1
00:00:00,240 --> 00:00:04,040
Speaker 1: Runch you by Bank of America Mary Lynch with virtual reality,

2
00:00:04,320 --> 00:00:09,719
Speaker 1: virtually everything will change. Discover opportunities in a transforming world

3
00:00:10,160 --> 00:00:14,440
Speaker 1: VI of a mL dot Com slash VR, Mary Lynch,

4
00:00:14,520 --> 00:00:28,120
Speaker 1: Pierced Fenner and Smith Incorporated. Ye, Welcome to the Bloomberg

5
00:00:28,160 --> 00:00:32,360
Speaker 1: Surveillance Podcast. I'm Tom Keene with David Gura. Daily we

6
00:00:32,440 --> 00:00:36,080
Speaker 1: bring you insight from the best of economics, finance, investment,

7
00:00:36,120 --> 00:00:42,200
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

8
00:00:42,280 --> 00:00:49,960
Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg To

9
00:00:50,080 --> 00:00:51,760
Speaker 1: begin this morning with Peter Hooper. He is the chief

10
00:00:51,760 --> 00:00:53,680
Speaker 1: economist at Deutsche Bank and he's with us here in

11
00:00:53,680 --> 00:00:57,040
Speaker 1: our Bloomberg eleven three oh studios. Let's travel to uh

12
00:00:57,360 --> 00:00:59,560
Speaker 1: western Portugal if we could hear to begin Peter into

13
00:00:59,560 --> 00:01:02,360
Speaker 1: the goings on there. Over these last couple of days

14
00:01:02,840 --> 00:01:05,080
Speaker 1: we watched with interest is Marito Droggy spoke about the

15
00:01:05,440 --> 00:01:08,440
Speaker 1: employment picture in Europe, about the inflation picture as well,

16
00:01:08,480 --> 00:01:10,479
Speaker 1: and saw him and the ECP try to walk back

17
00:01:10,520 --> 00:01:11,800
Speaker 1: some of what he said. A great lead on a

18
00:01:11,800 --> 00:01:14,360
Speaker 1: Bloomberg news piece this morning. This is what it sounds

19
00:01:14,400 --> 00:01:17,039
Speaker 1: like when doves screech. What happened what do we learn

20
00:01:17,080 --> 00:01:19,160
Speaker 1: about the way that central bankers communicate here over these

21
00:01:19,200 --> 00:01:22,520
Speaker 1: last couple of days. Well, central bankers obviously have big

22
00:01:22,560 --> 00:01:25,400
Speaker 1: impacts on the market. And uh, Mr Droggy had to

23
00:01:26,000 --> 00:01:29,600
Speaker 1: correct perceptions a little bit yesterday, people getting a little

24
00:01:29,920 --> 00:01:32,520
Speaker 1: interpreting him as being a little bit more hawkish than

25
00:01:32,640 --> 00:01:35,040
Speaker 1: I think he wanted to be. Uh he said, Uh, no,

26
00:01:35,160 --> 00:01:37,639
Speaker 1: we're going to take our time and moving towards balance

27
00:01:37,680 --> 00:01:43,080
Speaker 1: sheet normalization this sort of thing. Um. But uh, certainly, certainly,

28
00:01:43,480 --> 00:01:46,920
Speaker 1: I think that the sense that my my colleague George

29
00:01:46,920 --> 00:01:51,400
Speaker 1: Surveyalis has come up with something very unusual. I mean,

30
00:01:51,400 --> 00:01:55,600
Speaker 1: central banks don't normally coordinate on policy. I mean, if

31
00:01:55,640 --> 00:02:00,280
Speaker 1: if at most you have some some moving in contain

32
00:02:00,320 --> 00:02:04,080
Speaker 1: because the data are moving together across countries. Uh, and

33
00:02:04,080 --> 00:02:05,960
Speaker 1: and they happen to be moving in the same direction.

34
00:02:06,040 --> 00:02:10,720
Speaker 1: But but the the sense that Mr Droggy, I guess

35
00:02:11,440 --> 00:02:16,720
Speaker 1: introduced the word coordination in his text. Uh. We wonder

36
00:02:16,720 --> 00:02:19,079
Speaker 1: if we're gonna get a little pushback on that as well,

37
00:02:19,160 --> 00:02:22,200
Speaker 1: now from him or for from some of his colleagues.

38
00:02:22,200 --> 00:02:25,680
Speaker 1: But it's an interesting possibility. I think. Certainly, certainly the

39
00:02:25,760 --> 00:02:29,680
Speaker 1: data have been have been suggesting there's room for that

40
00:02:29,960 --> 00:02:32,400
Speaker 1: two sets of headlines coming out now as we interrupt,

41
00:02:32,639 --> 00:02:36,160
Speaker 1: Dr Hooper of Deutsche Bank. This in the corporate world. David,

42
00:02:36,200 --> 00:02:37,720
Speaker 1: I don't know if you've got these up on your screes.

43
00:02:37,760 --> 00:02:39,960
Speaker 1: David has is faster, But what is that? Why does

44
00:02:40,040 --> 00:02:44,080
Speaker 1: David Gurry have a better A few dollars? You know,

45
00:02:44,560 --> 00:02:47,960
Speaker 1: my computer is like the original one Mike made years ago.

46
00:02:48,120 --> 00:02:51,360
Speaker 1: Sky TV, is this gonna happen? Sky shares a race

47
00:02:51,520 --> 00:02:56,919
Speaker 1: gains united inclination? Yes, the UK government inclined to refer

48
00:02:57,040 --> 00:02:59,880
Speaker 1: the Fox Sky bid to to regulator. We were ex

49
00:03:00,000 --> 00:03:01,880
Speaker 1: acting some word on that this morning. Indeed we did

50
00:03:01,880 --> 00:03:03,720
Speaker 1: get that, and then uh, some news here about right

51
00:03:03,720 --> 00:03:05,920
Speaker 1: eight and Walgreen's boots as well. They're mutually agring to

52
00:03:06,000 --> 00:03:09,360
Speaker 1: terminate their merger. This has been something that's been undulating

53
00:03:09,400 --> 00:03:13,200
Speaker 1: churning here for for many months. Five billion dollars. Absolutely,

54
00:03:13,840 --> 00:03:16,760
Speaker 1: they're gonna do. Walgreens rather is going to authorize at

55
00:03:16,880 --> 00:03:21,959
Speaker 1: five billion dollars share buyback program out of this, Walgreens

56
00:03:22,000 --> 00:03:24,160
Speaker 1: will pay This is a kind of fee Peter Hooper

57
00:03:24,160 --> 00:03:30,760
Speaker 1: would pay someone five million dollar termination fee. Wow. Yeah,

58
00:03:30,800 --> 00:03:33,480
Speaker 1: Walgreen's at Walgreen's buying stories and assets and right aight

59
00:03:33,560 --> 00:03:36,040
Speaker 1: for five point one eight billion dollars in cash. A

60
00:03:36,080 --> 00:03:39,040
Speaker 1: couple stories will be following throughout the morning Berg surveillance.

61
00:03:39,520 --> 00:03:42,200
Speaker 1: We won't make a Dr Hooper comment on why why

62
00:03:42,240 --> 00:03:46,680
Speaker 1: don't you continue here with the David? It's almost schizophrenic?

63
00:03:46,760 --> 00:03:51,680
Speaker 1: Is that the right world? You know? The action of bankers? Yeah? Exactly.

64
00:03:52,480 --> 00:03:54,720
Speaker 1: Let me ask you here sort of what we heard

65
00:03:54,920 --> 00:03:57,280
Speaker 1: you talking about the the the influence of Mr dr

66
00:03:57,800 --> 00:04:00,240
Speaker 1: speech a couple of days to go back in train.

67
00:04:00,360 --> 00:04:03,200
Speaker 1: He talked about the employment picture, the challenges facing European employment,

68
00:04:03,200 --> 00:04:05,160
Speaker 1: how that dovetails with with inflation. What did you make

69
00:04:05,200 --> 00:04:06,880
Speaker 1: of what he had to say there? In other words,

70
00:04:06,920 --> 00:04:09,040
Speaker 1: there seemed to be some positive indications about sentiment in

71
00:04:09,040 --> 00:04:12,760
Speaker 1: the Eurozone, positive indications about where the employment picture he's

72
00:04:12,760 --> 00:04:15,640
Speaker 1: had it, but he still seems not satisfying. Well. I

73
00:04:15,680 --> 00:04:19,800
Speaker 1: think the main reason not satisfied is inflation has been

74
00:04:19,800 --> 00:04:22,320
Speaker 1: a little on the soft side, pably, and that's that's

75
00:04:22,360 --> 00:04:26,640
Speaker 1: the key. That is. Ultimately, the ECB is objective, UH,

76
00:04:26,640 --> 00:04:29,320
Speaker 1: and the employment picture of obviously feeds into that, and

77
00:04:29,440 --> 00:04:32,840
Speaker 1: growth is important. UH. Growth has been doing pretty well,

78
00:04:32,880 --> 00:04:37,640
Speaker 1: and the prospects there for for continued advancement and the

79
00:04:37,680 --> 00:04:39,360
Speaker 1: one and a half two percent range over the year

80
00:04:39,440 --> 00:04:43,200
Speaker 1: head seems seems reasonably good and the labor market likely

81
00:04:43,240 --> 00:04:48,360
Speaker 1: picking up with that. UH. I think the interesting point

82
00:04:48,760 --> 00:04:54,240
Speaker 1: is that he's suggesting that the softness and of inflation

83
00:04:54,360 --> 00:04:56,840
Speaker 1: that that normally would keep a central bank like the

84
00:04:56,880 --> 00:05:01,520
Speaker 1: ECB very much at bay is viewed as being transitory,

85
00:05:01,560 --> 00:05:05,000
Speaker 1: which is the same kind of message you're getting out

86
00:05:05,040 --> 00:05:09,000
Speaker 1: of the Fed. UH. And I think these these central

87
00:05:09,040 --> 00:05:12,359
Speaker 1: banks generally are feeling we've been at these uh, you know,

88
00:05:12,440 --> 00:05:16,320
Speaker 1: emergency floor levels for for quite a while. UM. There

89
00:05:16,400 --> 00:05:19,120
Speaker 1: is a little bit of growing concern on this side

90
00:05:19,120 --> 00:05:23,240
Speaker 1: of the Atlantic about financial stability issues may be associated

91
00:05:23,279 --> 00:05:28,480
Speaker 1: with that. So UM, I think, yes, it's a little

92
00:05:28,520 --> 00:05:30,960
Speaker 1: bit of a mixed mixed message out of out of Europe.

93
00:05:30,960 --> 00:05:35,080
Speaker 1: But overall, this is a central bank that we think

94
00:05:35,279 --> 00:05:39,960
Speaker 1: will will be UH tapering further round the end of

95
00:05:40,000 --> 00:05:44,120
Speaker 1: this year and and progressing with with at a much

96
00:05:44,160 --> 00:05:48,719
Speaker 1: slower pace, lagged a long behind the Fed, but is

97
00:05:48,760 --> 00:05:50,599
Speaker 1: moving in that direction. Let me ask you about that

98
00:05:50,640 --> 00:05:54,320
Speaker 1: descriptor transitory. Something that we heard from Cherry Yelling after

99
00:05:54,360 --> 00:05:56,560
Speaker 1: her after that rate decision during her press conference, she

100
00:05:56,600 --> 00:05:58,280
Speaker 1: said it many times are we certainly in the statement

101
00:05:58,640 --> 00:06:00,560
Speaker 1: as well, do you agree with her on that point?

102
00:06:00,640 --> 00:06:02,040
Speaker 1: Is it? How hard is it for her to defend

103
00:06:02,040 --> 00:06:04,600
Speaker 1: the transitory nature of the inflationary headlines we're seeing here

104
00:06:04,600 --> 00:06:09,200
Speaker 1: in the US? Well, UM so so the recent surprises

105
00:06:09,800 --> 00:06:12,919
Speaker 1: of inflation, what what what's been driving that? UM? In

106
00:06:13,040 --> 00:06:16,560
Speaker 1: March we had this this huge drop in in cell

107
00:06:16,600 --> 00:06:22,040
Speaker 1: phone services service charges UH with with the BLS, UH,

108
00:06:22,080 --> 00:06:24,160
Speaker 1: I think probably struggling a little bit to catch up

109
00:06:24,160 --> 00:06:27,039
Speaker 1: on on some quality changes there and and maybe there

110
00:06:27,120 --> 00:06:32,320
Speaker 1: was an unusually large observation. Since then, we've we've we've

111
00:06:32,320 --> 00:06:38,080
Speaker 1: seen certainly in the CPI significant decline and in UM

112
00:06:38,480 --> 00:06:42,479
Speaker 1: doctor's fees for example, medical health healthcare inflation has come

113
00:06:42,520 --> 00:06:45,919
Speaker 1: down after after rising pretty pretty strongly. So you have

114
00:06:46,040 --> 00:06:48,880
Speaker 1: this sort of a natural correction to slow down from

115
00:06:49,040 --> 00:06:53,040
Speaker 1: from a very large increase previously. And that's I don't

116
00:06:53,200 --> 00:06:58,839
Speaker 1: see UH pressures on healthcare inflation diminishing with the baby

117
00:06:58,880 --> 00:07:02,520
Speaker 1: boom generation continue at age. I think that overall is

118
00:07:02,560 --> 00:07:07,720
Speaker 1: gonna be so so uptrend. There other areas, uh, we

119
00:07:07,920 --> 00:07:10,600
Speaker 1: we we had we had a drop in in apparel inflation,

120
00:07:10,640 --> 00:07:13,360
Speaker 1: good inflation, and surprised a little bit to the downside.

121
00:07:13,360 --> 00:07:17,520
Speaker 1: Apparel inflation had again risen well above where the producer

122
00:07:17,520 --> 00:07:20,960
Speaker 1: prices had had been running. There they're catching up now, uh.

123
00:07:21,000 --> 00:07:23,240
Speaker 1: And then and finally a little bit of a slowdown

124
00:07:23,320 --> 00:07:30,040
Speaker 1: in in um rental inflation. Uh. Housing housing inflation, if

125
00:07:30,080 --> 00:07:32,960
Speaker 1: you will. That is not a friend that we expect

126
00:07:32,960 --> 00:07:35,600
Speaker 1: to continue either, because vacancy rates are low. So all

127
00:07:35,600 --> 00:07:38,680
Speaker 1: of these factors, say transitory. Peter Hooper, thank you so much,

128
00:07:38,760 --> 00:07:40,520
Speaker 1: very generous of your time, and again thank you to

129
00:07:40,520 --> 00:07:44,880
Speaker 1: your colleague George Serveills for joining us in London earlier

130
00:07:44,960 --> 00:08:00,640
Speaker 1: this morning. Dr Hooper is with Deutsche Bank joining us out.

131
00:08:00,680 --> 00:08:03,760
Speaker 1: Doug cast Doug, I'm in therapy. It's no other way

132
00:08:03,800 --> 00:08:07,000
Speaker 1: to put it. It's fun to watch the Yankees. If

133
00:08:07,040 --> 00:08:10,000
Speaker 1: you had more fun watching your dreaded New York Yankees

134
00:08:10,040 --> 00:08:14,800
Speaker 1: and years the greatest, the most fun I think I've

135
00:08:14,800 --> 00:08:17,800
Speaker 1: had probably in ten years, you know. And and you

136
00:08:17,840 --> 00:08:20,960
Speaker 1: saw it developing. You saw a bunch of young players

137
00:08:21,000 --> 00:08:26,480
Speaker 1: being developed. And even Jim Palmer in our disc in

138
00:08:26,520 --> 00:08:29,400
Speaker 1: our interview on surveillance a couple of months ago, was

139
00:08:29,440 --> 00:08:33,280
Speaker 1: bullish on the Yankees and parish on the Orioles. Within

140
00:08:33,440 --> 00:08:36,400
Speaker 1: this last night was exciting and yeah, I sent you

141
00:08:36,440 --> 00:08:38,840
Speaker 1: an email. You noticed the standings as we have this

142
00:08:38,920 --> 00:08:43,240
Speaker 1: interview winning percentage points FY three New York, always providing

143
00:08:43,240 --> 00:08:47,679
Speaker 1: good notes to us. Why you keep your finger over

144
00:08:47,720 --> 00:08:50,120
Speaker 1: the red button that would be the exit cast button

145
00:08:50,400 --> 00:08:53,240
Speaker 1: anyway source for a global audience. This is exciting. And

146
00:08:53,559 --> 00:08:56,320
Speaker 1: just one more comment on the baseball thing, Doug I

147
00:08:56,360 --> 00:08:58,760
Speaker 1: said last year the Doug cast seats right by Joe

148
00:08:58,800 --> 00:09:01,400
Speaker 1: Girardi to the left of the dugout, and there was

149
00:09:01,440 --> 00:09:04,720
Speaker 1: this big lummox out on the on deck circle. And

150
00:09:04,760 --> 00:09:09,120
Speaker 1: you have guys seen this. Rookie baseball players need time

151
00:09:10,000 --> 00:09:14,199
Speaker 1: to lose the panic of OMG, I'm here and that's

152
00:09:14,240 --> 00:09:15,880
Speaker 1: what we saw. Were there and judge for this year

153
00:09:15,920 --> 00:09:18,800
Speaker 1: to last year, from last year to this year. And

154
00:09:18,840 --> 00:09:21,680
Speaker 1: now you got this whole youth, this this kittie corps

155
00:09:22,160 --> 00:09:27,640
Speaker 1: coming up. It's amazing and our judge, it's a remarkable.

156
00:09:28,679 --> 00:09:31,360
Speaker 1: You've been wrong, Doug. The bull market continues. When does

157
00:09:31,360 --> 00:09:34,160
Speaker 1: this at last Friday? All the gloom and you're not

158
00:09:34,360 --> 00:09:40,360
Speaker 1: writing gloom crew emails? Describe the nuance of your caution

159
00:09:40,600 --> 00:09:44,320
Speaker 1: on this bull market versus the usual doom and gloom

160
00:09:44,400 --> 00:09:48,720
Speaker 1: stuff we all read well I think, I you know,

161
00:09:48,760 --> 00:09:52,360
Speaker 1: the issue to me is not how high the SMP

162
00:09:52,600 --> 00:09:55,760
Speaker 1: is this morning. The issue to me is how long

163
00:09:56,160 --> 00:09:59,240
Speaker 1: the markets will stay this high? And I think to

164
00:09:59,360 --> 00:10:03,080
Speaker 1: understand what's happened, what's happening today, we have to understand

165
00:10:03,080 --> 00:10:06,640
Speaker 1: what's happened in history. And the fact is that very

166
00:10:06,640 --> 00:10:11,400
Speaker 1: few active managers were able to deliver alpha over the

167
00:10:11,480 --> 00:10:13,640
Speaker 1: last decade or so, and you saw it. They were

168
00:10:13,640 --> 00:10:17,880
Speaker 1: not protected in the large drawdown in two thousand seven nine,

169
00:10:17,920 --> 00:10:22,040
Speaker 1: for example. And the public looks at these outcomes and says,

170
00:10:22,320 --> 00:10:24,559
Speaker 1: why they Actually, I pay higher fees to managers who

171
00:10:24,600 --> 00:10:29,720
Speaker 1: can outperform or can identify specular blowoff or an imminent

172
00:10:30,640 --> 00:10:34,480
Speaker 1: draw down of major magnitude. Let me just stay fully invested.

173
00:10:34,559 --> 00:10:36,040
Speaker 1: Them might as well be in an e T F

174
00:10:36,200 --> 00:10:39,400
Speaker 1: or an index fund. So since two thousand and seven

175
00:10:39,440 --> 00:10:45,040
Speaker 1: the Great Recession, basically passive activities and indexing has risen

176
00:10:45,080 --> 00:10:50,400
Speaker 1: from about eight percent to almost and um as you

177
00:10:50,400 --> 00:10:53,600
Speaker 1: shift assets from active managers to passive managers, they buy

178
00:10:53,600 --> 00:10:57,040
Speaker 1: an index. Since the index is capital weighted, it means

179
00:10:57,080 --> 00:10:59,680
Speaker 1: more and more money is going into fewer and fewer stocks.

180
00:11:00,040 --> 00:11:02,120
Speaker 1: And we've seen this before, and so have you. Guys.

181
00:11:02,559 --> 00:11:04,800
Speaker 1: We saw it when I enter when I graduated business

182
00:11:04,800 --> 00:11:08,040
Speaker 1: school in the early seventies. With the nifty fifty stocks,

183
00:11:08,720 --> 00:11:12,320
Speaker 1: you outperformed only if you continued to go into them.

184
00:11:12,360 --> 00:11:15,000
Speaker 1: If you were a growth stock manager in the late

185
00:11:15,080 --> 00:11:18,360
Speaker 1: ninety nineties, you were. If you weren't buying the net

186
00:11:18,440 --> 00:11:21,880
Speaker 1: stocks you under perform, you were fired. More and more

187
00:11:22,040 --> 00:11:26,240
Speaker 1: money went into fewer and fewer stocks. NAZDAC ultimately declined

188
00:11:26,280 --> 00:11:29,480
Speaker 1: by so you have a similar case today with the

189
00:11:29,520 --> 00:11:32,320
Speaker 1: fang stocks. More money, more and more money is being

190
00:11:32,679 --> 00:11:36,160
Speaker 1: deployed into a narrow and narrow area. In each case,

191
00:11:36,240 --> 00:11:39,080
Speaker 1: this trend doesn't end. Well, let me ask you about

192
00:11:39,160 --> 00:11:41,520
Speaker 1: the deal that we saw scuttle this morning between Walgreens

193
00:11:41,559 --> 00:11:44,200
Speaker 1: and Right. What's your takeaway from what happened there? Does

194
00:11:44,200 --> 00:11:46,080
Speaker 1: it does it sif the insight in teach for you

195
00:11:46,120 --> 00:11:50,079
Speaker 1: into the regulatory landscape? Does it taste just specifically about

196
00:11:50,080 --> 00:11:52,960
Speaker 1: the sense of this deal in and of itself. What's

197
00:11:52,960 --> 00:11:55,079
Speaker 1: your take on what we saw this morning? Well, I

198
00:11:55,080 --> 00:11:59,359
Speaker 1: would say not with regard into that deal David individually,

199
00:11:59,440 --> 00:12:04,199
Speaker 1: but I do think that the political and regulatory landscape

200
00:12:04,920 --> 00:12:10,040
Speaker 1: UM is moving unfriendly towards the market leaders. The fangs

201
00:12:11,080 --> 00:12:14,000
Speaker 1: owing to obviously a market dominance, and you look at

202
00:12:14,000 --> 00:12:18,720
Speaker 1: saying Amazon. The question is to me, and I've written

203
00:12:18,760 --> 00:12:21,600
Speaker 1: on the street about this over the last month since

204
00:12:21,640 --> 00:12:24,920
Speaker 1: the whole Whole Foods view was announced. The question to me,

205
00:12:25,280 --> 00:12:30,760
Speaker 1: is Amazon a company that's providing lower product prices to

206
00:12:30,840 --> 00:12:35,280
Speaker 1: the consumers or it is or is it creating jobs

207
00:12:35,640 --> 00:12:38,199
Speaker 1: and the destroyer of our economy? And I think you're

208
00:12:38,200 --> 00:12:43,360
Speaker 1: gonna hear a lot about going forward. Within all this

209
00:12:44,200 --> 00:12:47,560
Speaker 1: is use of cash, which is a fundamental concept. And

210
00:12:47,640 --> 00:12:50,600
Speaker 1: I might point out to those younger that Mr Kass

211
00:12:50,640 --> 00:12:54,440
Speaker 1: has a little bit of experience and securities analysis. We're

212
00:12:54,440 --> 00:12:57,400
Speaker 1: seeing it with a vengeance of the banks. Can do

213
00:12:57,400 --> 00:13:01,320
Speaker 1: you have the courage to short the banks here? Doug? Actually,

214
00:13:01,360 --> 00:13:04,240
Speaker 1: I just showed it UM this morning in pre market

215
00:13:04,240 --> 00:13:08,040
Speaker 1: trading Bank of America City Bank in JP Morgan's on

216
00:13:08,120 --> 00:13:10,960
Speaker 1: the ramp, and it's probably a trade look. I think

217
00:13:10,960 --> 00:13:13,720
Speaker 1: the I followed the industry since I was a Nati

218
00:13:13,840 --> 00:13:16,120
Speaker 1: rat and wrote a book called Citi Bank with Ralph Nader,

219
00:13:16,160 --> 00:13:20,640
Speaker 1: and while I was finishing my MBA at Wharton. This

220
00:13:20,800 --> 00:13:25,000
Speaker 1: is an industry that UM has de leveraged and has

221
00:13:25,040 --> 00:13:28,640
Speaker 1: a low return on assets and is barely earning its

222
00:13:28,679 --> 00:13:33,280
Speaker 1: cost of capital. Its valuations have risen dramatically, and the

223
00:13:33,360 --> 00:13:39,040
Speaker 1: industry faces three dominant headwinds. Lower credit demand's going forward,

224
00:13:40,440 --> 00:13:44,320
Speaker 1: a flattening yield curve, and low absolute interest rates. And

225
00:13:44,360 --> 00:13:48,040
Speaker 1: this is that this is could potentially be a toxic cocktail.

226
00:13:48,200 --> 00:13:50,640
Speaker 1: While the market is rejoicing this morning, well, I have

227
00:13:50,720 --> 00:13:53,920
Speaker 1: a toxic cocktail with Fortress Moointing Hand. Good morning, Mr Money,

228
00:13:53,960 --> 00:13:56,599
Speaker 1: And I know you're listening. Operating income at B A

229
00:13:56,720 --> 00:14:01,959
Speaker 1: C has gone twenty four heaven and somebody's modeling out

230
00:14:02,000 --> 00:14:04,720
Speaker 1: for next year thirty two billion large. I mean is

231
00:14:04,720 --> 00:14:07,319
Speaker 1: a growth vector. Maybe it's not a diamond growth vector,

232
00:14:07,559 --> 00:14:09,720
Speaker 1: but it's a Moointing hand growth factor. How do you

233
00:14:09,840 --> 00:14:12,840
Speaker 1: short that growth factor in operating a little bit of

234
00:14:13,080 --> 00:14:15,160
Speaker 1: h that's a little bit of data money, because you

235
00:14:15,200 --> 00:14:17,160
Speaker 1: have to go back and see what the disaster was

236
00:14:17,240 --> 00:14:19,160
Speaker 1: the five years prior to that, and you think we're

237
00:14:19,160 --> 00:14:22,640
Speaker 1: going to revisit that disaster. I don't think we're gonna

238
00:14:22,640 --> 00:14:25,480
Speaker 1: revisit I think the stocks are more than fully priced

239
00:14:25,520 --> 00:14:30,520
Speaker 1: relative to their projected returns on equity. When you when

240
00:14:30,560 --> 00:14:32,720
Speaker 1: you let me ask you, we we're talking about regulation

241
00:14:32,760 --> 00:14:34,480
Speaker 1: here just a moment ago. We're gonna talk about stress

242
00:14:34,480 --> 00:14:37,200
Speaker 1: tests a little later on on the program, But what

243
00:14:37,320 --> 00:14:38,920
Speaker 1: is what we've seen here over these last two weeks.

244
00:14:38,960 --> 00:14:40,800
Speaker 1: These two rounds of stress tests tell you about the

245
00:14:41,080 --> 00:14:45,760
Speaker 1: health financial sector here in the US. The UM financial

246
00:14:45,800 --> 00:14:52,600
Speaker 1: sector is um as relatively strong, especially visa v the

247
00:14:52,800 --> 00:14:58,040
Speaker 1: pre Great Recession crisis and oh seven or nine UM,

248
00:14:58,080 --> 00:15:01,880
Speaker 1: But so is the the industry's earning power. It's much lower.

249
00:15:02,840 --> 00:15:06,040
Speaker 1: Doug Folding here, what share Yellin's doing in central bank?

250
00:15:06,080 --> 00:15:08,280
Speaker 1: You do that it's not just all equity analysis for

251
00:15:08,440 --> 00:15:11,360
Speaker 1: mr cast. We've had a real shift in the last

252
00:15:11,400 --> 00:15:13,800
Speaker 1: two days, and really, for the first time since I

253
00:15:13,840 --> 00:15:17,280
Speaker 1: can remember, it almost looks like a coordinated hope and

254
00:15:17,360 --> 00:15:22,840
Speaker 1: prayer by bankers that inflation or disinflation will migrate into

255
00:15:22,960 --> 00:15:26,720
Speaker 1: some form of greater inflation. Do you agree with the

256
00:15:26,800 --> 00:15:30,480
Speaker 1: coordinated action of banks in their discourse in a rhetoric

257
00:15:30,800 --> 00:15:34,280
Speaker 1: or does that end up being market volatility. I think

258
00:15:34,320 --> 00:15:37,720
Speaker 1: that they're going to coordinate in terms of tightening. And

259
00:15:37,920 --> 00:15:43,400
Speaker 1: what I really don't understand is the markets of bulliance. UM.

260
00:15:43,520 --> 00:15:48,760
Speaker 1: I understand the bulliance following a period of historically large

261
00:15:48,840 --> 00:15:54,960
Speaker 1: monetary large s I don't understand. I don't envision a

262
00:15:55,080 --> 00:16:00,120
Speaker 1: positive response in the fullness of time from Tighten. It

263
00:16:00,240 --> 00:16:04,400
Speaker 1: just doesn't follow. Um, I thought you were getting at

264
00:16:04,480 --> 00:16:08,360
Speaker 1: something quote Yellings quote on Tuesday. Yeah that no more

265
00:16:08,400 --> 00:16:12,840
Speaker 1: financial crisis. Yeah yeah, I mean it's remarkable. It's I

266
00:16:12,880 --> 00:16:17,200
Speaker 1: did a piece entitled some really stupid Things undered by

267
00:16:17,240 --> 00:16:20,040
Speaker 1: some really smart people on the street a day ago,

268
00:16:20,760 --> 00:16:26,000
Speaker 1: and it's kind of a humble reminder David and Tom

269
00:16:26,080 --> 00:16:29,080
Speaker 1: of how dim our visions are. We talk about the

270
00:16:29,120 --> 00:16:33,880
Speaker 1: markets bulliance right now. Um, the fact as many sectors

271
00:16:33,880 --> 00:16:36,880
Speaker 1: have gone down, many shorts have been quite successful in

272
00:16:36,960 --> 00:16:40,520
Speaker 1: two thousand seventeen, and we live because of the domes

273
00:16:40,640 --> 00:16:44,080
Speaker 1: of passive investing in quant strategies in the market without

274
00:16:44,160 --> 00:16:46,200
Speaker 1: memory from day to day. Well, let's come back with

275
00:16:46,320 --> 00:16:48,680
Speaker 1: memory and talk to Doug Cass, the Sebris Partners and

276
00:16:48,720 --> 00:16:50,640
Speaker 1: lots to talk about. I think we should do a

277
00:16:50,720 --> 00:16:53,480
Speaker 1: little more, maybe investing one oh one, which is in

278
00:16:53,520 --> 00:16:57,480
Speaker 1: a log normal world, how not to lose money, which

279
00:16:57,480 --> 00:17:00,560
Speaker 1: it maybe of sport with a sun investor wisdom on

280
00:17:00,680 --> 00:17:04,000
Speaker 1: how not to lose money. Douglas cast Sea Breeze Partners.

281
00:17:04,040 --> 00:17:06,720
Speaker 1: Doug is a guy named Van Tharpe, who wrote a

282
00:17:06,720 --> 00:17:09,639
Speaker 1: really important book and in it a jewel of a

283
00:17:09,800 --> 00:17:15,040
Speaker 1: chapter years ago on what he called position sizing. I

284
00:17:15,200 --> 00:17:19,320
Speaker 1: call it in my lectures the how much idness, which

285
00:17:19,359 --> 00:17:22,359
Speaker 1: is something nobody ever talks about, which is you decide

286
00:17:22,400 --> 00:17:25,679
Speaker 1: to do this long, this short, and the real art

287
00:17:25,840 --> 00:17:28,920
Speaker 1: is how much do you put into the trade? If

288
00:17:28,960 --> 00:17:32,360
Speaker 1: you've been short and you've been in a long bullmarket,

289
00:17:32,520 --> 00:17:35,480
Speaker 1: how do you not get wiped out? How does Doug

290
00:17:35,600 --> 00:17:39,439
Speaker 1: Cass do the how much idness when you commit to

291
00:17:39,480 --> 00:17:45,600
Speaker 1: a trade? Great question? Um One of the things. First

292
00:17:45,600 --> 00:17:48,720
Speaker 1: of all, position size is a function of your time

293
00:17:48,760 --> 00:17:53,520
Speaker 1: frames and also of your risk appetite or risk profile.

294
00:17:54,080 --> 00:17:58,240
Speaker 1: I personally, personally, I am a very conservative short seller.

295
00:17:59,080 --> 00:18:04,200
Speaker 1: Um so I relatively small positions, particularly against my core

296
00:18:04,800 --> 00:18:08,639
Speaker 1: investment long positions as well. I do a lot of

297
00:18:08,680 --> 00:18:12,359
Speaker 1: synthetic puts. I short stocks and buy out of the

298
00:18:12,400 --> 00:18:16,240
Speaker 1: money calls. So what does that do for me? That, basically,

299
00:18:16,760 --> 00:18:20,840
Speaker 1: um um allows me to quantify the risk I have

300
00:18:21,480 --> 00:18:26,240
Speaker 1: not only in each individual short but in my entire portfolio. Essentially,

301
00:18:26,280 --> 00:18:31,440
Speaker 1: I'm paying for the privilege of protecting the short position,

302
00:18:32,080 --> 00:18:35,040
Speaker 1: and that worked out obviously very well for me in

303
00:18:35,480 --> 00:18:38,760
Speaker 1: seven and two thousand seven to two thousand nine, and

304
00:18:38,840 --> 00:18:43,280
Speaker 1: I suspect when the markets finally do break as they

305
00:18:43,359 --> 00:18:47,240
Speaker 1: always have historically, it will work out going forward. Doug,

306
00:18:47,280 --> 00:18:49,560
Speaker 1: how much is the price of oil right now shaping

307
00:18:49,560 --> 00:18:54,080
Speaker 1: your investment outlook? Well, something that no one early is

308
00:18:54,119 --> 00:18:56,800
Speaker 1: talking about. I'm of the view that not only stocks

309
00:18:56,800 --> 00:19:01,159
Speaker 1: are over priced, but so are bonds and UM. I

310
00:19:01,200 --> 00:19:06,239
Speaker 1: believe that the tenure is based upon my calculus is

311
00:19:07,080 --> 00:19:14,640
Speaker 1: projecting a real growth in the domestic product and domestically

312
00:19:15,359 --> 00:19:19,440
Speaker 1: UM and that's too low. UM. And the recent decline

313
00:19:19,440 --> 00:19:23,400
Speaker 1: in the price of oil going as Dennis Gartman our

314
00:19:23,440 --> 00:19:25,560
Speaker 1: friends says, from the top of the left chart to

315
00:19:25,600 --> 00:19:30,040
Speaker 1: the bottom right is historically at least that's what I

316
00:19:30,119 --> 00:19:31,960
Speaker 1: learned to business school and used to work in the

317
00:19:32,000 --> 00:19:36,760
Speaker 1: seventies and eighties and nineties until Quan Trating took strategies

318
00:19:36,800 --> 00:19:42,320
Speaker 1: took over. That's a stimulant to growth. When you when

319
00:19:42,359 --> 00:19:44,640
Speaker 1: when you you mentioned Whole Foods a little while back,

320
00:19:44,640 --> 00:19:46,440
Speaker 1: I want to ask you about that deal, in particular

321
00:19:46,480 --> 00:19:48,879
Speaker 1: what it says about the direction of retail. When that

322
00:19:48,960 --> 00:19:51,480
Speaker 1: news broke, Tom and I were scrambled just to figure

323
00:19:51,480 --> 00:19:54,320
Speaker 1: out what directionally that that means when when Doug has

324
00:19:54,359 --> 00:19:59,040
Speaker 1: breakfast at mar Lago, I forgot about that the avocado omelet.

325
00:19:59,160 --> 00:20:02,360
Speaker 1: You know he wants a blue free Whole Foods avocado. Yeah,

326
00:20:02,520 --> 00:20:05,600
Speaker 1: that's the way it is. You know, I was. I

327
00:20:05,640 --> 00:20:09,320
Speaker 1: actually had dinner when the when the President of China

328
00:20:09,440 --> 00:20:14,040
Speaker 1: was there, you were there? Did you conduct foreign policy

329
00:20:14,280 --> 00:20:17,119
Speaker 1: with everyone else there? For the briefing? I was with

330
00:20:17,200 --> 00:20:21,480
Speaker 1: a high level I do have Republican friends. I was

331
00:20:21,520 --> 00:20:26,800
Speaker 1: with a high level exclusive. But Doug, what does that

332
00:20:26,840 --> 00:20:30,720
Speaker 1: say to you? Doesn't know that direction to retail? What

333
00:20:31,080 --> 00:20:35,359
Speaker 1: is the Whole Foods Amazon deal say to you? Well,

334
00:20:35,400 --> 00:20:40,199
Speaker 1: the disruption continued, but you know I would questioning. I

335
00:20:40,240 --> 00:20:46,240
Speaker 1: would question and suggest we are approaching peak Amazon and

336
00:20:46,359 --> 00:20:51,840
Speaker 1: Pink Fang for the reasons I mentioned UM as well

337
00:20:51,880 --> 00:20:56,600
Speaker 1: as you know the growing political and regulatory risk of

338
00:20:56,640 --> 00:21:00,240
Speaker 1: these companies face. Look at look at the advertising. Could

339
00:21:00,280 --> 00:21:05,720
Speaker 1: for a second, Facebook and Google have approximately of online

340
00:21:05,760 --> 00:21:11,919
Speaker 1: add dollars going to them. UM online advertising accounts for

341
00:21:12,840 --> 00:21:19,480
Speaker 1: roughly of total advertising today, so multiply point eight times,

342
00:21:19,960 --> 00:21:22,800
Speaker 1: and that means they have roughly those two companies have

343
00:21:23,640 --> 00:21:27,360
Speaker 1: total advertising in this in this country, and that's probably

344
00:21:27,400 --> 00:21:30,000
Speaker 1: in the process of speaking. No one's talking about that much.

345
00:21:31,040 --> 00:21:34,480
Speaker 1: Tug one fund a question if if we could, when

346
00:21:34,520 --> 00:21:36,320
Speaker 1: do you cover a short? If we get to down,

347
00:21:37,400 --> 00:21:39,520
Speaker 1: do you change your view? Mean, how do you flip

348
00:21:39,600 --> 00:21:45,240
Speaker 1: to being a bull? Well, I'm not flipping to being

349
00:21:45,240 --> 00:21:49,760
Speaker 1: a bull. Um. You know, I am concerned about increasingly

350
00:21:49,960 --> 00:21:53,600
Speaker 1: about sector risks. I'm concerned about a higher percentage as

351
00:21:53,600 --> 00:21:56,920
Speaker 1: I mentioned of assets and then index funds, and I'm

352
00:21:56,960 --> 00:22:01,560
Speaker 1: worried that both quant strategies and passive and thing which

353
00:22:01,600 --> 00:22:05,439
Speaker 1: has been a stabilizing influence and the tall wind for

354
00:22:05,480 --> 00:22:10,920
Speaker 1: the equity markets will become destabilizing influences because fear ultimately

355
00:22:10,960 --> 00:22:13,840
Speaker 1: will enter the marketplace. We probably don't know what the

356
00:22:13,920 --> 00:22:16,760
Speaker 1: specific catalyst. And all you all you have to do

357
00:22:16,920 --> 00:22:20,640
Speaker 1: is ask two words at that point, to whom are

358
00:22:20,720 --> 00:22:24,200
Speaker 1: index funds and ets going to sell to? They don't

359
00:22:24,240 --> 00:22:28,520
Speaker 1: carry any cash reserves, and active marriages who have diminished

360
00:22:28,560 --> 00:22:32,080
Speaker 1: in size, most of them aren't carrying high level of

361
00:22:32,240 --> 00:22:36,000
Speaker 1: liquidity for fear of business. The last margin the development

362
00:22:36,000 --> 00:22:39,800
Speaker 1: of potentially a perfect storm. Okay, a perfect storm, yes,

363
00:22:39,840 --> 00:22:43,080
Speaker 1: that defines the New York Yankees does thank you so much?

364
00:22:43,560 --> 00:22:54,760
Speaker 1: This is Bloomberg runch you by Bank of America Mary Lynch.

365
00:22:55,040 --> 00:23:00,200
Speaker 1: With virtual reality, virtually everything will change. Discover opportunity is

366
00:23:00,440 --> 00:23:03,920
Speaker 1: in a transforming world. Be of a mL dot Com,

367
00:23:04,119 --> 00:23:15,159
Speaker 1: slash VR, Mary Lynch, Pierced Fenner and Smith Incorporated. We

368
00:23:15,320 --> 00:23:18,000
Speaker 1: love to get in guests when they're wrong, beat them up,

369
00:23:18,200 --> 00:23:21,200
Speaker 1: make them clear that we keep scoring Bloomer surveillance, and

370
00:23:21,280 --> 00:23:24,520
Speaker 1: every once in a while we're afforded the luxury of

371
00:23:24,560 --> 00:23:27,679
Speaker 1: a victory. Let Charles Peabody is one of the deans

372
00:23:27,760 --> 00:23:32,520
Speaker 1: of bank Analysis UH on the street and you need

373
00:23:32,560 --> 00:23:35,280
Speaker 1: a major victory left Charles a year and a half ago.

374
00:23:35,800 --> 00:23:39,080
Speaker 1: Charles Peabody said, not now, but a year and a

375
00:23:39,119 --> 00:23:42,320
Speaker 1: half from now, the casts bigott will turn it. We

376
00:23:42,480 --> 00:23:45,600
Speaker 1: that's what we're observing in the last forty eight hours right, definitely,

377
00:23:45,720 --> 00:23:48,360
Speaker 1: and and and I was even more conservative than most

378
00:23:48,359 --> 00:23:52,159
Speaker 1: street analysts on the c car Copita return requests. So

379
00:23:52,400 --> 00:23:56,199
Speaker 1: um it beat all expectations within this is the durability

380
00:23:56,280 --> 00:23:59,800
Speaker 1: Doug cast was just on with us UH cautious on

381
00:24:00,160 --> 00:24:04,280
Speaker 1: banks for a set of good reasons. You would push

382
00:24:04,280 --> 00:24:08,360
Speaker 1: against that, I believe and say their cash machines are

383
00:24:08,400 --> 00:24:11,960
Speaker 1: they their own internal a t M machine from a

384
00:24:12,000 --> 00:24:14,600
Speaker 1: CAPO perspective, they do have excess capital, and that was

385
00:24:15,280 --> 00:24:17,800
Speaker 1: the state. But on the P and L you have

386
00:24:17,880 --> 00:24:19,920
Speaker 1: to sort of split the regionals and the money center

387
00:24:19,960 --> 00:24:22,959
Speaker 1: banks and the brokers. I think you're gonna see very

388
00:24:23,000 --> 00:24:25,640
Speaker 1: weak second quarter earnings out of the brokers and money

389
00:24:25,640 --> 00:24:29,200
Speaker 1: center banks because the capital markets have not been very robust,

390
00:24:29,880 --> 00:24:32,520
Speaker 1: and that's going to lead to a lot of estimate

391
00:24:32,520 --> 00:24:35,000
Speaker 1: cuts and I think more to come in the second

392
00:24:35,000 --> 00:24:37,440
Speaker 1: half of the year could be importantly here, Mr pebody

393
00:24:37,560 --> 00:24:40,040
Speaker 1: nudging towards the world of Doug Gass, which is a

394
00:24:40,080 --> 00:24:43,280
Speaker 1: scary thing to say. Can Jamie Diamond keep double digit

395
00:24:43,320 --> 00:24:47,560
Speaker 1: dividend growth going five year dividend growth? Is this a

396
00:24:47,640 --> 00:24:50,720
Speaker 1: single digit world for Mr Diamond? I think it is

397
00:24:50,720 --> 00:24:52,960
Speaker 1: a single digit on the dividend for him. He's pushing

398
00:24:53,040 --> 00:24:55,679
Speaker 1: up against that soft cap of a thirty percent payout

399
00:24:55,760 --> 00:24:59,440
Speaker 1: ratio of earnings. So now to wrote to raise the

400
00:24:59,480 --> 00:25:02,080
Speaker 1: dividends function of your earnings power, and it's tough to

401
00:25:02,080 --> 00:25:06,119
Speaker 1: grow earnings double digits well, particularly here with the Domino GDP.

402
00:25:06,320 --> 00:25:08,399
Speaker 1: We just I said, what's your single best buy. We're

403
00:25:08,400 --> 00:25:10,200
Speaker 1: gonna come back and talk to you more about banking,

404
00:25:10,240 --> 00:25:13,080
Speaker 1: but do you have a single best buy right now. Well,

405
00:25:13,240 --> 00:25:16,399
Speaker 1: you know I don't have by rated stocks at the

406
00:25:16,440 --> 00:25:19,080
Speaker 1: moment um just because of the weak earnings outlook. Um,

407
00:25:19,320 --> 00:25:21,440
Speaker 1: but there's no question that City group hit the ball

408
00:25:21,440 --> 00:25:24,119
Speaker 1: out of the park um in this capital. Let's do that.

409
00:25:24,160 --> 00:25:26,359
Speaker 1: We don't talk enough about Mr Corbett. Let's let's come

410
00:25:26,400 --> 00:25:29,240
Speaker 1: back with a trust Peopody and talk about I don't

411
00:25:29,280 --> 00:25:33,000
Speaker 1: say that David I saw him. Do you know? I

412
00:25:33,040 --> 00:25:35,840
Speaker 1: got the banker wave. The banker wave David is when

413
00:25:35,840 --> 00:25:39,000
Speaker 1: the bankers see me from forty two feet away the way,

414
00:25:40,720 --> 00:25:43,240
Speaker 1: you know, like like they got four handlers around him. No,

415
00:25:43,560 --> 00:25:47,000
Speaker 1: don't talk to him. I got I got the Corbett bank.

416
00:25:48,400 --> 00:25:51,679
Speaker 1: You know it's a banker wave. It happens. Wait, Larry

417
00:25:51,680 --> 00:25:54,520
Speaker 1: Fink doesn't give me the banker wave, will actually come

418
00:25:54,560 --> 00:26:00,679
Speaker 1: and talk to me? The banker I Joe Joey and

419
00:26:00,960 --> 00:26:05,320
Speaker 1: Joey Vangelista wants crushed Jamie Diamond's elbow. Screet, don't talk

420
00:26:05,359 --> 00:26:11,400
Speaker 1: to jamis Joe That hurts Anyways, it's fun the banker wave. Yeah,

421
00:26:11,400 --> 00:26:14,640
Speaker 1: we'll come back with Charles Peabody truly excellent on the

422
00:26:14,720 --> 00:26:17,760
Speaker 1: major in the regional banks and get some wisdom and perspective.

423
00:26:18,040 --> 00:26:20,000
Speaker 1: David Garrett and Tom Keane here in New York in

424
00:26:20,400 --> 00:26:22,600
Speaker 1: eleven three Studio, So with Charles Peabody, Great to have

425
00:26:22,640 --> 00:26:24,320
Speaker 1: you with us. You're talking about the banks. Let me

426
00:26:24,320 --> 00:26:26,560
Speaker 1: start just by asking you broadly about these stress tests.

427
00:26:26,560 --> 00:26:29,240
Speaker 1: We've just been through them at this point now a

428
00:26:29,240 --> 00:26:32,080
Speaker 1: few years into them. How much have they improved? How

429
00:26:32,080 --> 00:26:33,879
Speaker 1: how much they telling you about the health of the

430
00:26:33,920 --> 00:26:38,520
Speaker 1: banking sector? Oh, dramatically improvement? Um. I mean, the amount

431
00:26:38,520 --> 00:26:41,400
Speaker 1: of capital that they returned in this exam was way

432
00:26:41,440 --> 00:26:45,040
Speaker 1: beyond anyone's expectations. And they still have excess capital. So

433
00:26:45,440 --> 00:26:48,159
Speaker 1: you know, returning a percent of your net income is

434
00:26:48,200 --> 00:26:50,600
Speaker 1: probably going to continue going forward. How much do they

435
00:26:50,600 --> 00:26:52,480
Speaker 1: stand to change you as you survey if you look

436
00:26:52,480 --> 00:26:55,159
Speaker 1: ahead here to what the regulatory landscape could look like

437
00:26:55,400 --> 00:26:57,520
Speaker 1: six months a year out, are we going to see

438
00:26:57,520 --> 00:27:01,400
Speaker 1: a different kind of test going forward? You know, one

439
00:27:01,400 --> 00:27:04,399
Speaker 1: could argue that this test showed some leniency from the

440
00:27:04,400 --> 00:27:07,879
Speaker 1: regulatory community and that may continue under Trump. But caution

441
00:27:07,960 --> 00:27:10,920
Speaker 1: about getting too far ahead of yourself on that front,

442
00:27:10,960 --> 00:27:15,080
Speaker 1: because I think financial legislative reform is probably dead in

443
00:27:15,080 --> 00:27:18,760
Speaker 1: the water. Into healthcare and tax reform, and we get

444
00:27:18,760 --> 00:27:20,720
Speaker 1: through the midterm elections, so it's not going to happen

445
00:27:20,800 --> 00:27:24,959
Speaker 1: until nine the earliers. If you look at regulatory fiat reform,

446
00:27:25,119 --> 00:27:27,400
Speaker 1: that's the way it's going to occur. But even there,

447
00:27:27,440 --> 00:27:30,080
Speaker 1: the process is you've got to get the nominees in place.

448
00:27:30,880 --> 00:27:34,960
Speaker 1: You're not going to get confirmation hearings probably until early eighteen,

449
00:27:35,600 --> 00:27:37,560
Speaker 1: and then you've got you know, and not notice the

450
00:27:37,600 --> 00:27:41,120
Speaker 1: proposed rulemaking the hearing periods. You're probably not gonna get

451
00:27:41,160 --> 00:27:44,159
Speaker 1: formal rules changed until early two tho nineteen. On the

452
00:27:44,200 --> 00:27:48,960
Speaker 1: regulatory fiat front, where are we with the regionals? We

453
00:27:49,080 --> 00:27:53,119
Speaker 1: have a huge wrong bias here two six or seven

454
00:27:53,160 --> 00:27:56,640
Speaker 1: big banks. Where are we on the regionals right now?

455
00:27:56,680 --> 00:27:59,880
Speaker 1: Do they have a place in the future of banking? Well,

456
00:28:00,040 --> 00:28:03,880
Speaker 1: you know, at compass point, um, the position is very

457
00:28:03,880 --> 00:28:06,840
Speaker 1: constructive on the regional banks. Um. Now they are you know,

458
00:28:06,880 --> 00:28:09,479
Speaker 1: they're going to benefit from the steepening neal curve um

459
00:28:09,600 --> 00:28:13,960
Speaker 1: and from you know, the rate hikes if that continues. Um.

460
00:28:14,000 --> 00:28:16,000
Speaker 1: The problem is the loan growth remains fairly in na

461
00:28:16,040 --> 00:28:18,040
Speaker 1: make at three percent. And that's that's the problem I'm

462
00:28:18,080 --> 00:28:20,280
Speaker 1: having with banks in generalists. I'm just not seeing the

463
00:28:20,320 --> 00:28:24,120
Speaker 1: economic activity either in the lending markets, where the capital markets,

464
00:28:24,600 --> 00:28:27,200
Speaker 1: and so you know, there's only so much cost cutting

465
00:28:27,200 --> 00:28:29,359
Speaker 1: you can do. And we're probably on the other side

466
00:28:29,400 --> 00:28:31,879
Speaker 1: of the credit spectrum where credit costs now are going

467
00:28:31,920 --> 00:28:35,639
Speaker 1: to rise, so you need much more stronger revenue growth. Ok,

468
00:28:35,760 --> 00:28:37,080
Speaker 1: that's right where I wanted to go, and then I

469
00:28:37,119 --> 00:28:39,000
Speaker 1: want to go to City Group. Then are we going

470
00:28:39,040 --> 00:28:44,400
Speaker 1: to see nominal GDP or better revenue growth or is

471
00:28:44,400 --> 00:28:48,640
Speaker 1: it going to be we must merge and combined because

472
00:28:48,640 --> 00:28:52,640
Speaker 1: we don't have five or six or seven percent revenue growth.

473
00:28:53,160 --> 00:28:55,120
Speaker 1: I think in the muddle through economy that we seem

474
00:28:55,160 --> 00:28:56,800
Speaker 1: to be having a one and a half two percent

475
00:28:56,840 --> 00:28:59,240
Speaker 1: GDP growth. You're going to see much more of a

476
00:28:59,320 --> 00:29:02,600
Speaker 1: combination of firms take place at the regional bank level.

477
00:29:02,640 --> 00:29:05,600
Speaker 1: How is Mr Corbett's challenge different from Mr morning Hans

478
00:29:05,680 --> 00:29:10,120
Speaker 1: or Mr Diamond's. Well, he's transformed the bank from what

479
00:29:10,160 --> 00:29:13,160
Speaker 1: was really a consumer led orientation to much more of

480
00:29:13,160 --> 00:29:16,400
Speaker 1: a corporate led orientation. As you know, Corbat and Freeze

481
00:29:16,480 --> 00:29:18,520
Speaker 1: both came out of Solomon Brothers, and that's where they're

482
00:29:18,560 --> 00:29:21,680
Speaker 1: more comfortable taking their risk so that the challenges can

483
00:29:21,720 --> 00:29:26,160
Speaker 1: they improve their capital markets positions, particularly on the equity side.

484
00:29:26,680 --> 00:29:28,640
Speaker 1: Do they have a desire to do that or are

485
00:29:28,680 --> 00:29:31,400
Speaker 1: they so far behind they can't catch up. No, they

486
00:29:31,440 --> 00:29:33,160
Speaker 1: have a very strong desire to do that. I mean,

487
00:29:33,200 --> 00:29:37,880
Speaker 1: they've got an excellent thick franchise fixed income currency franchise,

488
00:29:38,000 --> 00:29:40,800
Speaker 1: but their week sister on the equity side, and they've

489
00:29:40,840 --> 00:29:44,160
Speaker 1: been pushing pretty aggressively on the equity side up their position.

490
00:29:44,160 --> 00:29:45,480
Speaker 1: How do they do that? Do they do it with

491
00:29:45,520 --> 00:29:48,200
Speaker 1: a global projection? Do they do it with marketing and brandy?

492
00:29:48,240 --> 00:29:50,320
Speaker 1: Do they do it by retaining? Do we get into

493
00:29:50,360 --> 00:29:53,720
Speaker 1: a body war which no one's expecting. The body war

494
00:29:53,800 --> 00:29:55,840
Speaker 1: that I'm seeing is that they're being much more aggressive

495
00:29:55,960 --> 00:29:58,240
Speaker 1: in the bidding, for example, on the equity front. What

496
00:29:58,240 --> 00:30:01,680
Speaker 1: do you mean by bidding? Bidding for what? Deals? From deals?

497
00:30:02,000 --> 00:30:03,960
Speaker 1: For example? On the equity side. Right now, we're seeing

498
00:30:04,160 --> 00:30:06,560
Speaker 1: a lot of equity issues through what we call block

499
00:30:07,080 --> 00:30:10,840
Speaker 1: overnight deals where you you buy the deal at four

500
00:30:10,880 --> 00:30:12,800
Speaker 1: pm and you try and sell it out before it's

501
00:30:12,800 --> 00:30:16,800
Speaker 1: called blue Apron is what we call not going well

502
00:30:16,880 --> 00:30:19,720
Speaker 1: this week. I believe Goldman's lead has been set in

503
00:30:19,760 --> 00:30:23,160
Speaker 1: the dinner tables, Mr Mr Corbett. It's only it's seamless

504
00:30:23,440 --> 00:30:27,280
Speaker 1: and and we saw this happen in fourteen and early fifteen,

505
00:30:27,320 --> 00:30:29,520
Speaker 1: and then all of a sudden the markets fell in

506
00:30:29,600 --> 00:30:31,520
Speaker 1: the second half of fifteen and City got hurt in

507
00:30:31,520 --> 00:30:34,840
Speaker 1: the fourth quarter because they were trying to do that. Um.

508
00:30:35,000 --> 00:30:37,640
Speaker 1: So it's a question of managing the risks. Um they

509
00:30:37,640 --> 00:30:41,640
Speaker 1: have managed them well so far. I mean there's a

510
00:30:41,680 --> 00:30:46,360
Speaker 1: guy over over overlooking all this, who's who was pretty important,

511
00:30:46,400 --> 00:30:50,040
Speaker 1: a guy named O'Neill out of Hawaii. How's Michael O'Neill done?

512
00:30:50,040 --> 00:30:54,480
Speaker 1: And giving Corbett the chairmanship guidance to reframe the disaster

513
00:30:55,120 --> 00:30:58,000
Speaker 1: that it was. I think they've set out a very

514
00:30:58,080 --> 00:31:01,960
Speaker 1: constructive strategic plan and Corebat has been executing on that.

515
00:31:02,040 --> 00:31:04,640
Speaker 1: It's taken longer than I think anyone answer. They need retail,

516
00:31:06,280 --> 00:31:09,120
Speaker 1: they need cards and and that's the big growth story

517
00:31:09,160 --> 00:31:10,560
Speaker 1: for the second half of the year is that we're

518
00:31:10,560 --> 00:31:12,360
Speaker 1: going to see the card business. Am I gonna get

519
00:31:12,360 --> 00:31:15,680
Speaker 1: a hundred thousand dollar visa hundred thousand mile visa card

520
00:31:16,040 --> 00:31:17,480
Speaker 1: out of City Group? That's all they want to know.

521
00:31:19,040 --> 00:31:21,200
Speaker 1: That's what has come down to, right And by their

522
00:31:21,200 --> 00:31:23,520
Speaker 1: own admission, they had under invested in that card business.

523
00:31:23,520 --> 00:31:26,320
Speaker 1: And about two years ago they started really pushing that

524
00:31:26,360 --> 00:31:29,240
Speaker 1: card business and and now we're starting to see a

525
00:31:29,280 --> 00:31:31,560
Speaker 1: payoff in the second half of the year UM. But

526
00:31:31,600 --> 00:31:33,840
Speaker 1: it's coming at a time where there's an inflection the

527
00:31:33,840 --> 00:31:36,040
Speaker 1: credit costs and all these banks are having to raise

528
00:31:36,120 --> 00:31:39,440
Speaker 1: their assumptions of of credit costs. Question is how rapidly

529
00:31:39,440 --> 00:31:42,040
Speaker 1: do they rise versus where David Guru lives. There six

530
00:31:42,240 --> 00:31:45,760
Speaker 1: branches on the corner. It's called over banking. The City

531
00:31:45,760 --> 00:31:48,840
Speaker 1: Group over banks. Are they over branched not? City Group

532
00:31:48,920 --> 00:31:50,600
Speaker 1: does not have the branch structure that a b of

533
00:31:50,680 --> 00:31:52,480
Speaker 1: A or JP Morgan has in the United States, in

534
00:31:52,520 --> 00:31:54,760
Speaker 1: New York City and in certain pockets they do. And

535
00:31:54,800 --> 00:31:58,600
Speaker 1: that's their strategy is to target urban areas. We're talking

536
00:31:58,600 --> 00:32:01,840
Speaker 1: about blockchain and bit coin and cryptocurrency literally on on

537
00:32:01,880 --> 00:32:03,479
Speaker 1: the program. When you look at when you look at

538
00:32:03,480 --> 00:32:06,360
Speaker 1: all of the banks, who's best positioned uh to to

539
00:32:06,520 --> 00:32:10,800
Speaker 1: embrace technological change in the industry, Well, I think J. P.

540
00:32:10,960 --> 00:32:14,000
Speaker 1: Morgan and Jamie Diamond in you know, years ahead of

541
00:32:14,000 --> 00:32:18,000
Speaker 1: the other major banks and investing in technology UM so

542
00:32:18,240 --> 00:32:20,520
Speaker 1: I would say that they probably have the advantage. But

543
00:32:20,560 --> 00:32:24,360
Speaker 1: everyone's you know, investing in digital um technology right now,

544
00:32:24,440 --> 00:32:26,440
Speaker 1: and they're all going to end up in the same place.

545
00:32:27,080 --> 00:32:29,680
Speaker 1: How big of a way our student loans. We're talking

546
00:32:29,680 --> 00:32:32,080
Speaker 1: about delinquencies on the show yesterday, the prospect for more

547
00:32:32,160 --> 00:32:34,000
Speaker 1: than an auto loans and in student loans. When you

548
00:32:34,040 --> 00:32:35,840
Speaker 1: when you look at the big banks, how much of

549
00:32:35,840 --> 00:32:39,080
Speaker 1: a weight is that on them. It's a non issue. Yeah,

550
00:32:39,120 --> 00:32:41,280
Speaker 1: I mean even auto ending, where they're obviously going to

551
00:32:41,360 --> 00:32:43,680
Speaker 1: be problems in the subprime area, it's less than four

552
00:32:43,720 --> 00:32:46,600
Speaker 1: percent of their loan exposure. It's not going to move

553
00:32:46,600 --> 00:32:48,400
Speaker 1: the needle. The needle is going to be moved by

554
00:32:48,400 --> 00:32:51,200
Speaker 1: what happens in cards. The student loans and autos really

555
00:32:51,200 --> 00:32:53,080
Speaker 1: aren't going with the needle. I'm glad you bring this up,

556
00:32:53,120 --> 00:32:55,240
Speaker 1: because this is why I wanted to bring this up

557
00:32:55,240 --> 00:32:57,320
Speaker 1: in my brain. Froze. I'm still getting over talking too

558
00:32:57,400 --> 00:33:00,560
Speaker 1: much Inkee baseball, Doug cam So you know this is

559
00:33:00,600 --> 00:33:02,640
Speaker 1: what we do, folks. People go, well, you if you

560
00:33:02,680 --> 00:33:05,200
Speaker 1: have someone from the Cato Institute on, you have to

561
00:33:05,240 --> 00:33:08,280
Speaker 1: have some leftists on to balance. That's what we're doing,

562
00:33:08,320 --> 00:33:10,880
Speaker 1: your folks. We had casts on who loves at Yankees

563
00:33:11,200 --> 00:33:14,120
Speaker 1: and Peobody who's got a retired number out at Fenway

564
00:33:14,480 --> 00:33:17,560
Speaker 1: Party went to so many games as a kid. People

565
00:33:17,640 --> 00:33:22,200
Speaker 1: forget that City Group is seventy billion in revenue and

566
00:33:22,280 --> 00:33:26,280
Speaker 1: JP Morgan is a hundred billion in revenue. What the

567
00:33:26,360 --> 00:33:30,040
Speaker 1: tenth of a trillion dollars? My number one complaint, Charles,

568
00:33:30,520 --> 00:33:32,520
Speaker 1: is the media and so much of the public don't

569
00:33:32,520 --> 00:33:35,440
Speaker 1: realize how big these things are. Are they too big

570
00:33:35,480 --> 00:33:38,480
Speaker 1: to fail? Thank you, Andrew. Oh, they definitely are too

571
00:33:38,520 --> 00:33:40,880
Speaker 1: big to fail. And and that too big to fail

572
00:33:40,960 --> 00:33:43,280
Speaker 1: concepts still exists worldwide, as we just saw with the

573
00:33:43,360 --> 00:33:46,760
Speaker 1: Venetian banks in Italy. Um, they had to be bailed

574
00:33:46,760 --> 00:33:49,120
Speaker 1: out at the expense j P. We're gonna be allowed

575
00:33:49,120 --> 00:33:54,600
Speaker 1: to buy us by European banks? Why not? I think

576
00:33:54,640 --> 00:33:58,400
Speaker 1: that concentration of power would be dangerous. Um. You know,

577
00:33:58,640 --> 00:34:02,440
Speaker 1: I think we need large banks to compete internationally, but

578
00:34:02,560 --> 00:34:07,920
Speaker 1: do we need large banks in every single continent? And

579
00:34:07,960 --> 00:34:09,879
Speaker 1: they learned this the hard way. I mean City Group

580
00:34:10,239 --> 00:34:13,920
Speaker 1: pre Corbett learn this in Mexico, right, Yeah, I mean

581
00:34:14,400 --> 00:34:17,560
Speaker 1: they've struggled with their Banner X franchise, and and that's

582
00:34:17,600 --> 00:34:19,520
Speaker 1: one of the areas that they're trying to beef up

583
00:34:19,560 --> 00:34:23,160
Speaker 1: and invest in. And there should be a payback presumably

584
00:34:23,200 --> 00:34:25,560
Speaker 1: next year. There are actually already starting to generate some

585
00:34:25,600 --> 00:34:28,799
Speaker 1: positive operating leverage in Mexico. What's the message that the

586
00:34:28,800 --> 00:34:30,960
Speaker 1: takeaway that you have from what we saw in Italy

587
00:34:30,960 --> 00:34:35,839
Speaker 1: and Spain about the way that government's intervened in those banks. Well,

588
00:34:36,080 --> 00:34:38,720
Speaker 1: as you know, there were subtle differences between what happened

589
00:34:38,719 --> 00:34:42,000
Speaker 1: in Spain and Italy. But um, to me, it's that

590
00:34:42,080 --> 00:34:46,480
Speaker 1: the rules are going to be changed to affect a

591
00:34:46,600 --> 00:34:51,520
Speaker 1: process that disrupts the markets the least and all of

592
00:34:51,560 --> 00:34:55,040
Speaker 1: these you know, regulators are looking at markets and are

593
00:34:55,080 --> 00:34:58,239
Speaker 1: worried about markets and the and the feedback mechanism if

594
00:34:58,280 --> 00:35:02,200
Speaker 1: markets go awry. Charles, people do to thank you so much.

595
00:35:02,239 --> 00:35:07,239
Speaker 1: Congratulations and figuring out use of cash long before others here. Um,

596
00:35:07,280 --> 00:35:10,920
Speaker 1: I should point out I have no ownership of financial shares.

597
00:35:11,000 --> 00:35:15,640
Speaker 1: David leverage cash triple average, the double leverage, double leverage

598
00:35:15,680 --> 00:35:19,680
Speaker 1: cash cash fun. It's been great. I mean, the markets

599
00:35:19,680 --> 00:35:35,120
Speaker 1: are terror. You can't make money in stocks, folks, what

600
00:35:35,280 --> 00:35:40,680
Speaker 1: a joy and timely jab with us. Daniel Jurgen, who

601
00:35:40,960 --> 00:35:43,719
Speaker 1: is known for oil. I just sold six copies of

602
00:35:43,760 --> 00:35:47,120
Speaker 1: the book The Prize, which came out. John D. Rockefeller

603
00:35:47,200 --> 00:35:49,319
Speaker 1: read it. Um. It came out a few years ago,

604
00:35:49,360 --> 00:35:51,960
Speaker 1: and I said to some youngsters in the oil business.

605
00:35:52,040 --> 00:35:55,120
Speaker 1: I said, you can't do your business unless you read

606
00:35:55,160 --> 00:35:58,160
Speaker 1: your in the prize, and of course, uh, the Quest,

607
00:35:58,400 --> 00:36:02,440
Speaker 1: which I'll call an update highly readable sandwich. In between

608
00:36:02,440 --> 00:36:04,360
Speaker 1: it was The Commanding Heights, which is a book I

609
00:36:04,360 --> 00:36:07,400
Speaker 1: throw at people too often, the Battle for the World Economy,

610
00:36:07,480 --> 00:36:10,359
Speaker 1: and um the Royalty check I get annually from Oran.

611
00:36:10,400 --> 00:36:14,880
Speaker 1: It's awesome on that, Dan Jurgen, in honor of Lord Patton,

612
00:36:14,960 --> 00:36:19,560
Speaker 1: who I spoke to today of kiss Hong Kong. Mr

613
00:36:19,640 --> 00:36:23,440
Speaker 1: Jurgen joining us, and I quoted to Lord Patton Jurgen

614
00:36:24,480 --> 00:36:28,520
Speaker 1: from Commanding Heights in Hong Kong, it's seen the particular

615
00:36:28,600 --> 00:36:33,920
Speaker 1: advantages of location and the accident of history that had

616
00:36:33,920 --> 00:36:37,920
Speaker 1: brought enterprise and investment to ninety nine. And then you

617
00:36:38,040 --> 00:36:40,840
Speaker 1: go on brilliantly to say the classical liberal system in

618
00:36:40,880 --> 00:36:43,440
Speaker 1: the colony compared to what was going on in the

619
00:36:43,560 --> 00:36:47,319
Speaker 1: United Kingdom. That was really I remember that years ago

620
00:36:48,040 --> 00:36:51,440
Speaker 1: in your book. Give us an update on the experiment

621
00:36:51,560 --> 00:36:56,040
Speaker 1: of Hong Kong. Is it working well? Hong Kong stood

622
00:36:56,040 --> 00:36:59,000
Speaker 1: out because it was such a vibrant center of global

623
00:36:59,680 --> 00:37:03,759
Speaker 1: globe markets and capitalism and contrast to mouse China. But

624
00:37:03,840 --> 00:37:07,040
Speaker 1: of course, the world has moved on tremendously since then,

625
00:37:07,560 --> 00:37:11,480
Speaker 1: not only the rest of Asia, but China itself. Is

626
00:37:10,320 --> 00:37:15,000
Speaker 1: U such a economic powerhouse in such a center of

627
00:37:15,040 --> 00:37:18,080
Speaker 1: the world economy. I was thinking just the difference between

628
00:37:18,800 --> 00:37:23,000
Speaker 1: UH when the handover of Hong Kong occurred to China,

629
00:37:23,360 --> 00:37:26,840
Speaker 1: two systems in one country and a degree China not

630
00:37:26,920 --> 00:37:29,960
Speaker 1: yet joined the World Trade Organization, and there wasn't the

631
00:37:30,040 --> 00:37:33,840
Speaker 1: sense that there was UH the G two, the United

632
00:37:33,880 --> 00:37:36,879
Speaker 1: States and China. But now China has so much more

633
00:37:36,920 --> 00:37:40,120
Speaker 1: of a preponderant role in the world economy. Do they

634
00:37:40,120 --> 00:37:42,719
Speaker 1: play with a fair deck? I mean, the President the

635
00:37:42,800 --> 00:37:47,319
Speaker 1: United States gets upset about other countries and then maybe

636
00:37:47,320 --> 00:37:50,000
Speaker 1: he's got a bit of a zero sum architecture there

637
00:37:50,640 --> 00:37:53,280
Speaker 1: in defense of the President the United States, Is China

638
00:37:53,360 --> 00:37:57,680
Speaker 1: playing with a fair capitalistic commanding heights deck? Know that

639
00:37:57,800 --> 00:38:03,799
Speaker 1: they play with it? Used to be socialism with Chinese characteristics,

640
00:38:03,840 --> 00:38:06,160
Speaker 1: as a as Dung show Ping put it, And now

641
00:38:06,239 --> 00:38:09,440
Speaker 1: I guess you would say it's capitalism with Chinese characteristics.

642
00:38:09,800 --> 00:38:12,360
Speaker 1: It's clearly the state has a very big role in

643
00:38:12,360 --> 00:38:16,759
Speaker 1: the economy and UH. I think it's striking to me

644
00:38:16,840 --> 00:38:20,920
Speaker 1: when I've heard American CEOs talk in the last few years,

645
00:38:21,040 --> 00:38:24,920
Speaker 1: they're feeling that they don't have the same access to

646
00:38:25,000 --> 00:38:30,319
Speaker 1: the market as as as their Chinese competitors. So, uh,

647
00:38:29,920 --> 00:38:33,160
Speaker 1: it's it is. It is still a different system. Hong

648
00:38:33,239 --> 00:38:35,279
Speaker 1: Kong was a place to go. I wonder if you

649
00:38:35,320 --> 00:38:37,359
Speaker 1: were talking to a recent graduate of your alma mater

650
00:38:37,800 --> 00:38:40,799
Speaker 1: thinking of moving overseas, would you counsel moving to Hong

651
00:38:40,880 --> 00:38:42,920
Speaker 1: Kong here in the year two thousand seventeen doesn't have

652
00:38:42,960 --> 00:38:45,719
Speaker 1: the same sense of dynamism and opportunity that it had

653
00:38:45,760 --> 00:38:48,920
Speaker 1: back then. I think it would be one of the locations,

654
00:38:48,960 --> 00:38:50,960
Speaker 1: but it would not be you know, it would not

655
00:38:51,000 --> 00:38:54,560
Speaker 1: be the standout location. I mean, going to Asia makes

656
00:38:54,600 --> 00:38:57,640
Speaker 1: a lot of sense. Uh. You know, you might say

657
00:38:57,640 --> 00:39:00,200
Speaker 1: go to Shanghai, or you might say go to bay Jing.

658
00:39:00,280 --> 00:39:04,399
Speaker 1: I'm struck, you know. I remember in the late eighties too,

659
00:39:04,920 --> 00:39:07,080
Speaker 1: you'd see a lot of young people went to Japan

660
00:39:07,160 --> 00:39:09,200
Speaker 1: because Japan was going to be number one, if you

661
00:39:09,200 --> 00:39:11,959
Speaker 1: remember the title of that book. And now, of course

662
00:39:12,000 --> 00:39:15,560
Speaker 1: you go to Beijing and you see so many young Americans,

663
00:39:15,600 --> 00:39:21,080
Speaker 1: many nationalities there and with a sense of vibrancy that

664
00:39:21,440 --> 00:39:24,520
Speaker 1: is in the overall Chinese economy and the recognition of

665
00:39:24,560 --> 00:39:27,240
Speaker 1: how important China is in the global economy. The number

666
00:39:27,239 --> 00:39:30,480
Speaker 1: of students who study Chinese, of course at universities has

667
00:39:30,520 --> 00:39:33,480
Speaker 1: just shot up. Don't you're gonna help us understand what

668
00:39:33,520 --> 00:39:35,719
Speaker 1: we saw in Saudi Arabia a couple of weeks ago,

669
00:39:35,840 --> 00:39:38,160
Speaker 1: the the the institution of a new heir apparent in

670
00:39:38,440 --> 00:39:41,520
Speaker 1: the kingdom there. You know the region so well, the

671
00:39:41,600 --> 00:39:44,400
Speaker 1: history and the politics of it. What should we what

672
00:39:44,440 --> 00:39:47,520
Speaker 1: should we uh take away from what we saw there

673
00:39:47,520 --> 00:39:49,400
Speaker 1: in Riot a couple of weeks ago. I think we

674
00:39:49,400 --> 00:39:52,640
Speaker 1: should take away that Mohammed ben Solomon, who was the

675
00:39:52,880 --> 00:39:56,800
Speaker 1: deputy Crown Prince and promoted to Crown Prince, is a

676
00:39:56,880 --> 00:40:00,839
Speaker 1: person who's really in charge of the country right out. Uh.

677
00:40:01,000 --> 00:40:03,520
Speaker 1: He has a defense portfolio even before he moved up,

678
00:40:03,800 --> 00:40:09,520
Speaker 1: the economic portfolio, the oil portfolio, and uh he's the author,

679
00:40:09,640 --> 00:40:13,800
Speaker 1: he's the driving force behind this vision which is seeking

680
00:40:13,840 --> 00:40:17,720
Speaker 1: to to sort of move the Saudi economy into into

681
00:40:18,200 --> 00:40:20,080
Speaker 1: you know, in a sense we've been talking about Asian

682
00:40:20,120 --> 00:40:23,280
Speaker 1: to a more modern, engaged economy that isn't just based

683
00:40:23,360 --> 00:40:26,080
Speaker 1: upon oil. It's a very big job to do that

684
00:40:27,320 --> 00:40:31,920
Speaker 1: isn't so far away. How big you mentioned all of

685
00:40:31,920 --> 00:40:36,040
Speaker 1: the breadth of his portfolio, and we're interested in the

686
00:40:36,160 --> 00:40:38,439
Speaker 1: role that oil plays in that. Of course he's talked

687
00:40:38,440 --> 00:40:42,400
Speaker 1: about moving away from the kingdom's reliance on on oil. Uh,

688
00:40:43,280 --> 00:40:45,560
Speaker 1: how how well to pace is that transition going? How

689
00:40:45,680 --> 00:40:48,000
Speaker 1: how how far along are we in that transformation? I

690
00:40:48,040 --> 00:40:50,680
Speaker 1: think it's it's still it's still very early days. And

691
00:40:50,680 --> 00:40:53,400
Speaker 1: it is interesting that I mean in the crucial to it.

692
00:40:53,440 --> 00:40:55,959
Speaker 1: I mean the ideas that versify the economy away from oil.

693
00:40:56,160 --> 00:40:58,319
Speaker 1: In order to do that, you need oil. You need

694
00:40:58,360 --> 00:41:01,480
Speaker 1: to sell a lot of oil to rate the income

695
00:41:01,520 --> 00:41:03,359
Speaker 1: to do what they want to do. I think it's

696
00:41:03,360 --> 00:41:07,439
Speaker 1: still very much in a phase of getting getting getting ready,

697
00:41:07,440 --> 00:41:10,520
Speaker 1: trying to get things into place. And of course, um,

698
00:41:10,520 --> 00:41:13,239
Speaker 1: with oil at forty five dollars, it puts a lot

699
00:41:13,280 --> 00:41:15,560
Speaker 1: more pressure than it would be if oil is sixty

700
00:41:15,680 --> 00:41:19,439
Speaker 1: or seventy dollars and more urgency. What do you learn

701
00:41:19,560 --> 00:41:23,399
Speaker 1: from your consultancy? What do you learn from the PhDs

702
00:41:23,440 --> 00:41:27,680
Speaker 1: and petroleum knee deep in this and linking it into economics,

703
00:41:27,760 --> 00:41:31,920
Speaker 1: what's the insight Dr Jurgen that you hear seminar after

704
00:41:32,000 --> 00:41:36,399
Speaker 1: seminar that matters well? I think, um, because I think

705
00:41:36,400 --> 00:41:39,480
Speaker 1: about the research we do at h S Market. I

706
00:41:39,520 --> 00:41:42,919
Speaker 1: think I just came back from Detroit, where we did

707
00:41:43,440 --> 00:41:46,800
Speaker 1: we have a sort of a study group involving a

708
00:41:46,880 --> 00:41:50,480
Speaker 1: number of companies on our own experts called Reinventing the Wheel,

709
00:41:50,560 --> 00:41:55,279
Speaker 1: trying to understand how transportation will change, how what type

710
00:41:55,280 --> 00:41:58,439
Speaker 1: of vehicles people move in will change. And I think

711
00:41:58,480 --> 00:42:01,080
Speaker 1: that's obviously I find everywhere I go that's on the

712
00:42:01,120 --> 00:42:04,640
Speaker 1: minds of a bil global oil industry, as it is

713
00:42:04,680 --> 00:42:08,000
Speaker 1: of course the automotive industry and a tech industry that's

714
00:42:08,040 --> 00:42:12,399
Speaker 1: kind of convergence of them. I think the other big

715
00:42:12,480 --> 00:42:16,279
Speaker 1: questions are the kind of the perennial questions understanding, you know,

716
00:42:16,320 --> 00:42:21,360
Speaker 1: the overall forces of supply and demand, and and how

717
00:42:21,400 --> 00:42:23,839
Speaker 1: the rest of the world is accommodating to this new

718
00:42:23,920 --> 00:42:27,920
Speaker 1: force that has emerged out of US innovation basically, which

719
00:42:28,000 --> 00:42:30,680
Speaker 1: is a shale oil and shale gas. And I was

720
00:42:30,719 --> 00:42:35,719
Speaker 1: struck as I've been traveling in around the world in

721
00:42:35,760 --> 00:42:39,880
Speaker 1: a way other countries almost first of all, see the

722
00:42:39,960 --> 00:42:43,279
Speaker 1: change in the U S energy position more dramatically than

723
00:42:43,480 --> 00:42:46,920
Speaker 1: we may do. And secondly, the growing recognition that the

724
00:42:47,080 --> 00:42:50,120
Speaker 1: shale industry and the way it operates is a major

725
00:42:50,160 --> 00:42:53,279
Speaker 1: new force in the in the world economy. Let's come

726
00:42:53,280 --> 00:42:55,279
Speaker 1: back and talk a bit about the shale economy. Let

727
00:42:55,280 --> 00:42:57,080
Speaker 1: me ask you one question though, about what you were

728
00:42:57,120 --> 00:42:59,880
Speaker 1: just mentioning there. Your trip to Detroit. Is our imagine

729
00:42:59,880 --> 00:43:03,040
Speaker 1: a two bridled, not unbridled, but bridled. When we think

730
00:43:03,080 --> 00:43:05,480
Speaker 1: about the future of cars, we think about autonomous vehicles

731
00:43:05,480 --> 00:43:08,239
Speaker 1: and driverless cars. Are you are you foreseeing something when

732
00:43:08,280 --> 00:43:10,680
Speaker 1: you imagine what the future of ground transportation looks like?

733
00:43:11,440 --> 00:43:14,640
Speaker 1: What do you foresee happening? Well, I think we've learned

734
00:43:14,680 --> 00:43:16,840
Speaker 1: again and again that you know, these kind of things

735
00:43:16,880 --> 00:43:21,399
Speaker 1: that to change can happen in ways that you don't

736
00:43:21,400 --> 00:43:23,840
Speaker 1: expect and don't see. I mean, it's the tenth anniversary

737
00:43:23,840 --> 00:43:27,680
Speaker 1: of the iPhone, who imagined this whole new economy based

738
00:43:27,760 --> 00:43:32,960
Speaker 1: upon Have you predicted that in the prize? I was

739
00:43:33,040 --> 00:43:35,359
Speaker 1: in an event last week the Prime Minister Motive from

740
00:43:35,400 --> 00:43:38,520
Speaker 1: India and he was saying how India is in, as

741
00:43:38,560 --> 00:43:40,719
Speaker 1: he put it, in a digital mood, and he wants

742
00:43:40,760 --> 00:43:44,520
Speaker 1: to move everybody to online banking, out of out of

743
00:43:44,560 --> 00:43:47,319
Speaker 1: the cash system, although after what happened in Ukraine, you

744
00:43:47,360 --> 00:43:51,040
Speaker 1: may want to think twice about about doing that. So

745
00:43:51,080 --> 00:43:53,359
Speaker 1: I think we're we find that, you know, you really

746
00:43:53,400 --> 00:43:56,319
Speaker 1: do have to use kind of realistic stories about the

747
00:43:56,360 --> 00:44:00,400
Speaker 1: future scenarios to try and to see what are the

748
00:44:00,560 --> 00:44:02,879
Speaker 1: kind of going to be the milestones on the way

749
00:44:02,880 --> 00:44:07,440
Speaker 1: to how the transportation system changes. But I think I

750
00:44:07,480 --> 00:44:10,440
Speaker 1: would say, I would say that there's such a focus

751
00:44:10,440 --> 00:44:12,600
Speaker 1: on this that this wasn't there two years ago. I

752
00:44:12,600 --> 00:44:14,799
Speaker 1: guess I want to go here. Uh, doctor, you're going

753
00:44:14,920 --> 00:44:17,680
Speaker 1: more towards your wonderful book to quest. I picked it up.

754
00:44:17,719 --> 00:44:19,520
Speaker 1: I was like, yeah, yeah, you know, like a big

755
00:44:19,560 --> 00:44:25,920
Speaker 1: deal and it's highly readable about the new world of hydrocarbons. Doctor,

756
00:44:25,960 --> 00:44:28,719
Speaker 1: you're gonna where are the big oil companies in ten

757
00:44:28,800 --> 00:44:33,360
Speaker 1: or twenty years. They're not dinosaurs, but what are they?

758
00:44:34,000 --> 00:44:37,120
Speaker 1: I think they will become, first of all, more gas companies,

759
00:44:37,200 --> 00:44:42,120
Speaker 1: more focused on natural gas. Uh. Secondly, I think you

760
00:44:42,239 --> 00:44:45,959
Speaker 1: see the big companies hung back from shale. They left

761
00:44:45,960 --> 00:44:48,120
Speaker 1: it to the independence, and I think they now see

762
00:44:48,600 --> 00:44:51,520
Speaker 1: that shale needs to be part of their portfolios because

763
00:44:51,520 --> 00:44:54,680
Speaker 1: of the flexibility. It gives them to sort of flex

764
00:44:54,760 --> 00:44:58,040
Speaker 1: their systems up and down as the markets change. But

765
00:44:58,120 --> 00:45:00,520
Speaker 1: I think they're all going I think back to ours

766
00:45:00,600 --> 00:45:04,200
Speaker 1: Syahweed conference a couple of months ago. I think they're

767
00:45:04,239 --> 00:45:08,080
Speaker 1: all going through a sort of soul searching about, you know,

768
00:45:08,160 --> 00:45:11,200
Speaker 1: what what kind of energy transition is at hand and

769
00:45:11,360 --> 00:45:15,160
Speaker 1: what their role in it will be. So uh, I

770
00:45:15,280 --> 00:45:18,480
Speaker 1: think you know, they'll still be there. There'll be large players.

771
00:45:19,000 --> 00:45:21,680
Speaker 1: World demands still I think over the next ten or

772
00:45:21,719 --> 00:45:24,520
Speaker 1: twenty years will continue to grow, but they are kind

773
00:45:24,560 --> 00:45:28,560
Speaker 1: of looking at how much do they need to move

774
00:45:28,680 --> 00:45:33,080
Speaker 1: into other parts of this sort of value chain and energy.

775
00:45:34,640 --> 00:45:37,160
Speaker 1: I would say that other big thing is gas. Really

776
00:45:37,200 --> 00:45:39,400
Speaker 1: they you know, they start to refer them to selves

777
00:45:39,440 --> 00:45:41,960
Speaker 1: as gas and oil companies rather than oil and gas companies.

778
00:45:42,719 --> 00:45:45,080
Speaker 1: As we look here at oil in the mid to

779
00:45:45,600 --> 00:45:48,040
Speaker 1: high forties, I wonder if you think we're facing more

780
00:45:48,040 --> 00:45:50,600
Speaker 1: bankruptcy is not the major oil corporations, of course, but

781
00:45:50,840 --> 00:45:53,879
Speaker 1: in the industry as a whole. I think that we

782
00:45:54,000 --> 00:45:56,960
Speaker 1: you know, over a hundred companies went bankrupt after the

783
00:45:57,840 --> 00:46:03,719
Speaker 1: twenty fort when prices really started down. Uh. Their assets

784
00:46:03,760 --> 00:46:08,560
Speaker 1: remained there, just the companies went through reorganizations in some form.

785
00:46:08,600 --> 00:46:12,279
Speaker 1: I think that the companies have generally re engineered themselves,

786
00:46:12,440 --> 00:46:15,760
Speaker 1: uh for to operate at a much lower cost level.

787
00:46:16,239 --> 00:46:18,600
Speaker 1: When this when the prices started to collapse, the end

788
00:46:18,600 --> 00:46:22,680
Speaker 1: of the assumption among many was it at seventy dollars.

789
00:46:22,680 --> 00:46:26,840
Speaker 1: These companies disappear. They have now re engineered themselves to

790
00:46:27,520 --> 00:46:30,400
Speaker 1: work at forty to fifty dollars a barrel. So I

791
00:46:30,440 --> 00:46:34,160
Speaker 1: think there's a much greater resilience there in the system. Obviously,

792
00:46:34,200 --> 00:46:37,759
Speaker 1: the closer you get to forty, the more the more

793
00:46:37,800 --> 00:46:41,840
Speaker 1: pressured creates on these companies. But I think and what

794
00:46:41,960 --> 00:46:44,279
Speaker 1: we see we just didn't analysis look at the whole

795
00:46:44,280 --> 00:46:47,319
Speaker 1: cost structure of the industry around the world. You see

796
00:46:47,320 --> 00:46:50,360
Speaker 1: this kind of re engineering to operate more in a

797
00:46:50,520 --> 00:46:52,759
Speaker 1: kind of fifty dollar world. And looking back on a

798
00:46:52,840 --> 00:46:55,440
Speaker 1: hundred dollars is uh it was a few years ago

799
00:46:55,520 --> 00:46:57,279
Speaker 1: was seen as a new normal. Now was seen as

800
00:46:57,280 --> 00:47:01,040
Speaker 1: an oberration. I want to up the script. Uh, DR,

801
00:47:01,080 --> 00:47:03,279
Speaker 1: you're going, which we can always do for you. You

802
00:47:03,320 --> 00:47:06,120
Speaker 1: and I are at Davos. What people don't know is

803
00:47:06,120 --> 00:47:08,160
Speaker 1: there's a valley as we look out to the right

804
00:47:08,200 --> 00:47:10,480
Speaker 1: side of our TV set, and it's a glacier there.

805
00:47:10,560 --> 00:47:13,120
Speaker 1: That's I think in five or ten years, DR, You're

806
00:47:13,120 --> 00:47:15,439
Speaker 1: going to glacier will be on our set the way

807
00:47:15,440 --> 00:47:19,040
Speaker 1: it's coming down the mountain. There's a glacier iceberg in

808
00:47:19,120 --> 00:47:22,040
Speaker 1: Antarctica right now, that's the size of Delaware or something.

809
00:47:22,440 --> 00:47:24,319
Speaker 1: It's going to break off, and nobody knows what's going

810
00:47:24,360 --> 00:47:26,919
Speaker 1: to happen to it. Give us an update on your

811
00:47:26,960 --> 00:47:31,640
Speaker 1: thoughts on climate change, in your thoughts on the calculus

812
00:47:31,680 --> 00:47:36,400
Speaker 1: of climate change, the rates of change of climate change,

813
00:47:37,120 --> 00:47:38,880
Speaker 1: I'm not a first thing I have to say is

814
00:47:38,880 --> 00:47:42,479
Speaker 1: I'm not a client scientist. So uh, but you read

815
00:47:42,520 --> 00:47:45,920
Speaker 1: it and everybody knows you come on, right, So I

816
00:47:45,960 --> 00:47:48,799
Speaker 1: think that, um, you know, the recognition is that you

817
00:47:48,840 --> 00:47:52,560
Speaker 1: know the climate is changing. Uh, there's a wide spectrum

818
00:47:52,560 --> 00:47:56,400
Speaker 1: of alarm at how fast it's going to change. Yeah. Uh,

819
00:47:56,520 --> 00:48:00,160
Speaker 1: and it's I think you see, Uh, if you look

820
00:48:00,160 --> 00:48:02,480
Speaker 1: at the oil industry, you see a number of the

821
00:48:02,480 --> 00:48:05,560
Speaker 1: major companies now in favor of a carbon tax to

822
00:48:06,080 --> 00:48:09,560
Speaker 1: kind of give a kind of predictability to future investments

823
00:48:10,480 --> 00:48:14,440
Speaker 1: within that in the the auction process, and now it

824
00:48:14,480 --> 00:48:17,160
Speaker 1: hasn't worked in Europe. And that is the rate of

825
00:48:17,280 --> 00:48:19,839
Speaker 1: change of all this is this all happening faster than

826
00:48:19,840 --> 00:48:25,399
Speaker 1: we thought? Is? What is climate change happening faster than

827
00:48:25,440 --> 00:48:27,560
Speaker 1: we thought? I don't know. I mean, it's been so

828
00:48:28,000 --> 00:48:31,160
Speaker 1: heavily studied that I don't know if you can say

829
00:48:31,160 --> 00:48:34,000
Speaker 1: that the pace is faster than we thought. I mean,

830
00:48:34,280 --> 00:48:37,319
Speaker 1: you know clearly the carbon levels are higher, and we're

831
00:48:37,400 --> 00:48:42,560
Speaker 1: much more conscious of change. I saw that the Chancellor

832
00:48:42,640 --> 00:48:46,760
Speaker 1: mercle just today reenforced that all the European countries remained

833
00:48:46,800 --> 00:48:50,000
Speaker 1: committed to the Paris Agreement. I think the other aspect

834
00:48:50,080 --> 00:48:52,960
Speaker 1: of it is that, you know, the energy base is changing.

835
00:48:53,000 --> 00:48:56,360
Speaker 1: There is a growing role of renewables, wind and solar

836
00:48:56,400 --> 00:48:59,360
Speaker 1: now or eight percent of our electricity. Does it change

837
00:48:59,400 --> 00:49:02,200
Speaker 1: the sense of system for going to renewable energy? That is,

838
00:49:02,239 --> 00:49:04,160
Speaker 1: if you have an administration that isn't backing it to

839
00:49:04,200 --> 00:49:06,040
Speaker 1: the degree the previous one was, Is that change what

840
00:49:06,160 --> 00:49:09,360
Speaker 1: companies are investing in? Well? I think that the in

841
00:49:09,440 --> 00:49:12,920
Speaker 1: the US, I mean, obviously the real focus was on

842
00:49:13,160 --> 00:49:17,040
Speaker 1: Paris and whether we were in or out, and with

843
00:49:17,080 --> 00:49:20,520
Speaker 1: all the repercussions that people have on different sides of it.

844
00:49:21,000 --> 00:49:25,160
Speaker 1: But of course Paris did not commit countries to specifics things.

845
00:49:25,640 --> 00:49:27,799
Speaker 1: Was that they said they do these things. To me,

846
00:49:27,960 --> 00:49:31,120
Speaker 1: what stands out is, uh, well, two things. One Trump

847
00:49:31,120 --> 00:49:34,359
Speaker 1: administration he said that he was going to back out

848
00:49:34,360 --> 00:49:36,320
Speaker 1: of Paris, and so in a way it shouldn't be

849
00:49:36,360 --> 00:49:39,080
Speaker 1: a surprise that that he took the US out of it,

850
00:49:39,200 --> 00:49:41,080
Speaker 1: or seeks to take the U S out because it's

851
00:49:41,080 --> 00:49:43,960
Speaker 1: a long process. But I think what's really significant is

852
00:49:44,000 --> 00:49:46,640
Speaker 1: the tax incentives that were put in at the end

853
00:49:46,680 --> 00:49:50,480
Speaker 1: of and we think that as a result of those,

854
00:49:51,160 --> 00:49:53,839
Speaker 1: two thirds of the new electric capacity will be wind

855
00:49:53,880 --> 00:49:57,799
Speaker 1: and solar. And that's a that's a change, and that's

856
00:49:57,800 --> 00:50:00,759
Speaker 1: going to happen. Whatever. We have to leave it there. Dan,

857
00:50:00,840 --> 00:50:02,759
Speaker 1: You're gonna thank you so Much's never enough time with

858
00:50:02,920 --> 00:50:19,560
Speaker 1: Dr Jurgen read the quest. This is Bloomer David Girl.

859
00:50:19,680 --> 00:50:22,399
Speaker 1: I am in such shock I can't speak. It is

860
00:50:22,560 --> 00:50:25,360
Speaker 1: so unique in the history of the nation to have

861
00:50:25,400 --> 00:50:28,360
Speaker 1: a Chairman of the House Ways and Means Committee actually

862
00:50:28,400 --> 00:50:31,520
Speaker 1: show up on time for a radio interview. I believe

863
00:50:31,600 --> 00:50:35,160
Speaker 1: that's the first. It goes back at least to Madison

864
00:50:35,560 --> 00:50:38,080
Speaker 1: and maybe as far as Washington. And we thank the

865
00:50:38,160 --> 00:50:39,840
Speaker 1: Chairman of the House Ways and Means Committee, that is

866
00:50:39,840 --> 00:50:42,520
Speaker 1: one Kevin Brady, the congress from the eighth District in Texas.

867
00:50:42,520 --> 00:50:45,040
Speaker 1: That's Montgomery County, Walker County, just north of Houston. If

868
00:50:45,040 --> 00:50:47,000
Speaker 1: I'm not the mistaken joining us on our phone life

869
00:50:47,040 --> 00:50:48,920
Speaker 1: this morning, is no more important person to talk to

870
00:50:48,960 --> 00:50:51,000
Speaker 1: on the issue a tax form in particularly than Congressman.

871
00:50:51,000 --> 00:50:53,080
Speaker 1: Pretty great to have you with us this morning. Thank

872
00:50:53,120 --> 00:50:58,040
Speaker 1: you for that intro, the Madison reference. So I'll take it.

873
00:50:58,120 --> 00:50:59,960
Speaker 1: We'll see where we go. Let me ask you for

874
00:51:00,400 --> 00:51:02,600
Speaker 1: Let me first ask you about the calendar here Congress

875
00:51:02,600 --> 00:51:05,040
Speaker 1: approaching the July fourth recess. Say you guys come back.

876
00:51:05,080 --> 00:51:07,880
Speaker 1: You've got about ten legislative working days, if I'm not mistaken,

877
00:51:07,880 --> 00:51:11,040
Speaker 1: and then it's onward to the August recess. How worried

878
00:51:11,080 --> 00:51:14,920
Speaker 1: are you at this point about the compressed congressional calendar? Look, Um,

879
00:51:15,600 --> 00:51:20,560
Speaker 1: I'm not look it. Uh, we know what the schedule is. Um,

880
00:51:20,960 --> 00:51:24,839
Speaker 1: I'm confident. Frankly, the Senate is going to resolve their

881
00:51:24,880 --> 00:51:29,200
Speaker 1: differences and deliver on healthcare reform. I know our challenge

882
00:51:29,600 --> 00:51:32,640
Speaker 1: in the House going forward is to finish this budget

883
00:51:32,960 --> 00:51:35,360
Speaker 1: and move that to the Senate because that budget is

884
00:51:35,400 --> 00:51:39,880
Speaker 1: really key to tax reform this fall. And so look, um,

885
00:51:39,920 --> 00:51:42,480
Speaker 1: it is a tight schedule. I think we can can

886
00:51:42,640 --> 00:51:45,400
Speaker 1: meet it. Let me ask you a question here about

887
00:51:45,560 --> 00:51:47,400
Speaker 1: where things are added when headed when it comes to

888
00:51:47,440 --> 00:51:49,319
Speaker 1: tax reform. I wonder if you'd be open to an

889
00:51:49,320 --> 00:51:52,960
Speaker 1: overhaul that would include maybe temporary cuts on the individual side,

890
00:51:52,960 --> 00:51:55,759
Speaker 1: but permanent changes for for those on the corporate side.

891
00:51:55,760 --> 00:51:57,759
Speaker 1: Are you willing to weigh that or consider that this

892
00:51:57,800 --> 00:51:59,959
Speaker 1: point in light of where we are so right now,

893
00:52:00,200 --> 00:52:05,839
Speaker 1: I'm focused on bold, permanent tax reforms that dramatically simplifies

894
00:52:05,880 --> 00:52:10,239
Speaker 1: the code, really lowers rates significantly for job creators in

895
00:52:10,239 --> 00:52:13,960
Speaker 1: in in middle class families, but as as importantly leap

896
00:52:14,040 --> 00:52:16,840
Speaker 1: frogs America from I think roughly thirty feet in the

897
00:52:16,880 --> 00:52:20,240
Speaker 1: world into the top three for competitiveness. And we're we're

898
00:52:20,280 --> 00:52:24,840
Speaker 1: focused on that permanence because we think that's critical for

899
00:52:24,840 --> 00:52:30,640
Speaker 1: for companies making the investment decisions they create jobs for families. Uh. Carsman,

900
00:52:30,840 --> 00:52:33,600
Speaker 1: Robert Capital of the Dallas fed of the People's Republic

901
00:52:33,600 --> 00:52:37,080
Speaker 1: of Texas just told me that all of this uncertainty

902
00:52:37,080 --> 00:52:41,400
Speaker 1: in the land of Brady, Uh is gonna dampen economic growth?

903
00:52:41,760 --> 00:52:45,600
Speaker 1: Is the uncertainty of your Washington getta dampen or slow

904
00:52:45,719 --> 00:52:50,200
Speaker 1: economic growth in Texas? Well? No, I don't believe it will. Um.

905
00:52:50,239 --> 00:52:53,480
Speaker 1: In fact, back home, Um where I spent a lot

906
00:52:53,520 --> 00:52:56,000
Speaker 1: of time we lived back in the woodlands to northeastern

907
00:52:56,480 --> 00:53:00,839
Speaker 1: Um where people are families and small businesses. See, they're

908
00:53:00,920 --> 00:53:03,600
Speaker 1: very excited about tax reform. They feel like we're going

909
00:53:03,680 --> 00:53:06,480
Speaker 1: to get it done. Uh. It makes him more optimistic

910
00:53:06,920 --> 00:53:10,359
Speaker 1: about this year and next going forward. And so I

911
00:53:10,360 --> 00:53:15,040
Speaker 1: think in the world of politics and anguishing over every

912
00:53:15,080 --> 00:53:19,000
Speaker 1: different phrase and word, you know there's uncertainty. But I think,

913
00:53:19,560 --> 00:53:23,759
Speaker 1: um business is large and small feel confident we're going

914
00:53:23,800 --> 00:53:25,879
Speaker 1: to get this done. I listened with interest a couple

915
00:53:25,880 --> 00:53:27,919
Speaker 1: of weeks back when the House Speaker Paul Ryan spoke

916
00:53:27,920 --> 00:53:30,480
Speaker 1: before the National Association of Manufactories in Washington, d c.

917
00:53:30,640 --> 00:53:32,759
Speaker 1: And the news so much as I could ascertain what

918
00:53:32,800 --> 00:53:34,960
Speaker 1: it was that he placed a deadlight on getting this done.

919
00:53:34,960 --> 00:53:36,960
Speaker 1: He said, let's get tax reform done here by the

920
00:53:37,040 --> 00:53:38,719
Speaker 1: end of the year. I was struck by the urgency

921
00:53:39,200 --> 00:53:42,279
Speaker 1: in that statement. Is your sense of urgency is his

922
00:53:42,719 --> 00:53:44,480
Speaker 1: being matched by the White House? Would you like to

923
00:53:44,480 --> 00:53:47,000
Speaker 1: see the White House doing more to make this the

924
00:53:47,040 --> 00:53:51,359
Speaker 1: paramount issue for him? So it is in my experience

925
00:53:51,880 --> 00:53:56,560
Speaker 1: with President Trump's tax team that urgency is clearly there.

926
00:53:56,600 --> 00:53:59,520
Speaker 1: They know what were the economy is struggling, they know

927
00:53:59,600 --> 00:54:03,960
Speaker 1: we're falling behind. Is the timetable we've set and I

928
00:54:03,960 --> 00:54:07,320
Speaker 1: haven't seen anything yet that knocks us off that timetable.

929
00:54:07,360 --> 00:54:10,120
Speaker 1: I don't anticipate one, so I share that urgency and

930
00:54:10,120 --> 00:54:12,560
Speaker 1: I believe that the wine house does as well. You know, David,

931
00:54:12,600 --> 00:54:14,480
Speaker 1: I want you to continue here with a chairman, but

932
00:54:14,520 --> 00:54:17,480
Speaker 1: I want to make clear folks who need a surveillance correction.

933
00:54:17,840 --> 00:54:20,520
Speaker 1: Chairman Brady talks about the woodlands and it sounds like

934
00:54:20,560 --> 00:54:23,759
Speaker 1: he lives in a pup tent outside Houston. I just

935
00:54:23,800 --> 00:54:26,520
Speaker 1: want to point out to everybody that you can get

936
00:54:26,560 --> 00:54:30,000
Speaker 1: for five hundred forty five thousand dollars, five bedrooms, three

937
00:54:30,000 --> 00:54:33,160
Speaker 1: plus bass David, this thing is the size of Brooklyn.

938
00:54:33,280 --> 00:54:36,720
Speaker 1: I mean it's these houses are ginormous where Chairman Brady

939
00:54:36,760 --> 00:54:39,960
Speaker 1: lives and Frankie, that's part of the competition that Texas

940
00:54:40,000 --> 00:54:42,520
Speaker 1: wins at. You can almost afford the stuff you can't

941
00:54:42,520 --> 00:54:49,360
Speaker 1: talk about. Affordable housing is one of our strength in Texas.

942
00:54:49,440 --> 00:54:53,359
Speaker 1: And with low tax and no income tax, you're killing

943
00:54:53,440 --> 00:54:56,680
Speaker 1: We're moving the show to Texas. Let's go, Chairman Brady.

944
00:54:56,920 --> 00:54:58,960
Speaker 1: Let's let's talk a bit about the conversations you're having

945
00:54:59,040 --> 00:55:01,239
Speaker 1: with the White House about the border adjusted tax that

946
00:55:01,360 --> 00:55:03,160
Speaker 1: you've embraced, that it's a central part of the plan

947
00:55:03,200 --> 00:55:05,680
Speaker 1: that you've devised with the House Speaker you flow to

948
00:55:05,760 --> 00:55:07,320
Speaker 1: the idea of a five year phase in for a

949
00:55:07,320 --> 00:55:10,040
Speaker 1: border adjusted attacks. What's the case you're making to the

950
00:55:10,040 --> 00:55:11,759
Speaker 1: White House? Now, get us up to speed on where

951
00:55:11,800 --> 00:55:14,160
Speaker 1: things stand when it comes to the conversation over A B,

952
00:55:14,320 --> 00:55:16,520
Speaker 1: A T. Yeah. So here's one of the We we

953
00:55:16,520 --> 00:55:19,480
Speaker 1: have several big challenges in tax reform, and one of

954
00:55:19,560 --> 00:55:22,759
Speaker 1: them is how do we stop businesses from continuing to

955
00:55:22,880 --> 00:55:25,239
Speaker 1: leave the US. More importantly, how do we get them

956
00:55:25,239 --> 00:55:28,200
Speaker 1: to reconsider their supply chains to terms what can be

957
00:55:28,239 --> 00:55:31,200
Speaker 1: brought back the United States? Because our current tax co

958
00:55:31,360 --> 00:55:34,880
Speaker 1: clearly tells them move it elsewhere, and so our proposal

959
00:55:34,920 --> 00:55:39,560
Speaker 1: on border adjustment matches our competitors. Basically is equal taxation

960
00:55:39,680 --> 00:55:42,479
Speaker 1: in the US, and by lifting the mad Americat tax

961
00:55:42,680 --> 00:55:46,200
Speaker 1: a level playing field abroad, it is a bold change

962
00:55:46,320 --> 00:55:49,080
Speaker 1: and I recognize that, and that's why the five year

963
00:55:49,120 --> 00:55:53,280
Speaker 1: phase in was is proposed to dress what we believe

964
00:55:53,320 --> 00:55:56,439
Speaker 1: are valid concerns about making sure there's plenty of time

965
00:55:56,480 --> 00:55:59,160
Speaker 1: for the dollar to dust in all of that. But

966
00:55:59,280 --> 00:56:03,600
Speaker 1: bottom line is whether border adjustment is in the final

967
00:56:03,800 --> 00:56:08,120
Speaker 1: product or it is set aside for further study, the

968
00:56:08,160 --> 00:56:12,520
Speaker 1: problem still persists. How do we stop companies from leaving,

969
00:56:12,760 --> 00:56:14,720
Speaker 1: how do we bring them back? And so we're having

970
00:56:15,239 --> 00:56:18,040
Speaker 1: a really good discussions in the White House and Center

971
00:56:18,320 --> 00:56:21,200
Speaker 1: on how best to solve that issue. And we're I'm

972
00:56:21,239 --> 00:56:23,320
Speaker 1: just telling you, We're going to stay at the table

973
00:56:23,719 --> 00:56:27,000
Speaker 1: with President Trump's team and Senate Republicans until we solve

974
00:56:27,120 --> 00:56:30,200
Speaker 1: that principle issue. Sherman Brady got one more serious question

975
00:56:30,239 --> 00:56:33,640
Speaker 1: for you before you get on with your productive day.

976
00:56:33,920 --> 00:56:36,359
Speaker 1: You you, more than anybody we speak to h knows

977
00:56:36,400 --> 00:56:39,960
Speaker 1: the upset of parents and families broken apart and by violence.

978
00:56:40,000 --> 00:56:43,600
Speaker 1: And that I'm begun calling the opioid epidemic the heroin

979
00:56:43,719 --> 00:56:47,319
Speaker 1: opioid epidemic because I don't think anybody listening in the

980
00:56:47,360 --> 00:56:51,240
Speaker 1: real world knows what opioids are. You're in a leadership position.

981
00:56:51,680 --> 00:56:55,440
Speaker 1: What does Washington need to do to help Woodlands, Texas

982
00:56:55,440 --> 00:56:58,040
Speaker 1: a rich place or the poort place you know better

983
00:56:58,040 --> 00:57:00,759
Speaker 1: than me in Houston. What does she didn't need to

984
00:57:00,760 --> 00:57:05,360
Speaker 1: do about the heroin opioid epidemic? Well, it is an epidemic,

985
00:57:05,440 --> 00:57:08,879
Speaker 1: and we've seen we've we've worked to close down pill

986
00:57:08,960 --> 00:57:13,040
Speaker 1: mills in Southeast Texas and there's one point four hundred

987
00:57:13,040 --> 00:57:16,680
Speaker 1: of them in the Houston region, all of which drive

988
00:57:16,760 --> 00:57:20,720
Speaker 1: that epidemic. It's going to take several concerted efforts, and

989
00:57:21,040 --> 00:57:23,720
Speaker 1: one of them, frankly, is in healthcare. I was pleased

990
00:57:23,760 --> 00:57:26,360
Speaker 1: to see the Senate ad some more funding to address

991
00:57:26,440 --> 00:57:29,120
Speaker 1: this in the healthcare bill that they have the House

992
00:57:29,160 --> 00:57:31,920
Speaker 1: has already in Senate has acted in some other ways

993
00:57:31,960 --> 00:57:35,800
Speaker 1: as well. But but what I'm what I'm actually really

994
00:57:35,800 --> 00:57:39,920
Speaker 1: pleased about is this has finally gotten the attention it deserves,

995
00:57:40,200 --> 00:57:43,560
Speaker 1: both up here in Washington and back home as well.

996
00:57:43,640 --> 00:57:46,120
Speaker 1: And so I this is this issue isn't going to

997
00:57:46,200 --> 00:57:49,160
Speaker 1: go away, and we know we've got to act. Chairman,

998
00:57:49,160 --> 00:57:52,840
Speaker 1: Thank you so much, Uh, David, why don't you exit

999
00:57:52,920 --> 00:57:56,840
Speaker 1: the chairman? Chairman Kevin Brady there the chairman of the

1000
00:57:56,840 --> 00:57:59,600
Speaker 1: House Ways and Man's Committee from the eighth District in Texas.

1001
00:58:08,800 --> 00:58:12,960
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and

1002
00:58:13,040 --> 00:58:18,360
Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast

1003
00:58:18,480 --> 00:58:22,000
Speaker 1: platform you prefer. I'm on Twitter at Tom Keene, David

1004
00:58:22,040 --> 00:58:26,240
Speaker 1: Gura is at David Gura. Before the podcast, you could

1005
00:58:26,280 --> 00:58:40,880
Speaker 1: always catch us worldwide. I'm Bloomberg Radio. Runt you by

1006
00:58:41,160 --> 00:58:45,440
Speaker 1: Bank of America Mary Lynch with Virtual Reality virtually everything

1007
00:58:45,480 --> 00:58:50,560
Speaker 1: will change. Discover opportunities in a transforming world. VI of a,

1008
00:58:50,960 --> 00:58:55,280
Speaker 1: mL dot Com, slash vr, Mary Lynch, Pierced Fenner and

1009
00:58:55,320 --> 00:58:56,840
Speaker 1: Smith Incorporated,