WEBVTT - People Respond to Higher Wages, Goolsbee Says 0:00:00.080 --> 0:00:13.040 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Ley. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:33.879 Bloomberg dot Com, and of course on the Bloomberg. If 0:00:33.920 --> 0:00:36.200 we can't break out of this regime, that that will 0:00:36.240 --> 0:00:39.680 feed into a more existential question of why not and 0:00:39.760 --> 0:00:42.000 whether we can ever move. Let's bring in my daughter show. 0:00:42.080 --> 0:00:45.519 We MKM Partner's chief economist and chief market strategist Might. 0:00:45.560 --> 0:00:47.680 Good morning to you. Thanks for having me on what 0:00:47.800 --> 0:00:51.200 happened to the high Evold regime February. It really feels 0:00:51.240 --> 0:00:54.600 like a distant memory now, it does. It does, so 0:00:54.800 --> 0:00:58.400 it's dissipated for now. Obviously, markets care a lot about 0:00:58.920 --> 0:01:02.600 inflation concern and so we're getting strong job growth without 0:01:02.760 --> 0:01:05.399 wages picking up, and so that hasn't you know that 0:01:05.400 --> 0:01:08.440 that threat in terms of the Fed panicking uh is 0:01:08.480 --> 0:01:10.200 not with us at the moment. And then the last 0:01:10.200 --> 0:01:12.880 CPI report, we had the core inflation rate a few 0:01:12.880 --> 0:01:15.720 months back running you know, up into the threes and 0:01:15.760 --> 0:01:18.640 headline into the fours on a three month annualized basis. 0:01:18.640 --> 0:01:21.160 And that's completely come off the boil with this, with 0:01:21.240 --> 0:01:23.400 this weak print. Now it is one month and if 0:01:23.440 --> 0:01:25.280 you look at the year over year data, we're still 0:01:25.280 --> 0:01:28.640 just above two percent on both headline and core cp I. 0:01:28.760 --> 0:01:31.360 So you know, maybe it's not a good idea to 0:01:31.680 --> 0:01:34.080 you know, to make too much of just one month. 0:01:34.520 --> 0:01:38.080 You know, one month's uh, you know, cooling off. But 0:01:38.120 --> 0:01:40.080 the markets do seem to care about this a lot 0:01:40.120 --> 0:01:43.520 because ultimately, when we have discussions about how long is 0:01:43.560 --> 0:01:45.520 the FED going to tighten, will they invert the yield 0:01:45.520 --> 0:01:48.320 curve if they start to really get concerned about overheating, 0:01:48.360 --> 0:01:51.520 that's when you know, business cycles tend to end, you know, 0:01:51.600 --> 0:01:54.080 with with the FED tightening enough to kill the expansion. 0:01:54.160 --> 0:01:56.520 So it looks like that risk, at least in the 0:01:56.600 --> 0:01:59.360 very short term is you know, it's been stepped back 0:01:59.400 --> 0:02:01.800 a bit, so we're back to goldilocks. In other words, Yeah, 0:02:01.880 --> 0:02:05.440 basically it's an uncomfortable place. So so so basically everyone 0:02:05.480 --> 0:02:07.320 should feel good to take lots of risk and and 0:02:07.320 --> 0:02:09.640 and keep on singing kumbay yah um. But I do 0:02:09.680 --> 0:02:11.400 want to get your sense. I mean, at what point 0:02:11.840 --> 0:02:13.720 do we have to start worrying? And do you expect 0:02:13.720 --> 0:02:17.200 treasure yields to go lower. I do think so. If 0:02:17.240 --> 0:02:20.799 we're thinking more broadly about two thousand, nineteen and two 0:02:20.840 --> 0:02:23.480 thousand and twenty, the key question is what kind of 0:02:23.560 --> 0:02:26.520 nominal GDP growth backdrop are we going to have? You know, 0:02:26.560 --> 0:02:28.720 the main reason that the ten year yield ran up 0:02:28.720 --> 0:02:31.560 to about three percent or just over from what the 0:02:31.560 --> 0:02:34.680 one thirties and two thousand sixteen was that we had 0:02:34.680 --> 0:02:37.400 a pre dramatic pickup in the business cycle. Right nominal 0:02:37.440 --> 0:02:39.680 GDP growth was running at just two and a half 0:02:39.680 --> 0:02:41.600 percent year to year in the middle of two thousand 0:02:41.560 --> 0:02:43.840 and sixteen, We're up at four point eight percent year 0:02:43.880 --> 0:02:47.720 over year, a nominal growth, so a pretty significant re 0:02:47.840 --> 0:02:50.120 acceleration and growth, and that came on the back of 0:02:50.160 --> 0:02:53.480 a huge narrowing and credit spreads right easing financial conditions. 0:02:53.760 --> 0:02:56.640 If that's essentially behind us now. But what's in front 0:02:56.680 --> 0:03:00.520 of us is the impact of the accumulated fed tightening 0:03:00.520 --> 0:03:03.079 that we'll see this year, you know and last year, 0:03:03.480 --> 0:03:06.120 and nominal growth is slower as a result, you know, 0:03:06.160 --> 0:03:08.440 back down to the recovery averages or maybe a bit 0:03:08.520 --> 0:03:10.400 less so over the course of the next two years. 0:03:10.480 --> 0:03:13.400 The tenure yield in my view, will you know if 0:03:13.440 --> 0:03:15.840 anything be a bit lower. So that's sort of an 0:03:15.840 --> 0:03:19.720 out of consensus call because most of the people I 0:03:19.760 --> 0:03:23.239 talked to in financial circuits circles are thinking, well, we're 0:03:23.320 --> 0:03:25.280 kind of on a moon shot to like four percent 0:03:25.440 --> 0:03:31.320 on the tenure. That could happen. But yes, yes, now 0:03:31.560 --> 0:03:34.040 that could happen. I could be wrong in my assessment. 0:03:34.120 --> 0:03:36.920 But if I'm wrong, I think it will simply be 0:03:36.920 --> 0:03:40.080 because the nominal growth rate not only fails too slow, 0:03:40.160 --> 0:03:43.240 but continues to accelerate. If that's really the environment we're in, 0:03:43.680 --> 0:03:48.440 growth continuing at a strong pace, inflation, you know, continuing 0:03:48.480 --> 0:03:51.080 to move to move up this last month, notwithstanding, but 0:03:51.120 --> 0:03:53.240 the year over year rates, then you could see, you know, 0:03:53.320 --> 0:03:55.640 higher yields. But that's what it would need to be 0:03:55.680 --> 0:03:58.760 connected to what I don't see as a growth moderation, 0:03:58.840 --> 0:04:01.320 and then you know, rates aching up. That would be 0:04:01.360 --> 0:04:03.640 a bit unusual. So think the base case view among 0:04:03.640 --> 0:04:07.200 economists surveyed by Bloomberg on the street right now, on 0:04:07.240 --> 0:04:10.480 Wolf Street, not the street street. It's for growth to 0:04:10.520 --> 0:04:13.200 peak this year, to roll over a little bit. Can 0:04:13.240 --> 0:04:15.680 you imagine to roll over a little bit next year, 0:04:15.680 --> 0:04:18.159 and to roll over a little bit more after that. 0:04:18.160 --> 0:04:20.960 That seems to be the consensus view amongst everybody that 0:04:21.000 --> 0:04:23.160 I've spoken to. We pick this year, we get close 0:04:23.200 --> 0:04:25.400 to three roll over towards two and a half roll 0:04:25.440 --> 0:04:27.640 over towards two in the next two years. Is that 0:04:27.720 --> 0:04:30.679 your base case? Basically, it's not. I don't like running 0:04:30.720 --> 0:04:33.440 with the consensus, but you know, the consensus is actually 0:04:33.839 --> 0:04:36.920 usually right. They're just wrong at turning points, right, always 0:04:36.960 --> 0:04:41.000 wrong at turning points, but otherwise generally correct. Uh So, 0:04:41.000 --> 0:04:42.960 so right now, we sort of have this you know, 0:04:43.040 --> 0:04:46.440 goldilox situation where the growth numbers have been good it 0:04:46.560 --> 0:04:48.800 wages and inflation have you know have you know, have 0:04:48.920 --> 0:04:52.200 not been alarming, and you know, the cases for a 0:04:52.240 --> 0:04:55.120 slowdown to not be violent, but but to you know, 0:04:55.200 --> 0:04:57.839 to be more modest because you're not in an environment 0:04:57.839 --> 0:05:00.279 where saying, credit spreads are shooting up. At this point 0:05:00.560 --> 0:05:03.760 you mentioned the volatility tends to correlate pretty closely with 0:05:03.760 --> 0:05:07.719 with credit spreads and financial conditions. So that's where we are, 0:05:07.839 --> 0:05:09.800 So it would make sense that the consensus would hold 0:05:09.839 --> 0:05:12.320 their view. Makes me a little bit uncomfortable to be 0:05:12.400 --> 0:05:16.719 running with the consensus um, but you know, it does 0:05:16.839 --> 0:05:20.920 make sense based on you know, that the backdrop just described. Well, 0:05:20.960 --> 0:05:23.799 you you mentioned the absence of credit risk LEASA triple CS. 0:05:24.200 --> 0:05:26.200 I mean, if we keep coming back to this triple ses, 0:05:26.240 --> 0:05:29.160 the junkiest part of junk is where the performance is 0:05:29.200 --> 0:05:33.200 beat well. And people will argue this is part because 0:05:33.240 --> 0:05:35.760 the energy sector was dominanting the Triple C sectuary, and 0:05:35.760 --> 0:05:39.480 you've got energy prices rebounding. Perhaps that's it, but there 0:05:39.480 --> 0:05:42.159 also hasn't been that much supply. People aren't Companies that 0:05:42.200 --> 0:05:45.040 are a risk here haven't been selling as much debt, 0:05:45.080 --> 0:05:48.200 with the exception of we Work and Uber and some 0:05:48.279 --> 0:05:52.080 of these other UH questionable companies. I want to get 0:05:52.120 --> 0:05:55.279 your take, Mike on something that sort of is a 0:05:55.320 --> 0:05:59.680 little off topic, and that is geopolitical risk. Because you know, yes, 0:05:59.760 --> 0:06:02.160 every thing seems great, as John was saying, we're back 0:06:02.200 --> 0:06:06.800 to goldilocks stands. Everyone's happy, and yet there's a war 0:06:07.360 --> 0:06:11.360 UH that is at risk of breaking out between Assyria 0:06:11.560 --> 0:06:15.200 and UH and and Israel with Iran getting involved. The 0:06:15.320 --> 0:06:18.640 US just exited the Iranian nuclear deal. You have issues 0:06:18.680 --> 0:06:21.800 with North Korea, you have China and US trade wars. 0:06:22.240 --> 0:06:24.600 When do we when do we have to care? Yeah, 0:06:24.640 --> 0:06:28.600 it's it's an interesting question. Because you know, markets seem 0:06:28.680 --> 0:06:31.440 like they just overlooked this stuff, and typically they do 0:06:31.680 --> 0:06:36.320 unless you have a geopolitical event that actually threatens to 0:06:36.440 --> 0:06:39.680 disrupt commerce and profits. You know, it sounds like a 0:06:40.040 --> 0:06:43.200 cold statement, right, markets don't care about dead bodies, You 0:06:43.279 --> 0:06:45.719 care about commerce, And it is a cold statement. But 0:06:45.839 --> 0:06:48.480 historically it stands up if you look at the Yeah, 0:06:48.520 --> 0:06:50.320 it stands up if you look at the data. So 0:06:50.800 --> 0:06:52.600 it does seem like the world just got a little 0:06:52.600 --> 0:06:55.839 bit more dangerous in the last forty eight hours. But 0:06:56.279 --> 0:06:59.760 in terms of of markets, you know, we need to 0:06:59.760 --> 0:07:03.240 see a series of events that actually threatens commerce on 0:07:03.320 --> 0:07:06.000 a you know, on a broad scale and uh and 0:07:06.040 --> 0:07:08.760 then you know markets will it will react to that 0:07:09.120 --> 0:07:12.440 is trite that issue. I think trade is that issue. 0:07:12.560 --> 0:07:15.280 I mean, at this point, you know, we've seen a 0:07:15.320 --> 0:07:18.520 lot of bluster. We'll see what happens with policy follow 0:07:18.600 --> 0:07:21.280 through our lack thereof. I think the administration has a 0:07:21.280 --> 0:07:23.120 bit of a challenge in terms of getting on the 0:07:23.160 --> 0:07:25.640 same page. I know you've done some interviews with some 0:07:25.720 --> 0:07:28.680 key administration officials, and depending on who you have on 0:07:28.760 --> 0:07:31.040 and what you at, you get a different answer. You know, 0:07:31.440 --> 0:07:39.600 even asking the same questions as confused as I am. So, so, 0:07:40.120 --> 0:07:42.440 you know, the President seems to you know, his issue 0:07:42.440 --> 0:07:44.520 seems to be the trade deficit, right, I mean that's 0:07:44.560 --> 0:07:47.280 if you when he's asked what is the goal with 0:07:47.480 --> 0:07:51.160 you know, with the China trade negotiations, it's the trade deficit. Well, 0:07:51.560 --> 0:07:53.920 you know, if you're running up the fiscal deficit at 0:07:53.920 --> 0:07:56.600 exactly the wrong time in the business cycle, you do 0:07:56.680 --> 0:07:59.880 a two year spending blowout, you know, and and then 0:08:00.000 --> 0:08:03.040 as tax cut, the trade deficit is going to go higher, 0:08:03.080 --> 0:08:06.040 all other things equal. So I mean, potentially you could 0:08:06.040 --> 0:08:09.680 shift it from China somewhere else, but protectionist policy is 0:08:09.680 --> 0:08:12.200 not going to succeed in reducing the trade deficit unless 0:08:12.240 --> 0:08:14.680 you actually we're able to do something that blew up 0:08:14.720 --> 0:08:17.080 the U. S economy in the process. So if investment 0:08:17.120 --> 0:08:20.240 in spending collapse relative to the level of savings, then 0:08:20.280 --> 0:08:22.520 you could run trade surpluses. That's what we did during 0:08:22.560 --> 0:08:26.880 the nineteen thirties. Probably not a policy path that anyone 0:08:27.000 --> 0:08:30.680 is knowingly advocating. Marke Donda has been great to see you. 0:08:30.840 --> 0:08:32.719 Thank you very much for joining us this morning. So 0:08:32.960 --> 0:08:50.440 M Campound is chief economist and Chafe market strategist. President 0:08:50.440 --> 0:08:54.520 Trump welcomed home three American prisoners from North Korea. We 0:08:54.559 --> 0:08:58.800 also found out yesterday Singapore is the designated location for 0:08:58.840 --> 0:09:02.120 the June twelfth, the meeting between President Trump and North 0:09:02.200 --> 0:09:06.960 Korean leader Kim Jong What are we expecting to hear 0:09:07.040 --> 0:09:10.000 out of these meetings? Uh? Joining us now? Nick Wadam's 0:09:10.000 --> 0:09:13.120 Bloomberg State Department reporter, Nick, what do you think is 0:09:13.120 --> 0:09:16.240 the most likely outcome of the historic summit between Trump 0:09:16.280 --> 0:09:19.480 and Kim Jong un? Well, that's that's really the big question, 0:09:19.520 --> 0:09:22.280 because they haven't done a lot of the sort of 0:09:22.400 --> 0:09:26.760 nitty gritty groundwork, uh to pin down, um, you know, 0:09:26.880 --> 0:09:29.800 real sort of deliverables from this meeting. So I think 0:09:29.800 --> 0:09:34.040 what you're likely to see the strategy being is a 0:09:34.160 --> 0:09:39.720 sort of hoping to start the momentum going so that um, 0:09:39.720 --> 0:09:42.640 when those negotiations do get tough on the on the 0:09:42.679 --> 0:09:46.720 details of how North Korea would be nuclearize. Uh, They're 0:09:46.760 --> 0:09:50.000 hoping that basically the momentum created by that handshake would 0:09:50.080 --> 0:09:54.000 push those negotiations through, so sort of a very symbolic 0:09:54.720 --> 0:09:59.440 opening um, opening shot that would then push the negotiations through. 0:10:00.240 --> 0:10:02.520 Who is coming into these meetings with the upper hand, 0:10:02.840 --> 0:10:06.920 President Trump or North Korean leader Kim jonger Well, I 0:10:06.960 --> 0:10:09.320 think at this stage it's clearly Kim Jong. I mean, 0:10:09.360 --> 0:10:12.120 this is a huge risk for President Trump because if 0:10:12.160 --> 0:10:16.360 he cannot deliver a deal, uh, then he will look 0:10:16.559 --> 0:10:20.200 very bad and his his reputation and credibility will really 0:10:20.240 --> 0:10:22.520 be undermined. I mean for Kim Jong, and the meeting 0:10:22.600 --> 0:10:25.360 itself is a huge victory. He gets to share the 0:10:25.440 --> 0:10:28.480 stage with the President of the United States, and so 0:10:28.559 --> 0:10:31.280 far he has not committed to doing anything that North 0:10:31.360 --> 0:10:34.440 Korea has not committed to in the past, only two 0:10:35.000 --> 0:10:38.240 reneg upon so so far, I think Kim John looks 0:10:38.280 --> 0:10:40.480 like the queer winner here. Nick Waams. Great to have 0:10:40.520 --> 0:10:42.320 you with us on the program, of course, joining us 0:10:42.480 --> 0:10:44.040 over the next couple of weeks in the lead up 0:10:44.480 --> 0:10:48.120 to that amazing summits the set to happen between the 0:10:48.120 --> 0:10:50.520 President the two respective leaders of North Korea and the 0:10:50.600 --> 0:10:53.640 United States up Blomberg State Department reporter. What a place 0:10:53.679 --> 0:10:55.079 to say that with us here in New York is 0:10:55.120 --> 0:11:00.440 Stephen Cook, CFR, CFR Senior Fellow for the Middle East. Stephen, 0:11:00.480 --> 0:11:02.000 great to have you with us on a program. Pleasure 0:11:02.040 --> 0:11:03.880 to be here. Let's talk about the Middle eights tensions 0:11:03.920 --> 0:11:06.320 really flaring, and earlier on I said to you, let's 0:11:06.360 --> 0:11:08.280 talk about your base case for the conflict. You said, 0:11:08.320 --> 0:11:11.760 which one? Um, So let's begin with one these writings 0:11:12.080 --> 0:11:15.400 and the Iranians. Tensions continuing to flare, some might say 0:11:15.400 --> 0:11:17.880 even an escalation of the last couple of weeks. Stephen, 0:11:17.960 --> 0:11:21.160 how do you see things evolving the Well, the Israelis 0:11:21.160 --> 0:11:23.679 are seeing the right things without not wanting an escalation. 0:11:23.720 --> 0:11:28.320 But there is an existential issue at play for the Israelis. 0:11:28.400 --> 0:11:32.360 They do not and they are intent on preventing the 0:11:32.400 --> 0:11:37.840 Iranians establishing a permanent presence in Syria in which to 0:11:38.080 --> 0:11:42.440 arm his Ballah. They have vowed not to allow what 0:11:42.600 --> 0:11:45.320 happened in Lebanon, where his blow was able to acquire 0:11:45.400 --> 0:11:48.199 tens of thousands, hundreds of thousands of rockets and missiles. 0:11:48.280 --> 0:11:51.280 They vowed to prevent that from happening in Syria. So 0:11:51.360 --> 0:11:54.319 I expect that not only will tensions continue to flare, 0:11:54.400 --> 0:11:57.400 but the kind of violence that we've seen over the 0:11:57.480 --> 0:12:01.480 last few weeks, most dramatically the other the other night, 0:12:02.280 --> 0:12:05.520 uh to continue. Does Israel field emboldened now the president 0:12:05.520 --> 0:12:07.520 has pulled out of the j c P A well, 0:12:07.600 --> 0:12:11.280 Let's let's be clear. Um, this tip for tat violence 0:12:11.320 --> 0:12:14.400 between the Israelities and the Iranon's has been happening before 0:12:15.200 --> 0:12:17.280 the President withdrew from the j c p o A. 0:12:17.400 --> 0:12:21.400 But certainly the Israelis feel emboldened. This has been a 0:12:21.480 --> 0:12:26.520 goal of Israeli Prime Minister Netanya since the Iran nuclear 0:12:26.559 --> 0:12:32.000 agreement was being negotiated. UM. So they certainly feel as 0:12:32.040 --> 0:12:37.160 if the situation in the region, with their relations with 0:12:37.280 --> 0:12:39.920 the wider Arab world and support from the United States, 0:12:40.600 --> 0:12:44.160 is shifting in Israel's direction. So pretty much everyone who 0:12:44.320 --> 0:12:48.040 I've heard talk about this expects the conflict to escalate here. 0:12:48.679 --> 0:12:52.440 What does the base case look like in your mind 0:12:52.679 --> 0:12:55.520 as to an escalated conflict and how why does it 0:12:55.559 --> 0:12:59.760 get Well, it strikes me that it's going to be 0:13:00.520 --> 0:13:04.760 their escalation is is certainly a likelihood here, but whether 0:13:04.800 --> 0:13:08.040 it widens to include other actors like the Russians or 0:13:08.080 --> 0:13:11.480 even the United States seems to be somewhat limited. Uh. 0:13:12.000 --> 0:13:17.520 The Russians. Um, every party to this conflict in Syria 0:13:17.600 --> 0:13:22.520 has to go to the Russians for permission for a deal. Uh, 0:13:22.640 --> 0:13:26.640 and so UH it's unlikely that the Russians will get 0:13:26.640 --> 0:13:30.560 directly involved on behalf of the assad regime in the 0:13:30.600 --> 0:13:37.400 fight between Israeli's and Iranians. However, UH, it could escalate 0:13:37.440 --> 0:13:39.720 to the point where you do have a kind of 0:13:39.760 --> 0:13:43.559 open conflict, not just these air strikes and missile strikes. 0:13:43.880 --> 0:13:47.000 It is unbearable from the perspective of Israelis to have 0:13:47.200 --> 0:13:53.400 large numbers of Iranian Revolutionary Guard Corps members UH in Syria. 0:13:53.800 --> 0:13:58.080 How did how did Russia end up being the powerbroker 0:13:58.240 --> 0:14:00.280 in all of this with Vladimir Putin kind of having 0:14:00.280 --> 0:14:04.360 his ring out and everybody coming to kiss it because 0:14:04.440 --> 0:14:09.560 the Russians intervened in UH and essentially saved the outside 0:14:09.600 --> 0:14:13.880 regime Asside is dependent upon him UH. The Iranians have 0:14:14.559 --> 0:14:19.160 become partners of sorts with the Russians UH, and the 0:14:19.240 --> 0:14:24.120 Israelis need Russian ascent essentially to operate with impunity the 0:14:24.160 --> 0:14:27.840 way that they have in the skies over Syria. And 0:14:28.040 --> 0:14:33.440 what Putin does is he provides that permission. He saves 0:14:33.520 --> 0:14:37.560 the Asseid regime. He works with the Iranians, but he 0:14:37.680 --> 0:14:42.840 demonstrates that his interests are independent of Theirs. Thus he 0:14:42.880 --> 0:14:45.160 hasn't come to the defense of the Syrian regime when 0:14:45.160 --> 0:14:49.200 it comes to the Israelis taking matters into their own hands. Uh. 0:14:49.240 --> 0:14:52.240 This is a way of keeping each and every one 0:14:52.280 --> 0:14:56.040 of these parties. Coming back to Moscow. Uhnatia was just 0:14:56.280 --> 0:15:00.280 there UH discussing these issues with with Putin. So how 0:15:00.320 --> 0:15:02.120 on earth do we get a broader deal that the 0:15:02.120 --> 0:15:04.840 president would like for Iran to come to the table, 0:15:05.200 --> 0:15:07.800 agree to everything they've already agreed to, and then agree 0:15:07.840 --> 0:15:11.440 to even more intervention in the region, ballistic missile testing. 0:15:11.800 --> 0:15:14.480 That broader deal that the President wants, and some people 0:15:14.560 --> 0:15:17.640 might say, quite rightly wants, can he get it? Well, 0:15:17.640 --> 0:15:21.560 that's the logical flight in the president's decision to breach 0:15:21.760 --> 0:15:27.200 the j c p O A UH two, break the 0:15:27.280 --> 0:15:31.080 agreement and then demand a whole host of measures that 0:15:31.080 --> 0:15:35.960 were already included in the agreement. Plus, UH would if 0:15:36.000 --> 0:15:39.160 one was an Iranian decision maker, why would anybody take 0:15:39.200 --> 0:15:41.320 that deal? And let's be clear, Steven, what we've heard 0:15:41.320 --> 0:15:42.840 in the last couple of days as well, is that 0:15:42.840 --> 0:15:45.760 this administration would like the inspectors to still go into 0:15:45.800 --> 0:15:48.200 Iran even though the unartist STATS has pulled out of 0:15:48.240 --> 0:15:51.480 the deal. I mean, this is some very very high 0:15:51.480 --> 0:15:54.080 expectations on the U S administration side for what might 0:15:54.080 --> 0:15:57.160 happen here with Iran. It does seem that every time 0:15:57.280 --> 0:16:00.240 the administration makes a decision along these lines, they have 0:16:00.360 --> 0:16:06.080 failed to underestimate the likely reaction of their adversaries or interlocutors. 0:16:06.440 --> 0:16:08.520 Once again, if you look at it from the perspective 0:16:08.560 --> 0:16:11.680 of the Iranians, the United States is in breach of 0:16:11.720 --> 0:16:16.120 the agreement. There's no reason, there's no compelling reason for 0:16:16.160 --> 0:16:19.920 them to allow UH the United States to dictate terms 0:16:20.280 --> 0:16:23.000 now that the United States is out of the deal, 0:16:23.080 --> 0:16:26.240 but the Europeans and other signatories remain in it. So 0:16:26.440 --> 0:16:28.600 I want to know sort of what you expect the 0:16:28.720 --> 0:16:32.280 consequences to be on the Iranian economy. Some people are 0:16:32.280 --> 0:16:35.920 saying that the people might uproot the current leadership and 0:16:35.960 --> 0:16:38.080 there might be regime change sort of de facto as 0:16:38.080 --> 0:16:40.480 a result of the U S decision here. Do you 0:16:40.480 --> 0:16:44.320 think that that's likely. Well, it is no secret that 0:16:44.360 --> 0:16:48.120 there has been unrest in Iran over the course of 0:16:48.120 --> 0:16:52.640 the last months, and much of the unhappiness in Iran 0:16:52.720 --> 0:16:56.080 has to do with the fact that President Rohani UH 0:16:56.480 --> 0:16:59.720 said that after this agreement things would get better UH 0:17:00.000 --> 0:17:02.720 for Iranians. But Iranians are upset about a whole host 0:17:02.760 --> 0:17:08.640 of things about Irani adventuresome adventure, an adventurous Iranian foreign 0:17:08.640 --> 0:17:11.720 policy around the Middle East, that that the focus has 0:17:11.760 --> 0:17:14.800 been taken off the Iranian people and on this kind 0:17:14.840 --> 0:17:19.560 of imperial policy on the part of of the Iranians. 0:17:19.600 --> 0:17:21.919 As far as the sanctions and what effect they will have, 0:17:21.960 --> 0:17:26.040 they certainly will have an effect on Iranian businesses and 0:17:26.119 --> 0:17:29.880 individuals who have been who have been sanctioned. But let's 0:17:29.880 --> 0:17:35.800 be clear, bilateral sanctions are weaker than multilateral sanctions. And 0:17:35.840 --> 0:17:38.760 as long as the Europeans, the Indians, and the Russians, 0:17:38.800 --> 0:17:41.639 the Chinese are not playing along with the United States, 0:17:42.160 --> 0:17:44.920 the Iranians continue to have options to get around them, 0:17:45.000 --> 0:17:47.919 even with tough secondary sanctions that the Congress and the 0:17:47.920 --> 0:17:50.199 administration are problems. And that's what it all comes down to, 0:17:50.280 --> 0:17:53.280 Stephen pulling down of the deal is only effective if 0:17:53.400 --> 0:17:57.920 US sanctions effectively, or international sanctions and secondary sanctions apply 0:17:58.040 --> 0:18:02.320 to European companies. That's exactly It was the multilateral sanctions 0:18:02.320 --> 0:18:05.879 that ultimately brought the Iranians to the table, that led 0:18:05.920 --> 0:18:09.840 to the negotiations that led to the j c p 0:18:09.960 --> 0:18:12.639 o A. I think it's unlikely that you're going to 0:18:12.720 --> 0:18:17.199 have that kind of international consensus to negotiate a bigger, 0:18:17.240 --> 0:18:20.120 better deal. Stephen Cook, It's great to have you with us, 0:18:20.280 --> 0:18:22.520 and maybe we can switch for all day on this 0:18:22.600 --> 0:18:25.320 specific issue. So curious and so many questions as to 0:18:25.359 --> 0:18:27.439 what is happening in the Middle East at the moment. CF. 0:18:27.840 --> 0:18:44.040 Senior Fellow for the Middle East, Karen Well. Our next 0:18:44.040 --> 0:18:47.159 guest has gotten it right again and again when it 0:18:47.200 --> 0:18:50.840 comes to US stocks. So we are going to tap 0:18:50.960 --> 0:18:53.240 him and his crystal ball of a mind to find 0:18:53.280 --> 0:18:56.919 out where things are going next. Jonathan Gollub joins US 0:18:57.200 --> 0:19:01.240 Credit sweet chief US Equity strategy in our eleven three 0:19:01.240 --> 0:19:05.920 Oh studios. Jonathan, before we get into sectors, particularly healthcare, 0:19:05.920 --> 0:19:10.200 ahead of this President Trump speech on drug prices, UM, 0:19:10.320 --> 0:19:12.280 where are we are you still as bullish as you 0:19:12.359 --> 0:19:16.639 have been on US equities and you still see gains ahead? 0:19:17.560 --> 0:19:20.040 I am pretty optimistic and mean. First of all, the 0:19:20.119 --> 0:19:23.479 underlying fundamental is great. This earning season, UM earnings were 0:19:23.560 --> 0:19:26.239 up twenty five percent year over year, which is just 0:19:26.320 --> 0:19:29.000 an unheard of thing. UM. A chunk of that is 0:19:29.040 --> 0:19:31.000 from taxes. But even if you strip out the taxes, 0:19:31.880 --> 0:19:35.320 earnings growth which is great. A lot of investors are 0:19:35.359 --> 0:19:37.880 asking if can you get any better than this? And 0:19:37.960 --> 0:19:40.679 the answer is probably not, But that doesn't mean that 0:19:40.720 --> 0:19:43.520 they won't be really good. And I think that investors 0:19:43.520 --> 0:19:47.360 are struggling with that whole idea that, um, the underlying 0:19:47.359 --> 0:19:49.080 trend is good, but it can't be as good as 0:19:49.160 --> 0:19:52.400 as what we've just achieved. So what the answer might 0:19:52.440 --> 0:19:54.480 be we were talking about this ahead of the segment, 0:19:54.800 --> 0:19:59.399 is to rotate towards sectors that you like best or 0:19:59.440 --> 0:20:02.040 think there might be opportunities, rather than just going in 0:20:02.160 --> 0:20:05.000 whole hog broadly, if you think that this is sort 0:20:05.040 --> 0:20:07.040 of as good as it gets with respect to earnings, 0:20:07.080 --> 0:20:08.679 is that right? Yeah? And I think that's exactly how 0:20:08.720 --> 0:20:10.000 you have to think about it. I mean, so the 0:20:10.320 --> 0:20:12.760 first is if you start with tech, which has been 0:20:12.760 --> 0:20:16.040 the market leader. Um, I think that that will continue 0:20:16.040 --> 0:20:18.840 to be the market leader for for quite a while. Yeah. 0:20:18.840 --> 0:20:21.040 I mean, if you look at the returns that you've 0:20:21.080 --> 0:20:24.560 gotten in the tech sector, they've been driven by earnings, 0:20:24.680 --> 0:20:27.280 not by the by stock multiple. So if something goes 0:20:27.359 --> 0:20:30.560 up by and it's earnings go by thirty, it didn't 0:20:30.560 --> 0:20:33.159 get more expensive, it got cheaper, right, So, Um, the 0:20:33.600 --> 0:20:36.040 tech sector has just been out delivering everything else, and 0:20:36.080 --> 0:20:38.639 I think that it's going to continue to be a winner. However, 0:20:39.359 --> 0:20:44.320 those areas like industrials or materials or mining companies that 0:20:44.400 --> 0:20:47.280 are to do really well when the economy is re 0:20:47.440 --> 0:20:51.320 accelerating are probably going to do a little bit less well. 0:20:51.520 --> 0:20:53.760 I wouldn't necessarily want to sell them, but you probably 0:20:53.800 --> 0:20:57.320 want to move from there to other other areas. The 0:20:57.400 --> 0:20:59.840 problem this time around, which is something we haven't seen, 0:21:00.320 --> 0:21:02.320 is that the areas you want to rotate to, which 0:21:02.359 --> 0:21:05.840 would be like consumer staples or healthcare, have their own problems. 0:21:06.000 --> 0:21:08.320 And so it's a little bit more challenging this time 0:21:08.359 --> 0:21:10.359 than than it has been in the past. All Right, 0:21:10.440 --> 0:21:12.959 so let's talk about them. Healthcare. Let's talk about the problems, 0:21:13.000 --> 0:21:15.600 because we've got the speech that we're expecting from President 0:21:15.600 --> 0:21:19.720 Trump at two pm Eastern time talking about bringing down 0:21:19.920 --> 0:21:22.600 pharmaceutical prices. Is that is that one of the big 0:21:22.600 --> 0:21:25.560 headwinds here. It is the big headwind and and and 0:21:25.600 --> 0:21:28.240 I don't think that's the President's speech. That's that's the issue. 0:21:28.920 --> 0:21:32.480 We've seen lack of pricing power in the last few years, 0:21:33.119 --> 0:21:37.280 um from from big big biotech and big farmer names, 0:21:37.320 --> 0:21:39.560 and that's really eaten into the profits. I mean, these 0:21:39.600 --> 0:21:41.679 have been high growth areas. And if you look at 0:21:41.680 --> 0:21:44.960 the expected earnings growth rate for these big, bigger companies, 0:21:45.119 --> 0:21:48.120 not the more speculus small guys, Um, they've really come 0:21:48.160 --> 0:21:51.159 down to the low single digits. And that's a problem. Um. 0:21:51.240 --> 0:21:53.440 Does that mean that I think that that we should 0:21:53.480 --> 0:21:56.359 be targeting? Um? You know what, should the president be 0:21:56.400 --> 0:21:58.679 targeting these companies? Probably not. It's a lot cheaper to 0:21:58.680 --> 0:22:01.000 give someone a pill that can keep them from getting 0:22:01.000 --> 0:22:03.199 a heart attack and you know, than taking care of 0:22:03.240 --> 0:22:05.560 them in the hospital. So there's places that you might 0:22:05.560 --> 0:22:07.240 want to ring costs out. I don't know if I 0:22:07.240 --> 0:22:10.560 would be attacking drug companies, but nonetheless, drug pricing has 0:22:10.560 --> 0:22:13.400 been a problem. So you're fairly neutral health we we 0:22:13.400 --> 0:22:16.080 we are neutral on healthcare. I would love to rotate there, 0:22:16.119 --> 0:22:18.879 but but again there's a little problem. And then consumer 0:22:18.920 --> 0:22:22.840 staples that's other than next So Coca Cola, PNG, Uh, 0:22:23.040 --> 0:22:25.439 what do you think? You know? You know, not not 0:22:25.520 --> 0:22:29.439