WEBVTT - China is Changing Its Economy, Roach Says 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jai Ley. 0:00:13.960 --> 0:00:17.560 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 --> 0:00:30.480 Bloomberg dot Com, and of course, on the Bloomberg This 0:00:30.720 --> 0:00:35.280 is Bloomberg Surveillance. Economics. Productivity is the key to real 0:00:35.360 --> 0:00:37.839 GDP growth. Argue is that inflation is going to be 0:00:37.880 --> 0:00:41.000 moving higher, but it's gonna be moving higher in gradual basis. Clinants, 0:00:41.080 --> 0:00:43.040 I don't think there's a reason to expect the dollar 0:00:43.120 --> 0:00:45.960 to keep going up. We don't realize how good times 0:00:46.000 --> 0:00:49.440 are now. Investment, I'm very pessimistic on stocks. I'm very 0:00:49.440 --> 0:00:52.320 pessimistic on bob. If you're longer term investor, you just 0:00:52.400 --> 0:00:55.480 want to stay a long Bloomberg Surveillance with Tom Keene 0:00:55.480 --> 0:00:59.800 and Jonathan Parow on Bloomberg Radio from New York City 0:00:59.840 --> 0:01:03.160 for audience worldwide. Good morning, Good morning. This is a 0:01:03.240 --> 0:01:07.360 Bloomberg Surveillance Alongside Tom Keene, I'm Jonathan Pharaoh. President Trump 0:01:07.400 --> 0:01:10.840 picking a loyalist to replace Cone cuver Low, signaling he 0:01:10.959 --> 0:01:14.200 supports a tough stance on China. The Senate backing a 0:01:14.280 --> 0:01:17.639 bill to relax post crisis rules, giving smaller banks a break, 0:01:17.880 --> 0:01:21.640 offering Wall Street very little and drowning in debt crushed 0:01:21.640 --> 0:01:25.880 by competition. The toys r US turnaround collapses after turnaround 0:01:25.880 --> 0:01:29.440 efforts fail. In the markets, your thirstday morning price action 0:01:29.520 --> 0:01:32.840 as follows. Futures up fourteen on the doubt, unchanged on 0:01:32.840 --> 0:01:35.600 the SMP five hundred. In the FX markets, some muted 0:01:35.720 --> 0:01:38.520 price action, but some yen strength in there with Dolly 0:01:38.600 --> 0:01:40.759 Yen down for a second straight day. We dropped SETH 0:01:40.800 --> 0:01:43.399 at one oh six at one eighty nine, down four 0:01:43.440 --> 0:01:46.200 tenths of one percent. In the bond market is there's 0:01:46.240 --> 0:01:50.480 some stormy weather brewing in Shortsville. Treasuries yields lower by 0:01:50.520 --> 0:01:53.240 another basis points to almost two a d on a 0:01:53.320 --> 0:01:55.280 US tenure at the front end of the curve were 0:01:55.360 --> 0:01:58.640 unchanged at two point to five percent. And to round 0:01:58.680 --> 0:02:01.240 things out for you, in the commodity ARKT Brent unchanged 0:02:01.280 --> 0:02:04.560 at and w T I positive by just a mere 0:02:04.600 --> 0:02:07.120 two tenths of one percent at sixty one dollars and 0:02:07.200 --> 0:02:10.480 around about ten cents. The main story worldwide is still 0:02:10.720 --> 0:02:13.720 very much China, with the question one question on many 0:02:13.720 --> 0:02:17.360 people's minds. How does the United States counter China? In 0:02:17.360 --> 0:02:19.800 a period of just twenty four hours, the struggles were 0:02:19.880 --> 0:02:23.840 very much underlined. In Beijing, President she was consolidating power, 0:02:24.080 --> 0:02:27.360 unveiling a sweeping diplomatic overhaul to help deliver a decade 0:02:27.400 --> 0:02:31.200 long plan. In Washington, the President fired his top diplomat 0:02:31.200 --> 0:02:35.280 by tweet, letting bear months of policy disputes. I'm really 0:02:35.320 --> 0:02:37.720 pleased to say that Wang in this morning on Bloomberg 0:02:37.800 --> 0:02:41.320 Surveillance is Stephen Roach, the Yale University professor, formerly chairman 0:02:41.480 --> 0:02:44.080 of Morgan's Down the Asia and the firm's economists for 0:02:44.200 --> 0:02:46.840 much of his thirty year career at the company. He 0:02:46.919 --> 0:02:50.880 joins US now professor, Good morning, thanks joining us. So 0:02:50.919 --> 0:02:54.720 how does the United States counter the Chinese approach in 0:02:54.720 --> 0:02:59.399 international trade? Well, there's several things we've gotta do. Number one, Jonathan, 0:03:00.320 --> 0:03:05.840 we have to restart the formal engagement on on on 0:03:05.919 --> 0:03:09.200 economic matters. We used to have something called the Strategic 0:03:09.240 --> 0:03:12.919 and Economic Dialogue. It morphed into the Comprehensive Economic Dialogue, 0:03:12.919 --> 0:03:15.639 and now it's on hold and we really don't talk. 0:03:16.040 --> 0:03:19.160 We don't need a bunch of you know, annual uh 0:03:19.440 --> 0:03:24.799 sort of event planning exercises. We need a permanent secretariat 0:03:24.880 --> 0:03:27.600 to to really engage the Chinese on a regular basis. 0:03:27.720 --> 0:03:31.560 Number one. Number two, we've got to focus on market access, 0:03:31.639 --> 0:03:35.440 and there we've had a negotiations stalled for nine years 0:03:35.440 --> 0:03:39.400 on a bilateral investment treaty which would allow US and 0:03:39.440 --> 0:03:44.200 our multinationals to UM have greater access to rapidly growing 0:03:44.240 --> 0:03:47.800 consumer markets UH in China. We are stymied on this. 0:03:47.960 --> 0:03:51.600 The Chinese are also part of this UM. They want 0:03:51.600 --> 0:03:54.840 access to our markets. Let's if we have a president 0:03:54.880 --> 0:03:59.320 who does deals, Let's do a deal to allow UH 0:03:59.520 --> 0:04:03.480 companies on both sides to actively participate. And Thirdly, there's 0:04:03.480 --> 0:04:08.080 a number of UH sort of UM UH software policy 0:04:08.120 --> 0:04:10.760 issues that need to be addressed. We talked about them 0:04:10.840 --> 0:04:15.000 on television a few minutes ago. The US is completely 0:04:15.040 --> 0:04:18.920 off base and viewing the Chinese bilateral deficit and isolation 0:04:19.000 --> 0:04:23.080 from its multilateral current account and savings problems. We've got 0:04:23.080 --> 0:04:26.479 to get economic analysis back into the issue. And the 0:04:26.560 --> 0:04:29.360 Chinese have soft issues of their own to address in 0:04:29.440 --> 0:04:35.800 terms of their geostrategic contentions UH, their training practice issues UH, 0:04:35.800 --> 0:04:42.080 and cyber issues as well. UH. China's reputation amongst the 0:04:42.240 --> 0:04:45.679 um The intellectual thought leader base in the United States 0:04:45.800 --> 0:04:48.080 is probably an all time low right now, and China 0:04:48.160 --> 0:04:51.920 needs to counter that with more effective UH and reasoned 0:04:51.960 --> 0:04:54.400 responses on their side. How do you expect the Chinese 0:04:54.440 --> 0:04:56.839 to count up the events of the last month, professor, 0:04:56.920 --> 0:04:59.800 because they have been remarkably quiet in the face of 0:05:00.120 --> 0:05:04.240 heights and criticism worldwide. Well, they've been. They've been quiet 0:05:04.279 --> 0:05:07.400 because the actions to date have not really been of 0:05:07.600 --> 0:05:12.120 enormous consequence. The big shoe to fall would be Jonathan 0:05:12.200 --> 0:05:18.440 if the President does impose much UH, higher and broader 0:05:18.480 --> 0:05:21.400 tariffs as part of the so called Section three oh 0:05:21.480 --> 0:05:25.280 one negotiations that his trade representative has been working on 0:05:25.680 --> 0:05:30.520 since last August in areas like intellectual property rights, technology transfer, 0:05:30.640 --> 0:05:35.479 and innovation. And you know, the rumor not so secret 0:05:35.520 --> 0:05:39.760 coming out of Washington is that big tariffs are coming 0:05:40.360 --> 0:05:43.320 UH in response to that, and if the Chinese are 0:05:43.440 --> 0:05:47.200 hit with much bigger tariffs, we will most assuredly retaliate. 0:05:47.279 --> 0:05:49.640 And we'll see how we like it when our third 0:05:49.760 --> 0:05:53.479 largest and most rapidly growing export market puts tariffs on 0:05:53.680 --> 0:05:56.960 US companies, including Boeing. Steve to me, the thing that's 0:05:57.040 --> 0:06:01.560 most charming is a complete miss and standing of game theory. 0:06:01.640 --> 0:06:04.880 And I'm not talking about the sophistication of avanage sticks 0:06:05.040 --> 0:06:09.120 down at Princeton University or the wonderful program at Rice University. 0:06:09.480 --> 0:06:14.200 I'm just talking about basic response. Mr Navarro and Mr 0:06:14.360 --> 0:06:19.920 Ross seemed to be unaware that China will respond. How 0:06:20.000 --> 0:06:23.719 will China respond? What is the game theory? It's Steve 0:06:23.839 --> 0:06:28.200 Roach observes or can predict from Beijing China. We have 0:06:28.200 --> 0:06:31.120 a code, I mean time. We have a codependent economic 0:06:31.120 --> 0:06:35.640 relationship with China, which means that uh, they depend on 0:06:35.680 --> 0:06:38.520 our markets to sell their goods, but we also depend 0:06:39.279 --> 0:06:42.479 on products from China to make ends meet for hard 0:06:42.480 --> 0:06:45.880 press consumers. And by the way, we depend uh hugely 0:06:45.920 --> 0:06:50.120 every year on Chinese buying of treasuries to fund our 0:06:50.160 --> 0:06:53.200 budget deficit, which is of course UH going to get 0:06:53.240 --> 0:06:56.640 considerably larger in the years ahead. So China's got a 0:06:56.720 --> 0:07:00.240 number of options that it can UH think of out 0:07:00.279 --> 0:07:03.440 in response to the US pressure on the trade front 0:07:03.520 --> 0:07:05.279 or on the capital flow front. I mean, I mean 0:07:05.480 --> 0:07:07.960 you should see John Farrell going down Fifth Avenue when 0:07:07.960 --> 0:07:12.120 a Harley Davidson actally something. If they put a tariff 0:07:12.200 --> 0:07:18.480 on Harley Davidson's what's the effect on that for both parties? Well, 0:07:18.640 --> 0:07:20.880 you won't. You won't see John writing as Harley in 0:07:21.120 --> 0:07:24.520 UH in Beijing. Don't just get a little bit more expensive. Yeah, 0:07:24.640 --> 0:07:30.080 well who knows? Um, I think again. Uh, the US 0:07:30.840 --> 0:07:36.679 UH is looking for sources of growth, and our two 0:07:36.720 --> 0:07:41.400 biggest trading partners are Mexico and Canada. Number three in 0:07:41.520 --> 0:07:44.360 terms of and and number one in terms of actual 0:07:44.760 --> 0:07:48.600 growth over the last ten years is China. China's changing 0:07:48.600 --> 0:07:51.400 its economy, Tom, They're becoming more of a middle class 0:07:51.760 --> 0:07:56.240 consumption economy, which is a huge potential market for US 0:07:56.640 --> 0:07:59.440 in terms of both goods and services, provided we do 0:07:59.480 --> 0:08:03.920 a deal on market access through the bilateral investment treaty 0:08:03.960 --> 0:08:07.760 that I just alluded to. So that should be the focus. Uh. 0:08:07.800 --> 0:08:10.760 And you know, the Chinese can choke off that option 0:08:10.920 --> 0:08:13.320 if we play tough with them. So you're right, there 0:08:13.440 --> 0:08:19.400 is no real game theoretic mindset in Washington. They view 0:08:19.440 --> 0:08:21.400 it as a one way street. You know, we can 0:08:21.480 --> 0:08:26.880 stop China, irrespective of the consequences that may have on US. Professor. 0:08:26.960 --> 0:08:29.280 At the moment, though, that development in China is largely 0:08:29.320 --> 0:08:32.480 seen as a threat made in China, this big decade 0:08:32.520 --> 0:08:34.200 long plan. It's seen as a threat not just by 0:08:34.240 --> 0:08:36.200 the United States of America, but by Europe as well, 0:08:36.280 --> 0:08:39.720 and perhaps Germany more specifically. You keep talking about the 0:08:39.720 --> 0:08:42.400 benefits of this relationship with China, and I look at 0:08:42.400 --> 0:08:45.280 the current administration and wonder whether they identify enough shared 0:08:45.320 --> 0:08:48.319 interests right now to really counter the areas of friction. 0:08:48.559 --> 0:08:53.120 Do they look those are those are great questions. Industrial policy, 0:08:53.240 --> 0:08:57.520 whether it you know, was sponsored by UM, the Japanese 0:08:58.360 --> 0:09:02.200 UH in the eighties or now the Chinese right now 0:09:02.840 --> 0:09:06.520 has has been viewed as a threat for systems like 0:09:06.600 --> 0:09:11.400 ours that are based on the creative destruction of Joseph Schumpeter. 0:09:11.600 --> 0:09:14.600 The market knows a lot more. But you know, we 0:09:14.679 --> 0:09:17.560 get engaged a lot in industrial policy. Just look at 0:09:17.600 --> 0:09:21.680 what the Trump administration did with respect to this Qualcom 0:09:22.280 --> 0:09:24.440 UH deal as well. And look at what we've done 0:09:24.480 --> 0:09:28.440 repeatedly UH in intervening in what we think are our 0:09:28.480 --> 0:09:34.720 strategic interests. UH through Scipious and other organizations that UH 0:09:34.840 --> 0:09:39.480 control the way in which UM other companies operate in 0:09:40.080 --> 0:09:44.320 our space. So we're all guilty of intervening UH in 0:09:44.320 --> 0:09:47.559 in markets. And you know, the Chinese do have this 0:09:47.880 --> 0:09:53.319 strategic plan made in China. But look, there's no guarantee 0:09:53.360 --> 0:09:57.199 it's it's actually gonna work out exactly as they say. 0:09:56.920 --> 0:09:59.679 They've got to do a lot of innovation. They're gonna 0:09:59.679 --> 0:10:01.720 move up the value chain, they're gonna be moving into 0:10:01.760 --> 0:10:04.760 new industries. They're gonna put a lot of government support 0:10:05.320 --> 0:10:10.880 into these industries like you know, biotech and information technology 0:10:11.080 --> 0:10:16.319 and environmental remediation. But there's no guarantee it's gonna work 0:10:16.360 --> 0:10:20.480 if they don't have the innovation UH and the breakthroughs 0:10:20.920 --> 0:10:23.920 UH to really bring these industries to the next place. 0:10:24.040 --> 0:10:25.800 Steven right, it's going to have you with us the 0:10:26.160 --> 0:10:29.560 university professor Fumer, chairman of Morgan Stamby Asia and these 0:10:29.600 --> 0:10:33.160 funds economists. For much of his thirty year careit son 0:10:33.200 --> 0:10:36.480 annual visit that we do with Douglas Cass of Sea Breezes. 0:10:36.520 --> 0:10:38.680 We do this for the brackets, we do this for 0:10:38.760 --> 0:10:43.280 spring training and his Florida casts visiting all the stadia 0:10:43.960 --> 0:10:45.960 of the Grapefruit League, and we talked to him about 0:10:45.960 --> 0:10:49.680 the equity markets as well. Dougo, who do you have 0:10:49.720 --> 0:10:51.760 in your bracket? Please let's get that out of the way. 0:10:52.320 --> 0:10:54.680 On the right side, of the bracket. I'm all Philly 0:10:55.040 --> 0:10:59.320 villain over versus Pennsylvania and Quakers go kers. You've got 0:10:59.360 --> 0:11:03.480 the pen makers. I'm being facetious. I think Villanova goes 0:11:03.559 --> 0:11:07.000 all the way. Okay, very good. We're looking boiler up 0:11:07.040 --> 0:11:11.000 here Perdue, John Farrow, Doug Cass is trying to find 0:11:11.040 --> 0:11:15.560 Perdue in the map. If someone to tell me, well 0:11:15.600 --> 0:11:17.520 the duck care, we'll get into that history that. We'll 0:11:17.559 --> 0:11:20.199 do that at our ten o'clock our a topsy me, 0:11:20.400 --> 0:11:24.320 our autopsy meeting this morning. I'm boiler up, Doug Cass, 0:11:24.400 --> 0:11:29.480 boiler up these markets down thousand. Everyone knows you've been 0:11:29.520 --> 0:11:34.000 more than cautious. Are you still short the market? Yes? 0:11:34.600 --> 0:11:37.280 Well I've been long and short, but I see better 0:11:37.320 --> 0:11:40.000 than a fifty percent probability that we've seen a market 0:11:40.040 --> 0:11:44.080 top already this year. Within that, is it about the 0:11:44.120 --> 0:11:49.160 economic growth fragilities that are percolating? Is a simply valuation 0:11:49.320 --> 0:11:52.760 or is it? Jerome Powell? Well, I think history rhymes. 0:11:52.800 --> 0:11:56.040 And we discussed last time when I went along into 0:11:56.120 --> 0:12:00.560 the liquidity dry up owing to the unwind short fall 0:12:00.640 --> 0:12:04.240 and risk parity trades in early February, and um I 0:12:04.320 --> 0:12:07.120 compared it to the last liquidity event that I remember 0:12:07.120 --> 0:12:11.600 in October seven when portfolio insurance crashed the market. So 0:12:11.760 --> 0:12:14.760 of history rhymes, we have a rally off that we 0:12:14.840 --> 0:12:17.079 have a retest, rally and a retest. I think we're 0:12:17.120 --> 0:12:19.680 at the We had the second rally already. I brought 0:12:19.720 --> 0:12:25.240 back my shorts, went long sold into my target around fifty. 0:12:25.240 --> 0:12:27.600 We had a bit of an overshoot. And where I 0:12:27.600 --> 0:12:30.480 stand now as I've been consistently in the last week 0:12:30.600 --> 0:12:33.880 or so re shorting the indices. I made the observation 0:12:34.000 --> 0:12:36.960 to you and to your producer and but my buddy Lee, 0:12:37.800 --> 0:12:41.040 that you know, we live in this interconnected world, world, 0:12:41.240 --> 0:12:46.080 this flat world, so all geography market geographies should really 0:12:46.160 --> 0:12:49.840 correlate to each other. And I made the observation that 0:12:49.920 --> 0:12:52.200 the s that the docks is now back to where 0:12:52.280 --> 0:12:55.440 it was in March two thousand seventeen, which is will 0:12:55.440 --> 0:12:57.960 surprise a lot of people. At that time, the S 0:12:58.040 --> 0:13:02.240 and P was about four five points lower, so you 0:13:02.320 --> 0:13:05.520 get some sense of overvaluations. I don't think this is 0:13:05.520 --> 0:13:08.880 a divergence we can ignore. But there are other warning signs. 0:13:09.080 --> 0:13:13.600 Jonathan mentioned the strong bid and the treasury market high 0:13:13.679 --> 0:13:17.480 yield debt is starting to roll over. Um. We're beginning 0:13:17.480 --> 0:13:21.800 to see the domestic economy stumbling a bit, and the 0:13:21.840 --> 0:13:28.000 more optimistic economic assumptions are not being confirmed by retail sales, 0:13:28.120 --> 0:13:32.400 durable goods, housing starts, automobile sales which have peaked, and 0:13:32.559 --> 0:13:35.880 so there's a developing trend of disappointing economic data as well. 0:13:36.160 --> 0:13:38.760 It's also occurring in the EU. The less couple of 0:13:38.800 --> 0:13:42.240 deaths very pronounced in the Europe. Do yeah, So I 0:13:42.280 --> 0:13:44.040 think the market may be the mirror image of the 0:13:44.040 --> 0:13:46.280 New York Yankees. In the latter case, the best is 0:13:46.360 --> 0:13:48.400 yet to come. In the former case, the market the 0:13:48.440 --> 0:13:50.719 worst is yet to come. Good morning Bloomberg one or 0:13:50.760 --> 0:13:54.640 six one from Boston on a half of all I apologies, 0:13:55.400 --> 0:13:58.680 please please come on, but it's free to be Doug. 0:13:58.720 --> 0:14:01.040 How the Orioles can pop ball five or six in 0:14:01.080 --> 0:14:04.040 a row in a great like No one understands this world, 0:14:04.120 --> 0:14:08.160 John Braining, Look my eyes on the market. My heart 0:14:08.240 --> 0:14:10.920 is on d D and Wede and Bird and Sanchez 0:14:10.960 --> 0:14:13.120 and Hick, and we have to all stand up for 0:14:13.120 --> 0:14:15.280 the judge, so we so we keep it on the market, 0:14:15.880 --> 0:14:17.600 just for a couple of minutes, Just for a couple 0:14:17.600 --> 0:14:21.800 of minutes, before everyone in Boston turns off the radio. UM. Dug. 0:14:23.280 --> 0:14:25.640 If we've come into the new year and everyone is 0:14:25.640 --> 0:14:30.040 completely over enthusiastic about global synchronized growth, Europe picking up, 0:14:30.080 --> 0:14:32.800 the United States picking up. Talk to me about whether 0:14:32.840 --> 0:14:34.920 A we've seen peak growth. From listening to you, you 0:14:34.960 --> 0:14:37.000 think we have, and too, whether we've seen the peak 0:14:37.040 --> 0:14:40.000 for the tenure year this year already. I think we've 0:14:40.000 --> 0:14:43.720 seen peak expectations for growth. UM. I think we are 0:14:44.280 --> 0:14:48.240 market participants, Jonathan, are far too focused on the jobs 0:14:48.280 --> 0:14:52.520 report UM of last Friday. I would emphasize that employment 0:14:52.600 --> 0:14:56.960 data is a notoriously rear view mirror or lacking economic indicator. 0:14:57.720 --> 0:15:01.480 Yesterday morning, the Atlanta Fed said that DP model sees 0:15:01.560 --> 0:15:04.400 first quarter of growth of only one point nine percent, 0:15:04.520 --> 0:15:09.120 down from two I would say that's fairly disappointing, considering 0:15:09.160 --> 0:15:12.440 we have been in a respend and rebuilding period following 0:15:12.440 --> 0:15:16.600 the hurricanes, and we're now nearly three months past the 0:15:17.440 --> 0:15:20.520 passage of meaningful corporate tax cuts. What do you say 0:15:20.520 --> 0:15:22.760 back to people, Doug, that's say those tax cuts won't 0:15:22.760 --> 0:15:27.000 buy until the second quarter, the third quarter. I don't 0:15:27.120 --> 0:15:30.280 I don't understand understand why that would be the case, well, 0:15:30.440 --> 0:15:31.840 for a lot of people, they won't sit in that 0:15:32.200 --> 0:15:36.120 check until later on this quarter. I speak to companies, Jonathan, 0:15:36.200 --> 0:15:39.600 and I don't see an ex a meaningful change in 0:15:39.640 --> 0:15:45.640 their capex UH projections for fiscal and calendar. But this 0:15:45.720 --> 0:15:47.360 is something I wanted to do this with David Kelly 0:15:47.400 --> 0:15:49.040 here in a minute, but let's do it right now 0:15:49.040 --> 0:15:51.360 with Douglas cast. Doug, you and I have seen this 0:15:51.600 --> 0:15:56.280 jillion times where you get a consensus always deserved zeitgeist 0:15:56.400 --> 0:16:00.120 view in this case better economic growth. And it may 0:16:00.160 --> 0:16:03.320 be cyclical and short, it may be structured and long. 0:16:03.360 --> 0:16:07.320 Good morning President Trump, Good morning Mr Cudlow. But but Doug, 0:16:07.360 --> 0:16:11.640 the fact is the percolation and research is it may 0:16:11.720 --> 0:16:16.600 not be there that has a profound ramification on FED 0:16:16.720 --> 0:16:20.600 tone and market tone, doesn't it. I'm beginning to think 0:16:21.240 --> 0:16:24.240 Tom that we're going to see a tour or less 0:16:25.200 --> 0:16:29.600 rate increases, which is far below consensus. Yes, Um, you 0:16:29.640 --> 0:16:33.440 know it's this consensus, Jonathan, is what I call groups 0:16:33.480 --> 0:16:38.000 think and um particularly at a flinch in it. If 0:16:38.000 --> 0:16:40.440 you can identify inflection points, you can make a great 0:16:40.480 --> 0:16:43.359 deal of money. And then now we have this optimism 0:16:43.400 --> 0:16:47.120 about my good buddy pal friend Larry Cudlow, which I do, 0:16:47.440 --> 0:16:50.240 which we should discuss, well, Doug, let's let's just dis 0:16:50.240 --> 0:16:52.080 because of time, we gotta rip up the script here, 0:16:52.120 --> 0:16:55.600 you and I've done Larry for years. Can Larry talk 0:16:55.760 --> 0:16:58.480 back to the president because the critics say he's just 0:16:58.520 --> 0:17:02.000 gonna mouth the Trump date? Isn't his job to say? 0:17:02.040 --> 0:17:07.000 Wait a minute, Mr President? Right? My relationship with Larry 0:17:07.080 --> 0:17:09.520 runs deep. I've been on the Cutlow Report when it 0:17:09.640 --> 0:17:13.280 existed over fifty times, maybe twenty times on his radio show. 0:17:13.359 --> 0:17:15.680 He was at my son's wedding. That's how close we are. 0:17:16.440 --> 0:17:19.000 I think on numerous grounds, this is a very different 0:17:19.000 --> 0:17:21.760 administration than Larry is joining as compared to the one 0:17:21.800 --> 0:17:24.080 that he left when he was working with Reagan years ago. 0:17:24.600 --> 0:17:27.000 I don't think you changed Trump's mind, which is strong 0:17:27.040 --> 0:17:30.639 and long held, becomes with these quick policy decisions and 0:17:30.680 --> 0:17:33.840 seems to stick with them. So speaking truth through his 0:17:33.920 --> 0:17:37.800 power is almost an insurmountable objective for Larry with Trump, 0:17:37.800 --> 0:17:42.119 in my opinion, um is it? Well? I think his 0:17:42.320 --> 0:17:46.439 role is going to primarily be in marking, marketing, selling 0:17:46.480 --> 0:17:50.320 the tax package, and secondarily working with Ross and the 0:17:50.359 --> 0:17:53.560 borrow towards a sensible trade policy. Thirdly, he's gonna obviously 0:17:53.600 --> 0:17:56.840 bridge Washington and Wall Street in the business communities, which 0:17:56.880 --> 0:18:00.159 would be good at But I asked you the the 0:18:00.240 --> 0:18:06.280 following questions. Um, Look, Larry has met more than anyone 0:18:06.320 --> 0:18:08.280 and I know and this is why I respect him. 0:18:08.400 --> 0:18:11.119 He has overcome challenges in the past. But this mountain 0:18:11.160 --> 0:18:14.880 is really high. High. Everyone is saying, especially on your 0:18:15.520 --> 0:18:19.240 competing network, the NBC where he worked, if that Larry 0:18:19.280 --> 0:18:21.960 will have the upper hand against Navarrow and Ross. I 0:18:22.000 --> 0:18:25.399 would ask if Cohen, the former president of Goldman Sachs, 0:18:25.400 --> 0:18:27.720 did not have the upper hand over Ross and the Varl, 0:18:28.200 --> 0:18:31.639 why should we expect Larry this media commentated at the 0:18:31.720 --> 0:18:33.919 upper hand? Okay, I gotta go here for Boston. I 0:18:33.920 --> 0:18:36.080 got an email here from Boston one or six one 0:18:36.119 --> 0:18:39.120 half of where should Aaron Judge be in the Yankees lineup? 0:18:39.359 --> 0:18:43.960 Isn't he like the ultimate leadoff hitter? Would you please? 0:18:44.800 --> 0:18:49.399 He's gonna back? Third, Third, Okay, it'll be magnificent. I 0:18:49.400 --> 0:18:51.280 hope to be down there in a couple of days. 0:18:51.320 --> 0:18:54.680 Maybe Doug, I'll run into you, uh at Steinbrenner Field, 0:18:54.680 --> 0:18:57.840 Douglas Cass series partners with us is why thank you? 0:18:57.880 --> 0:19:05.320 For those comments. Well, a change in the White House 0:19:05.359 --> 0:19:07.320 and in advisors to the President when it comes to 0:19:07.359 --> 0:19:10.200 economic policy, and perhaps you've been a change in markets. 0:19:10.400 --> 0:19:13.480 Gina Martin Adams is a Bloomberg Intelligence expert when it 0:19:13.480 --> 0:19:16.960 comes to all things related to economics and the markets. 0:19:16.960 --> 0:19:19.760 She not always a pleasure. Thanks for being here. Um, 0:19:19.760 --> 0:19:22.520 maybe just let's talk a little bit about contradictions, or 0:19:23.080 --> 0:19:26.640 seemingly contradictions. On the one hand, you have an administration 0:19:26.640 --> 0:19:30.920 that is imposing tariffs on the imports of foreign manufactured 0:19:31.000 --> 0:19:35.280 steel and aluminum. Also, there's a conversation more than a conversation, 0:19:35.320 --> 0:19:40.159 I bet about tariffs or preventing automobiles from being shipped 0:19:40.200 --> 0:19:43.720 to the United States for US consumers. Now you have Ms. 0:19:43.800 --> 0:19:46.879 Larry Cudlow, who is going to be joining the administration 0:19:47.680 --> 0:19:51.320 and has in the past, I believe, been a quote 0:19:51.359 --> 0:19:54.960 free trader. How do you square those two things at 0:19:54.960 --> 0:19:57.800 a time when the budget deficit in the United States 0:19:58.320 --> 0:20:01.560 is ballooning. It's get be tricky. I mean, I think, 0:20:01.640 --> 0:20:04.640 as with all things with this particular administration, it's really 0:20:04.640 --> 0:20:07.119 tough to get a consistent read on where things are headed. 0:20:07.560 --> 0:20:09.040 I think if I were to take a stab at 0:20:09.080 --> 0:20:12.439 how cut Lowell position this. It is probably going to 0:20:12.480 --> 0:20:15.360 be positioned as a president that is attempting to negotiate 0:20:15.920 --> 0:20:20.320 better trade relations, not necessarily restrict trade. That would be 0:20:20.359 --> 0:20:22.439 my guests as to have a spin, guys, is that 0:20:22.480 --> 0:20:25.360 the way investors will take this? I think investors are 0:20:25.359 --> 0:20:28.760 taking it this week as with a big question mark. 0:20:29.000 --> 0:20:30.920 All right. I mean, we started off this week in 0:20:30.960 --> 0:20:34.720 pretty solid territory despite the fact that the trade package 0:20:34.800 --> 0:20:37.399 was passed last week. We had a really strong rally 0:20:37.400 --> 0:20:39.920 on Friday. We failed to follow through on that rally 0:20:39.920 --> 0:20:42.520 on Monday, and it's been a tough week ever since. 0:20:42.840 --> 0:20:44.600 And I think a lot of the reason for that 0:20:45.040 --> 0:20:47.960 tough week, so to speak, is this uncertainty with respect 0:20:47.960 --> 0:20:50.879 to where this administration is headed. If if rates of 0:20:51.000 --> 0:20:54.760 tenure treasuries go above three and a half percent, what 0:20:54.920 --> 0:21:01.840 happens to the US government's ability to employed? Hopeful for that, 0:21:02.200 --> 0:21:06.159 but how how really how does that factor into the 0:21:06.200 --> 0:21:08.440 ability of the U. S Government to finance it's debt 0:21:08.720 --> 0:21:11.160 and pay for it? Yeah, it's going to be really tough. 0:21:11.280 --> 0:21:13.440 I think this is one of the really critical questions 0:21:13.480 --> 0:21:16.720 for this year is you've got a FED that has 0:21:16.800 --> 0:21:21.760 to react to fiscal policy getting easier and easier, reinflating 0:21:21.800 --> 0:21:25.240 the economy, creating some degree of inflation pressure, creating better 0:21:25.320 --> 0:21:28.960 growth conditions. The natural reaction of monetary policymakers is going 0:21:28.960 --> 0:21:32.399 to be continue to tighten. If monetary policymakers continue to 0:21:32.440 --> 0:21:35.840 tighten amid that higher growth pace rates are going to 0:21:35.920 --> 0:21:39.200 go higher, what they need to happen to fund this deficit, 0:21:39.240 --> 0:21:41.960 if for growth to really skyrocket, Because if you do 0:21:42.040 --> 0:21:45.000 have much stronger growth conditions, and as rates are going higher, 0:21:45.320 --> 0:21:47.920 it's not as difficult to fuel. Right, the deficit looks 0:21:48.080 --> 0:21:50.159 much better in a higher growth environment than it does 0:21:50.200 --> 0:21:52.560 in a slow growth environment. Jinor Martin Adams with a 0:21:52.800 --> 0:21:55.800 Bloomberg equity and Bloomberg intelligence, can I throw you a 0:21:55.840 --> 0:21:59.800 curveball question? Of course? And on my way to spring training, 0:22:00.000 --> 0:22:04.600 So I'm right now. Toys r US blew up today 0:22:04.800 --> 0:22:08.239 and there was a certitude about all that debt X 0:22:08.359 --> 0:22:12.120 number of years ago. Are you afeared in a general 0:22:12.280 --> 0:22:16.359 sense that we become so complacent about debt, build up, 0:22:17.080 --> 0:22:21.359 low yield, everything's great, you know, make private equity great again? 0:22:21.880 --> 0:22:24.080 Are we setting her up for more toys? R US 0:22:24.200 --> 0:22:26.800 is right now. In the future, I think we have 0:22:27.119 --> 0:22:30.520 a temporary reprieve from more toys r us as for 0:22:30.640 --> 0:22:34.560 this year, specifically because of all the cash that's coming 0:22:34.560 --> 0:22:37.480 back through repatriation, because of all the tax reform that 0:22:37.480 --> 0:22:40.439 has unlocked a degree of cash for companies. All of 0:22:40.480 --> 0:22:42.600 that's going to make IBADA look a lot better this 0:22:42.680 --> 0:22:45.199 year than it has in the recent past. So some 0:22:45.280 --> 0:22:48.800 of your leverage ratios, particularly those that are debt relative 0:22:48.840 --> 0:22:52.720 to earnings related measures, look a lot better this year. 0:22:53.119 --> 0:22:56.280 So company's capacity to pay improved significantly as their earnings 0:22:56.280 --> 0:22:59.640 are improving. I think Toys r us is a one 0:23:00.040 --> 0:23:03.840 ace in a segment of the U S acuity market 0:23:03.880 --> 0:23:06.800 that is continuing to struggle, and that's retail. But you're 0:23:06.800 --> 0:23:09.800 not really seeing this in the broad sectors. I do 0:23:09.920 --> 0:23:13.359 think should rate skyrocket, Should you get a really rapid 0:23:13.480 --> 0:23:16.040 increase in rates, It makes things look a lot more 0:23:16.040 --> 0:23:19.680 difficult in future years, but it does not necessarily impact 0:23:19.760 --> 0:23:22.399 the stock market or sectors at large in the short run. 0:23:22.440 --> 0:23:24.159 Can I put out on Twitter? You can do it 0:23:24.640 --> 0:23:28.920 for Sears Holdings s h l D. I'm going to 0:23:29.080 --> 0:23:33.480 let I mean talk about comment I try to avoid. Yeah, 0:23:33.680 --> 0:23:36.560 I'm not going there. It's a totally new retail world, 0:23:36.960 --> 0:23:40.120 thank you, Yes, all right, having a totally new tax world. 0:23:40.160 --> 0:23:41.640 I don't know whether you've got a chance to listen 0:23:41.640 --> 0:23:44.040 to some of the presidents re marks yesterday he was 0:23:44.080 --> 0:23:48.960 speaking I believe in St. Louis and um uh, topic 0:23:49.080 --> 0:23:54.040 is taxes and the potential for a second really well, 0:23:54.080 --> 0:23:56.359 I mean I said, there was just a hint of it. 0:23:56.680 --> 0:23:58.720 I'm wanting, you know, in the in the context of 0:23:58.760 --> 0:24:01.119