1 00:00:00,080 --> 00:00:13,040 Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 2 00:00:13,480 --> 00:00:17,560 Speaker 1: Jay Ley. We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:33,879 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. If 5 00:00:33,920 --> 00:00:36,200 Speaker 1: we can't break out of this regime, that that will 6 00:00:36,240 --> 00:00:39,680 Speaker 1: feed into a more existential question of why not and 7 00:00:39,760 --> 00:00:42,000 Speaker 1: whether we can ever move. Let's bring in my daughter show. 8 00:00:42,080 --> 00:00:45,519 Speaker 1: We MKM Partner's chief economist and chief market strategist Might. 9 00:00:45,560 --> 00:00:47,680 Speaker 1: Good morning to you. Thanks for having me on what 10 00:00:47,800 --> 00:00:51,200 Speaker 1: happened to the high Evold regime February. It really feels 11 00:00:51,240 --> 00:00:54,600 Speaker 1: like a distant memory now, it does. It does, so 12 00:00:54,800 --> 00:00:58,400 Speaker 1: it's dissipated for now. Obviously, markets care a lot about 13 00:00:58,920 --> 00:01:02,600 Speaker 1: inflation concern and so we're getting strong job growth without 14 00:01:02,760 --> 00:01:05,399 Speaker 1: wages picking up, and so that hasn't you know that 15 00:01:05,400 --> 00:01:08,440 Speaker 1: that threat in terms of the Fed panicking uh is 16 00:01:08,480 --> 00:01:10,200 Speaker 1: not with us at the moment. And then the last 17 00:01:10,200 --> 00:01:12,880 Speaker 1: CPI report, we had the core inflation rate a few 18 00:01:12,880 --> 00:01:15,720 Speaker 1: months back running you know, up into the threes and 19 00:01:15,760 --> 00:01:18,640 Speaker 1: headline into the fours on a three month annualized basis. 20 00:01:18,640 --> 00:01:21,160 Speaker 1: And that's completely come off the boil with this, with 21 00:01:21,240 --> 00:01:23,400 Speaker 1: this weak print. Now it is one month and if 22 00:01:23,440 --> 00:01:25,280 Speaker 1: you look at the year over year data, we're still 23 00:01:25,280 --> 00:01:28,640 Speaker 1: just above two percent on both headline and core cp I. 24 00:01:28,760 --> 00:01:31,360 Speaker 1: So you know, maybe it's not a good idea to 25 00:01:31,680 --> 00:01:34,080 Speaker 1: you know, to make too much of just one month. 26 00:01:34,520 --> 00:01:38,080 Speaker 1: You know, one month's uh, you know, cooling off. But 27 00:01:38,120 --> 00:01:40,080 Speaker 1: the markets do seem to care about this a lot 28 00:01:40,120 --> 00:01:43,520 Speaker 1: because ultimately, when we have discussions about how long is 29 00:01:43,560 --> 00:01:45,520 Speaker 1: the FED going to tighten, will they invert the yield 30 00:01:45,520 --> 00:01:48,320 Speaker 1: curve if they start to really get concerned about overheating, 31 00:01:48,360 --> 00:01:51,520 Speaker 1: that's when you know, business cycles tend to end, you know, 32 00:01:51,600 --> 00:01:54,080 Speaker 1: with with the FED tightening enough to kill the expansion. 33 00:01:54,160 --> 00:01:56,520 Speaker 1: So it looks like that risk, at least in the 34 00:01:56,600 --> 00:01:59,360 Speaker 1: very short term is you know, it's been stepped back 35 00:01:59,400 --> 00:02:01,800 Speaker 1: a bit, so we're back to goldilocks. In other words, Yeah, 36 00:02:01,880 --> 00:02:05,440 Speaker 1: basically it's an uncomfortable place. So so so basically everyone 37 00:02:05,480 --> 00:02:07,320 Speaker 1: should feel good to take lots of risk and and 38 00:02:07,320 --> 00:02:09,640 Speaker 1: and keep on singing kumbay yah um. But I do 39 00:02:09,680 --> 00:02:11,400 Speaker 1: want to get your sense. I mean, at what point 40 00:02:11,840 --> 00:02:13,720 Speaker 1: do we have to start worrying? And do you expect 41 00:02:13,720 --> 00:02:17,200 Speaker 1: treasure yields to go lower. I do think so. If 42 00:02:17,240 --> 00:02:20,799 Speaker 1: we're thinking more broadly about two thousand, nineteen and two 43 00:02:20,840 --> 00:02:23,480 Speaker 1: thousand and twenty, the key question is what kind of 44 00:02:23,560 --> 00:02:26,520 Speaker 1: nominal GDP growth backdrop are we going to have? You know, 45 00:02:26,560 --> 00:02:28,720 Speaker 1: the main reason that the ten year yield ran up 46 00:02:28,720 --> 00:02:31,560 Speaker 1: to about three percent or just over from what the 47 00:02:31,560 --> 00:02:34,680 Speaker 1: one thirties and two thousand sixteen was that we had 48 00:02:34,680 --> 00:02:37,400 Speaker 1: a pre dramatic pickup in the business cycle. Right nominal 49 00:02:37,440 --> 00:02:39,680 Speaker 1: GDP growth was running at just two and a half 50 00:02:39,680 --> 00:02:41,600 Speaker 1: percent year to year in the middle of two thousand 51 00:02:41,560 --> 00:02:43,840 Speaker 1: and sixteen, We're up at four point eight percent year 52 00:02:43,880 --> 00:02:47,720 Speaker 1: over year, a nominal growth, so a pretty significant re 53 00:02:47,840 --> 00:02:50,120 Speaker 1: acceleration and growth, and that came on the back of 54 00:02:50,160 --> 00:02:53,480 Speaker 1: a huge narrowing and credit spreads right easing financial conditions. 55 00:02:53,760 --> 00:02:56,640 Speaker 1: If that's essentially behind us now. But what's in front 56 00:02:56,680 --> 00:03:00,520 Speaker 1: of us is the impact of the accumulated fed tightening 57 00:03:00,520 --> 00:03:03,079 Speaker 1: that we'll see this year, you know and last year, 58 00:03:03,480 --> 00:03:06,120 Speaker 1: and nominal growth is slower as a result, you know, 59 00:03:06,160 --> 00:03:08,440 Speaker 1: back down to the recovery averages or maybe a bit 60 00:03:08,520 --> 00:03:10,400 Speaker 1: less so over the course of the next two years. 61 00:03:10,480 --> 00:03:13,400 Speaker 1: The tenure yield in my view, will you know if 62 00:03:13,440 --> 00:03:15,840 Speaker 1: anything be a bit lower. So that's sort of an 63 00:03:15,840 --> 00:03:19,720 Speaker 1: out of consensus call because most of the people I 64 00:03:19,760 --> 00:03:23,239 Speaker 1: talked to in financial circuits circles are thinking, well, we're 65 00:03:23,320 --> 00:03:25,280 Speaker 1: kind of on a moon shot to like four percent 66 00:03:25,440 --> 00:03:31,320 Speaker 1: on the tenure. That could happen. But yes, yes, now 67 00:03:31,560 --> 00:03:34,040 Speaker 1: that could happen. I could be wrong in my assessment. 68 00:03:34,120 --> 00:03:36,920 Speaker 1: But if I'm wrong, I think it will simply be 69 00:03:36,920 --> 00:03:40,080 Speaker 1: because the nominal growth rate not only fails too slow, 70 00:03:40,160 --> 00:03:43,240 Speaker 1: but continues to accelerate. If that's really the environment we're in, 71 00:03:43,680 --> 00:03:48,440 Speaker 1: growth continuing at a strong pace, inflation, you know, continuing 72 00:03:48,480 --> 00:03:51,080 Speaker 1: to move to move up this last month, notwithstanding, but 73 00:03:51,120 --> 00:03:53,240 Speaker 1: the year over year rates, then you could see, you know, 74 00:03:53,320 --> 00:03:55,640 Speaker 1: higher yields. But that's what it would need to be 75 00:03:55,680 --> 00:03:58,760 Speaker 1: connected to what I don't see as a growth moderation, 76 00:03:58,840 --> 00:04:01,320 Speaker 1: and then you know, rates aching up. That would be 77 00:04:01,360 --> 00:04:03,640 Speaker 1: a bit unusual. So think the base case view among 78 00:04:03,640 --> 00:04:07,200 Speaker 1: economists surveyed by Bloomberg on the street right now, on 79 00:04:07,240 --> 00:04:10,480 Speaker 1: Wolf Street, not the street street. It's for growth to 80 00:04:10,520 --> 00:04:13,200 Speaker 1: peak this year, to roll over a little bit. Can 81 00:04:13,240 --> 00:04:15,680 Speaker 1: you imagine to roll over a little bit next year, 82 00:04:15,680 --> 00:04:18,159 Speaker 1: and to roll over a little bit more after that. 83 00:04:18,160 --> 00:04:20,960 Speaker 1: That seems to be the consensus view amongst everybody that 84 00:04:21,000 --> 00:04:23,160 Speaker 1: I've spoken to. We pick this year, we get close 85 00:04:23,200 --> 00:04:25,400 Speaker 1: to three roll over towards two and a half roll 86 00:04:25,440 --> 00:04:27,640 Speaker 1: over towards two in the next two years. Is that 87 00:04:27,720 --> 00:04:30,679 Speaker 1: your base case? Basically, it's not. I don't like running 88 00:04:30,720 --> 00:04:33,440 Speaker 1: with the consensus, but you know, the consensus is actually 89 00:04:33,839 --> 00:04:36,920 Speaker 1: usually right. They're just wrong at turning points, right, always 90 00:04:36,960 --> 00:04:41,000 Speaker 1: wrong at turning points, but otherwise generally correct. Uh So, 91 00:04:41,000 --> 00:04:42,960 Speaker 1: so right now, we sort of have this you know, 92 00:04:43,040 --> 00:04:46,440 Speaker 1: goldilox situation where the growth numbers have been good it 93 00:04:46,560 --> 00:04:48,800 Speaker 1: wages and inflation have you know have you know, have 94 00:04:48,920 --> 00:04:52,200 Speaker 1: not been alarming, and you know, the cases for a 95 00:04:52,240 --> 00:04:55,120 Speaker 1: slowdown to not be violent, but but to you know, 96 00:04:55,200 --> 00:04:57,839 Speaker 1: to be more modest because you're not in an environment 97 00:04:57,839 --> 00:05:00,279 Speaker 1: where saying, credit spreads are shooting up. At this point 98 00:05:00,560 --> 00:05:03,760 Speaker 1: you mentioned the volatility tends to correlate pretty closely with 99 00:05:03,760 --> 00:05:07,719 Speaker 1: with credit spreads and financial conditions. So that's where we are, 100 00:05:07,839 --> 00:05:09,800 Speaker 1: So it would make sense that the consensus would hold 101 00:05:09,839 --> 00:05:12,320 Speaker 1: their view. Makes me a little bit uncomfortable to be 102 00:05:12,400 --> 00:05:16,719 Speaker 1: running with the consensus um, but you know, it does 103 00:05:16,839 --> 00:05:20,920 Speaker 1: make sense based on you know, that the backdrop just described. Well, 104 00:05:20,960 --> 00:05:23,799 Speaker 1: you you mentioned the absence of credit risk LEASA triple CS. 105 00:05:24,200 --> 00:05:26,200 Speaker 1: I mean, if we keep coming back to this triple ses, 106 00:05:26,240 --> 00:05:29,160 Speaker 1: the junkiest part of junk is where the performance is 107 00:05:29,200 --> 00:05:33,200 Speaker 1: beat well. And people will argue this is part because 108 00:05:33,240 --> 00:05:35,760 Speaker 1: the energy sector was dominanting the Triple C sectuary, and 109 00:05:35,760 --> 00:05:39,480 Speaker 1: you've got energy prices rebounding. Perhaps that's it, but there 110 00:05:39,480 --> 00:05:42,159 Speaker 1: also hasn't been that much supply. People aren't Companies that 111 00:05:42,200 --> 00:05:45,040 Speaker 1: are a risk here haven't been selling as much debt, 112 00:05:45,080 --> 00:05:48,200 Speaker 1: with the exception of we Work and Uber and some 113 00:05:48,279 --> 00:05:52,080 Speaker 1: of these other UH questionable companies. I want to get 114 00:05:52,120 --> 00:05:55,279 Speaker 1: your take, Mike on something that sort of is a 115 00:05:55,320 --> 00:05:59,680 Speaker 1: little off topic, and that is geopolitical risk. Because you know, yes, 116 00:05:59,760 --> 00:06:02,160 Speaker 1: every thing seems great, as John was saying, we're back 117 00:06:02,200 --> 00:06:06,800 Speaker 1: to goldilocks stands. Everyone's happy, and yet there's a war 118 00:06:07,360 --> 00:06:11,360 Speaker 1: UH that is at risk of breaking out between Assyria 119 00:06:11,560 --> 00:06:15,200 Speaker 1: and UH and and Israel with Iran getting involved. The 120 00:06:15,320 --> 00:06:18,640 Speaker 1: US just exited the Iranian nuclear deal. You have issues 121 00:06:18,680 --> 00:06:21,800 Speaker 1: with North Korea, you have China and US trade wars. 122 00:06:22,240 --> 00:06:24,600 Speaker 1: When do we when do we have to care? Yeah, 123 00:06:24,640 --> 00:06:28,600 Speaker 1: it's it's an interesting question. Because you know, markets seem 124 00:06:28,680 --> 00:06:31,440 Speaker 1: like they just overlooked this stuff, and typically they do 125 00:06:31,680 --> 00:06:36,320 Speaker 1: unless you have a geopolitical event that actually threatens to 126 00:06:36,440 --> 00:06:39,680 Speaker 1: disrupt commerce and profits. You know, it sounds like a 127 00:06:40,040 --> 00:06:43,200 Speaker 1: cold statement, right, markets don't care about dead bodies, You 128 00:06:43,279 --> 00:06:45,719 Speaker 1: care about commerce, And it is a cold statement. But 129 00:06:45,839 --> 00:06:48,480 Speaker 1: historically it stands up if you look at the Yeah, 130 00:06:48,520 --> 00:06:50,320 Speaker 1: it stands up if you look at the data. So 131 00:06:50,800 --> 00:06:52,600 Speaker 1: it does seem like the world just got a little 132 00:06:52,600 --> 00:06:55,839 Speaker 1: bit more dangerous in the last forty eight hours. But 133 00:06:56,279 --> 00:06:59,760 Speaker 1: in terms of of markets, you know, we need to 134 00:06:59,760 --> 00:07:03,240 Speaker 1: see a series of events that actually threatens commerce on 135 00:07:03,320 --> 00:07:06,000 Speaker 1: a you know, on a broad scale and uh and 136 00:07:06,040 --> 00:07:08,760 Speaker 1: then you know markets will it will react to that 137 00:07:09,120 --> 00:07:12,440 Speaker 1: is trite that issue. I think trade is that issue. 138 00:07:12,560 --> 00:07:15,280 Speaker 1: I mean, at this point, you know, we've seen a 139 00:07:15,320 --> 00:07:18,520 Speaker 1: lot of bluster. We'll see what happens with policy follow 140 00:07:18,600 --> 00:07:21,280 Speaker 1: through our lack thereof. I think the administration has a 141 00:07:21,280 --> 00:07:23,120 Speaker 1: bit of a challenge in terms of getting on the 142 00:07:23,160 --> 00:07:25,640 Speaker 1: same page. I know you've done some interviews with some 143 00:07:25,720 --> 00:07:28,680 Speaker 1: key administration officials, and depending on who you have on 144 00:07:28,760 --> 00:07:31,040 Speaker 1: and what you at, you get a different answer. You know, 145 00:07:31,440 --> 00:07:39,600 Speaker 1: even asking the same questions as confused as I am. So, so, 146 00:07:40,120 --> 00:07:42,440 Speaker 1: you know, the President seems to you know, his issue 147 00:07:42,440 --> 00:07:44,520 Speaker 1: seems to be the trade deficit, right, I mean that's 148 00:07:44,560 --> 00:07:47,280 Speaker 1: if you when he's asked what is the goal with 149 00:07:47,480 --> 00:07:51,160 Speaker 1: you know, with the China trade negotiations, it's the trade deficit. Well, 150 00:07:51,560 --> 00:07:53,920 Speaker 1: you know, if you're running up the fiscal deficit at 151 00:07:53,920 --> 00:07:56,600 Speaker 1: exactly the wrong time in the business cycle, you do 152 00:07:56,680 --> 00:07:59,880 Speaker 1: a two year spending blowout, you know, and and then 153 00:08:00,000 --> 00:08:03,040 Speaker 1: as tax cut, the trade deficit is going to go higher, 154 00:08:03,080 --> 00:08:06,040 Speaker 1: all other things equal. So I mean, potentially you could 155 00:08:06,040 --> 00:08:09,680 Speaker 1: shift it from China somewhere else, but protectionist policy is 156 00:08:09,680 --> 00:08:12,200 Speaker 1: not going to succeed in reducing the trade deficit unless 157 00:08:12,240 --> 00:08:14,680 Speaker 1: you actually we're able to do something that blew up 158 00:08:14,720 --> 00:08:17,080 Speaker 1: the U. S economy in the process. So if investment 159 00:08:17,120 --> 00:08:20,240 Speaker 1: in spending collapse relative to the level of savings, then 160 00:08:20,280 --> 00:08:22,520 Speaker 1: you could run trade surpluses. That's what we did during 161 00:08:22,560 --> 00:08:26,880 Speaker 1: the nineteen thirties. Probably not a policy path that anyone 162 00:08:27,000 --> 00:08:30,680 Speaker 1: is knowingly advocating. Marke Donda has been great to see you. 163 00:08:30,840 --> 00:08:32,719 Speaker 1: Thank you very much for joining us this morning. So 164 00:08:32,960 --> 00:08:50,440 Speaker 1: M Campound is chief economist and Chafe market strategist. President 165 00:08:50,440 --> 00:08:54,520 Speaker 1: Trump welcomed home three American prisoners from North Korea. We 166 00:08:54,559 --> 00:08:58,800 Speaker 1: also found out yesterday Singapore is the designated location for 167 00:08:58,840 --> 00:09:02,120 Speaker 1: the June twelfth, the meeting between President Trump and North 168 00:09:02,200 --> 00:09:06,960 Speaker 1: Korean leader Kim Jong What are we expecting to hear 169 00:09:07,040 --> 00:09:10,000 Speaker 1: out of these meetings? Uh? Joining us now? Nick Wadam's 170 00:09:10,000 --> 00:09:13,120 Speaker 1: Bloomberg State Department reporter, Nick, what do you think is 171 00:09:13,120 --> 00:09:16,240 Speaker 1: the most likely outcome of the historic summit between Trump 172 00:09:16,280 --> 00:09:19,480 Speaker 1: and Kim Jong un? Well, that's that's really the big question, 173 00:09:19,520 --> 00:09:22,280 Speaker 1: because they haven't done a lot of the sort of 174 00:09:22,400 --> 00:09:26,760 Speaker 1: nitty gritty groundwork, uh to pin down, um, you know, 175 00:09:26,880 --> 00:09:29,800 Speaker 1: real sort of deliverables from this meeting. So I think 176 00:09:29,800 --> 00:09:34,040 Speaker 1: what you're likely to see the strategy being is a 177 00:09:34,160 --> 00:09:39,720 Speaker 1: sort of hoping to start the momentum going so that um, 178 00:09:39,720 --> 00:09:42,640 Speaker 1: when those negotiations do get tough on the on the 179 00:09:42,679 --> 00:09:46,720 Speaker 1: details of how North Korea would be nuclearize. Uh, They're 180 00:09:46,760 --> 00:09:50,000 Speaker 1: hoping that basically the momentum created by that handshake would 181 00:09:50,080 --> 00:09:54,000 Speaker 1: push those negotiations through, so sort of a very symbolic 182 00:09:54,720 --> 00:09:59,440 Speaker 1: opening um, opening shot that would then push the negotiations through. 183 00:10:00,240 --> 00:10:02,520 Speaker 1: Who is coming into these meetings with the upper hand, 184 00:10:02,840 --> 00:10:06,920 Speaker 1: President Trump or North Korean leader Kim jonger Well, I 185 00:10:06,960 --> 00:10:09,320 Speaker 1: think at this stage it's clearly Kim Jong. I mean, 186 00:10:09,360 --> 00:10:12,120 Speaker 1: this is a huge risk for President Trump because if 187 00:10:12,160 --> 00:10:16,360 Speaker 1: he cannot deliver a deal, uh, then he will look 188 00:10:16,559 --> 00:10:20,200 Speaker 1: very bad and his his reputation and credibility will really 189 00:10:20,240 --> 00:10:22,520 Speaker 1: be undermined. I mean for Kim Jong, and the meeting 190 00:10:22,600 --> 00:10:25,360 Speaker 1: itself is a huge victory. He gets to share the 191 00:10:25,440 --> 00:10:28,480 Speaker 1: stage with the President of the United States, and so 192 00:10:28,559 --> 00:10:31,280 Speaker 1: far he has not committed to doing anything that North 193 00:10:31,360 --> 00:10:34,440 Speaker 1: Korea has not committed to in the past, only two 194 00:10:35,000 --> 00:10:38,240 Speaker 1: reneg upon so so far, I think Kim John looks 195 00:10:38,280 --> 00:10:40,480 Speaker 1: like the queer winner here. Nick Waams. Great to have 196 00:10:40,520 --> 00:10:42,320 Speaker 1: you with us on the program, of course, joining us 197 00:10:42,480 --> 00:10:44,040 Speaker 1: over the next couple of weeks in the lead up 198 00:10:44,480 --> 00:10:48,120 Speaker 1: to that amazing summits the set to happen between the 199 00:10:48,120 --> 00:10:50,520 Speaker 1: President the two respective leaders of North Korea and the 200 00:10:50,600 --> 00:10:53,640 Speaker 1: United States up Blomberg State Department reporter. What a place 201 00:10:53,679 --> 00:10:55,079 Speaker 1: to say that with us here in New York is 202 00:10:55,120 --> 00:11:00,440 Speaker 1: Stephen Cook, CFR, CFR Senior Fellow for the Middle East. Stephen, 203 00:11:00,480 --> 00:11:02,000 Speaker 1: great to have you with us on a program. Pleasure 204 00:11:02,040 --> 00:11:03,880 Speaker 1: to be here. Let's talk about the Middle eights tensions 205 00:11:03,920 --> 00:11:06,320 Speaker 1: really flaring, and earlier on I said to you, let's 206 00:11:06,360 --> 00:11:08,280 Speaker 1: talk about your base case for the conflict. You said, 207 00:11:08,320 --> 00:11:11,760 Speaker 1: which one? Um, So let's begin with one these writings 208 00:11:12,080 --> 00:11:15,400 Speaker 1: and the Iranians. Tensions continuing to flare, some might say 209 00:11:15,400 --> 00:11:17,880 Speaker 1: even an escalation of the last couple of weeks. Stephen, 210 00:11:17,960 --> 00:11:21,160 Speaker 1: how do you see things evolving the Well, the Israelis 211 00:11:21,160 --> 00:11:23,679 Speaker 1: are seeing the right things without not wanting an escalation. 212 00:11:23,720 --> 00:11:28,320 Speaker 1: But there is an existential issue at play for the Israelis. 213 00:11:28,400 --> 00:11:32,360 Speaker 1: They do not and they are intent on preventing the 214 00:11:32,400 --> 00:11:37,840 Speaker 1: Iranians establishing a permanent presence in Syria in which to 215 00:11:38,080 --> 00:11:42,440 Speaker 1: arm his Ballah. They have vowed not to allow what 216 00:11:42,600 --> 00:11:45,320 Speaker 1: happened in Lebanon, where his blow was able to acquire 217 00:11:45,400 --> 00:11:48,199 Speaker 1: tens of thousands, hundreds of thousands of rockets and missiles. 218 00:11:48,280 --> 00:11:51,280 Speaker 1: They vowed to prevent that from happening in Syria. So 219 00:11:51,360 --> 00:11:54,319 Speaker 1: I expect that not only will tensions continue to flare, 220 00:11:54,400 --> 00:11:57,400 Speaker 1: but the kind of violence that we've seen over the 221 00:11:57,480 --> 00:12:01,480 Speaker 1: last few weeks, most dramatically the other the other night, 222 00:12:02,280 --> 00:12:05,520 Speaker 1: uh to continue. Does Israel field emboldened now the president 223 00:12:05,520 --> 00:12:07,520 Speaker 1: has pulled out of the j c P A well, 224 00:12:07,600 --> 00:12:11,280 Speaker 1: Let's let's be clear. Um, this tip for tat violence 225 00:12:11,320 --> 00:12:14,400 Speaker 1: between the Israelities and the Iranon's has been happening before 226 00:12:15,200 --> 00:12:17,280 Speaker 1: the President withdrew from the j c p o A. 227 00:12:17,400 --> 00:12:21,400 Speaker 1: But certainly the Israelis feel emboldened. This has been a 228 00:12:21,480 --> 00:12:26,520 Speaker 1: goal of Israeli Prime Minister Netanya since the Iran nuclear 229 00:12:26,559 --> 00:12:32,000 Speaker 1: agreement was being negotiated. UM. So they certainly feel as 230 00:12:32,040 --> 00:12:37,160 Speaker 1: if the situation in the region, with their relations with 231 00:12:37,280 --> 00:12:39,920 Speaker 1: the wider Arab world and support from the United States, 232 00:12:40,600 --> 00:12:44,160 Speaker 1: is shifting in Israel's direction. So pretty much everyone who 233 00:12:44,320 --> 00:12:48,040 Speaker 1: I've heard talk about this expects the conflict to escalate here. 234 00:12:48,679 --> 00:12:52,440 Speaker 1: What does the base case look like in your mind 235 00:12:52,679 --> 00:12:55,520 Speaker 1: as to an escalated conflict and how why does it 236 00:12:55,559 --> 00:12:59,760 Speaker 1: get Well, it strikes me that it's going to be 237 00:13:00,520 --> 00:13:04,760 Speaker 1: their escalation is is certainly a likelihood here, but whether 238 00:13:04,800 --> 00:13:08,040 Speaker 1: it widens to include other actors like the Russians or 239 00:13:08,080 --> 00:13:11,480 Speaker 1: even the United States seems to be somewhat limited. Uh. 240 00:13:12,000 --> 00:13:17,520 Speaker 1: The Russians. Um, every party to this conflict in Syria 241 00:13:17,600 --> 00:13:22,520 Speaker 1: has to go to the Russians for permission for a deal. Uh, 242 00:13:22,640 --> 00:13:26,640 Speaker 1: and so UH it's unlikely that the Russians will get 243 00:13:26,640 --> 00:13:30,560 Speaker 1: directly involved on behalf of the assad regime in the 244 00:13:30,600 --> 00:13:37,400 Speaker 1: fight between Israeli's and Iranians. However, UH, it could escalate 245 00:13:37,440 --> 00:13:39,720 Speaker 1: to the point where you do have a kind of 246 00:13:39,760 --> 00:13:43,559 Speaker 1: open conflict, not just these air strikes and missile strikes. 247 00:13:43,880 --> 00:13:47,000 Speaker 1: It is unbearable from the perspective of Israelis to have 248 00:13:47,200 --> 00:13:53,400 Speaker 1: large numbers of Iranian Revolutionary Guard Corps members UH in Syria. 249 00:13:53,800 --> 00:13:58,080 Speaker 1: How did how did Russia end up being the powerbroker 250 00:13:58,240 --> 00:14:00,280 Speaker 1: in all of this with Vladimir Putin kind of having 251 00:14:00,280 --> 00:14:04,360 Speaker 1: his ring out and everybody coming to kiss it because 252 00:14:04,440 --> 00:14:09,560 Speaker 1: the Russians intervened in UH and essentially saved the outside 253 00:14:09,600 --> 00:14:13,880 Speaker 1: regime Asside is dependent upon him UH. The Iranians have 254 00:14:14,559 --> 00:14:19,160 Speaker 1: become partners of sorts with the Russians UH, and the 255 00:14:19,240 --> 00:14:24,120 Speaker 1: Israelis need Russian ascent essentially to operate with impunity the 256 00:14:24,160 --> 00:14:27,840 Speaker 1: way that they have in the skies over Syria. And 257 00:14:28,040 --> 00:14:33,440 Speaker 1: what Putin does is he provides that permission. He saves 258 00:14:33,520 --> 00:14:37,560 Speaker 1: the Asseid regime. He works with the Iranians, but he 259 00:14:37,680 --> 00:14:42,840 Speaker 1: demonstrates that his interests are independent of Theirs. Thus he 260 00:14:42,880 --> 00:14:45,160 Speaker 1: hasn't come to the defense of the Syrian regime when 261 00:14:45,160 --> 00:14:49,200 Speaker 1: it comes to the Israelis taking matters into their own hands. Uh. 262 00:14:49,240 --> 00:14:52,240 Speaker 1: This is a way of keeping each and every one 263 00:14:52,280 --> 00:14:56,040 Speaker 1: of these parties. Coming back to Moscow. Uhnatia was just 264 00:14:56,280 --> 00:15:00,280 Speaker 1: there UH discussing these issues with with Putin. So how 265 00:15:00,320 --> 00:15:02,120 Speaker 1: on earth do we get a broader deal that the 266 00:15:02,120 --> 00:15:04,840 Speaker 1: president would like for Iran to come to the table, 267 00:15:05,200 --> 00:15:07,800 Speaker 1: agree to everything they've already agreed to, and then agree 268 00:15:07,840 --> 00:15:11,440 Speaker 1: to even more intervention in the region, ballistic missile testing. 269 00:15:11,800 --> 00:15:14,480 Speaker 1: That broader deal that the President wants, and some people 270 00:15:14,560 --> 00:15:17,640 Speaker 1: might say, quite rightly wants, can he get it? Well, 271 00:15:17,640 --> 00:15:21,560 Speaker 1: that's the logical flight in the president's decision to breach 272 00:15:21,760 --> 00:15:27,200 Speaker 1: the j c p O A UH two, break the 273 00:15:27,280 --> 00:15:31,080 Speaker 1: agreement and then demand a whole host of measures that 274 00:15:31,080 --> 00:15:35,960 Speaker 1: were already included in the agreement. Plus, UH would if 275 00:15:36,000 --> 00:15:39,160 Speaker 1: one was an Iranian decision maker, why would anybody take 276 00:15:39,200 --> 00:15:41,320 Speaker 1: that deal? And let's be clear, Steven, what we've heard 277 00:15:41,320 --> 00:15:42,840 Speaker 1: in the last couple of days as well, is that 278 00:15:42,840 --> 00:15:45,760 Speaker 1: this administration would like the inspectors to still go into 279 00:15:45,800 --> 00:15:48,200 Speaker 1: Iran even though the unartist STATS has pulled out of 280 00:15:48,240 --> 00:15:51,480 Speaker 1: the deal. I mean, this is some very very high 281 00:15:51,480 --> 00:15:54,080 Speaker 1: expectations on the U S administration side for what might 282 00:15:54,080 --> 00:15:57,160 Speaker 1: happen here with Iran. It does seem that every time 283 00:15:57,280 --> 00:16:00,240 Speaker 1: the administration makes a decision along these lines, they have 284 00:16:00,360 --> 00:16:06,080 Speaker 1: failed to underestimate the likely reaction of their adversaries or interlocutors. 285 00:16:06,440 --> 00:16:08,520 Speaker 1: Once again, if you look at it from the perspective 286 00:16:08,560 --> 00:16:11,680 Speaker 1: of the Iranians, the United States is in breach of 287 00:16:11,720 --> 00:16:16,120 Speaker 1: the agreement. There's no reason, there's no compelling reason for 288 00:16:16,160 --> 00:16:19,920 Speaker 1: them to allow UH the United States to dictate terms 289 00:16:20,280 --> 00:16:23,000 Speaker 1: now that the United States is out of the deal, 290 00:16:23,080 --> 00:16:26,240 Speaker 1: but the Europeans and other signatories remain in it. So 291 00:16:26,440 --> 00:16:28,600 Speaker 1: I want to know sort of what you expect the 292 00:16:28,720 --> 00:16:32,280 Speaker 1: consequences to be on the Iranian economy. Some people are 293 00:16:32,280 --> 00:16:35,920 Speaker 1: saying that the people might uproot the current leadership and 294 00:16:35,960 --> 00:16:38,080 Speaker 1: there might be regime change sort of de facto as 295 00:16:38,080 --> 00:16:40,480 Speaker 1: a result of the U S decision here. Do you 296 00:16:40,480 --> 00:16:44,320 Speaker 1: think that that's likely. Well, it is no secret that 297 00:16:44,360 --> 00:16:48,120 Speaker 1: there has been unrest in Iran over the course of 298 00:16:48,120 --> 00:16:52,640 Speaker 1: the last months, and much of the unhappiness in Iran 299 00:16:52,720 --> 00:16:56,080 Speaker 1: has to do with the fact that President Rohani UH 300 00:16:56,480 --> 00:16:59,720 Speaker 1: said that after this agreement things would get better UH 301 00:17:00,000 --> 00:17:02,720 Speaker 1: for Iranians. But Iranians are upset about a whole host 302 00:17:02,760 --> 00:17:08,640 Speaker 1: of things about Irani adventuresome adventure, an adventurous Iranian foreign 303 00:17:08,640 --> 00:17:11,720 Speaker 1: policy around the Middle East, that that the focus has 304 00:17:11,760 --> 00:17:14,800 Speaker 1: been taken off the Iranian people and on this kind 305 00:17:14,840 --> 00:17:19,560 Speaker 1: of imperial policy on the part of of the Iranians. 306 00:17:19,600 --> 00:17:21,919 Speaker 1: As far as the sanctions and what effect they will have, 307 00:17:21,960 --> 00:17:26,040 Speaker 1: they certainly will have an effect on Iranian businesses and 308 00:17:26,119 --> 00:17:29,880 Speaker 1: individuals who have been who have been sanctioned. But let's 309 00:17:29,880 --> 00:17:35,800 Speaker 1: be clear, bilateral sanctions are weaker than multilateral sanctions. And 310 00:17:35,840 --> 00:17:38,760 Speaker 1: as long as the Europeans, the Indians, and the Russians, 311 00:17:38,800 --> 00:17:41,639 Speaker 1: the Chinese are not playing along with the United States, 312 00:17:42,160 --> 00:17:44,920 Speaker 1: the Iranians continue to have options to get around them, 313 00:17:45,000 --> 00:17:47,919 Speaker 1: even with tough secondary sanctions that the Congress and the 314 00:17:47,920 --> 00:17:50,199 Speaker 1: administration are problems. And that's what it all comes down to, 315 00:17:50,280 --> 00:17:53,280 Speaker 1: Stephen pulling down of the deal is only effective if 316 00:17:53,400 --> 00:17:57,920 Speaker 1: US sanctions effectively, or international sanctions and secondary sanctions apply 317 00:17:58,040 --> 00:18:02,320 Speaker 1: to European companies. That's exactly It was the multilateral sanctions 318 00:18:02,320 --> 00:18:05,879 Speaker 1: that ultimately brought the Iranians to the table, that led 319 00:18:05,920 --> 00:18:09,840 Speaker 1: to the negotiations that led to the j c p 320 00:18:09,960 --> 00:18:12,639 Speaker 1: o A. I think it's unlikely that you're going to 321 00:18:12,720 --> 00:18:17,199 Speaker 1: have that kind of international consensus to negotiate a bigger, 322 00:18:17,240 --> 00:18:20,120 Speaker 1: better deal. Stephen Cook, It's great to have you with us, 323 00:18:20,280 --> 00:18:22,520 Speaker 1: and maybe we can switch for all day on this 324 00:18:22,600 --> 00:18:25,320 Speaker 1: specific issue. So curious and so many questions as to 325 00:18:25,359 --> 00:18:27,439 Speaker 1: what is happening in the Middle East at the moment. CF. 326 00:18:27,840 --> 00:18:44,040 Speaker 1: Senior Fellow for the Middle East, Karen Well. Our next 327 00:18:44,040 --> 00:18:47,159 Speaker 1: guest has gotten it right again and again when it 328 00:18:47,200 --> 00:18:50,840 Speaker 1: comes to US stocks. So we are going to tap 329 00:18:50,960 --> 00:18:53,240 Speaker 1: him and his crystal ball of a mind to find 330 00:18:53,280 --> 00:18:56,919 Speaker 1: out where things are going next. Jonathan Gollub joins US 331 00:18:57,200 --> 00:19:01,240 Speaker 1: Credit sweet chief US Equity strategy in our eleven three 332 00:19:01,240 --> 00:19:05,920 Speaker 1: Oh studios. Jonathan, before we get into sectors, particularly healthcare, 333 00:19:05,920 --> 00:19:10,200 Speaker 1: ahead of this President Trump speech on drug prices, UM, 334 00:19:10,320 --> 00:19:12,280 Speaker 1: where are we are you still as bullish as you 335 00:19:12,359 --> 00:19:16,639 Speaker 1: have been on US equities and you still see gains ahead? 336 00:19:17,560 --> 00:19:20,040 Speaker 1: I am pretty optimistic and mean. First of all, the 337 00:19:20,119 --> 00:19:23,479 Speaker 1: underlying fundamental is great. This earning season, UM earnings were 338 00:19:23,560 --> 00:19:26,239 Speaker 1: up twenty five percent year over year, which is just 339 00:19:26,320 --> 00:19:29,000 Speaker 1: an unheard of thing. UM. A chunk of that is 340 00:19:29,040 --> 00:19:31,000 Speaker 1: from taxes. But even if you strip out the taxes, 341 00:19:31,880 --> 00:19:35,320 Speaker 1: earnings growth which is great. A lot of investors are 342 00:19:35,359 --> 00:19:37,880 Speaker 1: asking if can you get any better than this? And 343 00:19:37,960 --> 00:19:40,679 Speaker 1: the answer is probably not, But that doesn't mean that 344 00:19:40,720 --> 00:19:43,520 Speaker 1: they won't be really good. And I think that investors 345 00:19:43,520 --> 00:19:47,360 Speaker 1: are struggling with that whole idea that, um, the underlying 346 00:19:47,359 --> 00:19:49,080 Speaker 1: trend is good, but it can't be as good as 347 00:19:49,160 --> 00:19:52,400 Speaker 1: as what we've just achieved. So what the answer might 348 00:19:52,440 --> 00:19:54,480 Speaker 1: be we were talking about this ahead of the segment, 349 00:19:54,800 --> 00:19:59,399 Speaker 1: is to rotate towards sectors that you like best or 350 00:19:59,440 --> 00:20:02,040 Speaker 1: think there might be opportunities, rather than just going in 351 00:20:02,160 --> 00:20:05,000 Speaker 1: whole hog broadly, if you think that this is sort 352 00:20:05,040 --> 00:20:07,040 Speaker 1: of as good as it gets with respect to earnings, 353 00:20:07,080 --> 00:20:08,679 Speaker 1: is that right? Yeah? And I think that's exactly how 354 00:20:08,720 --> 00:20:10,000 Speaker 1: you have to think about it. I mean, so the 355 00:20:10,320 --> 00:20:12,760 Speaker 1: first is if you start with tech, which has been 356 00:20:12,760 --> 00:20:16,040 Speaker 1: the market leader. Um, I think that that will continue 357 00:20:16,040 --> 00:20:18,840 Speaker 1: to be the market leader for for quite a while. Yeah. 358 00:20:18,840 --> 00:20:21,040 Speaker 1: I mean, if you look at the returns that you've 359 00:20:21,080 --> 00:20:24,560 Speaker 1: gotten in the tech sector, they've been driven by earnings, 360 00:20:24,680 --> 00:20:27,280 Speaker 1: not by the by stock multiple. So if something goes 361 00:20:27,359 --> 00:20:30,560 Speaker 1: up by and it's earnings go by thirty, it didn't 362 00:20:30,560 --> 00:20:33,159 Speaker 1: get more expensive, it got cheaper, right, So, Um, the 363 00:20:33,600 --> 00:20:36,040 Speaker 1: tech sector has just been out delivering everything else, and 364 00:20:36,080 --> 00:20:38,639 Speaker 1: I think that it's going to continue to be a winner. However, 365 00:20:39,359 --> 00:20:44,320 Speaker 1: those areas like industrials or materials or mining companies that 366 00:20:44,400 --> 00:20:47,280 Speaker 1: are to do really well when the economy is re 367 00:20:47,440 --> 00:20:51,320 Speaker 1: accelerating are probably going to do a little bit less well. 368 00:20:51,520 --> 00:20:53,760 Speaker 1: I wouldn't necessarily want to sell them, but you probably 369 00:20:53,800 --> 00:20:57,320 Speaker 1: want to move from there to other other areas. The 370 00:20:57,400 --> 00:20:59,840 Speaker 1: problem this time around, which is something we haven't seen, 371 00:21:00,320 --> 00:21:02,320 Speaker 1: is that the areas you want to rotate to, which 372 00:21:02,359 --> 00:21:05,840 Speaker 1: would be like consumer staples or healthcare, have their own problems. 373 00:21:06,000 --> 00:21:08,320 Speaker 1: And so it's a little bit more challenging this time 374 00:21:08,359 --> 00:21:10,359 Speaker 1: than than it has been in the past. All Right, 375 00:21:10,440 --> 00:21:12,959 Speaker 1: so let's talk about them. Healthcare. Let's talk about the problems, 376 00:21:13,000 --> 00:21:15,600 Speaker 1: because we've got the speech that we're expecting from President 377 00:21:15,600 --> 00:21:19,720 Speaker 1: Trump at two pm Eastern time talking about bringing down 378 00:21:19,920 --> 00:21:22,600 Speaker 1: pharmaceutical prices. Is that is that one of the big 379 00:21:22,600 --> 00:21:25,560 Speaker 1: headwinds here. It is the big headwind and and and 380 00:21:25,600 --> 00:21:28,240 Speaker 1: I don't think that's the President's speech. That's that's the issue. 381 00:21:28,920 --> 00:21:32,480 Speaker 1: We've seen lack of pricing power in the last few years, 382 00:21:33,119 --> 00:21:37,280 Speaker 1: um from from big big biotech and big farmer names, 383 00:21:37,320 --> 00:21:39,560 Speaker 1: and that's really eaten into the profits. I mean, these 384 00:21:39,600 --> 00:21:41,679 Speaker 1: have been high growth areas. And if you look at 385 00:21:41,680 --> 00:21:44,960 Speaker 1: the expected earnings growth rate for these big, bigger companies, 386 00:21:45,119 --> 00:21:48,120 Speaker 1: not the more speculus small guys, Um, they've really come 387 00:21:48,160 --> 00:21:51,159 Speaker 1: down to the low single digits. And that's a problem. Um. 388 00:21:51,240 --> 00:21:53,440 Speaker 1: Does that mean that I think that that we should 389 00:21:53,480 --> 00:21:56,359 Speaker 1: be targeting? Um? You know what, should the president be 390 00:21:56,400 --> 00:21:58,679 Speaker 1: targeting these companies? Probably not. It's a lot cheaper to 391 00:21:58,680 --> 00:22:01,000 Speaker 1: give someone a pill that can keep them from getting 392 00:22:01,000 --> 00:22:03,199 Speaker 1: a heart attack and you know, than taking care of 393 00:22:03,240 --> 00:22:05,560 Speaker 1: them in the hospital. So there's places that you might 394 00:22:05,560 --> 00:22:07,240 Speaker 1: want to ring costs out. I don't know if I 395 00:22:07,240 --> 00:22:10,560 Speaker 1: would be attacking drug companies, but nonetheless, drug pricing has 396 00:22:10,560 --> 00:22:13,400 Speaker 1: been a problem. So you're fairly neutral health we we 397 00:22:13,400 --> 00:22:16,080 Speaker 1: we are neutral on healthcare. I would love to rotate there, 398 00:22:16,119 --> 00:22:18,879 Speaker 1: but but again there's a little problem. And then consumer 399 00:22:18,920 --> 00:22:22,840 Speaker 1: staples that's other than next So Coca Cola, PNG, Uh, 400 00:22:23,040 --> 00:22:25,439 Speaker 1: what do you think? You know? You know, not not 401 00:22:25,520 --> 00:22:29,439 Speaker 1: to comment on on specific names, but a couple of 402 00:22:29,480 --> 00:22:32,840 Speaker 1: years ago we would agreed that those companies that are 403 00:22:32,880 --> 00:22:35,560 Speaker 1: in Amazon sites are gonna get crushed and brick and 404 00:22:35,600 --> 00:22:39,720 Speaker 1: mortar retail has gotten hurt, and we've been overweight consumer 405 00:22:39,720 --> 00:22:42,679 Speaker 1: discretionary stocks, but it really has been short brick and 406 00:22:42,680 --> 00:22:45,560 Speaker 1: mortar retail or underweight that and go along everything else 407 00:22:45,600 --> 00:22:48,400 Speaker 1: in consumers discretionary. And that's been a really great call. 408 00:22:48,840 --> 00:22:51,040 Speaker 1: But now you have something else happening. The brands that 409 00:22:51,080 --> 00:22:54,359 Speaker 1: are being sold in the supermarket, are they're being sold 410 00:22:54,400 --> 00:22:58,720 Speaker 1: in your department stores, are coming under pressure because we're 411 00:22:58,800 --> 00:23:02,800 Speaker 1: changing the way we're we're purchasing things because basically, you 412 00:23:02,840 --> 00:23:06,080 Speaker 1: can't pay for shelf space at eye level and people 413 00:23:06,080 --> 00:23:09,040 Speaker 1: buy it as much that that simple it is. It 414 00:23:09,160 --> 00:23:11,920 Speaker 1: is pretty much that simple. And also, you know, there's 415 00:23:11,960 --> 00:23:17,240 Speaker 1: been this huge premium that we've paid for consumer products 416 00:23:17,240 --> 00:23:20,000 Speaker 1: because of these brands that we're comfortable with. And now 417 00:23:20,119 --> 00:23:22,520 Speaker 1: all you need is a certain number of likes on 418 00:23:22,760 --> 00:23:26,280 Speaker 1: you know, Amazon or some other social media and and 419 00:23:26,359 --> 00:23:28,600 Speaker 1: now you're going and buying a product which may be 420 00:23:28,600 --> 00:23:31,720 Speaker 1: better for less money. Now does that mean everybody is 421 00:23:31,800 --> 00:23:34,640 Speaker 1: changing their their buying behavior. No, But this earning season 422 00:23:35,240 --> 00:23:40,040 Speaker 1: you've seen that the margin story has deteriorated in every 423 00:23:40,080 --> 00:23:42,199 Speaker 1: one of the subgroups within staples. So it's not a 424 00:23:42,200 --> 00:23:45,920 Speaker 1: couple of names, it's really a change in in shopping behavior. 425 00:23:46,000 --> 00:23:49,840 Speaker 1: So on one hand, I'd love to be rotating into 426 00:23:49,880 --> 00:23:53,199 Speaker 1: these names because I think the economy is kind of 427 00:23:53,240 --> 00:23:57,199 Speaker 1: not necessarily get becoming slow, but is becoming less fast. 428 00:23:57,760 --> 00:24:01,679 Speaker 1: On the other hand, the earnings outlook for these stocks 429 00:24:01,720 --> 00:24:05,479 Speaker 1: are are really more troubled. Okay, so let's shift to energy. 430 00:24:05,680 --> 00:24:09,639 Speaker 1: Energy stocks in the SMP five hundred up almost seven 431 00:24:09,680 --> 00:24:13,639 Speaker 1: percent on the year. Uh, certainly this comes as oil 432 00:24:13,680 --> 00:24:18,240 Speaker 1: prices surge. Are you seeing still some profits here or 433 00:24:18,280 --> 00:24:20,120 Speaker 1: do you think that it's already been baked in. Yeah, 434 00:24:20,160 --> 00:24:25,680 Speaker 1: we've we've been underweight energy for the last two years, 435 00:24:25,760 --> 00:24:28,520 Speaker 1: and our read was that oil prices may be going up, 436 00:24:28,560 --> 00:24:31,359 Speaker 1: but that ultimately these stocks were just way too expensive 437 00:24:31,359 --> 00:24:33,720 Speaker 1: and there were other issues. And then about five or 438 00:24:33,760 --> 00:24:38,240 Speaker 1: six weeks ago, we we switched direction and said, uh, 439 00:24:38,359 --> 00:24:42,000 Speaker 1: now is the time to warm up to two energy companies. 440 00:24:42,040 --> 00:24:45,200 Speaker 1: So we moved from underweight to neutral. And as we're 441 00:24:45,240 --> 00:24:48,920 Speaker 1: talking to larger institutions, hedge funds, mutual fund managers, we're 442 00:24:48,960 --> 00:24:51,040 Speaker 1: finding it at just about the same time they're seeing 443 00:24:51,080 --> 00:24:53,679 Speaker 1: the same thing. Oil prices are higher, the profits are 444 00:24:53,760 --> 00:24:57,040 Speaker 1: are stronger, and the valuations on these energy companies looks 445 00:24:57,080 --> 00:25:01,160 Speaker 1: more favorable. And then there's other dynamics around new technologies 446 00:25:01,160 --> 00:25:04,680 Speaker 1: and fracking that that actually makes these stocks less volatile, 447 00:25:04,720 --> 00:25:08,040 Speaker 1: so they're worth more um in the current environment. So 448 00:25:08,080 --> 00:25:10,720 Speaker 1: you're still neutral. Do you expect to go overweight? I 449 00:25:10,720 --> 00:25:12,920 Speaker 1: don't know if we're gonna go overweight, But the case 450 00:25:13,000 --> 00:25:15,840 Speaker 1: that we had against energy, which would really they've been 451 00:25:15,840 --> 00:25:18,800 Speaker 1: a terrible performance for so long, I think doesn't make 452 00:25:18,800 --> 00:25:21,080 Speaker 1: sense any worse anymore. So I think the real question 453 00:25:21,160 --> 00:25:23,200 Speaker 1: is should you be neutral, should you be overweight? But 454 00:25:23,240 --> 00:25:26,560 Speaker 1: to be underweight the energy sector, um, we just don't 455 00:25:26,600 --> 00:25:29,359 Speaker 1: think it's justified anymore. Okay, So given the fact that 456 00:25:29,400 --> 00:25:33,920 Speaker 1: there are sort of idiostocratic opportunities depending on the sector, uh, 457 00:25:33,920 --> 00:25:37,640 Speaker 1: and sort of a broad goldilocks backdrop here where earnings 458 00:25:37,720 --> 00:25:40,639 Speaker 1: might have peaked, earnings growth might have peaked, but you 459 00:25:40,680 --> 00:25:42,879 Speaker 1: still have that goldilocks scenario and a lot of central 460 00:25:42,880 --> 00:25:46,760 Speaker 1: bank stimulus. Uh. How much do you expect the SMP 461 00:25:46,840 --> 00:25:48,920 Speaker 1: five hundred to gain by the end of the year. 462 00:25:48,920 --> 00:25:51,240 Speaker 1: We're up about two and a half percent right now. Yeah, 463 00:25:51,280 --> 00:25:54,200 Speaker 1: I think that we'll probably see low double digit numbers. 464 00:25:54,240 --> 00:25:56,440 Speaker 1: We have a three thousand target. Really, so you think 465 00:25:56,440 --> 00:26:00,960 Speaker 1: it's like percent. We started a year, we're stock multiples. 466 00:26:00,960 --> 00:26:04,840 Speaker 1: The the pe on the SMP was eighteen two at 467 00:26:04,840 --> 00:26:07,879 Speaker 1: the beginning of the year. We're at something like sixteen 468 00:26:07,960 --> 00:26:10,840 Speaker 1: two right now. And that's a combination of the e 469 00:26:11,119 --> 00:26:14,320 Speaker 1: got so much bigger. I mean, the earnings are just fantastic, 470 00:26:14,720 --> 00:26:17,159 Speaker 1: and the stock prices are up. You know, as of 471 00:26:17,240 --> 00:26:19,880 Speaker 1: right now what a little bit less than two percent um. 472 00:26:20,040 --> 00:26:22,119 Speaker 1: So our call was that we're going to see something 473 00:26:22,160 --> 00:26:24,880 Speaker 1: like one percent a month throughout the course of the year. 474 00:26:25,240 --> 00:26:26,880 Speaker 1: I think that we're going to catch up a little 475 00:26:26,920 --> 00:26:29,000 Speaker 1: bit from what we lost, and I think we're gonna 476 00:26:29,000 --> 00:26:30,679 Speaker 1: be surprised. The other thing that's happening, and it's a 477 00:26:30,720 --> 00:26:34,479 Speaker 1: really big story, volatility spiked and it really beat up 478 00:26:34,480 --> 00:26:37,719 Speaker 1: on the market in February and March. That volatility, if 479 00:26:37,720 --> 00:26:40,720 Speaker 1: you if you look on your Bloomberg screen is really 480 00:26:41,160 --> 00:26:43,840 Speaker 1: is really really fallen, and I think it is not 481 00:26:43,880 --> 00:26:46,440 Speaker 1: going to pop back up. I think that we'll see 482 00:26:46,760 --> 00:26:49,680 Speaker 1: the VIX between twelve and fourteen throughout the year, maybe 483 00:26:49,680 --> 00:26:51,920 Speaker 1: a little bit lower, and I think that that is 484 00:26:51,960 --> 00:26:55,240 Speaker 1: going to be a real positive the market. That's underestimated. 485 00:26:55,280 --> 00:26:57,240 Speaker 1: All right, So what's gonna be the best performing sector. 486 00:26:57,720 --> 00:27:00,800 Speaker 1: I think tech would be the best performing sector again 487 00:27:00,840 --> 00:27:04,320 Speaker 1: this year. And you can see it um in a 488 00:27:04,440 --> 00:27:06,959 Speaker 1: variety of in a variety of different areas. I'll just mentioned, 489 00:27:07,000 --> 00:27:10,359 Speaker 1: you know, one theme, but it plays out across things. UM. 490 00:27:10,359 --> 00:27:14,360 Speaker 1: How big is the is the potential market for online 491 00:27:14,400 --> 00:27:17,480 Speaker 1: advertising compared to what we're spending today, And I don't 492 00:27:17,480 --> 00:27:20,199 Speaker 1: know whether it's double from here over the next decade, 493 00:27:20,200 --> 00:27:24,200 Speaker 1: but it's much much bigger if you look at the 494 00:27:24,200 --> 00:27:26,800 Speaker 1: cloud computing and data centers. And by the way, you 495 00:27:26,800 --> 00:27:30,080 Speaker 1: can play this in all kinds of other groups reats. UM. 496 00:27:30,119 --> 00:27:33,240 Speaker 1: There's there's data center reats that are just doing unbelievably 497 00:27:33,280 --> 00:27:36,119 Speaker 1: well and making big capital commitments. UM. But some of 498 00:27:36,119 --> 00:27:38,560 Speaker 1: these areas are growing really fast, and it's it's not 499 00:27:38,600 --> 00:27:40,840 Speaker 1: a question of is this a good quarter. These are 500 00:27:41,000 --> 00:27:44,240 Speaker 1: multi multi year themes. They're gonna play out. Jonathan Call 501 00:27:44,280 --> 00:27:48,280 Speaker 1: of Credit Suites, Chief US Equity Strategists, joining us here 502 00:27:48,320 --> 00:28:06,760 Speaker 1: in our eleven three oh studios, I want to shift 503 00:28:06,800 --> 00:28:10,959 Speaker 1: our focus now to technology and joining us now, I'm 504 00:28:11,000 --> 00:28:14,480 Speaker 1: so pleased to say is Austin Goulsby. Some people say 505 00:28:14,520 --> 00:28:17,440 Speaker 1: he is the funniest economist out there. I call him 506 00:28:17,480 --> 00:28:23,000 Speaker 1: perhaps the most overqualified comedian. Austin Goolsby was the chair 507 00:28:23,080 --> 00:28:27,240 Speaker 1: of the Council of Economic Advisors to President Barack Obama. 508 00:28:27,440 --> 00:28:31,600 Speaker 1: He has a storied history in the economics profession. He 509 00:28:31,720 --> 00:28:35,600 Speaker 1: is currently University of Chicago's Booth School of Business Professor. Austin, 510 00:28:35,640 --> 00:28:38,440 Speaker 1: thank you so much for being with us. I want 511 00:28:38,480 --> 00:28:43,000 Speaker 1: to start with this meeting with some White House officials 512 00:28:43,240 --> 00:28:49,040 Speaker 1: and representatives from Alphabet, Google, Facebook, Goldman, Sachs, Boeing, where 513 00:28:49,040 --> 00:28:51,920 Speaker 1: the White House told them we are not going to 514 00:28:52,000 --> 00:28:55,720 Speaker 1: bother you in your development of artificial intelligence. Go crazy, 515 00:28:56,240 --> 00:28:58,360 Speaker 1: do what you need to do. We won't get in 516 00:28:58,440 --> 00:29:04,560 Speaker 1: your way. What's reaction to that, Well, it's probably healthy 517 00:29:04,720 --> 00:29:07,560 Speaker 1: as an approach at the beginning, as you know, you know, 518 00:29:07,680 --> 00:29:12,080 Speaker 1: AI and machine learning in all of the buzzwords are 519 00:29:12,200 --> 00:29:15,560 Speaker 1: still in a very early stage, so we don't have 520 00:29:15,600 --> 00:29:18,160 Speaker 1: any idea which which way they're headed. And for the 521 00:29:18,200 --> 00:29:22,960 Speaker 1: most part, over time technologies what made us rich. So 522 00:29:23,200 --> 00:29:27,719 Speaker 1: I wouldn't I wouldn't be too paranoid elon Musk style 523 00:29:28,240 --> 00:29:31,760 Speaker 1: that the AI is going to turn us into the 524 00:29:31,800 --> 00:29:34,120 Speaker 1: movie and the machines are going to take over the world, 525 00:29:34,800 --> 00:29:37,560 Speaker 1: you know, just yet. So it's it's probably not it's 526 00:29:37,720 --> 00:29:40,520 Speaker 1: it's it's probably the healthy approach. Well, the reason why 527 00:29:40,680 --> 00:29:42,920 Speaker 1: I think this is interesting is because it's coming at 528 00:29:42,920 --> 00:29:45,640 Speaker 1: a time when people are wondering about Facebook's use of 529 00:29:45,760 --> 00:29:49,680 Speaker 1: data uh and Google is coming under similar criticism in 530 00:29:49,720 --> 00:29:54,040 Speaker 1: the European Union is implementing some data protection security and 531 00:29:54,240 --> 00:29:57,920 Speaker 1: that's intimately connected to artificial intelligence. Now, it's how people 532 00:29:58,120 --> 00:30:01,960 Speaker 1: use this data and creates systematic ways of analyzing it 533 00:30:02,040 --> 00:30:07,120 Speaker 1: and potentially in ways that the people could find creepy. Yes, 534 00:30:07,320 --> 00:30:11,000 Speaker 1: I look, I don't disagree with your If the premise 535 00:30:11,160 --> 00:30:15,520 Speaker 1: of that is should we be concerned about the the 536 00:30:15,680 --> 00:30:20,040 Speaker 1: role of our personal data that the tech companies have 537 00:30:20,280 --> 00:30:23,680 Speaker 1: and should we have better privacy protection? I totally agree 538 00:30:23,680 --> 00:30:27,080 Speaker 1: with that. I think that's a little different than saying 539 00:30:27,760 --> 00:30:32,760 Speaker 1: should we have Congress go down and regulate artificial intelligence, 540 00:30:33,240 --> 00:30:37,680 Speaker 1: which it's pretty clear virtually no member of Congress has 541 00:30:37,800 --> 00:30:40,680 Speaker 1: any idea what it is or how it works. So 542 00:30:40,840 --> 00:30:43,360 Speaker 1: I would just be a little let let's just be 543 00:30:43,440 --> 00:30:46,080 Speaker 1: a little careful on that end, But that that's not 544 00:30:46,120 --> 00:30:49,600 Speaker 1: an excuse to do nothing when there are actually things 545 00:30:49,880 --> 00:30:53,400 Speaker 1: going wrong. The things going wrong on Facebook are not 546 00:30:53,480 --> 00:30:59,240 Speaker 1: really about artificial intelligence. It's about their desire slash willingness 547 00:30:59,320 --> 00:31:03,960 Speaker 1: to share are far more about us with third parties 548 00:31:03,960 --> 00:31:07,320 Speaker 1: than we are comfortable with. All right, well, Austin Goolsby, 549 00:31:07,400 --> 00:31:09,920 Speaker 1: maybe this is an appropriate time to then segue to 550 00:31:10,120 --> 00:31:15,560 Speaker 1: the Chinese government their push for AI dominance. They've already 551 00:31:15,560 --> 00:31:19,920 Speaker 1: set goals for a tenfold increase in artificial intelligence output 552 00:31:19,960 --> 00:31:23,040 Speaker 1: in order to keep up with the United States. UM, 553 00:31:23,400 --> 00:31:28,560 Speaker 1: let's say, get your thoughts on the US Chinese trade confrontation, 554 00:31:28,920 --> 00:31:31,040 Speaker 1: and do you believe that it will it will really 555 00:31:31,080 --> 00:31:34,960 Speaker 1: become a trade war? God, I hope not. You know, 556 00:31:35,000 --> 00:31:37,480 Speaker 1: I don't know what you guys think about that. But 557 00:31:38,120 --> 00:31:43,239 Speaker 1: my view is the economic relationship between the US and 558 00:31:43,320 --> 00:31:47,080 Speaker 1: China is clearly the most important relationship in the world. 559 00:31:47,600 --> 00:31:52,920 Speaker 1: And I've been a public critic of some aspects of 560 00:31:52,960 --> 00:31:58,680 Speaker 1: the Chinese economic approach. Um. And the President Trump is 561 00:31:58,720 --> 00:32:04,080 Speaker 1: not wrong when he puts focus on the violations of 562 00:32:04,120 --> 00:32:08,560 Speaker 1: intellectual property them forcing our companies to make joint ventures 563 00:32:08,600 --> 00:32:11,040 Speaker 1: and then the joint venture partner kind of steals all 564 00:32:11,120 --> 00:32:15,200 Speaker 1: the plans and comes out with a competitor. We should 565 00:32:15,240 --> 00:32:20,440 Speaker 1: be pressing on that. Um. If we just knew what 566 00:32:20,560 --> 00:32:23,120 Speaker 1: they're doing now and we're gonna go over and and 567 00:32:23,560 --> 00:32:26,600 Speaker 1: yell at them about the size of the trade deficit 568 00:32:27,200 --> 00:32:32,240 Speaker 1: and threaten a hundred billion dollars of terriffs and then 569 00:32:32,240 --> 00:32:34,080 Speaker 1: they say, well, we'll put a hunter billion on you. 570 00:32:34,160 --> 00:32:35,920 Speaker 1: And then oh, yeah, well you put a hunter billion 571 00:32:35,920 --> 00:32:39,400 Speaker 1: on us, We'll put two on you. That doesn't sound 572 00:32:39,480 --> 00:32:43,960 Speaker 1: very good. Now, I'm I'm open to be I don't 573 00:32:43,960 --> 00:32:47,600 Speaker 1: know proven wrong. I'm open to the idea that somebody 574 00:32:48,760 --> 00:32:52,040 Speaker 1: in a strategic way and they're gonna that they're gonna 575 00:32:52,320 --> 00:32:55,560 Speaker 1: only use this as as a kind of a threat 576 00:32:56,040 --> 00:33:00,320 Speaker 1: to get some deal. Um. But if we actually into 577 00:33:00,320 --> 00:33:02,600 Speaker 1: the trade ward, no way trade ward, there's no sense 578 00:33:02,600 --> 00:33:06,360 Speaker 1: in which trade wards are good. I think for sure, Um, 579 00:33:06,840 --> 00:33:08,440 Speaker 1: it would lead to a freak out and it might 580 00:33:08,600 --> 00:33:11,480 Speaker 1: very well lead the US into a recession. How would 581 00:33:11,480 --> 00:33:15,760 Speaker 1: you counsel the president if he asked you for your input? 582 00:33:15,960 --> 00:33:22,640 Speaker 1: Because US trade groups are saying that Ford Automobiles, naval oranges, Lemons, 583 00:33:22,760 --> 00:33:26,920 Speaker 1: cherries from California, they're all sitting on docks as well 584 00:33:26,960 --> 00:33:31,520 Speaker 1: as pork. It's sitting on docks in China because Chinese 585 00:33:31,560 --> 00:33:37,440 Speaker 1: officials have in a sense adopted a go slow inspection 586 00:33:37,680 --> 00:33:41,080 Speaker 1: policy and a lot of this stuff is just rotting. 587 00:33:41,960 --> 00:33:44,520 Speaker 1: What would the United States do? What would you suggest 588 00:33:44,600 --> 00:33:48,440 Speaker 1: to the president? Well, the thing to remember about that 589 00:33:48,560 --> 00:33:51,960 Speaker 1: is I have heard those those reports that the Chinese 590 00:33:51,960 --> 00:33:56,120 Speaker 1: that customs are slow walking a bunch of American stuff. Um, 591 00:33:56,240 --> 00:33:59,640 Speaker 1: they didn't randomly do that. They are doing that in 592 00:34:00,040 --> 00:34:04,480 Speaker 1: bonds to US, threatening and imposing hundreds of billions of 593 00:34:04,520 --> 00:34:08,000 Speaker 1: dollars of tariffs on them. So I guess my advice 594 00:34:08,280 --> 00:34:11,120 Speaker 1: is that I'm not a massive expert about negotiating with 595 00:34:11,160 --> 00:34:14,360 Speaker 1: the Chinese. I talked in my part of the world 596 00:34:14,360 --> 00:34:19,319 Speaker 1: in the administration UH at the Strategic Economic Dialogue on 597 00:34:19,520 --> 00:34:27,160 Speaker 1: various issues with the Chinese. My my experience says, getting 598 00:34:27,200 --> 00:34:33,320 Speaker 1: in a big public degradation ceremony in which you announced 599 00:34:33,320 --> 00:34:35,560 Speaker 1: to the Chinese we're gonna shove your face in the 600 00:34:35,600 --> 00:34:37,680 Speaker 1: dirt and you're going to have to stand up and 601 00:34:37,719 --> 00:34:41,479 Speaker 1: publicly capitulate to us will never work. If you take 602 00:34:41,560 --> 00:34:45,320 Speaker 1: that attitude, which so far we are kind of taking. Um, you, 603 00:34:45,320 --> 00:34:50,239 Speaker 1: you basically can't negotiate with them because they publicly have 604 00:34:50,440 --> 00:34:53,719 Speaker 1: to save faith and say no, we will oppose you 605 00:34:53,760 --> 00:34:57,399 Speaker 1: in every way. The the the advice that we give 606 00:34:57,440 --> 00:35:00,600 Speaker 1: now is if you fire a shot acros us the bow. 607 00:35:01,719 --> 00:35:04,960 Speaker 1: Then go in private, shut the door and have a 608 00:35:05,040 --> 00:35:07,960 Speaker 1: negotiation and figure out what it is that you want 609 00:35:08,680 --> 00:35:12,360 Speaker 1: is are you wanting the Chinese too to commit to 610 00:35:12,600 --> 00:35:15,839 Speaker 1: certain standards on intellectual property? Are you trying to get 611 00:35:15,920 --> 00:35:19,160 Speaker 1: them to open this, that or the other market? If 612 00:35:19,200 --> 00:35:22,799 Speaker 1: you do that privately, after firing a shot across the value, 613 00:35:22,960 --> 00:35:25,680 Speaker 1: might be able to achieve it. But you don't want 614 00:35:25,719 --> 00:35:30,600 Speaker 1: to simultaneously threaten all of our allies who could be 615 00:35:30,680 --> 00:35:34,240 Speaker 1: helping us in that circumstance, threaten them with trade wars, 616 00:35:34,280 --> 00:35:37,040 Speaker 1: which is what now, what we're doing to the Europeans 617 00:35:37,920 --> 00:35:41,640 Speaker 1: on steel and aluminum, to the Canadians and the Mexicans 618 00:35:41,640 --> 00:35:45,200 Speaker 1: on NAFTA, and to the Japanese. That doesn't make any 619 00:35:45,200 --> 00:35:47,719 Speaker 1: sense to me, And so I guess I would I 620 00:35:47,760 --> 00:35:50,839 Speaker 1: would advise, I don't anticipate that the President is going 621 00:35:50,840 --> 00:35:53,120 Speaker 1: to be calling me, but if he did, I would advise, 622 00:35:53,360 --> 00:35:55,400 Speaker 1: you know, take one step back and just get a 623 00:35:55,440 --> 00:36:00,920 Speaker 1: strategy together. University of Chicago's Booth School of Business professor, 624 00:36:01,200 --> 00:36:04,719 Speaker 1: thank you so much for being with us. This is 625 00:36:04,719 --> 00:36:16,600 Speaker 1: Bloomberg Surveillance. Thanks for listening to the Bloomberg Surveillance podcast. 626 00:36:17,000 --> 00:36:22,000 Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or 627 00:36:22,080 --> 00:36:26,400 Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom 628 00:36:26,480 --> 00:36:30,359 Speaker 1: Keene before the podcast. You can always catch us worldwide. 629 00:36:30,800 --> 00:36:31,880 Speaker 1: I'm Bloomberg Radio