1 00:00:00,040 --> 00:00:02,640 Speaker 1: Who you put your trust in matters. Investors have put 2 00:00:02,680 --> 00:00:07,000 Speaker 1: their trust and independent registered investment advisors to the two 3 00:00:07,040 --> 00:00:10,680 Speaker 1: and four trillion dollars. Why learn more and find your 4 00:00:10,760 --> 00:00:26,360 Speaker 1: independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:26,760 --> 00:00:30,480 Speaker 1: I'm Tom Keene with David Gura. Daily we bring you 6 00:00:30,520 --> 00:00:35,560 Speaker 1: insight from the best in economics, finance, investment, and international relations. 7 00:00:35,960 --> 00:00:40,559 Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and 8 00:00:40,640 --> 00:00:47,400 Speaker 1: of course, on the Bloomberg I want to bring hi 9 00:00:47,440 --> 00:00:50,080 Speaker 1: Jim more now he's head of Investment Solutions at himphon. 10 00:00:50,120 --> 00:00:51,839 Speaker 1: A great pleasure to have you here in the studio 11 00:00:51,880 --> 00:00:56,160 Speaker 1: with us this morning than it has been thanking. Let's 12 00:00:56,200 --> 00:00:58,920 Speaker 1: let me start with stuff. It's been a while. You're 13 00:00:59,040 --> 00:01:03,720 Speaker 1: arguably the most important person and PIMCO, because of our listeners, 14 00:01:03,760 --> 00:01:07,080 Speaker 1: can't retire. That's that's it, David. I don't even interrupt, 15 00:01:07,360 --> 00:01:09,400 Speaker 1: but let me make clear a it's been a while 16 00:01:09,680 --> 00:01:11,959 Speaker 1: and you're the most important person of PIMCO. There you go, 17 00:01:12,080 --> 00:01:13,440 Speaker 1: and we're gonna get into that in just a moment. 18 00:01:13,440 --> 00:01:14,840 Speaker 1: But let me let me start where we were, where 19 00:01:14,840 --> 00:01:17,040 Speaker 1: we were with Matt Miller here just a moment ago, 20 00:01:17,080 --> 00:01:19,160 Speaker 1: and if not talking about that the effects of that 21 00:01:19,200 --> 00:01:21,840 Speaker 1: attack in specific, just the general sense of uncertainty that 22 00:01:21,880 --> 00:01:24,480 Speaker 1: this UH leads to or continues here that we have 23 00:01:24,520 --> 00:01:27,199 Speaker 1: these three attacks yesterday, there is a sense of instability 24 00:01:27,280 --> 00:01:30,440 Speaker 1: and and and and a fractious Europe at this point. 25 00:01:30,720 --> 00:01:33,120 Speaker 1: What is this study? Your outlook the events that we 26 00:01:33,120 --> 00:01:35,640 Speaker 1: saw yesterday? You know, you know our view was was 27 00:01:35,680 --> 00:01:38,559 Speaker 1: re really expected to see more Volatilian markets going forward 28 00:01:38,600 --> 00:01:41,399 Speaker 1: post election, And I think this plays into it. The 29 00:01:41,400 --> 00:01:45,160 Speaker 1: geopolitical risk and in this system is very large, how 30 00:01:45,240 --> 00:01:49,440 Speaker 1: various UH governments react to it, how populous is react 31 00:01:49,480 --> 00:01:52,280 Speaker 1: to it, and um, what it does for growth, what 32 00:01:52,360 --> 00:01:55,520 Speaker 1: it does for markets UH will unfold over the next 33 00:01:55,840 --> 00:01:57,920 Speaker 1: next few years. You look at market reaction, you also 34 00:01:57,960 --> 00:02:00,920 Speaker 1: wonder if there's just something harder to quit ify there 35 00:02:00,960 --> 00:02:04,240 Speaker 1: when you look at just optimism, investor optimism something like 36 00:02:04,280 --> 00:02:05,720 Speaker 1: that when you have when you have events like this, 37 00:02:05,760 --> 00:02:08,120 Speaker 1: maybe an effect that's harder to measure just based on 38 00:02:08,160 --> 00:02:11,840 Speaker 1: market reaction. Sure, I mean, I think a lot of 39 00:02:11,880 --> 00:02:14,960 Speaker 1: this is is yet to be determined in terms of 40 00:02:14,960 --> 00:02:17,360 Speaker 1: where it goes. But you know, we're coming off an 41 00:02:17,400 --> 00:02:21,760 Speaker 1: era where with the FED being very accognative really pulling 42 00:02:21,800 --> 00:02:25,560 Speaker 1: forward returns over time, which you know creates some potential 43 00:02:25,600 --> 00:02:28,040 Speaker 1: issues going forward over the longer term for retirees and 44 00:02:28,040 --> 00:02:30,720 Speaker 1: their ability to say for retirement is is comm indicating 45 00:02:31,720 --> 00:02:37,440 Speaker 1: eighty three years old and then eighty five years old? 46 00:02:38,520 --> 00:02:43,200 Speaker 1: Is our actual assumption, our our life expectancy rather at 47 00:02:42,639 --> 00:02:48,560 Speaker 1: a nobody's ready, let's get to the basics. What's your 48 00:02:48,600 --> 00:02:53,120 Speaker 1: new assumption of actual return? That that number that we 49 00:02:53,240 --> 00:02:56,880 Speaker 1: can use to model out your world of retirement. Well, 50 00:02:56,919 --> 00:02:58,919 Speaker 1: if you look at where the the agg is now, 51 00:02:58,960 --> 00:03:00,760 Speaker 1: you're talking about a U old of a little under 52 00:03:00,760 --> 00:03:03,200 Speaker 1: two and a half percent for for bonds. In our 53 00:03:03,280 --> 00:03:05,200 Speaker 1: view on stocks is maybe at two two and a 54 00:03:05,240 --> 00:03:07,000 Speaker 1: half percent above that, So if you look at a 55 00:03:07,040 --> 00:03:11,400 Speaker 1: sixty forty portfolio, you're somewhere under four percent. And that 56 00:03:11,440 --> 00:03:15,919 Speaker 1: really creates a long term problem when you've got systems 57 00:03:15,919 --> 00:03:17,919 Speaker 1: that were designing the seventies and eighties in an error 58 00:03:17,960 --> 00:03:21,280 Speaker 1: where eight percent returns were achieving. Eight percent returns are achievable, 59 00:03:21,480 --> 00:03:23,600 Speaker 1: and yet I'm looking at a great bull market in 60 00:03:23,639 --> 00:03:27,720 Speaker 1: another double digit year eleven percent for equities? Am I 61 00:03:27,800 --> 00:03:32,200 Speaker 1: running on fumes actual? I mean, how do you balance 62 00:03:32,360 --> 00:03:35,360 Speaker 1: the gloom of the numbers you just gave us. With 63 00:03:35,440 --> 00:03:39,600 Speaker 1: the reality of return, many people are seeing well, you know, Tom, 64 00:03:39,640 --> 00:03:42,120 Speaker 1: I think you know, the reality is that people are 65 00:03:42,120 --> 00:03:44,760 Speaker 1: gonna have to live save longer as they live longer. 66 00:03:44,800 --> 00:03:48,760 Speaker 1: If you look at the demographic data, life expectancy goes 67 00:03:48,840 --> 00:03:50,760 Speaker 1: up about one point five one point six years for 68 00:03:50,800 --> 00:03:55,560 Speaker 1: every decade. When we last revisited social Security normal retirement 69 00:03:55,560 --> 00:03:59,920 Speaker 1: age in three, so thirty three years ago. Um, you know, 70 00:04:00,120 --> 00:04:03,480 Speaker 1: life expectancy has gone up about five years since then. 71 00:04:03,640 --> 00:04:07,800 Speaker 1: So you know, fundamentally it's time to rethink about system 72 00:04:07,880 --> 00:04:11,040 Speaker 1: design and I'd call in the new administration to think 73 00:04:11,080 --> 00:04:13,720 Speaker 1: about entitlement reform is a very important piece of the 74 00:04:13,720 --> 00:04:16,400 Speaker 1: retirement puzzle. Puzzle you say, save longer as we as 75 00:04:16,400 --> 00:04:18,360 Speaker 1: we live longer. Put that into the context of the 76 00:04:18,960 --> 00:04:20,560 Speaker 1: central banking news that you mentioned here a few a 77 00:04:20,560 --> 00:04:23,240 Speaker 1: few moments ago. There has been a difficulty or a 78 00:04:24,240 --> 00:04:27,119 Speaker 1: lack of willingness ability to save here in recent years, 79 00:04:27,640 --> 00:04:30,200 Speaker 1: how are people grappling with that need to say more? Well, 80 00:04:30,760 --> 00:04:32,920 Speaker 1: you know they have, they have been saving more. If 81 00:04:32,920 --> 00:04:35,120 Speaker 1: you look at the savings data, it has gone up, 82 00:04:35,120 --> 00:04:37,960 Speaker 1: which is which is in some sense a little bit 83 00:04:38,000 --> 00:04:40,839 Speaker 1: counterintuitive considering we're a third of the way through the 84 00:04:40,839 --> 00:04:43,159 Speaker 1: baby boom or hitting what we would normally think of 85 00:04:43,200 --> 00:04:46,320 Speaker 1: his retirement years, so we still have another decade of 86 00:04:46,400 --> 00:04:49,000 Speaker 1: the baby boom retiring. Yet if you look at labor 87 00:04:49,040 --> 00:04:52,240 Speaker 1: force participation for those over fifty five, it's creeping up. 88 00:04:52,800 --> 00:04:55,520 Speaker 1: And um, what's really gonna happen is you're going to 89 00:04:55,600 --> 00:04:58,159 Speaker 1: have people pushing out retirement a year or maybe two years. 90 00:04:58,560 --> 00:05:00,719 Speaker 1: And in order to make that equation, I balance, but 91 00:05:00,880 --> 00:05:02,440 Speaker 1: is it the issue? We've got to run the break 92 00:05:02,440 --> 00:05:04,720 Speaker 1: here and come back. Not only are we gonna push 93 00:05:04,760 --> 00:05:06,640 Speaker 1: out retirement a year or two, I'll give you that, 94 00:05:07,200 --> 00:05:09,040 Speaker 1: but really, what we're gonna do a shift to part 95 00:05:09,080 --> 00:05:13,480 Speaker 1: time retirees out forever. I mean, I gotta cast it 96 00:05:13,520 --> 00:05:17,120 Speaker 1: out back here. But girl wants me, he wants me 97 00:05:17,240 --> 00:05:20,359 Speaker 1: part time right now. But I mean, is it going 98 00:05:20,400 --> 00:05:23,760 Speaker 1: to be part time retirement America? I think that that's 99 00:05:24,200 --> 00:05:26,240 Speaker 1: that's right. You're going to see more people taking on 100 00:05:26,320 --> 00:05:30,440 Speaker 1: part time work. And what are normal notions of employment 101 00:05:30,440 --> 00:05:33,120 Speaker 1: and full employment really mean are going to change? You know, 102 00:05:33,320 --> 00:05:35,640 Speaker 1: I get in debates with walking foils, our economist and 103 00:05:35,680 --> 00:05:38,960 Speaker 1: economists on the street thinking about have we reached full employment. 104 00:05:38,960 --> 00:05:41,320 Speaker 1: But look at the spread between the U six and 105 00:05:41,360 --> 00:05:43,520 Speaker 1: the U three and it's still is stubborn. Well, him, 106 00:05:43,600 --> 00:05:47,960 Speaker 1: weren't with us with Pimco? Always good discussion on retirement 107 00:05:48,000 --> 00:05:49,640 Speaker 1: when you and PIMCO and you go to all your 108 00:05:49,640 --> 00:05:52,719 Speaker 1: meetings and you go to Washington, and that is there 109 00:05:52,760 --> 00:05:58,039 Speaker 1: any mood of our worthy politicians to further incentivize our 110 00:05:58,080 --> 00:06:03,080 Speaker 1: ability to suck money away? I haven't seen. I mean, 111 00:06:03,120 --> 00:06:07,200 Speaker 1: the debates were deficient of this. Isn't that like priority 112 00:06:07,240 --> 00:06:10,760 Speaker 1: one in your world? Provide incentives? Yeah? And in my 113 00:06:10,920 --> 00:06:13,800 Speaker 1: world it is. I think. I think the issue is 114 00:06:14,320 --> 00:06:17,359 Speaker 1: we drastically need to increase savings rates in this country 115 00:06:17,400 --> 00:06:21,560 Speaker 1: if people are expecting to retire at historical arms for retirement, 116 00:06:22,279 --> 00:06:24,600 Speaker 1: and um, you know, the government's capied twin a rock 117 00:06:24,640 --> 00:06:27,039 Speaker 1: and a hard place in terms of the need for 118 00:06:27,520 --> 00:06:31,560 Speaker 1: some amount of control over budgets and people's desire to say, 119 00:06:31,680 --> 00:06:35,640 Speaker 1: help me here with this. I tuck away more money. 120 00:06:35,839 --> 00:06:39,320 Speaker 1: And you know I don't cheat, I don't do anything irresponsible. 121 00:06:40,000 --> 00:06:44,760 Speaker 1: The government gets paid eventually, right, eventually? Okay, then what's 122 00:06:44,800 --> 00:06:47,960 Speaker 1: the debate? I mean, you know, if if I borrowed 123 00:06:48,000 --> 00:06:50,800 Speaker 1: twenty bucks from David get to buy a martini. He 124 00:06:50,920 --> 00:06:55,240 Speaker 1: may not get paid back. The government's gonna get paid right, Yeah, 125 00:06:55,400 --> 00:06:57,360 Speaker 1: Kanos would say it's the rate of time preference. And 126 00:06:57,400 --> 00:06:59,680 Speaker 1: I think one of the things you see in Washington 127 00:06:59,839 --> 00:07:02,039 Speaker 1: is huge debates about the rate of time preference in 128 00:07:02,120 --> 00:07:04,320 Speaker 1: terms of what public policy should be. If if people 129 00:07:04,360 --> 00:07:10,000 Speaker 1: are talking infrastructure increasing debts to fund growth, that's indicating, 130 00:07:10,080 --> 00:07:12,360 Speaker 1: you know, effectively a higher discount rate than those folks 131 00:07:12,400 --> 00:07:15,680 Speaker 1: who are basically worried about, you know, running much tighter 132 00:07:16,280 --> 00:07:20,520 Speaker 1: fiscal standards than we've than we've seen, or or um 133 00:07:20,560 --> 00:07:23,560 Speaker 1: that may be necessary. There is again talk of entitlement reform. 134 00:07:23,680 --> 00:07:25,400 Speaker 1: Is it anything more than lip service? You think? Are 135 00:07:25,440 --> 00:07:27,160 Speaker 1: there any indications to you that we could have a 136 00:07:27,160 --> 00:07:29,840 Speaker 1: Congress that now with majority of publican majority in both 137 00:07:29,880 --> 00:07:32,680 Speaker 1: houses and a Republican present, we could get some movement 138 00:07:32,720 --> 00:07:35,520 Speaker 1: on this. You know, a friend of mine, in response 139 00:07:35,560 --> 00:07:38,160 Speaker 1: to something I wrote a few years ago about social security, 140 00:07:38,840 --> 00:07:42,600 Speaker 1: had a one line quip and response which was that 141 00:07:42,640 --> 00:07:47,000 Speaker 1: which gets deferred gets compounded, And and you know, I 142 00:07:47,360 --> 00:07:51,880 Speaker 1: think that is is is a large problem in the process. 143 00:07:51,920 --> 00:07:54,120 Speaker 1: If you think about the incentives of those people in 144 00:07:54,200 --> 00:07:57,160 Speaker 1: Washington who are in the debate. They have a two 145 00:07:57,240 --> 00:07:59,960 Speaker 1: year window, a four year window or six year window 146 00:08:00,080 --> 00:08:03,040 Speaker 1: when you're looking at problems they're going to manifest themselves 147 00:08:03,600 --> 00:08:07,320 Speaker 1: over decades. Uh. You know, people quote the Trustees report 148 00:08:07,360 --> 00:08:09,440 Speaker 1: and saying that we essentially run out of money around 149 00:08:09,440 --> 00:08:12,440 Speaker 1: two thousand thirty three, But it's actually worse than that 150 00:08:13,000 --> 00:08:17,720 Speaker 1: because that money isn't segregated and the point where outflows 151 00:08:17,760 --> 00:08:21,160 Speaker 1: exceed inflows is really going to happen to towards the 152 00:08:21,200 --> 00:08:24,640 Speaker 1: back end of this incoming administration. What's the biggest concern 153 00:08:24,760 --> 00:08:27,000 Speaker 1: for pension funds that you hear about. What are they 154 00:08:27,000 --> 00:08:30,960 Speaker 1: most worried about? Uh, it depends if you're if you're 155 00:08:30,960 --> 00:08:33,559 Speaker 1: talking corporate pension plans who have been in a regime 156 00:08:33,559 --> 00:08:37,280 Speaker 1: of having to really mark to market for the last decade, 157 00:08:37,400 --> 00:08:40,000 Speaker 1: they're hoping interest rates go up to close that that 158 00:08:40,000 --> 00:08:42,880 Speaker 1: that deficit. If you're talking public plans, which by and 159 00:08:43,000 --> 00:08:45,800 Speaker 1: large use a actual discount rate seven and a half 160 00:08:45,880 --> 00:08:49,480 Speaker 1: or eight percent their crops, and the difficult problem they 161 00:08:49,480 --> 00:08:50,960 Speaker 1: have is trying to get a seven and a half 162 00:08:51,000 --> 00:08:54,920 Speaker 1: to eight percent return, and that I think is a 163 00:08:55,040 --> 00:08:57,520 Speaker 1: very very large problem which is going to manifest itself 164 00:08:57,600 --> 00:09:00,520 Speaker 1: more in the next decade in terms of the pressure 165 00:09:00,600 --> 00:09:07,200 Speaker 1: puts on public satirefinance. Is a dividend growth equity a 166 00:09:07,320 --> 00:09:11,960 Speaker 1: yield equivalent. I think a growth equity has some yield 167 00:09:12,080 --> 00:09:15,320 Speaker 1: component um to it. The the issue is understanding what 168 00:09:15,400 --> 00:09:18,880 Speaker 1: drives the volatility I mean um over the long run. 169 00:09:19,160 --> 00:09:22,760 Speaker 1: You know, solid dividends, solid growth in the final companies 170 00:09:23,200 --> 00:09:25,960 Speaker 1: is a source of return and a source of income. However, 171 00:09:26,679 --> 00:09:30,760 Speaker 1: um there's nothing bounding it to keep volatility in check. 172 00:09:31,160 --> 00:09:33,120 Speaker 1: And the other thing when you think about a pension 173 00:09:33,120 --> 00:09:36,760 Speaker 1: plan with a demographic wave of running through it is 174 00:09:36,800 --> 00:09:39,640 Speaker 1: you have an increasing draw on that plan, and so 175 00:09:39,720 --> 00:09:43,280 Speaker 1: your ability to tolerate down drafts becomes more and more limited. 176 00:09:43,440 --> 00:09:47,160 Speaker 1: If target the whole target concept, the marketed idea of 177 00:09:47,240 --> 00:09:51,560 Speaker 1: target portfolios, is that something you can theoretically get behind 178 00:09:52,280 --> 00:09:56,000 Speaker 1: or are they a marketing gimmick? Now I think there 179 00:09:56,080 --> 00:09:59,120 Speaker 1: there's value to it. I think that the crux of 180 00:09:59,160 --> 00:10:02,560 Speaker 1: the difficulty is understanding the design. Are you designing on 181 00:10:02,800 --> 00:10:05,480 Speaker 1: the four one K side? You know some sort of 182 00:10:05,520 --> 00:10:08,959 Speaker 1: accumulation vehicle. Are you're actually thinking about a vehicle that 183 00:10:08,960 --> 00:10:12,840 Speaker 1: that transfers to a position to limit risk sufficiently uh 184 00:10:12,880 --> 00:10:16,040 Speaker 1: to bussition a retire you to actually have meaningful draw 185 00:10:16,080 --> 00:10:22,280 Speaker 1: down without huge down draft risk. Fascinating. We could, I 186 00:10:22,280 --> 00:10:24,880 Speaker 1: could go. You gotta show up more often. I will. 187 00:10:25,040 --> 00:10:28,440 Speaker 1: I mean, you know, please Jim Moore with PIMCO on 188 00:10:28,800 --> 00:10:31,160 Speaker 1: our lack of retirement. I mean, David, I'm going to 189 00:10:31,200 --> 00:10:36,520 Speaker 1: be sitting here forever. David Gura's back. Scarlett Fu is 190 00:10:36,600 --> 00:10:42,800 Speaker 1: with us. She was a good it's a very very 191 00:10:42,880 --> 00:10:46,800 Speaker 1: successful audition. We've done that that for David Gurrow, we think, 192 00:10:46,880 --> 00:10:50,360 Speaker 1: and Tom Keene with you worldwide, stay with us. This 193 00:10:50,559 --> 00:11:04,280 Speaker 1: is gloom. Why don't you bring in our steam gast 194 00:11:05,080 --> 00:11:06,920 Speaker 1: Bible formats joins us now in the studio. He has 195 00:11:07,000 --> 00:11:09,400 Speaker 1: Vice Chier of Kissinger associate. It's great to have you 196 00:11:09,440 --> 00:11:11,559 Speaker 1: here on the heels of a trip to China, and 197 00:11:11,600 --> 00:11:13,680 Speaker 1: maybe we can return to what Michael Barr was talking 198 00:11:13,679 --> 00:11:15,400 Speaker 1: about a few moments ago, that is the return of 199 00:11:15,440 --> 00:11:18,320 Speaker 1: that underwater at drown, the Chinese returning it to the U. 200 00:11:18,480 --> 00:11:20,280 Speaker 1: S what do you make of the incident itself? The 201 00:11:20,400 --> 00:11:24,000 Speaker 1: Chinese saying that has been greatly overblown. It did take 202 00:11:24,040 --> 00:11:25,959 Speaker 1: on some import here over these last few days. I 203 00:11:26,000 --> 00:11:28,360 Speaker 1: think the Chinese has been very wise in trying to 204 00:11:28,640 --> 00:11:33,320 Speaker 1: lower tensions with the United States, particularly during this transition period. 205 00:11:33,920 --> 00:11:38,960 Speaker 1: They don't want any big confrontational issues while the Trump 206 00:11:39,000 --> 00:11:43,559 Speaker 1: team is assembling uh it's secretaries and its national security 207 00:11:43,559 --> 00:11:46,559 Speaker 1: advisors and others, And I think that's probably right. They 208 00:11:46,559 --> 00:11:49,360 Speaker 1: want to wait and see what Trump's policies are. They 209 00:11:49,360 --> 00:11:52,040 Speaker 1: don't want to give them any pretext for taking a 210 00:11:52,160 --> 00:11:55,960 Speaker 1: very tough line against China, at least rhetorically. At this point. 211 00:11:56,240 --> 00:11:58,520 Speaker 1: It's not an easy decision for China because there is 212 00:11:58,920 --> 00:12:02,560 Speaker 1: strong nationalistic pressure in China to take tough action. But 213 00:12:02,600 --> 00:12:05,439 Speaker 1: I think the wisdom of Chinese authorities is prevailing and 214 00:12:05,559 --> 00:12:07,920 Speaker 1: they did the right thing. How many people told Bob 215 00:12:07,960 --> 00:12:11,720 Speaker 1: Hormant's to get or not get a Twitter account? How 216 00:12:11,760 --> 00:12:16,320 Speaker 1: many the table when Hormats considered entering the modern age 217 00:12:16,360 --> 00:12:19,320 Speaker 1: from the quill Well I started a couple of years ago. 218 00:12:19,440 --> 00:12:22,319 Speaker 1: It's it's been very interesting all the twitters you get. 219 00:12:22,360 --> 00:12:25,839 Speaker 1: You got a very good reaction from this from from 220 00:12:25,840 --> 00:12:31,360 Speaker 1: the show, continued show, continuously good reactions and very good comments. 221 00:12:31,360 --> 00:12:33,680 Speaker 1: So I always pay a lot of twitters when I 222 00:12:33,720 --> 00:12:36,440 Speaker 1: and I love how you do real Bob Hormant's, we 223 00:12:36,520 --> 00:12:39,720 Speaker 1: should tell China that we don't want the drone they 224 00:12:39,880 --> 00:12:46,079 Speaker 1: stole back, hyphen let them keep it exclamation point. They 225 00:12:46,080 --> 00:12:48,840 Speaker 1: didn't teach this the toughs, did they. No, I don't 226 00:12:48,880 --> 00:12:51,280 Speaker 1: know where that came from. Came from the President elect 227 00:12:51,280 --> 00:12:54,200 Speaker 1: of the United States. I don't I know who said it, 228 00:12:54,240 --> 00:12:57,160 Speaker 1: but I don't understand where the thought came from. It 229 00:12:57,200 --> 00:13:00,600 Speaker 1: doesn't didn't seem to explain to our a political audience 230 00:13:00,640 --> 00:13:06,320 Speaker 1: the ramifications of the words stole or the word let 231 00:13:06,400 --> 00:13:10,040 Speaker 1: them keep it. Well. I would say that it would 232 00:13:10,080 --> 00:13:15,080 Speaker 1: be very wise for President Electromp to say nothing about 233 00:13:15,240 --> 00:13:19,160 Speaker 1: China at this point. He ought to form his team 234 00:13:19,240 --> 00:13:23,480 Speaker 1: of advisors his cabinet, and they ought to develop a 235 00:13:23,520 --> 00:13:27,840 Speaker 1: strategy visa of each China that makes sense in the 236 00:13:27,920 --> 00:13:30,440 Speaker 1: long term. We've got to deal with the Chinese, who 237 00:13:30,480 --> 00:13:34,120 Speaker 1: may not like everything they do or say. But China 238 00:13:34,400 --> 00:13:38,240 Speaker 1: is a major power, and you simply cannot deal with 239 00:13:38,320 --> 00:13:41,920 Speaker 1: them through Twitter. To me, it is demeaning if they 240 00:13:41,920 --> 00:13:44,120 Speaker 1: were to do the same thing to us. Would be 241 00:13:44,200 --> 00:13:47,160 Speaker 1: very unhappy for us to treat China in the same 242 00:13:47,160 --> 00:13:51,480 Speaker 1: way with twitters back and forth. Makes China, David, you 243 00:13:51,480 --> 00:13:54,000 Speaker 1: can have the whole next block. That's why Prosadic Cornell 244 00:13:54,080 --> 00:13:59,120 Speaker 1: is pretty good. Prosade a scathing piece and project syndicate 245 00:13:59,200 --> 00:14:02,520 Speaker 1: on China in the President elect over the weekend. You 246 00:14:02,600 --> 00:14:06,280 Speaker 1: were just in China. How do they respond in your 247 00:14:06,320 --> 00:14:10,400 Speaker 1: conversations to the President elect. Well, they're very puzzled at 248 00:14:10,559 --> 00:14:13,319 Speaker 1: what his real policies are going to be. They've made 249 00:14:13,360 --> 00:14:15,880 Speaker 1: a very clear point of saying they're not going to 250 00:14:16,040 --> 00:14:20,520 Speaker 1: overreact at the moment. On the other hand, they see 251 00:14:20,560 --> 00:14:23,400 Speaker 1: what he said and heard what he said during the campaign. 252 00:14:23,800 --> 00:14:26,640 Speaker 1: He was going to find them a currency manipulator. He 253 00:14:26,720 --> 00:14:28,760 Speaker 1: was going to go after them on a variety of 254 00:14:28,800 --> 00:14:34,160 Speaker 1: trade issues, and he dumping cases, countervailing duty cases. Uh, 255 00:14:34,400 --> 00:14:39,200 Speaker 1: negative views on Chinese investment. Uh. There are issues with China, 256 00:14:39,280 --> 00:14:41,400 Speaker 1: to be sure, but the way to deal with the 257 00:14:41,480 --> 00:14:47,000 Speaker 1: Chinese is not to confront them overtly, particularly not through Twitter. 258 00:14:47,080 --> 00:14:50,160 Speaker 1: It's to have serious conversations. He ought to wait, have 259 00:14:50,720 --> 00:14:54,280 Speaker 1: his experts meet with the Chinese experts. If he has views, 260 00:14:54,320 --> 00:14:56,920 Speaker 1: if he has concerns, he has complaints, put them to 261 00:14:57,000 --> 00:15:03,680 Speaker 1: the Chinese quietly, clearly, but quietly, and not on confrontation publicly. 262 00:15:03,960 --> 00:15:05,680 Speaker 1: I don't think I've ever seen you wound up like that. 263 00:15:05,800 --> 00:15:08,480 Speaker 1: You should tweet out today change your handle to the 264 00:15:08,520 --> 00:15:10,920 Speaker 1: real Bob Hormetts. A few moments ago you were talking 265 00:15:10,960 --> 00:15:14,520 Speaker 1: about what amounts to a good relationship between China US. 266 00:15:14,560 --> 00:15:17,200 Speaker 1: It doesn't take place on on Twitter. When you look 267 00:15:17,200 --> 00:15:19,720 Speaker 1: at the team that Donald Trump has begun to assemble 268 00:15:19,760 --> 00:15:22,560 Speaker 1: here with the Governor of Iowa Terry Branstead as the ambassador, 269 00:15:23,280 --> 00:15:25,320 Speaker 1: what sense are you getting about policy from that? In 270 00:15:25,320 --> 00:15:27,200 Speaker 1: other ways, we had the rhetoric on the campaign trail. 271 00:15:27,720 --> 00:15:29,440 Speaker 1: From that we moved to policy. Are we getting a 272 00:15:29,440 --> 00:15:31,240 Speaker 1: clear sense of the shape that that is going to take? 273 00:15:31,520 --> 00:15:33,880 Speaker 1: Not really. I think Terry Brandstead is a good pick 274 00:15:34,000 --> 00:15:37,920 Speaker 1: for ambassador. He knows chigin paying person shin Ping quite well. 275 00:15:38,640 --> 00:15:43,200 Speaker 1: He knows China well. Um, the new Secretary of State Killerson, 276 00:15:43,720 --> 00:15:46,920 Speaker 1: I'm sure knows China well. But you really have to 277 00:15:47,000 --> 00:15:51,320 Speaker 1: make policy towards China at the top. You need to 278 00:15:51,320 --> 00:15:55,520 Speaker 1: have a strategy. It can't just be ad hoc individual decisions. 279 00:15:56,280 --> 00:15:58,680 Speaker 1: And he needs to have a team of China experts. 280 00:15:58,760 --> 00:16:00,720 Speaker 1: I don't know who they are. If he has them, 281 00:16:00,880 --> 00:16:03,240 Speaker 1: they need to sit down and spend some time thinking 282 00:16:03,280 --> 00:16:06,920 Speaker 1: about not just what they say on a given day, 283 00:16:06,960 --> 00:16:10,080 Speaker 1: but the implications of what they say over a couple 284 00:16:10,080 --> 00:16:13,440 Speaker 1: of year period and what the long term relationship is. 285 00:16:13,680 --> 00:16:15,560 Speaker 1: If they want to take a tough view on a 286 00:16:15,840 --> 00:16:17,880 Speaker 1: on a set of issues, they ought to have a 287 00:16:17,880 --> 00:16:21,720 Speaker 1: clear way of working out a solution with the Chinese. 288 00:16:21,720 --> 00:16:25,800 Speaker 1: Simply confronting the Chinese is not going to get anywhere 289 00:16:25,840 --> 00:16:29,040 Speaker 1: because the Chinese have their own nationalistic pressures and they 290 00:16:29,040 --> 00:16:31,920 Speaker 1: will hit back. It's not Burundi, this is China, this 291 00:16:32,000 --> 00:16:34,800 Speaker 1: is the Middle Kingdom. This is a big country. We're 292 00:16:34,800 --> 00:16:38,000 Speaker 1: gonna have to work with them because virtually nothing is 293 00:16:38,040 --> 00:16:42,360 Speaker 1: going to happen internationally for the good, certainly unless the 294 00:16:42,440 --> 00:16:45,280 Speaker 1: United States finds a way of working with China in 295 00:16:45,320 --> 00:16:48,800 Speaker 1: a constructive fashion. Confrontation is not an answer to anything. 296 00:16:49,040 --> 00:16:52,520 Speaker 1: To be disruptive financially and disruptive politically and from a 297 00:16:52,560 --> 00:16:54,840 Speaker 1: security point of view. How hard is it to maintain 298 00:16:55,000 --> 00:16:57,280 Speaker 1: these two focuses, one of national security the other on 299 00:16:57,880 --> 00:17:00,960 Speaker 1: economics for a government. Well, we've been able to do 300 00:17:01,000 --> 00:17:03,560 Speaker 1: it reasonably well. The economic part of the relationship with 301 00:17:03,640 --> 00:17:08,280 Speaker 1: China has evolved. I think China is somewhat more nationalistic 302 00:17:08,359 --> 00:17:12,000 Speaker 1: economically as are we. So we're gonna have to figure 303 00:17:12,000 --> 00:17:15,120 Speaker 1: out a way of working with them By pulling out 304 00:17:15,160 --> 00:17:17,560 Speaker 1: of t p P. We give China a lot of 305 00:17:17,680 --> 00:17:21,840 Speaker 1: latitude to draw up the rules of trade, particularly in 306 00:17:21,920 --> 00:17:25,440 Speaker 1: the Asia Pacific region. They really don't think, and a 307 00:17:25,520 --> 00:17:27,640 Speaker 1: lot of our allies now don't think we have very 308 00:17:27,720 --> 00:17:30,879 Speaker 1: much staying power in the region. From a political and 309 00:17:30,960 --> 00:17:33,840 Speaker 1: national security point of view, we've had closer mill with 310 00:17:33,880 --> 00:17:37,359 Speaker 1: the called mill mill relations military to military relations. There 311 00:17:37,359 --> 00:17:39,880 Speaker 1: are ways of working with the Chinese on South China 312 00:17:39,880 --> 00:17:42,240 Speaker 1: see and other things, but it takes a lot of 313 00:17:42,280 --> 00:17:45,040 Speaker 1: work and a lot of meetings at various levels over 314 00:17:45,080 --> 00:17:48,720 Speaker 1: a period of time. Not one shot statements by the 315 00:17:48,760 --> 00:17:53,080 Speaker 1: president day particulated by Twitter. You keep going back to 316 00:17:53,119 --> 00:17:55,879 Speaker 1: that at Messador har Mats You're wonderful book The Price 317 00:17:56,000 --> 00:17:59,200 Speaker 1: of Liberty, the first sentence, the final chapter. I love this. 318 00:18:00,040 --> 00:18:03,880 Speaker 1: Henry Kissinger has written that quote America's journey through international 319 00:18:03,960 --> 00:18:09,520 Speaker 1: politics has been a triumph of faith over experience. What 320 00:18:09,680 --> 00:18:13,480 Speaker 1: is Donald Trump's faith? Well, I don't know. At this point. 321 00:18:13,680 --> 00:18:16,440 Speaker 1: He seems to think that he can take very tough 322 00:18:16,560 --> 00:18:20,360 Speaker 1: lines against the Chinese and the Chinese will somehow do 323 00:18:20,480 --> 00:18:26,120 Speaker 1: what he asked them for. Putin phil Yes, yes, but yes, 324 00:18:26,160 --> 00:18:29,640 Speaker 1: it's it's seeming a much different view of Putin than 325 00:18:29,760 --> 00:18:32,840 Speaker 1: he does of President hire Jim paying Um. He's he's 326 00:18:32,840 --> 00:18:36,080 Speaker 1: talking very negatively about China, very positively. So it's a 327 00:18:36,119 --> 00:18:40,320 Speaker 1: bluster of say Theodore Roosevelt. But I'm not comparing him 328 00:18:40,320 --> 00:18:45,360 Speaker 1: to President Roosevelt. But the your study of the diplomacy 329 00:18:45,359 --> 00:18:48,680 Speaker 1: of bluster, which I think we can all agree, including 330 00:18:48,680 --> 00:18:52,160 Speaker 1: Trump supporters, there's a lot of that here. How does 331 00:18:52,160 --> 00:18:55,439 Speaker 1: that play in the modern age? It doesn't play very well. 332 00:18:55,480 --> 00:18:59,440 Speaker 1: I mean, if you want to be tough, then as 333 00:18:59,600 --> 00:19:03,600 Speaker 1: as clearly does, then there's room for being tough, but 334 00:19:03,720 --> 00:19:06,600 Speaker 1: you need to have a strategy behind it, and you 335 00:19:06,680 --> 00:19:10,520 Speaker 1: need to have some kind of dialogue with the Chinese 336 00:19:10,840 --> 00:19:14,120 Speaker 1: to assert your view and come up with the kind 337 00:19:14,119 --> 00:19:18,440 Speaker 1: of answers that you want. And it cannot be they 338 00:19:18,480 --> 00:19:21,720 Speaker 1: do everything we asked them to do. They're not in 339 00:19:21,800 --> 00:19:24,000 Speaker 1: that mode anymore. They're not a weak country. They have 340 00:19:24,040 --> 00:19:26,720 Speaker 1: their own national interests. We have to figure out some 341 00:19:26,800 --> 00:19:31,320 Speaker 1: way of of achieving our goals, but the Chinese have 342 00:19:31,400 --> 00:19:33,600 Speaker 1: to get something out of the deal. It's not going 343 00:19:33,640 --> 00:19:36,080 Speaker 1: to be a one sided thing. And he's got to 344 00:19:36,119 --> 00:19:39,359 Speaker 1: think these things through before he he does them, because 345 00:19:39,400 --> 00:19:42,960 Speaker 1: the consequences of a confrontation with China, between the US 346 00:19:43,040 --> 00:19:44,960 Speaker 1: and China, but also for a lot of the other 347 00:19:45,040 --> 00:19:48,120 Speaker 1: friends and allies in the region, that would be catastrophic. 348 00:19:48,160 --> 00:19:50,440 Speaker 1: They don't want to be in the middle of a 349 00:19:50,480 --> 00:19:55,639 Speaker 1: confrontation between Beijing and Washington. We've we've seen the establishment 350 00:19:55,680 --> 00:19:57,960 Speaker 1: of a regular dialogue between China the U S. The 351 00:19:57,960 --> 00:20:01,240 Speaker 1: Strategic Economic Dialogue happening I think every two years, every 352 00:20:01,280 --> 00:20:05,520 Speaker 1: every year, every year now changing location every every every year. UM. 353 00:20:05,600 --> 00:20:08,199 Speaker 1: If that disappears, what is the form here for for 354 00:20:08,280 --> 00:20:11,399 Speaker 1: conversations between these these twogether? We still presumably would have 355 00:20:11,520 --> 00:20:17,800 Speaker 1: summit meetings between our two presidents periodically. We have APEC meetings. 356 00:20:17,920 --> 00:20:20,040 Speaker 1: China and the US are both members of APEX. There 357 00:20:20,040 --> 00:20:23,120 Speaker 1: are other groups, UH, the S and need S. Reg 358 00:20:23,320 --> 00:20:26,399 Speaker 1: Economic dialogue that you mentioned is a very useful vehicle. 359 00:20:26,440 --> 00:20:28,159 Speaker 1: I think their ways of improving and I used to 360 00:20:28,200 --> 00:20:31,800 Speaker 1: go to them on a regular basis. They're useful because 361 00:20:31,840 --> 00:20:34,560 Speaker 1: they're a multitude of issues between the United States and China. 362 00:20:34,560 --> 00:20:37,439 Speaker 1: We've made progress on environmental issues, as I say, on 363 00:20:37,560 --> 00:20:40,880 Speaker 1: mill mill issues, military and military issues, there actually has 364 00:20:40,920 --> 00:20:44,040 Speaker 1: been some progress. There are other issues that we still 365 00:20:44,080 --> 00:20:50,240 Speaker 1: need to make progress on intellectual property protection, trade, secrets, protection, 366 00:20:50,680 --> 00:20:52,359 Speaker 1: a number of other things. And there are a number 367 00:20:52,359 --> 00:20:56,400 Speaker 1: of geopolitical issues. They're going to be there a rising power. Traditionally, 368 00:20:56,520 --> 00:21:00,720 Speaker 1: rising powers and existing powers have issues that need be resolved. 369 00:21:01,040 --> 00:21:03,119 Speaker 1: So we're gonna have to get to it in a 370 00:21:03,200 --> 00:21:06,840 Speaker 1: serious way. And and by say but when I say serious, 371 00:21:06,880 --> 00:21:09,119 Speaker 1: I mean the leaders are gonna have to sit down 372 00:21:09,480 --> 00:21:11,680 Speaker 1: and try to work these things out. And Trump is 373 00:21:11,720 --> 00:21:15,040 Speaker 1: gonna have to understand the Chinese a lot more than 374 00:21:15,080 --> 00:21:18,280 Speaker 1: he does, and understand they have nationalistic pressures too. They 375 00:21:18,280 --> 00:21:20,919 Speaker 1: may not be a democracy, but they have very strong 376 00:21:21,000 --> 00:21:24,520 Speaker 1: public opinion and they have very strong national interests, as 377 00:21:24,560 --> 00:21:26,440 Speaker 1: do we. The question is how do we work out 378 00:21:26,480 --> 00:21:28,760 Speaker 1: in a national interests in a constructive way. In these 379 00:21:28,840 --> 00:21:30,480 Speaker 1: last few minutes we have here, Let's turn to Europe. 380 00:21:30,880 --> 00:21:33,200 Speaker 1: The events we saw yesterday on the heels of the 381 00:21:33,200 --> 00:21:36,560 Speaker 1: referenum in Italy, on the heels of the the referenum 382 00:21:36,560 --> 00:21:39,520 Speaker 1: in the United Kingdom. Let's look ahead the two thousand 383 00:21:39,600 --> 00:21:43,199 Speaker 1: seventeen in your sense of how that fractiousness continues, how 384 00:21:43,200 --> 00:21:45,439 Speaker 1: it begins to prepare itself. What do you see happening 385 00:21:46,600 --> 00:21:51,800 Speaker 1: these referend uh, the Ramsey referend on restructuring the Italian 386 00:21:51,880 --> 00:21:55,919 Speaker 1: Senate and bregs. It illustrate that in Europe they have 387 00:21:56,080 --> 00:22:03,480 Speaker 1: the same sorts of nationalistic pressures, anti international pressures, economic 388 00:22:03,600 --> 00:22:08,040 Speaker 1: zine of phobia, anti immigration pressures that a number of 389 00:22:08,080 --> 00:22:11,720 Speaker 1: other countries do, including the United States. I think what's 390 00:22:11,760 --> 00:22:15,080 Speaker 1: troublesome about Europe is the whole vision of the whole 391 00:22:15,240 --> 00:22:18,679 Speaker 1: what they call European Project start out as a political 392 00:22:19,480 --> 00:22:23,080 Speaker 1: objective to pull Europe together politically and man economically. It's 393 00:22:23,119 --> 00:22:26,120 Speaker 1: become much more technical now, and I think it has 394 00:22:26,160 --> 00:22:29,160 Speaker 1: to be restored in a way that the irage European 395 00:22:29,200 --> 00:22:32,840 Speaker 1: citizen understands it and benefits from it. It's gotten too technical, 396 00:22:33,000 --> 00:22:36,399 Speaker 1: it's gotten away from the kind of popular support that 397 00:22:36,440 --> 00:22:39,680 Speaker 1: it needs to sustain itself. Ambassador, thank you so much, 398 00:22:39,720 --> 00:22:42,720 Speaker 1: Bob Horman. It's very generous of your time this morning. 399 00:22:42,720 --> 00:22:45,120 Speaker 1: He's with Kissinger Associates, and of course, as a former 400 00:22:45,200 --> 00:22:50,760 Speaker 1: under Secretary of State for the President. President, maybe it's 401 00:22:50,760 --> 00:22:52,560 Speaker 1: the last time we're to say that we're really getting 402 00:22:52,760 --> 00:23:03,240 Speaker 1: Oh no, let we get into January. There. Who you 403 00:23:03,320 --> 00:23:06,760 Speaker 1: put your trust in matters. Investors have put their trust 404 00:23:06,800 --> 00:23:10,359 Speaker 1: in independent registered investment advisors to the two and of 405 00:23:10,480 --> 00:23:13,879 Speaker 1: four trillion dollars. Why they see their roles to serve, 406 00:23:14,160 --> 00:23:17,480 Speaker 1: not sell. That's why Charles Schwab is committed to the 407 00:23:17,600 --> 00:23:23,720 Speaker 1: success over seven thousand independent financial advisors who passionately dedicate 408 00:23:23,800 --> 00:23:28,560 Speaker 1: themselves to helping people achieve their financial goals. Learn more 409 00:23:29,080 --> 00:23:39,600 Speaker 1: at find your independent Advisor dot com. John Vale with 410 00:23:39,680 --> 00:23:43,320 Speaker 1: us with Niko, as we look at uh Japan, but 411 00:23:43,720 --> 00:23:46,680 Speaker 1: much more at the Trump reflation. We've had a number 412 00:23:46,720 --> 00:23:48,719 Speaker 1: of interviews where we go, okay, the tenure yields at 413 00:23:48,720 --> 00:23:53,439 Speaker 1: two point five seven, where does it behavioral change? And 414 00:23:53,480 --> 00:23:56,040 Speaker 1: it maybe three and maybe two point nine and maybe 415 00:23:56,040 --> 00:23:58,320 Speaker 1: three per three. I can't get a handle on it. 416 00:23:58,400 --> 00:24:02,600 Speaker 1: For Japan negative rates up to seven years, the tenure 417 00:24:02,680 --> 00:24:08,240 Speaker 1: yield is point zero seven one. I think that's point 418 00:24:08,320 --> 00:24:13,240 Speaker 1: one percent rounded up. Is there a tip point where 419 00:24:13,280 --> 00:24:16,440 Speaker 1: yields go up, where things change in Japan due to 420 00:24:16,480 --> 00:24:19,480 Speaker 1: the Trump reflation? Or are are yields so low and 421 00:24:19,560 --> 00:24:24,000 Speaker 1: distorted you can't even say that, well, they are distorted. 422 00:24:24,040 --> 00:24:27,359 Speaker 1: Their controlled. It's called yield curve control for a reason. 423 00:24:27,440 --> 00:24:30,919 Speaker 1: The Bank of Japan owns a great majority of these securities, 424 00:24:30,960 --> 00:24:34,040 Speaker 1: and it can sort of control what the price is um, 425 00:24:34,119 --> 00:24:36,080 Speaker 1: and they're controlling it right now and a little bit 426 00:24:36,119 --> 00:24:40,240 Speaker 1: below yeah, zero point one percent and um, they don't 427 00:24:40,280 --> 00:24:42,760 Speaker 1: have to buy too many securities right now to keep 428 00:24:42,760 --> 00:24:47,199 Speaker 1: it there because people have had pretty low expectations for 429 00:24:47,240 --> 00:24:51,040 Speaker 1: inflation going forward. But with this Trump reflation, there's definitely 430 00:24:51,359 --> 00:24:54,120 Speaker 1: a change in the mood there. The press conference last 431 00:24:54,240 --> 00:24:58,120 Speaker 1: night for Corona after the Bank of Japan meeting, UH 432 00:24:58,280 --> 00:25:04,120 Speaker 1: did indicate that he's UH tolerat, tolerating perhaps thoughts of 433 00:25:04,320 --> 00:25:07,879 Speaker 1: increasing the target in the coming months. And we just 434 00:25:08,040 --> 00:25:11,040 Speaker 1: had our quarterly meeting for our Global Investment Committee yesterday 435 00:25:11,359 --> 00:25:14,679 Speaker 1: and we were very non consensus and predicting a twenty 436 00:25:14,720 --> 00:25:18,480 Speaker 1: basis point hike in that target UH in the second 437 00:25:18,520 --> 00:25:21,000 Speaker 1: quarter and another twenty basis points in the fourth quarter. 438 00:25:22,160 --> 00:25:25,200 Speaker 1: David Gurrow, from my hundredth birthday, that forty year bond 439 00:25:25,240 --> 00:25:28,840 Speaker 1: you bought me in Japan since Mr Trump was elected, 440 00:25:28,840 --> 00:25:34,480 Speaker 1: it's on sale. It's going from down. Even with all 441 00:25:34,520 --> 00:25:37,960 Speaker 1: the distortions there, there is price erosion in Japan. You 442 00:25:38,080 --> 00:25:40,760 Speaker 1: just gotta go out a lifetime to see it. How 443 00:25:40,880 --> 00:25:43,720 Speaker 1: much has has the landscape changed for Japan since the 444 00:25:43,760 --> 00:25:46,120 Speaker 1: election that we had here on the eighth of November 445 00:25:46,200 --> 00:25:49,280 Speaker 1: has as the economic landscape changed markedly as a result 446 00:25:49,320 --> 00:25:52,360 Speaker 1: of the result of that election. Well, they were very 447 00:25:52,400 --> 00:25:55,400 Speaker 1: worried before, and they really were not close to Trump, 448 00:25:55,600 --> 00:25:58,399 Speaker 1: and it was looking kind of dicey for them for 449 00:25:58,440 --> 00:26:02,200 Speaker 1: a while. But the weakness the end and Abbey's very 450 00:26:02,240 --> 00:26:05,800 Speaker 1: proactive stance and and flying here to meet him has 451 00:26:05,840 --> 00:26:07,800 Speaker 1: really changed the mood a lot, and a lot of 452 00:26:07,840 --> 00:26:10,280 Speaker 1: people are thinking that Trump is actually good for Japan, 453 00:26:10,359 --> 00:26:13,240 Speaker 1: not only for security, and that you know, of course 454 00:26:13,240 --> 00:26:16,199 Speaker 1: he's not going to and his and his generals and 455 00:26:16,280 --> 00:26:18,200 Speaker 1: his cabinet are not going to give up the Japan 456 00:26:18,280 --> 00:26:23,160 Speaker 1: security alliance. Um. And yes, the weekend has just really 457 00:26:23,200 --> 00:26:27,399 Speaker 1: been a tremendous help to sentiment in Japan. So uh, 458 00:26:27,960 --> 00:26:30,879 Speaker 1: it's it's looking good for Japan right now. Remind us 459 00:26:30,880 --> 00:26:32,960 Speaker 1: what what came out of that that period of introspection 460 00:26:33,000 --> 00:26:35,359 Speaker 1: when the Bank of Japan was going to take stock 461 00:26:35,359 --> 00:26:38,639 Speaker 1: of what they've done reevaluate policy. What changed as a 462 00:26:38,640 --> 00:26:44,680 Speaker 1: result of that. Well, Um, they've been very very worried, 463 00:26:44,800 --> 00:26:47,920 Speaker 1: as have all central banks, about some sort of taper tantrum, 464 00:26:48,119 --> 00:26:50,720 Speaker 1: and they're also worried about what happens when they start 465 00:26:50,800 --> 00:26:53,320 Speaker 1: to taper their et F purchases. I know Tom has 466 00:26:53,320 --> 00:26:55,680 Speaker 1: not been a big fan of the e t F purchases. 467 00:26:55,960 --> 00:26:59,280 Speaker 1: It is a big it's very un orthodox policy. But 468 00:26:59,320 --> 00:27:02,560 Speaker 1: we actually in our meeting yesterday expected uh the b 469 00:27:02,720 --> 00:27:06,439 Speaker 1: o J to taper it's e t F purchases in 470 00:27:06,480 --> 00:27:09,600 Speaker 1: the second quarter as well, and that's very non consensus. 471 00:27:09,680 --> 00:27:13,200 Speaker 1: But we're very positive on the stock market. We expected 472 00:27:13,240 --> 00:27:15,400 Speaker 1: to be up, you know, six or seven percent by 473 00:27:15,600 --> 00:27:18,400 Speaker 1: next June. And the Bank of Japan just doesn't need 474 00:27:18,520 --> 00:27:20,639 Speaker 1: to be buying e t s. I mean, originally it 475 00:27:20,680 --> 00:27:24,000 Speaker 1: was buying e t s two increase risk appetite and 476 00:27:24,080 --> 00:27:26,840 Speaker 1: to show confidence in the economy, and they just won't 477 00:27:26,840 --> 00:27:28,800 Speaker 1: need to do that. So there might be a big 478 00:27:29,000 --> 00:27:31,200 Speaker 1: bit of a hiccup as that gets priced into the market. 479 00:27:31,240 --> 00:27:33,439 Speaker 1: But we think that, yeah, the market can go up 480 00:27:33,480 --> 00:27:36,520 Speaker 1: despite this tapering. Plus understand that the rational behind what 481 00:27:36,600 --> 00:27:38,360 Speaker 1: is that sort of an outsider call at this point again, 482 00:27:38,359 --> 00:27:41,120 Speaker 1: you mentioned looking at yield curve targeting and and and 483 00:27:41,280 --> 00:27:43,200 Speaker 1: some changes to that here in the next few courts. 484 00:27:43,240 --> 00:27:45,639 Speaker 1: What's led you to to make that forecast? What's just 485 00:27:45,840 --> 00:27:48,720 Speaker 1: optimism basically on the economy. We think the economy is 486 00:27:48,760 --> 00:27:51,760 Speaker 1: going to do better than consensus, and that consensus is 487 00:27:51,760 --> 00:27:54,920 Speaker 1: actually moving up as we speak. We think with the 488 00:27:54,960 --> 00:27:57,560 Speaker 1: weaker yen and higher oil prices that the CPI will 489 00:27:57,600 --> 00:28:02,480 Speaker 1: be definitely going up, not maybe to two very soon, 490 00:28:02,560 --> 00:28:03,920 Speaker 1: but maybe by the end of the year it could 491 00:28:03,920 --> 00:28:06,760 Speaker 1: be approaching that. And the Bank of Japan is just 492 00:28:07,359 --> 00:28:10,080 Speaker 1: probably going to be a bit of under pressure too 493 00:28:10,119 --> 00:28:12,840 Speaker 1: from the U. S. Treasury and other countries about not 494 00:28:13,119 --> 00:28:14,879 Speaker 1: letting the end get two weak. We still think it's 495 00:28:14,920 --> 00:28:18,359 Speaker 1: gonna go to one twenty three by June um. But 496 00:28:18,960 --> 00:28:22,160 Speaker 1: and even the Obbe administration doesn't want the end too weak. 497 00:28:22,280 --> 00:28:25,159 Speaker 1: I mean, for instance, one reason why they sort of 498 00:28:25,200 --> 00:28:28,600 Speaker 1: cooled off on their really super aggressive policy was that 499 00:28:28,960 --> 00:28:31,840 Speaker 1: the end was so weak that UH voters were getting 500 00:28:31,920 --> 00:28:35,800 Speaker 1: unhappy with the food price inflation. And so yes, it 501 00:28:35,880 --> 00:28:38,480 Speaker 1: all makes sense that they start to calm down a bit. 502 00:28:38,720 --> 00:28:43,000 Speaker 1: There's a range. I mean, what you said, this is 503 00:28:43,080 --> 00:28:47,360 Speaker 1: very quickly, it's one fifty feasible? Is that even feasible 504 00:28:47,360 --> 00:28:49,800 Speaker 1: in the room If the two peaks twenty years ago, 505 00:28:50,160 --> 00:28:53,600 Speaker 1: If the Fed keeps raising rates uh, you know quarterly 506 00:28:53,800 --> 00:28:56,320 Speaker 1: going forward, and the Bank of Japan is super aggressive 507 00:28:56,400 --> 00:28:58,600 Speaker 1: in its policy, yes, it's possible and I don't think 508 00:28:58,600 --> 00:29:01,120 Speaker 1: anybody wants that to happen to even Japan. I don't 509 00:29:01,120 --> 00:29:04,080 Speaker 1: think that so they should they should probably have to 510 00:29:16,880 --> 00:29:19,000 Speaker 1: my pleasure down bringing Michael Dart, a chief economist and 511 00:29:19,000 --> 00:29:22,760 Speaker 1: market strategy m k M Holdings, joining us now. Michael, 512 00:29:22,760 --> 00:29:25,000 Speaker 1: great to have you with us. Thanks so much for 513 00:29:25,000 --> 00:29:27,120 Speaker 1: having me on. Let's start with the news of the day. 514 00:29:27,120 --> 00:29:28,959 Speaker 1: As Tom was mentioned just a few moments ago, we 515 00:29:28,960 --> 00:29:31,840 Speaker 1: have seen the markets doingmarkably well, a bit of resilience 516 00:29:31,840 --> 00:29:35,200 Speaker 1: here in light of what we saw yesterday across Europe. 517 00:29:35,240 --> 00:29:36,640 Speaker 1: What do you make of that? I used the word 518 00:29:36,640 --> 00:29:39,160 Speaker 1: inured and that's perhaps, uh, not the word I should 519 00:29:39,160 --> 00:29:41,440 Speaker 1: have used, and implies that we're sort of used to it, 520 00:29:41,480 --> 00:29:43,040 Speaker 1: and I don't. I don't mean to say that we 521 00:29:43,080 --> 00:29:45,880 Speaker 1: have become used to attacks like the ones we saw yesterday. 522 00:29:45,920 --> 00:29:50,400 Speaker 1: But what do you think explains the resilience we've seen today? Well, 523 00:29:50,440 --> 00:29:53,520 Speaker 1: it's always hard to to, you know, to know what 524 00:29:54,160 --> 00:29:56,800 Speaker 1: is driving the market over you know, period of hours 525 00:29:56,920 --> 00:30:00,480 Speaker 1: or for days, but I think in general it Since 526 00:30:00,480 --> 00:30:06,280 Speaker 1: the US election result, there is optimism in the US 527 00:30:06,440 --> 00:30:10,880 Speaker 1: that policies could change in a pro growth manner, probably 528 00:30:11,000 --> 00:30:17,000 Speaker 1: mainly due to deregulation and maybe secondarily to corporate tax reform. 529 00:30:17,200 --> 00:30:20,480 Speaker 1: And so the dollar has been rallying. Growth expectations have 530 00:30:20,600 --> 00:30:25,719 Speaker 1: been rising, business confidence has been rising. Um in Japan 531 00:30:25,800 --> 00:30:28,560 Speaker 1: in the Euro Area are getting you know, weaker currencies 532 00:30:28,640 --> 00:30:31,480 Speaker 1: as a as a consequence in those markets are after 533 00:30:31,600 --> 00:30:35,160 Speaker 1: underperforming severely, are starting to bounce back over the course 534 00:30:35,160 --> 00:30:37,720 Speaker 1: of the last few weeks. Michael, you're confident here that 535 00:30:38,400 --> 00:30:41,320 Speaker 1: in making the soup of Trump and omics, the recipe 536 00:30:41,360 --> 00:30:43,000 Speaker 1: has been figured out. In other words, you mentioned the 537 00:30:43,640 --> 00:30:47,800 Speaker 1: tax reform profitt for tax cuts, tax reform, regulatory reform, 538 00:30:48,160 --> 00:30:51,160 Speaker 1: infrastructure spending. Do it Do we have a sense of 539 00:30:51,160 --> 00:30:53,840 Speaker 1: what the right allocation ingredients is going to be here? 540 00:30:53,920 --> 00:30:55,720 Speaker 1: And how worrisome is it to you if we don't 541 00:30:55,720 --> 00:30:59,520 Speaker 1: get the balance right? Well, it's a great question. I mean, 542 00:30:59,560 --> 00:31:02,880 Speaker 1: I think we know what the proposals are. Um, you know, 543 00:31:02,920 --> 00:31:04,800 Speaker 1: but there's a bit of a wrinkle called the U. 544 00:31:04,960 --> 00:31:08,320 Speaker 1: S Senate. So the legislation does have to clear the 545 00:31:08,400 --> 00:31:10,720 Speaker 1: US Senate to become law, at least in a permanent 546 00:31:10,760 --> 00:31:13,800 Speaker 1: fashion for tax cuts, and you know, we'll see what 547 00:31:13,880 --> 00:31:17,160 Speaker 1: can get through. The other wrinkle is the Federal Reserve, 548 00:31:17,200 --> 00:31:19,840 Speaker 1: I mean Fed chair Yelling has essentially said, this is 549 00:31:19,920 --> 00:31:23,239 Speaker 1: really not the proper time in the business cycle for 550 00:31:23,280 --> 00:31:27,440 Speaker 1: a big demand side fiscal push, meaning anything that looks 551 00:31:27,480 --> 00:31:30,000 Speaker 1: like it's going to expand the fiscal deficit and a 552 00:31:30,000 --> 00:31:33,160 Speaker 1: significant way the FED would likely have to lean against 553 00:31:33,200 --> 00:31:36,200 Speaker 1: with tighter monetary policy than would otherwise be the case. 554 00:31:36,760 --> 00:31:40,240 Speaker 1: She's given this message on several occasions. I'm not sure 555 00:31:40,280 --> 00:31:43,880 Speaker 1: that Congress is hearing it. Michael, give us an update. 556 00:31:44,080 --> 00:31:47,160 Speaker 1: I've seen more chit chat in the last ten days 557 00:31:47,840 --> 00:31:52,520 Speaker 1: on David Laidler. Nut Vixel Vixell appeared on the show 558 00:31:52,600 --> 00:31:57,480 Speaker 1: last week. Folks nut Vixel M two M three in 559 00:31:57,600 --> 00:32:01,440 Speaker 1: our circulation of money in reserves? Where are we in 560 00:32:01,520 --> 00:32:05,480 Speaker 1: the land of David Laidler? Okay, well, Tom's is my 561 00:32:05,520 --> 00:32:09,880 Speaker 1: favorite subject. As you know that. Um, let's start with 562 00:32:09,960 --> 00:32:12,280 Speaker 1: the let's start with some of the money supply data, 563 00:32:12,320 --> 00:32:15,640 Speaker 1: because it's a little confusing right now. So the monetary 564 00:32:15,680 --> 00:32:18,880 Speaker 1: base in the US, which the FEED has direct control over, 565 00:32:19,000 --> 00:32:21,640 Speaker 1: actually has been declining on a year to year basis. 566 00:32:21,680 --> 00:32:24,840 Speaker 1: We're down almost double digits on on the base, and 567 00:32:24,920 --> 00:32:27,960 Speaker 1: so in order to hold short term interest rates up, 568 00:32:28,000 --> 00:32:31,160 Speaker 1: the FET is having to to do some liquidity draining, 569 00:32:31,200 --> 00:32:33,720 Speaker 1: even though it does not yet have a policy of 570 00:32:33,720 --> 00:32:38,360 Speaker 1: of shing. We call that in monetary vix alien theory, 571 00:32:38,440 --> 00:32:45,280 Speaker 1: that's called draining the swamp MR darkning, draining liquidity swamp um. Now, 572 00:32:45,360 --> 00:32:48,520 Speaker 1: whether that's a problem for the business cycle really depends on, 573 00:32:48,960 --> 00:32:51,960 Speaker 1: you know, the nature of the velocity of money. So 574 00:32:52,040 --> 00:32:54,680 Speaker 1: one thing we're also observing is that other measures of 575 00:32:54,720 --> 00:32:57,240 Speaker 1: money are doing okay, So M one, M two and 576 00:32:57,240 --> 00:33:00,720 Speaker 1: the like. M two is rising nicely, yeah, and M 577 00:33:00,840 --> 00:33:03,120 Speaker 1: M one is rising nicely. So if you look at 578 00:33:03,120 --> 00:33:06,720 Speaker 1: the monetary base going back over a long long period 579 00:33:06,720 --> 00:33:09,880 Speaker 1: of time essentially since we've had the said declines are 580 00:33:10,120 --> 00:33:12,480 Speaker 1: year to year are pretty rare. But the ones that 581 00:33:12,560 --> 00:33:16,000 Speaker 1: have been problematic have also been associated with declines in 582 00:33:16,040 --> 00:33:18,720 Speaker 1: the broader money stuck M one, M two and the 583 00:33:18,760 --> 00:33:22,480 Speaker 1: like that it's not happening now. And critically, if you 584 00:33:22,520 --> 00:33:25,880 Speaker 1: look at the credit markets and inflation expectations, we started 585 00:33:25,880 --> 00:33:30,640 Speaker 1: off the year in a very very precarious setting and 586 00:33:30,680 --> 00:33:33,440 Speaker 1: that's really turned around. So that would fit with what 587 00:33:33,480 --> 00:33:37,280 Speaker 1: I said about business confidence improving earlier, David to our 588 00:33:37,320 --> 00:33:39,960 Speaker 1: audience globally, I don't give a damn what Michael Darter 589 00:33:40,160 --> 00:33:42,880 Speaker 1: just talked about. I was just doing a job audition 590 00:33:42,960 --> 00:33:46,240 Speaker 1: for Darter for Larry Cudlow. That's the only reason I 591 00:33:46,240 --> 00:33:49,200 Speaker 1: did a David and said New Victoria, which I was 592 00:33:49,200 --> 00:33:51,760 Speaker 1: pretty impressed with as well. Here, well, here we are 593 00:33:51,800 --> 00:33:54,000 Speaker 1: at the end of two thousands sixteen, a few days 594 00:33:54,000 --> 00:33:57,680 Speaker 1: to go until two thousand seventeen. How how firmly set 595 00:33:57,680 --> 00:33:59,480 Speaker 1: out is your outlook at this point in terms of 596 00:33:59,520 --> 00:34:01,280 Speaker 1: all the unscer do we have here about what policy 597 00:34:01,280 --> 00:34:02,880 Speaker 1: could look like in the new year. How difficult is 598 00:34:02,880 --> 00:34:06,880 Speaker 1: it to assemble an outlook for the new year? Well, 599 00:34:06,920 --> 00:34:09,160 Speaker 1: I think we need to start with the question of 600 00:34:09,440 --> 00:34:12,160 Speaker 1: you know what is uh, you know, what is growth 601 00:34:12,200 --> 00:34:15,880 Speaker 1: potential in the US economy? And you know, that's simply 602 00:34:15,920 --> 00:34:19,600 Speaker 1: the sum of the trend of productivity and working age 603 00:34:19,600 --> 00:34:22,640 Speaker 1: population growth, and unfortunately over the last five or six 604 00:34:22,719 --> 00:34:25,120 Speaker 1: years it's been quite weak. Now there's a lot of 605 00:34:25,160 --> 00:34:28,840 Speaker 1: optimism that that could turn around with different policy reforms, 606 00:34:28,840 --> 00:34:31,759 Speaker 1: but you know, I'm not sure how much traction we're 607 00:34:31,760 --> 00:34:34,359 Speaker 1: really going to get there, And so you know, over 608 00:34:34,480 --> 00:34:38,200 Speaker 1: any extended period of time, your growth rate is really 609 00:34:38,200 --> 00:34:42,440 Speaker 1: going to be determined by those real forces productivity in 610 00:34:42,520 --> 00:34:46,440 Speaker 1: working age population growth. The market seems very focused on 611 00:34:46,480 --> 00:34:51,319 Speaker 1: the prospect prospects for corporate text reform and cuts and 612 00:34:51,400 --> 00:34:59,279 Speaker 1: regulatory relief, not really paying much attention to trade protectionism, risks, clampdowns, 613 00:34:59,280 --> 00:35:02,360 Speaker 1: and immigration. Those things would not help productive potential and 614 00:35:02,440 --> 00:35:05,640 Speaker 1: economic efficiency. And so you know, one of the things 615 00:35:05,680 --> 00:35:07,520 Speaker 1: that you know, that I've been concerned about, or at 616 00:35:07,560 --> 00:35:09,439 Speaker 1: least that's in the back of my mind, is how 617 00:35:09,480 --> 00:35:13,680 Speaker 1: this all settles out, um on a go forward basis. 618 00:35:13,719 --> 00:35:16,000 Speaker 1: So I think, unfortunately, we're still going to be looking 619 00:35:16,040 --> 00:35:18,759 Speaker 1: at growth rates during the you know, the rest of 620 00:35:18,760 --> 00:35:22,160 Speaker 1: this business cycle expansion that are low by historical standard, 621 00:35:22,440 --> 00:35:26,080 Speaker 1: for no other reason because of demographics. Is this a 622 00:35:26,160 --> 00:35:29,879 Speaker 1: measured FED? I mean, if nominal GDP is going where 623 00:35:29,880 --> 00:35:33,120 Speaker 1: you're saying, we see the Trump reflation including euro one 624 00:35:33,200 --> 00:35:36,960 Speaker 1: h three seventy uh this morning, Michael Darda, if we 625 00:35:37,080 --> 00:35:41,240 Speaker 1: reached escape velocity on nominal GDP and as the Trump 626 00:35:41,360 --> 00:35:48,239 Speaker 1: reflation sustainable, well, you know, um, Tom, I think the 627 00:35:48,280 --> 00:35:51,439 Speaker 1: FED is in a much better position now to raise 628 00:35:51,600 --> 00:35:54,920 Speaker 1: rates several times next year than it was coming into 629 00:35:55,000 --> 00:35:58,080 Speaker 1: this year last year in December when it raised rates 630 00:35:58,120 --> 00:36:00,759 Speaker 1: and signaled for more to come. You know, the dot 631 00:36:00,840 --> 00:36:03,240 Speaker 1: plot was really totally out of kilter with the credit 632 00:36:03,320 --> 00:36:07,719 Speaker 1: markets and inflation expectations. Now that's completely reversed course. So 633 00:36:08,040 --> 00:36:10,040 Speaker 1: is that a measured FED. Yeah, I would say that's 634 00:36:10,080 --> 00:36:12,000 Speaker 1: a measured FED. I mean they want to be able 635 00:36:12,040 --> 00:36:15,240 Speaker 1: to lift short term interest rates, UH in a gradual 636 00:36:15,400 --> 00:36:18,359 Speaker 1: fashion in the business cycle will dictate whether they're able 637 00:36:18,400 --> 00:36:20,640 Speaker 1: to do so. But you know, we're still going to 638 00:36:20,719 --> 00:36:23,560 Speaker 1: be looking at at growth rates for all. Overall nominal 639 00:36:23,680 --> 00:36:27,319 Speaker 1: growth that you know, by historical standards are are fairly low. 640 00:36:27,480 --> 00:36:31,120 Speaker 1: So let's just work with some numbers. If growth potential 641 00:36:31,280 --> 00:36:33,800 Speaker 1: is running at one to two, it's really been closer 642 00:36:33,840 --> 00:36:36,640 Speaker 1: to one. But let's give ourselves from room one to two, 643 00:36:36,719 --> 00:36:39,000 Speaker 1: and the feed is a two percent inflation target than 644 00:36:39,040 --> 00:36:42,360 Speaker 1: three to four nominal is really, you know, all we 645 00:36:42,480 --> 00:36:44,880 Speaker 1: can look forward to on a sustained basis. And in 646 00:36:45,000 --> 00:36:48,160 Speaker 1: that environment, long rates are going to be relatively low 647 00:36:48,239 --> 00:36:49,759 Speaker 1: and the FET's not going to have a ton of 648 00:36:49,920 --> 00:36:52,120 Speaker 1: room to make short term interest rates up, meaning that 649 00:36:52,200 --> 00:36:55,200 Speaker 1: three or four percent levels are probably not going to 650 00:36:55,280 --> 00:37:05,160 Speaker 1: be seen during this business segment. Thanks for listening to 651 00:37:05,239 --> 00:37:11,279 Speaker 1: the Bloomberg Surveillance Podcast. Subscribe and listen to interviews on iTunes, SoundCloud, 652 00:37:11,719 --> 00:37:15,960 Speaker 1: or whichever podcast platform you prefer. I'm out on Twitter 653 00:37:16,080 --> 00:37:19,840 Speaker 1: at Tom Keene. David Gura is at David Gura. Before 654 00:37:19,880 --> 00:37:24,239 Speaker 1: the podcast, you can always catch us worldwide. I'm Bloomberg Radio. 655 00:37:36,719 --> 00:37:39,319 Speaker 1: Who you put your trust in matters? Investors have put 656 00:37:39,360 --> 00:37:43,680 Speaker 1: their trust and independent registered investment advisors to the two 657 00:37:43,719 --> 00:37:47,359 Speaker 1: and four trillion dollars. Why Learn more at find your 658 00:37:47,440 --> 00:37:49,719 Speaker 1: Independent Advisor dot com