WEBVTT - P&L: Training for Modern Jobs Is the Answer to Wage Stagnation 0:00:04.760 --> 0:00:08.080 Welcome to the Bloomberg P and L Podcast. I'm Pim Fox. 0:00:08.119 --> 0:00:11.200 Along with my co host Lisa Abramowitz. Each day we 0:00:11.280 --> 0:00:14.480 bring you the most important, noteworthy, and useful interviews for 0:00:14.520 --> 0:00:16.560 you and your money, whether you at the grocery store 0:00:16.800 --> 0:00:19.960 or the trading floor. Find the Bloomberg P L Podcast 0:00:20.000 --> 0:00:28.639 on iTunes, SoundCloud and at Bloomberg dot com. All right, 0:00:28.720 --> 0:00:31.280 let's go to our nation's capital and Chris Lou. He's 0:00:31.280 --> 0:00:34.080 a Deputy secretary for the Department of Labor, here to 0:00:34.120 --> 0:00:37.720 tell us more about the just released at eight thirty 0:00:37.720 --> 0:00:42.160 Wall Street time November payroll report. Deputy Secretary Lou, thanks 0:00:42.240 --> 0:00:44.120 very much for being with us. Thank you for having me. 0:00:44.159 --> 0:00:46.880 All right, so just give us the specific details and 0:00:46.880 --> 0:00:49.279 then we'll get into things like the participation rating song. 0:00:49.400 --> 0:00:52.720 But the one and seventy eight thousand on the payroll 0:00:52.760 --> 0:00:55.800 and four point six on unemployment. One seventy eight thousand 0:00:55.920 --> 0:00:59.040 jobs that created in the month in November. That essentially 0:00:59.080 --> 0:01:03.200 matches the average that we've had during over the past 0:01:03.400 --> 0:01:07.760 seventy four months. We've created fifteen point six million private 0:01:07.800 --> 0:01:11.640 sector jobs. That continues the longest trip of job creation 0:01:11.680 --> 0:01:14.360 in history. As you said, four point six percent unemployment. 0:01:14.720 --> 0:01:17.960 Uh that's the lowest than the August of two thousand seven. 0:01:18.440 --> 0:01:20.280 Uh in comparison to where we were at the peak 0:01:20.319 --> 0:01:23.360 of the recession about ten percent. Well, so what do 0:01:23.440 --> 0:01:26.959 you say about the wages? I mean, we were hearing 0:01:27.000 --> 0:01:31.640 earlier from Bloomberg Intelligence is Carl Rickadonna about how perhaps 0:01:31.720 --> 0:01:35.399 the decline in wages that we saw in November was 0:01:35.440 --> 0:01:37.840 really due to a quirk really in October, so it 0:01:37.920 --> 0:01:41.240 was not such a big deal. But still, why has 0:01:41.319 --> 0:01:45.880 there been such a lack of momentum in wage growth? Well, look, 0:01:45.920 --> 0:01:49.280 you're right, there was an uptick in November that some 0:01:49.360 --> 0:01:52.320 of that pulled back. So over the past twelve months 0:01:52.360 --> 0:01:55.559 wages have grown two point five p m. That's good, 0:01:55.640 --> 0:01:57.600 but it's only to be better when you consider the 0:01:57.680 --> 0:02:01.600 long term stagnational wages that most workers have felt. You know, 0:02:01.640 --> 0:02:03.960 when you take a look at this long term trend 0:02:04.000 --> 0:02:07.760 though in for instance, the household income grew by the 0:02:07.880 --> 0:02:11.480 fastest amount and records, So, um, the trend is going 0:02:11.480 --> 0:02:14.200 in the right direction, but clearly much more needs to 0:02:14.200 --> 0:02:16.320 be done, which is why the President continues to call 0:02:16.360 --> 0:02:18.720 for increase in the minimum wage while we're pushing to 0:02:18.760 --> 0:02:22.120 provide greater overtime protection to American workers. Have have you 0:02:22.200 --> 0:02:25.239 done any workers or maybe just give us your perspective 0:02:25.320 --> 0:02:28.000 on the ability for companies to pass along the price 0:02:28.080 --> 0:02:31.520 increases that they may experience if they do increase wages, 0:02:31.560 --> 0:02:35.360 because many companies are now able to avail themselves of 0:02:35.440 --> 0:02:38.960 labor saving technology, which means that they don't even have 0:02:39.120 --> 0:02:44.120 to worry about passing along those increased wage costs. Well, 0:02:44.160 --> 0:02:47.040 what has been interesting, and today the White House released 0:02:47.040 --> 0:02:50.280 the new reports showing how the minimum wage increases that 0:02:50.360 --> 0:02:52.960 have um gone into effect in a number of states 0:02:53.000 --> 0:02:55.760 have not led to any decline and employment. And you 0:02:55.840 --> 0:02:58.760 actually see many companies raising wages. That's what happens when 0:02:58.800 --> 0:03:01.560 you have unemployment at for point six. In order to 0:03:01.600 --> 0:03:04.240 attract the workers you need and keep them, wages are 0:03:04.280 --> 0:03:06.000 going to go up and that you you start to 0:03:06.040 --> 0:03:08.720 see that trend over the last couple of years. UM. 0:03:08.760 --> 0:03:12.440 One thing that has been talked about is that the 0:03:12.520 --> 0:03:16.480 job growth among millennials, among the younger generation just as 0:03:16.560 --> 0:03:20.480 lagged behind UM. How concerned are you about that? What? 0:03:20.480 --> 0:03:22.720 What kind of information did you kind of glean from 0:03:22.720 --> 0:03:24.960 this report? Well, I'm not sure, right, I'm not sure 0:03:25.000 --> 0:03:27.040 there's anything particularly in this report. Although I think your 0:03:27.080 --> 0:03:30.600 point is an important one. It's not only meant millennials 0:03:30.639 --> 0:03:34.240 who are unemployed, it's millennials who are underemployed as well. Um, 0:03:34.280 --> 0:03:36.000 you know, we're in the middle of kind of longer 0:03:36.160 --> 0:03:40.200 term changes in the demographics of the workforce. You have 0:03:40.320 --> 0:03:43.600 older workers who are staying longer, which is probably diminishing 0:03:43.640 --> 0:03:46.560 opportunities for younger workers. You have more young people in 0:03:46.720 --> 0:03:49.640 school that weren't thirty years ago, and it's one of 0:03:49.640 --> 0:03:52.240 the reasons why labor force participation is where it is 0:03:52.360 --> 0:03:54.280 right now. Well, that's what I was going to ask 0:03:54.280 --> 0:03:57.200 you next, is so if it sounds all great, then 0:03:57.200 --> 0:04:01.280 why is the labor force participation rate at the lowest 0:04:01.440 --> 0:04:06.920 level since nine eight? Well, again, you know, it's it's 0:04:06.960 --> 0:04:08.960 hard to it's hard, and this has been a long 0:04:09.080 --> 0:04:11.080 term trend. I mean, with all due respect, I mean, 0:04:11.120 --> 0:04:13.880 you know this is a move lower from a rate 0:04:14.080 --> 0:04:17.000 last month of sixty two point eight percent. Okay, now 0:04:17.040 --> 0:04:18.880 this is sixty two point seven. But this has been 0:04:18.920 --> 0:04:21.200 a long term trend. You're right, it's been a longer 0:04:21.279 --> 0:04:23.080 term training over the last forty years where you've seen 0:04:23.120 --> 0:04:25.320 the drop in the labor force participation. In part, it's 0:04:25.320 --> 0:04:27.640 because you have more people UM now who are in 0:04:27.720 --> 0:04:30.640 school that um weren't in school before. You have people 0:04:31.160 --> 0:04:33.720 older workers, some working long or some not working as long. 0:04:33.960 --> 0:04:37.080 It does speak to the importance of sensible policies to 0:04:37.120 --> 0:04:39.920 get people off the sidelines and into the workforce. One 0:04:39.920 --> 0:04:41.240 of the ways we know that you can do that 0:04:41.360 --> 0:04:43.880 is through paid leaf policies. We have far too many 0:04:44.400 --> 0:04:47.680 UM women who are not working UH and staying at home. 0:04:47.720 --> 0:04:50.600 And I shouldn't say women, fathers and mothers who are 0:04:50.600 --> 0:04:54.119 staying at home who's through sensible paid leaf policies would 0:04:54.120 --> 0:04:56.120 be able to work again. It was certainly seen that 0:04:56.120 --> 0:04:58.560 happen in other countries. So you were talking about how 0:04:58.680 --> 0:05:01.960 the increase in wage UH, the increase in wages has 0:05:01.960 --> 0:05:04.520 been about two point five over the past twelve months. 0:05:04.839 --> 0:05:07.039 What's your projection for the next twelve months of what 0:05:07.160 --> 0:05:09.720 those how much those wages will increase. Well, I'm not 0:05:09.760 --> 0:05:11.520 sure I can make a projection. I will tell you though, 0:05:11.560 --> 0:05:13.880 that UM, when you have an economy that is at 0:05:13.880 --> 0:05:16.800 four point six percent unemployment, you would expect to see 0:05:16.920 --> 0:05:20.840 continued wage growth simply as employers need to pay more 0:05:20.880 --> 0:05:24.000 to keep more workers. But again, whether it's two and 0:05:24.040 --> 0:05:25.680 a half percent or three and a half percent, that's 0:05:25.720 --> 0:05:27.680 just not enough. I mean, we need there's been a 0:05:27.720 --> 0:05:30.719 longer term wage stagnation that's happened over the last couple 0:05:30.760 --> 0:05:33.120 of decades. The President is called for an increase in 0:05:33.120 --> 0:05:35.320 the minimum wage. It's one of the reasons why we're 0:05:35.320 --> 0:05:39.839 pushing to increase the overtime salary thresholds. But more broadly, 0:05:39.920 --> 0:05:42.760 why we are as focused as we are on training 0:05:42.760 --> 0:05:45.320 people for the good paying jobs of the twenty first century, 0:05:45.320 --> 0:05:49.000 whether it's advanced manufacturing, I T healthcare, that is really 0:05:49.040 --> 0:05:53.960 the ultimate solution to wage stagnation. If that's the solution 0:05:54.000 --> 0:05:56.320 to wage stagnation, I just want to bring your attention 0:05:56.360 --> 0:05:59.159 back to that labor force participation rate. I mean, it's 0:05:59.160 --> 0:06:02.479 been declining, but it's been declining from two thousand Before 0:06:02.520 --> 0:06:06.400 that it was rising. So for the following sixteen years, 0:06:07.320 --> 0:06:11.719 for the two four year terms of President Obama, we've 0:06:11.800 --> 0:06:15.560 we've seen a small uptick in two thousand five, but 0:06:15.640 --> 0:06:18.119 then a precipitates dropped. Do you think that that's because 0:06:18.160 --> 0:06:22.760 of the increased availability of credit inexpensive credit? You know, 0:06:22.800 --> 0:06:25.080 I'm not sure I would I would claim that as 0:06:25.120 --> 0:06:27.480 a reason as much as the demographic changes we've seen 0:06:27.480 --> 0:06:29.280 in the country. But you're right. I mean, whether it's 0:06:29.720 --> 0:06:32.880 UH mothers and fathers who would be working but aren't 0:06:32.880 --> 0:06:35.240 because of the lack of paid leave policy, whether it's 0:06:35.279 --> 0:06:39.840 younger people who can't find employment or who are underemployed. UM, 0:06:39.880 --> 0:06:43.000 there are broader demographic issues that we need to address. 0:06:43.800 --> 0:06:47.719 UM going forward, what are you sort of looking for 0:06:47.800 --> 0:06:52.679 with respect to where jobs are, where people are gaining jobs, 0:06:52.720 --> 0:06:54.560 and what are you hoping for. What's the best case 0:06:54.600 --> 0:06:58.160 scenario for employment rates over the next year? And well, 0:06:58.920 --> 0:07:00.840 I would tell you that, I mean this past month, 0:07:00.960 --> 0:07:06.480 we have seen a strong growth and professional business services, UH, construction, healthcare, 0:07:06.920 --> 0:07:09.240 particularly when you look at healthcare UM, that's been a 0:07:09.360 --> 0:07:13.080 long term positive trend. UM. I would note that since 0:07:13.120 --> 0:07:16.080 the passage of the Affordable Care Act, we've created two 0:07:16.080 --> 0:07:18.640 million jobs in the healthcare sector. So there are many 0:07:18.680 --> 0:07:21.240 many jobs that continue to do well. We know how 0:07:21.280 --> 0:07:23.680 to get some of these other ones kick started. One 0:07:23.720 --> 0:07:27.560 of them is through a long term UM infrastructure built, 0:07:27.600 --> 0:07:30.400 which not only creates good paying construction jobs, but good 0:07:30.400 --> 0:07:34.320 paying manufacturing jobs as well. Chris Leu thank you so 0:07:34.400 --> 0:07:49.840 much for joining US. Unbridled optimism has been the key 0:07:49.880 --> 0:07:53.520 to stock markets since the US election when Donald Trump 0:07:53.640 --> 0:07:56.320 was selected as the next president of the US. Will 0:07:56.440 --> 0:07:59.400 it continue with us? Here is Peter Kenny, senior market 0:07:59.440 --> 0:08:04.640 strategist at Global Markets Advisory Group. He has been in 0:08:04.680 --> 0:08:07.400 the market for more than three decades. He sits on 0:08:07.440 --> 0:08:11.280 the boards of companies, he advises governments. Uh, Peter, you 0:08:11.280 --> 0:08:14.920 have a good read on markets. How are the people 0:08:14.960 --> 0:08:18.000 you're talking about allocating now and are they shifting after 0:08:18.040 --> 0:08:21.160 the U s election? Well, I think it's very interesting, Lisa. 0:08:21.440 --> 0:08:27.200 We're seeing several major themes really impacting US equities specifically, 0:08:27.320 --> 0:08:29.840 and the largest of those themes, of course, is the 0:08:29.960 --> 0:08:34.160 rotation out of dead instruments and into equities because of 0:08:34.240 --> 0:08:37.840 the the expectation that as a result of the stimulus 0:08:37.880 --> 0:08:42.080 provided by the incoming Trump administration, you will see some 0:08:42.480 --> 0:08:46.000 very significant gains in sectors of the economy that have 0:08:46.160 --> 0:08:50.120 really not really generated a lot of investor enthusiasm. And 0:08:50.160 --> 0:08:54.600 I'm speaking specifically of infrastructure and defense areas where we 0:08:54.720 --> 0:08:57.600 have over the lay of state you've seen tremendous performance 0:08:57.640 --> 0:09:01.000 and investor enthusiasm. Like large cap tech probably going to 0:09:01.040 --> 0:09:06.680 be an underperforming sector moving forward, at least in time frame. Peter, 0:09:06.720 --> 0:09:08.280 I want to just press you a little bit here 0:09:08.320 --> 0:09:11.959 because this idea of infrastructure spending and more spending and 0:09:12.080 --> 0:09:14.920 the defense and aerospace industry, I mean I got that. 0:09:15.040 --> 0:09:17.440 You can read that in the headlines, but the details 0:09:17.480 --> 0:09:18.800 are that none of that money is going to be 0:09:18.880 --> 0:09:22.199 allocated unless it is proposed and then ratified and passed 0:09:22.200 --> 0:09:26.920 by the House and the Senate. That could take quite 0:09:27.040 --> 0:09:30.920 a while. And last time I checked stock markets, they 0:09:30.960 --> 0:09:33.120 love to buy the rumor and they love to sell 0:09:33.160 --> 0:09:36.600 the news. You hit the nail on the head. Markets, 0:09:36.760 --> 0:09:41.440 particularly those sectors, are way ahead of themselves. I wrote 0:09:41.480 --> 0:09:44.480 a piece way overbought, way overbought. I wrote a piece 0:09:44.480 --> 0:09:46.920 two days before the election. I said, by infrastructure, by 0:09:46.960 --> 0:09:50.080 US steel bar by Martin Marietta. US steel in the 0:09:50.160 --> 0:09:54.440 last four weeks is up seventy and it was up 0:09:54.480 --> 0:09:56.520 a lot before because of those towiffs that had been 0:09:56.520 --> 0:09:59.760 previously imposed because of the cheap imports. When you see 0:09:59.760 --> 0:10:04.280 am of your wise to take some money off the table, 0:10:06.480 --> 0:10:11.160 I mean it's should There's no technical or fundamental reason 0:10:11.240 --> 0:10:12.840 to own something in that with that kind of a 0:10:12.840 --> 0:10:15.960 move in four weeks in my in my opinion, now, 0:10:16.120 --> 0:10:19.199 I do think that you're right about the infrastructure over 0:10:19.840 --> 0:10:22.880 this degree of over enthusiasm for the for the space, 0:10:23.000 --> 0:10:25.600 and we are going to probably see some modulation in 0:10:25.640 --> 0:10:28.880 that performance and probably a reset lower in the near term, 0:10:28.920 --> 0:10:31.520 but in the longer term, I do think it's a 0:10:31.559 --> 0:10:34.559 trend that investors must pay attention to. You know, you 0:10:34.800 --> 0:10:38.960 started talking about the rotation out of fixing co instruments 0:10:39.040 --> 0:10:43.240 into equities. How much has that gone on already? I mean, 0:10:43.320 --> 0:10:45.000 is this is this sort of some a trend that 0:10:45.040 --> 0:10:49.600 will gain momentum and accelerat Yes, okay, so I uh, 0:10:49.760 --> 0:10:52.880 let's see November where was the worst month? I mean 0:10:52.920 --> 0:10:55.920 it was an absolute and you know you you at 0:10:56.000 --> 0:10:58.600 least you cover it was. Yeah, it was the worst 0:10:58.679 --> 0:11:01.520 month on record. And depending on benchmark, you had that 0:11:01.559 --> 0:11:04.200 on a safe get key for for your columns. I 0:11:04.240 --> 0:11:07.880 think worst month, worst month, yeah, no, of course, yeah, yeah, 0:11:08.080 --> 0:11:13.640 best worst. So absolutely you were spot on absolutely a 0:11:13.679 --> 0:11:16.959 blood path. Now will that continue? I don't think to 0:11:17.040 --> 0:11:19.520 that degree we're not going to see that's sort of 0:11:19.640 --> 0:11:23.760 dramatic turn in velocity in terms of rotation, but it's 0:11:23.760 --> 0:11:26.959 a trend um and I do think it's a trend 0:11:27.000 --> 0:11:32.199 that is going to fuel equity market appreciation because that 0:11:32.320 --> 0:11:35.280 rotation into equities and out of debt instruments is going 0:11:35.320 --> 0:11:38.600 to be dramatic. Well, can I just challenge that. One 0:11:38.720 --> 0:11:40.760 measure that I look at is the earnings yield in 0:11:40.760 --> 0:11:43.719 the spire and I compare that to uh say, ten 0:11:43.800 --> 0:11:45.920 year treasury yields, and you can see that that gap 0:11:46.000 --> 0:11:49.520 the extra yield that stocks are paying above benchmark bonds 0:11:49.679 --> 0:11:52.720 has narrowed to the lowest since two tent At what 0:11:52.800 --> 0:11:55.200 point are people going to say, look, sort of looking 0:11:55.240 --> 0:11:58.280 to stocks as a as a yielding investment doesn't cut 0:11:58.320 --> 0:12:00.680 it anymore. Maybe I'd be better off than treasure. Okay, 0:12:00.800 --> 0:12:03.400 great point, But I don't think that that's the way 0:12:03.440 --> 0:12:05.560 people look at equities. I think the way people look 0:12:05.600 --> 0:12:08.959 at equities is, hey, there's an opportunity here for price 0:12:08.960 --> 0:12:14.520 appreciation away from yield, and that expectation is what's driving 0:12:14.520 --> 0:12:20.160 this investor enthusiasm. And oftentimes enthusiasm is not a wise 0:12:20.679 --> 0:12:23.840 investment strategy, but you have to be able to identify 0:12:23.880 --> 0:12:26.400 it to take advantage of it. I'm just looking at 0:12:26.440 --> 0:12:28.880 things like CD rates, right, I mean, you know, no 0:12:28.920 --> 0:12:31.160 one ever even talked about CD rates over the last 0:12:31.200 --> 0:12:36.040 what eight ten years one point eight eight five percent. 0:12:36.600 --> 0:12:39.480 If you want to get something from a synchrony, that's 0:12:39.520 --> 0:12:43.600 the former Capital Bank com minimum balance two thousand dollars 0:12:44.320 --> 0:12:49.120 one point eight five percent got open to account. So 0:12:49.840 --> 0:12:51.560 you're gonna see more people do that or should they 0:12:51.600 --> 0:12:54.400 just wait a little bit and see what happens. Don't 0:12:54.400 --> 0:12:58.040 make any big decisions right now. I think it would 0:12:58.040 --> 0:13:01.920 be a mistake to make to draw line in the sand. 0:13:02.320 --> 0:13:04.200 But you are going to see you are going to 0:13:04.240 --> 0:13:07.520 see people putting money into instruments, even as short lived 0:13:07.559 --> 0:13:11.440 is one year, because frankly, they're accustomed to something that 0:13:11.600 --> 0:13:14.720 is significantly lower in yield, and it's abtractive. Even at 0:13:14.960 --> 0:13:18.280 one point one, it's very very attractive. It's a place 0:13:18.320 --> 0:13:20.839 to park money until you can guarantee it's guarantee and 0:13:20.840 --> 0:13:24.080 its guarantee. You know. One thing that surprises me is um, Peter, 0:13:24.080 --> 0:13:25.720 you not the first person to talk about this rotation 0:13:25.760 --> 0:13:28.840 out of bonds and its stocks. I don't understand about 0:13:28.840 --> 0:13:30.760 all the cash people were talking about that was slashing 0:13:30.760 --> 0:13:33.640 around the portfolios. Why isn't it as that like are 0:13:33.679 --> 0:13:36.080 you know and and are you seeing people actually just 0:13:36.200 --> 0:13:39.600 using their cash to be more fully invested in the market. 0:13:40.040 --> 0:13:44.480 An interesting study was released by csfb UH two days ago. 0:13:45.640 --> 0:13:49.920 In the study, it was highlighted that the average r 0:13:50.040 --> 0:13:57.760 I A is UH currently modeling fifty in equities and 0:13:57.920 --> 0:14:03.280 the balance in debt instruments UM. That is well below 0:14:03.360 --> 0:14:09.360 the historical norm exactly, and that alone speaks to a 0:14:09.440 --> 0:14:11.800 shift in the way people are looking at the opportunity 0:14:11.840 --> 0:14:15.200 in equity markets. And I think that is going to 0:14:16.160 --> 0:14:19.160 that's gonna turn over time. And it's it's not that 0:14:19.200 --> 0:14:21.440 there's no room for dead instruments in your portfolio. For 0:14:21.480 --> 0:14:24.480 heaven's sakes, you have to have them. There's a certainty there, 0:14:24.600 --> 0:14:27.000 there's a yield there that you can bank on. But 0:14:27.120 --> 0:14:30.160 I do think that people are going to step one 0:14:30.360 --> 0:14:34.560 or two three steps outside that that what what they've 0:14:34.600 --> 0:14:38.640 perceived to be an acceptable norm for risk. Peter Kennedy 0:14:38.720 --> 0:14:40.440 just quickly, I was looking at the thirty year right 0:14:40.480 --> 0:14:43.280 now trades at three point oh five percent, the ten 0:14:43.360 --> 0:14:47.560 year trades at two point three eight. You think short term, 0:14:47.640 --> 0:14:49.960 let's say you know, next quarter, we're going to see 0:14:49.960 --> 0:14:54.080 your back up in rates. I actually I do. I 0:14:54.520 --> 0:14:56.560 think you're right I think we will see you back 0:14:56.640 --> 0:14:59.360 up in rates. And I think that we've seen such 0:14:59.400 --> 0:15:01.440 a move in such a short period of time that 0:15:01.600 --> 0:15:04.680 you know, the reversion to the mean always plays plays 0:15:04.680 --> 0:15:07.840 a role in whether it's you're talking about debt yields, 0:15:07.880 --> 0:15:10.680 whether you're talking about equities, it's it's it's whenever you 0:15:10.760 --> 0:15:12.840 see that that kind of a move, you you've got 0:15:12.840 --> 0:15:26.840 to see a reversion. But I want to bring in 0:15:26.880 --> 0:15:31.880 Alberto Gallo, portfolio managing manager and head of macro Strategies 0:15:32.440 --> 0:15:36.720 at Algebras Investments in London. Alberto, thank you so much 0:15:36.760 --> 0:15:40.000 for being with us. Good morning, Good morning. So first 0:15:40.040 --> 0:15:41.480 I want to I want to talk about sort of 0:15:41.480 --> 0:15:45.440 the movement that we saw yesterday in UH in German 0:15:45.480 --> 0:15:48.400 bond yields, in particular yields climbing to the highest of 0:15:48.440 --> 0:15:52.720 the year. UM. Do you think that the ECB will 0:15:52.880 --> 0:15:55.080 start tapering in the near future and do you think 0:15:55.120 --> 0:15:59.680 that UH markets are adequately prepared for that. I do 0:15:59.800 --> 0:16:03.640 say they have discussed tapering. They will extend the maturity 0:16:03.680 --> 0:16:07.560 of quantity division from March two seventeen to September or 0:16:07.560 --> 0:16:13.160 perhaps December two thousand seventeen, and they will taper after that, 0:16:13.320 --> 0:16:16.840 so it's an extension of maturity and then tapering. They 0:16:16.920 --> 0:16:19.840 cannot talk about it. They are afraid of spook in 0:16:19.880 --> 0:16:22.480 the market. It's like fight club. You know, you can't 0:16:22.520 --> 0:16:26.360 talk about fight club, but they have to do it. 0:16:26.960 --> 0:16:31.000 Data is better, growth is better, inflation across across the 0:16:31.040 --> 0:16:34.600 eurosone despite the fears about various selections and votes that 0:16:34.640 --> 0:16:37.680 we see. So they're getting closer to their target. And 0:16:37.720 --> 0:16:40.600 also remember Mario drugg is going to finish his mandates 0:16:40.760 --> 0:16:44.920 in January two, so there needs to be a transition 0:16:45.000 --> 0:16:48.160 from eighty billion euros purchases per month to something a 0:16:48.200 --> 0:16:52.280 lot to something lower um. I think market expectations are 0:16:52.360 --> 0:16:54.120 very high on the e c b UM. There's a 0:16:54.160 --> 0:16:58.560 lot of investors still thinking about Queen infinity, about central 0:16:58.560 --> 0:17:02.200 banks buying ussets forever um, and everyone is long bonds, 0:17:02.240 --> 0:17:06.080 so people both bonds for capital gains and equities for 0:17:06.080 --> 0:17:08.920 for yield and it doesn't work. This trade is over 0:17:09.080 --> 0:17:12.600 and the rotation is is just starting alright, So that 0:17:12.760 --> 0:17:16.600 rotation is starting. Alberto Gallo, who's going to buy all 0:17:16.680 --> 0:17:19.639 the debt of all the banks in Europe? Where is 0:17:19.640 --> 0:17:21.679 it going to go? And how is the banking system 0:17:21.720 --> 0:17:26.520 going to survive. Well, let's remember that we still have 0:17:26.960 --> 0:17:30.119 the liquidity assistance facility of the c B, the t 0:17:30.280 --> 0:17:32.960 L t r O in jargon, which means ec we 0:17:33.000 --> 0:17:36.280 can still lend two banks close to the deposit rate 0:17:37.280 --> 0:17:39.639 which is a very very low rat from near zero basically, 0:17:39.680 --> 0:17:44.119 I mean banks normally with banks normally with pay, but 0:17:44.200 --> 0:17:45.680 with the t L t r O they don't pay. 0:17:45.720 --> 0:17:49.320 Actually they receive some money. Um they get paid for 0:17:49.400 --> 0:17:54.960 borrowing correct from d CB. So especially if they're lending 0:17:55.040 --> 0:17:58.760 so effectively. The liquidity across European banks is fine that 0:17:58.800 --> 0:18:02.000 there is no run on deposits. The problem, however, that 0:18:02.040 --> 0:18:05.120 we have in some regions is capital, So banking systems 0:18:05.119 --> 0:18:08.960 that need to um show up capital and consolidate and 0:18:09.000 --> 0:18:13.760 improve their profitability. Alberto, how are you positioning heading into 0:18:13.840 --> 0:18:18.960 this stretch of popular discontent? We have the Italian referendum 0:18:19.040 --> 0:18:21.959 on Sunday night, followed by the Austrian election, followed by 0:18:22.520 --> 0:18:25.640 uh what promises to be a very interesting French election, 0:18:26.080 --> 0:18:31.520 just a lot of political uncertainty. How are you positioning? Well? 0:18:31.560 --> 0:18:35.920 I would say that after the Brexit vote and after 0:18:36.040 --> 0:18:39.560 after the US elections, which poll agency has got wrong. 0:18:40.000 --> 0:18:45.000 Every investor has been very heavily hedging for the Italian 0:18:45.080 --> 0:18:48.440 vote this Sunday and the Austrian vote as well, so 0:18:48.800 --> 0:18:50.399 it's also at the end of the year, so everyone 0:18:50.520 --> 0:18:54.480 is very long cash and very very short on on 0:18:54.560 --> 0:18:57.680 Italy or generally on Europe. So we we have been 0:18:57.840 --> 0:19:01.160 we have been very light on on Italy until last 0:19:01.200 --> 0:19:04.119 week where we saw some headlines talking about bank failures 0:19:04.200 --> 0:19:08.000 and things that were extremely catastrophic, which we're not really 0:19:08.040 --> 0:19:10.720 painting the true picture. The true picture is lack of capital, 0:19:11.359 --> 0:19:14.600 is some profitability issues. But actually the vote the Yes 0:19:14.720 --> 0:19:17.320 novel is very close to fifty fifty and the market 0:19:17.359 --> 0:19:21.240 is pricing a percent probability of a no. So I 0:19:21.280 --> 0:19:24.200 think here you're supposed to be a bit more optimistic 0:19:24.280 --> 0:19:28.159 because if the poll is wrong again and actually you 0:19:28.200 --> 0:19:30.679 have a yes win for the change in the constitution, 0:19:30.720 --> 0:19:34.240 this opens up the road to a lot of reforms, 0:19:34.280 --> 0:19:37.680 to a lot of change which Italian governments weren't weren't 0:19:37.720 --> 0:19:41.400 able to do over the last thirty years. So we're 0:19:41.480 --> 0:19:45.000 cauxiously optimistic here against the market that has gone one way. 0:19:45.080 --> 0:20:01.000 Perish Caffeine Coffee International expand Shin Are you gonna are 0:20:01.040 --> 0:20:03.760 you gonna find me coffee and give me an option 0:20:03.840 --> 0:20:08.040 for international expansion? Well, if you happen to be at Starbucks, 0:20:08.080 --> 0:20:10.119 I mean you might be able to qualify. You know 0:20:10.160 --> 0:20:13.560 that they have over I think it's over four locations 0:20:13.680 --> 0:20:16.760 in China, and it's they want to expand even further 0:20:16.800 --> 0:20:20.600 in Asia. I bet you knew that at anyway, I 0:20:20.640 --> 0:20:21.919 was going to say the reason I think you know 0:20:21.960 --> 0:20:24.880 that is because Bloomberg Gatflight Columns. Shelley Banjo is sitting 0:20:25.040 --> 0:20:27.000 right next to you, and she's here to tell us 0:20:27.040 --> 0:20:31.600 all about Starbucks, Starbucks whisper our Starbucks Whisper and Howard 0:20:31.680 --> 0:20:35.320 and Howard Schultz, who is the founder of Starbucks. He 0:20:35.560 --> 0:20:38.399 is turning over the reins the CEO rains rather to 0:20:38.640 --> 0:20:41.119 Kevin Johnson. Shelley, thanks for being with us, tell us 0:20:41.119 --> 0:20:43.359 about this, Thanks so much for having me. Yes, this 0:20:43.520 --> 0:20:48.080 was big news yesterday. Um, you know this guy is 0:20:48.119 --> 0:20:53.560 synonymous with Starbucks. He built Starbucks and Howard. Yes, rags 0:20:53.720 --> 0:20:56.160 really almost a Rags the Richest story. It's an amazing 0:20:56.240 --> 0:20:59.600 story and and people are right to worry about what's 0:20:59.640 --> 0:21:02.080 going to happened because we've seen this story before. He 0:21:02.280 --> 0:21:05.440 left the company between two thousand and two thousand and eight, 0:21:05.640 --> 0:21:08.560 and it did not do very well. Their sales tank, 0:21:08.680 --> 0:21:12.000 the stock tanked, everything was kind of a mess. Um 0:21:12.160 --> 0:21:14.800 went through a couple of CEOs, and during the recession, 0:21:14.840 --> 0:21:16.960 he said, I'm coming back and I'm going to write 0:21:16.960 --> 0:21:19.679 it right right these wrongs, and he did, and he 0:21:19.720 --> 0:21:22.040 turned it around and now it's doing really well. And 0:21:22.080 --> 0:21:24.320 so people are worried what's going to happen now once 0:21:24.680 --> 0:21:27.000 once he's gone, But he says that this time is 0:21:27.040 --> 0:21:29.280 different that previously he left at the beginning of the 0:21:29.320 --> 0:21:33.240 cataclysmic financial crisis UM, and that now things are different. 0:21:33.280 --> 0:21:36.080 Let's talk about one thing that's different. Kevin Johnson, who 0:21:36.280 --> 0:21:39.960 is coming in to fill his shoes. He's a thirty 0:21:40.040 --> 0:21:42.560 three year veteran of the tech industry, joined the company 0:21:42.680 --> 0:21:45.399 last year. What are his challenges going forward and what 0:21:45.440 --> 0:21:49.080 does he bring. Kevin Johnson has a really close relationship 0:21:49.200 --> 0:21:51.800 with Howard Schultz, so they you know, they've really forged 0:21:51.880 --> 0:21:54.640 this relationship over the past couple of years, and he's 0:21:54.640 --> 0:21:57.240 been he's a tenured executive. He was at Microsoft for 0:21:57.240 --> 0:21:59.439 a really long time. He brought a lot of the 0:21:59.440 --> 0:22:02.840 tech stuff to Starbucks that has really helped them and 0:22:03.160 --> 0:22:05.280 kind of been ahead of the curve for Starbucks. So 0:22:05.440 --> 0:22:08.080 it isn't kind of a knock on Kevin Johnson. It's 0:22:08.160 --> 0:22:10.919 just well, what's going to happen? Now? You know? Schultz 0:22:11.000 --> 0:22:13.600 has this kind of gravitas, He's he's looked upon as 0:22:13.680 --> 0:22:17.199 this genius, and so Kevin Johnson is an operator, and 0:22:17.280 --> 0:22:20.080 so do you need that kind of genius or do 0:22:20.119 --> 0:22:22.800 you need the operator at this point in Starbucks? Is 0:22:23.000 --> 0:22:25.600 you know kind of trajectory. I just want to correct myself. 0:22:25.600 --> 0:22:27.520 I said that Johnson joined last year. He became the 0:22:27.600 --> 0:22:30.280 chief operating officer last year, but he joined the Starbucks 0:22:30.280 --> 0:22:32.639 board in two nine. Correct, Yeah, he's been drinking the 0:22:32.640 --> 0:22:36.080 coffee for a for a lot longer. Can we just 0:22:36.240 --> 0:22:38.359 I just want to offer you just a moment or 0:22:38.400 --> 0:22:41.399 two to talk a little bit about Howard Schultz and 0:22:41.640 --> 0:22:47.680