WEBVTT - There are no 100% Embargoes, Tannebaum Says 0:00:00.080 --> 0:00:12.960 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Leye. 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 --> 0:00:28.160 Bloomberg dot Com, and of course on the Bloomberg Yeah. 0:00:32.800 --> 0:00:35.640 I'm gonna bring a Neil sharing Capital Economics Chief, Emerging 0:00:35.720 --> 0:00:37.879 Markets Economists, and Nail. I want to ask you if 0:00:37.880 --> 0:00:40.159 things are really as good as they say they are. 0:00:40.280 --> 0:00:43.160 The numbers out of Europe today, the economic confidence numbers 0:00:43.200 --> 0:00:45.559 the best in like two decades that data are out 0:00:45.560 --> 0:00:47.680 of Europe has been good the US as well. What 0:00:47.760 --> 0:00:51.080 about em SO the e s I said, SI record highs, 0:00:51.120 --> 0:00:53.800 p M, IT record highs. All. The news out of 0:00:53.840 --> 0:00:55.960 em has been pretty solid too. I think the global 0:00:56.000 --> 0:00:58.480 economies are entering two thousand and eight on a reasonably 0:00:58.520 --> 0:01:00.760 strong footing Q and I think it will be quite 0:01:00.800 --> 0:01:04.240 strong um. The one area of concern I have at 0:01:04.280 --> 0:01:07.080 this stage is China. Some sense that China's economy is 0:01:07.080 --> 0:01:09.840 already starting to turn this big recovery clup swing that 0:01:09.920 --> 0:01:13.320 we saw in already starting to perhaps lose a bit 0:01:13.360 --> 0:01:15.840 of steam, and I think that could be the big 0:01:15.880 --> 0:01:17.839 story that starts to emerge over the course of theition. 0:01:17.920 --> 0:01:20.280 How do you get a lead on what's happening in China? 0:01:20.360 --> 0:01:22.639 What are the data points that give you that picture? 0:01:22.680 --> 0:01:24.760 Neil Well, the first thing is you ignore the official 0:01:25.000 --> 0:01:27.400 data because the official data are going to tell you 0:01:27.440 --> 0:01:31.040 that the economy is remarkably stable, strong and stable. Where 0:01:31.040 --> 0:01:32.880 if you've heard that before six and a half percents 0:01:32.920 --> 0:01:36.440 of that um We have our own activity proxy. Other 0:01:36.480 --> 0:01:38.840 companies have their own activity proxies to we use it. 0:01:38.920 --> 0:01:40.960 We built it from the bottom up. Gives us a 0:01:41.000 --> 0:01:42.920 real time measure of growth. Has been pretty good at 0:01:42.959 --> 0:01:45.959 tracking the cycle too. That currently puts growth at about 0:01:46.080 --> 0:01:48.520 five year on year, but that's already dying from over 0:01:48.640 --> 0:01:52.040 six percent about six months ago. Our senses, it gets 0:01:52.120 --> 0:01:54.680 below five pretty quickly by perhaps the middle of this year, 0:01:54.680 --> 0:01:56.240 and perhaps as low as four by the end of 0:01:56.320 --> 0:01:58.680 the year. So now the story was we got towards 0:01:58.800 --> 0:02:02.120 year end last year and the leaders kind of pumped 0:02:02.160 --> 0:02:05.480 up the economy for the annual get together to make 0:02:05.520 --> 0:02:07.240 things look good, and then they took the foot off 0:02:07.240 --> 0:02:10.679 the accelerators we came towards new year. Is that the 0:02:10.760 --> 0:02:13.840 reality that's part of the story. There are other things 0:02:13.919 --> 0:02:16.200 going on to Obviously, there was a bit of before 0:02:16.240 --> 0:02:18.920 the Party Congress, there's a bit of policy stimulus um. 0:02:19.080 --> 0:02:21.320 There's been a pollution cracked down in the northeast of 0:02:21.400 --> 0:02:25.320 the country. That's weighing on the industrial sector. We've had 0:02:25.400 --> 0:02:28.400 new property controls that's weighing on the construction and real 0:02:28.520 --> 0:02:31.240 estate sectors. The big story, though, the really big thing, 0:02:31.360 --> 0:02:34.400 is that potential growth trend growth in China has slowed, 0:02:34.680 --> 0:02:36.720 and we've got to get get away from the idea 0:02:36.800 --> 0:02:38.720 that China is an economy that grows at six or 0:02:38.760 --> 0:02:41.440 seven percent annually. That's just you know, it's much richer now. 0:02:41.840 --> 0:02:44.720 It's got these big structural problems over capacity, over investment. 0:02:45.280 --> 0:02:47.040 The norm for growth is going to be about three 0:02:47.120 --> 0:02:49.200 or four percent over the over the next ten years. 0:02:49.280 --> 0:02:52.079 So before we all get barish about China, tell me, 0:02:52.280 --> 0:02:53.919 do they still have the capacity just to put the 0:02:53.919 --> 0:02:56.359 foot down on the accelerator again, push up the numbers, 0:02:56.400 --> 0:02:58.080 make everything seem pretty and we all have to back 0:02:58.120 --> 0:03:00.400 off once more. They do. But the point is that 0:03:00.440 --> 0:03:02.040 you get less banged for your back each time you 0:03:02.120 --> 0:03:04.280 do that. And what's more, each time you do that, 0:03:04.440 --> 0:03:06.560 all you're gonna do is add to this ever increase 0:03:06.639 --> 0:03:09.760 in debt pile too. I think they're becoming increasingly aware 0:03:09.760 --> 0:03:11.239 of this. Don't think you'll stop them doing it this 0:03:11.280 --> 0:03:12.840 time around either. I think it probably will lose some 0:03:12.919 --> 0:03:16.320 policy later this year, but that comes with a bigger 0:03:16.360 --> 0:03:19.239 debt part, It comes with financial risks, and ultimately I 0:03:19.320 --> 0:03:21.520 think perhaps a much harder adjustment at some point. Further 0:03:21.560 --> 0:03:25.600 down the line is e m study in economics, in finance, 0:03:25.760 --> 0:03:31.040 in investment? Is it the same methods, models and reaction functions? 0:03:31.760 --> 0:03:34.239 Is ten years ago of globalization? I say this with 0:03:34.360 --> 0:03:37.400 the loss of Peter Sutherland, who had so much to 0:03:37.440 --> 0:03:40.560 do with the Uruguay round to Louisium was it was 0:03:40.600 --> 0:03:43.560 a great loss for international economics. But are we using 0:03:43.600 --> 0:03:47.400 the same models that the late Peter Sutherland uh new 0:03:47.720 --> 0:03:49.480 at the Uruguay round or is it? Is it a 0:03:49.520 --> 0:03:52.360 whole calculus now? I think it's a it's a different calculus. 0:03:52.400 --> 0:03:54.520 I mean, if you if you wind back twenty years, 0:03:54.520 --> 0:03:56.960 it was all about trade. It's all about the Washington contents. 0:03:57.040 --> 0:04:00.240 Is liberalization trade liberalization? Get your fiscal house? Is there 0:04:00.280 --> 0:04:03.280 a consensus now? But I think there's a consensus insofar 0:04:03.360 --> 0:04:06.320 as that's been good and developed growth obviously, and so 0:04:06.480 --> 0:04:09.680 deniverate growth and development. That's that's good, But much more 0:04:09.800 --> 0:04:11.880 emphasis now I think goes on the financial side and 0:04:11.880 --> 0:04:15.120 should go on the financial side. This financial liberalization opening 0:04:15.200 --> 0:04:17.920 up to capital flows, huge capital inflows can create big 0:04:18.000 --> 0:04:20.080 destate like okay, but as China, just to go to 0:04:20.240 --> 0:04:23.440 China and Mr mccross there right now, are they playing 0:04:23.960 --> 0:04:27.640 you know with the proverbial fair deal. I mean Secretary 0:04:27.680 --> 0:04:30.960 Clinton I've always given credit for for really emphasizing the 0:04:31.040 --> 0:04:35.720 word fair deal within her political economics are the is 0:04:35.760 --> 0:04:39.320 the financial flows into China and a fair is it 0:04:39.440 --> 0:04:42.160 a fair set? So in terms of financial flows, the 0:04:42.240 --> 0:04:44.479 capsitual account is pretty much closed, so you can't really 0:04:44.520 --> 0:04:46.320 get money in and out of China in the same 0:04:46.360 --> 0:04:48.839 way that you can in any other em More, indeed, 0:04:48.880 --> 0:04:51.640 the US on the trade side, obviously there are big 0:04:51.680 --> 0:04:55.200 issues the currencies managed. The government picks winners, it backs 0:04:55.279 --> 0:04:58.000 them with subsidies. UM So no, I don't think I 0:04:58.080 --> 0:05:01.200 think you know this. This is where the administration, Um, 0:05:01.320 --> 0:05:03.240 I think it has something to fall back on. There 0:05:03.360 --> 0:05:04.760 is there is a sense in which I don't think 0:05:04.800 --> 0:05:06.880 that the playing off field is level. It's almost in 0:05:07.000 --> 0:05:10.240 that medieval that's the wrong word. But how can China 0:05:10.360 --> 0:05:14.320 be a global player? How can e M have stability 0:05:14.480 --> 0:05:18.080 word of the weekend, How can they have stability if 0:05:18.120 --> 0:05:20.760 they don't allow one of the legs of the tripod 0:05:20.880 --> 0:05:24.040 to work, which is capital flows. I mean at this 0:05:24.160 --> 0:05:26.599 stage that that leg of the tripod is absolutely critical. 0:05:26.800 --> 0:05:30.760 Keeping that capital capital account closes absolutely critical because what 0:05:30.760 --> 0:05:33.600 happens if you open it up Suddenly Chinese residents can 0:05:33.640 --> 0:05:35.679 put their money elsewhere. Sudden you get this big downward 0:05:35.720 --> 0:05:38.479 pressure I think on the remmbee big caps and outflows, 0:05:39.080 --> 0:05:42.320 and that's what could ultimately I think precipitate financial problems 0:05:42.360 --> 0:05:44.560 of financial stress in China. So so the caps that 0:05:44.600 --> 0:05:47.520 account being closed at the moment is absolutely critical to Beijing. 0:05:47.560 --> 0:05:49.440 And that's why we're not going to get any liberalization 0:05:49.520 --> 0:05:53.360 on meaningful liberalization anytime soon. Well, Neil Tom's question is 0:05:53.400 --> 0:05:55.640 based on the idea that they're ready even to acquire 0:05:55.680 --> 0:05:58.040 any kind of global leadership role. It doesn't appear to 0:05:58.120 --> 0:06:00.680 me that they are. Do they want want at this 0:06:00.800 --> 0:06:02.680 point they'll see any signs that they actually want one. 0:06:02.760 --> 0:06:05.120 I think they do in certain areas, So one belt 0:06:05.200 --> 0:06:08.000 one road. They're interested in kind of creating markets for 0:06:08.120 --> 0:06:12.200 particularly Chinese industries that have had this legacy of over capacity, 0:06:12.320 --> 0:06:14.799 is a big steel construction finding markets for that stuff 0:06:14.839 --> 0:06:17.599 to go off into. They're interested in the classic trade 0:06:17.640 --> 0:06:21.280 deals um, and that's what we see with the our 0:06:21.320 --> 0:06:24.480 CEP to recept the Chinese version of TPP. Essentially it's 0:06:24.480 --> 0:06:27.520 all about trade liberalization opening up markets for China. I 0:06:27.600 --> 0:06:30.960 think they're less interested in kind of broader global leadership 0:06:31.320 --> 0:06:33.160 of the salt sort that we would think say the 0:06:33.279 --> 0:06:36.679 US or Europe taking on in terms of these classic 0:06:36.800 --> 0:06:39.000 trade deals. Classic trade deal to me is given get 0:06:39.520 --> 0:06:42.840 are they ready to give? Well, this is the question 0:06:42.880 --> 0:06:46.839 that they're they're they're ready to get. The The market 0:06:46.920 --> 0:06:51.640 access is about market access in China, particularly on the 0:06:51.720 --> 0:06:54.000 services side, that I think that Europe in particular is 0:06:54.120 --> 0:06:57.120 very interesting in and that's where we've seen a bit 0:06:57.200 --> 0:07:00.279 more reticence on on behalf of the Chinese at this stage. 0:07:00.320 --> 0:07:02.160 No Shameron always quite a can't choun with you. I'm 0:07:02.200 --> 0:07:05.280 capital he can Almos Chief American Emerging Markets Economists, No 0:07:05.440 --> 0:07:23.920 sharing alongside Tom Kine, Jonathan Farrell with this, Dan Tannebon 0:07:24.520 --> 0:07:27.840 p WC. Daniel Tannebaum is truly one of the nation's 0:07:27.920 --> 0:07:31.360 experts on the minutia of sanctions. Dan, I want you 0:07:31.440 --> 0:07:35.480 to go bigger to where we are on multilateral versus 0:07:35.840 --> 0:07:43.120 unilateral trade and sanctions and just international discussions. Peter Sutherland, 0:07:43.200 --> 0:07:47.560 the late Great Peter Sutherland dying this weekend, UH was 0:07:47.760 --> 0:07:50.480 so much part of GAT and gap a gat rather 0:07:50.920 --> 0:07:53.560 in the Uruguay round as a multilateral days a day 0:07:53.640 --> 0:07:58.000 over for the moment, it seems that the multilateral days 0:07:58.040 --> 0:08:00.920 are hanging on by a thread. Um. You know, there's 0:08:00.960 --> 0:08:04.680 still multilateral efforts at Bay. It's kind of the next 0:08:04.760 --> 0:08:08.720 steps of sanctions seem to be less multilateral, and I 0:08:08.800 --> 0:08:10.800 think you know, you saw it towards the end of 0:08:10.840 --> 0:08:13.520 the summer into the fall, a number of good multilateral 0:08:13.560 --> 0:08:15.600 actions with respect to North Korea, but some of the 0:08:15.680 --> 0:08:18.240 next steps that have been recommended by Ambassador Hailey in 0:08:18.280 --> 0:08:21.560 the u n UM have generally fallen flat. This has 0:08:21.600 --> 0:08:25.840 included efforts to designate Chinese flag vessels that were sending 0:08:25.920 --> 0:08:29.200 petroleum shipments to North Korea. The U n has generally 0:08:29.200 --> 0:08:31.840 shot that down. We haven't talked about that. So let's 0:08:31.920 --> 0:08:34.800 look there their boats out there in the stormy winter 0:08:34.960 --> 0:08:39.319 Pacific and the Chinese are ascending. Is it illegal oil? 0:08:39.520 --> 0:08:43.520 So it's not there are it's not illegal entirely. There 0:08:43.600 --> 0:08:47.360 have been certain restrictions that were in place around North 0:08:47.480 --> 0:08:52.720 Korea UM oil shipments, but they're not a hundred percent embargoes, 0:08:53.040 --> 0:08:56.800 So you know. On Friday, actually China tightened energy supply 0:08:56.880 --> 0:08:59.560 limits to North Korea. Beijing said it with limit exports 0:09:00.040 --> 0:09:02.600 of crude oil and refined petroleum to the North. Previous 0:09:02.679 --> 0:09:06.000 restrictions didn't apply to crude oil, which makes up the 0:09:06.040 --> 0:09:09.079 bulk of China's energy options that are sent to North Korea. 0:09:09.160 --> 0:09:11.720 So this is very very new. It only went into 0:09:11.760 --> 0:09:14.719 effect on Friday. UM. What you'll likely hear out of 0:09:14.760 --> 0:09:17.760 the Trump administration though, is to the Chinese government, especially 0:09:17.800 --> 0:09:19.679 with some of the tensions and the Ciffiest deals that 0:09:19.760 --> 0:09:22.280 have fallen short or Ciffius approvals that have fallen short, 0:09:22.720 --> 0:09:24.760 is prove it proved that the sanctions are actually being 0:09:24.880 --> 0:09:28.800 enforced effectively. So this is a critical question. When you 0:09:29.000 --> 0:09:32.840 hear the media and the politicians talk about your world, 0:09:33.880 --> 0:09:39.480 is it informed depends on who is talking about it. 0:09:39.559 --> 0:09:42.079 I think again, it's very easy to look at sanctions 0:09:42.120 --> 0:09:44.160 and say we're not doing business with X country. But 0:09:44.240 --> 0:09:46.000 as you know, it's a lot more nuanced than that. 0:09:46.080 --> 0:09:48.640 It's a lot more complicated in terms of what you 0:09:48.760 --> 0:09:51.120 can and cannot do. I mean, the short answer, and 0:09:51.200 --> 0:09:53.880 this is the easiest talking points, is there's no hundred 0:09:53.920 --> 0:09:57.160 percent embargo on anyone. There's always something that's carved out. 0:09:57.520 --> 0:10:00.560 Now whether everyone needs to know about this, MANU leave 0:10:00.600 --> 0:10:02.839 it to people like me who dwell over all this 0:10:02.920 --> 0:10:06.360 stuff is a different issue. But it's complicated. It's gotten 0:10:06.440 --> 0:10:08.640 more complicated. It used to be if you look at Cuba, 0:10:08.720 --> 0:10:11.040 we're not doing business with Cuba. That was largely true. 0:10:11.160 --> 0:10:13.959 Today there's no program that's quite akin to that. Just 0:10:14.240 --> 0:10:16.520 under a week ago we were at the Razia Group. 0:10:16.640 --> 0:10:19.200 We did the whole radio program from there with em Brema, 0:10:19.559 --> 0:10:21.760 the founder in chief of the Arasia Group, and in 0:10:21.880 --> 0:10:24.480 their report for risk this year, they talked about global 0:10:24.520 --> 0:10:28.440 institutions and the erosion of global institutions, and you mentioned 0:10:28.480 --> 0:10:31.120 the u N. What is the United States is placed 0:10:31.160 --> 0:10:33.040 in the u N right now? And how do they 0:10:33.040 --> 0:10:36.720 get the other permanent VITA holding members, the likes of China, Russia, 0:10:37.200 --> 0:10:41.599 France and the UK to come along with them. I 0:10:41.720 --> 0:10:45.000 think at the moment, we're perceived as just another voice 0:10:45.000 --> 0:10:47.520 at the table rather than a leading voice. I think 0:10:47.880 --> 0:10:52.360 there's been enough discussions where we've been potentially perceived to 0:10:52.400 --> 0:10:55.440 be on the wrong side of the issue. Um it's 0:10:55.679 --> 0:10:59.920 degrading our position in the u N. The challenge especially 0:11:00.040 --> 0:11:01.720 and if you look at North Korea, where the UN 0:11:01.760 --> 0:11:05.360 has been somewhat helpful in trying to create arbitrage and 0:11:05.480 --> 0:11:09.120 restricting North Korean business is the next step that we 0:11:09.320 --> 0:11:14.920 have is more larger institutions, especially those in China, being 0:11:14.960 --> 0:11:18.439 directly targeted under sanctions for supporting North Korea should that 0:11:18.520 --> 0:11:21.839 be found to be true, and that next step is 0:11:21.960 --> 0:11:24.280 something that would it would be difficult to be multi 0:11:24.400 --> 0:11:27.160 lateral on because this is evident that one nation might 0:11:27.240 --> 0:11:30.320 be bringing to the Security Council that kind of shows 0:11:30.400 --> 0:11:33.439 up another Security Council member. Some people would say that 0:11:33.600 --> 0:11:36.040 the likes of China and Russia have been a problem 0:11:36.160 --> 0:11:38.240 in terms of getting them on side of the United States. 0:11:38.360 --> 0:11:42.640 That predates the this administration, It predates the Obama administration 0:11:42.720 --> 0:11:45.679 as well. Was it a new approach needed? Was the 0:11:45.760 --> 0:11:50.160 Nicki Haley approach to the u N needed. I've always 0:11:50.200 --> 0:11:53.040 been a fan of status quo if everything was generally fine, 0:11:53.360 --> 0:11:55.839 I think we seem to be drawing further and further 0:11:55.920 --> 0:11:58.640 away from our allies on the Security councilor at least 0:11:58.679 --> 0:12:02.320 on some sort of multi e lateral views. The stage 0:12:02.360 --> 0:12:04.800 that we're at now where there was talking the u 0:12:04.880 --> 0:12:07.720 N of designating Chinese flag vessels that fell short. There's 0:12:07.760 --> 0:12:11.319 been talked for months of designating larger Chinese banks that 0:12:11.400 --> 0:12:13.800 are found to be supporting North Korean a material way. 0:12:13.920 --> 0:12:18.800 That hasn't happened yet. So there is to the many 0:12:18.880 --> 0:12:21.600 Trump supporters that we have listening, there are a lot 0:12:21.640 --> 0:12:24.760 of people listening to support parts are all of the 0:12:24.840 --> 0:12:30.199 presidents let's call it general agenda. Can can you state 0:12:30.320 --> 0:12:34.599 that we will see action on trade or is that 0:12:34.800 --> 0:12:38.439 just a fiction of of a part of America that 0:12:38.600 --> 0:12:43.080 wants certitude and action and solution to what they see 0:12:43.200 --> 0:12:46.079 is decades of grievance. I think you have begun to 0:12:46.160 --> 0:12:50.200 see action. So the Ciffiest Approval process, the quasi secretive 0:12:50.360 --> 0:12:54.679 government body that is designed to vet certain deals that 0:12:54.720 --> 0:12:57.360 have an impact on national security. In the technology space, 0:12:57.800 --> 0:13:00.640 there has been a number of trans actions that have 0:13:00.720 --> 0:13:04.240 been turned down in Ciphius of Chinese acquisition of US 0:13:04.280 --> 0:13:07.600 companies being in technology or financial services. So I think 0:13:07.800 --> 0:13:11.040 as a mechanism Siphius is being used more and more 0:13:11.160 --> 0:13:14.040 to deny trade where historically you wouldn't see some of 0:13:14.080 --> 0:13:16.640 these deals turned down. And I got this John this 0:13:16.720 --> 0:13:19.560 weekend and a question or was it the vet's third 0:13:19.679 --> 0:13:23.319 visit to the vet this weekend? Is when you when 0:13:23.360 --> 0:13:26.679 you look at what the president can do? Can he 0:13:26.880 --> 0:13:31.800 do in the Dantan Obama world? More executive orders? The 0:13:32.320 --> 0:13:34.880 important thing to note is executive orders in the sanctions 0:13:34.920 --> 0:13:37.680 space aren't new through the Obama and the Bush administration. 0:13:37.840 --> 0:13:41.960 Executive orders have been used historically to drive sanctions agendas forward. 0:13:42.480 --> 0:13:45.440 Um sanctions have generally not been legislated like they had 0:13:45.520 --> 0:13:47.560 with cats A last summer, which was actually the first 0:13:47.600 --> 0:13:49.960 time that Congress is an accurate sanction. So that's where 0:13:49.960 --> 0:13:51.559 you get rid of cats in your house. Well, so 0:13:51.880 --> 0:13:55.280 now CATS is I don't have the I can't even 0:13:55.320 --> 0:14:00.240 remember the acronym because but CATS is essentially congres sational 0:14:00.400 --> 0:14:05.439 driven economic sanctions on on North Korea, on Iran, on Russia, 0:14:06.120 --> 0:14:08.880 versus sanctions that were generated by the Treasury and State 0:14:08.920 --> 0:14:12.640 departments signed off by the executive through executive order. There 0:14:12.760 --> 0:14:14.559 is more that can be done through executive order, but 0:14:14.640 --> 0:14:17.080 that's more of the same. It Actually Obama and Trump 0:14:17.200 --> 0:14:20.440 and Bush have always used executive order to drive these 0:14:20.480 --> 0:14:24.880 types of issues. Dan Tanneba PwC Principles anxious lead fantastic 0:14:25.120 --> 0:14:28.760 And to Dan's point, Tom using Cyphius, the Committee on 0:14:28.800 --> 0:14:31.440 Foreign Investment just to hold up deals, just to hold 0:14:31.520 --> 0:14:33.640 them up. Never mind say you can't have this deal, 0:14:33.760 --> 0:14:35.320 just hold them up, keep holding them up. It makes 0:14:35.360 --> 0:14:38.000 it so difficult to do business with the United States 0:14:38.040 --> 0:14:40.440 that foreign companies might think twice. And I think that 0:14:40.600 --> 0:14:43.000 might be the message that Cyfius is trying to change. 0:14:43.320 --> 0:14:45.480 In particular, I mean one that I can think of 0:14:45.800 --> 0:14:49.400 where I think the three times they applied for approval 0:14:49.520 --> 0:14:53.800 and just kept letting the deadline lapse. Okay, d Dan Tu, 0:14:54.160 --> 0:15:09.440 thank you so much. With p WC, she has been 0:15:09.680 --> 0:15:13.320 a shining voice of market economics. She's had the huge 0:15:13.320 --> 0:15:16.560 advantage of being out of the Midwest, based in Chicago, 0:15:17.200 --> 0:15:19.640 working over the years for Bank One, mazer Rod Dance 0:15:19.720 --> 0:15:23.360 Wank Economics, and we are honored that this is her 0:15:23.440 --> 0:15:28.400 first interview with Grant Thornton with someone with a bow 0:15:28.480 --> 0:15:31.960 tie It's just very good that your first interview was 0:15:32.080 --> 0:15:37.080 someone with a bow tie. It is dance congratulations. What 0:15:37.240 --> 0:15:40.760 I what I find fascinating knowing of Grant Thornton back 0:15:40.800 --> 0:15:44.000 to I believe it was, and the merger with Thornton Baker, 0:15:44.120 --> 0:15:48.160 and you know what Grant Thornton does, which is tactical 0:15:48.400 --> 0:15:52.680 audit and tax work. So the first question McGuire has 0:15:52.720 --> 0:15:55.760 got to ask you, Grant Thornton, is this tax bill 0:15:55.880 --> 0:15:58.200 are we going to make it to April fift What 0:15:58.320 --> 0:16:01.440 did you tell the good people of Grant Thornton about 0:16:01.520 --> 0:16:06.880 the reality of their tax legislation. Well, actually, Grant Thornton 0:16:07.120 --> 0:16:09.600 is also a consulting firm and doing a lot of 0:16:09.680 --> 0:16:11.840 work with middle market. But yes, the tax bill is 0:16:11.880 --> 0:16:14.880 clearly important to them, and they've got an incredible group 0:16:15.320 --> 0:16:18.880 that does policy work and they know Washington like the 0:16:18.960 --> 0:16:21.720 back of their hand. So I mean, the tax bill 0:16:22.000 --> 0:16:25.440 is complicated. Unfortunately, there's a lot of glitches that need 0:16:25.520 --> 0:16:28.600 to be ironed out because it was done so quickly. Um, 0:16:28.760 --> 0:16:31.320 it is good news, as we've seen already for Wall Street. 0:16:31.360 --> 0:16:34.240 The question is how will the loopholes be dealt with? 0:16:34.520 --> 0:16:37.240 And that is something that Congress still has to deal 0:16:37.280 --> 0:16:39.160 with going forward as well, and it's one of the 0:16:39.280 --> 0:16:43.360 uncertainties going forward is what are the unintended consequences of 0:16:43.480 --> 0:16:45.480 some of the loopholes and how will they close them? 0:16:45.760 --> 0:16:48.120 Will they be able to close them before we get 0:16:48.200 --> 0:16:52.720 to actually enacting the tax package and people taking advantage 0:16:52.720 --> 0:16:55.560 of Let me bring in John Pharaoh l l C 0:16:55.840 --> 0:17:00.480 here to help out the CEO of Hindsight Capital. Um, 0:17:00.920 --> 0:17:03.200 Diane's always going to catch up with you. We're gonna 0:17:03.200 --> 0:17:06.639 have a really murky earning season begin with the banks 0:17:06.720 --> 0:17:08.720 on Friday. They're gonna have some one off charges and 0:17:08.800 --> 0:17:10.640 they're gonna try and give us some guidance as well. 0:17:10.960 --> 0:17:12.639 When you fold that into the kind of things you 0:17:12.760 --> 0:17:14.720 just said, how much longer is it going to take 0:17:14.800 --> 0:17:17.040 to really get a clear review of how this is 0:17:17.040 --> 0:17:19.600 going to play out? Well, actually think it's going to 0:17:19.680 --> 0:17:22.240 be a lot longer. We are seeing your already baked 0:17:22.240 --> 0:17:24.919 into the cake, of course, is that companies are going 0:17:25.000 --> 0:17:26.800 to do while off this. We've seen the one off 0:17:26.880 --> 0:17:30.040 bonuses that some companies have announced as they're going to 0:17:30.160 --> 0:17:32.560 get an advantage from this tax bill. But you made 0:17:32.600 --> 0:17:35.040 a very good point, and that is many people weren't 0:17:35.040 --> 0:17:39.240 expecting that they also had to take the charges for repatriation. 0:17:39.320 --> 0:17:42.480 Even though they don't have to repatriate their profits overnight, 0:17:42.840 --> 0:17:45.399 those charges are going to be coming right away, and 0:17:45.560 --> 0:17:47.720 I think that's a very important thing that you know, 0:17:47.840 --> 0:17:51.000 many people hadn't really counted on, and so now we're 0:17:51.040 --> 0:17:53.240 seeing that going. That's going to come through, as you said, 0:17:53.240 --> 0:17:56.840 as a murky season as people try to tease out 0:17:57.280 --> 0:18:00.320 what the tax bill is, what's real, and where the 0:18:00.359 --> 0:18:02.320 profits really are. The good news is we are in 0:18:02.359 --> 0:18:06.000 a synchronous growth global economy, and in fact we know 0:18:06.160 --> 0:18:08.840 these are essentially corporate tax cuts. This is going to 0:18:08.880 --> 0:18:11.719 be an advantage for the corporate sector. The interesting thing 0:18:11.760 --> 0:18:14.920 as well is the unintended consequences. China is already offered 0:18:14.960 --> 0:18:18.399 to way taxes if you locate there, although you have 0:18:18.600 --> 0:18:20.720 to use all your profits and reinvest them the way 0:18:20.800 --> 0:18:23.159 they say, which I wonder how many firms will actually 0:18:23.200 --> 0:18:25.920 do that, big big point. Another question I've got for 0:18:26.000 --> 0:18:28.600 you are caught up with Gary con the President's chief 0:18:28.640 --> 0:18:32.320 economic advisor, formerly of Government Sanks. Of course, Gary thinks 0:18:32.400 --> 0:18:35.320 that the market and economists are underestimated and the capex 0:18:35.359 --> 0:18:38.040 boost this tax bill could bring. This year. Um, do 0:18:38.119 --> 0:18:41.960 you share that view? Well, Capex has already come back, 0:18:42.080 --> 0:18:44.119 and so the good news is it's hard to tease 0:18:44.160 --> 0:18:47.880 out what effects the bill actually has itself. It will 0:18:48.000 --> 0:18:51.199 move some Capex boward, and we've added a little bit 0:18:51.280 --> 0:18:54.000 to growth because of the tax cuts, but the real 0:18:54.080 --> 0:18:57.240 impact has already begun because we've had synchronous growth and 0:18:57.280 --> 0:19:00.440 we're running on our cylinders. We've seen durable goods already 0:19:00.520 --> 0:19:02.480 pick up in the second half of the year. We've 0:19:02.480 --> 0:19:05.640 seen the manufacturing sector already pick up. So that all 0:19:05.720 --> 0:19:08.359 happen before the tax bill, and we'll be building on 0:19:08.480 --> 0:19:11.760 that momentum as we move forward. And I think that's 0:19:11.800 --> 0:19:14.760 the really important part is fundamentally, it's not just a 0:19:14.920 --> 0:19:17.560 tax cut that people are making decisions on. They're making 0:19:17.600 --> 0:19:22.239 decisions on underlying economic fundamentals are better now? Well are they? 0:19:22.320 --> 0:19:25.200 Can you can you tell that the clients of Grant 0:19:25.240 --> 0:19:28.040 Thornton that the President's right, we can have a sustain 0:19:28.160 --> 0:19:31.399 three percent GDP is that the outcome and the victory 0:19:31.480 --> 0:19:35.000 lap ultimately for the fire and fury of this president. 0:19:36.040 --> 0:19:39.280 Three percent sustained is very difficult to get um And 0:19:39.400 --> 0:19:41.119 in fact, in the fourth quarter we think we're going 0:19:41.160 --> 0:19:43.320 to get about two point four percent, which is the 0:19:43.400 --> 0:19:45.359 year at two and a quarter percent or so for 0:19:45.480 --> 0:19:48.320 the year or so I sustained three percent is very 0:19:48.400 --> 0:19:51.080 hard to do until unless you actually change the equation 0:19:51.119 --> 0:19:54.320 on productivity growth, and any productivity growth we get off 0:19:54.400 --> 0:19:57.679 of corporate tax reform will take years to actually um 0:19:57.800 --> 0:20:00.639 sort of materialize. We're coming off of very low levels, 0:20:00.920 --> 0:20:03.920 and we've got against us the demographics. We've got very 0:20:04.000 --> 0:20:07.440 little labor force growth, and curbs on immigration has further 0:20:07.640 --> 0:20:09.880 limited that. So we're going to have a good year. 0:20:09.920 --> 0:20:12.600 What we worry about is having a good year at 0:20:12.680 --> 0:20:15.360 the expense of future years, because these tax cuts will 0:20:15.440 --> 0:20:18.720 not pay for themselves and in fact will be higher 0:20:18.800 --> 0:20:21.520 interest rates down the road because of the rising debt 0:20:21.600 --> 0:20:25.080 and deficit. Don Swank, now the chief economist at Grant Thornton. 0:20:40.200 --> 0:20:43.800 Eric Freeman writes these terse terse notes always rich with 0:20:44.680 --> 0:20:49.040 content for US Bank and Eric, Uh, You've got a 0:20:49.160 --> 0:20:52.600 single sentence, which I think is really important in capturing 0:20:52.640 --> 0:20:55.679 the fear that so many have as we go up, up, up, 0:20:55.760 --> 0:20:59.119 melt up. Where are we nine four? I'm still not 0:20:59.240 --> 0:21:03.240 used to that number. Quote. We are paying close attention 0:21:03.320 --> 0:21:07.040 to whether risk assets can withstand to sell off in 0:21:07.240 --> 0:21:12.119 some of the leaders and strongest performers. That to me 0:21:12.320 --> 0:21:16.160 really captures it is we all understand they're these high flyers. 0:21:16.880 --> 0:21:18.680 What does the rest of the market do if the 0:21:18.760 --> 0:21:25.520 high flyers correct? Yeah, that imagery I think is important. Tom. 0:21:25.600 --> 0:21:29.800 It's almost like a relay race. Where can technology, for example, 0:21:29.880 --> 0:21:34.480 hand the baton off to um industrials or you know, 0:21:34.600 --> 0:21:37.680 telecom services are real estate obviously very small sectors. But 0:21:38.080 --> 0:21:39.720 I think the key thing, and then a lot of 0:21:39.760 --> 0:21:41.600 people are talking about it is will there be a 0:21:41.720 --> 0:21:45.680 rotation out of growth and into value? And while we 0:21:45.800 --> 0:21:50.880 still think that information technology has some solid fundamental underpinnings, 0:21:50.920 --> 0:21:54.160