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Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom keene Jaiye.

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

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

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

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Speaker 1: get you set up for the market action this morning,

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Speaker 1: here we go. Future is negative one two on a

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Speaker 1: down negative thirteen points on the SMP five is risk

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Speaker 1: off almost across the board. I talked about that bid

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Speaker 1: govern into the Japanese yen. We have a one oh

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Speaker 1: seven handle on Dolly yen. We dropped to one oh

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Speaker 1: seven spots sixty four, down by one four percentage point almost.

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Speaker 1: And to round things out, in the treasury market for you,

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Speaker 1: yields creeping high yesterday this time yesterday now lower by

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Speaker 1: about three basis points to two point eight eight percent.

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Speaker 1: And for the vix watches out there, Tomkine being one

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Speaker 1: of them, we bleed higher back to seven handle on

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Speaker 1: the VIX. I'm really placed to say that joining us

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Speaker 1: now is harm band holds of course the UNI credit

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Speaker 1: chief US economists, or not just the year ahead, but

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Speaker 1: on as well. Harm Do we need to start thinking

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Speaker 1: about already. Sure. I mean, it looks like two thousand

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Speaker 1: eighteen is shaving up to be a pretty good year

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Speaker 1: for the global economy, for the US economy, um not

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Speaker 1: not least two to this huge fiscal fiscal deficit. But

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Speaker 1: you know, then you talk about next year, I think,

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Speaker 1: what is what the fiscal similar is doing is bringing

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Speaker 1: some gross grows forward plus next year, the the recovery

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Speaker 1: will be one of the longest on record. And and

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Speaker 1: we we are worried that growth starts to slow down

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Speaker 1: next year and we may actually downturn in two thousand

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Speaker 1: and twenty, which makes in well not least yesterday's budget

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Speaker 1: forecast by the President. You know something that looks way

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Speaker 1: too rosy. It's the good news becoming bad news. Your

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Speaker 1: colleague for in Europe, Eric Nielsen wrote the following eye

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Speaker 1: of the weekend, what if the conclusion of the effects

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Speaker 1: of the tax concer is wrong? What if markets attention

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Speaker 1: has shifted to see the tax bill as a big

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Speaker 1: piece of seriously irresponsible policy, with a key effect being

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Speaker 1: high yield. It's it's an important question to ask, are

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Speaker 1: we seeing a shift in the interpretation the market bias

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Speaker 1: towards what we're saying in the United States that there

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Speaker 1: was a bit the impression that we that we had

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Speaker 1: over the last several let's call it weeks. You know

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Speaker 1: when when better numbers both on the inflation and economic front,

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Speaker 1: I mean better meaning higher numbers on the inflation side

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Speaker 1: were interpreted by the market that the FETE may actually

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Speaker 1: hike more and that at some point started to scare

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Speaker 1: market participants. So so yeah, you're right. Um, if we

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Speaker 1: also talking about tomorrow's CPI print, I would think a

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Speaker 1: higher number would be worse for the markets than a

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Speaker 1: weaker number. Her bundles with us the Cretic. Good morning everyone,

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Speaker 1: I need to rip up the script, folks. This is

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Speaker 1: so profoundly important that we've got to do it. We

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Speaker 1: just heard the gentleman from England says the gentleman from

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Speaker 1: Americas as Adidas. We would not What do you say

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Speaker 1: in your Germany? Is it really ADDI Das or do

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Speaker 1: you say Adidas? No, it's Adidas. And are you offended

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Speaker 1: that I say no, I got used to it here.

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Speaker 1: You're the only one that cast about this time. No, No,

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Speaker 1: this is like you know forever, folks, and we you

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Speaker 1: know what we do in surveillance is whichever fractured language

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Speaker 1: I wanted to do. When I say Sheffield or you

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Speaker 1: know the unpronounceables in England, I written Lester very good

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Speaker 1: and and John Farrell. You know Addidas, that was very good. Okay,

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Speaker 1: thank you. That's an import into the United States. Audi

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Speaker 1: Das is coming here. Tell us about the import dynamic

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Speaker 1: of Adidas shoes and BMW's as well well. I think

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Speaker 1: BMW is first of all the biggest car export of

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Speaker 1: for the U S as well. We must not forget that,

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Speaker 1: thank you. So with all the best thing about all

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Speaker 1: these foreign companies, we must not forget it's its biggest plant.

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Speaker 1: It's on the East couset somewhere. All the all the

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Speaker 1: X models, I think all of them are produced here,

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Speaker 1: and well they are. They're doing pretty well. You nail

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Speaker 1: as you do harm. You're famous for this. You nail

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Speaker 1: it with facts. The shock like BMW is our biggest X.

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Speaker 1: We we we try to convey the message that facts

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Speaker 1: still matter. So so yeah, it's important. We can, you know,

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Speaker 1: as economies, we just can't help looking at these numbers,

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Speaker 1: and and some from time to time emphasize them. But

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Speaker 1: but to your question, um, the US problem, as we know,

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Speaker 1: is a huge trade deficit, current account deficit, and if

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Speaker 1: you look at the real trade deficit without petroleum goods,

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Speaker 1: um we have just hit a new record high in

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Speaker 1: terms of deficit. So the situation has never been as

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Speaker 1: bad as it is right now. And then I mean

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Speaker 1: that has in part to do with import dynamics, because

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Speaker 1: we have we talked about we have the fiscal stimulus,

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Speaker 1: which supports the domestic economy domestic demand, and part of

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Speaker 1: that additional domestic demand is satisfied by increased imports. At

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Speaker 1: the same time, the global economy is also doing very well.

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Speaker 1: But the America's real problem is that is not exporting,

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Speaker 1: that is not producing the stuff that the rest of

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Speaker 1: the world really wants. So in other words, it's import

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Speaker 1: necessity is much bigger than its exports ellisticity. So it's

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Speaker 1: so so with that in mind, harm to what extent

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Speaker 1: does the weaker dollar of the last twelve months plus

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Speaker 1: rebalance the trade deficit? If it's so, yeah, if it well,

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Speaker 1: it helps out to margin, there's no doubt about it.

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Speaker 1: But I think the impact is relatively relatively small. I mean,

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Speaker 1: we must not forget the US has had large current

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Speaker 1: account deficits as well, when the when euro dollar was

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Speaker 1: at one, you know, so that shows us that there's

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Speaker 1: much more to it to the issue than than than

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Speaker 1: just the currency. So the currency is always seen as

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Speaker 1: the easy fix, but it doesn't fix it, you know it.

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Speaker 1: It helps to mitigate the impact. It makes it looks

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Speaker 1: a little bit better maybe, but overall there there there

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Speaker 1: are underlying problems that take much longer to fix. And

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Speaker 1: that's why I think politicians always try the not not

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Speaker 1: always sometimes try the easy way out. There are two

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Speaker 1: deficits to speak of, and the trade deficit is not

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Speaker 1: the one on everyone's mind right now. The deficit on

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Speaker 1: everyone's mind right now is the budget deficit. Why all

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Speaker 1: of a sudden has the budget deficit become such an

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Speaker 1: issue for so many people? Harm? Because what we are

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Speaker 1: seeing right now is is, I would say, is probably

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Speaker 1: the most reckless deficit that the US economy really has

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Speaker 1: has had. It's not the highest, but I mean there

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Speaker 1: were periods, the periods where we had higher deficits where

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Speaker 1: we were also facing big crisis. Right now, the unemployment

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Speaker 1: rates at four percent, We are at or below full

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Speaker 1: employment or very close to whatever um and that is

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Speaker 1: the time where you actually should start repay some of

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Speaker 1: your debt, right and what the US is doing right now, Um,

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Speaker 1: we're not only not repaying that, but we are blowing

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Speaker 1: up the deficit. And what makes things worse if you

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Speaker 1: mean it is relatively easy to forecast demographic that's one

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Speaker 1: of the really easy long term forecast. And we know

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Speaker 1: that demographics are against us, are against the deficit because

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Speaker 1: the baby booms are retiring. So if you look at

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Speaker 1: the CBO's long term forecast, it shows already without all

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Speaker 1: the stimulus, that we had a debt to GDP right

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Speaker 1: almost doubling over the next thirty years. So this is

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Speaker 1: the time to prepare for that. But that is coming,

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Speaker 1: but we're doing the opposite. Is it okay? John Fair?

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Speaker 1: If I do a chart out the Bloomberg radio before

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Speaker 1: I'm doing that right now? Why you asked for my

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Speaker 1: permission when you've basically done it all rendic because you

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Speaker 1: say how it does it's a real non petroleum trade

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Speaker 1: Have I ever looked at a real non petroleum trade deficite?

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Speaker 1: No hard bundles. I'm sorry it borders on a jump condition.

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Speaker 1: Why is our real non petroleum trade deficit jumping to

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Speaker 1: a worser statistic. Um, Well, I mean I know, well,

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Speaker 1: I know the chart so so so the the latest

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Speaker 1: jump that looks a little bit suspicious. There's some volutility,

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Speaker 1: but the underlying trend is very obvious, right if you

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Speaker 1: have it in front of you look at it. So

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Speaker 1: it was very high in during the housing boom the deficit,

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Speaker 1: than it narrowed because of the crisis, and when the

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Speaker 1: christ when the recession was over in the middle of

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Speaker 1: two thousand nine and started to widen again, and it

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Speaker 1: looks like there is no end to it, right and again,

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Speaker 1: forget about the monthly volatility. You just put a six

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Speaker 1: months moving ever to what's rout and there's a pretty

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Speaker 1: linear downwooded any credit chief. US economists really appreciate you

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Speaker 1: catching out with us, and without question, the most important

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Speaker 1: interview of the day. Stanley Calendar has helped us so

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Speaker 1: much untangling the fiscal dynamics of Washington and the nation.

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Speaker 1: Right now, we get perspective here on Twitter at the

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Speaker 1: budget Guy, he writes for Forbes Magazine Corpus Group as well.

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Speaker 1: Stan I want you to some how CBO will deal

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Speaker 1: with the tax cuts the congressional budget that was passed

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Speaker 1: and signed by the President and the Trump budget yesterday.

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Speaker 1: How does an institution that we all rely in, the

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Speaker 1: Congressional Budget Office, how do they synthesize those three events. Uh,

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Speaker 1: it's it's actually pretty simple, Tom. First of all, they're

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Speaker 1: going to reject the President's notion that this pays for

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Speaker 1: it that the tax cut pay for itself. Uh. That's

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Speaker 1: pretty much common wisdom and everywhere but the White House

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Speaker 1: these days. So they're gonna they're gonna talk about the

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Speaker 1: tax cut as uh as as a substantial contribute to

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Speaker 1: the deficit and debt. Uh. Second, they're going to add

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Speaker 1: four to six hundred billion dollars in additional spending, an

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Speaker 1: additional debt and deficit because of the spending bill that

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Speaker 1: was passed and agreed to last Friday. UM. And they're

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Speaker 1: gonna reject all the President's proposed cuts because they're not

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Speaker 1: likely to happen. Uh So, So what they're gonna do is,

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Speaker 1: while the White House is saying the deficit will fall

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Speaker 1: below a trillion dollars next year, CBO is probably gonna

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Speaker 1: get there to about one point for Tuly and projected

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Speaker 1: really up further. Oh yeah, there are. Now this is

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Speaker 1: really important because we're working with one point one one.

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Speaker 1: You're already out at one point four? Do I understand

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Speaker 1: that correctly? You understand that absolutely correctly, especially when you

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Speaker 1: take the president overly optimistic economic forecast and stuff to

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Speaker 1: do something that's more realistic. Um and and and so

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Speaker 1: so you're gonna you're at one point for julion. And

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Speaker 1: you know what, Tim, I know you and I have

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Speaker 1: talked about this for weeks or months or years, but

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Speaker 1: I'm not sure that's going to have the big impact

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Speaker 1: on the politics. That's right where I would you explain

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Speaker 1: the why of this, whether anybody's a liberal Democrat they

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Speaker 1: say Adidas or Adidas, would you explain to me the

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Speaker 1: why we've lost any sense of frugality in our political Washington. Um,

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Speaker 1: Because this is a mixing goes to China's situation to

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Speaker 1: a certain extent. You had Trump who was promising the

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Speaker 1: world to everybody that I can you know, I I

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Speaker 1: can spend more, I can tax less, and I can

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Speaker 1: balance the budget. Uh saying now saying it doesn't make

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Speaker 1: any difference. In besides, it's only temporary. Um. If the

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Speaker 1: Democrats go after the deficit to they they will end

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Speaker 1: up maybe having to be responsible for it and being

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Speaker 1: hoisted on their own guitar. And then you've got groups

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Speaker 1: like the Committee for Responsible Federal Budget that have lost

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Speaker 1: this debate and have no impact whatsoever. So to a

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Speaker 1: certain extent on this is everybody's saying, I want what

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Speaker 1: I want, what I wanted, and something bad happens, I

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Speaker 1: will take care of it later. Stand. Certainly there's some

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Speaker 1: politics that play here, a whole lot of politics. But

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Speaker 1: something I want to ask you about, stand is what's

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Speaker 1: changed because for years a lot of people said, take

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Speaker 1: advantage of low interest rates, stop worrying about the deficit.

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Speaker 1: The deficit doesn't matter. We have a party in power

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Speaker 1: that's basically said just that. But now, all of a sudden,

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Speaker 1: a lot of concern. Why Well, look, for Jonathan, I'm

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Speaker 1: going to disagree with your your premise a little bit.

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Speaker 1: I don't think there's a lot of concern. If there was,

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Speaker 1: the tax bill wouldn't have been enacted to the extent

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Speaker 1: that it was, and that the spending bill that they

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Speaker 1: just went through, well, let me start against stand the

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Speaker 1: concern not within the Republican Party, the concern outside of

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Speaker 1: the Republican Party. I read ophad after ophed through the

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Speaker 1: weekend about how it was dangerous what they were doing

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Speaker 1: for the US economy and ultimately the deficit was going

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Speaker 1: to get out of control. These concerns not coming from

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Speaker 1: within the Republican coming from outside the Republican Party when

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Speaker 1: those concerns did not exist several years ago. Well, all right,

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Speaker 1: First of all, remember the uber conservatives, the Freedom Clark

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Speaker 1: has hated this this spending bill, not the tax bill,

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Speaker 1: but the spending bill in and criticized it heavily because

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Speaker 1: of what it would do to the debt and deficit.

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Speaker 1: So there is some internal Republican dissension about this. But

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Speaker 1: to a certain extent, this is just pure politics. This

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Speaker 1: is the party out of power criticizing the party in power.

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Speaker 1: Um and and I'm not sure that the the the

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Speaker 1: concern doesn't exist. It's just a little taken a backseat.

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Speaker 1: Trust me, when interest rates start to rise, the same

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Speaker 1: people who aren't saying anything bad about the debt and

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Speaker 1: deficit increases will be the ones pointing the finger at

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Speaker 1: the politicians saying, you should have told us, you should

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Speaker 1: have done something about it, you should have prevented this

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Speaker 1: will stand help me take away the politics train, the

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Speaker 1: politics out of it. I don't want to politicize the

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Speaker 1: deficit anymore. I want to talk about the economics of it.

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Speaker 1: Why should we be concerned about five percent of GDP? UM? Well,

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Speaker 1: first of all, it's coming. It's not just five percent

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Speaker 1: of GDP. It's adding all that aditional fuel on top

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Speaker 1: of an economy that's already pretty much heavily stoked. Um.

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Speaker 1: I'm not sure from a Kindian point of view, you

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Speaker 1: would you would want it, you would recommend that this

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Speaker 1: type of additional stimulus we do it done at this

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Speaker 1: particular time. Um. And And second, um, it really is

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Speaker 1: going to limit I'm I'm looking a little bit longer

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Speaker 1: term for from economic and policy point of view, it's

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Speaker 1: really going to limit the ability of the United States

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Speaker 1: to respond to any new needs, whether it's a forest

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Speaker 1: fire or a tornado, or a nuclear holocaust type situation,

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Speaker 1: or even an economic downturn, unless there's a stomach a

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Speaker 1: willingness to accept eficits in the two to three trillion

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Speaker 1: dollar range. John brings up an important point stand which

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Speaker 1: we got to walk through right now, which is this

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Speaker 1: tip point of five GDP. It don't buy it for

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Speaker 1: a minute. My study of this and listening to guys

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Speaker 1: like you for the years is three GDP is in

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Speaker 1: the realm of fruit normal whatever. So we go from

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Speaker 1: three to five, which is I believe a fifty or

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Speaker 1: six increase in deficit. The g d P isn't five

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Speaker 1: a pretty moldy number? Yeah, I think so, Tom. And

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Speaker 1: part of the new normal is what you were just saying. Um.

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Speaker 1: You know I because I know you commented on it.

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Speaker 1: I wrote a column in Forbes that said, the new

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Speaker 1: normal is is exactly what you're saying, which is, first

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Speaker 1: of all, tolerance for higher deficits annually. Yeah. But the

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Speaker 1: markets won't quote unquote have tolerance, will they? Well, right

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Speaker 1: now we're seeing a little bit of gyration and we're

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Speaker 1: blaming it without any real proof about higher interest rates. Um.

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Speaker 1: But you know, it remains to be seen whether the

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Speaker 1: bond market vigilantes are going to be coming back and

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Speaker 1: force These are the folks who forced Bill Clinton to

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Speaker 1: revise his budget both plans because with higher interest rates, Um,

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Speaker 1: that is the political statistic. That's the one that will

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Speaker 1: cross the economic and political back. I know John wants

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Speaker 1: to dive in here with wisdom, but what it happens

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Speaker 1: of Pharaoh's wrong and we get the six percent deficit

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Speaker 1: to GDP, what's the difference between five the new normal

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Speaker 1: in six? Um, Well, it's look, and I got to

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Speaker 1: tell you, since we've never really been here before, that is,

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Speaker 1: in good economic times getting to that level. I'm not

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Speaker 1: sure that we know the answer definitively. But at some point,

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Speaker 1: whether it's six or six and a half or five

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Speaker 1: and a quarter, at some point the markets are going

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Speaker 1: to respond and respond negatively to what's going on. At

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Speaker 1: some point foreign investors are going to say enough, I've

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Speaker 1: had enough to us that I can't I can't be

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Speaker 1: sure you're ever going to pay it back at all.

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Speaker 1: I want to be clear here, it's not about the

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Speaker 1: concern of say five or six. It's a direction of

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Speaker 1: travel Tom and I think that ultimately should be the concern.

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Speaker 1: There was a budget deficit to GDP in the UK

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Speaker 1: of five percent just a couple of years ago, but

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Speaker 1: the reason the market would give the UK to benefit

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Speaker 1: the down was one the Bank of Englis still had

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Speaker 1: a big presence, and two there was an effort to

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Speaker 1: close that gap. I think too stands point the real

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Speaker 1: concern get rid of all the political drama, all the hysteria,

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Speaker 1: around this deficit of one trillion dollars. The real concern

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Speaker 1: it's not now, not potentially next year, but the next downturn,

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Speaker 1: when the fiscal options are exhausted at a time that

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Speaker 1: the monetary policy options have been exhausted as well. Stan,

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Speaker 1: is that way you're thinking as well. It's not in

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Speaker 1: the here and now. It's the direction of travel, and

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Speaker 1: the ultimate destination could be messy and exacerbated by the

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Speaker 1: next downturn. No, no, exactly right. Um. That is in fact,

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Speaker 1: Bick Malveny, the O and B directors said yesterday or

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Speaker 1: the day before that there was likely to be a

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Speaker 1: sugar hide with the economy short term. But remember politicians

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Speaker 1: in the United States only think short term. They're only

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Speaker 1: thinking until the next election. And at some point it's

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Speaker 1: going to be someone's problem, but maybe not the current

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Speaker 1: office holders to deal with the next downturn of some kind.

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Speaker 1: And and our options, like you just said, are exactly limited.

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Speaker 1: I want to expand that one more way. What do

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Speaker 1: you tell millennials we're gonna end up having to pay

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Speaker 1: for this. What do you tell them about the government's

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Speaker 1: ability to deal with their problems ten or fifteen years

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Speaker 1: down the road? Your SPA on standard Tom. This is

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Speaker 1: a big issue. It's the biggest intergenerational wealth transfer in

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Speaker 1: history that were witnessing, not just in the United States

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Speaker 1: for America, but across Europe and within the United Kingdom

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Speaker 1: as well. And at some point someone's gonna pick up

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Speaker 1: the bill, and the one that's got to pick out

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Speaker 1: the bill would not have reaped the rewards of the

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Speaker 1: of the last decade or sites on. Well, it'll be interesting.

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Speaker 1: Stent Calendar, thank you so much. The budget guy with

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Speaker 1: Corvis mL MSL Group as well, Abbey Joseph Cohen of

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Speaker 1: Goldben Sax wants to speak about the deficit a number

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Speaker 1: of other things she sees in the greater American economy,

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Speaker 1: but we must start with these markets. Abbey Joseph Cohene

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Speaker 1: as Golden Sacks Advisory Director, Senior investment strategist, Abby, I

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Speaker 1: want to get out of the gossip out of the way.

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Speaker 1: I have vetted to this and I know with your

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Speaker 1: attachment to the Brookings Institution, you're familiar with Mr burn

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Speaker 1: Hanky and now cherry yelling goes over there is well.

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Speaker 1: I would think j. Powell get you to come down

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Speaker 1: to be vice Chairman of the Fed by just giving

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Speaker 1: you the right seats over all that skins shoulders for

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Speaker 1: the Washington Capitals on a power play, I mean, would

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Speaker 1: you think about being vice chairman of the Federal Reserve System. Um.

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Speaker 1: I think it's fair to say, Tom that you and

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Speaker 1: I are not making those decisions. But but thank you

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Speaker 1: for suggesting it. Um. When it comes to the Washington

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Speaker 1: Capitals though, Um, why don't we talk about the Olympics instead?

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Speaker 1: It's a difficult year to say the least. Yeah, Um,

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Speaker 1: you know, we're seeing phenomenal figure skating. The women in

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Speaker 1: particular are just absolutely extraordinary, their artists, their athletes. Um.

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Speaker 1: And when it comes to the Capitals, there were four

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Speaker 1: figure skating coaches who recently watched the Caps play and

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Speaker 1: they said only one and that's the center of Jenny

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Speaker 1: Kuznetzev might might make a good figure ski skater, and

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Speaker 1: the rest of them just didn't have very good technique

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Speaker 1: and their power A window into Abbey. Joseph Cohen, I

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Speaker 1: think your combination of financial acumen and economics would put

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Speaker 1: you on the list with Dr Larin John Farrell. Who

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Speaker 1: else is on the list for vice chairman, Rich Clida

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Speaker 1: and others? And San Francisco FED President Mr Williams up

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Speaker 1: there as well that they gets helped three ti Abby.

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Speaker 1: Let us address the markets. Uh, they were clearly over exuberant,

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Speaker 1: if you will, and down we go. Have you changed

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Speaker 1: your long tone on owning equities at this time? Well,

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Speaker 1: let's begin with fundamentals, which is where we always began.

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Speaker 1: How is the economy doing, corporate profits? How does that

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Speaker 1: feed into valuation and so on? And just a reminder

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Speaker 1: that for the past several months, the estimate from Goldman

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Speaker 1: Sachs has been that the year end price target for

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Speaker 1: the SMP five hundred would be about fifty based upon

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Speaker 1: our above consensus view on corporate profits and so on.

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Speaker 1: And before this correction began, let's assume it maintains status

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Speaker 1: as a correction the SMP was so we were there,

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Speaker 1: and I would just remind your listeners that you need

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Speaker 1: to have valuation support to be at sustained high levels,

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Speaker 1: because if it's already priced for perfection, there can be

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Speaker 1: any number of factors that will knock you off kilter.

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Speaker 1: And I think that's what has happened. And there are

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Speaker 1: a number of factors. Some of them they prove transitory,

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Speaker 1: some of them, Uh, may have longer legs and and

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Speaker 1: I think it's important to to chat about them. So,

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Speaker 1: for example, there are some people talking about the technical

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Speaker 1: aspects of what happened over the last week or two.

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Speaker 1: The absence of share buybacks, for example, because corporations weren't

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Speaker 1: able to step in and buy back their shares um

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Speaker 1: because of legal restrictions where they were in reporting season.

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Speaker 1: The role of e T f UH, the role of

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Speaker 1: individual investors who may have panicked in to the market

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Speaker 1: at the end of two thousand seventeen and then got

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Speaker 1: a little skittish. I prefer, as you well know, Tom,

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Speaker 1: to look at the intermediate and longer term issues, and

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Speaker 1: those to me, uh, there are some concerns. Um. You know,

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Speaker 1: when we get within this range of what we think

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Speaker 1: fair value is, we really need to focus on what

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Speaker 1: some of the catalysts might be, both positive and negative,

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Speaker 1: and on the negative side quite frankly, government policy coming

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Speaker 1: out of Washington, to my eye, is not supportive of

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Speaker 1: sustainable intermediate and long term economic growth. UM. Combination of

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Speaker 1: changes in the tax policy, the new budget proposal, the

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Speaker 1: infrastructure proposal, and recent changes in trade policy, these are

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Speaker 1: not beneficial in my view for intermediate and long term growth. Jonathan, here,

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Speaker 1: before we get into the long term fundamentals, I do

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Speaker 1: want to ask you a question about investor psychology. Hammered

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Speaker 1: An Aaron and others asking this question after the volatility

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Speaker 1: of last week, whether the conditioning of the last few

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Speaker 1: years by the dip, by the dip get rewarded to

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Speaker 1: buy the dip has punctured dramatically and changed enough that

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Speaker 1: we break out into a new regime where investors aren't

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Speaker 1: conditioned rewarded just to buy the dip all the time.

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Speaker 1: Is that shifted a little bit. I don't deal directly

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Speaker 1: with individual investors, so it will be presumptuous of me

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Speaker 1: to to make a judgment. But I would basically say

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Speaker 1: that beginning in the summer of two thousand and nine,

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Speaker 1: what was priced into the stock market, if you reverse

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Speaker 1: engineered the valuation models, was basically at least five years

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Speaker 1: of recession. What was based what was baked in was

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Speaker 1: at least five years of ongoing annual ten percent to

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Speaker 1: client in SMP earnings. What's priced in at fifty what's

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Speaker 1: priced in at the prices we had a couple of

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Speaker 1: weeks ago, would be several years of ongoing profit growth

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Speaker 1: and no recession. So when you have an environment in

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Speaker 1: which what's priced in is really ugly and what turns

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Speaker 1: out to be is less up share prices and rise,

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Speaker 1: I want to I want to pin you down on

431
00:23:25,880 --> 00:23:29,000
Speaker 1: this abbey because of time. Are you fully invested or

432
00:23:29,080 --> 00:23:33,960
Speaker 1: have you increased the abbey Joseph Cohen cash position. Um,

433
00:23:34,080 --> 00:23:37,480
Speaker 1: I never discussed, if you will my personal portfolios. That's

434
00:23:37,480 --> 00:23:41,600
Speaker 1: what you're asking. If you're asking the Goldman sax, you

435
00:23:41,440 --> 00:23:43,480
Speaker 1: know your position. Let me let me be very clear,

436
00:23:43,600 --> 00:23:48,600
Speaker 1: and that is we remain concerned about fixed income. We

437
00:23:48,680 --> 00:23:51,720
Speaker 1: think that bonds will be rising and yield i e.

438
00:23:52,200 --> 00:23:55,119
Speaker 1: Declining in price, and we see this not just in

439
00:23:55,119 --> 00:23:58,119
Speaker 1: the United States but around the world. And so for

440
00:23:58,240 --> 00:24:00,800
Speaker 1: us to see what has happened for the last couple

441
00:24:00,800 --> 00:24:05,320
Speaker 1: of weeks in which fixed income prices declined and then

442
00:24:05,640 --> 00:24:09,000
Speaker 1: equity investors said, wait, wait, that's not good for equity valuation.

443
00:24:09,359 --> 00:24:12,480
Speaker 1: That should not have been a surprise to anyone. I

444
00:24:12,480 --> 00:24:15,920
Speaker 1: would also point out interestingly that the Goldman Sacks interest

445
00:24:16,000 --> 00:24:20,240
Speaker 1: rates forecast that they would likely be for increases in

446
00:24:20,320 --> 00:24:23,199
Speaker 1: short term interest rates this year because we thought the

447
00:24:23,200 --> 00:24:27,560
Speaker 1: economy would grow, wages would rise, inflation would rise. That

448
00:24:27,760 --> 00:24:31,720
Speaker 1: right now become the consensus view. But when we get

449
00:24:31,760 --> 00:24:34,160
Speaker 1: to our next section, we want to talk bigger and rotter.

450
00:24:34,280 --> 00:24:37,480
Speaker 1: But I've got to ask you about the sudden change

451
00:24:37,480 --> 00:24:40,639
Speaker 1: in our fiscal policy. Our last guests called it a

452
00:24:40,840 --> 00:24:43,720
Speaker 1: Nixon goes to China moment. Do you see the new

453
00:24:44,440 --> 00:24:48,840
Speaker 1: fiscal legislation of this nation as a Nixon goes to

454
00:24:49,000 --> 00:24:53,760
Speaker 1: China moment? I do not Nixon goes to China, although

455
00:24:53,760 --> 00:24:58,919
Speaker 1: I had not heard that expression before, was recognizing the

456
00:24:59,000 --> 00:25:03,080
Speaker 1: reality of the growing importance of China and Nixon coming

457
00:25:03,080 --> 00:25:06,719
Speaker 1: from the Republican Party, along with Mr Kissinger, who was

458
00:25:07,000 --> 00:25:10,920
Speaker 1: very strong obviously in his views, could move forward on this.

459
00:25:11,520 --> 00:25:14,000
Speaker 1: When I take a look at the changes in fiscal

460
00:25:14,040 --> 00:25:17,120
Speaker 1: policy right now, I think that there is a high

461
00:25:17,200 --> 00:25:22,760
Speaker 1: degree of um I'll call it a lack of responsibility. Well,

462
00:25:22,840 --> 00:25:25,320
Speaker 1: that was delicate as well. Who's going to be the

463
00:25:25,359 --> 00:25:29,400
Speaker 1: adult in the room in Washington, abbe Joseph Cohen. We're

464
00:25:29,400 --> 00:25:31,920
Speaker 1: going to need many adults, and we're going to need

465
00:25:31,960 --> 00:25:37,119
Speaker 1: them on from both parties. Every Joseph advisory director at

466
00:25:37,119 --> 00:25:55,040
Speaker 1: Gallman Saxon Senior Investment Strategistic. Right now, folks, and this

467
00:25:55,119 --> 00:25:57,960
Speaker 1: is a great joy to bring in a book. I'm

468
00:25:57,960 --> 00:26:00,679
Speaker 1: reading cover to cover. I will not mean words. It

469
00:26:00,800 --> 00:26:03,439
Speaker 1: is likely to be my book of the summer. It

470
00:26:03,560 --> 00:26:06,880
Speaker 1: is The Threat Matrix. It is six and fifty pages.

471
00:26:07,600 --> 00:26:11,440
Speaker 1: It is thick, thick, thick, and joining us Garrett Graff

472
00:26:11,640 --> 00:26:15,680
Speaker 1: of the remarkable accomplishment. It is a page turner. Garrett Graff,

473
00:26:15,720 --> 00:26:17,760
Speaker 1: wonderful to have you with us. How do you make

474
00:26:17,800 --> 00:26:21,520
Speaker 1: a history of the Federal Bureau of Investigation that thick

475
00:26:22,080 --> 00:26:24,840
Speaker 1: and a page turner at the same time? How did

476
00:26:24,840 --> 00:26:28,920
Speaker 1: you go about writing The Threat Matrix? Thanks for the

477
00:26:29,000 --> 00:26:32,840
Speaker 1: kind words. So this book grew out of actually my

478
00:26:33,000 --> 00:26:37,240
Speaker 1: fascination with Bob muller uh in the late two thousand,

479
00:26:37,320 --> 00:26:40,480
Speaker 1: sort of long before he became a national figure, um,

480
00:26:40,520 --> 00:26:42,760
Speaker 1: but sort of just as he was becoming the longest

481
00:26:42,800 --> 00:26:46,719
Speaker 1: serving FBI director since j Edgar Hoover himself, and I

482
00:26:46,800 --> 00:26:49,919
Speaker 1: was just sort of fascinated by the extent to which

483
00:26:50,040 --> 00:26:54,159
Speaker 1: the FBI under him had, in the year since nine eleven,

484
00:26:54,520 --> 00:26:59,320
Speaker 1: transformed from a domestic law enforcement agency into an international

485
00:26:59,359 --> 00:27:04,400
Speaker 1: intelligence agency and sort of what globalization and technology had

486
00:27:04,440 --> 00:27:08,399
Speaker 1: done to change j Edgar Hoover's FBI one of the

487
00:27:08,440 --> 00:27:12,159
Speaker 1: great things about him out of St. Paul's and with

488
00:27:12,240 --> 00:27:15,520
Speaker 1: his work at Princeton and on is a singular moment

489
00:27:15,640 --> 00:27:20,600
Speaker 1: early in your book where the Marine distinguished Marina with

490
00:27:20,600 --> 00:27:24,159
Speaker 1: with true combat duty in Vietnam. His life changes in

491
00:27:24,240 --> 00:27:28,280
Speaker 1: that warehouse in Lockerby, Scotland. How did the Special Council

492
00:27:28,520 --> 00:27:32,000
Speaker 1: change when he walked into where they were reconstructing that

493
00:27:32,119 --> 00:27:36,240
Speaker 1: PanAm plane in Lockerby. Uh, this is this is really

494
00:27:36,280 --> 00:27:40,520
Speaker 1: one of the big turning points in Bob Muller's career. Uh.

495
00:27:40,560 --> 00:27:43,760
Speaker 1: You know, we sort of forget now, Jeff, how long

496
00:27:43,880 --> 00:27:47,600
Speaker 1: Bob Muller has been, uh involved in public service. I mean,

497
00:27:47,640 --> 00:27:50,560
Speaker 1: he's spent almost fifty years of his life now working

498
00:27:50,600 --> 00:27:54,240
Speaker 1: for the Department of Justice and was in the early,

499
00:27:55,119 --> 00:27:58,920
Speaker 1: uh the years of the Georgia H. W. Bush administration,

500
00:27:59,040 --> 00:28:02,520
Speaker 1: the head of the Criminal Division at the Justice Department,

501
00:28:02,560 --> 00:28:05,520
Speaker 1: and so he was the person ultimately in charge of

502
00:28:05,600 --> 00:28:10,560
Speaker 1: prosecuting the PanAm one oh three bombing and the investigation.

503
00:28:10,640 --> 00:28:14,480
Speaker 1: And it was for him walking into that warehouse as

504
00:28:14,520 --> 00:28:18,440
Speaker 1: you mentioned in Lockerbie, where they were collecting the plain

505
00:28:18,520 --> 00:28:21,880
Speaker 1: pieces from that terrible bombing. Was was it a real

506
00:28:21,960 --> 00:28:24,879
Speaker 1: turning point for him about sort of his search for

507
00:28:24,960 --> 00:28:29,600
Speaker 1: justice in in the world, and then also an upclose

508
00:28:29,720 --> 00:28:35,720
Speaker 1: and personal uh moment about the power of international terrorism

509
00:28:35,720 --> 00:28:38,920
Speaker 1: and sort of what a what a force that was,

510
00:28:39,000 --> 00:28:41,120
Speaker 1: and and most people don't realize that he has been

511
00:28:41,200 --> 00:28:44,840
Speaker 1: intimately involved in that case ever since then, you know,

512
00:28:44,920 --> 00:28:49,720
Speaker 1: even uh, would you know shows up on December twenty

513
00:28:49,720 --> 00:28:55,920
Speaker 1: one every year for the the memorial service at Arlington Cemetery. Garrett,

514
00:28:55,920 --> 00:28:58,600
Speaker 1: you are asconced in Vermont as far as you can

515
00:28:58,720 --> 00:29:01,640
Speaker 1: from the madness of wash Inton when you see the

516
00:29:01,960 --> 00:29:06,840
Speaker 1: coverage of Mr Mueller's affairs is special accouncil with the President,

517
00:29:07,280 --> 00:29:11,600
Speaker 1: with all the different players involve, just the Beltway noise

518
00:29:11,840 --> 00:29:14,160
Speaker 1: that we see. How do you respond? What is the

519
00:29:14,280 --> 00:29:17,600
Speaker 1: thing that all of the media gets wrong about the

520
00:29:17,640 --> 00:29:21,320
Speaker 1: gentleman that helped build the threat matrix? Well, I think

521
00:29:21,800 --> 00:29:25,320
Speaker 1: the thing that is most important to understand, or that

522
00:29:25,520 --> 00:29:29,040
Speaker 1: I find sort of most fascinating about Bob Mueller is

523
00:29:30,000 --> 00:29:33,880
Speaker 1: just how clear his moral compasses and sort of just

524
00:29:34,040 --> 00:29:37,520
Speaker 1: how straight it is. I call him, uh, you know,

525
00:29:38,040 --> 00:29:42,360
Speaker 1: America's straightest arrow. And you know, sort of all of

526
00:29:42,400 --> 00:29:47,400
Speaker 1: this partisans wrangling about him. You know, he is in

527
00:29:47,560 --> 00:29:52,000
Speaker 1: Washington about as a political figure as there possibly could be.

528
00:29:52,040 --> 00:29:54,800
Speaker 1: I mean he was. He's held top jobs and have

529
00:29:54,880 --> 00:29:57,440
Speaker 1: been appointed to top jobs in all five of the

530
00:29:57,520 --> 00:30:02,760
Speaker 1: last presidential administrations UH Reagan, both Bushes, Clinton, and Obama.

531
00:30:03,040 --> 00:30:08,680
Speaker 1: And his most recent appointment two year extension unprecedented Special

532
00:30:08,720 --> 00:30:12,000
Speaker 1: Act of Congress to extend him for two years as

533
00:30:12,080 --> 00:30:18,120
Speaker 1: FBI director passed the U. S. Senate one hundred to zero. Garrett,

534
00:30:18,320 --> 00:30:22,840
Speaker 1: can you speak about the FBI and it's attacks on

535
00:30:23,000 --> 00:30:27,280
Speaker 1: cyber cyber attacks now and what the FBI is doing

536
00:30:27,280 --> 00:30:30,800
Speaker 1: and what kind of constraints it works under. Yeah, it's

537
00:30:30,800 --> 00:30:33,600
Speaker 1: a good question, and it's come up, you know, obviously

538
00:30:33,600 --> 00:30:36,120
Speaker 1: a lot in in the context of Special Council. We're

539
00:30:36,480 --> 00:30:40,120
Speaker 1: we're learning a lot more. Uh, the general public is

540
00:30:40,200 --> 00:30:42,880
Speaker 1: learning a lot more about surveillance laws. And I think

541
00:30:42,880 --> 00:30:47,480
Speaker 1: any of us ever anticipated the FBI is about ten

542
00:30:47,560 --> 00:30:53,200
Speaker 1: years into taking cyber crime seriously. Um. The Secret Service

543
00:30:53,280 --> 00:30:55,560
Speaker 1: was really the leader on cyber crime in the early

544
00:30:55,640 --> 00:31:00,520
Speaker 1: years of the two thousands, after UH nine eleven sent

545
00:31:00,600 --> 00:31:03,760
Speaker 1: the FBI focused on terrorism. But the FBI is now

546
00:31:03,920 --> 00:31:09,120
Speaker 1: very deeply engaged in cybercrime and h both on the

547
00:31:09,240 --> 00:31:12,880
Speaker 1: nation state side. I mean, we've seen some fascinating prosecutions

548
00:31:12,920 --> 00:31:17,800
Speaker 1: against Iranian hackers, Chinese hackers, Russian hackers, um and then

549
00:31:17,840 --> 00:31:21,120
Speaker 1: also uh, some tremendous work by the FBI, of the

550
00:31:21,160 --> 00:31:25,120
Speaker 1: Secret Service and actually h s I, the ICE Homeland

551
00:31:25,120 --> 00:31:29,760
Speaker 1: Security Investigations Agency against sort of global cyber crime, which

552
00:31:30,200 --> 00:31:32,760
Speaker 1: you know, for for a business audience is one of

553
00:31:32,760 --> 00:31:37,960
Speaker 1: the fastest growing sectors in business. Unfortunately, I mean, the

554
00:31:38,120 --> 00:31:42,040
Speaker 1: Justice Department just this week announced the takedown of a

555
00:31:42,160 --> 00:31:48,360
Speaker 1: five hundred million dollar cyber crime organization. Garrett, your most

556
00:31:48,400 --> 00:31:52,600
Speaker 1: recent book, I Believe, Raven Rock. Can you just describe

557
00:31:52,600 --> 00:31:55,360
Speaker 1: for people the essence of that book and why it

558
00:31:55,440 --> 00:31:59,040
Speaker 1: might be so compelling today. Yeah, this was a book

559
00:31:59,520 --> 00:32:03,080
Speaker 1: that came out last year, Raven Rocks, the story of

560
00:32:03,120 --> 00:32:06,240
Speaker 1: the U. S. Government's secret plan to save itself while

561
00:32:06,280 --> 00:32:09,000
Speaker 1: the rest of us die that I had originally thought

562
00:32:09,040 --> 00:32:11,720
Speaker 1: was going to be a real history book, and it's

563
00:32:11,760 --> 00:32:14,680
Speaker 1: the story of the U. S. Government's doomsday plans during

564
00:32:14,680 --> 00:32:17,520
Speaker 1: the Cold War, sort of all of the strange things

565
00:32:17,560 --> 00:32:20,080
Speaker 1: that would have happened during and after a nuclear attack,

566
00:32:20,120 --> 00:32:23,000
Speaker 1: and the Mountain bunkers and secret plans to suspend the

567
00:32:23,040 --> 00:32:27,880
Speaker 1: Constitution and other strange plans that the government came up

568
00:32:27,920 --> 00:32:33,200
Speaker 1: with but unfortunately it has turned into a modern history, uh,

569
00:32:33,240 --> 00:32:36,400
Speaker 1: you know, a modern nonfiction as we struggled with the

570
00:32:36,440 --> 00:32:40,560
Speaker 1: North Korea threat and once again begin to try to

571
00:32:40,600 --> 00:32:44,360
Speaker 1: remember what we're supposed to do, uh in the event

572
00:32:44,440 --> 00:32:48,680
Speaker 1: of an incoming nuclear attack. M the modern version of

573
00:32:48,840 --> 00:32:51,360
Speaker 1: the burn the turtle, duck and cover drills from the

574
00:32:51,440 --> 00:32:54,400
Speaker 1: nineteen fifties and nineteen sixties. Garrett, We hope to speak

575
00:32:54,400 --> 00:32:57,000
Speaker 1: to you over the coming months and quarters. Is Mr

576
00:32:57,080 --> 00:33:00,320
Speaker 1: Muller's and the news with this and that investigation. How

577
00:33:00,320 --> 00:33:03,800
Speaker 1: did you respond when the President tried to parse the

578
00:33:03,880 --> 00:33:09,160
Speaker 1: difference between the FBI agents and FBI leadership. That doesn't

579
00:33:09,240 --> 00:33:12,360
Speaker 1: ring true through your book, does it. The FBI leadership

580
00:33:12,480 --> 00:33:16,280
Speaker 1: is largely uh agents. It's it's people who have worked

581
00:33:16,320 --> 00:33:20,760
Speaker 1: their way up through the ranks and came to the organization. Uh.

582
00:33:20,800 --> 00:33:24,520
Speaker 1: You know, with that theme dedication to public service and

583
00:33:24,760 --> 00:33:28,640
Speaker 1: the pursuit of justice. H that that motivates the rank

584
00:33:28,680 --> 00:33:31,200
Speaker 1: and file agents as well. UM. You know, I think

585
00:33:31,200 --> 00:33:33,760
Speaker 1: sort of one of the the shames of the attack

586
00:33:33,960 --> 00:33:39,840
Speaker 1: on Andy McCabe, the now uh former deputy directors. You know,

587
00:33:39,920 --> 00:33:45,240
Speaker 1: Andy McCabe was a career, UH, nonpartisan public servant, you

588
00:33:45,280 --> 00:33:48,280
Speaker 1: know someone who who dedicated his life actually to to

589
00:33:48,440 --> 00:33:52,600
Speaker 1: all things of fighting Russian organized crime. Let's leave it there,

590
00:33:52,640 --> 00:33:55,600
Speaker 1: Gart Griff to Gary Graft rather hope to speak to

591
00:33:55,600 --> 00:33:58,360
Speaker 1: you again. I can't say enough, folks about the Threat

592
00:33:58,440 --> 00:34:03,040
Speaker 1: Matrix Full Disclosure, Bloomberg Surveillance Disclosure. It is a thick, thick,

593
00:34:03,080 --> 00:34:06,200
Speaker 1: thick book, but boy does it read like a wonderful picture.

594
00:34:06,400 --> 00:34:08,759
Speaker 1: Really can't say enough about it, and put it out

595
00:34:08,800 --> 00:34:11,040
Speaker 1: on Twitter a couple of times. You're and we'll do

596
00:34:11,120 --> 00:34:18,000
Speaker 1: so again. Garrett Graft with a Threat Matrix. Thanks for

597
00:34:18,080 --> 00:34:22,480
Speaker 1: listening to the Bloomberg Surveillance Podcast. Subscribe and listen to

598
00:34:22,640 --> 00:34:28,400
Speaker 1: interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer.

599
00:34:28,920 --> 00:34:32,279
Speaker 1: I'm on Twitter at Tom Keane before the podcast. You

600
00:34:32,320 --> 00:34:35,720
Speaker 1: can always catch us worldwide. I'm Bloomberg Radio