Speaker 1: Runt You by Bank of America Mary Lynch. With virtual reality,
Speaker 1: virtually everything will change. Discover opportunities in a transforming world.
Speaker 1: Be of a, mL dot Com, slash VR, Mary Lynch,
Speaker 1: Pierced Fenner, and Smith Incorporated. Welcome to the Bloomberg Surveillance Podcast.
Speaker 1: I'm Tom Keene with David Gura. Daily we bring you
Speaker 1: insight from the best of economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com,
Speaker 1: and of course, on the Bloomberg. Good Morning. This is
Speaker 1: Bloomberg Surveillance with Tom Keene and UH. The only one
Speaker 1: who's missing is David Gura. Today I'm Michael McKee sitting
Speaker 1: in for David, who is on assignment. He will be
Speaker 1: back tomorrow those of you who are worried about him.
Speaker 1: He's just doing some very key interviews out there in
Speaker 1: TV land and radio land. UH. This morning, we are
Speaker 1: following the China downgrade. Moody's knocks him down a peg,
Speaker 1: no major impact. The Chinese stock market finished up by
Speaker 1: a tenth Shanghai composite by about tenth of a percent overnight.
Speaker 1: Futures in the US are mixed at this point, S
Speaker 1: and P futures unchanged, OW futures down by four points,
Speaker 1: Nasdaq futures up by five. So no real direction there,
Speaker 1: and that's going to be a theme here with our
Speaker 1: first guest. In just a moment I mentioned we are
Speaker 1: starting the day without real direction. Futures are mixed, and
Speaker 1: our first guest, Mike Wilson, is the chief US equity
Speaker 1: strategist at Morgan Stanley. Uh. You sort of sum that
Speaker 1: up in your most recent note when you said, well,
Speaker 1: we're past earning season, we gotta figure out what we're
Speaker 1: going to trade on next. Um, is there a theme
Speaker 1: to look for here beyond the general what the heck
Speaker 1: is going on in Washington? Uh? Thing that we're going
Speaker 1: on with that that we have all the time. Yeah,
Speaker 1: I think the next catalyst is the last catalyst. It's
Speaker 1: just continuation of the same, which is that the next
Speaker 1: two quarters were very confident about where earnings are in
Speaker 1: terms of estimates and the achievability of those. So give
Speaker 1: an example. Q one in the US we did about
Speaker 1: we'll do about fiftent year over year growth, and Q
Speaker 1: two we're only you know, the consensus. Now, I was
Speaker 1: only looking for about six point eight percent year over
Speaker 1: your growth. And that's where the backdrop where we're pretty
Speaker 1: confident that nominal GDP is going to accelerate sharply. We
Speaker 1: could see nominal GDP in two Q in the US
Speaker 1: between five and six percent as things snap back. So
Speaker 1: that's your proxy for sales growth, which is almost as
Speaker 1: high as the expected earnings growth. That's just an easy
Speaker 1: bar to get past. And so once again we're being
Speaker 1: distracted by the news of Washington or the latest political event,
Speaker 1: and you know, the markets are consolidating. Look, we should
Speaker 1: have sold off much more at some point in the
Speaker 1: last six or seven weeks given all the events that
Speaker 1: have transpired, and we did not. To me, that's a
Speaker 1: very constructive back drop. It's a consolidation. You don't think
Speaker 1: that the risk or do you think the risk is
Speaker 1: still out there? When you look at a pe for
Speaker 1: the SMP of twenty one UM, it's not near the
Speaker 1: records we saw in the past, but it is significantly
Speaker 1: higher than the average. Uh. The the idea that we
Speaker 1: could see a sell off still out there, well, we
Speaker 1: have a little different view on that. So last you know,
Speaker 1: we've talked about earnings, but the other story that's going
Speaker 1: on is we are getting multiple expansion this year, So
Speaker 1: we look at a little differently. We think we're training
Speaker 1: seventeen and a half times right now forward twelve month
Speaker 1: estimates of about one thirty eight, and those numbers are
Speaker 1: likely going up over the next two quarters. Our our
Speaker 1: thesis has been for a while that equity rist premiums
Speaker 1: are now finally normalizing, much like other risk assets. And
Speaker 1: if if we just get to a normal equity risk
Speaker 1: premium in the US, we should trade nineteen times. And
Speaker 1: how do we get there. That's two fifty and an
Speaker 1: equity risk premium which is normal for the last hundred years,
Speaker 1: plus a two seventy year which is five and a quarter,
Speaker 1: and that's nineteen times. So nineteen times, you know, call
Speaker 1: it a one two number, which we think is very visible.
Speaker 1: The next sort of six months is something the market
Speaker 1: should start to think about. So we think there's meaningful upside,
Speaker 1: not just a couple percent, but meaningful upside. Mr Keene
Speaker 1: has joined us from the television set, and to I
Speaker 1: point out that Mike is looking for to seventy five tenure,
Speaker 1: where at two eight this morning, there's some distance to go,
Speaker 1: some distance to go but with kurve flattening that we've
Speaker 1: seen in the last couple of days as well. We'll
Speaker 1: do that within our data checks this morning. But as
Speaker 1: Mike mentioned, it pretty quiet, nice day have you here, Michael,
Speaker 1: we have to find time within the morning to speak
Speaker 1: Denver Broncos football. Why exactly? That's what they would say
Speaker 1: in Denver Good Morning and syrus Sex Channel one nineteen
Speaker 1: in Denver, Michael Wilson with us with Morgan selling. Michael,
Speaker 1: I want to go to the great secrets of Morgan
Speaker 1: Stanley which are in your file. You are carrying a
Speaker 1: Finder file that my father used in nineteen fifty eight.
Speaker 1: This is folks. You have to see this. I'm gonna
Speaker 1: take a photo of this and put it out on Twitter.
Speaker 1: What what is in your file? What an equity strategies
Speaker 1: carry around with them? I got this from a guy
Speaker 1: named Clarence Speaks. Does that mean anything to you? It's
Speaker 1: this is a cheap version of of of a fold.
Speaker 1: It's lighter, it's paper. I can throw it away and
Speaker 1: if I if I feeling fancy, I can get a
Speaker 1: new one. Pretty pretty, pretty pretty good. You know. It's great.
Speaker 1: So such a it's a massive throwback we're looking at
Speaker 1: off folks, at this flexible one of those off red
Speaker 1: Crownish files. I think Tom Hanks used that in you know,
Speaker 1: tink Her Tip, whatever the spy movie was he had
Speaker 1: a couple of years ago. What do you read it,
Speaker 1: Morgan Stanley? What forms your equity opinion? Yeah? So we
Speaker 1: we actually, uh, you know, I try to stay current
Speaker 1: on everything, not just what's going on within the four
Speaker 1: walls of Morgan Stanley because it's quite frankly, you know,
Speaker 1: we don't have all the answers. Uh, And you have
Speaker 1: to be yet to be wary of getting a group think.
Speaker 1: So the advantage we have as we're global, we have
Speaker 1: strategists and economists all over the world. We meet frequently,
Speaker 1: we talked regularly, we email, but we but I read everything, Tom,
Speaker 1: I mean you have to stay current. Is you're you're
Speaker 1: well informed at what's the group think right now? What's
Speaker 1: the group think that scares you right now? Well? I
Speaker 1: think you know, we were early last year on the
Speaker 1: idea that the you know, global economy had a recession
Speaker 1: in fifteen and so sixteen was a recovery year, and
Speaker 1: so we've been uh, we were early on that call
Speaker 1: we've gotten more. Uh. I would argue conviction in that
Speaker 1: call that it's more synchronous in nature now that we're
Speaker 1: getting not just right GDP growth, we're getting a little
Speaker 1: bit more inflation, that runaway inflation, and that really has
Speaker 1: given us confidence that nominal GDP you know, is now
Speaker 1: at a more sustainably higher level, which is critical in
Speaker 1: the world has overlevered. And so the risk is is
Speaker 1: that we have been right, uh, and that we now
Speaker 1: are you know, we're looking for the self affrica, you know,
Speaker 1: affirming data points. Okay, so we got to be very
Speaker 1: just cognizant that we don't overstay our welcome because markets,
Speaker 1: you know, eventually will have a tougher time when you
Speaker 1: when you look at what the group think is, how
Speaker 1: often do you step back and say they're right? I mean,
Speaker 1: there's a reason the group is thinking this way. I
Speaker 1: mean how much weight do you put on trying to
Speaker 1: be contrary or worry about what other people I think?
Speaker 1: You know, that's that's a great question, Michael. They Uh,
Speaker 1: I've learned. I've spent the last four years I've spent
Speaker 1: in our wealth management area. Prior to twenty years was
Speaker 1: in the institutional world, and the biggest advantage of being
Speaker 1: in that world was not being is easily distracted by
Speaker 1: the noise. So I've learned to kind of not get
Speaker 1: such an itchy trigger finger. When you know things are
Speaker 1: working and your call is right, you have to let
Speaker 1: things run a little bit. And quite frankly, I think
Speaker 1: the reason why a lot of institutional managers have had
Speaker 1: struggled the last seven or eight years is because they
Speaker 1: haven't been willing to stay with their investments, that their
Speaker 1: their thought process. They've been too willing to trade it
Speaker 1: to to kind of move in and out of things.
Speaker 1: And quite frankly, there's been some terrific, uh, you know,
Speaker 1: longer term themes in the last seven or eight years.
Speaker 1: If you, if you, if you could have captured it
Speaker 1: will defend for me the idea of buying hold. I'm
Speaker 1: sure you saw the Wall Street Journal story this week.
Speaker 1: This is the quants are taking over, and that's trade
Speaker 1: in and out as fast as you can. Well, I think,
Speaker 1: and I think they're in lies the opportunity. So the
Speaker 1: two advantages that the two I would argue advantages that
Speaker 1: are still out there right now are sort of liquidity
Speaker 1: and time, uh and and actually individual investors or wealth
Speaker 1: owners had those advantagers. We don't, you know, individuals don't
Speaker 1: need to perform every day or every month or even
Speaker 1: every year. And so the idea that buy and hold
Speaker 1: went out of style in sort of two thousand and
Speaker 1: two after the you know, tech crisis is classic behavioral
Speaker 1: economics one O one. Right. Everybody wanted to be buy
Speaker 1: and holding the nineties when it's exactly when you should
Speaker 1: have been thinking about, you know, maybe being a bit
Speaker 1: more tactical as we were going into a secular bear market.
Speaker 1: But of course now we're in a secular bowl market,
Speaker 1: and everybody wants to be a trader. And the reality
Speaker 1: is that this is a time time to be more
Speaker 1: of a buy and hold mentality, not not because the
Speaker 1: world's perfect place, but because the compound returns tax deferred
Speaker 1: is the best way to be. I'm putting his on
Speaker 1: on Twitter, and there's a massive global viral support for
Speaker 1: the pendeflex indexed expanding files lettercraft January to December index
Speaker 1: twelve pockets each sixteen dollars. It's no it comes in.
Speaker 1: It's called Wilson red at Staples, and it was Michael
Speaker 1: Wilson with and we will continue with a smart discussion
Speaker 1: on equity uh markets as well. Michael McKee and Tom Keane.
Speaker 1: Michael McKee and for David Girl, where's David today? Michael,
Speaker 1: He's just an assignment as he's on assignment. I always
Speaker 1: have fascinated by that Tiffany news and um, you live
Speaker 1: right by there. You're not chatting? Yeah, I know, but
Speaker 1: I went through. I went through the entire press release,
Speaker 1: and thank you Tiffany's for writing a press release in English.
Speaker 1: It's really quite good their earnings report. And I believe
Speaker 1: I saw no mention of the Trump effect. I was
Speaker 1: just gonna do. I'm curious because, of course, for those
Speaker 1: of you who don't live in New York, Trump Tower
Speaker 1: is literally next door to Tiffany's and you can't get near.
Speaker 1: Um the place. It's better than it was. It's it's
Speaker 1: better than it was. But I don't believe I saw
Speaker 1: like a single line com sales at Fifth Avenue or
Speaker 1: or you know, lower etcetera. But but never those is there.
Speaker 1: And then Google on the other side. Impact, Yeah, a
Speaker 1: great impact at the Keene household. Michael Wilson with us
Speaker 1: with Morgan Stanley on the equity markets, how do you
Speaker 1: advise and not about individual stocks, but you're with with
Speaker 1: your wealth management people or even institutional and they go, look,
Speaker 1: I just need to own four stocks Apple, Amazon, and
Speaker 1: named two others. You know, this isn't in Graham, Dodd
Speaker 1: and Coddle, is it? I mean, Amazon is not in Graham,
Speaker 1: is it? Yeah? I don't think it would qualify as
Speaker 1: a value stocked the way, But is it a value
Speaker 1: given the growth that's out there? Well, Like, I'm not
Speaker 1: gonna comment on Amazon specifically, but I mean I would
Speaker 1: I would say that the secular growth stocks that have
Speaker 1: done so well, there's a whole cohort of them. Uh.
Speaker 1: You know, look, this is the world that we are in.
Speaker 1: In a world that's been starred for growth, the market
Speaker 1: has been up very fast growing companies that can grow
Speaker 1: organically with or without an economic backdrop that's conducive for growth.
Speaker 1: And then going back to we were talking about last
Speaker 1: hour and the dividend pairs, right, So that's the barbell
Speaker 1: that's been working. Uh. And the reality though, is that
Speaker 1: the breath in the market has been much better than
Speaker 1: people might think. Okay, to go back, Mike on television,
Speaker 1: we said Verizon a twelve or thirteen times earnings Colgate
Speaker 1: Palmato the nifty fifty six times earnings, I'm gonna center
Speaker 1: tendency Amazon at a hundred and sixty times earnings one zero. Wow. Well, uh,
Speaker 1: it has been a good run for Jeff Bezos and company. Um,
Speaker 1: but you gotta wonder how your suggestion, Michael, that uh,
Speaker 1: with nominal growth picking up and still room to run
Speaker 1: in terms of multiples, Um, we should see more breath
Speaker 1: developed that we've had. Yeah, but I want to go
Speaker 1: back to that because the breath has actually been quite good.
Speaker 1: It's just that the the you know, the leaders have
Speaker 1: been extraordinary. Uh. And let let's go back to like
Speaker 1: the New York Marathon where you've got four guys from verybody,
Speaker 1: but you still ran a good races. Okay, you know,
Speaker 1: but you know, and that's what kind of what's going
Speaker 1: on is that there are a lot of stocks running
Speaker 1: a good race. There are some stocks that are running
Speaker 1: a ridiculous race. Uh. And they have they have goosed
Speaker 1: the returns. But if you took those stocks out, the
Speaker 1: returns this year would be quite good for the for
Speaker 1: the overall market. And and I also go back to
Speaker 1: the breath of the broader equity market, not just in
Speaker 1: the US but globally. That that the signal from the
Speaker 1: global equity market is I think confirmation of this idea
Speaker 1: that this is a global economic and earnings recovery. It's
Speaker 1: not about the four stocks. This is not let's put
Speaker 1: it that way, whether they're really were only the t
Speaker 1: MT area that was working and everything else was going down,
Speaker 1: or two thousand fifteen when it was extraordinarily narrow and
Speaker 1: there was an outright recession in the old economy. Let's
Speaker 1: talk about two thousand and sixteen, just real quick, um,
Speaker 1: this is you know, this is what happens when we
Speaker 1: come off the recession. Those stocks that we were just
Speaker 1: mentioning the fast growers, uh, they underperformed significantly, and the
Speaker 1: value cyclical areas like financials, industrials, materials really outperformed. We
Speaker 1: think there's another leg of that probably in the second
Speaker 1: half of this year, as people get comfortable, particularly fixed
Speaker 1: income investors, get comfortable that growth is not rolling over,
Speaker 1: that it's actually maybe even accelerating again in the US.
Speaker 1: And then do you see age spots start to develop
Speaker 1: or is it too hard to know given the uncertainty
Speaker 1: with what's happening with fiscal policy in the US and
Speaker 1: monetary policy in Europe. Well, I think the things that
Speaker 1: we were looking for to tell us that we're getting closed,
Speaker 1: it's getting more dangerous, right, would be credit spreads is
Speaker 1: probably a good thing to watch. The YEO curve, as
Speaker 1: we mentioned earlier, tom is not flat yet. It's still
Speaker 1: got you know, eighty basis ninety basis points of steepness
Speaker 1: to it. And that's okay, that's a decent environment. Go
Speaker 1: back in time and look at look at the periods
Speaker 1: when you had about ninety basis points after a big flattening.
Speaker 1: That was actually a pretty good time down stocks. Michael Wilson,
Speaker 1: thank you for joining US Today Television Radio. He is
Speaker 1: chief equity strategist from Morgan Stanley with decades at the firm,
Speaker 1: taking a more fundamental view of these equity markets. Surely
Speaker 1: one of our most valuable guests. Stanley Collendar of Corvis
Speaker 1: MSL Group on the Budget, on his expertise of what
Speaker 1: the hill actually does with your tax dollars. Stan Collendar,
Speaker 1: Michael McKee wants to dive into the budget, but I've
Speaker 1: got to ask about CBO. I keep refreshing CBO waiting
Speaker 1: for that scoring which we will se today. Do you
Speaker 1: have a guestimate of when we'll see the actual healthcare
Speaker 1: scoring by CBO? My guess is later this afternoon, Tom,
Speaker 1: I would stop refreshing for a couple of hours. I
Speaker 1: don't want to jump in here and sound like an expert,
Speaker 1: but you but I will know because the CBO actually
Speaker 1: said they will put it out this afternoon. Blog um,
Speaker 1: they are going to release it in the afternoon. It
Speaker 1: says it doesn't say what didn't I didn't. I just
Speaker 1: say that, Yeah, that's okay, that's why we pay you
Speaker 1: Can I go? Should I just go home? Why you can?
Speaker 1: I just want to leave now and let Colin post
Speaker 1: the show. Stan. What is the scoring actually gonna say?
Speaker 1: What are we gonna see? Well, look, I don't I
Speaker 1: didn't ask, and I don't know precisely what they're gonna say.
Speaker 1: It's going to be an update of the scoring they
Speaker 1: did of the previous version, and there are two things
Speaker 1: to watch. There'll be two numbers that are important. One
Speaker 1: is the impact on the deficit I'll talk about in
Speaker 1: the second, and the second is how many people will
Speaker 1: be thrown off health will lose their health care coverage
Speaker 1: because of this. UM. The first number, the deficit number,
Speaker 1: is important because if it doesn't reduce the deficit by
Speaker 1: two billion dollars, Uh, then it won't comply with the
Speaker 1: reconciliation instructions in the House will have to take another
Speaker 1: vote on this, which it probably can't do and pass.
Speaker 1: But there's that's not gonna happen, right. I mean the
Speaker 1: last scoring UM found it would save a hundred and
Speaker 1: fifty billions, So I mean they got at eight to
Speaker 1: play with. UM. Yeah, I look, they're they're they're they're close. Uh,
Speaker 1: but we don't know what the impact of the changes
Speaker 1: that the House made in the second version. So this
Speaker 1: is this is the big, the big thing that everyone's
Speaker 1: holding their breath on because the House won't be able
Speaker 1: to repass this the second time. But political number that's
Speaker 1: going to be more important is the second one, and
Speaker 1: that's that's the one. How many people are likely to
Speaker 1: lose their healthcare coverage because of this change from Obamacare. Uh.
Speaker 1: If it's if it's around the twenty or twenty four
Speaker 1: billion men that we had the first time, Uh, it's
Speaker 1: going to be a real political problem and it's going
Speaker 1: to make life very very difficult for the Senate and
Speaker 1: probably makes passage of anything, any kind of healthcare reform
Speaker 1: this year much more problematic. As long as we're in healthcare,
Speaker 1: let's stay on that subject for a moment and ask
Speaker 1: where the Senate is at this point. I mean, they
Speaker 1: basically said, forget what the House did, We're going to
Speaker 1: write our own bill. Um, where are they Basically nowhere?
Speaker 1: They're there, you know, Mike, after it's been eight years
Speaker 1: that the Republicans were screaming about Obamacare, but they didn't
Speaker 1: make any serious effort during that time to come up
Speaker 1: with an alternative. They're just dealing with that now. Uh,
Speaker 1: the Senate has got a gang of anywhere from thirteen
Speaker 1: to twenty members, which is a fifth of the Senate
Speaker 1: at any one time, trying to trying to explain to
Speaker 1: uh Mr McConnell, the Senate majority leader, what they want
Speaker 1: and what they need in order to in order to
Speaker 1: be able to vote for something. So these are just
Speaker 1: preliminary discussions that my guess would be and it's just
Speaker 1: a guess that if you see anything had come out
Speaker 1: of the Senate, it won't be until after Labor Day.
Speaker 1: Send condor were gonna continue this discussion here with Ah,
Speaker 1: it's a double I guess it's scathing squared the calendar
Speaker 1: with a scathing note in Forbes, followed by Laurence Summers,
Speaker 1: a former Secretary of Treasury, with an equally terse note
Speaker 1: in The Washington Post. We'll dive into the actual budget
Speaker 1: debate of yesterday and actually to move the story forward
Speaker 1: to where Congress may go again with your tax at dollars.
Speaker 1: Michael McKee and Tom you know I'm gonna ask a
Speaker 1: question here of stand calendar and get out of the way,
Speaker 1: because McKeon knows a lot more about this than I do.
Speaker 1: Stand cold three growth assumptions. Are you kidding me? Good? Look,
Speaker 1: I didn't say it. This is what the administration is
Speaker 1: saying is it's gonna happen, but they don't say exactly
Speaker 1: how it's gonna happen. It's more wishful thinking. And it's
Speaker 1: it's at least a full point Mike, correct me if
Speaker 1: I'm wrong. It's at least a full point over what
Speaker 1: the Congressional Budget Offices is likely to happen over the
Speaker 1: next decade and what the Federal Reserve says it is
Speaker 1: going to happen over the next decade. Um And and
Speaker 1: Mick Mulveny onb director yesterday said if he doesn't get
Speaker 1: three gross, he can't balance the budget. I guess that
Speaker 1: means we're going to have a much bigger deficit than
Speaker 1: anyone any anyone's projecting right now. Uh, let's unpack a
Speaker 1: little bit of this. Uh. The the interesting thing, you
Speaker 1: and I are old enough. Uh. We won't say how
Speaker 1: old we are. But I don't remember a presidential budget
Speaker 1: being delivered to Capitol Hill that wasn't considered dead on arrival.
Speaker 1: It's more a political statement about what they want um.
Speaker 1: And so I don't quite get the fixation with the
Speaker 1: balanced budget in the sense that mulveney is not a
Speaker 1: dumb guy and he has to know that this thing
Speaker 1: is is a jury rigged um kind of joke in
Speaker 1: terms of some of the things the accounting gimmicks they use,
Speaker 1: which a lot of people, including Bloomberg News have written about.
Speaker 1: So why do they do that? I mean, why, why,
Speaker 1: what's the motivation? Why don't they just do a realistic budget? Um? Look,
Speaker 1: the last realistic budget I can remember was Gerald Ford
Speaker 1: when he was predicting that the economy was gonna GDP
Speaker 1: was not going to grow, and he got widely criticized
Speaker 1: for it for saying, how can you predict it it's
Speaker 1: not going to grow and not come up with a
Speaker 1: plan to make it grow. Um. The President promised to
Speaker 1: balance budget during the campaign. He promised economic growth is
Speaker 1: three eight four. I think at one point he said
Speaker 1: it could even be five. Um. So this is you
Speaker 1: got to look at this budget. You're right, it's a
Speaker 1: political statement. You got to look at what the administration
Speaker 1: yesterday did essentially as a Trump political rally. On paper,
Speaker 1: it's just a play to the base to say, see,
Speaker 1: we did what we're doing, what we told you we
Speaker 1: were going to do. I don't think anybody takes it seriously.
Speaker 1: I mean, what struck me about it is it's the
Speaker 1: President appointed a Tea Party congressman as omb director, and
Speaker 1: he got a Tea Party document. The real news here
Speaker 1: is that the people like mc mulvaney and and the
Speaker 1: Freedom Caucus believe that from it is too big. So
Speaker 1: the document says, here's what you do about it. You
Speaker 1: cut funding for everything and you make it go away. Yeah,
Speaker 1: except that the real news actually there are a couple
Speaker 1: of pieces of real news, But the real news is
Speaker 1: they predicted that they put out a Freedom Caucus budget
Speaker 1: that was widely and resoundingly and bipartisanly rejected yesterday. You
Speaker 1: even you even have senior Republicans in the Senate said,
Speaker 1: not gonna happen. We're not going to pay any attention
Speaker 1: to it. Let's move on. So, I mean, this was
Speaker 1: a pretty bad defeat yesterday, a failure for the Freedom
Speaker 1: Caucus budget. And for those who think that we've just
Speaker 1: got to get the government down into into miniscule levels
Speaker 1: and one you one percent growth rates and those types
Speaker 1: of things. Look, the second piece of news is that
Speaker 1: this is the first time in my memory and I
Speaker 1: will not give my age either, but it's at least
Speaker 1: forty years since I've been working on the budget, the
Speaker 1: first time that I can remember the president and not
Speaker 1: being in the country when his budget was revealed. Usually
Speaker 1: the president wants to have a press conference and take
Speaker 1: a victory lap for what what was proposed, and that
Speaker 1: didn't happen yesterday. And the third thing is this Treasury
Speaker 1: secretary was nowhere to be found on on this budget.
Speaker 1: Usually the Treasury secretary is part of the unveiling of
Speaker 1: the president's budgets because presumably taxes are a relatively big
Speaker 1: part of it. So it looks like this administration has
Speaker 1: has walked away from its own budget almost from the
Speaker 1: moment it was submitted. Okay, but that goes back to
Speaker 1: Mike's question, why did they do this budget? If the
Speaker 1: administration just walked away from it, I'm baffled. Well, they
Speaker 1: they did it just to put out of the equivalent
Speaker 1: of a campaign brochure. They'll point to it all. Has
Speaker 1: anyone ever done that before? Have you seen that in
Speaker 1: your what is it? Eighty year history in Washington? Dred
Speaker 1: and thirty two? But thank you? Um right? I used
Speaker 1: dynamic scoring for t come up with my age. Um, Look,
Speaker 1: every president's budget is at least partly a political statement. Uh,
Speaker 1: it's it's usually all a part political statement, part accounting
Speaker 1: document that is part governing document. This one is almost
Speaker 1: entirely political. I've seen that a lot, particularly two of
Speaker 1: the final budgets of the first budgets of presidents. Um.
Speaker 1: But it's unusual to get it's unusually get a political
Speaker 1: document given to a Congress of your own party that
Speaker 1: you expect to act on it. What's the why if
Speaker 1: we stay it's a political document? Why do it? It's
Speaker 1: for it's for re election purposes. It's to reassure the base. Um.
Speaker 1: It has very little to do with actually governing or
Speaker 1: expecting Congress is going to implement or adopt and implement
Speaker 1: what the president proposed. This is just the quickly equivalent
Speaker 1: of a political platform during the campaign. All Right, so
Speaker 1: you said, Um, we move on to what's next? So
Speaker 1: what is next? Does this have a negative effect on
Speaker 1: the effort to pass a two thousand eighteen budget resolution
Speaker 1: and therefore get tax reform. Well, the answer is yes, Um,
Speaker 1: it's it did two things. First of all, it created
Speaker 1: a big wedge between House Republicans basically the Freedom Caucus
Speaker 1: Fax and Seni Republicans who have already rejected the Freedom
Speaker 1: Caucus budget. Um. That's going to make it very difficult
Speaker 1: for the two sides of the House and Center Republicans
Speaker 1: to come up with a budget resolution this year. It
Speaker 1: was always going to be difficult, but this made it
Speaker 1: more difficult yesterday, Mike, as you just suggested, if there's
Speaker 1: no budget resolution, there won't be any tax reform this
Speaker 1: year because they're going to need a budget resolution to
Speaker 1: do reconciliation. There's that word again, that would prevent a
Speaker 1: filibuster from being used on tax reform in the Senate.
Speaker 1: It also sets up the likelihood of a government shutdown
Speaker 1: in October. Okay, Stan Colinder, let's leave it there. Thank
Speaker 1: you so much again. Runch you by Bank of America,
Speaker 1: Mary Lynch. With virtual reality, virtually everything will change. Discover
Speaker 1: opportunities in a transforming world via a mL dot Com
Speaker 1: slash VR Mary Lynch, Pierce, Fenner and Smith Incorporated. There's
Speaker 1: something new from Bloomberg. It's called lens. Starting right now,
Speaker 1: you can use the Bloomberg Io s app off your
Speaker 1: iPhone or iPad, or our new Google Chrome extension to
Speaker 1: read any news story on any website, scan it, and
Speaker 1: then instantly see the news stories relevant market data from Bloomberg.
Speaker 1: In addition, see all the bios of the key people
Speaker 1: mentioned in the story. It's called lens, and it is
Speaker 1: just that, a lens into the people and the data
Speaker 1: of any story you may be reading. Again, Lens brings
Speaker 1: you the power of Bloomberg's news and data. Download or
Speaker 1: io s app or search for the Bloomberg extension at
Speaker 1: the Chrome Store to try lens out. Learn more at
Speaker 1: Bloomberg dot com slash lens. A few minutes this morning
Speaker 1: with Francisco blanche A, Bank of America, Mara lench here
Speaker 1: on Hyde to Carbon's right. Now, Okay, Vienna, there's vienna,
Speaker 1: there's Vienna one, Vienna to Vienna eight. How how important
Speaker 1: is this vienna versus the last vienna or the next vienna? Well, Tom,
Speaker 1: I think I think it's actually a lot less important
Speaker 1: uh than previous meetings, because it's been telegraphed now for
Speaker 1: for several weeks and uh and and I think the
Speaker 1: outcome is pretty clear. We're gonna get either a six
Speaker 1: or a nine month extension of the deal, which in
Speaker 1: my mind is is uh the market the the market
Speaker 1: upo markets expection. So so not change there. Your range
Speaker 1: bound downside risks gloom and doom are strong dollars, shell
Speaker 1: technology and another price war. Let's go to the drama.
Speaker 1: Are we gonna have a price for I don't think
Speaker 1: Open can afford the price war, Tom, I think if
Speaker 1: Ope goes for another price war, uh, their budgetary position,
Speaker 1: whether it's Suthy or others, is gonna be is gonna
Speaker 1: be severely impaired. So I don't think they can really
Speaker 1: afford it. Um. And equally, I don't think they can
Speaker 1: really afford another big cut because uh, it will force
Speaker 1: them to a permanent markets shared lass, which will also
Speaker 1: impair them um fiscally over over a three to five
Speaker 1: year windows. So their best course of action is to
Speaker 1: stay where they are. We got West Texas this morning, Brent. So,
Speaker 1: has this deal sort of created a balance in the
Speaker 1: oil markets just enough to bring enough fracking in to
Speaker 1: keep prices stable, but not enough to bring enough to
Speaker 1: bring enough production in. The prices are going to fall again? Well,
Speaker 1: I think that's that's kind of apex uh target if
Speaker 1: you like UM and I think I think what we
Speaker 1: are likely to see is uh spot prices continue to rise,
Speaker 1: and we think maybe we'll be close to sixty barrel
Speaker 1: by the summer for Brent. So we look at another
Speaker 1: five six dollar uplifting prices, but we think that the
Speaker 1: longer day, the prices prices for oil in twenty nine,
Speaker 1: uh and even December eighteen will keep moving lower as
Speaker 1: more hedging activity comes into a market. It uh So, yeah,
Speaker 1: we're moving into a more fun equilibrium, I would say,
Speaker 1: And and part of it is really uh this whole
Speaker 1: inventory normalization process to create a buffer between supply and
Speaker 1: demand right, I mean, which which we haven't had for
Speaker 1: for the last year. Thank you for coming in. Thank you.
Speaker 1: We got leave it. There's just too short. Can you
Speaker 1: come back for a longer time? Seven blocks to three hours?
Speaker 1: Bank Bank of American Merrill enjoys interesting in particularly with
Speaker 1: a move over from Hydercarbon's into the other UH other
Speaker 1: parts of commodities as well. The lady from William and Mary,
Speaker 1: Mary Joe White, with an esteemed career in law, was
Speaker 1: selected to take over UH the herding of cats at
Speaker 1: the Securities and Exchange Commission. She did that for call
Speaker 1: it four years. She's the thirty first chair of the
Speaker 1: Securities and Exchange Commission. Attorney why joins us Chairman. Wonderful
Speaker 1: to speak to you UH this morning when you were
Speaker 1: making light talk about the SEC. Now, what is your
Speaker 1: biggest worry? The first great to be with you. I mean,
Speaker 1: I think the biggest worry from the well for the
Speaker 1: SEC's perspective of getting its job done is what happens
Speaker 1: to it in the way of resources. I mean, you
Speaker 1: know clearly an issue that you know, one you know
Speaker 1: it must continue to worry about is to make sure
Speaker 1: that the systems that underlie our electronic markets, uh, you know,
Speaker 1: really work seamlessly. So I spent a lot of time
Speaker 1: doing that, uh, making some changes, making some enhancement when
Speaker 1: I was a chair. One of the issues, and we've
Speaker 1: seen it within our Bloomberg reporting is the budget. I
Speaker 1: guess CBO is going to come out with healthcare analysis
Speaker 1: today and the President dropped a budget. I saw one
Speaker 1: Democrats sunder who took a photo for Twitter of the
Speaker 1: new budget in the waste basket. How is the budget
Speaker 1: of your SEC? Did you leave the SEC with a
Speaker 1: depleted organization? Well, the SEC, I think was comparatively treated
Speaker 1: quite well by the Congress, the appropriators, but you know,
Speaker 1: like I think most of the financial regulators uh that
Speaker 1: aren't self funded, unlike the FED and the banking regulators
Speaker 1: which are self funded, really significantly under resource for the
Speaker 1: really very vast array of responsibilities that Congress has given
Speaker 1: the SEC. So you know, we were in comparatively good
Speaker 1: shape when I left, but still significantly under resourced. When
Speaker 1: I look at what you do, so many people look
Speaker 1: at the SEC is the police officer of bad people
Speaker 1: within the financial system of the United States, And the
Speaker 1: considered opinion is if the bad people are bad they're
Speaker 1: gonna be bad, They're gonna do bad things, and there's
Speaker 1: nothing Mary Joe White or Arthur Levitt or anybody else
Speaker 1: is going to do about it. What did you learn
Speaker 1: about going after bad people running the SEC? Well, of
Speaker 1: course I should have been in that business before his
Speaker 1: U S attorney as well, and I had the you know,
Speaker 1: the criminal powers. I mean, look, I mean the SEC
Speaker 1: is you know, Wall Street's main cop, uh, and it
Speaker 1: needs to be a very strong cop. That doesn't mean
Speaker 1: you're gonna catch you know, every bad guy, but basically
Speaker 1: the fairness of whet of the most reliable, you know,
Speaker 1: strongest markets in the world. Uh, that goes away if
Speaker 1: you're not sufficiently policing and going after the bad guys.
Speaker 1: And so one of the things that the SEC has
Speaker 1: to be sure it's doing is sort of covering the
Speaker 1: range of market participants and not only going after punishing
Speaker 1: the wrong door that you're looking at at the moment,
Speaker 1: but trying to send a deterrent message more broadly to
Speaker 1: the marketplace, so you know that others will pause and
Speaker 1: not do the wrong thing when they see you know,
Speaker 1: how hard the SEC or the Department of Justice in
Speaker 1: some cases comes comes down on them if you're just
Speaker 1: joining us SOS Mary Joe White with as the former
Speaker 1: chairman and recent chairman of Securities and Exchange UH Commission
Speaker 1: A chairman. When when I when I look at the
Speaker 1: SEC today and when I look at the budgets and
Speaker 1: the Trump administration, can you find a distinction between a
Speaker 1: Trump SEC and previous sec s? I don't want to
Speaker 1: get into you know the class that you are, and
Speaker 1: you're not gonna say bad things about good people under
Speaker 1: public service now. But is there a new SEC it's
Speaker 1: different than what you've seen before. Well, again, I do
Speaker 1: worry about the budget impacting the agency's ability to do
Speaker 1: its job compared to how we were able to do
Speaker 1: the job you know when I was there. Uh. In
Speaker 1: other words, better resource, still not enough. You know. I
Speaker 1: think very highly of Jake Clayton, my successor, who just
Speaker 1: took office a couple of weeks ago. Uh So I
Speaker 1: have a lot of confidence in him, a lot of
Speaker 1: confidence in the SEC. Professional. Can you push you? Can
Speaker 1: you push back against Pennsylvania Avenue? Absolutely? I mean the
Speaker 1: SEC is an independent agency now. Sometimes it's easier said
Speaker 1: than done, but it means that you know, you do
Speaker 1: not take direction from Pennsylvania Avenue or anybody else. Basically,
Speaker 1: I mean, you're you obviously, you know you have a
Speaker 1: different priorities depending on particularly the Chairman's point of view,
Speaker 1: and that's perfectly appropriate. But no, I think j will
Speaker 1: be a very independent SEC chair and I think he's
Speaker 1: very focused on, you know, improving our our markets and
Speaker 1: in particular our public markets. You know, something we've talked
Speaker 1: to Chairman love It about too many times is the
Speaker 1: basic tone of regulation in this strange word deregulation. Which
Speaker 1: way should the SEC turn? I think it has to
Speaker 1: be smart regulation. I mean, I think not deregulation connotes
Speaker 1: too much, you know, kind of the wild West. You
Speaker 1: do not want that in the markets expected for investors.
Speaker 1: We know Arthur Lovett doesn't want that. No one ought
Speaker 1: to want it, uh in order to maintain the strength
Speaker 1: of our capital markets. But you do need to not overregulate.
Speaker 1: You need to try as hard as you can not
Speaker 1: to make their regulations so complex that they really either
Speaker 1: can't be complied with or that's all that issuers are
Speaker 1: really you know, really doing, as opposed to focusing on
Speaker 1: you know, growing their business and so forth. So it's
Speaker 1: a balance. But I think I think the regulation is
Speaker 1: I picked that over deregulation, as those terms are understood.
Speaker 1: There has been criticism, and of course we always turn
Speaker 1: to the senator from the Commonwealth of Massachusetts who really
Speaker 1: went after you at times, of course, be Elizabeth Warren.
Speaker 1: How did you handle the criticisms of an anti Wall
Speaker 1: Street or doubting Wall Street left? Where do they fit
Speaker 1: into the dialogue of the future of Wall Street and
Speaker 1: Main Street America? Like you? You basically, I mean criticism
Speaker 1: comes with the territory and the sec in particular, not
Speaker 1: only overseas Wall Street, but with a lot of politically
Speaker 1: charged you know, issues, uh, as well, and so you
Speaker 1: expect the criticism. You listen to it. I think you
Speaker 1: want to be very constructive no matter where it's coming from.
Speaker 1: Listen to it, see if you can learn something from it,
Speaker 1: do something differently or not, as the case may be.
Speaker 1: I don't think it's healthy, uh, to have in effect
Speaker 1: a class warfare against Wall Street. I mean, you look
Speaker 1: at the activities, you look at the regulation, and you
Speaker 1: regulate strongly, and you go after anybody that commits wrongdoing,
Speaker 1: whether on Wall Street or Main Street or wherever. But
Speaker 1: you know to to to vilify Wall Street. I think
Speaker 1: it's a big mistake within that is our nostalgic memory.
Speaker 1: One final question, if I could marry Joe White, and
Speaker 1: that is the idea of glass Stiegel. I find almost
Speaker 1: comical how small glass Stiegel was as part of thirty
Speaker 1: three and thirty four legislation. I believe folks it was
Speaker 1: four pages. That may be off a few. Let's bring
Speaker 1: back glass Stiegel. What's the Mary Joe White reality? I
Speaker 1: think it means very different things to very different people.
Speaker 1: Thank you, that would be the right answer. Well, what
Speaker 1: are we going to see? I mean, I mean it
Speaker 1: doesn't go away. I mean, you know, Glass Steagle, as
Speaker 1: some have in mind for it would basically, you know,
Speaker 1: have banks be the kind of the old fashioned uh
Speaker 1: you know, outdated mode and as I would see that,
Speaker 1: you know, basically handling deposits. That's a very important function
Speaker 1: obviously uh highly regulated to to keep them in their lanes.
Speaker 1: Others would see really a separation of functions where you
Speaker 1: let the non depository part of the function, um, you know,
Speaker 1: have a fair amount of a free reign, you know,
Speaker 1: to to basically you know, grow their business and invest
Speaker 1: in ways they can't do now. So it's not a panacea,
Speaker 1: you know, I think we're beyond you know, that kind
Speaker 1: of simplistic decision, Uh, legislation. I don't think it would
Speaker 1: be a simplistic piece of legislation happened. One final question,
Speaker 1: are you enjoying private practice or is it back to
Speaker 1: the torture or of law. I love private I love
Speaker 1: public service as well. But I'm I'm back at the
Speaker 1: device at Plimpton for the sixth time in my career,
Speaker 1: practicing law flat out and enjoying it a great deal.
Speaker 1: Her billibile hour, Folks, is like a single pitch from
Speaker 1: a Yankee starter. I believe he would say, Mary Joe,
Speaker 1: I thank you so much, greatly, greatly appreciated. She's a
Speaker 1: former chairwoman of the Securities and Exchanged Commission, thirty first
Speaker 1: chair of the Securities in Exchange a commission. She is uh,
Speaker 1: absolutely original. President Trump put out his two thousand eighteen
Speaker 1: proposed budget yesterday. Here's some of the things that they proposed,
Speaker 1: cutting uh twelve point four billion dollars from health and
Speaker 1: human services, National Institutes of Health, five point seven billion
Speaker 1: dollar cut, including a billion cut from the National Cancer Institute,
Speaker 1: one point three billion cut for the Centers for Disease
Speaker 1: Control and Prevention, Food and Drug Administration would lose eight
Speaker 1: hundred and fifty four million dollars over ten years. Representative
Speaker 1: Tom Cole is a Republican from Oklahoma. He is a
Speaker 1: member of the House Budget Committee, and he has been
Speaker 1: a defender of in A H and other health programs
Speaker 1: in the budget process in the US Congress. He joins
Speaker 1: US now Representative Coal. This has to be a disappointment
Speaker 1: to you, I know, even though you'd like to support
Speaker 1: a Republican budget, a disappointment to you in terms of
Speaker 1: the meat acts they want to take to spending on healthcare,
Speaker 1: particularly prevention and disease research, Well, it's a it's a
Speaker 1: mixed bag, to be fair. I mean, this is the
Speaker 1: first presidential budget we've seen in eight years that actually
Speaker 1: comes into balance. So I like that, and as a
Speaker 1: defense fawk, honestly, I favor what the President is trying
Speaker 1: to do there. In terms of the nih however, I
Speaker 1: think honestly they're making a mistake. UH National Institute of
Speaker 1: Health Center for Disease Control are critical and defending the
Speaker 1: country every bit as much as the Pentagon is. Quite frankly,
Speaker 1: you're much more likely to die in a pandemic than
Speaker 1: a terrorist attack. So having a biomedical research infrastructure that
Speaker 1: not only protects Americans, but over time also brings down
Speaker 1: the cost of healthcare. I mean, this country spends, for instance,
Speaker 1: about two hundred and fifty nine billion dollars a year
Speaker 1: looking after patients with Alzheimer's and dementia, and uh, you
Speaker 1: know it's gonna move up as people continue to live
Speaker 1: longer and longer periods of time, and you've got to
Speaker 1: do something to mitigate that cost. And the best Alzheimer's
Speaker 1: research and the world's going on at the National Institute
Speaker 1: of Health. So again, I think you don't want to
Speaker 1: be penny wise and pound foolish. And when it comes
Speaker 1: to investment at the National Institute of Health and Center
Speaker 1: for Disease Control, those are critical investments. Good morning, call
Speaker 1: excuse me here, I was just researching someone. You know,
Speaker 1: will I believe Frank Keating's name is being tossed around
Speaker 1: to run a beleaguered federal Bureau of Investigation. You work
Speaker 1: for Governor Keating, his secretary of State in Oklahoma. How
Speaker 1: wise would President Trump me and choosing Frank Keating to
Speaker 1: be the next Director of the FBI extraordinarily wise, Frank
Speaker 1: Keating is an exceptional public servant. He's a former FBI
Speaker 1: agent himself. He was a special he was a U
Speaker 1: S attorney. He was also the number three person Associate
Speaker 1: Attorney General in the Reagan Justice Department. So his experience
Speaker 1: of law enforcement background is really quite remarkable. He's a
Speaker 1: person of unquestionable integrity. What was it like? What was
Speaker 1: it like working for him day today? We know Frank
Speaker 1: Keating will that's job of my life? Tell you truth?
Speaker 1: Come on, come on now now, I'm I don't care you.
Speaker 1: I mean, you know I used to tell him. I
Speaker 1: actually saw him last week. We stay in very close contact.
Speaker 1: But for six years, I talk to him every day,
Speaker 1: and except for the two weeks around the Oklahoma City bombing,
Speaker 1: I laughed every time I talk to He's witty, he's quick,
Speaker 1: he's funny. Uh he's in private what he seems to
Speaker 1: be in public. Uh. You know, I just had wonderful,
Speaker 1: wonderful relationship with him and tremendous confidence in him. And
Speaker 1: he really dramatically moved the state forward. And he showed
Speaker 1: during the Oklahoma City bombing how he could perform on
Speaker 1: a national stage. I mean he is unbelievable. Uh, and Frankly,
Speaker 1: he's married to somebody equally unbelievable. And Cathy Keating, who
Speaker 1: was a remarkable figure in her own right. Uh. There
Speaker 1: is a headline crossing right now that the Trump administration,
Speaker 1: according to c an n, hitting the reset button in
Speaker 1: the search for an FBI director because they were looking No,
Speaker 1: I think they were looking at Joe Lieberman and a
Speaker 1: lot of blowback from uh members of the Senate, a
Speaker 1: Democratic party against him. And so maybe frank Keating's will
Speaker 1: come up. Uh. We can talk about that forever. But
Speaker 1: since we only have a few more minutes with you,
Speaker 1: let me quickly ask you about what we're expecting from
Speaker 1: the CBO this afternoon. I don't think you'll have to revote.
Speaker 1: I would be surprised. I think deficit reduction. But if
Speaker 1: if you see an increase in the number of people uninsured,
Speaker 1: how big a weight is that going to be around
Speaker 1: Republicans next when they run for re election next Well,
Speaker 1: it depends on Frankly, why they're I mean, if you
Speaker 1: are not in the insurance market because you choose not
Speaker 1: to be. And that was sort of lost in the
Speaker 1: discussion over the last CBO. What they're basically saying, if
Speaker 1: you remove the mandate, a lot of people won't buy
Speaker 1: this stuff. Well, you know that should tell you something
Speaker 1: right there. I mean they've even had people on Medicaid
Speaker 1: getting out of Medicaid, which cost you essentially nothing. So, uh,
Speaker 1: you know, I think it ought to be part of
Speaker 1: the discussion, but it shouldn't be decisive. And it's again,
Speaker 1: CBO numbers are It's a quirky system they have and
Speaker 1: they're not always reliable. As a matter of fact that
Speaker 1: they quite often aren't. But you know, they're the best
Speaker 1: we can do. But I would never take them as
Speaker 1: stuff Congress when we need to continue this discussion, we
Speaker 1: would hope to do it, and she did with Michael McKee,
Speaker 1: David Gura, myself, Tom cole is from Oklahoma. Thank you
Speaker 1: particularly for those comments on the former governor Frank Keating
Speaker 1: as well. Thanks for listening to the Bloomberg Surveillance podcast.
Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom Keene.
Speaker 1: David Gura is at David Gura. Before the podcast, you
Speaker 1: can always catch us worldwide I'm Bloomberg Radio Runch You
Speaker 1: by Bank of America Mary Lynch. With virtual reality, virtually
Speaker 1: everything will change. Discover opportunities in a transforming world. B
Speaker 1: of A, m L dot Com slash v R, Mary Lynch, Pierce,
Speaker 1: Fenner and Smith, Incorporated,