Surveillance. We're talking with George Barry had 0:20:21.560 --> 0:20:24.520 of credit strategy at Wells Farging. We have yet to 0:20:24.560 --> 0:20:27.040 talk about the presidential transition and the effect that may 0:20:27.080 --> 0:20:30.159 have here on the credit space. Give us give us 0:20:30.160 --> 0:20:32.919 your sense of what that looks like, George. So, I 0:20:32.960 --> 0:20:36.480 think the new administration has the potential to really I 0:20:36.480 --> 0:20:40.120 think help credit conditions. Um, if there's a big if 0:20:40.200 --> 0:20:42.879 that hangs all hangs over this. But if you know, 0:20:42.880 --> 0:20:45.119 if you're if you're going to see an increase in 0:20:45.480 --> 0:20:51.520 government spending and a loosening in regulatory constraints on certain industries, 0:20:51.520 --> 0:20:55.240 particularly in places like maybe healthcare as well as energy. 0:20:55.720 --> 0:20:57.880 Uh and in addition to that, you get you get 0:20:57.920 --> 0:21:00.439 tax cuts. You know, that has the potent chilled to 0:21:00.480 --> 0:21:04.399 be very stimulative for for the U. S economy. I 0:21:04.400 --> 0:21:08.080 think that trickle down effect to corporates could be very powerful. 0:21:08.240 --> 0:21:10.520 And uh, the trends we've seen over the past couple 0:21:10.520 --> 0:21:13.240 of years as companies have been really levering up their 0:21:13.240 --> 0:21:15.240 balance sheet, they're borrowing a lot of money to buy 0:21:15.280 --> 0:21:19.440 back stock to offset a very slow and sluggish growth backdrop. 0:21:19.840 --> 0:21:21.400 If we were to see a little bit of an 0:21:21.480 --> 0:21:25.560 uptick in growth in top line growth, in earnings, sorry, 0:21:25.600 --> 0:21:28.919 in sales, UM, that could be a very powerful um 0:21:29.119 --> 0:21:33.360 positive for for companies and companies credit worthiness. So we're 0:21:33.440 --> 0:21:36.760 encouraged going into next year, um, you know for for 0:21:36.840 --> 0:21:39.159 the corporate sector. And what does that mean for for 0:21:39.240 --> 0:21:42.119 mergers and acquisitions? If if we see Trump and omics. 0:21:42.160 --> 0:21:44.600 As we're thinking we're going to see again whether we're 0:21:44.600 --> 0:21:46.800 short on details here, what does that mean for M 0:21:46.800 --> 0:21:48.960 and A activity? So M and A has been been 0:21:49.040 --> 0:21:51.439 very robust over the past couple of years. The lower 0:21:51.480 --> 0:21:54.480 for longer or the low rate structure has encouraged companies 0:21:54.520 --> 0:21:58.600 to consolidate. UH and and industries to consolidate used a 0:21:58.600 --> 0:22:02.439 lot of relatively cheaply borrowed money to to fuel that 0:22:02.600 --> 0:22:04.440 M and A. You know, you've had well over a 0:22:04.480 --> 0:22:07.920 trillion dollars of closed M and A each year, last 0:22:08.000 --> 0:22:11.480 year and this year. UM. The prospect of more growth, 0:22:11.600 --> 0:22:15.320 I think actually accelerates that trend. UM. You know, you 0:22:15.320 --> 0:22:19.320 have industries like like the community, the broader communications industries, 0:22:19.320 --> 0:22:25.440 the consumer staples industries, energy, healthcare. They're relatively fragmented. And 0:22:25.640 --> 0:22:29.560 if there's an emphasis on domestic growth, which is what 0:22:29.680 --> 0:22:33.800 the Republican agenda seems to to want to emphasize, then 0:22:33.920 --> 0:22:37.520 within our country there's there's there's plenty of potential for 0:22:37.520 --> 0:22:40.760 for some of these industries to to see in market consolidation. 0:22:41.200 --> 0:22:43.320 We think you could get back to sort of an 0:22:43.359 --> 0:22:46.400 all time high in in M and A um as 0:22:46.480 --> 0:22:49.159 as we go into next year. Again George boy with us. 0:22:49.160 --> 0:22:52.240 As we look at yield up, price um down? What 0:22:52.280 --> 0:22:55.440