Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jai Lely.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Where's
Speaker 1: Bill Lee? And one of the last things Vice Chairman
Speaker 1: Clara has said to me, please say hello to Bill
Speaker 1: Lee again with all his good academic work at Columbia's
Speaker 1: public service to the i m F, particularly in Hong Kong.
Speaker 1: Bill Lee with us on the comments of the Vice
Speaker 1: Chairman and the choice set forward. Let me start right
Speaker 1: with the immediate on a Friday, which is there will
Speaker 1: be a Friday soon, doctor Lee, where we get another
Speaker 1: jobs report in America. Alan Ruskin and Deutschebek really emphasizing
Speaker 1: in his note the importance of this next print on
Speaker 1: a weaker labor economy. How we is the American labor economy.
Speaker 1: That's the key question, and that's the one that that
Speaker 1: I think Rich tried to dodge, but hinted to you
Speaker 1: that they were very concerned with because right now the
Speaker 1: weaknesses in the trade of sector and in investment of
Speaker 1: business fixed investment, and those are the things that are
Speaker 1: weakening around the world because of these trade uncertainties. The
Speaker 1: service sector is really struck quite strong, and that's the
Speaker 1: bifacate economy we have. And what Riches was trying to
Speaker 1: say was, you know, even though we're not meeting our
Speaker 1: inflation targets, were still concerned about backstopping the economy. And
Speaker 1: and and they think that he said that was really
Speaker 1: interesting that you got him to say was our models
Speaker 1: are linear, but we the policymakers recognized nonlinarities. That to
Speaker 1: me says they'reybody to do fifty basis points. They just
Speaker 1: need the right clue and the right hint and the
Speaker 1: right nudge. Let's go a little Matthew here. Then we
Speaker 1: talk about anertial forces physics. Envy in your world of
Speaker 1: PhD economis Clarada is definitive on this. Okay, that's the physics.
Speaker 1: Our listeners aren't living physics. They're living in the American reality,
Speaker 1: which is they want some need to do something. Can
Speaker 1: the Fed do anything? Or there are other institutions. You know,
Speaker 1: it's not the cost of capital that matters for business
Speaker 1: to invest. They want to say I want to invest
Speaker 1: because I'm gonna make money, and I don't have growth.
Speaker 1: I'm not gonna make money. So they want to fit
Speaker 1: to backstop the economy and give them confidence that no
Speaker 1: matter what happens, they're gonna put the floor the pedals
Speaker 1: of the metal and and and also make sure the
Speaker 1: US economy and the global economy grows and to overcome
Speaker 1: the trade tensions and the restraint on investment. The FED
Speaker 1: is going to do whatever it takes, including multiple rate cuts. Well,
Speaker 1: they're gonna do multiple rate cuts as well. What what
Speaker 1: is the what is the impact of a first rate
Speaker 1: cut and then that second rate cut, whether together or separate,
Speaker 1: What actually will happen? In order to build a confidence
Speaker 1: you can't be temped And so I think what what
Speaker 1: riches saying by saying that the policy makers are nonlinear
Speaker 1: means we've got to do something big to confirm the
Speaker 1: sense that we have the economy backstop. So we're going
Speaker 1: to do a major confidence is building gesture. Well, they're
Speaker 1: gonna do a confidence building Jester. That's all great and well,
Speaker 1: but as he opened our discussion, he thinks it's a
Speaker 1: two percent economy. Now others think it may come down.
Speaker 1: It was and has been a two percentage looking forward,
Speaker 1: somebody listen to the interview, I didn't know. We're not
Speaker 1: sure where the economy is going in I think, and
Speaker 1: that's the key to the order. The first question, which
Speaker 1: is if employment starts to kick over, that means that
Speaker 1: the metastasists into the service sector is showing up in
Speaker 1: the labor markets, and that will get them to move.
Speaker 1: Explain the internationalist moment I mean, I mean that special library,
Speaker 1: that little room with the original Federal reserved tables stuck
Speaker 1: in a corner. The books are overwhelming in that library,
Speaker 1: first editions of VVLEN, etcetera. Just extraordinary, um uh library.
Speaker 1: None of the stuff in that library is what we're
Speaker 1: dealing with now right as as rich that we have
Speaker 1: that history, but boy, those tactics, that strategies they recommend
Speaker 1: no longer apply. When I was on the board staff,
Speaker 1: I used to sneak into that library to look around him.
Speaker 1: It is so impressive. But all those theories give us
Speaker 1: the framework, but we now have to change the strategies
Speaker 1: of how to implement that framework in order to get
Speaker 1: the economy going, especially in the globalized economy where the
Speaker 1: e c B is is saying we're gonna do whatever
Speaker 1: it takes. The b o J has got negative rates.
Speaker 1: What do we as the US Federal Reserve do? We'll
Speaker 1: I I have like eight more questions, bill Leye, but
Speaker 1: I've got to go to the moment in Hong Kong.
Speaker 1: You were one of the definitive experts on the actual
Speaker 1: business and economy of Hong Kong with your leadership at
Speaker 1: the I m F and basically setting up their Hong
Speaker 1: Kong Watch years ago. Your thoughts on the protests in
Speaker 1: Hong Kong. This is a Hong Kong that has been
Speaker 1: catalyzed and galvanized to worry about their independence. It wasn't
Speaker 1: there when I was there and has suddenly developed. And
Speaker 1: one thing that you should notice is that people doing
Speaker 1: this are the young people, and they are concerned about
Speaker 1: what their future is going to be a generational so, Phili,
Speaker 1: thank you so much with the Milk and Institute. Their
Speaker 1: chief economis of are more than that out of Columbia
Speaker 1: and the good work of economics. This is an important
Speaker 1: interview on any given Friday, because over the weekend we
Speaker 1: do what we do. It may be on a kitchen,
Speaker 1: maybe on the back deck, maybe in the car watching
Speaker 1: offspring play sports. You speak to Leslie Falconio or your
Speaker 1: reader literature and that of the UBS about what to do.
Speaker 1: It's this asset allocation game and it's important always and
Speaker 1: even more important now Leslie Falconio with UBS Wealth Management
Speaker 1: trying to figure out how to move the money around. Leslie,
Speaker 1: quite a week. Is this week adjusted your core asset belief?
Speaker 1: Let's say, I mean you you really hit the nail
Speaker 1: on that. It's been quite a week, and you know,
Speaker 1: the market although was do wish going into the FED,
Speaker 1: you know, there's no question that the out the outcome
Speaker 1: was even more dovish than that we had anticipated. So
Speaker 1: this was the a dovish snow cut um in the
Speaker 1: scenario that we had had seen. And I think that
Speaker 1: for us that UBS, I mean, we would be the
Speaker 1: first to admit that initially we didn't anticipate the FED too.
Speaker 1: We knew that they wouldn't do anything in June, but
Speaker 1: we also didn't expect them to do anything really for
Speaker 1: the majority of the year, given the fact that our
Speaker 1: second second quarter GDP was much higher. So you know,
Speaker 1: I think that the mark was definitely caught off a
Speaker 1: big guard in terms of the amount of the decline
Speaker 1: the doctrine, even though the median stayed stayed the same. Um,
Speaker 1: you know, what do I do with my money this week?
Speaker 1: Is it's it is its steady as she goes for UBS?
Speaker 1: Or do you actually make a bond equity reallocation given
Speaker 1: price up, yield down in bonds. So we've we've an
Speaker 1: overweight equity to fixed income and we continue to be
Speaker 1: overweight equity to fixed income, you know, because because again
Speaker 1: our our outlook is for you know, slower growth but
Speaker 1: can continued fundamental growth in the US. So we like
Speaker 1: the equity or fixing. We've also, however, had this overlay
Speaker 1: in terms of, if you want to call it, the
Speaker 1: quote unquote equity hedge that you know, the investors have
Speaker 1: in terms of just as as as a sharp protection
Speaker 1: against a you know, a business cycle that has is
Speaker 1: reaching World War two historical expansions that you know, we
Speaker 1: had this heage. So this has actually worked out quite
Speaker 1: well for UBS because we've had this equity long and
Speaker 1: we've had a long treasury hedge. And given what we've
Speaker 1: seen with raids, you look like geniuses. I tell you,
Speaker 1: I mean, I mean he said, I want to get
Speaker 1: Matthew here folks on a Friday. So let me translate
Speaker 1: what the pro just said. I'm in the stock market,
Speaker 1: but I'm buying fixed income paper to hedge my enthusiasm
Speaker 1: about the stock market. You got Leslie price up, yield down.
Speaker 1: How many basis points of performance did you get from
Speaker 1: bonds nailing this call? Did you actually pick up a
Speaker 1: hundred basis points? Again? Close to that? Yeah, I mean
Speaker 1: we did. Actually we've done very well with that. And
Speaker 1: actually what's interesting about this is if you look at,
Speaker 1: you know, how many people sort of you know x
Speaker 1: the correlation between you know, equity and and fixed income
Speaker 1: because post Brexit, as industrates normalized, you had yields going
Speaker 1: up right and equities going down. So at that point
Speaker 1: in time, such such as we thought it was a
Speaker 1: difficult allocation. But as things do, they mean revert and
Speaker 1: over the longer term, the longer treasury is the best
Speaker 1: hedge against equity. Okay, equity, let's talk about the stock marketing.
Speaker 1: It's like I po frenzy and you know all that
Speaker 1: can a conservative investor by revenue growth? I mean, is
Speaker 1: it so overpriced that you can't buy the fangs or
Speaker 1: the sort of fangs are the kind of like things.
Speaker 1: I mean, are they on a valuation basis so on
Speaker 1: a reach that it's silly for a concert investor. I
Speaker 1: don't necessarily say it's it's it's out of reach, but
Speaker 1: it's definitely I would call it very full. And you know,
Speaker 1: maybe part of really the incremental gains going forward may
Speaker 1: be as limited versus what they were, but it's it's
Speaker 1: just at the point where it's getting definitely getting a
Speaker 1: bit toppy. It's getting a bit toppy as well. So
Speaker 1: then where do you go. I mean, it wasn't getting
Speaker 1: a stock strategy from Richard clarative, but um, clearly the
Speaker 1: street has been defensive. I know you're you're good. U
Speaker 1: competitors at Bank of America had an exceptionally gloomy long
Speaker 1: only by side report this week of what people are
Speaker 1: actually doing with their money. Do you see that? Do
Speaker 1: you see people running from equities into bonds? Um? Well, actually,
Speaker 1: I mean when you think about it, especially over the
Speaker 1: past this week, you know there's there's but there's always
Speaker 1: this fear factor. But you know, we think that, you know,
Speaker 1: fixed income is actually a bit rich to equity, particularly
Speaker 1: with the decline of the yields of the scene. So again,
Speaker 1: I mean, so we still prefer over the long term,
Speaker 1: you know, equity to fixed income. Um, you know, it's
Speaker 1: it's it's one of these stays is where for our
Speaker 1: you know, our equity portfolios, we always have this type
Speaker 1: of strategy where I mean we will always have this
Speaker 1: overweight and we'll always have sort of the fixed income
Speaker 1: against it. But when you look at how you how
Speaker 1: much guilt have fallen, and the fact that the market
Speaker 1: is expecting much lower growth than within what we actually are,
Speaker 1: fundamentally better better to be able equity at this time.
Speaker 1: You know right where I was going. Folks, this is
Speaker 1: so important and you heard it, particularly in the first
Speaker 1: third of the discussion, the conversation with the vice chairman.
Speaker 1: This is the recession call of I'm not hearing that
Speaker 1: from ubs Leslie. I certainly didn't hear it from the
Speaker 1: vice chairman. I mean that's coloring everything on the street.
Speaker 1: Is a certain set of our listeners believe in a recession,
Speaker 1: don't they? They absolutely do it. I think it's a
Speaker 1: really great point because what you when what do you
Speaker 1: look at in terms of what's pricing in for the
Speaker 1: FED fund futures or the FED funds you know, the
Speaker 1: next for the rest of this year. What they're making
Speaker 1: in is much more than what we're anticipating. So it's
Speaker 1: much more than you know, ann ounce of protection, you know,
Speaker 1: is a pound of cure um. But they're actually pressing
Speaker 1: in something that we really really believe that the market
Speaker 1: thinks is a little bit too recessionary in our view.
Speaker 1: So it's not that as though we don't believe that
Speaker 1: the Fed will ease, we just think the market is
Speaker 1: pressing in too much of an ease. What does that
Speaker 1: do to revenue goes through? And I don't want you
Speaker 1: to be a securities analyst here, but I think this
Speaker 1: is really important folks. You can take Oracle in the
Speaker 1: news this week or any other company. There's a revenue
Speaker 1: belief in growth and if you have a dooming gloom view,
Speaker 1: you bring your top line down. Is everybody brought their
Speaker 1: top lines down and that folds right into asset allocation,
Speaker 1: doesn't it? Lastly, it does, It absolutely does. And I
Speaker 1: think that you know, again, you know, the the having
Speaker 1: interest rate is lower, and obviously having the FED move
Speaker 1: methodically without a potential in our view recession in the
Speaker 1: near term is very favorable for equity. Well, it's very
Speaker 1: favorable for equity. But I mean, come on, let me,
Speaker 1: I got to get the Bloomberg out here, leslie to
Speaker 1: do this is too fancy math on Friday. Uh here
Speaker 1: sp X year to date up, We're only up eighteen
Speaker 1: percent year to day? Did that? Like? Are you out
Speaker 1: there telling people were going up thirty six percent this year? No?
Speaker 1: Not love, I love busting shops like that list. Can
Speaker 1: we extrapolate out to your end? I know, if you know,
Speaker 1: if you annualize that, that looks very trapping, But no,
Speaker 1: we're not. We're not. We're not saying that at all,
Speaker 1: maybe not the three to four percent going. What do
Speaker 1: you do? I mean if I me in this, I
Speaker 1: mean U b s. I listened to you. I listened
Speaker 1: to uh Jeffrey, you dotta dotta everything's great. What about
Speaker 1: going to cash right now and just sitting out the
Speaker 1: year that we don't recommend that? Do we? No? I said, listen,
Speaker 1: you know it's it's we don't. And we we did
Speaker 1: have a cash position in terms of Barbell for a
Speaker 1: fixed income meany that we had cash, and we had
Speaker 1: long end treasuries. And the reason why we had that
Speaker 1: was as you're well aware that you know, for a
Speaker 1: long period of time we've had this three month ten
Speaker 1: year in version, so going into a cash tye product
Speaker 1: was actually yielding much more than it had previously. So
Speaker 1: there wasn't actually a horrible allocation that that you know,
Speaker 1: people in the industry for years know that something that
Speaker 1: you don't want to do for a long period of time.
Speaker 1: But given the fact that we had this barbell, it
Speaker 1: actually worked at well because we had the yields coming
Speaker 1: down the long end. We were actually also learning that
Speaker 1: incremental carry because that you know, the cash and one
Speaker 1: year bill, given the yelker was so flat, actually was
Speaker 1: fairly attractive. Yeah, this, folks, I I hope folks, this
Speaker 1: has been helpful on a Friday, because every pro including
Speaker 1: I can speak for the vice chairman, everybody's head, his
Speaker 1: spending over what we think we we've observed this week
Speaker 1: really beginning with the Mario Draggy speech, but then you
Speaker 1: actually got to fold it over to like, okay, what
Speaker 1: do I do with my small pot? And the answer
Speaker 1: is what we heard there from Ms Felconio is just
Speaker 1: one example of one view in that case that ubs
Speaker 1: view of I would call relative optimism. Lessie Folconio, senior
Speaker 1: fixed income strategists, had a hectical fixed income allocation at
Speaker 1: UPS that was just brilliant, without question. This is the
Speaker 1: interview of the day. He is Daniel Jurgen, always joining
Speaker 1: us in Davos, but at other select times through the
Speaker 1: year when it truly matters, we are on and that
Speaker 1: Dr Jurgen could join us today, the author of Commanding Heights,
Speaker 1: the author of the Quest, and before that, the definitive
Speaker 1: moment for so many of us in the oil crisis
Speaker 1: is magisterial. The Prize, Dan, you're gonna I want to
Speaker 1: talk about your underrated book, The Quest. Everybody focuses. You
Speaker 1: have to on campus, folks, if you're cool, you have
Speaker 1: to walk around with a copy of the Prize, just
Speaker 1: so you're you know, like you're cool. The Quest. I
Speaker 1: remember reading it and going, this is just as good
Speaker 1: or better than the Prize, and through it, you know,
Speaker 1: in the middle of the Quest, you'll go right to
Speaker 1: where we are right now, which is the shifting sands
Speaker 1: in the Persian Gulf. In terms of securing the supply,
Speaker 1: let's begin with first principles, Dan Jurgen, do we need
Speaker 1: a Rand's oil Uh, we don't need a Rand's oil
Speaker 1: or Rand's oil has been part of the world market.
Speaker 1: But what is surprising is how well the market has
Speaker 1: adjusted to the cessation both of Iranian oil and Venezuelan oil.
Speaker 1: You have always been a measured voice at the clearest
Speaker 1: memory of the hysteria of barrel. You were like, wait thing,
Speaker 1: you know the economics will play out. You were always common.
Speaker 1: Can you be calm now with what you've witnessed over
Speaker 1: the last two weeks in the Hormos and in the
Speaker 1: Persian Gulf? Well, first time. Part of the reason for
Speaker 1: reaction is I really do believe price actually matters. People
Speaker 1: forget that price matters, and it affects how people make
Speaker 1: to see Asians and what happens in the markets. UM.
Speaker 1: I think that we are seeing a pattern of kind
Speaker 1: of call it sporadic escalation. A number of different things happen.
Speaker 1: It's not just in the Gulf, it's UH, it's drones,
Speaker 1: miss hale attacks in Saudi Arabia, it's UH rockets in
Speaker 1: Iraq and to where American companies are operating. So I
Speaker 1: think this is a rising tension and UH. And really
Speaker 1: the Iranians, I think are saying they're really feeling squeezed
Speaker 1: right now, and they have many different mechanisms through which
Speaker 1: to respond, and I think we're seeing some of them
Speaker 1: speak to Americans, our listeners coast to coast and frankly
Speaker 1: speak to the gentleman just down the street in our
Speaker 1: Washington studios at Pennsylvania Avenue. When people suggest Iran as
Speaker 1: a threat, how do you respond? I think that Iran
Speaker 1: is continue to develop its missile programs. The Revolutionary Guards
Speaker 1: has a program and talks about all the Arab capitals
Speaker 1: that it's capturing. So I think there's a struggle for
Speaker 1: influence and power and hegemony going on in the Middle East,
Speaker 1: and Iran is is very much engaged in that. At
Speaker 1: the heart of it right now probably comes down to
Speaker 1: an Iranian Saudi struggle UH for pre eminence. But on
Speaker 1: top of that, of course, is the UH ending of
Speaker 1: the or the backing away from the nuclear agreement. And
Speaker 1: Iran is just exporting a paltry number of barrels right now,
Speaker 1: and I think there's a part of their response, and
Speaker 1: they're probably also looking down the road and saying, well,
Speaker 1: we've got about a year and a half to go
Speaker 1: until maybe there's a new president in the United States. Well,
Speaker 1: let's let's go. That's right where I wanted to go
Speaker 1: with the heritage of Daniel Jurgen the Prize, those moments
Speaker 1: in the prizals vignettes of new people showing up in
Speaker 1: the Middle East. One of our things of Persia the
Speaker 1: Shah that some of us older lived and then moving
Speaker 1: on from the Shah is the separation of religion and
Speaker 1: culture in Iran from a fairly complex and successful economy
Speaker 1: that was in Iran. How do you partition the people
Speaker 1: of Iran, the economy of Iran from the religious extreme
Speaker 1: and the religious leaders of Iran. I think the understanding
Speaker 1: is that you have a young generation that really uh
Speaker 1: wants to be part of a different world, doesn't want
Speaker 1: to be part of this world that was created in
Speaker 1: nine nine with the imposition of the theocratic regime. But
Speaker 1: the instruments of power are all in the hands of
Speaker 1: the theocracy and they continue to wield them. And the economy,
Speaker 1: of course is in pretty bad shape right now because
Speaker 1: of the sanctions, and even without the sanctions, mismanagement of
Speaker 1: the economy, corruption and everything like that. So Iran's economy
Speaker 1: is is suffering. One final question if I could, Dr Jurgur,
Speaker 1: and that would be to hearken back to your exquisite
Speaker 1: effort commanding Heights. I kid you every year at Davos
Speaker 1: at we need to see a second edition of that
Speaker 1: as possible. How do the commanding Heights look right now
Speaker 1: from six Pennsylvania Avenue. Well, I think that from that
Speaker 1: it's uh, there's a question about how much of the
Speaker 1: commanding heights does the person who's the top commander command.
Speaker 1: And in terms of on he had and I ran
Speaker 1: a tech going on and he brought I believe the
Speaker 1: New York Times reports he canceled the mission while the
Speaker 1: planes were in the air. Yeah, I stand corrected if
Speaker 1: I'm wrong. Well, I think I'm thinking about in terms
Speaker 1: of the economy what you've been talking about the relationship
Speaker 1: with the FED. But I think that that he doesn't.
Speaker 1: I mean, there there's obviously disagreement administration about what to do,
Speaker 1: and this is an uncertain territory where you don't know
Speaker 1: where it's gonna end up and what are your goals
Speaker 1: At the end of the day, Daniel, You're gonna thank
Speaker 1: you so much. Do we have a new book coming up?
Speaker 1: Can we? Well? I did send in a manuscript yesterday, oh, yesterday,
Speaker 1: literally about three o'clock in the afternoon. A hint. You know, well,
Speaker 1: it's kind of some of these six themes we've just
Speaker 1: been talking. We'll leave it there, Daniel greg In with
Speaker 1: a top secret manuscript. It's out there somewhere, folks, and
Speaker 1: we await that publication here six months. Maybe when you're out, Daniel,
Speaker 1: you're gonna look for the movie Commanding Heights fourth of
Speaker 1: July and Imax. We are thrilled they have that as well.
Speaker 1: This has been, even by recent standards, a busy week
Speaker 1: four market participants. We've had, of course FED comments coming
Speaker 1: out earlier this week. Geopolitical issues always in play, including
Speaker 1: over the last twelve to twenty four hours, and then
Speaker 1: of course, uh the trade issues with Mexico and China
Speaker 1: with the G twenty coming up. Do you get a
Speaker 1: sense how one professional is factoring all these into uh
Speaker 1: the investment outlook. We welcome our next guest, Diane Jaffee.
Speaker 1: Diane is a group Managing director of the Relative Value
Speaker 1: Group at TCW. Diane, thanks so much for joining us.
Speaker 1: Let's just start with the FED. What did you make
Speaker 1: of the FEDS comments this week? I think they acknowledge
Speaker 1: the fact that market participants are worried about global growth,
Speaker 1: US growth specifically, and now we have to add Iran
Speaker 1: potentially i Ran strikes to the list of their worries exactly.
Speaker 1: And so the the issue is do you feel I
Speaker 1: guess the question is do you feel like the FED
Speaker 1: is on top of this in terms of Okay, we're
Speaker 1: gonna keep the rates kind of where we are, but
Speaker 1: we are clearly opening the door to address rates going forward. Absolutely,
Speaker 1: that is one of their goals is to you know,
Speaker 1: instill confidence in the US markets, and so that's a
Speaker 1: very important point right now. So on the geo political front,
Speaker 1: it just obviously it just seems to be a front
Speaker 1: burner issue all the time. And of course over the
Speaker 1: last twelve to twenty four hours with Iran, how do
Speaker 1: you factor the volatility that these seems to be escalating
Speaker 1: geopolitical issues play on the markets. It does give us
Speaker 1: more opportunity. We're bottom up fundamental investors, so we're in
Speaker 1: it for our clients for the next one to two
Speaker 1: years in terms of the investment prospects for the individual holdings.
Speaker 1: Um So it does give us opportunities to uh NIT
Speaker 1: and tuck around the edges. So it's interesting. One of
Speaker 1: the issues, Diane is, you know, kind of the impact
Speaker 1: that the president and UH and the President's tweets have
Speaker 1: on short term moves in the market. Again, we had
Speaker 1: some more tweets from President Trump this morning. How do
Speaker 1: you factor that in? I know you're a long term investor,
Speaker 1: but it just seems to introduce a layer of volatility
Speaker 1: into the marketplace that can be nerving unnerving for some.
Speaker 1: We had one of our analysts do UM scenario analysis
Speaker 1: going back to UH early two thousand and eighteen when
Speaker 1: Trump started tweeting quite a bit about China and tariffs,
Speaker 1: and we noticed that UM with a high degree of
Speaker 1: statistical significance that if the markets were down five days
Speaker 1: proceeding UM, he was less likely to tweet about China
Speaker 1: and hariffs. UM they has a t step score of
Speaker 1: you know, two point six, which is quite high, and
Speaker 1: so we would be less likely to anticipate a China
Speaker 1: Careff tweet if the markets were down. I think this
Speaker 1: is his long term game, as he of course has
Speaker 1: the advantage of being the incumbent running into but he
Speaker 1: needs the economy and he needs the markets to be
Speaker 1: behind him, Diane, good morning, and it's just thrilled to
Speaker 1: have you on with with decades of portfolio management and
Speaker 1: long I mean miss Jaffee Folks doesn't want to ever
Speaker 1: admit this, but long ago and far away, you know,
Speaker 1: ten years ago or so, she was a security analyst
Speaker 1: as well. And you know, Diane, that it does come
Speaker 1: down to revenue dynamics. Just as a summary of the
Speaker 1: last thirty days, there's gonna be a recession. We're all
Speaker 1: gonna die. Revenue is going to be terrible. I know,
Speaker 1: a TCW, you don't buy that. But what will be
Speaker 1: the lessening of revenue as you look out over a
Speaker 1: year or two in the stock market. Business uncertainty, of course,
Speaker 1: is what will directly lead to capital expenditures being down,
Speaker 1: and that is something that we are watching quite clearly. Um.
Speaker 1: If you look at the small business economic um expectations
Speaker 1: for capital expenditures, they are up um for since early January,
Speaker 1: but they are down since last August. And I think
Speaker 1: tariffs have created business uncertainty about where they should if
Speaker 1: there is the demand put their manufacturing capabilities. So, Diane,
Speaker 1: I know you're in the relative value group of TCW,
Speaker 1: where do you folks see value Relative Value now we
Speaker 1: um you know so. One of the unsung heroes over
Speaker 1: the last couple of days of uncertainty, of course, have
Speaker 1: been energy stocks. And one of our disciplines is always
Speaker 1: to maintain exposure to all the main economic sectors. And
Speaker 1: while sometimes um it seems like hey, you should be
Speaker 1: completely out of energy or completely out of another economic sector,
Speaker 1: we always trying to find the best names within every
Speaker 1: sector and that has turned to be quite fruitful for
Speaker 1: our clients over the last few days. Diane Jaffee, thank
Speaker 1: you so much. Diane is a group Managing director of
Speaker 1: Relative Value Group at TCW, joining us on the phone.
Speaker 1: There are those that talk and there are those that do.
Speaker 1: We were thrilled to have joining us in our studios
Speaker 1: in New York earlier this week, General McCrystal. We now
Speaker 1: finished the week strong with Admiral Stravidis. James Trevidiz of
Speaker 1: course with his public service in the Navy and with NATO,
Speaker 1: and then it toughs in their Fletcher School and now
Speaker 1: the Carlisle Group. James trevidis at an important moment for
Speaker 1: the nation. Ad will you always speak in grace of
Speaker 1: the public institution, The executive the president who was also
Speaker 1: our commander in chief. If I look at the definitive
Speaker 1: Eric Larabie one volume on Franklin Delano Roosevelt, I just
Speaker 1: don't think I would have seen a tweet uncocked and
Speaker 1: loaded or locked in loaded from the gentleman from another
Speaker 1: time and place simply your thoughts on the execution of
Speaker 1: our military policy by tweet. It's so unhelpful, Tom, and uh,
Speaker 1: you know, to throw another book back at you. But
Speaker 1: the new biography of Winston Churchill, Walking with Destiny by
Speaker 1: Andrew Roberts, I think addresses what Churchill did very well,
Speaker 1: which was to gather his allies about him, come up
Speaker 1: with a plan, and then rocks to carry it through. Um,
Speaker 1: when you're taking these espresso shots of tweet after tweet
Speaker 1: after tweet, very difficult for the military to execute, and
Speaker 1: more importantly, it's difficult for our allies to follow, and
Speaker 1: it encourages our opponents. I want to make clear, folks
Speaker 1: that this is delicate for the ad Bung. He was
Speaker 1: of course vetted as a vice presidential candidate the last
Speaker 1: time around. There was some talk of that is, well,
Speaker 1: how do people like you respond to this who are
Speaker 1: still wearing the uniform. What does the joint chiefs do?
Speaker 1: What do the line officers do on our ships on
Speaker 1: soil in the Middle East? When they see this action
Speaker 1: by a president, they are at this point two and
Speaker 1: a half years into it, they recognize the unpredictability, the
Speaker 1: variability of the decision process, and they're also concerned, Tom
Speaker 1: about the lack of a civilian leader in the form
Speaker 1: of a Secretary of Defense. At the moment, we don't
Speaker 1: have a fully vetted, seated, congressionally approved secretary of Defense.
Speaker 1: These are the moments when you really wish former General
Speaker 1: Jim Mattis were in the chair to answer the question
Speaker 1: what are troops do in the field? However, is operating
Speaker 1: professionally and they will continue to do that. Admiral, let
Speaker 1: me bring in my colleague Paul Sweeney in New York. Paul,
Speaker 1: thank you, Tom. Admiral, what do you think a separate
Speaker 1: from what just happened over the last twelve to twenty
Speaker 1: four hours with the strike and then the non strike,
Speaker 1: what do you think is a Rand's strategy here? Iran
Speaker 1: is simply working their way up the ladder of escalation,
Speaker 1: hoping over time to produce an effect of a reduction
Speaker 1: in the sanctions and they will continue to do that.
Speaker 1: They're taking a page out of Kim John Huns playbook
Speaker 1: and deciding that, uh, the path to attend and is
Speaker 1: to continue this type of offensive escalatory pattern. So unfortunately,
Speaker 1: I don't see this diminishing and I think we're going
Speaker 1: to continue to to see We're going to continue to
Speaker 1: see challenge ahead. So given that is the case, that
Speaker 1: is the strategy of a rent, how do you think
Speaker 1: or what do you believe the U S strategy is
Speaker 1: right now that we have a definitive strategy from your perspective,
Speaker 1: I don't think we do. And that's our problem. I'll
Speaker 1: tell you three things quickly. We ought to be doing
Speaker 1: is working more with our allies and our partners and
Speaker 1: our friends. We've got to get this out of a
Speaker 1: US versus Iran and get it into a global community
Speaker 1: versus Iran. Drums are one thing, but when you're blowing
Speaker 1: up tankers um that ought to galvanize the international community. Secondly,
Speaker 1: we need to give the president more options than just
Speaker 1: a Tomahawks strike, and that means cyber activity, offensive cyber
Speaker 1: special operations c i A. Give him more options and
Speaker 1: tools that he can deploy. And Thirdly, and you'll under
Speaker 1: stand this at Bloomberg, we've got to get the private
Speaker 1: sector working with us. At the end of the day
Speaker 1: keeping the straight open. It's gonna be escorting tankers protecting them.
Speaker 1: That's going to require working with the international maritime community.
Speaker 1: There's three things we ought to be doing that would
Speaker 1: form the basis of a strategy. I don't see that
Speaker 1: so far. So ad, We'll just give us a sense
Speaker 1: from your experience of the U. S. Navy. There's a
Speaker 1: carrier group over there and that part of the world
Speaker 1: that seems like you look at it on the map,
Speaker 1: how how narrow that straight of the hor Moves is
Speaker 1: and it seems very close quarters. Give us a sense
Speaker 1: of what it's like to serve in an hot area
Speaker 1: in that part of the world. So I commanded a
Speaker 1: carrier strike group built on the carrier Enterprise. I've commanded
Speaker 1: destroyers and cruisers in and out of that waterway. When
Speaker 1: you go through the straight of horn Moves, you're at
Speaker 1: general quarters. Every man and woman in the ship is
Speaker 1: up away, battle stations are manned. It's very very dangerous
Speaker 1: and as the temperatures go up as the summer heats
Speaker 1: up decision making. That's harder and harder um ahead, and well,
Speaker 1: I want to try to take this down to a
Speaker 1: granular moment. I may be wrong that the USS bunker
Speaker 1: Hill c G fifty two is on service somewhere in
Speaker 1: the vicinity of the Persian Gulf. That's one report I
Speaker 1: have from weeks ago. A. Well, maybe that's true, maybe
Speaker 1: it's not, but it's something. You know, the Ticonderoga class
Speaker 1: guided missile cruiser. It's not getting the press of the
Speaker 1: George Washington and the big aircraft carriers. What's it like
Speaker 1: on one of those smaller ships at sea, as Paul
Speaker 1: mentioned in the Heat of the Persian Gulf. Yeah, so
Speaker 1: you're loaded up with Tomahawk missiles. That's principally what you have.
Speaker 1: It's a missile that'll bill fifteen miles. It's so accurate
Speaker 1: we can choose which window to fly it through in
Speaker 1: a building. You are up seven, you're watching for Iranian
Speaker 1: small boats that are harassing you. You're so are is
Speaker 1: trying to make sure US an Iranian diesel boat doesn't
Speaker 1: sneak up on you. Everybody's tired. It's it's extremely intense operations.
Speaker 1: You know, you're on the forefront of defending your nation.
Speaker 1: It is our navy and the military in general. Are
Speaker 1: they overextended now with exhaustion or as you mentioned with
Speaker 1: the lack of coordinated effort in Washington, is there an
Speaker 1: urgency to get a more cohesive plan because of ship exhaustion?
Speaker 1: There is, indeed, and we saw evidence of that last
Speaker 1: summer with the terrible collisions the two Harley Burke class destroyers.
Speaker 1: We lost seventeen sailors in simple collisions. That see clearly
Speaker 1: exhaustion as part of that the Navy is trying to address.
Speaker 1: At bottom line, Come, we don't have enough ships. We
Speaker 1: only have two seventy five ships to cover the planet Earth.
Speaker 1: We need at least three hundred fifty. By every study,
Speaker 1: that is the print of a way you solve the
Speaker 1: exhaustion problem. Lad Well, this has been an honor to
Speaker 1: have you on with us today in general Crystal. A
Speaker 1: few days ago Stravits of Carlisle Group where this as well. Paul.
Speaker 1: You know we do economics, finance and investment, but I
Speaker 1: must say it's important to have these authorities on our
Speaker 1: military reach with us today. Yeah. Absolutely, Tom, It's an
Speaker 1: honor to have the Admiral on and giving us a
Speaker 1: what are clearly, you know, very well informed thoughts of
Speaker 1: what it's like to be serving right now in the
Speaker 1: golf at this time of uncertainty. Thanks for listening to
Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on
Speaker 1: Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm
Speaker 1: on Twitter at Tom Keane before the podcast. You can
Speaker 1: always catch us worldwide. I'm Bloomberg Radio.