WEBVTT - Surveillance: The Pessimism Is Overdone, Normand Says 0:00:00.080 --> 0:00:12.960 Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Ley. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:32.680 Bloomberg dot Com, and of course on the Bloomberg. John 0:00:32.680 --> 0:00:35.640 Norman with US so I shall introduced him formally JP Morgan, 0:00:35.720 --> 0:00:38.520 head of Effets and International Right Strategy. Let's talk about 0:00:38.560 --> 0:00:42.480 these markets, John, A vicious breakdown in sentiment, and I'm 0:00:42.479 --> 0:00:45.519 trying to understand what's behind it. What's behind it? It's 0:00:45.560 --> 0:00:49.760 a few things. It's, uh, the macroeconomic data continuing to 0:00:49.920 --> 0:00:52.400 remain weak globally, even though they're not so weak in 0:00:52.400 --> 0:00:55.000 the US. It's the messaging from the feed that they 0:00:55.080 --> 0:00:57.160 could be moving to restrictive over the next year. And 0:00:57.200 --> 0:00:59.840 it's the very near term focus on on Q three 0:00:59.840 --> 0:01:02.880 earnings and and this guidance the corporates are giving about 0:01:02.880 --> 0:01:04.600 the impact of tariffs. So it's it's just kind of 0:01:04.640 --> 0:01:07.520 a very unfavorable confluence of events right now. You use 0:01:07.640 --> 0:01:11.120 the word globally. Um, that's been the story through so 0:01:11.160 --> 0:01:14.280 far and for much of the year. US equities, US markets, 0:01:14.360 --> 0:01:17.800 US risk really hold up against that that's changed over 0:01:17.800 --> 0:01:19.920 the last couple of months. Why it's changed, I think 0:01:19.959 --> 0:01:23.160 because the earnings guidance is becoming more negative, and so 0:01:23.480 --> 0:01:26.240 because markets are always going to respond to to catalysts, 0:01:26.240 --> 0:01:28.880 you're you're finally getting something a little more concrete to 0:01:28.959 --> 0:01:32.600 pull down earnings expectations in the US. I don't think 0:01:32.640 --> 0:01:36.160 this is the definitive turning point lower in in US 0:01:36.200 --> 0:01:38.600 equities because I think what we're adjusting to is a 0:01:38.680 --> 0:01:42.160 much more normal earnings environment of nineteen, where earnings growth 0:01:42.240 --> 0:01:44.959 might be nine percent in stead of we've seen this year. 0:01:45.120 --> 0:01:47.000 And if you have nine or ten percent earnings growth, 0:01:47.000 --> 0:01:49.680 if you have UH interest rates which are kind of 0:01:49.720 --> 0:01:52.800 at neutralish levels, I still think the path for equities 0:01:52.800 --> 0:01:56.040 over the next three, six, twelve months is higher. But 0:01:56.280 --> 0:01:57.800 the handwritings on the wall from the FED, you know, 0:01:57.840 --> 0:01:59.840 the cycle doesn't have a whole lot of longevity left 0:01:59.880 --> 0:02:02.400 to It's maybe got another one year of good growth 0:02:02.480 --> 0:02:06.120 and then a much more challenging year of in late nineteen. 0:02:06.200 --> 0:02:08.480 When do investors really starts to price in that much 0:02:08.520 --> 0:02:11.680 more challenging growth story of late well, I think when 0:02:11.680 --> 0:02:14.200 you look cross asset, the messages that investors have been 0:02:14.240 --> 0:02:17.079 doing this progressively all year, So you're right that it's 0:02:17.120 --> 0:02:20.360 US equities that have been the standout, our performer. But 0:02:20.639 --> 0:02:23.239 this is really the only asset class globally outside of 0:02:23.240 --> 0:02:26.040 maybe US HI yield, which has given you positive returns. 0:02:26.280 --> 0:02:28.520 So non US equities are down, whether you're looking at 0:02:28.600 --> 0:02:31.440 d M equities or EM equities. Credit in the US 0:02:31.600 --> 0:02:34.880 and Europe is down if you're focusing on on high grades. 0:02:34.919 --> 0:02:37.919 So I think there's been this progressive skittishness that's getting 0:02:37.960 --> 0:02:41.400 discounted across markets. It's a bit overdone to me, but 0:02:41.600 --> 0:02:43.760 I think there is a message there. People are quite nervous. 0:02:43.840 --> 0:02:46.520 So Morgan Stanley and Mike Wilson, the ce IO over there, 0:02:46.520 --> 0:02:51.360 has talked a lot about this rolling is this other bank? 0:02:51.560 --> 0:02:54.320 Is this other bank ran by a man called Mr Gorman? 0:02:54.360 --> 0:02:56.080 But we don't have to talk about that right now. 0:02:56.600 --> 0:02:58.919 The rolling bear market that they've used to sort of 0:02:59.000 --> 0:03:02.120 characterize and frame these markets, is that something that resonates 0:03:02.160 --> 0:03:04.959 with you. Then it resonates as a simple description of 0:03:05.000 --> 0:03:07.560 the price action. It doesn't resonate with me as the 0:03:07.600 --> 0:03:11.079 proper way to invest over the next six to twelve months, 0:03:11.160 --> 0:03:15.160 because to me, the idea that every market should be underperforming. 0:03:15.240 --> 0:03:17.880 Cash except for US equities is something you should really 0:03:17.880 --> 0:03:19.560 only see if you think you're going into a recession 0:03:19.560 --> 0:03:21.000 in the next twelve months. So I think there is 0:03:21.000 --> 0:03:23.440 actually scope for that that wrecking ball to kind of 0:03:23.480 --> 0:03:25.880 roll backwards a bit and give you some more positive 0:03:25.880 --> 0:03:29.120 returns on some non US equity markets. Most of that 0:03:29.200 --> 0:03:31.280 will be in particular e M s. It could be 0:03:31.360 --> 0:03:33.360 done some d MS later, So I think the pessimism 0:03:33.400 --> 0:03:36.000 is is basically over. Donna John, you write a very 0:03:36.080 --> 0:03:40.240 sophisticated research note for the less sophisticated like me. I'm 0:03:40.280 --> 0:03:43.040 in the double leverage all cash fund, But what is 0:03:43.080 --> 0:03:46.040 the allocation of stock, bond and equity. If you're on 0:03:46.120 --> 0:03:50.280 the efficient frontier, how efficiency is your efficiency right now? 0:03:50.720 --> 0:03:54.080 I think the allocation needs to be modestly overweight d 0:03:54.320 --> 0:03:57.080 M stocks versus d M bonds. I still think the 0:03:57.600 --> 0:04:01.720 scope for positive returns exist in a particular sector. It's 0:04:01.760 --> 0:04:04.880 too early towards the end of the business cycle to 0:04:04.920 --> 0:04:08.160 be this defensive. I think there are pockets of opportunity 0:04:08.360 --> 0:04:11.360 in certain emerging markets, mainly Latin America, over the next 0:04:11.400 --> 0:04:14.280 three months or or six months. So you know, if 0:04:14.360 --> 0:04:16.120 if you if you look at that kind of a ray, 0:04:16.240 --> 0:04:18.400 there's not a lot to choose from, but I think 0:04:18.400 --> 0:04:20.720 it's the broadest set than what you know returns over 0:04:20.760 --> 0:04:22.880 the past year have delivered. John and I hear interview 0:04:22.920 --> 0:04:27.080 after interview that all pros across all asset classes are 0:04:27.120 --> 0:04:32.080 watching high yield bonds is an indicator of where we're heading, 0:04:32.120 --> 0:04:36.479 and they're confident when they see that performance, that resiliency 0:04:36.520 --> 0:04:38.440 of the price of high yeld bonds. Do you share 0:04:38.480 --> 0:04:41.960 that idea, But I think that's too narrow a market 0:04:42.040 --> 0:04:44.839 depend one's cyclical view on. I think if you really 0:04:44.880 --> 0:04:47.680 want to get the message for what's going on cyclically, 0:04:47.720 --> 0:04:50.000 you should look at credit more broadly. And that's been 0:04:50.400 --> 0:04:54.280 worsening all year. Whether you look at price DOWNE yield up, 0:04:54.480 --> 0:04:58.680 price down ye the spreads wider. I mean that that 0:04:58.720 --> 0:05:03.600 tells you something about a slow erosion in in economic fundamentals. 0:05:03.640 --> 0:05:05.240 It's not the kind of thing that gives you a 0:05:05.279 --> 0:05:08.760 crash in equities this year. That's sustainable, but it is 0:05:09.040 --> 0:05:12.080 kind of a reminder that we're laid in the business cycle. 0:05:12.320 --> 0:05:14.719 John Norman, Late in the business cycle does not necessarily 0:05:14.760 --> 0:05:16.840 mean peak markets. Is that essentially what you're trying to 0:05:16.839 --> 0:05:20.839 communicate this morning exactly because there's a difference between um 0:05:21.440 --> 0:05:25.400 peak in return momentum and peak in prices, and markets 0:05:25.440 --> 0:05:28.480 are clearly peaking in price, and I think that's overdone. 0:05:28.720 --> 0:05:31.840 What they should be uh delivering is just much more 0:05:31.920 --> 0:05:35.360 moderate gains on on equities and to a lesser extent 0:05:35.360 --> 0:05:37.200 than some bits of credit. Like yell, I just want 0:05:37.200 --> 0:05:39.440 to get stuck into the intraday price action. I don't 0:05:39.480 --> 0:05:42.200 think you can read into any given day to sort 0:05:42.200 --> 0:05:44.440 of extrapolate out what may or may not happen in 0:05:44.440 --> 0:05:46.719 the future. But it's kind of interesting this morning, John, 0:05:46.720 --> 0:05:49.200 that you have equities in the United States really soft, 0:05:49.560 --> 0:05:52.040 and Europe holding up, and not just holding up with stocks, 0:05:52.040 --> 0:05:54.960 but holding up cross asset. Italian bonds are rallying, buttons 0:05:54.960 --> 0:05:57.479 aren't really doing anything at all, and European equities are 0:05:57.480 --> 0:06:00.560 wrapping quite a significant way against the backdrop what US 0:06:00.680 --> 0:06:02.640 is really unto performing. What do you make of that 0:06:02.720 --> 0:06:06.000 this morning? Uh? To me, it says that there's just 0:06:06.240 --> 0:06:09.080 already a decent amount of pessimism baked into Europe because 0:06:09.120 --> 0:06:11.120 you look at the macro data that came out of 0:06:11.120 --> 0:06:13.359 Europe today, these disappointing p m eyes. Normally that should 0:06:13.360 --> 0:06:17.359 have implied um wider spreads, much weaker equities and and 0:06:17.600 --> 0:06:19.840 a much weaker currency. All you're getting is the weaker currency. 0:06:19.880 --> 0:06:22.520 So I think it just reflects differences in positioning where 0:06:22.560 --> 0:06:24.200 people have risk. It is more in the US right now. 0:06:24.279 --> 0:06:26.720 John Norman, thank you so much. With JP Morgan usually 0:06:26.720 --> 0:06:30.080 in London, visiting today in New York at our Interactive 0:06:30.120 --> 0:06:44.400 Broker Studios, which is a good thing. George Friedman of 0:06:44.880 --> 0:06:48.040 Geopolitical Futures and without question one of our great students 0:06:48.440 --> 0:06:52.520 of the Saudi US alliance. How broken is the alliance 0:06:52.560 --> 0:06:57.000 this morning, George, I don't think very. I think you know, 0:06:57.000 --> 0:07:00.560 it's interesting to see how little has happened asside from 0:07:00.600 --> 0:07:04.800 the rhetoric, but we have a basic interest with the Saudis. 0:07:05.120 --> 0:07:08.039 We have the Iranians spreading out over the Middle East 0:07:08.560 --> 0:07:13.200 in Iraq and Syria and leathern Yemen. A coalition is 0:07:13.440 --> 0:07:19.200 formed between really Israel, Saudi Arabia, the United Emirates to 0:07:19.320 --> 0:07:22.880 block it. If we were to break with Saudi Arabia, 0:07:23.800 --> 0:07:27.680 uh that that coalition would be gone and we would 0:07:27.720 --> 0:07:32.120 have a very hard time containing the Iranians. So the 0:07:32.240 --> 0:07:35.679 last thing we want is to have this turn into 0:07:36.280 --> 0:07:40.040 a kind of breakdown in our strategy. So everybody is talking, 0:07:40.160 --> 0:07:43.160 everybody is saying things it is appropriate that they do so, 0:07:44.320 --> 0:07:47.760 but actions are not being taken. Within the word action 0:07:48.200 --> 0:07:52.080 is the action. Domestically, we all read our Robert Lacy 0:07:52.160 --> 0:07:56.360 years ago the history of the Saud family, and you know, 0:07:56.640 --> 0:07:59.800 I can go back inside it as amateurly as anyone 0:08:00.000 --> 0:08:03.320 out there. This isn't the movie Lawrence of Arabia. This 0:08:03.400 --> 0:08:06.920 is a reality. What's the reality for the royal family? 0:08:07.720 --> 0:08:10.520 And would you expect the crown prince to be shown 0:08:10.560 --> 0:08:16.840 the generational door? Well, remember the Western media was lauding 0:08:17.000 --> 0:08:22.520 him over six weeks ago. Yeah, liberalization of women, driving 0:08:24.320 --> 0:08:28.400 of his you know, really ambitious plans or transforming Saudi 0:08:28.440 --> 0:08:35.360 Arabia from a producing country alone. Uh, he was the hero. Uh. 0:08:35.640 --> 0:08:38.960 He had enemies in Saudi Arabia. He had people who 0:08:39.000 --> 0:08:43.120 were appalled at his liberalization. He had within the royal family, 0:08:43.480 --> 0:08:46.120 people who did not want to see this transformation, didn't 0:08:46.120 --> 0:08:49.920 trust him, who saw him as a thirty year old kid, 0:08:50.559 --> 0:08:54.880 he had no grounding. So he's got serious enemies inside 0:08:54.880 --> 0:09:01.439 of Saudi Arabia. And the interesting thing is that this killing, 0:09:03.080 --> 0:09:06.400 which appears to be about you know, liberals in the 0:09:06.440 --> 0:09:10.440 West appalled at what kind of regime this is actually 0:09:10.480 --> 0:09:15.680 plays out by strengthening the conservatives inside of Saudi Arabia potentially, 0:09:16.200 --> 0:09:19.560 But to this point, Um, you know, he's had a 0:09:19.600 --> 0:09:24.160 weird photo op with the son of the person was killed, 0:09:25.679 --> 0:09:30.599 and we've seen inside the Kingdom him pulling button. He 0:09:30.679 --> 0:09:33.760 seems not to lost power. George, what is your knowledge 0:09:33.840 --> 0:09:36.920 or experience of being at the King Fodd Air Force 0:09:36.960 --> 0:09:41.200 Base and the mom Uh Saudi Arabia are the Eskin 0:09:41.360 --> 0:09:45.200 Village Air Force Base in within Riod, as well the 0:09:45.280 --> 0:09:48.600 any number of US facilities there, the King Khalead Air 0:09:48.640 --> 0:09:54.080 Base and Commas Mushayat, Saudi Arabia. These are operational and 0:09:54.160 --> 0:09:59.280 running air bases for whom, well the Saudis use him 0:09:59.320 --> 0:10:03.520 for their The United States Air Force and contractors are 0:10:03.559 --> 0:10:06.960 supporting that Air force Uh. And to be clear, and 0:10:07.000 --> 0:10:10.520 to be clear, George, they can't do their air force 0:10:10.960 --> 0:10:16.080 without our contractors right pretty much. So they've gotten better 0:10:16.120 --> 0:10:19.000 over the past years, but they still can't sustain them. 0:10:19.040 --> 0:10:21.680 And we want them to have an operational air force. 0:10:21.800 --> 0:10:23.800 We don't want to be carried on missions and Yemen 0:10:23.880 --> 0:10:28.200 for example. So you know there's a symbiotic relationship not 0:10:28.280 --> 0:10:30.840 only between the United States and Saudi Arabia, but a 0:10:30.960 --> 0:10:34.000 very important one would between Israel and Saudi Arabia. By 0:10:34.040 --> 0:10:37.400 reports to Saudis have purchased and a rarely air defense 0:10:37.440 --> 0:10:42.560 system called Iron Dome to protect themselves. Well, tell us 0:10:42.559 --> 0:10:45.000 about iron Dorm. I mean, you know I've covered it 0:10:45.040 --> 0:10:48.480 here live the missile attacks and what appears to be 0:10:48.600 --> 0:10:53.040 genuine fear of the people of Riod Iron Dorm. Dome 0:10:53.240 --> 0:10:57.240 protects them from what missiles from Yemen. It would protect 0:10:57.240 --> 0:11:02.079 them from a class of fairly low of flying missiles 0:11:02.120 --> 0:11:06.440 that could devastate their cities. Uh, the missiles out of Gaza, 0:11:06.760 --> 0:11:10.679 we're knocked down by Iron Dome. Potentially attack from his 0:11:10.880 --> 0:11:15.560 Bullah and Lebanon would be well. Attacks from Yemen, but 0:11:15.640 --> 0:11:19.880 more important attacks from Iran on Saudi Arabia would be 0:11:19.920 --> 0:11:23.680 dealt with by this. Remember, the real game in the 0:11:23.760 --> 0:11:31.840 region is um Iran. Iran is expanding and George George 0:11:31.840 --> 0:11:34.400 Freeman with his folks geopolitical futures thrilled to have them, 0:11:34.559 --> 0:11:37.719 particularly dovetailing off in Stephen Cook the other day with 0:11:37.840 --> 0:11:41.240 the author of false Dawn. Okay, great, everybody agrees Iran 0:11:41.360 --> 0:11:44.280 is the first order condition here, except none of the 0:11:44.280 --> 0:11:48.320 newspaper articles. Mr. Arid, Juan speech and the rest discusses it. 0:11:48.360 --> 0:11:51.520 We're looking at the Shoggy murder as a distinct and 0:11:51.600 --> 0:11:56.400 discreet thing. Do you bring those two events together. I 0:11:56.440 --> 0:12:00.520 don't understand the murder it makes. First of all, Kashogi, 0:12:00.600 --> 0:12:04.640 who is he? Yes, he is a liberal writing for 0:12:04.720 --> 0:12:09.880 the Washington Post. He was also the nephew of add 0:12:09.920 --> 0:12:13.680 Non Koshogi, a major armed dealer in the region. He 0:12:13.760 --> 0:12:16.080 worked for Turkey al Phis solid one Point, who is 0:12:16.080 --> 0:12:20.240 the head of Saudi intelligence. He had interviewed Assan bin 0:12:20.320 --> 0:12:23.240 Laden on various ecasions, which was a different ticket to get, 0:12:23.440 --> 0:12:28.200 difficult ticket to get. Uh So, he certainly had close 0:12:28.320 --> 0:12:32.000 ties into the conservative wing of the party. He was 0:12:32.040 --> 0:12:37.120 an enemy of k of the Prince. He was opposed 0:12:37.160 --> 0:12:40.640 to him. But in the West we always assume that 0:12:40.800 --> 0:12:44.320 anyone who opposes a repressive regime wants a liberal regime. 0:12:44.880 --> 0:12:47.880 They might just want another repressive regime. In this case, 0:12:47.920 --> 0:12:50.920 he appears to have changed. He appears to have transformed 0:12:50.920 --> 0:12:54.240 his views. I'll accept that it's genuine, But why would 0:12:54.280 --> 0:12:57.560 you send fifteen people to kill him. I mean normally 0:12:57.640 --> 0:13:01.520 want to be subtled in these things. It's if you know, 0:13:01.840 --> 0:13:05.640 Salomon decided he liberally wanted to test Saud East to 0:13:05.679 --> 0:13:08.280 know that something was coming on. As they came through 0:13:08.320 --> 0:13:12.480 Istanbul Airport, it was hard to miss them and the airport. 0:13:13.679 --> 0:13:16.400 It just makes no sense. George, I've got to apologize. 0:13:16.440 --> 0:13:19.480 Anthony from Sparta emails in and says the pronunciation of 0:13:19.520 --> 0:13:24.000 the Saudi Air Force base I butchered commies move shaite, Anthony, 0:13:24.040 --> 0:13:27.640 thank you so much for that clarity, as I mispronounced 0:13:27.640 --> 0:13:31.080 an important air basis for Saudi Arabia in the United States, 0:13:31.080 --> 0:13:33.360 George Freeman, in the time that we've got left, what 0:13:33.440 --> 0:13:35.679 should be the response of the president, what should be 0:13:35.720 --> 0:13:40.960 the response, particularly of someone considered a lame duck Secretary 0:13:41.000 --> 0:13:45.800 of Defense General Madison. Well, they've given the response, which 0:13:45.880 --> 0:13:49.040 is they're shocked and appalled, and they're not going to 0:13:49.120 --> 0:13:53.560 change anything in our relationship. That's pretty much what Urduuana 0:13:53.640 --> 0:13:56.959 said to He's horrified, he's shocked. He's going to bring 0:13:57.000 --> 0:14:00.680 the individuals to justice, but he said, think about breaking 0:14:00.800 --> 0:14:05.199 relations with Saudi Arabia or anything else. So what happened. 0:14:05.240 --> 0:14:08.720 Here is a really shocking murder. It's hard to understand 0:14:08.800 --> 0:14:12.280 the murder. Uh. And no one is going to change 0:14:12.480 --> 0:14:15.960 their basic identivities because they're over writing things. One final question, 0:14:16.080 --> 0:14:19.720 do you have an understanding of who the replacement would 0:14:19.720 --> 0:14:22.880 be for the crown prince? Is there an air apparent 0:14:23.240 --> 0:14:26.800 to be the second position of the Remember, the king 0:14:26.840 --> 0:14:30.960 has to be replaced. Uh. And replacing the king has 0:14:31.040 --> 0:14:34.760 happened in the past, has happened by assassination over the 0:14:34.800 --> 0:14:39.640 past half century century. UM. It is not a clean process. 0:14:39.720 --> 0:14:44.200 The king is the king, So to replace King Solomon's 0:14:44.240 --> 0:14:48.800 father would be a wrenching event inside of Saudi Arabia. 0:14:49.480 --> 0:14:54.160 It would lead to unknown instability at a time when 0:14:54.200 --> 0:14:57.960 most of the region and the United States really don't 0:14:58.000 --> 0:15:01.240 want instability there. George, Thank you so much, George Freeman, 0:15:01.280 --> 0:15:15.080 with a terrific briefing, Founder Chairman Geopolitical Futures. We continue, 0:15:15.120 --> 0:15:18.320 Pim Fox and Tom Kenyan with us. Diane Swak of 0:15:18.320 --> 0:15:20.680 Grant Thorn and Diane are wonderful to speak to you. 0:15:21.960 --> 0:15:24.520 I guess there'll be another day of a president going 0:15:24.560 --> 0:15:27.080 after the head of the Central Bank. At some point. 0:15:27.120 --> 0:15:30.560 This reaches somewhat of a critical mass. Are we near there? 0:15:31.440 --> 0:15:34.160 I hope we're not. UM. I think we're not there yet. 0:15:34.320 --> 0:15:37.280 What worries me is that UM some people have debated 0:15:37.280 --> 0:15:40.640 whether or not it's worse when an administration goes after 0:15:41.160 --> 0:15:44.560 a central banker from within the administration or publicly. Well, 0:15:44.560 --> 0:15:48.440 we know historically that when they've actually succeeded to do it, 0:15:48.440 --> 0:15:51.479 it has been through public means. Actually, the Nixon administration 0:15:51.600 --> 0:15:54.960 threatened Arthur Burns by planting a false story in the 0:15:54.960 --> 0:15:58.360 newspaper that don got him to acqui us and Ease 0:15:58.640 --> 0:16:02.800 to pour the two elections, which contributed to stagflation. So 0:16:03.200 --> 0:16:05.600 we do know that it can have an impact. That's 0:16:05.640 --> 0:16:08.800 not something we wanted to have. UM. Certainly, we've already 0:16:08.800 --> 0:16:12.000 seen Vulker's remarks about how the Reagan administration was pressuring 0:16:12.080 --> 0:16:14.160 him on interest rates at a time he wasn't going 0:16:14.160 --> 0:16:17.800 to raise interest rates anyway, so it worked to his advantage. 0:16:17.840 --> 0:16:21.160 I think what's important is that we don't get too 0:16:21.240 --> 0:16:26.280 much perception that the administration could influence indust rates. That's 0:16:26.280 --> 0:16:28.280 where the critical issue is is because much of the 0:16:28.320 --> 0:16:31.760 Fed's power is actually in the perception of its independence, 0:16:32.160 --> 0:16:36.080 not um its actual actions. There's as much perception as 0:16:36.120 --> 0:16:38.600 reality of rate hikes that affects of FED and I 0:16:38.600 --> 0:16:43.040 think that's very important. Diane Swank, why is anybody's surprised, 0:16:43.080 --> 0:16:48.480 particularly coming from President Donald Trump. I wouldn't imagine people 0:16:48.520 --> 0:16:51.600 are surprised, And hopefully that means that you know, much 0:16:51.680 --> 0:16:54.600 like other things that we hear noise out there from 0:16:54.640 --> 0:16:57.240 an administration, we often discount it when it comes to 0:16:57.320 --> 0:17:00.600 financial markets as that we hope happens. But the reality 0:17:00.680 --> 0:17:04.440 is that we know that actions can become policy. UM. 0:17:04.480 --> 0:17:06.320 In the trade war we are in the trade war 0:17:06.359 --> 0:17:09.400 with China that doesn't seem to be going away. Hopefully 0:17:09.440 --> 0:17:11.760 we will see the meeting with she and the President 0:17:12.040 --> 0:17:15.240 going more productively and back off and get China to 0:17:15.280 --> 0:17:17.119 acquiesce in some of the things we like them to 0:17:17.160 --> 0:17:20.840 do without going to a full blown trade war in January. 0:17:20.880 --> 0:17:24.119 But these are things you know. Unfortunately, it's not clear 0:17:24.600 --> 0:17:27.199 when things the noise should be a paid attention to 0:17:27.280 --> 0:17:29.399 and when it shouldn't be. UM. We know that the 0:17:29.400 --> 0:17:32.280 president can't fire the Federal Reserve chairman, and the Federal 0:17:32.320 --> 0:17:35.359 Reserve has a long history of being independent. It's also 0:17:35.359 --> 0:17:39.400 important to remind people that this rate Hikeney cycle started 0:17:39.480 --> 0:17:42.920 in December. Off, it goes back to the Obama era 0:17:43.240 --> 0:17:45.720 that the economy was already firming enough for the FED 0:17:45.760 --> 0:17:47.800 to raise rates. And I think it's really important for 0:17:48.119 --> 0:17:50.840 certainly your audience knows this already, but it's important to 0:17:50.840 --> 0:17:54.560 remember that the FEDS raising rates as an affirmation of 0:17:54.600 --> 0:17:59.200 the economy strength, not as a means to kill the economy. 0:17:59.480 --> 0:18:01.560 So is there some political move on the part of 0:18:01.600 --> 0:18:04.760 the president ahead of the midterm elections? Well, you know, 0:18:04.800 --> 0:18:07.639 I mean, who knows. I mean, I can't judge that. Um, 0:18:07.680 --> 0:18:10.360 it probably is. This is all all people in politics 0:18:10.359 --> 0:18:13.119 are political by definition, I would assume. I think the 0:18:13.160 --> 0:18:16.240 more important issue to focus on is what is decided 0:18:16.280 --> 0:18:18.439 likely to do. Um, the set is going to react 0:18:18.440 --> 0:18:20.520 to the data, and this bet is going to raise 0:18:20.600 --> 0:18:23.320 rates again in December. I think very likely. I put 0:18:23.320 --> 0:18:26.359 a ninety eight percent chance on that occurring, barring some 0:18:26.520 --> 0:18:29.440 major collapse in finishing markets between now and none. Dan, 0:18:29.680 --> 0:18:31.600 thank you so much, too short of notice today, and 0:18:31.600 --> 0:18:34.120 we greatly thank Diane Swark for her commitment to our 0:18:34.200 --> 0:18:49.200 FED coverage as well. Pim Fox and Tom Keenan on politics. 0:18:49.280 --> 0:18:51.560 Now we go to Craig Gordon, in charge of all 0:18:51.600 --> 0:18:54.800 of our political coverage in Washington. To say the least, 0:18:54.800 --> 0:18:58.240 he is so discerning. He understands the distinctions between Ben's 0:18:58.320 --> 0:19:01.879 chili bowl up on you Street versus the for that 0:19:01.920 --> 0:19:05.600 it is at Reagan International Airport where I dine before 0:19:05.640 --> 0:19:08.240 a ship out on the Gulf Stream. Craig, wonderful to 0:19:08.240 --> 0:19:11.199 have you with us this morning. Right now. Measure force 0:19:11.280 --> 0:19:16.200 the tone of the nationalists you're covering versus the corrupt, 0:19:16.280 --> 0:19:20.720 power hungry globalists. You're covering language of the president who's 0:19:20.720 --> 0:19:23.359 got the upper hand. Uh here, this few number of 0:19:23.440 --> 0:19:26.320 days before the election, I still think I'd be rather 0:19:26.359 --> 0:19:29.240 be playing the Democrats hand than um, the Donald Trump's hand. 0:19:29.280 --> 0:19:32.040 I think there's a lot of energy out there, uh 0:19:32.080 --> 0:19:34.320 in in out on the hustings. As they say. A 0:19:34.400 --> 0:19:36.640 lot of Democrats are pretty upset about how that Kevin 0:19:36.680 --> 0:19:39.040 I hearing went down, pretty upset with the way Trump 0:19:39.119 --> 0:19:41.320 talks and acts. And I think that they have a 0:19:41.359 --> 0:19:44.040 lot of energy behind him, and also they also have 0:19:44.080 --> 0:19:46.160 the mathematics behind him. They only want to three seats 0:19:46.200 --> 0:19:48.200 to take the House, so that's actually not such a 0:19:48.280 --> 0:19:50.960 high health of client. Since forty some odd Republicans have 0:19:50.960 --> 0:19:53.320 actually retired, so those are open seats and obviously easier 0:19:53.359 --> 0:19:55.880 to win. So Democrats still seem to have the upper hand. 0:19:56.080 --> 0:19:59.720 There is the politics of the North the day. But 0:19:59.800 --> 0:20:03.159 I of course it is not the politics of the moment, 0:20:03.720 --> 0:20:07.200 is it about? It is about suspicious packages and our 0:20:07.280 --> 0:20:11.359 political leaders Washington, Creig Gordon has too much memory of 0:20:11.400 --> 0:20:15.160 this just within the Beltway, don't they. Yeah, no, absolutely, 0:20:15.200 --> 0:20:18.320 and we all know that very you know, senior political 0:20:18.320 --> 0:20:20.760 officials mail gets screened, and I think today we learned 0:20:20.760 --> 0:20:23.800 why because in this case, a suspicious package is thought 0:20:23.880 --> 0:20:26.440 to be potentially explosive devices were found in mail headed 0:20:26.440 --> 0:20:29.080 to Hillary Clinton in Westchester County, where of course she 0:20:29.320 --> 0:20:32.240 has a home with book Clinton, and then to Barack Obama. 0:20:32.280 --> 0:20:34.480 We believe that one was here was headed to his 0:20:34.800 --> 0:20:37.920 perhaps his home or his office here in Washington. So, um, 0:20:38.640 --> 0:20:40.840 you know this is not just political rhetoric now, this 0:20:40.880 --> 0:20:42.879 is this is scary stuff and in this case is 0:20:42.920 --> 0:20:45.600 he could service stop these packages. This of course comes 0:20:45.600 --> 0:20:47.520 just a day after a package was found at the 0:20:47.520 --> 0:20:51.120 home of George Soros, also opened Westchester there. So um, look, 0:20:51.320 --> 0:20:54.159 this is where the political rhetoric that gets heated turns 0:20:54.160 --> 0:20:57.120 into something a little more sinister um and obviously pretty 0:20:57.119 --> 0:20:59.560 alarming for any of us who cover these folks every day. Well, 0:20:59.600 --> 0:21:01.879 just for a little bit more detail here, the Secret 0:21:01.880 --> 0:21:06.840 Services the packages were immediately identified during routine mail screening procedures. 0:21:07.200 --> 0:21:11.720 They were identified as potential explosive devices and were appropriately 0:21:11.800 --> 0:21:15.520 handed handled as such. One of them was a device 0:21:15.520 --> 0:21:18.920 addressed to Hillary Clinton, while another addressed to former President Obama. 0:21:18.960 --> 0:21:22.920 They were intercepted by Secret Service personnel in Washington, d C. 0:21:23.640 --> 0:21:25.639 The agency and the statement said that the U. S. 0:21:25.640 --> 0:21:32.879 Secret Service has intercepted two suspicious suspicious packages addressed to 0:21:33.240 --> 0:21:39.439 Secret Service protectees and the Newcastle Police Department assisting the 0:21:39.480 --> 0:21:43.520 FBI and Secret Service, as well as Westchester County Police 0:21:44.080 --> 0:21:46.240 Craig Gordon. Does this mean that there are going to 0:21:46.320 --> 0:21:51.360 be increased security in place for the midterm elections and 0:21:51.440 --> 0:21:55.160 for campaigning. I mean, you know, security round the president 0:21:55.520 --> 0:21:58.960 already quite high. It's hard to imagine this doesn't cause 0:21:58.960 --> 0:22:00.840 the Secret Service to a like a little bit more 0:22:00.840 --> 0:22:02.440 on some of its procedures. You know, I'm not sure 0:22:02.440 --> 0:22:05.960 individual House candidates out there again in the in the 0:22:06.000 --> 0:22:07.879 four and thirty five seats that are have a lot 0:22:07.920 --> 0:22:09.560 of the Secret Service protection. IM sure they have sort 0:22:09.560 --> 0:22:12.520 of private security. But look, anytime something like this happens, 0:22:12.560 --> 0:22:14.680 people tighten up a little bit and they gets they 0:22:14.680 --> 0:22:16.919 have to think a lot harder about how they're doing this. 0:22:17.520 --> 0:22:19.919 And I mean, we already know the political environment is 0:22:20.119 --> 0:22:22.280 is quite toxic. There's a lot of very rough language 0:22:22.280 --> 0:22:25.720 on both sides being thrown around. Sometimes again it takes 0:22:25.760 --> 0:22:27.640 us a more sinister turn in the way it did 0:22:27.680 --> 0:22:30.400 with these packages, presumably, UM, but I think I think 0:22:30.400 --> 0:22:32.080 people are already on alert, and I think believe would 0:22:32.080 --> 0:22:34.320 be more so after this news today. Greg Gordon, thank 0:22:34.359 --> 0:22:36.399 you so much and short notice as we follow the 0:22:36.440 --> 0:22:41.879 story these suspicious packages, uh, and some of our political leaders, 0:22:53.359 --> 0:22:56.800 John Lieber joins us on text policy with p WC. 0:22:57.480 --> 0:22:59.159 Is all John, wonderful to have you with us, with 0:22:59.240 --> 0:23:02.639 maybe a more pull called till today then policy, uh, 0:23:03.000 --> 0:23:05.679 killed Craig Gordon. They're talking about, well, you know, the 0:23:05.720 --> 0:23:08.639 Democrats may still get it done in the House, although 0:23:08.640 --> 0:23:13.600 I'd say that's emotion is swinging around right now. Even 0:23:13.640 --> 0:23:15.840 if the Republicans were to win, would it be a 0:23:15.920 --> 0:23:19.960 new gridlock in Washington? You know, it's hard to doing 0:23:20.000 --> 0:23:22.000 any kind of legislation these days. Um, you've got a 0:23:22.000 --> 0:23:24.280 sixty boat threshold and the Senate, which means anything you 0:23:24.320 --> 0:23:26.800 do have to be bipartisan. And there's not a lot 0:23:26.840 --> 0:23:30.840 of bipartisan uh Kumbaya moments happening that right now. So 0:23:30.960 --> 0:23:33.600