1 00:00:00,040 --> 00:00:02,640 Speaker 1: Who you put your trust in matters. Investors have put 2 00:00:02,680 --> 00:00:07,000 Speaker 1: their trust and independent registered investment advisors to the two 3 00:00:07,040 --> 00:00:10,680 Speaker 1: and four trillion dollars. Why learn more and find your 4 00:00:10,760 --> 00:00:26,360 Speaker 1: independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:26,760 --> 00:00:30,480 Speaker 1: I'm Tom Keene with David Gura. Daily we bring you 6 00:00:30,520 --> 00:00:35,560 Speaker 1: insight from the best in economics, finance, investment, and international relations. 7 00:00:35,960 --> 00:00:40,559 Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and 8 00:00:40,640 --> 00:00:48,240 Speaker 1: of course on the Bloomberg Bringing Michael Darty now. He 9 00:00:48,280 --> 00:00:50,920 Speaker 1: is chief economist and chief market strategist and PAM Partners. 10 00:00:50,960 --> 00:00:53,199 Speaker 1: It's great to have you here and what you've survived Halloween. 11 00:00:53,760 --> 00:00:56,040 Speaker 1: Thank you for having her. I went to bed early. 12 00:00:56,080 --> 00:00:58,440 Speaker 1: That's what happens when you're old, wisely done. All right, 13 00:00:58,840 --> 00:01:00,800 Speaker 1: let me start with the FED meeting and the data 14 00:01:00,840 --> 00:01:03,120 Speaker 1: that will be pouring over the FMC will be pouring 15 00:01:03,120 --> 00:01:06,400 Speaker 1: over today. What's most important to them right now is 16 00:01:06,440 --> 00:01:08,839 Speaker 1: there as they're wearing what to do well. It's uh, 17 00:01:08,880 --> 00:01:12,119 Speaker 1: it's interesting. I mean, I think the payroll data tends 18 00:01:12,160 --> 00:01:16,560 Speaker 1: to be weighted more because we've seen the FED start 19 00:01:16,600 --> 00:01:20,240 Speaker 1: to try to push expectations for a rate hike. UH 20 00:01:20,280 --> 00:01:23,080 Speaker 1: into markets only to back off if there have been 21 00:01:23,120 --> 00:01:27,120 Speaker 1: weak data on the payroll side. So assuming that the 22 00:01:27,200 --> 00:01:30,720 Speaker 1: six month moving average safe for payrolls, it's been actually 23 00:01:30,920 --> 00:01:34,080 Speaker 1: you know, weakening with with the slowdown in GDP growth 24 00:01:34,080 --> 00:01:36,120 Speaker 1: over the last two years. But assuming we don't end 25 00:01:36,160 --> 00:01:40,760 Speaker 1: up with a couple shockingly weak reports, you know, chances 26 00:01:40,760 --> 00:01:42,920 Speaker 1: are they'll move rates again in December. They're not going 27 00:01:42,959 --> 00:01:45,240 Speaker 1: to do it this week. There's no press conference, and 28 00:01:45,280 --> 00:01:47,319 Speaker 1: so I think this is going to simply going to 29 00:01:47,360 --> 00:01:50,840 Speaker 1: be more signaling. So the next two payroll reports, if 30 00:01:50,880 --> 00:01:54,000 Speaker 1: they're way out of line with consensus expectations, that could 31 00:01:54,080 --> 00:01:57,000 Speaker 1: then you know, move the pendulum the other way. What 32 00:01:57,040 --> 00:01:58,880 Speaker 1: does the signaling look like? What are you gonna be 33 00:01:58,960 --> 00:02:01,280 Speaker 1: looking for in the state Again, no no press conference 34 00:02:01,320 --> 00:02:02,520 Speaker 1: this week, there will be a statement, what are you 35 00:02:02,520 --> 00:02:04,920 Speaker 1: gonna be looking for? Well, I think they're just simply 36 00:02:05,200 --> 00:02:07,160 Speaker 1: you know, I don't think you know, they don't want 37 00:02:07,200 --> 00:02:10,200 Speaker 1: a bombshell to be in these statements. They're pretty carefully 38 00:02:10,240 --> 00:02:13,639 Speaker 1: designed to to avoid that. I think the FEDS very 39 00:02:13,760 --> 00:02:17,400 Speaker 1: content that futures markets now are you know, signaling a 40 00:02:17,520 --> 00:02:22,120 Speaker 1: sixty probability for a December rate rise? That fed desperately 41 00:02:22,600 --> 00:02:25,880 Speaker 1: wants to move short rates up. They've been dissuaded from 42 00:02:25,880 --> 00:02:29,560 Speaker 1: doing so this year, first because the financial market instability 43 00:02:29,600 --> 00:02:32,960 Speaker 1: in January into mid February, and then just because the 44 00:02:33,000 --> 00:02:35,600 Speaker 1: macro data has been soft. You know, we're getting job growth, 45 00:02:35,600 --> 00:02:39,600 Speaker 1: but the unemployment rates actually leveled off. So in Yellen's model, 46 00:02:39,840 --> 00:02:42,800 Speaker 1: which is a slack based Phillips curve model for the 47 00:02:42,840 --> 00:02:46,240 Speaker 1: inflation process, that means you're just growing at potential and 48 00:02:46,280 --> 00:02:50,400 Speaker 1: so hence you wait for more information. So you know, 49 00:02:50,440 --> 00:02:52,240 Speaker 1: where are we now? I actually, you know, I am 50 00:02:52,280 --> 00:02:55,960 Speaker 1: a little bit more comfortable with the setup versus last December. 51 00:02:56,040 --> 00:02:59,520 Speaker 1: So credit markets have been weakening dramatically going into last 52 00:02:59,520 --> 00:03:02,680 Speaker 1: December's rate rise, inflation expectations had been slumping and the 53 00:03:02,720 --> 00:03:07,160 Speaker 1: Fed was effectively ignoring it. Now, with the slowdown in 54 00:03:07,200 --> 00:03:10,240 Speaker 1: the pace of rate hikes, credit markets more stable, inflation 55 00:03:10,320 --> 00:03:14,440 Speaker 1: expectations have been higher. So not a setup that looks 56 00:03:14,480 --> 00:03:17,120 Speaker 1: like last December, and that's a good thing. David Girl 57 00:03:17,800 --> 00:03:23,240 Speaker 1: a date calendar the next seven days, just Fed Bank 58 00:03:23,280 --> 00:03:27,119 Speaker 1: of England Job's day dash to the weekend and then 59 00:03:27,520 --> 00:03:32,760 Speaker 1: Battle Brown states the polls. Greg Villier just uh publishing 60 00:03:32,800 --> 00:03:36,200 Speaker 1: his note moments ago new bombshells fall on deaf ears 61 00:03:36,200 --> 00:03:39,320 Speaker 1: will get that to you in a moment um. I 62 00:03:39,320 --> 00:03:42,000 Speaker 1: didn't have a chance, Michael Darda to ask you about this. 63 00:03:42,080 --> 00:03:46,560 Speaker 1: I thought Stanley Fisher's speech was absolutely spectacular in his 64 00:03:46,840 --> 00:03:50,240 Speaker 1: is waxing philosophical on his Hicksie and I S LM curve. 65 00:03:50,280 --> 00:03:53,800 Speaker 1: I thought you Stam Fisher was on the I S curve, 66 00:03:54,200 --> 00:03:57,360 Speaker 1: which is the real economy. It was great to see 67 00:03:57,400 --> 00:04:01,160 Speaker 1: someone talk about the real economy. Interesting. So you know, 68 00:04:01,200 --> 00:04:03,120 Speaker 1: the FED has been involved in a in a learning 69 00:04:03,160 --> 00:04:06,040 Speaker 1: process this year. In stan Fisher early was out. There 70 00:04:06,120 --> 00:04:08,920 Speaker 1: is a much more hawkish voice. But you know in 71 00:04:08,960 --> 00:04:10,880 Speaker 1: the in the whole committee then ended up doing a 72 00:04:10,920 --> 00:04:13,920 Speaker 1: lot less than they had signaled at the beginning of 73 00:04:13,920 --> 00:04:16,400 Speaker 1: the year. If you remember, the signal was for four 74 00:04:16,520 --> 00:04:19,080 Speaker 1: rate rises with a credit market meltdown in a big 75 00:04:19,120 --> 00:04:24,400 Speaker 1: collapse and inflation expectations that backing away. That has allowed 76 00:04:24,440 --> 00:04:27,440 Speaker 1: stability to return. I really think had they followed through 77 00:04:27,880 --> 00:04:30,440 Speaker 1: the cycles over so I'll give him and the others 78 00:04:30,480 --> 00:04:34,960 Speaker 1: credit for not following through um in that case, And 79 00:04:35,480 --> 00:04:37,280 Speaker 1: if it were up to me, I would not move 80 00:04:37,320 --> 00:04:41,560 Speaker 1: in December simply because nominal growth is still slow. That 81 00:04:41,680 --> 00:04:44,200 Speaker 1: Q three g d P report was puffed up by 82 00:04:44,240 --> 00:04:47,279 Speaker 1: inventories and trade. If you take that out, we're only 83 00:04:47,320 --> 00:04:50,880 Speaker 1: annualizing at three percent nominal, the minimum that you'd need 84 00:04:50,960 --> 00:04:55,400 Speaker 1: even with these weak productivity statistics to generate on target inflation. 85 00:04:55,880 --> 00:04:57,880 Speaker 1: And I mentioned the tip spreads moving up, but there's 86 00:04:57,880 --> 00:05:01,159 Speaker 1: still way below a level you'd expect to be consistent 87 00:05:01,200 --> 00:05:04,719 Speaker 1: with the FEDS inflation targets. So I would be you know, 88 00:05:04,760 --> 00:05:08,560 Speaker 1: in the Fed governor Brainerd camp still but I think 89 00:05:08,600 --> 00:05:11,159 Speaker 1: they'll move in December, barring week data. There's a there's 90 00:05:11,200 --> 00:05:14,200 Speaker 1: a theme here of of central banks and learning processes. 91 00:05:14,400 --> 00:05:16,200 Speaker 1: It seems like today from what we heard from the 92 00:05:16,200 --> 00:05:19,320 Speaker 1: Bank of Japan as well, an acknowledgement that maybe there 93 00:05:19,360 --> 00:05:21,280 Speaker 1: was a touch of too much hubris at the beginning, 94 00:05:21,320 --> 00:05:24,200 Speaker 1: and yeah, we have to learn as we go. Well, 95 00:05:24,240 --> 00:05:26,040 Speaker 1: and I'm glad you brought up the b o J. 96 00:05:26,200 --> 00:05:28,080 Speaker 1: In the case of the learning process there, it may 97 00:05:28,080 --> 00:05:30,240 Speaker 1: be going in reverse gear. I think they did have 98 00:05:30,360 --> 00:05:34,479 Speaker 1: some success initially with their QI effort, but something's gone 99 00:05:34,640 --> 00:05:36,960 Speaker 1: very wrong this year, and you can also see it 100 00:05:37,000 --> 00:05:42,839 Speaker 1: in the inflation expectations markets, where from twenty fifteen inflation 101 00:05:42,880 --> 00:05:46,440 Speaker 1: expectations in Japan went from zero or sub zero up 102 00:05:46,480 --> 00:05:49,279 Speaker 1: to one and a half, a big move. Nominal growth 103 00:05:49,279 --> 00:05:53,440 Speaker 1: and inflation both improved, but this year those expectations have 104 00:05:53,520 --> 00:05:56,960 Speaker 1: faltered back to zero. So the move to negative deposit 105 00:05:57,080 --> 00:06:00,760 Speaker 1: rates in this most recent shenanigans in jiu jitsu with 106 00:06:00,800 --> 00:06:03,520 Speaker 1: the long end of the yield curve are being taken 107 00:06:03,600 --> 00:06:06,120 Speaker 1: by investors is a sign that that the b o 108 00:06:06,240 --> 00:06:08,440 Speaker 1: j is effectively going to throw in the towel. Now 109 00:06:08,480 --> 00:06:10,520 Speaker 1: that may be wrong, but if it's wrong, they need 110 00:06:10,560 --> 00:06:13,000 Speaker 1: to correct it, and they're not doing it. What was 111 00:06:13,040 --> 00:06:15,600 Speaker 1: your tech away speaking inflation expectations? Going back to the 112 00:06:15,640 --> 00:06:17,760 Speaker 1: speech Tom mentioned them when the advice chair Fisher gave 113 00:06:17,800 --> 00:06:19,240 Speaker 1: it the Economic Club of New York in which he 114 00:06:19,279 --> 00:06:23,600 Speaker 1: addressed the those who have argued for changing the inflation targets. 115 00:06:23,880 --> 00:06:25,360 Speaker 1: Did he sort of settle that once and for all 116 00:06:25,440 --> 00:06:26,760 Speaker 1: in that speech or do you think this is very 117 00:06:26,800 --> 00:06:30,200 Speaker 1: much a conversation that's continuing about where they should be. Well, yeah, 118 00:06:30,279 --> 00:06:33,680 Speaker 1: nothing is settled, especially in you know, in this backdrop. 119 00:06:33,839 --> 00:06:38,960 Speaker 1: So the argument is that in a in a very 120 00:06:39,000 --> 00:06:42,200 Speaker 1: low growth backdrop, you're going to hit zero on short 121 00:06:42,320 --> 00:06:45,279 Speaker 1: rates more frequently in the two ways to address that 122 00:06:45,320 --> 00:06:48,000 Speaker 1: are either with negative deposit rates, which have not been 123 00:06:48,080 --> 00:06:51,920 Speaker 1: popular from a pr perspective in in parts of Europe 124 00:06:51,920 --> 00:06:56,279 Speaker 1: in Japan, or higher inflation target But the question comes 125 00:06:56,760 --> 00:06:59,760 Speaker 1: up that if the FED is either unable or unwilling 126 00:06:59,800 --> 00:07:04,200 Speaker 1: to at the current two pc target, then what good 127 00:07:04,240 --> 00:07:08,640 Speaker 1: does it really do to announce a higher target? Uh 128 00:07:08,720 --> 00:07:12,000 Speaker 1: And FED President Williams actually was the first too in 129 00:07:12,040 --> 00:07:15,440 Speaker 1: a blog post address the prospects for nominal GDP level 130 00:07:15,480 --> 00:07:18,880 Speaker 1: targeting or higher inflation targets to deal with the zero 131 00:07:18,920 --> 00:07:21,120 Speaker 1: lower bound in the in the future. But he's also 132 00:07:21,200 --> 00:07:23,320 Speaker 1: been one not a voter this year, but he's been 133 00:07:23,320 --> 00:07:26,040 Speaker 1: one advocating, you know, FED tightening. He's been on the 134 00:07:26,080 --> 00:07:28,640 Speaker 1: more hawkish side, poo pooing a lot of the weak data. 135 00:07:29,200 --> 00:07:32,880 Speaker 1: So it's not settled. You know, we have an ongoing debate, 136 00:07:32,960 --> 00:07:34,920 Speaker 1: and you know, this may not be settled for a 137 00:07:34,920 --> 00:07:38,160 Speaker 1: few more business side, how much of this, Michael Darda 138 00:07:38,320 --> 00:07:42,560 Speaker 1: plays back to over ten years ago when the Japanese, 139 00:07:42,640 --> 00:07:44,640 Speaker 1: I mean they raised rates and had to pull back 140 00:07:44,800 --> 00:07:47,400 Speaker 1: off the financial crisis forget about that. But before that, 141 00:07:48,080 --> 00:07:51,280 Speaker 1: they raised rates and they had to recant. And that's 142 00:07:51,400 --> 00:07:55,760 Speaker 1: that's theoretically in the back of every academicsne yeah, three times. 143 00:07:55,920 --> 00:07:58,160 Speaker 1: So they raised race once in the year two thousand. 144 00:07:58,240 --> 00:08:01,320 Speaker 1: Remember everybody told us one rate high doesn't matter. Last December, 145 00:08:01,360 --> 00:08:03,560 Speaker 1: I mean, the Japanese raised rates one time in the 146 00:08:03,640 --> 00:08:07,680 Speaker 1: year two thousand. Deflationary recession followed. They raised rates twice 147 00:08:07,680 --> 00:08:11,640 Speaker 1: and oh six and oh seven, deflationary recession ended up 148 00:08:11,680 --> 00:08:14,520 Speaker 1: back at zero even more damning. You know there there 149 00:08:14,520 --> 00:08:17,720 Speaker 1: seems to be this fervor now for demand side fiscal policy, 150 00:08:17,840 --> 00:08:20,640 Speaker 1: roads and bridges and the like. The Japanese were running 151 00:08:20,840 --> 00:08:24,800 Speaker 1: huge fiscal deficits in the late nineties and that, and 152 00:08:24,840 --> 00:08:26,960 Speaker 1: they still failed to get off the zero lower. Do 153 00:08:27,440 --> 00:08:30,480 Speaker 1: we face the same risk as even with a tencc 154 00:08:30,680 --> 00:08:36,120 Speaker 1: rate rise in December, we could trigger disinflation, well selected deflation. 155 00:08:36,280 --> 00:08:39,240 Speaker 1: Great question. I'm more comfortable with the prospects of a 156 00:08:39,280 --> 00:08:42,800 Speaker 1: December rate rise simply because credit markets are more stable 157 00:08:42,840 --> 00:08:45,440 Speaker 1: going into it. Break even markets still too low on 158 00:08:45,480 --> 00:08:48,240 Speaker 1: the spreads, but at least they've been rising, unlike the 159 00:08:48,280 --> 00:08:53,439 Speaker 1: situation last December. So the FED signaling has created um 160 00:08:53,480 --> 00:08:57,559 Speaker 1: a bit more confidence. But we still have to basically 161 00:08:57,600 --> 00:09:01,560 Speaker 1: accept except the textbook theory and on the ground evidence 162 00:09:01,600 --> 00:09:04,520 Speaker 1: that a decision to raise rates versus not means you're 163 00:09:04,559 --> 00:09:07,200 Speaker 1: whatever the path phenomenal growth, it's going to be slower 164 00:09:07,400 --> 00:09:10,720 Speaker 1: and inflation will be lower with tighter money versus not 165 00:09:10,880 --> 00:09:14,560 Speaker 1: tightening moletary policy. So that's an argument not to do 166 00:09:14,640 --> 00:09:18,000 Speaker 1: it in my view. Michael Darter with the Smcamp Partners, 167 00:09:18,040 --> 00:09:20,920 Speaker 1: he does a great job of melding economics into finance 168 00:09:21,040 --> 00:09:25,800 Speaker 1: and into investment. I was just next year will be 169 00:09:25,840 --> 00:09:30,920 Speaker 1: a year where big money, big retirement, big insurance money, 170 00:09:31,600 --> 00:09:36,880 Speaker 1: considers matching their liabilities to their ability to coin money. 171 00:09:37,200 --> 00:09:39,679 Speaker 1: It ain't happening, is it. I mean, nobody's making the 172 00:09:39,760 --> 00:09:42,480 Speaker 1: hurdle rate a They No, they're not. Tom And one 173 00:09:42,520 --> 00:09:45,199 Speaker 1: big problem is if you if you assume some kind 174 00:09:45,240 --> 00:09:48,040 Speaker 1: of a normalization on discount rates, then you have to 175 00:09:48,240 --> 00:09:53,760 Speaker 1: buy implication also be assuming a normalization on nominal GDP growth, 176 00:09:54,600 --> 00:09:56,960 Speaker 1: and that does not look to be in the cards, 177 00:09:57,000 --> 00:10:01,599 Speaker 1: not with these weak, weak productivity statistic, these demographic headwinds, 178 00:10:01,760 --> 00:10:04,240 Speaker 1: and the fact that the you know, the FED isn't 179 00:10:04,240 --> 00:10:07,160 Speaker 1: trying to overshoot its inflation target, it's still expected to 180 00:10:07,320 --> 00:10:11,560 Speaker 1: undershoot it. So unless you're gonna normalize nominal GDP growth. 181 00:10:11,600 --> 00:10:16,560 Speaker 1: Forget about normalizing the crean for volatility of the markets. 182 00:10:16,760 --> 00:10:20,600 Speaker 1: If the new set of terminal rates is dampened and 183 00:10:20,760 --> 00:10:25,400 Speaker 1: lower and everybody lowers their lowers their horizon gradually or 184 00:10:25,440 --> 00:10:28,640 Speaker 1: maybe one fell swoop, what does it mean for vall 185 00:10:28,720 --> 00:10:31,640 Speaker 1: and jump conditions. Well, a great question. It's really going 186 00:10:31,679 --> 00:10:34,040 Speaker 1: to depend on the FED and how they conduct themselves. 187 00:10:34,080 --> 00:10:37,000 Speaker 1: So you're gonna have far, you know, far a far 188 00:10:37,440 --> 00:10:41,719 Speaker 1: less ability to raise short term interest rates. But at 189 00:10:41,720 --> 00:10:45,520 Speaker 1: the same time there's less room to maneuver, So the 190 00:10:45,640 --> 00:10:48,880 Speaker 1: FED could very easily trigger a recession, in a spike 191 00:10:48,920 --> 00:10:51,959 Speaker 1: in volatility, and you know, in a bear market by 192 00:10:52,000 --> 00:10:54,480 Speaker 1: not moving interest rates up very much. We saw that 193 00:10:54,960 --> 00:10:57,760 Speaker 1: a taste of that in December. We saw I mentioned 194 00:10:57,760 --> 00:10:59,560 Speaker 1: the b o J in the year two thousand and oh, 195 00:10:59,559 --> 00:11:02,040 Speaker 1: six and seven, and then the e c B in 196 00:11:02,080 --> 00:11:06,360 Speaker 1: twleven raised rates quote unquote only fifty basis points at 197 00:11:06,400 --> 00:11:11,040 Speaker 1: exactly the wrong time. It was a huge mistake. Markets crashed, 198 00:11:11,120 --> 00:11:14,080 Speaker 1: the business cycle. Rolled over tom this morning, you had, 199 00:11:14,360 --> 00:11:17,120 Speaker 1: you know, a chart of bank stocks diverging between the 200 00:11:17,200 --> 00:11:19,720 Speaker 1: US and the Eurozone. I'd really like to know how 201 00:11:19,880 --> 00:11:22,120 Speaker 1: what that chart would look like if the e c 202 00:11:22,320 --> 00:11:25,840 Speaker 1: B had not blown it in two thousand eleven, because 203 00:11:26,320 --> 00:11:28,680 Speaker 1: you know, you go off a cliff and you never 204 00:11:28,760 --> 00:11:31,600 Speaker 1: make it back up, and it's unfortunate. I'll return to 205 00:11:31,640 --> 00:11:34,240 Speaker 1: that clarion call for for fiscal policy you mentioned a 206 00:11:34,240 --> 00:11:37,240 Speaker 1: few minutes ago. For a long time, it was legislators 207 00:11:37,240 --> 00:11:39,480 Speaker 1: complaining that the Central Bank had too much power. Now 208 00:11:39,520 --> 00:11:41,800 Speaker 1: you've got the Central Bank complaining that the legislature isn't 209 00:11:41,840 --> 00:11:45,520 Speaker 1: doing enough here. When is that communications gap gonna get 210 00:11:45,600 --> 00:11:49,160 Speaker 1: get bridged? Well, I'm afraid the whole discussion is upside down. 211 00:11:49,200 --> 00:11:51,360 Speaker 1: And I see this a lot in client meetings, where 212 00:11:51,400 --> 00:11:55,600 Speaker 1: there seems to be a burgin burgeoning consensus coalescing around 213 00:11:55,640 --> 00:11:58,400 Speaker 1: this idea that we're going to get demand side kanzie 214 00:11:58,480 --> 00:12:01,680 Speaker 1: and pump priming after no member, maybe because both Trump 215 00:12:01,679 --> 00:12:05,720 Speaker 1: and Hillary have a proposed infrastructure spending. But if the 216 00:12:05,760 --> 00:12:08,560 Speaker 1: Feds comfortable with where the business cycle is, and they 217 00:12:08,600 --> 00:12:11,800 Speaker 1: clearly are, they wouldn't be signaling at December rate rise. 218 00:12:12,280 --> 00:12:15,440 Speaker 1: Then you know, demand side fiscal stimulus at this point 219 00:12:15,520 --> 00:12:17,480 Speaker 1: is only going to result in the Fed tightening more 220 00:12:17,480 --> 00:12:21,640 Speaker 1: than otherwise would be. But you admit that we need infrastructure, 221 00:12:22,000 --> 00:12:25,440 Speaker 1: Uh sure, but we shouldn't expect it to lift nominal 222 00:12:25,520 --> 00:12:28,439 Speaker 1: growth with the current FED reaction function. Where I think 223 00:12:28,440 --> 00:12:31,160 Speaker 1: fiscal policy could help a lot would be on the 224 00:12:31,240 --> 00:12:34,480 Speaker 1: supply side. So if we're talking about incentives for growth, 225 00:12:34,559 --> 00:12:38,480 Speaker 1: things that could lift efficiency and productive potential. Maybe some 226 00:12:38,559 --> 00:12:43,000 Speaker 1: infrastructure could be part of that. But reforms to taxation, regulation, 227 00:12:43,160 --> 00:12:49,040 Speaker 1: immigration education aimed at economic efficiency. Are you running for office. 228 00:12:50,440 --> 00:12:52,480 Speaker 1: I've had a lot of practice with this in client 229 00:12:52,559 --> 00:12:55,360 Speaker 1: meetings recently because there's been a lot of confusion and 230 00:12:55,400 --> 00:12:58,680 Speaker 1: so you know, you're getting about wiki leaks and email 231 00:12:58,880 --> 00:13:02,400 Speaker 1: David jump. Here. We began with that stand Fisher speech. 232 00:13:02,440 --> 00:13:04,640 Speaker 1: Let's end it here with Janet Yellen speech. She called 233 00:13:04,679 --> 00:13:07,160 Speaker 1: for that high high pressure, called for thinking about running 234 00:13:07,160 --> 00:13:09,920 Speaker 1: the economy it higher higher pressure here that stands to 235 00:13:09,960 --> 00:13:12,880 Speaker 1: benefit what more, the employment picture, the inflation picture. What's 236 00:13:13,080 --> 00:13:14,760 Speaker 1: the rationale for doing it? As you see it? If 237 00:13:14,840 --> 00:13:17,600 Speaker 1: if there is well within the context of that speech 238 00:13:17,679 --> 00:13:21,959 Speaker 1: she mentioned it, um you know, potentially helping the supply side, 239 00:13:21,960 --> 00:13:25,079 Speaker 1: which is very controversial. You know, the consensus view is 240 00:13:25,120 --> 00:13:28,079 Speaker 1: at the supply side has nothing to do with monetary policy. 241 00:13:28,480 --> 00:13:32,120 Speaker 1: What she said is maybe this big cyclical decline in 242 00:13:32,200 --> 00:13:34,640 Speaker 1: O eight oh nine, and the weak recovery has also 243 00:13:34,720 --> 00:13:38,240 Speaker 1: resulted in a drag on productivity that maybe could be 244 00:13:38,400 --> 00:13:41,640 Speaker 1: partially or fully reversed if we run hot. But I 245 00:13:41,679 --> 00:13:44,840 Speaker 1: think the speech has been misinterpreted to some degree because 246 00:13:45,120 --> 00:13:47,199 Speaker 1: she put it out there is a question that needed 247 00:13:47,240 --> 00:13:52,280 Speaker 1: more research, not a commitment to conduct policy research exactly. 248 00:13:52,559 --> 00:13:56,000 Speaker 1: So what would you expect if the FED were intent 249 00:13:56,160 --> 00:13:59,520 Speaker 1: on running hot? Not a December rate rise predicated on 250 00:13:59,559 --> 00:14:03,040 Speaker 1: a bounce back in data. It hasn't been forthcoming, so 251 00:14:03,880 --> 00:14:06,040 Speaker 1: you know, we shouldn't get too excited about the high 252 00:14:06,040 --> 00:14:18,080 Speaker 1: pressure economy. Michael Darter, thank you so much. Who you 253 00:14:18,160 --> 00:14:21,600 Speaker 1: put your trust in matters. Investors have put their trust 254 00:14:21,640 --> 00:14:25,200 Speaker 1: in independent registered investment advisors to the two and of 255 00:14:25,280 --> 00:14:28,720 Speaker 1: four trillion dollars. Why they see their roles to serve, 256 00:14:29,000 --> 00:14:32,320 Speaker 1: not sell. That's why Charles Schwab is committed to the 257 00:14:32,440 --> 00:14:38,560 Speaker 1: success over seven thousand independent financial advisors who passionately dedicate 258 00:14:38,600 --> 00:14:43,400 Speaker 1: themselves to helping people achieve their financial goals. Learn more 259 00:14:43,880 --> 00:14:54,320 Speaker 1: at find your independent advisor dot com. We've been looking 260 00:14:54,360 --> 00:14:58,200 Speaker 1: at the restaurant business, the food business. We're gonna digress 261 00:14:58,240 --> 00:15:01,880 Speaker 1: here away from economics and all that and talk with 262 00:15:02,000 --> 00:15:04,520 Speaker 1: John Glass, who has done better than good at Morgan 263 00:15:04,640 --> 00:15:10,200 Speaker 1: Stanley and looking at our restaurant businesses, What does your area, 264 00:15:10,320 --> 00:15:13,800 Speaker 1: John Glass say about the American economy? Now, what does 265 00:15:13,840 --> 00:15:20,360 Speaker 1: the trend? It's shake shack at Buffalo Wild Wings, Zoey's Kitchen, David, 266 00:15:20,360 --> 00:15:25,440 Speaker 1: have you ever dark kitchen? John Glass? Help me here? 267 00:15:25,560 --> 00:15:29,840 Speaker 1: What does your world say about the American economy? It's 268 00:15:30,000 --> 00:15:33,720 Speaker 1: it's saying, it's saying slow but steady. So restaurant sales 269 00:15:33,760 --> 00:15:36,880 Speaker 1: have clearly decelerated in the back half of this year, 270 00:15:36,960 --> 00:15:40,280 Speaker 1: really beginning in the second quarter. So in context the 271 00:15:40,280 --> 00:15:41,920 Speaker 1: fourth quarter of last year, in the first quarter this 272 00:15:41,960 --> 00:15:44,960 Speaker 1: ye're actually still very strong for restaurants sales in aggregate 273 00:15:45,000 --> 00:15:47,400 Speaker 1: and company specifics. In fact, two thousand fifteen was one 274 00:15:47,400 --> 00:15:50,200 Speaker 1: of the strongest years ever. But the consumers stepped down 275 00:15:50,360 --> 00:15:53,320 Speaker 1: this year, right. Fast food sales as as as looked 276 00:15:53,320 --> 00:15:56,760 Speaker 1: at by McDonald's for example, have slowed. The casual dining industry, 277 00:15:56,800 --> 00:15:59,320 Speaker 1: the sit down category has been slow for a number 278 00:15:59,360 --> 00:16:01,720 Speaker 1: of years, but stepped down as well, So it's a 279 00:16:01,720 --> 00:16:04,760 Speaker 1: more tenuous consumer. But there's also just some i'll call 280 00:16:04,800 --> 00:16:07,480 Speaker 1: it some secular trends within the industry. They're changing, so 281 00:16:07,520 --> 00:16:10,040 Speaker 1: I don't think any individual company is necessarily good bell 282 00:16:10,080 --> 00:16:13,120 Speaker 1: Weather anymore. For the industry state, well, I'll go with that. 283 00:16:13,160 --> 00:16:17,640 Speaker 1: It is every I mean, basically McDonald's is not part 284 00:16:17,680 --> 00:16:21,600 Speaker 1: of the group almost. They're so big and so blue chippy, 285 00:16:21,640 --> 00:16:24,960 Speaker 1: they're almost a separate entity. Right. Certainly as a stock, 286 00:16:25,000 --> 00:16:27,440 Speaker 1: it is, right, it's a it's a yield stock for many. 287 00:16:27,520 --> 00:16:31,400 Speaker 1: It's consumer it's considered a consumer's staple by by many investors. 288 00:16:31,520 --> 00:16:33,840 Speaker 1: And it's also in the middle of a long term turnaround. Right. 289 00:16:33,840 --> 00:16:35,800 Speaker 1: They had a lot of success late last year with 290 00:16:35,840 --> 00:16:38,120 Speaker 1: the old day breakfast and some value, and then they 291 00:16:38,160 --> 00:16:40,440 Speaker 1: saw the sales begin to decelerate this year. And I 292 00:16:40,480 --> 00:16:42,880 Speaker 1: think they've got long term vision to improve the food 293 00:16:43,160 --> 00:16:46,280 Speaker 1: and experience. But as you know, that doesn't take It 294 00:16:46,360 --> 00:16:48,160 Speaker 1: takes more than a few quarters to do that. What 295 00:16:49,080 --> 00:16:51,840 Speaker 1: you now, folks, it's time for cf A level four 296 00:16:51,920 --> 00:16:56,360 Speaker 1: with John Glass. What in God's name is four? Wallba? 297 00:16:56,720 --> 00:17:00,720 Speaker 1: There you go. So, so the converse station today is 298 00:17:00,760 --> 00:17:03,520 Speaker 1: we we looked at restaurant unit economics. Do you think 299 00:17:03,560 --> 00:17:06,520 Speaker 1: about any chain restaurants really made up of individual restaurants, right, 300 00:17:06,560 --> 00:17:08,479 Speaker 1: And then there's a corporate expense on top of that, 301 00:17:08,880 --> 00:17:11,359 Speaker 1: and so four wall unit economics is simply what does 302 00:17:11,400 --> 00:17:13,600 Speaker 1: the restaurant do at the store? Lell If you would 303 00:17:13,640 --> 00:17:16,000 Speaker 1: own that restaurant, what would the cash flow you get 304 00:17:16,000 --> 00:17:19,199 Speaker 1: as proprietor from that? And that's the building block of 305 00:17:19,240 --> 00:17:21,880 Speaker 1: any growth restaurant or any growth retailer for that matter. 306 00:17:21,920 --> 00:17:25,280 Speaker 1: How does the four wall unit economics look? And what 307 00:17:25,320 --> 00:17:28,119 Speaker 1: we did is we looked across our spectrum of retails 308 00:17:28,440 --> 00:17:31,280 Speaker 1: universe that companies that are skill growing square footage, and 309 00:17:31,280 --> 00:17:34,080 Speaker 1: there's about thirty seven of those stocks within the retail 310 00:17:34,359 --> 00:17:38,080 Speaker 1: all my colleagues here cover and really only even a 311 00:17:38,160 --> 00:17:40,960 Speaker 1: very small subset of those that still have both great 312 00:17:41,040 --> 00:17:44,040 Speaker 1: unit economics and great growth potential. Right, if you have 313 00:17:44,320 --> 00:17:46,960 Speaker 1: great economics but not as much a unit stope and 314 00:17:47,040 --> 00:17:50,480 Speaker 1: going forward and as many it's not as attractive to investors. 315 00:17:50,840 --> 00:17:53,000 Speaker 1: And the stand out here one of the stars is 316 00:17:53,040 --> 00:17:56,800 Speaker 1: shake Chap. What is that business doing so well attracting 317 00:17:56,840 --> 00:18:00,840 Speaker 1: my wallets on the weekends? Yeah, your ears years in mind, 318 00:18:00,880 --> 00:18:03,600 Speaker 1: both in my family's look. I think that shake check 319 00:18:03,760 --> 00:18:06,399 Speaker 1: is is unique within the in the market and so 320 00:18:06,560 --> 00:18:10,520 Speaker 1: far as it has a fantastic brand, right, consumers recognize 321 00:18:10,520 --> 00:18:12,720 Speaker 1: that around the country and around the world. So it's 322 00:18:12,760 --> 00:18:15,720 Speaker 1: average store sales or north of five million dollars, which 323 00:18:15,760 --> 00:18:19,320 Speaker 1: is an extraordinary feat in the restaurant industry. And because 324 00:18:19,320 --> 00:18:21,720 Speaker 1: of that high volume, right, they are being able to 325 00:18:21,760 --> 00:18:24,800 Speaker 1: produce restaurant level margins that we almost never have seen 326 00:18:24,880 --> 00:18:27,880 Speaker 1: before in this industry. About thirty percent the average restaurant 327 00:18:27,880 --> 00:18:30,359 Speaker 1: does about of those you are thinking about opening a restaurant, 328 00:18:30,359 --> 00:18:32,760 Speaker 1: think about twenty percent cash flow margin as a good 329 00:18:32,800 --> 00:18:36,119 Speaker 1: target is extraordinary in that in that respect, So I 330 00:18:36,119 --> 00:18:40,040 Speaker 1: think that's what makes that business model so unique. High volume, 331 00:18:40,119 --> 00:18:44,399 Speaker 1: high margins. Now, I would say it's important to disaggregate 332 00:18:44,440 --> 00:18:47,160 Speaker 1: between what great unit economics are and what great stocks are. 333 00:18:47,160 --> 00:18:49,760 Speaker 1: And I think one of the observations we made here 334 00:18:49,840 --> 00:18:53,040 Speaker 1: is that the scarcity of growth has made investors typically 335 00:18:53,080 --> 00:18:56,800 Speaker 1: overpay for that growth, and as a result, sometimes great 336 00:18:56,880 --> 00:19:00,240 Speaker 1: unit economics and great looking fundamentals can not not always 337 00:19:00,280 --> 00:19:03,280 Speaker 1: translate into great stocks. Another company you're overweight on here 338 00:19:03,359 --> 00:19:07,120 Speaker 1: is is wing Stop. You say there's fifty unit potential 339 00:19:07,280 --> 00:19:10,560 Speaker 1: remaining there for for the uninitiated, what is under the 340 00:19:10,560 --> 00:19:12,720 Speaker 1: wing Stop agis? And and why does it have so 341 00:19:12,800 --> 00:19:15,560 Speaker 1: much potential here for growth? Yeah? What Wingstop? I like 342 00:19:15,600 --> 00:19:18,080 Speaker 1: to call it the subway of of chicken wings. Right, 343 00:19:18,119 --> 00:19:21,240 Speaker 1: so they they are able to uh do over a 344 00:19:21,240 --> 00:19:23,560 Speaker 1: million dollars in a box that's the size of the 345 00:19:23,600 --> 00:19:28,200 Speaker 1: average subways uh subway shop. Um, we're in very um 346 00:19:28,800 --> 00:19:31,800 Speaker 1: I'll call them inexpensive locations. You know, in many cases 347 00:19:31,840 --> 00:19:35,119 Speaker 1: B and C locations they attract um, you know, a 348 00:19:35,160 --> 00:19:39,800 Speaker 1: consumer that's demographically diverse, operationally simple. It serves chicken wings 349 00:19:39,800 --> 00:19:42,320 Speaker 1: and two sides, and they put sauces on them. Seventy 350 00:19:42,359 --> 00:19:44,879 Speaker 1: five of the business as a takeout business. So it's 351 00:19:44,920 --> 00:19:48,080 Speaker 1: a very attractive business from a from a franchise e standpoint. 352 00:19:48,400 --> 00:19:50,720 Speaker 1: And because they're just under a thousand of them and 353 00:19:50,760 --> 00:19:52,960 Speaker 1: the category is vast, that that gives you the big 354 00:19:53,000 --> 00:19:54,920 Speaker 1: that gives you the big growth opportunity. You know, I 355 00:19:55,480 --> 00:19:57,879 Speaker 1: look at all of this, and I look at shake 356 00:19:57,960 --> 00:20:01,360 Speaker 1: check just as again as one examp ample. And if 357 00:20:01,359 --> 00:20:05,080 Speaker 1: Frandy Garuti or Jeff Thoughts are listening to this show, 358 00:20:05,800 --> 00:20:09,320 Speaker 1: Mr Glass, what is your advice for a growth machine 359 00:20:10,000 --> 00:20:14,000 Speaker 1: that's one percent the size of McDonald's on revenue? What 360 00:20:14,119 --> 00:20:19,040 Speaker 1: should shake check not do? Is they try to expand Yeah, 361 00:20:19,119 --> 00:20:21,199 Speaker 1: that's a great question, and I think what not to 362 00:20:21,320 --> 00:20:24,760 Speaker 1: do is to to try to satisfy the market's appetite 363 00:20:24,800 --> 00:20:26,960 Speaker 1: for growth and instead do the right thing for the business. 364 00:20:27,000 --> 00:20:29,040 Speaker 1: If I've observed one thing over the years of followed 365 00:20:29,080 --> 00:20:33,720 Speaker 1: restaurants is that chasing Wall Street expectations and growing too 366 00:20:33,800 --> 00:20:36,879 Speaker 1: quickly usually doesn't end well. And we've seen time and 367 00:20:36,920 --> 00:20:40,200 Speaker 1: time again that sort of uh, that sort of downfall. 368 00:20:40,240 --> 00:20:42,600 Speaker 1: I also think keeping true to what they do well, 369 00:20:43,119 --> 00:20:45,480 Speaker 1: which is part of that, you know, keep managing expectations, 370 00:20:45,520 --> 00:20:48,200 Speaker 1: do what they do well. Over expansion of the menu, 371 00:20:48,359 --> 00:20:50,879 Speaker 1: over expansion of the footprint, those are all things that 372 00:20:51,080 --> 00:20:54,920 Speaker 1: U that can clearly run into financial issues down the road. 373 00:20:55,040 --> 00:20:57,639 Speaker 1: What they are doing well clearly is attracting customers. So 374 00:20:57,680 --> 00:21:00,560 Speaker 1: obviously people appreciate it for what it is and it's unique, 375 00:21:01,160 --> 00:21:04,280 Speaker 1: uh in its unique qualities versus mass food. It strikes 376 00:21:04,320 --> 00:21:06,520 Speaker 1: me there's there's a danger here. I was living in Washington, 377 00:21:06,600 --> 00:21:08,080 Speaker 1: D C. Before I moved to New York. There's a 378 00:21:08,119 --> 00:21:09,760 Speaker 1: shape check there there. I don't know how many shape 379 00:21:09,800 --> 00:21:11,800 Speaker 1: checks here in New York, but there was a real 380 00:21:11,880 --> 00:21:15,200 Speaker 1: novelty to visiting one when you came to town. Uh. 381 00:21:15,240 --> 00:21:17,520 Speaker 1: Now that they are expanding to they risk losing some 382 00:21:17,640 --> 00:21:20,480 Speaker 1: of that some of that New York for the East Coast, field, 383 00:21:20,480 --> 00:21:22,919 Speaker 1: Washington Field. How how are they going to capture that 384 00:21:22,960 --> 00:21:25,640 Speaker 1: going forward? I think there's a real I think there's 385 00:21:25,640 --> 00:21:27,879 Speaker 1: a real point to that right which there is a brand. 386 00:21:27,920 --> 00:21:30,560 Speaker 1: I look, I've I've been around these names for years, 387 00:21:30,600 --> 00:21:33,400 Speaker 1: and Crispy Kream comes to mind. In the early two thousands, 388 00:21:33,400 --> 00:21:35,280 Speaker 1: it was had a lot of novelty value. But when 389 00:21:35,280 --> 00:21:37,560 Speaker 1: you do expand a brand that has a cult following 390 00:21:37,760 --> 00:21:40,760 Speaker 1: and make it too easy to access, consumers do sort 391 00:21:40,760 --> 00:21:42,680 Speaker 1: of begin to take it for granted. So I think 392 00:21:42,720 --> 00:21:44,840 Speaker 1: we're early early days. There's less than a hundred of 393 00:21:44,880 --> 00:21:46,840 Speaker 1: them in the shape checks in the US today, So 394 00:21:46,880 --> 00:21:49,720 Speaker 1: I don't think we're uh in in in jeopardy of 395 00:21:49,760 --> 00:21:52,480 Speaker 1: that yet, but I do think making them too accessible 396 00:21:52,560 --> 00:21:56,040 Speaker 1: and either compromising on real estate or just simply degrading 397 00:21:56,040 --> 00:21:59,000 Speaker 1: the brand through that process is a key risk. Because 398 00:21:59,000 --> 00:22:01,080 Speaker 1: they said, I don't think they're there yet, but you 399 00:22:01,119 --> 00:22:03,720 Speaker 1: know it'll look different if there is one in every corner, 400 00:22:03,760 --> 00:22:06,440 Speaker 1: right and an institutional buy and hold. Are these still 401 00:22:06,480 --> 00:22:10,359 Speaker 1: cyclical story stocks or can they develop a persistency of 402 00:22:10,440 --> 00:22:14,080 Speaker 1: cash flow that gets an adults attention? Yeah, So you 403 00:22:14,119 --> 00:22:17,840 Speaker 1: know the restaurant industry has evolved over the years to 404 00:22:17,960 --> 00:22:20,480 Speaker 1: make them much more adult stocks. When I first started 405 00:22:20,480 --> 00:22:23,359 Speaker 1: coming restaurants in the nineties, investors said to me, listen, 406 00:22:23,359 --> 00:22:25,200 Speaker 1: every time I've got the urge to buy a restaurant, 407 00:22:25,200 --> 00:22:28,400 Speaker 1: I lie down until the urge passes. And I think 408 00:22:28,440 --> 00:22:32,359 Speaker 1: that's because restaurants were bad investments many cases because they 409 00:22:32,400 --> 00:22:36,040 Speaker 1: were a cyclical they were ephemeral. And I think there 410 00:22:36,040 --> 00:22:38,760 Speaker 1: has been a real transition. The larger companies in the 411 00:22:38,800 --> 00:22:42,399 Speaker 1: space now have become more yield oriented. They've become asset 412 00:22:42,520 --> 00:22:46,119 Speaker 1: light bit becoming more franchised UM, which I think has 413 00:22:46,160 --> 00:22:49,240 Speaker 1: made them highly attractive to global investors. And you can 414 00:22:49,240 --> 00:22:51,960 Speaker 1: look at names from McDonald's to Dominoes, et cetera that 415 00:22:52,040 --> 00:22:55,960 Speaker 1: have that that have done that effectively. UM. I think 416 00:22:56,040 --> 00:22:57,880 Speaker 1: that UM at the heart of it, though it's still 417 00:22:57,920 --> 00:23:00,680 Speaker 1: cyclical business right, it's a consumer cyclical stock, which means 418 00:23:00,680 --> 00:23:03,560 Speaker 1: they do well early in the economic expansion and they 419 00:23:03,560 --> 00:23:06,280 Speaker 1: began to run out of team later in that expansion. David, 420 00:23:06,320 --> 00:23:08,720 Speaker 1: did you note that I was talking about the Chicago 421 00:23:08,720 --> 00:23:12,400 Speaker 1: the Chicago hot dog It's shake Shack and Michael Barr 422 00:23:12,480 --> 00:23:16,280 Speaker 1: walk in the studio. You see how he does. Yeah, right, 423 00:23:18,960 --> 00:23:21,120 Speaker 1: I'm curious here if you've spotted the next shake Shack. 424 00:23:21,160 --> 00:23:22,880 Speaker 1: When you when you look at restaurants that have the 425 00:23:22,960 --> 00:23:26,520 Speaker 1: opportunity here to grow into to expand, what stands out 426 00:23:26,520 --> 00:23:30,199 Speaker 1: to you. Yeah, so there's, you know, my experience, everyone's 427 00:23:30,240 --> 00:23:32,199 Speaker 1: looking for the next you know, and in over the 428 00:23:32,240 --> 00:23:35,240 Speaker 1: years it's been what's the next Starbucks, What's the next Chipotle? 429 00:23:35,400 --> 00:23:38,280 Speaker 1: For example. My experiences, these great growth companies come up 430 00:23:38,280 --> 00:23:41,199 Speaker 1: about once a decade. Right. There's a lot of false 431 00:23:41,240 --> 00:23:44,119 Speaker 1: starts and hopes among younger companies and then they hit 432 00:23:44,119 --> 00:23:46,960 Speaker 1: a stumbling block early on. Um. I think Wing is 433 00:23:47,000 --> 00:23:49,639 Speaker 1: in that sort of echelon of could be the next 434 00:23:49,680 --> 00:23:52,240 Speaker 1: big thing. And that's one of the stocks that we've recommended. 435 00:23:52,280 --> 00:23:54,240 Speaker 1: It's still a small cap name and it's you know, 436 00:23:54,359 --> 00:23:57,119 Speaker 1: it's growing rapidly. Um. But I haven't other than that 437 00:23:57,160 --> 00:23:58,960 Speaker 1: in the public, public realm. I don't know of any 438 00:23:59,000 --> 00:24:01,920 Speaker 1: others that have the qualities. I'm sure of one thing, though, 439 00:24:01,920 --> 00:24:05,119 Speaker 1: which is the U S entrepreneur in particularly in restaurants, 440 00:24:05,160 --> 00:24:07,640 Speaker 1: is is as hard as a book as I've ever 441 00:24:07,640 --> 00:24:09,919 Speaker 1: seen it. So there's gonna be new ideas coming to market. 442 00:24:10,000 --> 00:24:13,520 Speaker 1: John Glass Morgan Stanley with us on how We Eat. 443 00:24:26,560 --> 00:24:29,320 Speaker 1: This is an immense honor for David gurn myself. Dr 444 00:24:29,400 --> 00:24:33,320 Speaker 1: Winnick is truly one of our giants of history. Richard 445 00:24:33,359 --> 00:24:36,840 Speaker 1: hass to the Consul on Foreign Relations, with support from 446 00:24:36,920 --> 00:24:42,240 Speaker 1: David Rubinstein, have chosen Jay Winning as historian in residence 447 00:24:42,280 --> 00:24:44,920 Speaker 1: to the Consul on Foreign Relations. That is a good 448 00:24:44,960 --> 00:24:47,840 Speaker 1: and beautiful thing. Dr Winnick. Wonderful to speak with you, 449 00:24:48,080 --> 00:24:51,879 Speaker 1: and we go back to your magisterial April eighteen sixty five, 450 00:24:52,560 --> 00:24:55,359 Speaker 1: the Months that saved America. Right now, a lot of 451 00:24:55,400 --> 00:24:58,960 Speaker 1: Americans want you to write November two thousand and sixteen, 452 00:24:59,480 --> 00:25:03,480 Speaker 1: the month saved America. Your epilogue in your wonderful book 453 00:25:03,760 --> 00:25:06,600 Speaker 1: was to make a nation? What do we what can 454 00:25:06,640 --> 00:25:09,960 Speaker 1: we learn from j Winnis world to help us move 455 00:25:10,000 --> 00:25:13,640 Speaker 1: forward and make a nation? After the election of the 456 00:25:13,720 --> 00:25:16,840 Speaker 1: campaign we've had. Hey, firstly, it's great to be on 457 00:25:16,880 --> 00:25:19,720 Speaker 1: your show. I'm a big fan and um, and that's 458 00:25:19,720 --> 00:25:22,320 Speaker 1: an important question. I mean, the country really does feel 459 00:25:22,320 --> 00:25:25,560 Speaker 1: like it's coming apart right now and we're literally just 460 00:25:25,680 --> 00:25:28,120 Speaker 1: become a tattered at the seams. But let me give 461 00:25:28,119 --> 00:25:30,480 Speaker 1: you a little example of how history can provide a 462 00:25:30,480 --> 00:25:33,600 Speaker 1: powerful lesson for about where we're going and what I 463 00:25:33,640 --> 00:25:36,679 Speaker 1: think is the strength of our democracy. Let's take the 464 00:25:36,760 --> 00:25:40,000 Speaker 1: election of eighteen hundred. In the election of eighteen hundred, 465 00:25:40,080 --> 00:25:42,200 Speaker 1: for the first time, we had something that we've never 466 00:25:42,240 --> 00:25:45,959 Speaker 1: seen before, which was John Adams lost the election. Thomas 467 00:25:46,040 --> 00:25:50,400 Speaker 1: Jefferson was tied with Aaron Burr, and the country seemed 468 00:25:50,480 --> 00:25:52,440 Speaker 1: really to be coming a part. And this was at 469 00:25:52,480 --> 00:25:55,640 Speaker 1: its gestation, so it was really quite pivotal. They had 470 00:25:55,680 --> 00:25:58,760 Speaker 1: thirty six ballots and still it was tied. And at 471 00:25:58,760 --> 00:26:02,399 Speaker 1: one point Thomas Jeffer and said to the opposition party, 472 00:26:02,440 --> 00:26:05,320 Speaker 1: he said, if I don't become president, the Middle States 473 00:26:05,359 --> 00:26:07,960 Speaker 1: will arm and there will be war. So think of 474 00:26:08,000 --> 00:26:11,600 Speaker 1: how tight that was. And on the thirty seventh ballot though, 475 00:26:11,680 --> 00:26:14,879 Speaker 1: something really dramatic happened. It was turned over to Jefferson. 476 00:26:15,240 --> 00:26:19,360 Speaker 1: Jefferson became president. And then, in something that really kind 477 00:26:19,359 --> 00:26:23,800 Speaker 1: of created and fostered the American political tradition, Jefferson gave 478 00:26:23,880 --> 00:26:27,479 Speaker 1: in his magic sterial inaugural talked about how we are 479 00:26:27,520 --> 00:26:31,359 Speaker 1: all Republicans, we are all federalists now. So in other words, 480 00:26:31,359 --> 00:26:34,760 Speaker 1: he was setting the case that after these bitter heart 481 00:26:34,880 --> 00:26:38,080 Speaker 1: and tough fights, the country somehow comes together. I think 482 00:26:38,080 --> 00:26:40,159 Speaker 1: our democracy is strong, and I think it will come 483 00:26:40,200 --> 00:26:43,359 Speaker 1: together again. Part beautifully said, and part of that I 484 00:26:43,440 --> 00:26:48,440 Speaker 1: might point out was John Adams grace. Is that grace gone? 485 00:26:49,520 --> 00:26:51,560 Speaker 1: I don't know that it's gone. It's certainly has been 486 00:26:51,560 --> 00:26:54,639 Speaker 1: gone during this campaign, and this campaign has been hard fought. 487 00:26:55,400 --> 00:26:59,520 Speaker 1: UM's It seemed very unpresidential to put it mildly or 488 00:26:59,520 --> 00:27:03,680 Speaker 1: too under not to overstate it, um, But I think 489 00:27:03,800 --> 00:27:06,600 Speaker 1: grace will we will find it again. It is part 490 00:27:06,640 --> 00:27:10,280 Speaker 1: of the American political tradition. Central to that tradition is 491 00:27:10,359 --> 00:27:13,400 Speaker 1: respectful and faith in democracy. There has been a lot 492 00:27:13,400 --> 00:27:18,240 Speaker 1: of rhetoric in recent weeks about rigging, about worrying whether 493 00:27:18,320 --> 00:27:20,840 Speaker 1: or not our votes will be counted, whether it will 494 00:27:20,840 --> 00:27:23,760 Speaker 1: be any malfeasance at the ballot box, whether or not 495 00:27:23,880 --> 00:27:26,440 Speaker 1: the candidates will accept the outcomes of the election themselves. 496 00:27:26,440 --> 00:27:29,359 Speaker 1: Have we seen this before and how damaging is that 497 00:27:29,400 --> 00:27:33,440 Speaker 1: to our notion of democracy here in America? Well, we 498 00:27:33,520 --> 00:27:35,560 Speaker 1: we we have seen it before. We saw it in 499 00:27:35,560 --> 00:27:40,560 Speaker 1: eighteen seventy six. We saw it with the UM Uh yeah, 500 00:27:40,600 --> 00:27:42,359 Speaker 1: well we saw it in eighteen seventy six. That's a 501 00:27:42,359 --> 00:27:46,480 Speaker 1: great example. And I think in the end there will 502 00:27:46,520 --> 00:27:49,320 Speaker 1: be enough. There will be enough of a well spring 503 00:27:50,160 --> 00:27:53,760 Speaker 1: of of of the country wanting to come together, of 504 00:27:54,200 --> 00:27:58,119 Speaker 1: people yearning to come together. Um, you know this idea 505 00:27:58,200 --> 00:28:00,800 Speaker 1: that that the election has been rigged. I mean, I 506 00:28:00,800 --> 00:28:03,679 Speaker 1: guess it's okay if there were problems to say we 507 00:28:03,720 --> 00:28:06,399 Speaker 1: need to ferret it out. But from everything we know, 508 00:28:07,040 --> 00:28:10,600 Speaker 1: there's no serious or significant problem. The election is not 509 00:28:10,640 --> 00:28:12,800 Speaker 1: going to be stolen. I think it'll be clear. I 510 00:28:12,840 --> 00:28:15,320 Speaker 1: think it'll be clean, and I think in the end um, 511 00:28:15,520 --> 00:28:18,480 Speaker 1: for whatever else has been said, Donald Trump will accept 512 00:28:18,520 --> 00:28:22,000 Speaker 1: the verdict of the election. And what does he do next, 513 00:28:22,160 --> 00:28:26,600 Speaker 1: I don't know. Uh Rennick Jilapur wrote four years ago 514 00:28:26,640 --> 00:28:29,280 Speaker 1: in The New Yorker about how we used to vote. 515 00:28:29,320 --> 00:28:31,879 Speaker 1: It's a fabulous article, folks. I put it on Twitter 516 00:28:32,640 --> 00:28:35,359 Speaker 1: this week and she mentions eighteen fifty nine where literally 517 00:28:35,359 --> 00:28:39,240 Speaker 1: people died in Baltimore trying to get to the privilege 518 00:28:39,280 --> 00:28:43,560 Speaker 1: of voting. Do you trust the voting today, voting machines, paper, 519 00:28:44,040 --> 00:28:48,760 Speaker 1: Chad's electronics, and the rest of it. I mean, that's 520 00:28:48,360 --> 00:28:51,680 Speaker 1: it's a great question, and I think it's kind of unknowable. 521 00:28:51,760 --> 00:28:54,320 Speaker 1: And and I guess one thing that is a little 522 00:28:54,320 --> 00:28:58,840 Speaker 1: different is is. You know, history does many things for us. 523 00:28:58,840 --> 00:29:01,880 Speaker 1: It tells us the story of human condition. It tells 524 00:29:01,960 --> 00:29:04,200 Speaker 1: us where we came from, and it gives us insights 525 00:29:04,200 --> 00:29:06,640 Speaker 1: into where we're going. And it also sort of points 526 00:29:06,640 --> 00:29:11,280 Speaker 1: out continuity in in American life. What is different about 527 00:29:11,400 --> 00:29:15,040 Speaker 1: our voting machines now and what we've been seeing with 528 00:29:15,400 --> 00:29:18,760 Speaker 1: If it's true that the so that the Russians have 529 00:29:18,880 --> 00:29:23,600 Speaker 1: actually been hacking into our um into our machines, are 530 00:29:23,640 --> 00:29:27,120 Speaker 1: into our system, that's something that we've never really experienced 531 00:29:27,160 --> 00:29:31,400 Speaker 1: quite on that level. Um. So there, I mean, maybe 532 00:29:31,400 --> 00:29:33,160 Speaker 1: a warning that we have to figure out ways to 533 00:29:33,240 --> 00:29:36,240 Speaker 1: kind of make our make our whole system a little 534 00:29:36,280 --> 00:29:40,040 Speaker 1: more secure. How do we boost our cognizance of our 535 00:29:40,080 --> 00:29:42,840 Speaker 1: respect for history in this country? Imagine your position now, 536 00:29:42,840 --> 00:29:46,080 Speaker 1: as CFR you are charged with in part with doing that. 537 00:29:46,160 --> 00:29:50,040 Speaker 1: How do we get Americans to care more about it? Well? 538 00:29:50,200 --> 00:29:53,240 Speaker 1: I think they do care about it plenty, now, Um. 539 00:29:53,280 --> 00:29:55,640 Speaker 1: You know one thing. Every time I write my books, 540 00:29:55,640 --> 00:29:58,400 Speaker 1: I mean they're all New York Times bestsellers, um, And 541 00:29:58,440 --> 00:30:00,720 Speaker 1: I travel around the country and I just find that 542 00:30:00,760 --> 00:30:04,720 Speaker 1: Americans are hungry and yearning for history because it does 543 00:30:04,800 --> 00:30:08,480 Speaker 1: tell us where we came from. Growing. I mean, Ron 544 00:30:08,560 --> 00:30:11,640 Speaker 1: sure now changes with Alexander Hamilton's You guys, every time 545 00:30:11,640 --> 00:30:14,240 Speaker 1: you write a book, you know, the cash register rings people. 546 00:30:14,560 --> 00:30:19,000 Speaker 1: It's insatiable, isn't it. It really is insatiable. And frankly, 547 00:30:19,040 --> 00:30:23,040 Speaker 1: it's quite hardening because because it says that that they're 548 00:30:23,080 --> 00:30:25,480 Speaker 1: not detached from it. And I would also say that 549 00:30:25,520 --> 00:30:28,480 Speaker 1: our leaders feel that they learn from history, you know, 550 00:30:29,120 --> 00:30:33,280 Speaker 1: putting aside whatever one's political considerations are. You know, right 551 00:30:33,320 --> 00:30:36,440 Speaker 1: after nine eleven, George Bush got off of Marine one 552 00:30:36,520 --> 00:30:38,440 Speaker 1: on the law on the lawn of the White House 553 00:30:38,840 --> 00:30:41,880 Speaker 1: carrying my book April eighteen six five. Why was he 554 00:30:41,920 --> 00:30:44,720 Speaker 1: doing that well in this time of great trauma in 555 00:30:44,800 --> 00:30:48,840 Speaker 1: the nation's life, in the nation's history. He was reading 556 00:30:48,840 --> 00:30:51,200 Speaker 1: about how we had been there before with Abraham Like, 557 00:30:51,800 --> 00:30:55,320 Speaker 1: congratulations on your association with a constant foreign relations. Just 558 00:30:55,360 --> 00:30:59,440 Speaker 1: a brilliant move by David Rubinstein in Richard hass as well, 559 00:30:59,560 --> 00:31:05,000 Speaker 1: Jay Winning eight, among any number of other books as 560 00:31:05,080 --> 00:31:08,320 Speaker 1: ill can't say enough about it. SULD have Dr Winnick 561 00:31:08,400 --> 00:31:18,360 Speaker 1: with us UH this morning. Thanks for listening to the 562 00:31:18,360 --> 00:31:24,360 Speaker 1: Bloomberg Surveillance podcast. Subscribe and listen to interviews on iTunes, SoundCloud, 563 00:31:24,760 --> 00:31:29,040 Speaker 1: or whichever podcast platform you prefer. I'm out on Twitter 564 00:31:29,120 --> 00:31:32,920 Speaker 1: at Tom Keene. David Gura is at David Gura. Before 565 00:31:32,920 --> 00:31:37,280 Speaker 1: the podcast, you can always catch us worldwide. I'm Bloomberg Radio. 566 00:31:49,720 --> 00:31:52,400 Speaker 1: Who you put your trust in matters? Investors have put 567 00:31:52,400 --> 00:31:56,760 Speaker 1: their trust and independent registered investment advisors to the two 568 00:31:56,760 --> 00:32:00,440 Speaker 1: and four trillion dollars. Why Learn more at find your 569 00:32:00,480 --> 00:32:03,280 Speaker 1: Independent Adviser dot com