Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene with
Speaker 1: David Gura. Daily we bring you insight from the best
Speaker 1: of economics, finance, investment, and international relations. Find Bloomberg Surveillance
Speaker 1: on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course
Speaker 1: on the Bloomberg Christopher Grassanti joins us now. He's the
Speaker 1: owner and founder Grassanti Capital Management's great to have you
Speaker 1: with us here in Bloomberg and leven three oh students,
Speaker 1: Let's talk a bit about the Trump Trade. We had
Speaker 1: a lot of conversations yesterday in which guests said, whither
Speaker 1: the Trump Trade? It's over done and gone? Uh you
Speaker 1: you you indicated that decide what does the Trump trade? Men?
Speaker 1: Because some extent it still exist at the least to
Speaker 1: the last note you wrote back at April, what's your
Speaker 1: sense of worth things stand that the role that Washington's
Speaker 1: playing here in the markets, in the economy right now, well, David,
Speaker 1: if I had told you that he would be able
Speaker 1: to get no meaningful legislation passed, and he'd go through
Speaker 1: chiefs of staff and he'd go through communications directors, you'd say, wow,
Speaker 1: the market will have real trouble going up. But obviously
Speaker 1: that's not been the case. I think what's really gonna
Speaker 1: matter as we go into the fall is what happens
Speaker 1: with tax relief or tax reform, at least especially on
Speaker 1: the corporate side for the market. And so I think
Speaker 1: the market remains hopeful and Minuchin coming to the fore
Speaker 1: saying this is what's going to happen. We finally have
Speaker 1: a plan. I think that's part of the reason the
Speaker 1: futures are up this morning. So I'm optimistic that the
Speaker 1: rally has legs to continue. Steven Manuchan saying he has
Speaker 1: a plan. There was that a joint statement for members
Speaker 1: of the Congress and the White House, just over a
Speaker 1: page long. Do we have enough information here? You disappointed
Speaker 1: on what we've seen thus far? And as an investor,
Speaker 1: would you like to see more meat on the bone? Right? Well,
Speaker 1: it's kind of a double edged sword because the more
Speaker 1: information they give, the more they're gonna upset certain constituencies.
Speaker 1: So I think there's a purposeful vagueness to what they're
Speaker 1: putting out now, and of course the devil will be
Speaker 1: in the details as you get down to to September.
Speaker 1: So I suspect we're gonna start seeing headlines about corporate
Speaker 1: tax relief, and at least at the beginning, that will
Speaker 1: spur the market. The real question is will they be
Speaker 1: able to push things through committees in both the House
Speaker 1: in the Center. How do you see the interplay between
Speaker 1: the turmoil? I think we can call it that if
Speaker 1: you have you have the communications structories on the job
Speaker 1: for five or six days and at least uh and
Speaker 1: the markets are we seeing it reflect what's happening in
Speaker 1: Washington at all? Or do you get a sensor that
Speaker 1: the market is becoming more near to what's happening. Well,
Speaker 1: maybe one of the good news is for the market
Speaker 1: for with the Scaramuci stuff, has it happened during earning
Speaker 1: seasons and their earnings have been relatively benign. We've we've
Speaker 1: started seeing either UH, solid makes or even some nice
Speaker 1: beats from tech companies like Facebook. So I think that's
Speaker 1: really what the markets focused on, rather than the relative
Speaker 1: short tenure of Scarls. Were this in a good time
Speaker 1: to speak to him? Futures again, Uh, just lost my
Speaker 1: here there they are futures dred three up hundred three.
Speaker 1: We didn't print twenty two thousand on the futures market
Speaker 1: this morning. Just check that, Chris, I want to talk
Speaker 1: about us of cash. The theory is, I mean, thank
Speaker 1: you Mr Winberg of Golden sax Fame Fame. Trees don't
Speaker 1: grow to the sky. But the basic idea is there's
Speaker 1: got to be a point where you don't buy back
Speaker 1: shares because they're just too rich. Are we there? I
Speaker 1: think we? I mean, obviously, Tom, it's a case by
Speaker 1: case basis, but but I think we are kind of
Speaker 1: there for the folks that are typically in growth companies
Speaker 1: that have been buying back stock. So uh, I would
Speaker 1: stop now. Having said that, it's the part of the
Speaker 1: ethos of certain companies that they buy back to three
Speaker 1: the shares each year, and I think that's a mistake.
Speaker 1: I think Warren Buffett put it pretty well. You'll you'll
Speaker 1: take a look, you'll do the numbers, and if your
Speaker 1: stock is a good investment, you'll buy it, and if
Speaker 1: it's not, you want so where's diving and growth? And
Speaker 1: I just looked at the stock. I'm not gonna mention folks.
Speaker 1: It's not a name. A lot of people know. It's
Speaker 1: a great American success story. They're up eighteen percent per
Speaker 1: year off the Lehman Low Bottoms of oh nine, they've
Speaker 1: got huge dividend growth. Do you just keep doing dividend growth?
Speaker 1: I mean, it's Mario Gabelly one on one. Yeah, I
Speaker 1: think you do. One of the probably v major question
Speaker 1: we ask we're analyzing companies is what is the company
Speaker 1: going to do with the cash that they produce? And
Speaker 1: it's not the same for each company. Is no right answer.
Speaker 1: If you're a growing company, have great markets that are growing,
Speaker 1: you reinvest in your own business. But if you're not
Speaker 1: a growing company, you give that back to shareholders and
Speaker 1: buy backs. And you know the noise of media, you
Speaker 1: have discovery scripts, which is you know, we're all trying
Speaker 1: to sort that out right now. I believe it's twenty
Speaker 1: of advertising revenue and cable TV something uh like that.
Speaker 1: Are you seeing constructive m and a creating value or
Speaker 1: is it the beginning of an exuberance. No, I think
Speaker 1: it's even what it's it's it's even later than the
Speaker 1: beginning of an exuberance. I think we're kind of in
Speaker 1: the middle innings of exuberance were in late cycle. So
Speaker 1: you're starting to see deals that make sense for the bankers,
Speaker 1: for um, for the executives that are getting compensated on
Speaker 1: share appreciation things like that, but don't necessarily mean that
Speaker 1: you're going to see higher earnings as a result with
Speaker 1: the combined companies, and and and so they're betting on
Speaker 1: a lot of things going right in order for these
Speaker 1: deals to to really justify themselves. What does that deal,
Speaker 1: that Discovery Scripts deal tell you about that part of
Speaker 1: the market, the economy, and in particularly your vicom They
Speaker 1: didn't win that deal. Um, what it is I think
Speaker 1: is a desperation not to be left behind. Because clearly
Speaker 1: in the content side of things, there are winners and losers,
Speaker 1: and so far, at least Discovery has been, you know,
Speaker 1: on the losing side of the ledger. And you have
Speaker 1: companies like Time Warner with HBO, of course Disney with ESPN.
Speaker 1: Stuff stuff that delivers content that people who are really
Speaker 1: want and of course the test there are they willing
Speaker 1: to pay more for it? And for HBO and ESPN
Speaker 1: the answers yes, and for the Discovery Channel maybe not.
Speaker 1: So they're desperately trying to get big enough, and I
Speaker 1: think the endgame there is to get a critical mass
Speaker 1: of that then they can be acquired and they can
Speaker 1: be taken out without just Languishing and Viacoma were shareholders.
Speaker 1: They're simply because it's too cheap. They have some good content,
Speaker 1: we think it's worth considerably more. It sells for less
Speaker 1: than one tempt the market cap of Disney, for example,
Speaker 1: so we just think that's too low. How old are
Speaker 1: you about desperation as a motivating fact here in the
Speaker 1: TMT space in others? How problematic is that to be
Speaker 1: motivated by concern or worry that maybe you're going to
Speaker 1: be left? But you know, it's funny being a value guy.
Speaker 1: We have the luxury of really looking at industries that
Speaker 1: are our old fashioned industry. TMT is tough media right now.
Speaker 1: It's obviously it looks nothing like it looked even five
Speaker 1: years ago. So you have to be so dynamic there.
Speaker 1: You can't settle for the status quo like you could
Speaker 1: if you were an iron or company or something like that.
Speaker 1: So you know, if if you're not it's the shark.
Speaker 1: If you're not moving, you're dying in the media business.
Speaker 1: And so that's that's a tough way to go. I
Speaker 1: want to go back to what we talked about before.
Speaker 1: You said on television you're an eighteen. That's very sequis
Speaker 1: can you say that a focused portfolio. I remember the
Speaker 1: uproar over the Fidelity fifty fund years ago uh Mercenel
Speaker 1: and the crew up in Boston. Fifty was I was
Speaker 1: outrageous focusing concentration. So here are you running virtually a
Speaker 1: hedge fund with eighteen stocks? Have you what's the downside?
Speaker 1: What's the ugliness? We push back? I mean when I
Speaker 1: think hedge fund, I think faster money, and and in
Speaker 1: our holding periods are really three or four years, so
Speaker 1: we go narrow and deep. Tom. So we're buying Apple
Speaker 1: at eleven times because nobody was buying the iPhone six
Speaker 1: and a half or seven complete failure, right, and so
Speaker 1: we know over the three years there's gonna be a
Speaker 1: good product cycle and things like that. We're we're buying
Speaker 1: Wells Fargo during the credit card debacle because they have
Speaker 1: a deep management team. They have a biggest mortgage franchise
Speaker 1: in the United States, and that will come back again
Speaker 1: over three years in a quarter or two who knows so,
Speaker 1: And we feel that's better than taking a ride in
Speaker 1: a mark It. That's certainly uh more expensive than very
Speaker 1: quickly you're all pull I had from steel from Christopher Whalen,
Speaker 1: which is always a constructive thing. Is there something about
Speaker 1: preferreds here? Do you want to go to convertibles or
Speaker 1: preferred and pick up a bigger dividend? You know you don't.
Speaker 1: I don't think some time, I I think you can
Speaker 1: do things like buying We've been buying Verizon lately because
Speaker 1: everybody is so down on them because they've done the
Speaker 1: unlimited data. So the stock is dropping the mid fifties
Speaker 1: to the low forties a week or two ago, and
Speaker 1: then point eight percent yield at four point and and
Speaker 1: two weeks ago, when it was in the low forties,
Speaker 1: the yield was in the mid five So I'd rather
Speaker 1: own that with the prospect of if things were turned
Speaker 1: to normal, they don't have to be gangbusters. You'll get
Speaker 1: ten percent appreciation on the stock and the five percent
Speaker 1: we'll come back and do some investment theory here with
Speaker 1: Christopher Gersanti. Always important to do that, uh as as
Speaker 1: well Chris Krossani with us. And that's a well timed thing.
Speaker 1: I'm assuming you don't own under armor. You do not
Speaker 1: on no retail at all. Actually, well, within that, what
Speaker 1: do you do when you screw up? What do you do?
Speaker 1: You know? You've got a four year plan on the stock.
Speaker 1: How do you figure out you made a mistake and
Speaker 1: what do you do? How do you that's a great question.
Speaker 1: That's actually the hardest thing that we do is when
Speaker 1: do we give up because we don't have an automatic
Speaker 1: it's down five percent or tempercent kick it out. In fact,
Speaker 1: often when it's down five or temper cent, that's our
Speaker 1: opportunity to really load up on a on a position.
Speaker 1: So so the tough thing is we have a thesis
Speaker 1: going in and whether it's an analyst that works for
Speaker 1: me or it's me, we write it down and that's
Speaker 1: the thesis we have to stick with. So if they
Speaker 1: reports something different, um, there's a tendency for folks to
Speaker 1: come in and say, well, it's still gonna work even
Speaker 1: though our original thesis didn't work out. And that's when
Speaker 1: the yellow lights go off and we sell the stock.
Speaker 1: David grow Yes, I'm going to pounce on that and
Speaker 1: give some wisdom. Write it down. There's no substitute. This
Speaker 1: goes back to Gene Perroni, who was a wonderful technician.
Speaker 1: Off of his father's historic work. Eugene Peruni said the same,
Speaker 1: you gotta write it you gotta plot the chart with
Speaker 1: a pencil. There's just something about writing it down which
Speaker 1: clarifies thoughts right right. And on our analysts meeting, everybody's
Speaker 1: required to have a memo, even though with the electronic
Speaker 1: communications it's so easy to send emails and but we
Speaker 1: have to have something in writing, and it's got to
Speaker 1: have numbers in it, and it can't be conceptual. It's
Speaker 1: got to be data driven. Um. And so that's something
Speaker 1: we can return to when things are going going awry,
Speaker 1: as they always do in a three or four years
Speaker 1: suggesting the digital world, David, write it down as it
Speaker 1: lost as a cursive but they don't have to write
Speaker 1: all day. Could go all day on a lack of
Speaker 1: cursive in schools. Chris, a few minutes ago you mentioned,
Speaker 1: well as far ago you said you bought a lot
Speaker 1: during that first scandal. We had another one this week
Speaker 1: and involving these sort of fake insurance schemes. How do
Speaker 1: you how do you react to that? Is that another
Speaker 1: opportunity to to buy How confident in the leadership to
Speaker 1: push back a little? I don't think this this one
Speaker 1: that they really were buying insurance for folks at car Loans,
Speaker 1: which they're allowed to do. They just I think they
Speaker 1: just screwed up, and and I don't think anyone's more
Speaker 1: embarrassed about it than they are. And they're gonna spend
Speaker 1: a bunch of money, but it'll be behind them, I think,
Speaker 1: relatively quickly, because I don't think there was kind of fraud.
Speaker 1: I think it was just a bad systems management issue.
Speaker 1: Are you worried about a recession? At this point of
Speaker 1: stepping back and looking at the economy broadly, there any
Speaker 1: indications to you that things are about to turn No.
Speaker 1: I'm always scared to say no, no, But I have
Speaker 1: to say the indicators that we look at, you know,
Speaker 1: a weekly job claims, which is kind of the most
Speaker 1: coincident indicator um our average hourly earning and things like that.
Speaker 1: There's no yellow lights flashing terribly brightly um And so
Speaker 1: the other thing I would say is, obviously it would
Speaker 1: be too late when they're all flashing brightly. And I
Speaker 1: do think we're obviously this this recovery is long in
Speaker 1: the tooth. But we went down so far in oh
Speaker 1: eight oh nine. So I'm one of the guys who
Speaker 1: thinks it should take longer to come back, because because
Speaker 1: we went down so far, so I'm not troubled by
Speaker 1: the length of the of the recovery. What's the biggest
Speaker 1: misunderstanding about value investing when you talk to people about it?
Speaker 1: You know, I think the big mistakes value investors make,
Speaker 1: even good ones, are to be too dogmatic. I mean,
Speaker 1: there's an old saying by Oscar Wild which I love,
Speaker 1: which is I'm I'm not young enough to know everything.
Speaker 1: And and the longer you go in this business you
Speaker 1: realize that you have to be adaptable to make money.
Speaker 1: So when folks say, oh, well tech is too expensive,
Speaker 1: there's going to be a huge crash, maybe, but maybe
Speaker 1: that crash doesn't come for two or three years. And meanwhile,
Speaker 1: buying companies that look expensive, leg Oracle, which is at
Speaker 1: the higher end of its range, which is but still
Speaker 1: only eighteen times next year's number. So stuff like that.
Speaker 1: There are compromises I think you make in this kind
Speaker 1: of environment that I don't apologize for. Chris, Thank you,
Speaker 1: very valuable. Christomers scienty always valuable, but particularly here. The
Speaker 1: future is a four closing in on SMP. Wow, the
Speaker 1: vix ten point three zero, that's a good time to
Speaker 1: speak to Chris Chrissante His research is definitive in its
Speaker 1: detail on where we're going. What's great about Chuck Gabriel
Speaker 1: is he doesn't hide away from the sausage making of
Speaker 1: what cometh in Washington. Of course, David Grew, you know
Speaker 1: it's busy, Charles Gabriel, Capital Partners joining US Center Phone Linel, David,
Speaker 1: why don't you bring in handsome Chuck Gabriel. He knows
Speaker 1: everything there's to know about the path from budget reform
Speaker 1: and budget passing to tax reform and tax reform passing. Chuck, Chuck,
Speaker 1: let me start by asking you what members of the
Speaker 1: House have left behind here. There was a vote on
Speaker 1: a budget before they before they left town. Where do
Speaker 1: things stand when it comes to the budget in particularly,
Speaker 1: what are they gonna face when they get back? I
Speaker 1: guess on September the fifth. I mean, they've got a
Speaker 1: healthy vacation here. Yeah, it's the ambient air quality improves
Speaker 1: mightily down in Washington around now. The Senate will be
Speaker 1: here at least another week, but they that is the
Speaker 1: must do business. Even though they didn't pass the budget
Speaker 1: for in most of two thousand seventeen, so they do
Speaker 1: have to pass the budget for the fiscal years the
Speaker 1: twelve months. It begins October one, and they've passed a
Speaker 1: budget resolution in the House Budget Committee, but it has
Speaker 1: not yet gone to the floor, and there's evidence that
Speaker 1: it's uh, it faces a very high hurdles on the
Speaker 1: House floor, so it might not pass on the House floor,
Speaker 1: and the House budget would be indigestible in the Senate. So,
Speaker 1: you know, just not to belabor it day. We're starting
Speaker 1: a messy process that's going to all be pushed to
Speaker 1: the end of the month, at which point we might
Speaker 1: have a little bit of a of a little skirmish
Speaker 1: or government a little suspense about a government shutdown this
Speaker 1: time with the dead ceiling attached and all you know,
Speaker 1: with Wall Street really mostly focused on the tax cuts. UH,
Speaker 1: this whole story really has to play through before they
Speaker 1: can pass a budget resolution that both the House and
Speaker 1: the Senate can accept. Probably a shell budget resolution will
Speaker 1: allow them to move a tax bill through the Senate,
Speaker 1: and that probably won't come through October November. So, you know,
Speaker 1: not backing this all into what you'll be talking about
Speaker 1: all day to day. You know, we've got a new
Speaker 1: chief of staff, uh, and the Legislative Director is pivoting
Speaker 1: right off the excitement that you're having a reboot of
Speaker 1: the White House is already sort of exhorting the Congress
Speaker 1: to begin marking up tax reform in September October. And
Speaker 1: that's just a laughable idea. So that's that's where we
Speaker 1: are down here. We had a Senator Jeff Flake here,
Speaker 1: the junior senator from Arizona, on the show yesterday, and
Speaker 1: he said that if he's going to be a realist,
Speaker 1: healthcare is now solidly behind the Senate. They've got to
Speaker 1: move on to two other things. That seems to run
Speaker 1: counter that opinion. Seems to run counter to what we're
Speaker 1: hearing from from the White House, both through official and
Speaker 1: nonofficial channels. Three statements and tweets. Uh, do you think
Speaker 1: that it's dead for the time being, Yeah, you know,
Speaker 1: you know, Channel Princess Bride. It's mostly dead, you know.
Speaker 1: And there there's the problem is that you still have
Speaker 1: an imploding set of private insurance exchanges that are going
Speaker 1: to have to make some very key decisions also in September.
Speaker 1: I mean basically, you keep drawing lines towards you know,
Speaker 1: a sort of concentric circles that point to you know,
Speaker 1: Ghostbusters type clouds over the Ansonia Building, you know in Washington,
Speaker 1: you know, in September, UM and UM. So they can't
Speaker 1: just walk away from it. They can walk away from
Speaker 1: making it, you know, their their their sole pursuit. Uh.
Speaker 1: And they can try to move on to a fiscal
Speaker 1: eighteen budge of resolution to move tax reform, but you
Speaker 1: know they're going to have to deal with things like
Speaker 1: the contribution sharing reimbursements, you know, to bail out the insurers.
Speaker 1: They'll probably have to do that in an appropriations bill
Speaker 1: later this year. And if they do move to tax
Speaker 1: reform in a fiscal eighteen budget resolution, they can keep
Speaker 1: a place keeper in there to allow for you know,
Speaker 1: for health reform to be attached to you know that
Speaker 1: that bus whenever. So they aren't yet really fully done,
Speaker 1: but for the most part, you can drive a stake
Speaker 1: in the idea of skinny repeal. Wanted to drag it
Speaker 1: back A chuck to your expertise, which is the sequence
Speaker 1: of all this our our budget discussions and tax reform
Speaker 1: in tandem, or is the horse before the cart with
Speaker 1: the budget reform. They we've had discussions and you know,
Speaker 1: initial hearings and uh. Now a mark up and passage
Speaker 1: of a House Budget resolution in the in the House
Speaker 1: Budget Committee, Tom. But you know, meanwhile, you know, at
Speaker 1: the same time, of course, they have had the rollout
Speaker 1: of the Early Better Way Ryan tax Bill, and now
Speaker 1: you know sort of principles from the tax of the
Speaker 1: Big Six, so to speak. So you know, they're they're
Speaker 1: they're on separate big tops. They're running simultaneous. But again,
Speaker 1: the one thing that is as a given every year,
Speaker 1: like death and taxes, is September thirty and having to
Speaker 1: fund the government after after at the beginning of the
Speaker 1: fiscal year that's coming, and this time we have a
Speaker 1: debt ceiling extension to attach to it, and we have
Speaker 1: to get through that before we can lock in a
Speaker 1: new budget resolution and just called eighteen budget resolution that
Speaker 1: will allow them to move tax reform through the Senate.
Speaker 1: With that's what's ahead of Let me ask you, Scoop Jackson, question,
Speaker 1: I guess is the definitive fiscal conservative who's going to
Speaker 1: pay for all this? Well, it'll be interesting if they
Speaker 1: you know, I think there are many who would love
Speaker 1: to just do tax relief, but there are a lot
Speaker 1: of barriers to that based on you know, this ongoing
Speaker 1: sort of dialectic we've had in Washington about deficits and budgets,
Speaker 1: and Republicans made such a big deal obviously, and it
Speaker 1: helped them to retake the House in in two thousand
Speaker 1: ten and the cent in you know, with the Tea
Speaker 1: Party movement. So you know, there was a lot of
Speaker 1: pressure on President Obama to put uh, you know, um
Speaker 1: sort of provisions in place to guard against deficits, and
Speaker 1: so he signed a bill in two thousand and ten
Speaker 1: that really guards against what we call statutory pago. It
Speaker 1: actually will force a sequester on things like Medicare if
Speaker 1: you add to deficits within a five or a ten
Speaker 1: year window. It's something that's really geeky, almost totally forgotten
Speaker 1: in Washington. But there as a result of this, the
Speaker 1: reality is, well, you know, all the most analysts talk
Speaker 1: about is adding to deafits outside of a ten year window.
Speaker 1: There is this really sort of unseen, sort of nasty
Speaker 1: embedded problem there that really does take the notion of
Speaker 1: tax relief largely off the table. And if you're not
Speaker 1: talking tax relief, you're talking about having to broaden the
Speaker 1: base and you know, deal with things like eliminating or
Speaker 1: haircutting the state and local tax deduction, making people take
Speaker 1: their I ra A uh four own K contributions on
Speaker 1: an after tax roth the basis, you know, instead of
Speaker 1: a pre tax basis. We call that for authentication. A
Speaker 1: lot of these ideas to raise revenues in order to
Speaker 1: broaden the base and lower rates really are quite roiling
Speaker 1: for a number of major constituencies like the you know,
Speaker 1: the mortgage interest deduction might not be directly at risk,
Speaker 1: but if they double the standard deduction, that could hurt
Speaker 1: the realtors and the builders as well. So we're gonna
Speaker 1: you know, we're gonna go through a really kind of
Speaker 1: very worrisome September October. When we find do get to
Speaker 1: tax reform. It's not going to be all, you know,
Speaker 1: all joys you are. I'm completely depressed. Yeah, maybe, Tom,
Speaker 1: maybe the good news would be, you know, if we
Speaker 1: if really are provoked by Kim Jong un and the Koreans,
Speaker 1: that would unite us and then we'd see the real
Speaker 1: strength of the Trump cabinet with McMaster and Madison and
Speaker 1: now General Kelly. I'm just trying to get the Red
Speaker 1: Sox to win six of the something, Chuck, help me
Speaker 1: understand this This OpEd that ran in the wall Street
Speaker 1: Journal a little earlier this week, centering on the issue
Speaker 1: of scoring and tax reform of force has been this
Speaker 1: big debate over the CBO, and we've had a number
Speaker 1: of folks in the administration questioned the value of the
Speaker 1: efficacy of the Congressional Budget Office. What was the argument
Speaker 1: being made in the Wall Street Journal? Explain that to
Speaker 1: us if you wouldn't, Yeah, if you know the you know,
Speaker 1: obviously the CBO has generated a lot of of antagonism,
Speaker 1: particularly among Republicans, in the way it's scored these these
Speaker 1: healthcare reform plans. So it's a antagonism towards the CBO,
Speaker 1: particularly among Republicans, is at all time high. And you know,
Speaker 1: the CBO and the Joint Committee on Taxation have been
Speaker 1: the officials score key person, if you will, with regard
Speaker 1: to how, um, you know, the depths of tax reductions
Speaker 1: are are scored or analyzed. And if you're talking about
Speaker 1: revenue neutral tax reform, it's very important about how they
Speaker 1: score it. And so you know, you have efforts on
Speaker 1: about two or three fronts to try to two compel
Speaker 1: the parliamentarian in the Senate uh to to for instance,
Speaker 1: to allow dynamic scoring to have more positive economic feedback
Speaker 1: you know, if you will, from the early years of
Speaker 1: broadening the tax base, generating more productivity. Uh. And and
Speaker 1: as a results, sort of assuming that, you know, tax
Speaker 1: reform will pay for itself over a longer period. So
Speaker 1: there's this effort towards dynamic scoring. There's efforts, uh, you know,
Speaker 1: towards maybe extending the budget window to fifteen or twenty
Speaker 1: years that you can get more bang for the buck
Speaker 1: in the first ten. But the newest idea was from
Speaker 1: the Journal. It's not a brand new idea, but it's
Speaker 1: just basically that instead of using CBO Joint Committee on
Speaker 1: Taxation warring that Republicans should just take a score from
Speaker 1: the Department of the of the Treasury or o MB.
Speaker 1: And of course OMB is projecting two point six percent
Speaker 1: growth with the Trump budget instead of one growth under
Speaker 1: the uh you know, under the CBO. And if you're
Speaker 1: assuming bigger growth, you get you know, even bigger sort
Speaker 1: of feedback loop, if you will, and as a result,
Speaker 1: it would you know, tax you can have a bigger
Speaker 1: measure of tax relief that would pay for itself over
Speaker 1: the budget window. That's what this is about. Check, Thank
Speaker 1: you so much. Check Gabriel with Capital Awful partners with
Speaker 1: the sausage. I love you know. It's great, David Girl.
Speaker 1: That we have a mix of people on watching it.
Speaker 1: Some are really hyper focused on policy, like Chuck long
Speaker 1: lengthy notes, uh, sort of wank wank one oh one.
Speaker 1: And then a guy like Stan Collinder who's got the
Speaker 1: whole political thing worked out. Greg Villier publishes this morning
Speaker 1: and it's not that it's gloomy, it's just realistic about time.
Speaker 1: It's August one. What are you within the politics, David Girl,
Speaker 1: that you do better than me? What is August first
Speaker 1: signal to you? You know, the start of vacation for
Speaker 1: a lot of these lawmakers. As Chuck was saying, Sene,
Speaker 1: it's going to stay in session for a little while,
Speaker 1: longer than than usual. But you know, as we listen
Speaker 1: to the president today, I think it's important to keep
Speaker 1: some realism at the front of our mind. Here you
Speaker 1: have legislators who are leaving town and uh, I think
Speaker 1: there's been a lot of disappointed with what the White
Speaker 1: House has produced thus far when it comes to tax reform.
Speaker 1: Is Chuck mentioned there was this one page statement of
Speaker 1: principles from White House officials and Republican members of Congress.
Speaker 1: Not a whole lot longer than the first set of
Speaker 1: principles that we got. Of course, this one says the
Speaker 1: border adjusted taxes firmly off the table. Interestingly, I talked
Speaker 1: with Tim Phillips, who's the president of Americans Are Prosperity.
Speaker 1: That's a Koch Brothers backed group, big conservative group that's
Speaker 1: also pushing for tax re form. He said he was happy,
Speaker 1: uh not to have a huge amount of detail here,
Speaker 1: that helps with the negotiations going forward. Interesting to talk
Speaker 1: to him, in part because Americans Are Prosperity was not
Speaker 1: as all in on health care as you as you
Speaker 1: might have thought. This is something they've wanted to have
Speaker 1: happened for a while, this debate over TAXI for him. So, uh,
Speaker 1: you know, I think we're gonna take a little pause
Speaker 1: here over the month of August September is check mentioned.
Speaker 1: I think the focus is going to be on issues
Speaker 1: of the budget, the dead ceiling. Uh, and then we'll
Speaker 1: see if this full court press can extend through that
Speaker 1: into into October when maybe it can be picked up
Speaker 1: once again. Yeah. I just we're here. The way I
Speaker 1: look at August first is and you know, David, you
Speaker 1: look out at the trees changing color. We're not there yet.
Speaker 1: The summer is still going full tilt. But in three
Speaker 1: or four weeks, which is like tomorrow for Washington, believe you,
Speaker 1: and is both Valier and Gabriel mentioned this budget discussion
Speaker 1: isn't a normal discussion now, Chuck, sorry, Greg value A
Speaker 1: calling that a train wreck looming train wreck. Yeah, and
Speaker 1: you know, forget about the surprises that we could see
Speaker 1: in the drama coming out of the White House. And
Speaker 1: that I just what I would suggest folks within US
Speaker 1: covering economics, finance, investment, that this thiss cold ballet isn't
Speaker 1: the normal discussion that you have when you launch into August.
Speaker 1: I rarely do this. I'm looking at the futures to
Speaker 1: get the downy two Dow future. Is this morning amy
Speaker 1: one in our ute? Neither I or David Harrowd ever
Speaker 1: thought we would get in the twenty thousand was like
Speaker 1: really and here we are knocking on Dow. Uh and
Speaker 1: that door? David, wonderful to have you back with us.
Speaker 1: Is it a comfortable time to be an international equities
Speaker 1: because you see the Dow just race race race ever higher. Well,
Speaker 1: the fact that the Dow race scene is probably give
Speaker 1: giving all the spill over effect to global equities equities everywhere,
Speaker 1: but clearly one of the reasons why these markets are
Speaker 1: increasing is because the profit growth is going up faster
Speaker 1: than I think people expected probably six nine months a
Speaker 1: year ago. And what we're finally starting to see happen
Speaker 1: in Europe is all the various economic maladies and political
Speaker 1: maladies seem to be more in the rear view mirror.
Speaker 1: And and where we're starting to see a better growth
Speaker 1: rates out of Europe, greater than two percent growth, falling unemployment,
Speaker 1: lower loan losses. You're finally starting to see a little
Speaker 1: spark in the European economy. And when you combine that
Speaker 1: with low valuations, is that it gives people a bit
Speaker 1: of to be enthusiastic about European stocks in particular. To
Speaker 1: give you an idea of folks. If I look at
Speaker 1: the CAC forty when it ken Prue, it's a late
Speaker 1: great Prud's favorite um French indusicries CACK forty up sixteen
Speaker 1: in euros, up twenty based in US dollars. I mean,
Speaker 1: that's David, where you're getting almost a play on it,
Speaker 1: aren't you? You're getting a currency play as well. Yeah,
Speaker 1: there was a time not too long ago, you know,
Speaker 1: a few months ago before the year bounced a little bit,
Speaker 1: that you were really buying not only cheap stocks, but
Speaker 1: you're buying cheap currencies. And another way this manifested itself.
Speaker 1: If you look at what an international index has done
Speaker 1: in the last five years, substantially substantially underperforming SMP five hundred,
Speaker 1: why because of the dollar strength. Now, finally, what's happened
Speaker 1: in the last three or four months. The dollar rally
Speaker 1: is kind of stalled a little bit, and this has
Speaker 1: added propulsion to the returns of international equities. So you
Speaker 1: finally see today what's happened in the last five years.
Speaker 1: Recently is starting to turn a little bit as the
Speaker 1: dollar is in fact weakened against the euro in particular.
Speaker 1: Remember it was only a year or so ago when
Speaker 1: people were predicting the ero was going to go to
Speaker 1: a dollar, you know, one to one even below, you know,
Speaker 1: and here we are at one sixteen. Yeah. Well, I
Speaker 1: mean BNP Perry bout just the dominant French bank, and
Speaker 1: I know that's something you've talked about for years. They
Speaker 1: pay a much more ample dividend. Let me compare and
Speaker 1: contrast folks, JP Morrigan uh dividan. JP Morgan's yield is
Speaker 1: two point two and BNP Perry about four point one,
Speaker 1: so you get twice the yield. Can you model in
Speaker 1: an Anglo American dividend growth for from the basis of
Speaker 1: where they're both starting, you should see better earnings growth
Speaker 1: from B and P than JP Morgan going forward down
Speaker 1: the last year, it was different because the US economy,
Speaker 1: the recovery was a little bit stronger and a little
Speaker 1: bit earlier. Now we're just starting to see the European
Speaker 1: economy recover to acceptable levels. And B and in particular
Speaker 1: is also exposed to Italy with a small explosion in
Speaker 1: the United State eates. But more importantly than that dividing
Speaker 1: yield of almost four and a half percent is you
Speaker 1: know how it's just trading it just over ten times
Speaker 1: earnings UM and you know just above you know book values,
Speaker 1: so actually below total book book just around tangible book values,
Speaker 1: so you know you are seeing very very good valuation.
Speaker 1: It's something that should be able to grow earnings at
Speaker 1: least mid single digits. Let me ask you if I could,
Speaker 1: David just the degree to which personality matters when we
Speaker 1: talk about these these big banks. So we had HSBC
Speaker 1: reporting yesterday saying it's going to buy back up to
Speaker 1: two billion dollars in shares, and so much of the
Speaker 1: focus was on the outgoing ahead of that bank. On
Speaker 1: Stewart Gulliver, I wonder when you when you look at
Speaker 1: a bank, when you assess whether or not to invest
Speaker 1: in the bank, the degree to what you're you're thinking
Speaker 1: about who's running it. Well, that's important because who's running
Speaker 1: the bank establishes the culture of the bank. And I
Speaker 1: think in order for banks to make money, this is
Speaker 1: one business where you want them to be somewhat risk averse.
Speaker 1: And there's two or three things they have to really
Speaker 1: be focused on. One is make sure you have good
Speaker 1: credit standards and lending standards. Two is make sure you're
Speaker 1: able to control costs, which means putting the right people
Speaker 1: in the right jobs and spending money on I team
Speaker 1: the right places, so lending costs. And then you have
Speaker 1: to think about product development and be able to offer
Speaker 1: your clients what they want. And if you're a good
Speaker 1: management team, and if you focus on those three things,
Speaker 1: probably in that order, by the way, you're gonna make
Speaker 1: money over time. Banks are, as we know, a little
Speaker 1: warrant on the economy. As economies expand, credit expands and
Speaker 1: the economies are healthy of lower credit losses, etcetera. So
Speaker 1: these are conduits of the economy. You want someone stirring
Speaker 1: the ship who could really focus on those three factors
Speaker 1: a good credit underwriting, low cost, and good product development.
Speaker 1: I'll get you to react to the Lady Strings report
Speaker 1: from Intessas and Palla that was out there this morning.
Speaker 1: I know you've been an investor in that bank as well.
Speaker 1: Looks like that profit fell a little bit here, but
Speaker 1: came in above analysts expectations. What's your what's your read
Speaker 1: on how that that bank is doing? Yeah, this is
Speaker 1: a very very solid European bank, and for years it
Speaker 1: was punished because it was a bank in Italy. And
Speaker 1: everyone thought four or five years ago that perhaps perhaps
Speaker 1: Italy was even gonna default on their debt. Remember the
Speaker 1: whole pig thing. I mean, we kind of forget these things.
Speaker 1: But four or five years ago I remember standing up
Speaker 1: at a conference listening to someone from PIMCO saying that
Speaker 1: Portugal is gonna default, Italy is gonna default, maybe Spain
Speaker 1: and could possibly be friends, and I thought, this is
Speaker 1: just really a bunch of bunk. But you know, and
Speaker 1: and it never happened. But there was a police in
Speaker 1: the markets, and as a result, these bank stocks were
Speaker 1: priced as such you could get them for fifty five
Speaker 1: sixty cents on the dollar book value per share, and
Speaker 1: in testas Paul, even though being one of the better
Speaker 1: run in European banks, was caught up being in that
Speaker 1: whole windstorm, and it really became a great buying opportunity.
Speaker 1: And I still think it is substantially undervalued. Now the
Speaker 1: stock is tripled or quadrupled from those days, but it's
Speaker 1: still trading extremely evaluation. I mean, look at it's dividend yield, Tom,
Speaker 1: if you want if you want a good dividend stock,
Speaker 1: I mean this, this company yields seven percent and we
Speaker 1: believe it is a very safe yield. David yield huge
Speaker 1: To come back with Mr Harrow, he needs to look
Speaker 1: at the h the Chicago Tribune this morning and notice
Speaker 1: that the Cubs are two and a half games in
Speaker 1: front of his Milwaukee Brewers brewers as well. Maybe you'll
Speaker 1: come back after he digests that information. Wh is David
Speaker 1: Harrow with Harris associates and with just really sporting performance
Speaker 1: in the international area. I can honestly say, folks, and
Speaker 1: there's there's years where David has an off year, maybe
Speaker 1: you know, one year out of five, when year out
Speaker 1: of eight, I'll let him tell us. But when you
Speaker 1: look at the Bloomberg screen, I can honestly say, there's
Speaker 1: nobody running major money with the nine scond percentile UH
Speaker 1: performance across many many areas. Why does so many active
Speaker 1: managers David Harrold underperform Is that they're over diversified. Is
Speaker 1: that there are squared is so close to a benchmark?
Speaker 1: Is it because they don't root for the Milwaukee Brewers?
Speaker 1: What is it? Most of them are not packer fans
Speaker 1: of those underperforming, and they criticize Aaron Rodgers and this
Speaker 1: leads to the defeat no and all seriousness. I think
Speaker 1: one of the keys to investment success is sticking to
Speaker 1: your investment philosophy and style, even though in certain periods
Speaker 1: of time, as you mentioned, it may be out of favor.
Speaker 1: And what you can't do is like clients and conser
Speaker 1: bolts and whoever talk you out of a sound If
Speaker 1: you have a sound philosophy, which is the foundation of
Speaker 1: an investment process is a philosophy, and he had Harris
Speaker 1: Associates were value investors, and we define values low price
Speaker 1: in high quality, and you stick to that. You know.
Speaker 1: Our belief is that a company is valuable because the
Speaker 1: cash it generates, and so just because stocks are going
Speaker 1: up in price doesn't mean they're more valuable. And what
Speaker 1: happens to professional investors is they get fixated by price
Speaker 1: movement and they let price movement dictate their decision making.
Speaker 1: They don't have the courage to tell people that, well, okay,
Speaker 1: we're not buying it because it's not doesn't fit our
Speaker 1: invest investment style. Same thing on the way down. When
Speaker 1: share prices fall, often professional investors lose their nerve, and
Speaker 1: despite the fact that it would be acceptable and the
Speaker 1: right thing to do from an economic perspective to keep
Speaker 1: buying the stock, they actually sell the stock because they
Speaker 1: don't want to have to explain to the others, to
Speaker 1: their clients, to consultants why they're holding losers. And I
Speaker 1: think that's what really separates successful investment management from unsuccessful
Speaker 1: is the ability to stick to your knitting. First, you know,
Speaker 1: the knitting has to be good, and then you have
Speaker 1: to stick to it. Uh, And I think that second
Speaker 1: part is what a lot of managers have problems with.
Speaker 1: They just don't want to go through the exercise of
Speaker 1: explaining why you own something that's fallen. And I, personally,
Speaker 1: I think this is what we get paid to do.
Speaker 1: This is why we get an investment management fee, is
Speaker 1: to explain ourselves. And a good case for us was
Speaker 1: a few years ago with Glencore. I mean the first
Speaker 1: twenty minutes to thirty minutes of every meeting, of every interview,
Speaker 1: of every call was why do you own Glencore Now?
Speaker 1: Instead of just punting it because you don't want to
Speaker 1: answer the question five times a day, you just keep
Speaker 1: answering it. This is what you get paid to do,
Speaker 1: is to answer that question. Let me put a question
Speaker 1: to you. David the Tom put to Chris Krossant at
Speaker 1: the top of the show. He asked, Chris, when you
Speaker 1: decide to get out of an investment? And I look
Speaker 1: at your investment Honda Motors, for instance. He stuck with
Speaker 1: that one for a while and openly, UH got rid
Speaker 1: of that that position. How do you decide to do it?
Speaker 1: How do you decide when when enough is enough? By
Speaker 1: the way, That is a very very good question, because
Speaker 1: in the particular case of Honda, it wasn't because our
Speaker 1: measurement of intrinsic value coincided with price. And that's usually
Speaker 1: when we sell a stock. That is a victory when
Speaker 1: price reaches our measurement of intrinsic value. But there's another
Speaker 1: reason why we might sell a stock if we believe
Speaker 1: we were wrong, if we believe that we were not
Speaker 1: in fact investing with a value creative management team. And
Speaker 1: to us, value creation is what causes price and value
Speaker 1: to converge, and if there's no slope on that value
Speaker 1: per share curve, then you're wrong and you have to
Speaker 1: get out. And in our we believe our assessments of Honda,
Speaker 1: we made a mistake. Um, we were having a great
Speaker 1: deal of difficulty of getting answers out of management, and
Speaker 1: in fact the chairman left, they didn't replace the chairman,
Speaker 1: the president wouldn't meet with us. We thought nuts that okay,
Speaker 1: just because of time, David, that's such an important statement.
Speaker 1: I want to get to it. Have you seen the
Speaker 1: change in Japanese management's plural to more Anglo American dialogue
Speaker 1: with shareholders? I haven't seen it. I would love to
Speaker 1: say yes, but Tom, you are right. If it's small,
Speaker 1: it's that is a huge problem in Japan. They just
Speaker 1: do not want to run the companies for the owners.
Speaker 1: There's so many other constituencies. The boards, the suppliers, the employees.
Speaker 1: These are all important constituencies. Don't get me wrong. The
Speaker 1: major companies are the major constituents supposed to be. We
Speaker 1: the shareholder instituencies. Culture. I mean, it's all honest. Okay, David,
Speaker 1: thanks so much. Come back when the Brewers are in
Speaker 1: first place. Because it ain't happened Chicago resurge in Chicago clubs,
Speaker 1: research ent swarting David Harrow with Harris Associates. Check out
Speaker 1: his track record. You know, I'm a fan, but he's
Speaker 1: been on fire for eighteen months, two years. To say
Speaker 1: it's it's so important, David Gura, how um you can
Speaker 1: you can catch up quickly with International when they finally
Speaker 1: move a brief into always too brief conversation with Yakum
Speaker 1: Fell's of Pimco. Yakum, How new normal are we right now?
Speaker 1: I mean we've got Alan Greenspan telling Bloomberg that that
Speaker 1: he would call for secular stagnation, the idea of inflation dynamics,
Speaker 1: growth dynamics. What's the stories you see it. Are we
Speaker 1: in a time of recovering economic growth or not? Well, Tom,
Speaker 1: I think we are in a time of recovery for
Speaker 1: global growth, definitely, But I also think we're still very
Speaker 1: much in the new normal and the new neutral that
Speaker 1: you know, we've been talking about for years here at PIMCO.
Speaker 1: So the new normal and the new neutral is really
Speaker 1: about low potential output growth, and I see no signs
Speaker 1: that trend growth is picking up. What we are seeing
Speaker 1: as a global cyclical recovery, but not a recovery in
Speaker 1: productivity growth or underlying trend growth. We're definitely still in
Speaker 1: the new normal new neutral with respect to low inflation.
Speaker 1: Central banks are still struggling to get inflation back to
Speaker 1: target um and that all translates into a very low
Speaker 1: neutral or equilibrium interest rate. And I think that's fully
Speaker 1: reflected both in the bond market but also in the
Speaker 1: stock market, because stocks wouldn't be up here if interest
Speaker 1: rates were not down there. Yacham Fells are correspondent on
Speaker 1: the front lines of the Cold currency war that's that's
Speaker 1: taking place here. You file a dispatch here from those
Speaker 1: from those front lines. Yeahcum give us a sense of
Speaker 1: of who's winning with we have this weekly dollar. Well,
Speaker 1: clearly the Trump administration is winning that cold currency war.
Speaker 1: You know, it's a it's a cold currency war, not
Speaker 1: a hot one, because it's fought with words and with
Speaker 1: covert actions. And I think markets FX markets clearly listened
Speaker 1: to the verbal intervention that we got from President Trump,
Speaker 1: from Treasury Secretary Minuchin, from Peter Navarro, trumpstraight advisor h
Speaker 1: late last year and early this year, when the dollar
Speaker 1: was ten percent higher than it is now, they were
Speaker 1: pushing back. They were saying the strong dollar is killing us.
Speaker 1: They were accusing Europe and China of manipulating their currencies.
Speaker 1: Markets clear listened to that. The dollar has declined because
Speaker 1: there was an implicit and sometimes even an explicit threat
Speaker 1: of protectionist action. So so what we've seen this year
Speaker 1: is China has stabilized its currency against the dollar. The
Speaker 1: euro is the euro is stronger, the end is stronger,
Speaker 1: and there is very little pushback from your both Europe
Speaker 1: and Japan to their currency strength, even though it threatens
Speaker 1: to perpetuate very low inflation. So I think Trump is winning.
Speaker 1: At that time, there was criticism of that cacophony of voices.
Speaker 1: We had the Reuben Strung dollar policy, and then you had,
Speaker 1: as you mentioned, many members of this administration commenting on
Speaker 1: the strength or weakness of the dollar. Do you do
Speaker 1: you see this as happenstance that they've won by by
Speaker 1: anything more than just good luck here in light of
Speaker 1: what was was playing out earlier on in the administration's tenure. Yeah,
Speaker 1: I think I think it's a mix, uh, David, So,
Speaker 1: I think what happened was, first of all, the verbal
Speaker 1: intervention left some impression because again there was the fear
Speaker 1: of protectionist action, So you don't push back against your
Speaker 1: currency appreciating because you hope that this will prevent protectionist
Speaker 1: action from the US. And then the other important part
Speaker 1: of the dollar weakness we've seen this year is clearly
Speaker 1: the deflation of the Trump trade, because while Trump is
Speaker 1: winning the cold currency war, he hasn't managed to push
Speaker 1: many other the se ancients through. We haven't seen any
Speaker 1: progress on taxes, for example. Yeah, in the time we
Speaker 1: got left, I'm gonna go back to a Matthew Tracy
Speaker 1: Yarkham Fell's piece in May that was exquisite and it
Speaker 1: was completely pushing against the productivity is dead. View. What
Speaker 1: will be the catalysts to give us the green spanning
Speaker 1: and mystery of better productivity that we saw in the nineties. Well,
Speaker 1: that's tough to say, Tom, but I think it could
Speaker 1: just be the passage of time. Because what we highlighted
Speaker 1: in the piece, Matt and I highlighted the widening gap
Speaker 1: between the leaders on productivity in each industry and the laggert's.
Speaker 1: That gap has never been wider than it's been in history.
Speaker 1: I wrote another piece this weekend on superstar firms, the
Speaker 1: emergence of superstar firms highly productive companies. Think of the Fangs,
Speaker 1: the Google's, the Apples, um, the facebooks of this world
Speaker 1: who have had extraordinary productivity growth, and then you look
Speaker 1: at other companies who have really been lagging, and you know,
Speaker 1: I think this gap will have to close. Uh. And
Speaker 1: the most likely way how it closes over time is
Speaker 1: that the less productive companies will will leave, they will
Speaker 1: have to exit, or they will have to adopt new
Speaker 1: technologies themselves to bring productivity up. The timing of that
Speaker 1: is highly uncertain, but I'm pretty convinced that overall secular
Speaker 1: horizon next three to five years, we will see a pickup,
Speaker 1: and maybe it's Jumpertian just clearing of the markets and
Speaker 1: moving the laggards out. You cite in your article two
Speaker 1: of our frequent guests, professors Bryn Jolson and McAfee of
Speaker 1: the Massachusetts Institute of Technology and the Use of Technology.
Speaker 1: How do you get their technology to benefit a huge
Speaker 1: part of America that's not in the crucible of this revolution.
Speaker 1: If they're outside the revolution, how do we get them
Speaker 1: into the revolution? Well, I think that's that's a very
Speaker 1: tough question. I mean, first of all, we are all users.
Speaker 1: Large parts of America are users of the new technologies.
Speaker 1: The problem is many of the users of technology of
Speaker 1: new technologies these days don't show up in GDP. We
Speaker 1: use it in our leisure time. So partly I think
Speaker 1: this is a measurement problem. So consumers welfare rises, the
Speaker 1: consumer surplus is increasing, but this is not showing up
Speaker 1: anywhere in the GDP numbers. So in that sense, we've
Speaker 1: already seen diffusion of technology. But what I do worry
Speaker 1: about is that as the productivity laggers are leaving our
Speaker 1: exiting uh their their respective industries, you will see technological
Speaker 1: unemployment rising. So in that sense, I think we should
Speaker 1: be careful what we wish for. If we were to
Speaker 1: see a pickup in productivity growth, it would probably be
Speaker 1: accompanied by higher technological unemployment, and that could be quite
Speaker 1: disruptive and it could lead to a political backlash. How
Speaker 1: much of this is being reflected in the the jobs
Speaker 1: reports that we get here month? We're looking ahead to
Speaker 1: another one on front of of of this week is
Speaker 1: the issue of productivity? Are being adequately reflecting those numbers
Speaker 1: that we see? Yeah, I think you know, that's the
Speaker 1: mirror image of weak productivity growth. The mirror image of
Speaker 1: weak productivity growth is stronger job growth. So to produce
Speaker 1: the same level of output, we need more people or
Speaker 1: to you know. So what's happening is we're seeing very
Speaker 1: decent job growth, but most of the job growth is
Speaker 1: in low productivity and low wage sectors, largely in the
Speaker 1: service sector. This is where we are sucking in UH workers.
Speaker 1: That's good because you know, even low page jobs are
Speaker 1: better than no jobs. But this perpetuates the low productivity
Speaker 1: environment because we are creating a lot of low productive
Speaker 1: and low wage jobs. Off script, one final question, how
Speaker 1: I compels if we could for your Germany, the idea
Speaker 1: of what UH what Germany needs to do. There's a
Speaker 1: primal scream for a better, more buoyant consumer in Germany.
Speaker 1: Is it out there or just a cultural reticence? Well,
Speaker 1: I think partly it's cultural. Partly it's demographic, because Germany
Speaker 1: is aging very rapidly um and so what what can
Speaker 1: be done? I think, you know, tax cuts would clearly help.
Speaker 1: And I think after the election, which is scheduled for September,
Speaker 1: you will see a mix of higher government spending on
Speaker 1: infrastructure but also on on welfare spending, and you will
Speaker 1: also see tax cuts. So so I think that could
Speaker 1: help a little bit. But by and large, I think
Speaker 1: this high savings rate that we're seeing the low consumption
Speaker 1: in Germany is a structural phenomenon. It won't go away
Speaker 1: anytime soon, and that's why the current account surplus, which
Speaker 1: is more than eight percent of GDP, is likely to
Speaker 1: stay here for quite a long time. Yeah, Concise, thank
Speaker 1: you so much, Never enough time, and when you're in
Speaker 1: New York again, we'll be honored to have you in
Speaker 1: untelevision in radio as uh well, thanks for listening to
Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on
Speaker 1: Apple podcasts. SoundCloud, or whichever podcast platform you prefer. I'm
Speaker 1: on Twitter at Tom Keene. David Gura is at David Gura.
Speaker 1: Before the podcast, you can always catch us worldwide. I'm
Speaker 1: Bloomberg Radio