1
00:00:05,800 --> 00:00:08,720
Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim Fox.

2
00:00:08,760 --> 00:00:11,520
Speaker 1: Along with my co host Lisa Abramowitz. Each day we

3
00:00:11,640 --> 00:00:15,120
Speaker 1: bring you the most important, noteworthy, and useful interviews for

4
00:00:15,200 --> 00:00:17,840
Speaker 1: you and your money, whether you're at the grocery store

5
00:00:17,960 --> 00:00:20,720
Speaker 1: or the trading floor. Find the Bloomberg P M L

6
00:00:20,840 --> 00:00:32,240
Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Well,

7
00:00:32,280 --> 00:00:35,479
Speaker 1: there's a setup for us talking about United Technology and

8
00:00:35,520 --> 00:00:39,360
Speaker 1: its acquisition of Rockwell Collins twenty three billion dollars the

9
00:00:39,400 --> 00:00:42,680
Speaker 1: price tag. Joining us now Doug Rothacker. He is our

10
00:00:42,720 --> 00:00:46,560
Speaker 1: Bloomberg intelligence expert when it comes to all things aerospace

11
00:00:46,720 --> 00:00:49,879
Speaker 1: and defense. Uh, Doug, thanks very much for being with me.

12
00:00:50,280 --> 00:00:53,120
Speaker 1: Maybe you could just explain what this is going to do,

13
00:00:53,360 --> 00:00:56,920
Speaker 1: first of all, to the industry and the two largest customers,

14
00:00:56,960 --> 00:00:59,960
Speaker 1: Boeing and Airbus. Yes, good morning, thanks for having me.

15
00:01:00,240 --> 00:01:02,640
Speaker 1: So the first thing is that this creates the world's

16
00:01:02,720 --> 00:01:06,640
Speaker 1: largest aerospace supplier, you know, forty billion dollar portfolio stretching

17
00:01:07,280 --> 00:01:10,399
Speaker 1: basically the inside and outside of the aircraft kind of

18
00:01:10,440 --> 00:01:16,120
Speaker 1: knows to tail engines, avionics, interiors, communications, etcetera. So that

19
00:01:16,160 --> 00:01:19,560
Speaker 1: obviously helps in protective pricing and competitive pressures. You know,

20
00:01:19,640 --> 00:01:22,920
Speaker 1: both among tiers and with Bowing and Airbus. And then

21
00:01:23,240 --> 00:01:25,280
Speaker 1: the other point I would make is that you know,

22
00:01:25,319 --> 00:01:28,319
Speaker 1: we've seen supplier consolidation pick up steam here over the

23
00:01:28,319 --> 00:01:31,360
Speaker 1: past year, and I suspect this trend obviously not to

24
00:01:31,400 --> 00:01:33,600
Speaker 1: this size you up and down the supply chain will

25
00:01:33,640 --> 00:01:37,400
Speaker 1: will continue. The supplanting suppling is really getting squeezed by

26
00:01:37,560 --> 00:01:40,200
Speaker 1: Bowing and Airbus from a pricing standpoint. So obviously this

27
00:01:40,280 --> 00:01:42,920
Speaker 1: is a way that they can u combat those challenges

28
00:01:42,920 --> 00:01:45,440
Speaker 1: with greater scale. Doug, maybe just give us a little

29
00:01:45,480 --> 00:01:48,320
Speaker 1: insight into how the industry works. Is it possible for

30
00:01:48,360 --> 00:01:52,160
Speaker 1: a company like United Technologies, let's say, post merger, uh

31
00:01:52,320 --> 00:01:55,120
Speaker 1: post acquisition with Rockwell Collins, to be able to go

32
00:01:55,200 --> 00:01:57,080
Speaker 1: to Boeing and say, look, you know you want to

33
00:01:57,120 --> 00:02:00,760
Speaker 1: buy these this Avionyx pack edge and you want to

34
00:02:00,800 --> 00:02:04,400
Speaker 1: buy this seat upgrade package. We've got the b E

35
00:02:04,480 --> 00:02:08,280
Speaker 1: Aerospace or what was formally b Aerospace in the portfolio.

36
00:02:08,520 --> 00:02:10,560
Speaker 1: Oh and by the way, we'd like to sell you

37
00:02:10,639 --> 00:02:14,000
Speaker 1: our geared turbo fan engines. Will give you, you know,

38
00:02:14,040 --> 00:02:17,519
Speaker 1: a discount if you take all three. Right. So I

39
00:02:17,560 --> 00:02:19,720
Speaker 1: would say not only to Bowing Airbus, but also to

40
00:02:19,800 --> 00:02:24,320
Speaker 1: the customers. Remember they the UH the one key factor

41
00:02:24,360 --> 00:02:26,880
Speaker 1: with the b Airspace acquisition is the large exposure to

42
00:02:27,040 --> 00:02:30,760
Speaker 1: direct consumer you know, the airline UH customers, So they

43
00:02:30,800 --> 00:02:34,360
Speaker 1: can go right to airline customers with better pricing, you know,

44
00:02:34,400 --> 00:02:38,240
Speaker 1: given this greater scale, UH And obviously you know there,

45
00:02:38,440 --> 00:02:39,960
Speaker 1: you would expect them to be able to do the

46
00:02:40,000 --> 00:02:42,640
Speaker 1: same directly to bowing an airbus. So I think you,

47
00:02:42,840 --> 00:02:44,520
Speaker 1: I think you hit the nail on the head, all right.

48
00:02:44,560 --> 00:02:47,760
Speaker 1: So having said that, maybe just lead us now into

49
00:02:47,840 --> 00:02:51,919
Speaker 1: what this does have specifically to United Technologies, because does

50
00:02:51,960 --> 00:02:57,079
Speaker 1: it really need to be a conglomerate that has an

51
00:02:57,240 --> 00:03:02,000
Speaker 1: h v A C systems business us A an otis

52
00:03:02,000 --> 00:03:05,040
Speaker 1: elevator and escalator business, Right, So I think that will

53
00:03:05,080 --> 00:03:07,600
Speaker 1: be the biggest question on investor's mind over the next

54
00:03:07,680 --> 00:03:09,519
Speaker 1: year as this plays out. They expect to close the

55
00:03:09,600 --> 00:03:11,920
Speaker 1: deal by the third quarter of two as an eighteen.

56
00:03:12,360 --> 00:03:14,160
Speaker 1: And it was a pretty pointed comment they had in

57
00:03:14,160 --> 00:03:16,680
Speaker 1: the press release announcing the deal that after the close

58
00:03:16,760 --> 00:03:19,760
Speaker 1: of the of the acquisition they're going to pursue any

59
00:03:19,800 --> 00:03:24,640
Speaker 1: and all strategic uh, you know, opportunities for United Technologies.

60
00:03:24,960 --> 00:03:27,480
Speaker 1: And I think that was a clear uh discussion or

61
00:03:27,520 --> 00:03:30,520
Speaker 1: a point to the potential for a breakup. Uh you know,

62
00:03:30,560 --> 00:03:34,000
Speaker 1: they've talked consistently about how they feel their shares are

63
00:03:34,400 --> 00:03:36,960
Speaker 1: you know, under appreciated if you will, in the marketplace

64
00:03:37,000 --> 00:03:40,760
Speaker 1: and undervalue, and so obviously being able to split the

65
00:03:40,800 --> 00:03:43,640
Speaker 1: companies up where you have larger multiples for the industrial

66
00:03:44,200 --> 00:03:46,320
Speaker 1: uh peers is obviously a way to be able to

67
00:03:46,320 --> 00:03:48,520
Speaker 1: do that. So I think in the near term that's

68
00:03:48,600 --> 00:03:51,240
Speaker 1: kind of on the back burner until they uh you know,

69
00:03:51,320 --> 00:03:52,800
Speaker 1: a focus over the next year is going to be

70
00:03:52,800 --> 00:03:54,480
Speaker 1: paying down a lot of the debt that they're taking

71
00:03:54,520 --> 00:03:58,040
Speaker 1: on uh to finance this deal. Um. But I think

72
00:03:58,280 --> 00:04:00,920
Speaker 1: when you get into mid end late next year that

73
00:04:00,920 --> 00:04:03,920
Speaker 1: that will be really a focus among the investment community

74
00:04:03,920 --> 00:04:06,200
Speaker 1: of what, you know, what this company looks like over

75
00:04:06,200 --> 00:04:10,320
Speaker 1: the next few years. And I suspect the possibility or

76
00:04:10,320 --> 00:04:12,360
Speaker 1: the probability, I should say, of them breaking up is

77
00:04:12,680 --> 00:04:14,880
Speaker 1: greater than not at this point, Doug, I beg your

78
00:04:14,880 --> 00:04:17,599
Speaker 1: pardon just to just to remind me again which is

79
00:04:17,640 --> 00:04:21,200
Speaker 1: the higher margin business and which demands the higher multiple. Sure,

80
00:04:21,360 --> 00:04:24,160
Speaker 1: so they have otis elevator business and h fact business,

81
00:04:24,160 --> 00:04:27,880
Speaker 1: and both of those uh peers in those industries command

82
00:04:27,960 --> 00:04:30,000
Speaker 1: greater multiples than than what you would see in the

83
00:04:30,000 --> 00:04:35,320
Speaker 1: aerospace business. So would that embolden management to split off

84
00:04:35,600 --> 00:04:40,479
Speaker 1: that business because they wanted what reward shareholders for having

85
00:04:40,680 --> 00:04:45,039
Speaker 1: held those companies in the portfolio beg your pardon, no problem.

86
00:04:45,080 --> 00:04:47,279
Speaker 1: They would just want to essentially unlocked the value that's

87
00:04:47,360 --> 00:04:50,400
Speaker 1: basically tied tied down if you will, right now by

88
00:04:50,440 --> 00:04:53,880
Speaker 1: being they're essentially gonna be overweight aerospace businesses by about

89
00:04:53,880 --> 00:04:56,479
Speaker 1: six percent. Now, So if you think about the multiple

90
00:04:56,600 --> 00:05:00,480
Speaker 1: that could be extracted or or seeing what you know,

91
00:05:00,560 --> 00:05:03,479
Speaker 1: high cash flow business and high margin businesses that you

92
00:05:03,520 --> 00:05:07,120
Speaker 1: have with the elevator and HVACT businesses um either with

93
00:05:07,240 --> 00:05:10,640
Speaker 1: a strategic barger excuse me, strategic buyer or in the

94
00:05:10,680 --> 00:05:13,600
Speaker 1: public space, uh, you know, would likely be more than

95
00:05:13,600 --> 00:05:15,840
Speaker 1: what they would realize as a conglomerate. Right. Yeah. The

96
00:05:15,880 --> 00:05:19,040
Speaker 1: shares of UT actually United Technologies are down about three

97
00:05:19,160 --> 00:05:21,760
Speaker 1: and three quarters of a percent. Shares of Rockwall Collins

98
00:05:21,880 --> 00:05:25,160
Speaker 1: up three quarters of a percent. Rockwell Collins earlier in

99
00:05:25,200 --> 00:05:27,000
Speaker 1: the year, I believe it was April, they closed on

100
00:05:27,040 --> 00:05:29,360
Speaker 1: that deal to buy b E Aerospace. So we're gonna

101
00:05:29,400 --> 00:05:33,800
Speaker 1: see even more consolidation. Who's left, Yeah, I think big

102
00:05:33,800 --> 00:05:36,120
Speaker 1: deals like this, there's really not many left. But I

103
00:05:36,120 --> 00:05:38,080
Speaker 1: would say, you know, up and down the supply chain

104
00:05:38,120 --> 00:05:41,160
Speaker 1: that there will be a considered effort to grain to

105
00:05:41,400 --> 00:05:44,279
Speaker 1: gain greater scale. Spirit Aero Systems, although they've kind of

106
00:05:44,320 --> 00:05:46,719
Speaker 1: walked a little bit back on the discussion. You know,

107
00:05:46,760 --> 00:05:50,159
Speaker 1: Spirit air Systems as Boeing's largest supplier, and up until

108
00:05:50,200 --> 00:05:53,000
Speaker 1: recently they even said that they were looking for possible

109
00:05:53,080 --> 00:05:57,599
Speaker 1: acquisitions in this space. So uh, you know, again, deals

110
00:05:57,600 --> 00:06:01,600
Speaker 1: of this size probably are likely, but I would suspect

111
00:06:01,600 --> 00:06:05,720
Speaker 1: that you would see uh, situations occur um for the

112
00:06:05,760 --> 00:06:08,160
Speaker 1: supply chain to be able to gain greater scale and

113
00:06:08,680 --> 00:06:10,840
Speaker 1: you know, fight the Bowing and airbus price and pressure

114
00:06:11,000 --> 00:06:13,760
Speaker 1: and after market pressure that they're seeing. Doug, just to

115
00:06:13,760 --> 00:06:16,839
Speaker 1: give you about thirty seconds or so, I know that

116
00:06:16,880 --> 00:06:20,080
Speaker 1: everybody's got a huge backlog for aircraft and we're predicting,

117
00:06:20,120 --> 00:06:23,760
Speaker 1: you know, we're gonna add lots of new airplanes, quieter, faster,

118
00:06:23,880 --> 00:06:27,719
Speaker 1: all that. This is a cyclical business, isn't it. It is.

119
00:06:28,240 --> 00:06:30,440
Speaker 1: We're ten years into the airspace cycle right now, and

120
00:06:30,480 --> 00:06:32,599
Speaker 1: you kind of wonder about the legs that are left.

121
00:06:32,640 --> 00:06:34,760
Speaker 1: I think, based on Bowing and airbus production rates, you know,

122
00:06:34,800 --> 00:06:38,280
Speaker 1: we see a few more years of increased production, particularly

123
00:06:38,279 --> 00:06:40,839
Speaker 1: with the narrow bodies, but we've seen wide body production

124
00:06:40,920 --> 00:06:45,040
Speaker 1: come down, particularly with the transition to the Bowing Triple

125
00:06:45,080 --> 00:06:49,320
Speaker 1: seven as they work into their their Triple seven X program. Um.

126
00:06:49,360 --> 00:06:52,720
Speaker 1: You know, Airbus A Brady production is being cut. Um,

127
00:06:52,760 --> 00:06:55,040
Speaker 1: So there's concerns in the wide body production rates and

128
00:06:55,800 --> 00:06:58,080
Speaker 1: you know about the legs if you will, of this

129
00:06:58,160 --> 00:07:00,760
Speaker 1: aerospace cycle. We gotta leave it there at Thanks very much,

130
00:07:00,880 --> 00:07:03,919
Speaker 1: Doug Rothor. He is our Bloomberg intelligence expert when it

131
00:07:03,960 --> 00:07:20,000
Speaker 1: comes to all things aerospace and defense. Now we're scheduled

132
00:07:20,000 --> 00:07:22,280
Speaker 1: to talk to Tom Hanlon. He is the global investment

133
00:07:22,320 --> 00:07:25,800
Speaker 1: strategist that has sent private capital management at US Bank

134
00:07:25,880 --> 00:07:28,280
Speaker 1: and he joins us from Minneapolis. Tom, thank you for

135
00:07:28,360 --> 00:07:31,600
Speaker 1: being with us. Maybe you could just start off by

136
00:07:31,760 --> 00:07:33,960
Speaker 1: I thought this was an interesting point that you made

137
00:07:33,960 --> 00:07:37,600
Speaker 1: that the U. S consumer appears indifferent to whatever the

138
00:07:37,680 --> 00:07:43,320
Speaker 1: volatility is, whether it is US politics or geopolitics. American

139
00:07:43,360 --> 00:07:45,880
Speaker 1: consumers are just going on their merry way. Where do

140
00:07:45,920 --> 00:07:49,640
Speaker 1: you what does that amply? Well, good morning, Tom, and

141
00:07:49,760 --> 00:07:52,160
Speaker 1: uh yeah, and it's not just the US consumers, it's

142
00:07:52,160 --> 00:07:55,320
Speaker 1: consumers worldwide. But you know, you look at the data,

143
00:07:55,320 --> 00:07:58,880
Speaker 1: and consumers keep on consuming and manufacturers keep on manufacturing,

144
00:07:59,200 --> 00:08:03,400
Speaker 1: no matter the headline is, whether it's domestic politics or geopolitics.

145
00:08:03,440 --> 00:08:06,200
Speaker 1: And uh um yeah, yeah. I mean you look at

146
00:08:06,240 --> 00:08:08,680
Speaker 1: the market action today. Um, you know, we're down a

147
00:08:08,720 --> 00:08:11,240
Speaker 1: little on the SMP, but more on the financials um

148
00:08:11,320 --> 00:08:14,240
Speaker 1: than the broad markets. That tells us that the action

149
00:08:14,360 --> 00:08:17,120
Speaker 1: is less to do with with North koreanda was over

150
00:08:17,160 --> 00:08:19,480
Speaker 1: the weekend and more to do about people's perceptions of

151
00:08:19,520 --> 00:08:21,880
Speaker 1: the FED. So where do you come down? I mean,

152
00:08:21,920 --> 00:08:24,800
Speaker 1: do you buy this notion that the consumer is going

153
00:08:24,840 --> 00:08:29,760
Speaker 1: to continue to spend and that manufacturing companies that continue

154
00:08:29,800 --> 00:08:33,319
Speaker 1: to make things regardless of what goes on in Washington

155
00:08:33,480 --> 00:08:36,360
Speaker 1: or another political capitals. Yeah. I mean if you look

156
00:08:36,400 --> 00:08:38,760
Speaker 1: at the just the underlying trends of just the broad

157
00:08:38,800 --> 00:08:43,240
Speaker 1: economy or or labor market or uh you know globally

158
00:08:43,400 --> 00:08:45,960
Speaker 1: not just in the United States but elsewhere. Um, it's

159
00:08:46,040 --> 00:08:48,079
Speaker 1: it's fairly sanguine. I mean, it's not aggressive to the

160
00:08:48,120 --> 00:08:51,360
Speaker 1: point where central banks are going to tighten aggressively. It's

161
00:08:51,400 --> 00:08:54,240
Speaker 1: not so a weak that that you're getting concerned about

162
00:08:54,240 --> 00:08:58,800
Speaker 1: the consumer. And you know, the synchronized recovery gets set

163
00:08:58,800 --> 00:09:02,160
Speaker 1: a lot, but it's more like a lack of dispersion

164
00:09:02,200 --> 00:09:04,439
Speaker 1: in growth rates around the world. So everybody is low,

165
00:09:04,600 --> 00:09:08,280
Speaker 1: everybody's slow, but positive and and that's a pretty decent

166
00:09:08,320 --> 00:09:11,679
Speaker 1: back drop for kind of all participants. Okay, So if

167
00:09:11,720 --> 00:09:14,319
Speaker 1: that's the backdrop and that's the position, are you and

168
00:09:14,520 --> 00:09:18,640
Speaker 1: all in bull we have written, we have been and

169
00:09:18,720 --> 00:09:22,920
Speaker 1: remain um pro risk in terms of client portfolios. We

170
00:09:22,920 --> 00:09:26,560
Speaker 1: we still tilt towards equities relative to fixed income on

171
00:09:26,640 --> 00:09:30,000
Speaker 1: our primary uh places where we look to invest are

172
00:09:30,000 --> 00:09:32,440
Speaker 1: still United States, Europe, in Japan where we still have

173
00:09:32,600 --> 00:09:36,520
Speaker 1: the highest confidence about the economics fundamentals. Have you taken

174
00:09:36,559 --> 00:09:40,720
Speaker 1: any profits lately? No, we haven't. We haven't many material

175
00:09:40,800 --> 00:09:43,520
Speaker 1: changes to our to our outlook on I think our

176
00:09:44,080 --> 00:09:48,400
Speaker 1: diligence and vigilance of risks is probably uh increased based

177
00:09:48,400 --> 00:09:52,360
Speaker 1: on the political landscape and and also domestic politics. UM,

178
00:09:52,440 --> 00:09:54,800
Speaker 1: but we still we still remain um kind of on

179
00:09:54,840 --> 00:09:57,960
Speaker 1: our trajectory of the narrative that we have, which is

180
00:09:58,360 --> 00:10:01,400
Speaker 1: pro growth and progres sense. So does that mean that

181
00:10:01,440 --> 00:10:05,000
Speaker 1: you're focusing on technology stocks? What specific industry groups can

182
00:10:05,040 --> 00:10:06,960
Speaker 1: you share with us? The NASDAK is up more than

183
00:10:08,120 --> 00:10:12,319
Speaker 1: this year. Yeah, I mean, we're still mostly broad market

184
00:10:12,360 --> 00:10:16,240
Speaker 1: participants on you know, anything that that benefits from a

185
00:10:16,280 --> 00:10:21,800
Speaker 1: low inflation um uh a fed's accommodative policy. So that's

186
00:10:21,840 --> 00:10:24,760
Speaker 1: that's still good for free domestic us consumption. And because

187
00:10:24,800 --> 00:10:28,040
Speaker 1: the global growth backdrop um U s exporters are still

188
00:10:28,040 --> 00:10:29,400
Speaker 1: a good place to be as well, because then I

189
00:10:29,440 --> 00:10:32,320
Speaker 1: never seen that in the manufacturing data. Well, tell us

190
00:10:32,360 --> 00:10:35,880
Speaker 1: about your view on the dollar, because that has been

191
00:10:35,960 --> 00:10:40,080
Speaker 1: weakening after a run of strength earlier in the year.

192
00:10:40,360 --> 00:10:42,719
Speaker 1: If the dollar continues to weaken or you're going to

193
00:10:42,800 --> 00:10:45,839
Speaker 1: see increased commodity prices, but that will be offset by

194
00:10:45,880 --> 00:10:50,199
Speaker 1: increased sales overseas. I think that's probably a fair assessment. Um.

195
00:10:50,360 --> 00:10:54,240
Speaker 1: You know another uh sort of backdrop of of a

196
00:10:54,280 --> 00:10:56,600
Speaker 1: week or dollar that also tends to be good for

197
00:10:57,080 --> 00:11:01,199
Speaker 1: UM four markets on you know, it's a good construct

198
00:11:01,240 --> 00:11:04,480
Speaker 1: for emerging market equities to have a dollar sound more

199
00:11:04,480 --> 00:11:06,600
Speaker 1: of a weakening trend and a than a strengthening trend.

200
00:11:07,000 --> 00:11:09,200
Speaker 1: And and uh, you know the dollar and you may

201
00:11:09,240 --> 00:11:11,000
Speaker 1: see it the act today coming out to Labor Day

202
00:11:11,040 --> 00:11:13,880
Speaker 1: weekend with the news, um it's actually weaker rather than

203
00:11:13,960 --> 00:11:17,800
Speaker 1: stronger today and the end's not really acting um terrely

204
00:11:18,120 --> 00:11:20,440
Speaker 1: volpal today, So again it tells us that's more about

205
00:11:20,440 --> 00:11:23,560
Speaker 1: the Fed and people trying to price in whether there's

206
00:11:23,559 --> 00:11:25,959
Speaker 1: a rate hike between now and your end than anything else. Well,

207
00:11:26,000 --> 00:11:27,559
Speaker 1: do you believe that there will be a rate hike

208
00:11:27,720 --> 00:11:30,240
Speaker 1: by the Federal Reserve this year? Our base case has

209
00:11:30,240 --> 00:11:32,800
Speaker 1: been that we were likely to see one before the

210
00:11:32,840 --> 00:11:35,200
Speaker 1: end of the year. UM, And we just continue to

211
00:11:35,360 --> 00:11:38,280
Speaker 1: monitor that and obviously got a lot of speakers this

212
00:11:38,320 --> 00:11:41,160
Speaker 1: week from the Fair Reserve as well to watch for it.

213
00:11:41,600 --> 00:11:44,400
Speaker 1: But you haven't seen this wage growth in the United States?

214
00:11:44,720 --> 00:11:48,959
Speaker 1: Does that temper your enthusiasm? Yeah, it's really been stubborn.

215
00:11:49,080 --> 00:11:51,960
Speaker 1: And it's not just the US phenomena. It's it's global

216
00:11:51,960 --> 00:11:56,319
Speaker 1: and it there's probably um, it's probably bifurcated in different industries.

217
00:11:56,400 --> 00:11:58,920
Speaker 1: You probably get wage growth in some industries where we

218
00:11:58,960 --> 00:12:02,760
Speaker 1: have u not a lot of supply a labor, and

219
00:12:02,800 --> 00:12:05,560
Speaker 1: then you know it's offset again in the areas where

220
00:12:05,600 --> 00:12:07,920
Speaker 1: you've got kind of surplus of labor, so it kind

221
00:12:07,920 --> 00:12:10,760
Speaker 1: of comes out in little wage growth. We still think

222
00:12:10,760 --> 00:12:12,560
Speaker 1: that we're going to see that. We still think that

223
00:12:12,559 --> 00:12:17,880
Speaker 1: that in general, UM, with positive economic conditions and positive consumption,

224
00:12:17,920 --> 00:12:19,880
Speaker 1: that that wage growth will come all right. I want

225
00:12:19,880 --> 00:12:22,520
Speaker 1: to thank you for for joining us, Thanks for giving

226
00:12:22,600 --> 00:12:24,640
Speaker 1: us your thoughts. You're you're a bull? Can we say

227
00:12:24,640 --> 00:12:28,920
Speaker 1: that you're a bull? But with caution? Does that make sense?

228
00:12:30,520 --> 00:12:33,040
Speaker 1: That makes all right? Good, We'll leave it there. Thanks

229
00:12:33,120 --> 00:12:35,840
Speaker 1: very much. Tom Handling, he is the global investment strategist

230
00:12:36,120 --> 00:12:40,320
Speaker 1: at Ascent Private Capital Management at a US bank. Joining

231
00:12:40,400 --> 00:12:56,560
Speaker 1: us from Minneapolis. Well, in addition to immigration or another

232
00:12:56,640 --> 00:13:00,559
Speaker 1: topic that has drawn the attention of lawmakers as well

233
00:13:00,559 --> 00:13:04,000
Speaker 1: as the administration, of course, is North Korea. Joining me

234
00:13:04,040 --> 00:13:06,800
Speaker 1: now is Dr Robert Pape. He is the author and

235
00:13:06,840 --> 00:13:09,959
Speaker 1: a professor of political science at the University of Chicago,

236
00:13:10,080 --> 00:13:14,040
Speaker 1: and he is the director of Chicago Project on Security

237
00:13:14,160 --> 00:13:18,240
Speaker 1: and Terrorism. Dr Pape, thanks very much for being with us.

238
00:13:18,760 --> 00:13:23,079
Speaker 1: You've written that the economic sanctions will not work with

239
00:13:23,160 --> 00:13:27,199
Speaker 1: North Korea. Tell us a little bit about your reasoning. Um,

240
00:13:27,280 --> 00:13:32,600
Speaker 1: China is not going to enforce the tight sanctions that

241
00:13:32,679 --> 00:13:37,360
Speaker 1: would really bite. And the reason is because China does

242
00:13:37,400 --> 00:13:41,600
Speaker 1: not want the North Korean regime to collapse. If the

243
00:13:41,640 --> 00:13:46,040
Speaker 1: North regian North Korean regime collapses, there's a very good

244
00:13:46,120 --> 00:13:49,760
Speaker 1: chance that US and South Korean troops would rush right

245
00:13:49,800 --> 00:13:53,240
Speaker 1: into North Korea, possibly up to the border with China.

246
00:13:53,720 --> 00:13:58,320
Speaker 1: That's exactly the scenario that led China to intervene in

247
00:13:58,360 --> 00:14:01,679
Speaker 1: the Korean War in the nineteen fifties. This is a

248
00:14:01,800 --> 00:14:06,600
Speaker 1: vital national security interest to China, and so bullying China

249
00:14:06,800 --> 00:14:09,600
Speaker 1: threatening to cut off trade with China, this is not

250
00:14:09,720 --> 00:14:12,920
Speaker 1: going to work, um and so we really need to

251
00:14:13,040 --> 00:14:17,400
Speaker 1: look for an alternative track because at the moment, Trump's

252
00:14:17,400 --> 00:14:21,600
Speaker 1: strategy of coercive diplomacy is backfiring. So what is the

253
00:14:21,640 --> 00:14:25,880
Speaker 1: alternative track? In your opinion, the alternative track is to

254
00:14:26,080 --> 00:14:31,480
Speaker 1: build on the cooperation among the six parties that worked

255
00:14:31,520 --> 00:14:34,840
Speaker 1: in the second part of the Bush administration. The best

256
00:14:34,920 --> 00:14:39,480
Speaker 1: we've gotten, the most we've frozen the North Korean regime's

257
00:14:39,640 --> 00:14:43,440
Speaker 1: nuclear program was from two thousand and six to two

258
00:14:43,480 --> 00:14:46,640
Speaker 1: thousand and nine when the Bush administration. This is no

259
00:14:46,760 --> 00:14:52,000
Speaker 1: wimpy administration, UH engaged in six party talks which actually

260
00:14:52,040 --> 00:14:54,480
Speaker 1: had quite a bit of effect all the way through

261
00:14:54,520 --> 00:14:58,880
Speaker 1: the end of Bush's presidency. This is something we need

262
00:14:58,920 --> 00:15:02,040
Speaker 1: to restart, and in fact we can involve. We could

263
00:15:02,080 --> 00:15:06,840
Speaker 1: evolve our current policy of pushing forward tough stenctions into

264
00:15:06,920 --> 00:15:14,200
Speaker 1: a common economic policy on North Korea, common among China, Russia,

265
00:15:14,440 --> 00:15:19,360
Speaker 1: the United States, South Korea, Japan. This would create a

266
00:15:19,400 --> 00:15:23,960
Speaker 1: real alliance against North Korea that would have some bite

267
00:15:24,040 --> 00:15:27,080
Speaker 1: over time. Well, how likely is that given the current

268
00:15:27,080 --> 00:15:30,720
Speaker 1: administration and the rhetoric that you've heard, not only from

269
00:15:30,760 --> 00:15:34,400
Speaker 1: the President but also from the Secretary of Defense. Well,

270
00:15:34,440 --> 00:15:36,640
Speaker 1: I think what you've seen over the last month is

271
00:15:36,680 --> 00:15:41,160
Speaker 1: actually the administration, Um, speaking of two minds. When you

272
00:15:41,200 --> 00:15:44,640
Speaker 1: hear Secretary Tillerson and you hear Secretary Mathis, they really

273
00:15:44,640 --> 00:15:49,720
Speaker 1: are moving more in the direction of deterrence, containment, working

274
00:15:49,720 --> 00:15:53,920
Speaker 1: with allies. Um. I'm afraid President Trump's rhetoric has not

275
00:15:54,040 --> 00:15:57,360
Speaker 1: been particularly helpful. And in fact, in the last two weeks, Um,

276
00:15:58,120 --> 00:16:01,360
Speaker 1: what we've seen is the North Korean have increased their

277
00:16:01,400 --> 00:16:04,120
Speaker 1: threat to the United States. It's still far, it's still

278
00:16:04,120 --> 00:16:07,440
Speaker 1: not you know, it's not today. Um. But nonetheless, we

279
00:16:07,520 --> 00:16:11,240
Speaker 1: need an alternative track, and I believe that Secretary Tilorson

280
00:16:11,280 --> 00:16:15,640
Speaker 1: and Maddis actually um uh would are are seeking such

281
00:16:15,680 --> 00:16:20,840
Speaker 1: a track. Are they finding any willing partners? Well, Um,

282
00:16:20,920 --> 00:16:24,280
Speaker 1: what we see is that with North ko with North Korea, noticed,

283
00:16:24,320 --> 00:16:29,080
Speaker 1: the partners are pretty obvious their China, their Russia, their Japan,

284
00:16:29,240 --> 00:16:32,960
Speaker 1: and their South Korea, UM Secretary Tilerson, that's where he

285
00:16:33,040 --> 00:16:37,720
Speaker 1: has been. He has been with our partners, working with them.

286
00:16:37,760 --> 00:16:41,160
Speaker 1: So UH. The the what has really become quite clear

287
00:16:41,240 --> 00:16:45,960
Speaker 1: now is that the current strategy of heavy handed coercive

288
00:16:46,000 --> 00:16:51,560
Speaker 1: diplomacy is simply backfiring. UH. This continuing a failing strategy

289
00:16:51,720 --> 00:16:55,240
Speaker 1: is only likely to cause South Korea and Japan to

290
00:16:55,320 --> 00:16:59,640
Speaker 1: lose confidence in US leadership, which could create more instability

291
00:16:59,640 --> 00:17:03,840
Speaker 1: in the region. So the alternative is to work with

292
00:17:04,040 --> 00:17:10,720
Speaker 1: South Korea, Japan, China again toward a common economic policy

293
00:17:10,880 --> 00:17:14,359
Speaker 1: on North Korea. Well, I'm sure it's not lost on

294
00:17:14,600 --> 00:17:18,240
Speaker 1: either the Chinese leadership or indeed the Russian President Vladimir

295
00:17:18,240 --> 00:17:24,119
Speaker 1: Putin that nuclear weapons, while aimed in a specific direction,

296
00:17:24,359 --> 00:17:30,040
Speaker 1: you don't necessarily have complete control over such such weaponry.

297
00:17:30,200 --> 00:17:33,000
Speaker 1: And China and Russia are awfully close to North Korea.

298
00:17:33,040 --> 00:17:36,480
Speaker 1: Are they not concerned about any fallout from any potential

299
00:17:37,040 --> 00:17:41,240
Speaker 1: military activity that would hurt them? I think they are. UM.

300
00:17:41,280 --> 00:17:44,640
Speaker 1: In two thousand, UM twelve and thirteen, I was involved

301
00:17:44,680 --> 00:17:49,760
Speaker 1: in some talks in Beijing UH at the People's Liberation

302
00:17:49,880 --> 00:17:54,720
Speaker 1: Army National Defense University where they were openly and explicitly

303
00:17:54,840 --> 00:18:00,439
Speaker 1: concerned about North Korea's uh nuclear program, and for very

304
00:18:00,520 --> 00:18:04,080
Speaker 1: much the reasons you suggest, which is um it is

305
00:18:04,480 --> 00:18:08,520
Speaker 1: um um. North Korea's nuclear weapons don't pose simply a

306
00:18:08,560 --> 00:18:10,920
Speaker 1: threat to the United States. They pose a threat to

307
00:18:11,080 --> 00:18:14,600
Speaker 1: all of those parties UM. And in fact, the fragility

308
00:18:14,680 --> 00:18:16,960
Speaker 1: of the North Korean regime. If if the North Korean

309
00:18:16,960 --> 00:18:19,800
Speaker 1: regime were to collapse, you have a loose nukes problem,

310
00:18:19,800 --> 00:18:23,120
Speaker 1: which is going to scare everybody in Beijing as well

311
00:18:23,160 --> 00:18:26,520
Speaker 1: as in uh, Tokyo or Soul. So you have a

312
00:18:26,600 --> 00:18:31,280
Speaker 1: situation where the six parties here really have a tremendous

313
00:18:31,320 --> 00:18:35,600
Speaker 1: amount in common. Uh. They are ready are talking with

314
00:18:35,640 --> 00:18:38,639
Speaker 1: each other. Um. And what we I think would be

315
00:18:38,720 --> 00:18:41,760
Speaker 1: very helpful would be to evolve the current set of

316
00:18:41,800 --> 00:18:46,760
Speaker 1: discussions away from essentially a failed strategy toward a more

317
00:18:46,840 --> 00:18:49,960
Speaker 1: productive outcome that we could see over the next two

318
00:18:50,080 --> 00:18:55,480
Speaker 1: or three years. Really um providing stability among the key

319
00:18:55,560 --> 00:18:58,160
Speaker 1: allies that we need if we're ever going to get

320
00:18:58,160 --> 00:19:00,879
Speaker 1: a grip on the North Korean problem. Thank you for

321
00:19:00,960 --> 00:19:04,280
Speaker 1: joining us. Dr Robert Pape is the author and professor

322
00:19:04,400 --> 00:19:07,960
Speaker 1: political science at the University of Chicago and director of

323
00:19:08,000 --> 00:19:14,800
Speaker 1: the Chicago Project on Security and Terrorism. Thanks for listening

324
00:19:14,800 --> 00:19:17,719
Speaker 1: to the Bloomberg P and L podcast. You can subscribe

325
00:19:17,720 --> 00:19:21,320
Speaker 1: and listen to interviews at Apple Podcasts, SoundCloud, or whatever

326
00:19:21,359 --> 00:19:24,879
Speaker 1: podcast platform you prefer. I'm Pim Fox. I'm on Twitter

327
00:19:25,119 --> 00:19:28,640
Speaker 1: at pim Fox. I'm on Twitter at Lisa Abramo. It's

328
00:19:28,720 --> 00:19:31,719
Speaker 1: one before the podcast. You can always catch us worldwide

329
00:19:31,760 --> 00:19:32,720
Speaker 1: on Bloomberg Radio