WEBVTT - We're Concerned About Fixed Income, Cohen Says 0:00:00.120 --> 0:00:13.840 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom keene Jaiye. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:32.680 Bloomberg dot Com, and of course on the Bloomberg To 0:00:32.720 --> 0:00:34.480 get you set up for the market action this morning, 0:00:34.520 --> 0:00:36.760 here we go. Future is negative one two on a 0:00:36.840 --> 0:00:40.000 down negative thirteen points on the SMP five is risk 0:00:40.159 --> 0:00:42.800 off almost across the board. I talked about that bid 0:00:42.800 --> 0:00:45.199 govern into the Japanese yen. We have a one oh 0:00:45.240 --> 0:00:47.479 seven handle on Dolly yen. We dropped to one oh 0:00:47.520 --> 0:00:51.080 seven spots sixty four, down by one four percentage point almost. 0:00:51.240 --> 0:00:53.519 And to round things out, in the treasury market for you, 0:00:53.680 --> 0:00:57.600 yields creeping high yesterday this time yesterday now lower by 0:00:57.640 --> 0:01:00.520 about three basis points to two point eight eight percent. 0:01:00.800 --> 0:01:03.760 And for the vix watches out there, Tomkine being one 0:01:03.800 --> 0:01:07.520 of them, we bleed higher back to seven handle on 0:01:07.560 --> 0:01:09.760 the VIX. I'm really placed to say that joining us 0:01:09.840 --> 0:01:12.279 now is harm band holds of course the UNI credit 0:01:12.360 --> 0:01:15.480 chief US economists, or not just the year ahead, but 0:01:15.560 --> 0:01:18.880 on as well. Harm Do we need to start thinking 0:01:18.880 --> 0:01:24.560 about already. Sure. I mean, it looks like two thousand 0:01:24.640 --> 0:01:26.360 eighteen is shaving up to be a pretty good year 0:01:26.360 --> 0:01:30.319 for the global economy, for the US economy, um not 0:01:30.319 --> 0:01:33.840 not least two to this huge fiscal fiscal deficit. But 0:01:35.000 --> 0:01:36.720 you know, then you talk about next year, I think, 0:01:36.760 --> 0:01:38.600 what is what the fiscal similar is doing is bringing 0:01:38.680 --> 0:01:42.280 some gross grows forward plus next year, the the recovery 0:01:42.319 --> 0:01:45.640 will be one of the longest on record. And and 0:01:45.680 --> 0:01:47.960 we we are worried that growth starts to slow down 0:01:47.960 --> 0:01:49.880 next year and we may actually downturn in two thousand 0:01:49.880 --> 0:01:53.160 and twenty, which makes in well not least yesterday's budget 0:01:53.400 --> 0:01:56.320 forecast by the President. You know something that looks way 0:01:56.360 --> 0:01:59.080 too rosy. It's the good news becoming bad news. Your 0:01:59.320 --> 0:02:02.520 colleague for in Europe, Eric Nielsen wrote the following eye 0:02:02.520 --> 0:02:04.400 of the weekend, what if the conclusion of the effects 0:02:04.400 --> 0:02:06.640 of the tax concer is wrong? What if markets attention 0:02:06.680 --> 0:02:08.880 has shifted to see the tax bill as a big 0:02:08.919 --> 0:02:11.639 piece of seriously irresponsible policy, with a key effect being 0:02:11.960 --> 0:02:14.600 high yield. It's it's an important question to ask, are 0:02:14.639 --> 0:02:17.640 we seeing a shift in the interpretation the market bias 0:02:17.880 --> 0:02:20.760 towards what we're saying in the United States that there 0:02:20.840 --> 0:02:23.000 was a bit the impression that we that we had 0:02:23.040 --> 0:02:25.200 over the last several let's call it weeks. You know 0:02:25.240 --> 0:02:28.560 when when better numbers both on the inflation and economic front, 0:02:28.600 --> 0:02:31.040 I mean better meaning higher numbers on the inflation side 0:02:31.160 --> 0:02:33.680 were interpreted by the market that the FETE may actually 0:02:33.800 --> 0:02:36.760 hike more and that at some point started to scare 0:02:36.880 --> 0:02:40.280 market participants. So so yeah, you're right. Um, if we 0:02:40.520 --> 0:02:43.359 also talking about tomorrow's CPI print, I would think a 0:02:43.400 --> 0:02:45.400 higher number would be worse for the markets than a 0:02:45.400 --> 0:02:48.560 weaker number. Her bundles with us the Cretic. Good morning everyone, 0:02:48.840 --> 0:02:50.520 I need to rip up the script, folks. This is 0:02:50.560 --> 0:02:53.320 so profoundly important that we've got to do it. We 0:02:53.480 --> 0:02:58.480 just heard the gentleman from England says the gentleman from 0:02:58.520 --> 0:03:01.280 Americas as Adidas. We would not What do you say 0:03:01.320 --> 0:03:03.760 in your Germany? Is it really ADDI Das or do 0:03:03.840 --> 0:03:07.079 you say Adidas? No, it's Adidas. And are you offended 0:03:07.120 --> 0:03:10.600 that I say no, I got used to it here. 0:03:10.639 --> 0:03:13.359 You're the only one that cast about this time. No, No, 0:03:13.480 --> 0:03:15.400 this is like you know forever, folks, and we you 0:03:15.440 --> 0:03:19.079 know what we do in surveillance is whichever fractured language 0:03:19.120 --> 0:03:21.960 I wanted to do. When I say Sheffield or you 0:03:22.000 --> 0:03:26.959 know the unpronounceables in England, I written Lester very good 0:03:27.600 --> 0:03:32.280 and and John Farrell. You know Addidas, that was very good. Okay, 0:03:32.280 --> 0:03:36.200 thank you. That's an import into the United States. Audi 0:03:36.320 --> 0:03:39.280 Das is coming here. Tell us about the import dynamic 0:03:39.920 --> 0:03:45.119 of Adidas shoes and BMW's as well well. I think 0:03:45.160 --> 0:03:47.600 BMW is first of all the biggest car export of 0:03:47.680 --> 0:03:49.560 for the U S as well. We must not forget that, 0:03:49.760 --> 0:03:52.320 thank you. So with all the best thing about all 0:03:52.360 --> 0:03:55.080 these foreign companies, we must not forget it's its biggest plant. 0:03:55.160 --> 0:03:58.640 It's on the East couset somewhere. All the all the 0:03:58.840 --> 0:04:01.119 X models, I think all of them are produced here, 0:04:01.160 --> 0:04:03.720 and well they are. They're doing pretty well. You nail 0:04:03.920 --> 0:04:06.040 as you do harm. You're famous for this. You nail 0:04:06.120 --> 0:04:09.800 it with facts. The shock like BMW is our biggest X. 0:04:10.200 --> 0:04:13.040 We we we try to convey the message that facts 0:04:13.040 --> 0:04:16.040 still matter. So so yeah, it's important. We can, you know, 0:04:16.040 --> 0:04:18.400 as economies, we just can't help looking at these numbers, 0:04:18.440 --> 0:04:21.160 and and some from time to time emphasize them. But 0:04:21.160 --> 0:04:24.919 but to your question, um, the US problem, as we know, 0:04:25.160 --> 0:04:28.280 is a huge trade deficit, current account deficit, and if 0:04:28.279 --> 0:04:31.200 you look at the real trade deficit without petroleum goods, 0:04:31.640 --> 0:04:34.159 um we have just hit a new record high in 0:04:34.240 --> 0:04:36.880 terms of deficit. So the situation has never been as 0:04:36.880 --> 0:04:39.839 bad as it is right now. And then I mean 0:04:39.880 --> 0:04:42.440 that has in part to do with import dynamics, because 0:04:42.480 --> 0:04:44.880 we have we talked about we have the fiscal stimulus, 0:04:44.960 --> 0:04:48.560 which supports the domestic economy domestic demand, and part of 0:04:48.560 --> 0:04:52.280 that additional domestic demand is satisfied by increased imports. At 0:04:52.279 --> 0:04:55.040 the same time, the global economy is also doing very well. 0:04:55.560 --> 0:04:59.560 But the America's real problem is that is not exporting, 0:04:59.600 --> 0:05:02.440 that is not producing the stuff that the rest of 0:05:02.480 --> 0:05:06.080 the world really wants. So in other words, it's import 0:05:06.279 --> 0:05:09.240 necessity is much bigger than its exports ellisticity. So it's 0:05:09.480 --> 0:05:11.599 so so with that in mind, harm to what extent 0:05:11.680 --> 0:05:14.560 does the weaker dollar of the last twelve months plus 0:05:15.120 --> 0:05:18.400 rebalance the trade deficit? If it's so, yeah, if it well, 0:05:18.440 --> 0:05:20.280 it helps out to margin, there's no doubt about it. 0:05:20.320 --> 0:05:23.120 But I think the impact is relatively relatively small. I mean, 0:05:23.160 --> 0:05:25.600 we must not forget the US has had large current 0:05:25.640 --> 0:05:28.040 account deficits as well, when the when euro dollar was 0:05:28.080 --> 0:05:30.920 at one, you know, so that shows us that there's 0:05:31.000 --> 0:05:33.640 much more to it to the issue than than than 0:05:33.680 --> 0:05:35.840 just the currency. So the currency is always seen as 0:05:35.839 --> 0:05:40.360 the easy fix, but it doesn't fix it, you know it. 0:05:40.520 --> 0:05:42.680 It helps to mitigate the impact. It makes it looks 0:05:42.720 --> 0:05:45.320 a little bit better maybe, but overall there there there 0:05:45.320 --> 0:05:47.919 are underlying problems that take much longer to fix. And 0:05:47.920 --> 0:05:50.359 that's why I think politicians always try the not not 0:05:50.440 --> 0:05:52.719 always sometimes try the easy way out. There are two 0:05:52.720 --> 0:05:54.880 deficits to speak of, and the trade deficit is not 0:05:54.920 --> 0:05:57.200 the one on everyone's mind right now. The deficit on 0:05:57.200 --> 0:06:00.440 everyone's mind right now is the budget deficit. Why all 0:06:00.440 --> 0:06:03.040 of a sudden has the budget deficit become such an 0:06:03.040 --> 0:06:07.400 issue for so many people? Harm? Because what we are 0:06:07.400 --> 0:06:09.839 seeing right now is is, I would say, is probably 0:06:10.120 --> 0:06:14.800 the most reckless deficit that the US economy really has 0:06:14.960 --> 0:06:17.640 has had. It's not the highest, but I mean there 0:06:17.680 --> 0:06:21.480 were periods, the periods where we had higher deficits where 0:06:21.520 --> 0:06:24.280 we were also facing big crisis. Right now, the unemployment 0:06:24.360 --> 0:06:27.320 rates at four percent, We are at or below full 0:06:27.320 --> 0:06:30.400 employment or very close to whatever um and that is 0:06:30.440 --> 0:06:33.520 the time where you actually should start repay some of 0:06:33.520 --> 0:06:37.040 your debt, right and what the US is doing right now, Um, 0:06:37.080 --> 0:06:39.280 we're not only not repaying that, but we are blowing 0:06:39.360 --> 0:06:41.960 up the deficit. And what makes things worse if you 0:06:42.200 --> 0:06:45.840 mean it is relatively easy to forecast demographic that's one 0:06:45.839 --> 0:06:48.440 of the really easy long term forecast. And we know 0:06:48.520 --> 0:06:51.400 that demographics are against us, are against the deficit because 0:06:51.440 --> 0:06:53.719 the baby booms are retiring. So if you look at 0:06:53.760 --> 0:06:57.640 the CBO's long term forecast, it shows already without all 0:06:57.680 --> 0:07:01.120 the stimulus, that we had a debt to GDP right 0:07:01.279 --> 0:07:03.920 almost doubling over the next thirty years. So this is 0:07:03.960 --> 0:07:07.080 the time to prepare for that. But that is coming, 0:07:07.120 --> 0:07:08.880 but we're doing the opposite. Is it okay? John Fair? 0:07:08.920 --> 0:07:11.119 If I do a chart out the Bloomberg radio before 0:07:12.240 --> 0:07:14.240 I'm doing that right now? Why you asked for my 0:07:14.280 --> 0:07:17.120 permission when you've basically done it all rendic because you 0:07:17.160 --> 0:07:20.560 say how it does it's a real non petroleum trade 0:07:20.640 --> 0:07:24.400 Have I ever looked at a real non petroleum trade deficite? 0:07:24.480 --> 0:07:28.560 No hard bundles. I'm sorry it borders on a jump condition. 0:07:29.560 --> 0:07:34.000 Why is our real non petroleum trade deficit jumping to 0:07:34.120 --> 0:07:39.360 a worser statistic. Um, Well, I mean I know, well, 0:07:39.400 --> 0:07:42.480 I know the chart so so so the the latest 0:07:42.520 --> 0:07:44.840 jump that looks a little bit suspicious. There's some volutility, 0:07:44.880 --> 0:07:47.360 but the underlying trend is very obvious, right if you 0:07:47.400 --> 0:07:49.080 have it in front of you look at it. So 0:07:49.200 --> 0:07:51.720 it was very high in during the housing boom the deficit, 0:07:51.760 --> 0:07:54.600 than it narrowed because of the crisis, and when the 0:07:54.680 --> 0:07:56.480 christ when the recession was over in the middle of 0:07:56.520 --> 0:07:58.920 two thousand nine and started to widen again, and it 0:07:58.960 --> 0:08:02.480 looks like there is no end to it, right and again, 0:08:02.520 --> 0:08:04.920 forget about the monthly volatility. You just put a six 0:08:04.960 --> 0:08:07.559 months moving ever to what's rout and there's a pretty 0:08:07.560 --> 0:08:12.200 linear downwooded any credit chief. US economists really appreciate you 0:08:12.480 --> 0:08:28.480 catching out with us, and without question, the most important 0:08:28.520 --> 0:08:31.360 interview of the day. Stanley Calendar has helped us so 0:08:31.480 --> 0:08:35.800 much untangling the fiscal dynamics of Washington and the nation. 0:08:36.480 --> 0:08:39.040 Right now, we get perspective here on Twitter at the 0:08:39.040 --> 0:08:42.280 budget Guy, he writes for Forbes Magazine Corpus Group as well. 0:08:42.760 --> 0:08:47.000 Stan I want you to some how CBO will deal 0:08:47.080 --> 0:08:51.280 with the tax cuts the congressional budget that was passed 0:08:51.280 --> 0:08:54.640 and signed by the President and the Trump budget yesterday. 0:08:54.960 --> 0:08:57.920 How does an institution that we all rely in, the 0:08:57.960 --> 0:09:03.600 Congressional Budget Office, how do they synthesize those three events. Uh, 0:09:03.640 --> 0:09:05.959 it's it's actually pretty simple, Tom. First of all, they're 0:09:05.960 --> 0:09:08.280 going to reject the President's notion that this pays for 0:09:08.280 --> 0:09:11.520 it that the tax cut pay for itself. Uh. That's 0:09:11.559 --> 0:09:13.760 pretty much common wisdom and everywhere but the White House 0:09:13.800 --> 0:09:15.640 these days. So they're gonna they're gonna talk about the 0:09:15.720 --> 0:09:20.120 tax cut as uh as as a substantial contribute to 0:09:20.120 --> 0:09:22.960 the deficit and debt. Uh. Second, they're going to add 0:09:23.559 --> 0:09:27.360 four to six hundred billion dollars in additional spending, an 0:09:27.400 --> 0:09:29.720 additional debt and deficit because of the spending bill that 0:09:29.800 --> 0:09:33.560 was passed and agreed to last Friday. UM. And they're 0:09:33.559 --> 0:09:36.880 gonna reject all the President's proposed cuts because they're not 0:09:36.960 --> 0:09:40.640 likely to happen. Uh So, So what they're gonna do is, 0:09:40.760 --> 0:09:42.640 while the White House is saying the deficit will fall 0:09:42.679 --> 0:09:45.560 below a trillion dollars next year, CBO is probably gonna 0:09:45.600 --> 0:09:48.040 get there to about one point for Tuly and projected 0:09:48.080 --> 0:09:50.840 really up further. Oh yeah, there are. Now this is 0:09:50.880 --> 0:09:53.319 really important because we're working with one point one one. 0:09:53.720 --> 0:09:55.920 You're already out at one point four? Do I understand 0:09:55.960 --> 0:09:59.240 that correctly? You understand that absolutely correctly, especially when you 0:09:59.280 --> 0:10:02.760 take the president overly optimistic economic forecast and stuff to 0:10:02.800 --> 0:10:07.280 do something that's more realistic. Um and and and so 0:10:07.280 --> 0:10:09.200 so you're gonna you're at one point for julion. And 0:10:09.200 --> 0:10:10.680 you know what, Tim, I know you and I have 0:10:10.720 --> 0:10:13.560 talked about this for weeks or months or years, but 0:10:13.640 --> 0:10:15.720 I'm not sure that's going to have the big impact 0:10:15.760 --> 0:10:19.680 on the politics. That's right where I would you explain 0:10:19.720 --> 0:10:23.480 the why of this, whether anybody's a liberal Democrat they 0:10:23.520 --> 0:10:27.280 say Adidas or Adidas, would you explain to me the 0:10:27.600 --> 0:10:34.040 why we've lost any sense of frugality in our political Washington. Um, 0:10:34.240 --> 0:10:36.840 Because this is a mixing goes to China's situation to 0:10:36.880 --> 0:10:39.200 a certain extent. You had Trump who was promising the 0:10:39.240 --> 0:10:42.920 world to everybody that I can you know, I I 0:10:43.240 --> 0:10:45.480 can spend more, I can tax less, and I can 0:10:45.520 --> 0:10:49.600 balance the budget. Uh saying now saying it doesn't make 0:10:49.640 --> 0:10:52.760 any difference. In besides, it's only temporary. Um. If the 0:10:52.800 --> 0:10:56.560 Democrats go after the deficit to they they will end 0:10:56.640 --> 0:10:58.840 up maybe having to be responsible for it and being 0:10:58.840 --> 0:11:01.480 hoisted on their own guitar. And then you've got groups 0:11:01.480 --> 0:11:03.920 like the Committee for Responsible Federal Budget that have lost 0:11:03.920 --> 0:11:07.000 this debate and have no impact whatsoever. So to a 0:11:07.040 --> 0:11:10.720 certain extent on this is everybody's saying, I want what 0:11:10.760 --> 0:11:13.200 I want, what I wanted, and something bad happens, I 0:11:13.200 --> 0:11:15.320 will take care of it later. Stand. Certainly there's some 0:11:15.360 --> 0:11:18.040 politics that play here, a whole lot of politics. But 0:11:18.600 --> 0:11:20.520 something I want to ask you about, stand is what's 0:11:20.600 --> 0:11:22.920 changed because for years a lot of people said, take 0:11:22.920 --> 0:11:25.640 advantage of low interest rates, stop worrying about the deficit. 0:11:25.880 --> 0:11:28.319 The deficit doesn't matter. We have a party in power 0:11:28.320 --> 0:11:31.160 that's basically said just that. But now, all of a sudden, 0:11:31.400 --> 0:11:35.400 a lot of concern. Why Well, look, for Jonathan, I'm 0:11:35.400 --> 0:11:37.160 going to disagree with your your premise a little bit. 0:11:37.200 --> 0:11:39.040 I don't think there's a lot of concern. If there was, 0:11:39.440 --> 0:11:41.640 the tax bill wouldn't have been enacted to the extent 0:11:41.720 --> 0:11:43.679 that it was, and that the spending bill that they 0:11:43.720 --> 0:11:45.440 just went through, well, let me start against stand the 0:11:45.440 --> 0:11:48.360 concern not within the Republican Party, the concern outside of 0:11:48.400 --> 0:11:51.120 the Republican Party. I read ophad after ophed through the 0:11:51.160 --> 0:11:54.280 weekend about how it was dangerous what they were doing 0:11:54.280 --> 0:11:56.720 for the US economy and ultimately the deficit was going 0:11:56.760 --> 0:11:58.959 to get out of control. These concerns not coming from 0:11:58.960 --> 0:12:02.400 within the Republican coming from outside the Republican Party when 0:12:02.400 --> 0:12:05.320 those concerns did not exist several years ago. Well, all right, 0:12:05.360 --> 0:12:08.160 First of all, remember the uber conservatives, the Freedom Clark 0:12:08.240 --> 0:12:11.160 has hated this this spending bill, not the tax bill, 0:12:11.200 --> 0:12:13.760 but the spending bill in and criticized it heavily because 0:12:13.760 --> 0:12:15.240 of what it would do to the debt and deficit. 0:12:15.559 --> 0:12:19.040 So there is some internal Republican dissension about this. But 0:12:19.440 --> 0:12:21.920 to a certain extent, this is just pure politics. This 0:12:22.000 --> 0:12:24.840 is the party out of power criticizing the party in power. 0:12:25.440 --> 0:12:28.360 Um and and I'm not sure that the the the 0:12:28.480 --> 0:12:31.720 concern doesn't exist. It's just a little taken a backseat. 0:12:31.760 --> 0:12:34.280 Trust me, when interest rates start to rise, the same 0:12:34.320 --> 0:12:36.440 people who aren't saying anything bad about the debt and 0:12:36.440 --> 0:12:38.839 deficit increases will be the ones pointing the finger at 0:12:38.840 --> 0:12:41.319 the politicians saying, you should have told us, you should 0:12:41.320 --> 0:12:43.160 have done something about it, you should have prevented this 0:12:43.240 --> 0:12:45.280 will stand help me take away the politics train, the 0:12:45.280 --> 0:12:47.240 politics out of it. I don't want to politicize the 0:12:47.280 --> 0:12:50.560 deficit anymore. I want to talk about the economics of it. 0:12:50.840 --> 0:12:54.920 Why should we be concerned about five percent of GDP? UM? Well, 0:12:55.120 --> 0:12:58.040 first of all, it's coming. It's not just five percent 0:12:58.080 --> 0:13:01.280 of GDP. It's adding all that aditional fuel on top 0:13:01.320 --> 0:13:05.920 of an economy that's already pretty much heavily stoked. Um. 0:13:06.040 --> 0:13:07.920 I'm not sure from a Kindian point of view, you 0:13:07.960 --> 0:13:09.880 would you would want it, you would recommend that this 0:13:09.960 --> 0:13:12.040 type of additional stimulus we do it done at this 0:13:12.080 --> 0:13:16.240 particular time. Um. And And second, um, it really is 0:13:16.280 --> 0:13:18.439 going to limit I'm I'm looking a little bit longer 0:13:18.520 --> 0:13:21.640 term for from economic and policy point of view, it's 0:13:21.640 --> 0:13:23.800 really going to limit the ability of the United States 0:13:23.840 --> 0:13:27.400 to respond to any new needs, whether it's a forest 0:13:27.440 --> 0:13:32.480 fire or a tornado, or a nuclear holocaust type situation, 0:13:33.320 --> 0:13:36.360 or even an economic downturn, unless there's a stomach a 0:13:37.640 --> 0:13:40.600 willingness to accept eficits in the two to three trillion 0:13:40.600 --> 0:13:43.560 dollar range. John brings up an important point stand which 0:13:43.559 --> 0:13:45.760 we got to walk through right now, which is this 0:13:45.880 --> 0:13:49.160 tip point of five GDP. It don't buy it for 0:13:49.200 --> 0:13:53.120 a minute. My study of this and listening to guys 0:13:53.160 --> 0:13:58.520 like you for the years is three GDP is in 0:13:58.559 --> 0:14:03.840 the realm of fruit normal whatever. So we go from 0:14:03.840 --> 0:14:05.959 three to five, which is I believe a fifty or 0:14:06.000 --> 0:14:11.160 six increase in deficit. The g d P isn't five 0:14:11.200 --> 0:14:15.520 a pretty moldy number? Yeah, I think so, Tom. And 0:14:15.679 --> 0:14:18.040 part of the new normal is what you were just saying. Um. 0:14:18.240 --> 0:14:20.160 You know I because I know you commented on it. 0:14:20.440 --> 0:14:22.200 I wrote a column in Forbes that said, the new 0:14:22.240 --> 0:14:25.040 normal is is exactly what you're saying, which is, first 0:14:25.040 --> 0:14:28.280 of all, tolerance for higher deficits annually. Yeah. But the 0:14:28.320 --> 0:14:33.200 markets won't quote unquote have tolerance, will they? Well, right 0:14:33.200 --> 0:14:35.840 now we're seeing a little bit of gyration and we're 0:14:35.840 --> 0:14:39.880 blaming it without any real proof about higher interest rates. Um. 0:14:40.280 --> 0:14:43.440 But you know, it remains to be seen whether the 0:14:43.480 --> 0:14:45.760 bond market vigilantes are going to be coming back and 0:14:45.840 --> 0:14:48.560 force These are the folks who forced Bill Clinton to 0:14:48.640 --> 0:14:52.560 revise his budget both plans because with higher interest rates, Um, 0:14:53.120 --> 0:14:55.840 that is the political statistic. That's the one that will 0:14:55.880 --> 0:14:58.320 cross the economic and political back. I know John wants 0:14:58.320 --> 0:15:00.440 to dive in here with wisdom, but what it happens 0:15:00.440 --> 0:15:03.040 of Pharaoh's wrong and we get the six percent deficit 0:15:03.120 --> 0:15:06.320 to GDP, what's the difference between five the new normal 0:15:06.800 --> 0:15:10.600 in six? Um, Well, it's look, and I got to 0:15:10.600 --> 0:15:13.200 tell you, since we've never really been here before, that is, 0:15:13.240 --> 0:15:16.000 in good economic times getting to that level. I'm not 0:15:16.040 --> 0:15:19.480 sure that we know the answer definitively. But at some point, 0:15:19.560 --> 0:15:21.520 whether it's six or six and a half or five 0:15:21.560 --> 0:15:24.160 and a quarter, at some point the markets are going 0:15:24.160 --> 0:15:26.800 to respond and respond negatively to what's going on. At 0:15:26.800 --> 0:15:29.440 some point foreign investors are going to say enough, I've 0:15:29.480 --> 0:15:31.520 had enough to us that I can't I can't be 0:15:31.560 --> 0:15:33.880 sure you're ever going to pay it back at all. 0:15:34.160 --> 0:15:35.920 I want to be clear here, it's not about the 0:15:35.920 --> 0:15:38.320 concern of say five or six. It's a direction of 0:15:38.320 --> 0:15:40.800 travel Tom and I think that ultimately should be the concern. 0:15:41.080 --> 0:15:43.040 There was a budget deficit to GDP in the UK 0:15:43.160 --> 0:15:45.240 of five percent just a couple of years ago, but 0:15:45.280 --> 0:15:47.360 the reason the market would give the UK to benefit 0:15:47.400 --> 0:15:48.800 the down was one the Bank of Englis still had 0:15:48.800 --> 0:15:50.800 a big presence, and two there was an effort to 0:15:50.800 --> 0:15:53.160 close that gap. I think too stands point the real 0:15:53.240 --> 0:15:56.640 concern get rid of all the political drama, all the hysteria, 0:15:56.720 --> 0:15:59.600 around this deficit of one trillion dollars. The real concern 0:16:00.000 --> 0:16:03.160 it's not now, not potentially next year, but the next downturn, 0:16:03.560 --> 0:16:06.200 when the fiscal options are exhausted at a time that 0:16:06.560 --> 0:16:09.680 the monetary policy options have been exhausted as well. Stan, 0:16:09.840 --> 0:16:11.640 is that way you're thinking as well. It's not in 0:16:11.680 --> 0:16:14.160 the here and now. It's the direction of travel, and 0:16:14.160 --> 0:16:17.320 the ultimate destination could be messy and exacerbated by the 0:16:17.360 --> 0:16:21.800 next downturn. No, no, exactly right. Um. That is in fact, 0:16:21.840 --> 0:16:24.280 Bick Malveny, the O and B directors said yesterday or 0:16:24.280 --> 0:16:25.800 the day before that there was likely to be a 0:16:25.800 --> 0:16:29.160 sugar hide with the economy short term. But remember politicians 0:16:29.200 --> 0:16:31.280 in the United States only think short term. They're only 0:16:31.320 --> 0:16:34.440 thinking until the next election. And at some point it's 0:16:34.440 --> 0:16:36.720 going to be someone's problem, but maybe not the current 0:16:36.720 --> 0:16:39.880 office holders to deal with the next downturn of some kind. 0:16:39.960 --> 0:16:42.760 And and our options, like you just said, are exactly limited. 0:16:42.760 --> 0:16:44.760 I want to expand that one more way. What do 0:16:44.800 --> 0:16:46.800 you tell millennials we're gonna end up having to pay 0:16:46.840 --> 0:16:49.000 for this. What do you tell them about the government's 0:16:49.040 --> 0:16:51.400 ability to deal with their problems ten or fifteen years 0:16:51.440 --> 0:16:53.600 down the road? Your SPA on standard Tom. This is 0:16:53.600 --> 0:16:57.280 a big issue. It's the biggest intergenerational wealth transfer in 0:16:57.440 --> 0:16:59.880 history that were witnessing, not just in the United States 0:16:59.880 --> 0:17:02.440 for America, but across Europe and within the United Kingdom 0:17:02.440 --> 0:17:04.760 as well. And at some point someone's gonna pick up 0:17:04.800 --> 0:17:06.160 the bill, and the one that's got to pick out 0:17:06.160 --> 0:17:08.679 the bill would not have reaped the rewards of the 0:17:08.880 --> 0:17:11.600 of the last decade or sites on. Well, it'll be interesting. 0:17:11.640 --> 0:17:14.480 Stent Calendar, thank you so much. The budget guy with 0:17:14.560 --> 0:17:31.960 Corvis mL MSL Group as well, Abbey Joseph Cohen of 0:17:32.040 --> 0:17:35.520 Goldben Sax wants to speak about the deficit a number 0:17:35.520 --> 0:17:38.159 of other things she sees in the greater American economy, 0:17:38.720 --> 0:17:42.520 but we must start with these markets. Abbey Joseph Cohene 0:17:42.520 --> 0:17:47.399 as Golden Sacks Advisory Director, Senior investment strategist, Abby, I 0:17:47.400 --> 0:17:49.320 want to get out of the gossip out of the way. 0:17:49.480 --> 0:17:51.919 I have vetted to this and I know with your 0:17:51.960 --> 0:17:54.960 attachment to the Brookings Institution, you're familiar with Mr burn 0:17:55.040 --> 0:17:57.840 Hanky and now cherry yelling goes over there is well. 0:17:58.520 --> 0:18:01.200 I would think j. Powell get you to come down 0:18:01.240 --> 0:18:03.840 to be vice Chairman of the Fed by just giving 0:18:03.880 --> 0:18:06.679 you the right seats over all that skins shoulders for 0:18:06.680 --> 0:18:10.520 the Washington Capitals on a power play, I mean, would 0:18:10.600 --> 0:18:15.359 you think about being vice chairman of the Federal Reserve System. Um. 0:18:15.400 --> 0:18:17.719 I think it's fair to say, Tom that you and 0:18:17.760 --> 0:18:20.560 I are not making those decisions. But but thank you 0:18:20.600 --> 0:18:24.040 for suggesting it. Um. When it comes to the Washington 0:18:24.119 --> 0:18:29.040 Capitals though, Um, why don't we talk about the Olympics instead? 0:18:29.280 --> 0:18:32.720 It's a difficult year to say the least. Yeah, Um, 0:18:33.000 --> 0:18:37.760 you know, we're seeing phenomenal figure skating. The women in 0:18:37.840 --> 0:18:42.880 particular are just absolutely extraordinary, their artists, their athletes. Um. 0:18:42.880 --> 0:18:45.080 And when it comes to the Capitals, there were four 0:18:45.560 --> 0:18:49.600 figure skating coaches who recently watched the Caps play and 0:18:49.640 --> 0:18:52.800 they said only one and that's the center of Jenny 0:18:52.880 --> 0:18:57.639 Kuznetzev might might make a good figure ski skater, and 0:18:57.680 --> 0:18:59.880 the rest of them just didn't have very good technique 0:19:00.160 --> 0:19:04.879 and their power A window into Abbey. Joseph Cohen, I 0:19:04.880 --> 0:19:08.280 think your combination of financial acumen and economics would put 0:19:08.280 --> 0:19:10.560 you on the list with Dr Larin John Farrell. Who 0:19:10.560 --> 0:19:13.160 else is on the list for vice chairman, Rich Clida 0:19:14.280 --> 0:19:17.240 and others? And San Francisco FED President Mr Williams up 0:19:17.240 --> 0:19:19.520 there as well that they gets helped three ti Abby. 0:19:19.640 --> 0:19:25.080 Let us address the markets. Uh, they were clearly over exuberant, 0:19:25.119 --> 0:19:28.320 if you will, and down we go. Have you changed 0:19:28.359 --> 0:19:34.000 your long tone on owning equities at this time? Well, 0:19:34.080 --> 0:19:37.399 let's begin with fundamentals, which is where we always began. 0:19:37.480 --> 0:19:40.800 How is the economy doing, corporate profits? How does that 0:19:40.840 --> 0:19:44.400 feed into valuation and so on? And just a reminder 0:19:44.480 --> 0:19:47.600 that for the past several months, the estimate from Goldman 0:19:47.680 --> 0:19:51.199 Sachs has been that the year end price target for 0:19:51.240 --> 0:19:55.800 the SMP five hundred would be about fifty based upon 0:19:56.080 --> 0:20:00.399 our above consensus view on corporate profits and so on. 0:20:01.000 --> 0:20:05.920 And before this correction began, let's assume it maintains status 0:20:05.960 --> 0:20:10.480 as a correction the SMP was so we were there, 0:20:11.000 --> 0:20:14.160 and I would just remind your listeners that you need 0:20:14.200 --> 0:20:19.439 to have valuation support to be at sustained high levels, 0:20:20.000 --> 0:20:24.320 because if it's already priced for perfection, there can be 0:20:24.359 --> 0:20:27.800 any number of factors that will knock you off kilter. 0:20:28.119 --> 0:20:30.440 And I think that's what has happened. And there are 0:20:30.480 --> 0:20:33.920 a number of factors. Some of them they prove transitory, 0:20:34.000 --> 0:20:37.960 some of them, Uh, may have longer legs and and 0:20:38.280 --> 0:20:40.679 I think it's important to to chat about them. So, 0:20:40.800 --> 0:20:43.840 for example, there are some people talking about the technical 0:20:43.920 --> 0:20:46.720 aspects of what happened over the last week or two. 0:20:47.400 --> 0:20:51.560 The absence of share buybacks, for example, because corporations weren't 0:20:51.640 --> 0:20:55.479 able to step in and buy back their shares um 0:20:55.640 --> 0:20:58.800 because of legal restrictions where they were in reporting season. 0:20:59.280 --> 0:21:02.080 The role of e T f UH, the role of 0:21:02.440 --> 0:21:06.320 individual investors who may have panicked in to the market 0:21:06.359 --> 0:21:09.520 at the end of two thousand seventeen and then got 0:21:10.040 --> 0:21:13.359 a little skittish. I prefer, as you well know, Tom, 0:21:13.400 --> 0:21:17.360 to look at the intermediate and longer term issues, and 0:21:17.600 --> 0:21:22.080 those to me, uh, there are some concerns. Um. You know, 0:21:22.520 --> 0:21:26.040 when we get within this range of what we think 0:21:26.080 --> 0:21:28.879 fair value is, we really need to focus on what 0:21:29.040 --> 0:21:33.080