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Speaker 1: Yeah, welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane.

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Speaker 1: Daily we bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Christopher

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Speaker 1: Maranghi has made on the Fox transaction here and we

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Speaker 1: are you know, you make your luck here at Bloomberg Surveillance,

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Speaker 1: christ and we are really honored to have you, with

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Speaker 1: the heritage of Gabelly Funds with us as we look

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Speaker 1: at this asset management transaction. We usually talk to you

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Speaker 1: about media and about the other events within the market,

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Speaker 1: but working with Mario Gabelly, day after day, you as

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Speaker 1: a smaller boutique shop are watching the big boys jockey.

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Speaker 1: How do you respond to a mating of these two giants. Yeah,

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Speaker 1: you're right, obvious work free money manager, a fund manager,

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Speaker 1: and we're seeing the same pressure that they are. The

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Speaker 1: way funds are bought and sold is changing, and the

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Speaker 1: kind of funds that are bought is changing, and um

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Speaker 1: scale is important in many cases for these funds, and

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Speaker 1: I think, like many other industries, that's what this transaction

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Speaker 1: is about. The transactions about equity and also about fixed income.

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Speaker 1: I've had a disinflation. I mean used to be you

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Speaker 1: could take a fee off fixed income in a time

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Speaker 1: of seven percent c D S or I remember double

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Speaker 1: digit andities. You're you're you're not old enough to remember that.

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Speaker 1: But the answer is we squeezed everything down to hundreds

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Speaker 1: of a percentage point. The squeezing can't continue, can't. Now

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Speaker 1: you need to and you need to surround the client

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Speaker 1: with with a full range of products. Um. You know,

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Speaker 1: I think balanced portfolios fixed income and equities still makes sense,

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Speaker 1: and um, this will allow them to do that. Chris,

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Speaker 1: what is this ultimately end? Though? The size and scale

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Speaker 1: of some of these businesses is now solutely enormous. Um,

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Speaker 1: do we end up with just a barbell structure in

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Speaker 1: the asset management industry where you have very very sort

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Speaker 1: of small niche bautique funds, but but at the other

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Speaker 1: end of the cap scale you just have absolutely enormous giants. Yeah.

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Speaker 1: I think that's probably true. I mean, you look at

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Speaker 1: the assets associated with black Rock and State Street and

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Speaker 1: Vanguard in the multiple trillions um. But yeah, but I

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Speaker 1: do think that it will end up a barbell where

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Speaker 1: You'll have niche firms like ours who are focused on

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Speaker 1: a particular segment on the market with a particular style,

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Speaker 1: who will who will try to add value for clients.

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Speaker 1: But if you're in the middle, um, you're probably stuck

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Speaker 1: and you need to find your way to one of

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Speaker 1: those ends. Just you have to deal with this on

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Speaker 1: a day to day basis. How much of this is

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Speaker 1: due to regulation and how much to do this is

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Speaker 1: to do with a kind of passive active story. I'm

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Speaker 1: imagining it's a combination of both, But I'm kind of

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Speaker 1: curious as to see where the tipping point is. Yeah,

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Speaker 1: I think it probably has more to do with the

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Speaker 1: secular change in uh in the types of funds than regulation. Obviously,

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Speaker 1: regulation has always been an issue. Um. There was certainly

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Speaker 1: of the last ten years been more regulation associated with

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Speaker 1: this industry, But um, I think that's mostly been digested

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Speaker 1: at this point. Adjusted within it is the idea of

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Speaker 1: an end of a bull market. It's been a heck

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Speaker 1: of a run, particularly on the equity side. Are we

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Speaker 1: seeing these transactions as people steal for slower times or

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Speaker 1: is it just part of the mating of structural forces. Yeah, again,

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Speaker 1: I think it's just a part of the secular change.

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Speaker 1: I'm not willing to call an end to the bull

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Speaker 1: market just yet, um, but I think you usually see

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Speaker 1: these uh towards the the latter half of of a

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Speaker 1: bull market. Let me line up at the bottom of

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Speaker 1: the presentation. If you're just joining us. Investco will acquire

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Speaker 1: Oppenheimer Funds, I should point out to Bloomberg surveillance has

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Speaker 1: been advantaged by support from both Investco and Oppenheimer Funds

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Speaker 1: over the years. Already a partners in Bank of America,

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Speaker 1: Mary Lynch act as as financial advisors to invest Go,

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Speaker 1: with legal counsel from Mark till Lipton. Uh Lazard served

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Speaker 1: as Massive Mutual's financial advisor and legal counsel Simpson Thatcher

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Speaker 1: as well. And we'll do much more on this through

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Speaker 1: the day. Invest Goo to acquire Oppenheimer Funds, a large

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Speaker 1: asset management transaction. Chris BRANGI with us here for a

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Speaker 1: number of more minutes, and then we won't come back

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Speaker 1: and really dive into media. Right now, I want to

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Speaker 1: talk about the brilliance of Rupert Murdoch. We touched on

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Speaker 1: this earlier with Television is well, and I think guy

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Speaker 1: can jump in with a sky angle as well, but

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Speaker 1: Rupert Murknock just flat out has got to be the

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Speaker 1: courageous dad of the year, right, he spent his Dad

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Speaker 1: of the year. I think it's his children would think

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Speaker 1: so this year. Um, he spent his lifetime building this company,

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Speaker 1: and he looked into the future and he saw that Fox,

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Speaker 1: as big as it is, probably didn't have the scale

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Speaker 1: to compete with you know, trillion dollar companies like Apple

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Speaker 1: and Google and Facebook and others, and uh decided to

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Speaker 1: make the decision that he would um throw in with Disney,

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Speaker 1: which he did, and you sold the Fox entertainment assets

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Speaker 1: for a very significant premium up six since the first

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Speaker 1: bid in in December. Also sold Sky for a significant premium,

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Speaker 1: much more than I think most people thought it would

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Speaker 1: ever go for. And there are beneficiary at that and

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Speaker 1: they're still in the game with assets. I'm talking about

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Speaker 1: the the asset management Barbell. You're seeing a similar kind

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Speaker 1: of Barbell situation in media where UM the new Fox,

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Speaker 1: which will consists primarily the broadcast assets, is not a

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Speaker 1: small company, but they're sort of niche. They're focused on

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Speaker 1: what they do well, which is news and local sports

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Speaker 1: and entertainment. Do you think he gets back into the game.

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Speaker 1: Do you think Murdoch is, as we've just learned, very

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Speaker 1: good at timing. Um, you talked a moment ago about

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Speaker 1: not being sort of willing to cool the top of

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Speaker 1: the cycle. Is Murdoch calling the top of the cycle

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Speaker 1: and he's going to be back when that cycle prevents

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Speaker 1: them presents some opportunities, do you think Again, I don't

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Speaker 1: know that this is as much a cyclical call as

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Speaker 1: a as a secular call. Uh And um, you know,

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Speaker 1: I wouldn't be surprised to see Fox actually buy back

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Speaker 1: some of the regional sports networks that the Department of

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Speaker 1: Justices may dating that Fox Entertainment slash Disney is being

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Speaker 1: forced to sell. That's the business that they know well,

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Speaker 1: and that could be a way that they could bolster

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Speaker 1: their local content assets. We don't know yet what the

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Speaker 1: landscape is going to look like going forwards. Do you

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Speaker 1: think that Murdoch does have an idea? Do you think

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Speaker 1: the assets he's selling at the moment he thinks yesterday's

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Speaker 1: news rather than tomorrow's news. Well, I think I think

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Speaker 1: the idea is that increasingly the media world is going

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Speaker 1: to be direct to consumer, direct relationship with the consumer,

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Speaker 1: and Disney is building their business for that future with

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Speaker 1: um their ESPN product and with Disney Flicks which should

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Speaker 1: come out in the next year, and the continentsence of

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Speaker 1: Fox allow them to UM bolster that and compete better

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Speaker 1: with Netflix, who's the leader in that market. Today, Chris

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Speaker 1: were angry with us, and Chris, I just want to

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Speaker 1: take some time, and you mentioned this name this morning. Google,

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Speaker 1: I mean, we don't I still don't think we still

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Speaker 1: look at Google is a media company. I know what

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Speaker 1: Amazon is doing, and they've got Man in the High

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Speaker 1: Castle and they're trying to do other successes and sort

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Speaker 1: of be Netflix C. And I get Netflix C in that,

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Speaker 1: But whither Google in media? Are they part of your visibility? Absolutely?

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Speaker 1: They live and breathe advertising dollars. I mean there's six

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Speaker 1: billion dollars globally spent on advertising. Between Google and Facebook

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Speaker 1: it's about two fifty billion, and it's all the marginal gain.

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Speaker 1: I get that. But do they want to do creative?

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Speaker 1: Do they want to do content? Well, they're trying to

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Speaker 1: get into that business via YouTube, and so far YouTube

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Speaker 1: has been a sort of a me to service. They're

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Speaker 1: basically packaging other content into a new over the top bundle.

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Speaker 1: They haven't gone down the path that Hulu has just

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Speaker 1: yet or Netflix, and that a matter creating uh original content.

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Speaker 1: But I wouldn't be surprised if we do some market research. Guy,

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Speaker 1: is your family on YouTube more? Because mine is? Um

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Speaker 1: Do you know? I've got two small children and I'm

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Speaker 1: constantly stunned that interest in YouTube videos rather than traditional television.

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Speaker 1: I it is. It is something that they get addicted

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Speaker 1: to very quickly, and it's fascinating to watch how that

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Speaker 1: story develops. Give give John Tucker, give Guy Johnson some

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Speaker 1: dad advice. We need data. It doesn't free. It's free.

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Speaker 1: We like free, don't we go? We have the BBC

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Speaker 1: here that's free. Well, I obviously have to pay. Netflix

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Speaker 1: is free in my house because they steal the neighbor's account.

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Speaker 1: Why did I should I have said that? What's the

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Speaker 1: past code? Biscuit? Well, it shouldn't be that surprising that

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Speaker 1: Google isn't getting into the original content world because they

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Speaker 1: don't the content they do have they don't have to

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Speaker 1: pay very much for. They have a wonderful business, probably

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Speaker 1: one of the best businesses on the planet in the

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Speaker 1: search business, and YouTube close thereafter. So why get into

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Speaker 1: this competitive arms race? For content. Chris kind of just

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Speaker 1: come of this from a European perspective. Google is is

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Speaker 1: obviously in the crosshairs of European regulators. We now find

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Speaker 1: else ourselves in a situation where as a result, they

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Speaker 1: are now forcing um apps and various other things to

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Speaker 1: be paid for to put them onto phones in Europe.

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Speaker 1: Have European regulators made a mistake here, because basically they're

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Speaker 1: trying to sort of disaggregate the Google business model in Europe.

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Speaker 1: But Google's coming back and saying that's absolutely fine, but

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Speaker 1: we're going to maintain our margins. And as a result

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Speaker 1: of which, if you want to load all this stuff

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Speaker 1: onto the for the phonemakers, you're going to have to

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Speaker 1: pay for it, and you can see we'll ultimately end

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Speaker 1: up paying for this. Have European regulators made a mistake here? Yeah,

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Speaker 1: I think they might have gone about regulating Google in

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Speaker 1: the wrong way. As you point out, I'm not sure

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Speaker 1: that their solution is the best thing for consumers. Um.

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Speaker 1: You know, obviously Google and Facebook and others are in

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Speaker 1: the cross areas of US regulators as well, and we'll

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Speaker 1: see what happens after the election. Um, But clearly costs

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Speaker 1: are going to go up for both of those companies

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Speaker 1: as they try to comply with privacy regulations and prevent

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Speaker 1: additional hacking incidents. Um. But going further and actually disaggregating

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Speaker 1: Google Search from some of the buy uh is another step,

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Speaker 1: and I'm not sure the regulators are willing to go

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Speaker 1: there just yet. In terms of in terms of how

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Speaker 1: you see this earning season developing, We've had the Netflix

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Speaker 1: numbers and people kind of kept telling me a few

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Speaker 1: days back, Look, I if Netflix delivers the rest of

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Speaker 1: the earning season is looking pretty good, the fang stalks

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Speaker 1: are gonna once again going to be on the back

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Speaker 1: foot that the nets Flix bounce didn't last long. How

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Speaker 1: should I read that? Yeah, I think Netflix has been

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Speaker 1: viewed this year as somewhat idiosyncratic and that it is

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Speaker 1: much less in the crosshairs of the regulators, less impacted

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Speaker 1: by sort of macro trans China, et cetera. So, um,

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Speaker 1: it gets an idiosyncratic bounce, that is, it goes up

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Speaker 1: a bit, but the others don't really follow. Do you

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Speaker 1: have a number one sector by away from media? Is

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Speaker 1: there is there a good value with a with your

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Speaker 1: study of the shift of growth to value where's that opportunity. Yeah,

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Speaker 1: you know we like we actually like Century Fox today

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Speaker 1: because you know, you're paying call it forty five dollars,

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Speaker 1: you're getting thirty eight change worth of stock Disney stock

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Speaker 1: and cash, and you're creating New Fox for roughly so

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Speaker 1: this Fox, this is New Fox, which consists of Fox News,

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Speaker 1: overwhelmingly Fox News in terms of the cash flows, as

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Speaker 1: well as the the network and local broadcast stations which

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Speaker 1: are which are quite valuable. It's probably a double You

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Speaker 1: are taking a little bit of risk, however, in that

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Speaker 1: China approves this deal, um, and I think it does

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Speaker 1: get approved. Could be some headlines around approval. Probably happens

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Speaker 1: next year. Christ Marigi, thank you so much and particularly

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Speaker 1: thank you for your comments on the invest go. But

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Speaker 1: I'm a funds transaction greatly appreciate that he is with

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Speaker 1: Gabelly Funds not only doing media but much much more

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Speaker 1: as our chief investment officer. Guy, why don't you bring

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Speaker 1: in Florian right now? Do more of an EU angle? Well,

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Speaker 1: it's let's bringing Floria and hand Sees Barrenberg's European economist

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Speaker 1: joining us on the phone. Let's talk a little bit

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Speaker 1: about where the European data is right now where Italy

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Speaker 1: sits in this whole process, WORRI And We're in a

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Speaker 1: situation where I'm watching the United States and the data

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Speaker 1: is pretty solid. I'm watching Europe and the data seems

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Speaker 1: to be rolling over at the moment. How wide does

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Speaker 1: that economic gap get? In your mind? What I mean?

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Speaker 1: So far this year, the Transatlanta gap has obviously widened

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Speaker 1: with the US having the boost from the fiscal stimulus.

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Speaker 1: Why we don't have that in the Eurozone. Then obviously

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Speaker 1: sort of the trade dispute which is sort of escalated

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Speaker 1: between the US and China, weighing more on an open

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Speaker 1: economy like the Eurozone, then relatively closed in terms of

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Speaker 1: its sized economy like the US. UM. So you have

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Speaker 1: a number of issues which sort of has caused this

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Speaker 1: this gap to arise this year. And let's say it,

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Speaker 1: in some of this year we thought, okay that this

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Speaker 1: could actually close, but as sort of the the number

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Speaker 1: of risk you mentioned, Italy has actually added to the list,

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Speaker 1: which weighs more on sentiment and activity in the Eurozone. UM,

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Speaker 1: we don't see that gap closing anytime soon. Is it

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Speaker 1: really going to be downgraded on the and if so

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Speaker 1: by how much by the rating agencies. Um, yes, it's

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Speaker 1: very likely that they will downgrade Italy, or if they

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Speaker 1: don't do that, that they sort of give a negative outlook.

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Speaker 1: We don't expect them to downgrade itally by by two notches,

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Speaker 1: because that was sort of raise a number of questions,

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Speaker 1: um and I think sort of going with one notche

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Speaker 1: and sort of giving that negative outlook through the implications

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Speaker 1: of two notches for us though, because two notches would

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Speaker 1: be a big deal for the ECB exactly. I mean

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Speaker 1: that that would lower Italian bonds out of sort of

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Speaker 1: the investment grade UM sphere, and that would have consequences

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Speaker 1: like the ECB wouldn't be able to when they reinvest

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Speaker 1: the bonds next year of the que program um to

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Speaker 1: actually reinvested in Italian bonds. Um More, sort of the

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Speaker 1: liquidity measures basically require um the silver reign to have

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Speaker 1: investment rate. I mean it also depends on other rating agency.

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Speaker 1: But yes, what have a negative consequence everything? Florian what

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Speaker 1: fast it's to his interview to interview. Everybody's telling me

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Speaker 1: Italy is a huge deal. We get the scale of

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Speaker 1: the economy, the importance of Italy, you know, tourism and

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Speaker 1: in all that, I want to know the so what

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Speaker 1: at the end of the year, the so what in

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Speaker 1: the next year of Italy? Is this another soap opera

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Speaker 1: like Brexit Brussels London that goes on forever or is

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Speaker 1: there sort of an end point where you're going to

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Speaker 1: know what Italy is going to do going forward. It's

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Speaker 1: a difficult question, I mean to something that you could say, yes,

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Speaker 1: it could end into a soap opera. Um, well, it

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Speaker 1: has actually been already that kind of soap opera for

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Speaker 1: a couple of months, since basically that the radical government

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Speaker 1: has has seized control of the country. Um. But the

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Speaker 1: question is sort of, Okay, is it happening now? Is

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Speaker 1: it sort of We've obviously seen spreads widening enormously, but

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Speaker 1: it seems like not to an amount that it would

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Speaker 1: actually effect the Italian government to such an extent that

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Speaker 1: they would fold basically to um, the EU and and

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Speaker 1: and markets. Um. Sort of the bottom line is this,

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Speaker 1: this is sort of an accident waiting to happen. If

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Speaker 1: it's sort of not happening now because sort of we

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Speaker 1: have generally healthy growth around the globe and even in

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Speaker 1: the Eurozone. If it's not happening now. I mean, what's

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Speaker 1: happening in three or four years if we end up

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Speaker 1: in a in a recession and then sort of Italy

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Speaker 1: would sort of end up in serious trouble. One of

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Speaker 1: the one of the questions I think that's critical to

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Speaker 1: ask for investors right now is can economies take higher rates?

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Speaker 1: And you look at the US economy and you say, yeah,

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Speaker 1: I think the US economy at the moment seems to

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Speaker 1: be able to absorb the higher rates that are coming

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Speaker 1: out of the FED, and the data continues to be strong.

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Speaker 1: My question is if we find ourselves with rates going

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Speaker 1: higher in Europe, could Europe? Could the euro Zone take

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Speaker 1: higher rates? At this point probably you would have to

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Speaker 1: say some countries can, others um will really face with

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Speaker 1: tough time, and that obviously includes it to the I mean,

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Speaker 1: at the end of the day of the year that

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Speaker 1: you pay on your debt is um you can do

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Speaker 1: that as long as sort of the return on your

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Speaker 1: assets GDP growth is actually paying for that, and we're

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Speaker 1: sort of relatively miserable growth throughout the last decades. In Italy,

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Speaker 1: obviously higher rates to pay down their debt is difficult

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Speaker 1: as long as they don't become more competitive, more productive,

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Speaker 1: and I don't see that sort of the radical government

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Speaker 1: is doing any thing in that direction, but quite the opposite.

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Speaker 1: Florida has thank you so much with barenburg Bank this morning.

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Speaker 1: Greatly appreciate it. With perspective there and your guy. We've

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Speaker 1: got a rock star on the observation of Brexit with

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Speaker 1: US right now, don't yeah, Teresa Raphael writing a really

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Speaker 1: nice piece talking about what US Trade Rep. Robert Lightheiser

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Speaker 1: has been handing to UK brexiteers, which is something of

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Speaker 1: a trade shaped gift, according to there is. Effectively he

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Speaker 1: has sent a letter to Congress Um notifying the Hill

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Speaker 1: that the Trump administration plans to seek a cutting edge

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Speaker 1: free trade deal with the UK. What exactly would that

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Speaker 1: look like, tor Is Well, that was music to the

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Speaker 1: ears of brexitters, I wrote, because for the longest time

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Speaker 1: they've been saying that the big benefit of Brexit will

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Speaker 1: be a global Britain that does bilateral trade deals. Well,

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Speaker 1: Lightheiser and what the Brexiters are referring to as a

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Speaker 1: bilateral deal that would lower existing tariff barriers. Um, once

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Speaker 1: Britain leaves the EU will be trading with the US

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Speaker 1: on World Trade Organization terms uh and also looks at

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Speaker 1: a range of non tariff barriers um and what what

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Speaker 1: we've written today, what I've written today is that you know,

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Speaker 1: getting a deal is not the hard part. Getting a

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Speaker 1: good deal or a deal that that Britain will come

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Speaker 1: away with and and feel that his benefited across the

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Speaker 1: board is much more difficult. And one of the major

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Speaker 1: obstacles would be is that this is a zero sum

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Speaker 1: game in some ways. You get a good deal with

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Speaker 1: the States here, don't get a good deal with Europe. Yeah,

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Speaker 1: that's exactly it. So the name of the game in

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Speaker 1: free trade agreements now is not it's not really tariff barriers,

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Speaker 1: it's non tariff barriers. And it's especially regulatory barriers. And

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Speaker 1: there are two regulatory superpowers in the world. There's a

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Speaker 1: US and there's Europe, and they have very different approaches

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Speaker 1: to regulations. So Europe uses this um precautionary principle, which

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Speaker 1: is that you know, you have to prove that your

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Speaker 1: product or isn't harmful, and if you can't prove it,

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Speaker 1: they ban it or they restricted. And the US has

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Speaker 1: another approach that is more science based. So the UK

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Speaker 1: has to choose. It can't really have it both ways.

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Speaker 1: This is a guy. Can I just say that that

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Speaker 1: the way we look at it is simple, Europe's more

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Speaker 1: socialist were not is London leaving? Is the United Kingdom

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Speaker 1: leaving Europe because they're just done with the socialist act?

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Speaker 1: I mean? Is that all this Brexit back and forth

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Speaker 1: leave remain? Is that all this comes down to, Well,

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Speaker 1: the UK has always been sort of betwixt and between

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Speaker 1: havn't I mean, you know it is the conservat and

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Speaker 1: and and I think the I think that the you know,

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Speaker 1: the short answers. The UK would like to have it

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Speaker 1: both ways. They will never give up universal health care,

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Speaker 1: and they want their cake and eat it and lots

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Speaker 1: of this, and and so they have to produce fudge,

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Speaker 1: so if they keep it the baking analogies. Uh. But

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Speaker 1: but the trade deal is really where the sort of

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Speaker 1: rubber hits the road, because if they want a comprehensive

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Speaker 1: deal with the US, they're going to have to accept

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Speaker 1: chlorine washed chickens and hormone treated beef and you know,

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Speaker 1: shock horror, that's something that the you know, those are

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Speaker 1: items EU has has banned. So Britain is going to

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Speaker 1: need to make a decision there and it's not going

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Speaker 1: to be an easy one. So I think getting a

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Speaker 1: deal fine, getting a comprehensive deal um not so easy.

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Speaker 1: And I think we should also remember that, you know,

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Speaker 1: in terms of the effect on GDP trade deals, don't

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Speaker 1: you know they don't provide a major boost. And most

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Speaker 1: of the UK's trade is with your it's not with

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Speaker 1: the US. Guy jump in here, but I just want

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Speaker 1: to say betwixt and between off Miriam Webster, Folks, I

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Speaker 1: can't say enough about Mirriam Webster Treth. That's an that's

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Speaker 1: an American dictionary. I know it's not used in the

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Speaker 1: United Can you hear my act? That time? It goes

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Speaker 1: in a lot of years there. It goes back to

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Speaker 1: when Adams was backing out of the door with George

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Speaker 1: the eighth or Henry the eighth, whoever it was, big

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Speaker 1: TwixT in between, back to seventeen eighty nine, guy therese,

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Speaker 1: Why would the US do this? Well, the it's the

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Speaker 1: timing was really interesting here, because you know, you'd almost

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Speaker 1: want to say that the US was hoping that Theresa

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Speaker 1: May will not concede so much in her negotiations with

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Speaker 1: Brussels that she can't do a trade deal So to

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Speaker 1: do a deal, the UK has to leave the Customs Union,

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Speaker 1: and that's uh, the used customs Union. That's sort of

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Speaker 1: on the table now. But the US could benefit from it.

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Speaker 1: The US is a very large investor in the UK. Uh.

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Speaker 1: There are a lot of you know, UK sectors such

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Speaker 1: as food. Um, you know that the that the U

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Speaker 1: s would like to see opened. And you know, the

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Speaker 1: US is a much bigger partner at the table and

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Speaker 1: would likely get its way in a negotiation. So from

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Speaker 1: Lightheiser's point of view, why not Terse, thank you very much,

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Speaker 1: Thank you very nice Therese Raphael tom who writes Trump

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Speaker 1: offers Brexit as a big trade shaped gift. Jana Peterson

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Speaker 1: were thus working with Catherine Man over at City Group.

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Speaker 1: What a pleasure that is, Dana. What is it like

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Speaker 1: walking in every morning and having to deal with one

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Speaker 1: of the giants of trade dynamics? How do you deal

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Speaker 1: with working with Katherine Man? She's fantastic, Oh my goodness,

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Speaker 1: she's super bright, she's extremely experienced. Um. She brings a

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Speaker 1: welcome knowledge to Wall Street that we just highly value.

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Speaker 1: We're so lucky to have her. Um. I don't really

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Speaker 1: know how to follow that, but let me let me try. Um.

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Speaker 1: The big story of a night has been the FED,

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Speaker 1: particularly the notes, funnily enough, and that was a little

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Speaker 1: bit of a surprise coming through the markets. At two

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Speaker 1: hikes next year. The FED seems to be pointing at

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Speaker 1: three hikes next year, and I'm kind of wondering what

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Speaker 1: it's going to take to get to the market up

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Speaker 1: to three, because the Fed is making it really clear

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Speaker 1: that it's on rails right now and may even go

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Speaker 1: above and beyond our star. Yes. Absolutely. I think what's

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Speaker 1: going to be important for markets to come along with

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Speaker 1: the said is that we see some fafter inflation. Indeed,

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Speaker 1: yesterday in the Minutes, we saw that UM. Some particips

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Speaker 1: then spelt that inflation expectations themselves had to rise and

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Speaker 1: everythings you look at, you know, five year, five year forwards, UM.

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Speaker 1: Also the University of Michigan. These measures need to rise

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Speaker 1: before some participants steel comfortable. And I think that's also

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Speaker 1: true for the markets. UM. Clearly the US economy can

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Speaker 1: take higher rates right now? Where where is the current

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Speaker 1: thinking about where neutral is? If you if you kind

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Speaker 1: of take a look at the kind of the basic arithmetic,

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Speaker 1: let's say our stars point six inflations running at two

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Speaker 1: point three that takes us up to a kind of

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Speaker 1: two point nine. Is that where we are? Or in reality,

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Speaker 1: do you think it's actually a little bit higher than that.

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Speaker 1: I think that, um, it's it's probably in the two

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Speaker 1: seventy three percent range. However, the CBO did up early

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Speaker 1: advise its forecast or potential GDP growth, and indeed some

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Speaker 1: Partican since yesterday said, hey, perhaps the economy is running

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Speaker 1: on the higher cylinders than we thought. And if that's

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Speaker 1: the case, then the neutral in the short run may

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Speaker 1: actually be higher, and the said could think about going

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Speaker 1: even higher than what's already calegraphed data. How much of

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Speaker 1: this plays in the wage growth? I mean, it's all

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Speaker 1: it's great to talk about our start t start whatever, start,

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Speaker 1: but the bottom line is we're waiting for real wage

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Speaker 1: inflation or is the distribution to the games going to

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Speaker 1: wages so spread out that it's really not an average

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Speaker 1: number of two point whatever three? I mean, when do

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Speaker 1: we get tangible wage gains for America? Absolutely what you

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Speaker 1: said about it being spread out into the distribution certainly

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Speaker 1: at the upper end and the lower end UM and

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Speaker 1: also in UM industries that are complaining of of of

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Speaker 1: labor shortages and skill shortages. We're seeing wages rise, but

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Speaker 1: we're not seeing wages rise dramatically overall. A lot of

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Speaker 1: that middle, if you will, is is you know, in

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Speaker 1: the government sect, we're not really hearing about any hikes there.

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Speaker 1: And I think that there are also a lot of

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Speaker 1: pressures on wages. For example, demographics, you have lots of people,

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Speaker 1: roughly ten thousand people retiring per day. They're being replaced

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Speaker 1: with younger, uh, you know, arguably less expensive workers. So

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Speaker 1: that's certainly a downward factor. And just then finally, just

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Speaker 1: looking at inflation itself, it's not rising rapidly, and certainly

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Speaker 1: the strength of the US dollar UM is a dampter.

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Speaker 1: You know, guys, what's so important here? What Dana is

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Speaker 1: saying is the nineteen days to the midterm elections, a

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Speaker 1: lot of people saying a lot of America is not

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Speaker 1: enthused with a tax bill, and that there's a lot

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Speaker 1: of people that were supposed to be excited about the

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Speaker 1: tax bill and they're not because they're not seeing the benefits. Danta,

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Speaker 1: I think your comments on wage distribution here are a

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Speaker 1: huge deal. I mean, it's it's it's unevenly distributed right well,

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Speaker 1: absolutely in terms of wage increases. But I think the

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Speaker 1: good news is that post tax before and even in

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Speaker 1: the last few weeks, a number of businesses have said

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Speaker 1: that's looking at raising wages for their least expensive workers.

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Speaker 1: So that's certainly positive for folks who are at the

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Speaker 1: lower end of the income spectrum UM. And I think

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Speaker 1: that in terms of the tax reform, when we look

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Speaker 1: at where people are spending, it's actually pretty consistent with

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Speaker 1: what you'd see in a rise and after tax income um.

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Speaker 1: And I think unfortunately, you know, all the other things

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Speaker 1: that we've seen the news or somewhat of a distraction

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Speaker 1: of the fact that, yes, we are seeing the tax

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Speaker 1: reform increased consumption overall. But the question is, you know,

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Speaker 1: for each individual, are they feeling it? Dania Peterson, thank

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Speaker 1: you so much for City Group today. Thanks for listening

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Speaker 1: to the Bloomberg Surveillance podcast. Subscribe and listen to interviews

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Speaker 1: on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer.

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Speaker 1: I'm on Twitter at Tom Keane before the podcast, you

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Speaker 1: can always catch us worldwide. I'm Bloomberg Radio S