WEBVTT - House GOP Leaders Ready Funding Plan 0:00:02.400 --> 0:00:06.720 Bloomberg Audio Studios, podcasts, radio news. 0:00:08.200 --> 0:00:12.080 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:00:12.160 --> 0:00:15.240 weekdays at ten am Eastern on Apple card playing Android 0:00:15.280 --> 0:00:18.400 Auto with the Bloomberg Business app, Listen on demand wherever 0:00:18.440 --> 0:00:22.280 you get your podcasts, or watch us live on YouTube. 0:00:23.200 --> 0:00:25.239 All that seems kind of moot in the context of 0:00:25.720 --> 0:00:27.960 maybe our government's going to shut down tonight at midnight 0:00:28.000 --> 0:00:32.600 when we'll be fast asleep. But Wendy Schiller, she joined 0:00:32.640 --> 0:00:34.400 us in Brown University, and we want to get some 0:00:34.479 --> 0:00:37.320 informed comments about how this might play out here. 0:00:37.720 --> 0:00:39.880 So Wendy A, I'm. 0:00:39.760 --> 0:00:42.040 Not sure if you're in the business of predicting shutdowns 0:00:42.120 --> 0:00:43.879 or not, but I'd love to get your perspective on 0:00:44.360 --> 0:00:47.360 just kind of how the whole process here is unwinding. 0:00:47.360 --> 0:00:50.000 In Washington, We've got a couple of civilians, President elect 0:00:50.000 --> 0:00:53.040 Trump and Elon Musk right smack in the middle of 0:00:53.080 --> 0:00:55.800 the discussion in the news cycle. And I've got a 0:00:55.800 --> 0:00:58.960 President of the United States who I haven't heard anything from. 0:00:59.000 --> 0:01:01.360 So house is developing well. 0:01:01.400 --> 0:01:05.000 I think President Biden has seeded sort of the negotiating 0:01:05.040 --> 0:01:08.039 power of the Democrats to Jakim Jeffries, who's the Democratic 0:01:08.160 --> 0:01:10.759 leader in the House Representatives. 0:01:10.040 --> 0:01:12.119 And Chuck Schumer, Senator from New York. 0:01:12.000 --> 0:01:15.479 Who's still the majority leader of the United States Senate 0:01:15.560 --> 0:01:18.720 till January third. So there basically Biden said, you know, 0:01:18.840 --> 0:01:22.000 you decide what our position will be, and I'll likely 0:01:22.240 --> 0:01:23.080 you know, sign it. 0:01:23.200 --> 0:01:26.199 So he's seated all of that negotiating power to them. 0:01:26.720 --> 0:01:29.240 And I think this is really important for everyone to remember. 0:01:29.280 --> 0:01:32.600 We have a bi cameral legislature. You know, the founders 0:01:32.600 --> 0:01:35.760 set it up this way on purpose. You two institutions 0:01:35.760 --> 0:01:38.720 that have very different electoral incentives, very different internal structure, 0:01:38.760 --> 0:01:39.880 different terms of office. 0:01:40.040 --> 0:01:41.840 And we're seeing that play out right now. I mean, 0:01:41.880 --> 0:01:45.360 the Senate's just literally hanging out waiting. 0:01:44.959 --> 0:01:47.840 For the House to deliver something, and the Democrats control 0:01:47.920 --> 0:01:50.040 the Senate, so all of this is about. 0:01:49.800 --> 0:01:53.000 Well, the passes the House, it'll go through not so fast. 0:01:53.240 --> 0:01:56.120 The Democratic controlled Senate will say no, we're not going 0:01:56.200 --> 0:01:58.840 to pass it. So the Democrats have some risk here 0:01:58.960 --> 0:02:01.800 because they be party to the shutdown. 0:02:01.400 --> 0:02:03.120 The way the Republicans are. 0:02:03.280 --> 0:02:05.840 And since it's a divided government right now, it's really 0:02:05.880 --> 0:02:08.680 unclear for the voters who are you actually going to blame. 0:02:09.000 --> 0:02:11.160 Right now, the Democrats have decided they're going to blame 0:02:11.160 --> 0:02:15.080 elon Musk. They have made Musk a target of their communications, 0:02:15.320 --> 0:02:17.160 and you're starting to see a little bit of this 0:02:17.240 --> 0:02:19.800 creep into some of those Republicans who voted against the 0:02:19.840 --> 0:02:20.760 package yesterday. 0:02:21.400 --> 0:02:23.000 I mean, we just had a story that came out 0:02:23.040 --> 0:02:25.840 on the Bloomberg terminal saying that House Speaker Mike Johnson 0:02:25.960 --> 0:02:28.720 is currently strategizing a way to rush a spending bill 0:02:28.760 --> 0:02:31.200 through the Chamber to avoid a government shut down ahead 0:02:31.240 --> 0:02:33.880 of that midnight deadline that we've been talking about. I 0:02:33.919 --> 0:02:35.840 do know that the longest government shut down in recent 0:02:35.919 --> 0:02:38.919 history was in twenty eighteen under the Trump administration. It 0:02:39.000 --> 0:02:42.680 lasted thirty five days. If we were to enter into 0:02:42.760 --> 0:02:46.440 a government shutdown, how do people actually analyze and predict 0:02:46.600 --> 0:02:49.399 the longevity of how long it could last. 0:02:50.000 --> 0:02:53.320 Well, you know, if you're thinking Trump and Trump's strategy, 0:02:53.440 --> 0:02:55.760 you think, well, if we're going to go into US shutdown, 0:02:56.080 --> 0:02:58.960 let's shut it down till I get inaugurated, and then 0:02:59.000 --> 0:03:01.360 then of course we'll open it back up because at 0:03:01.360 --> 0:03:04.359 that point the Republicans will control the House and the Senate, 0:03:04.639 --> 0:03:07.560 so we'll have more sway and he's willing to sort 0:03:07.560 --> 0:03:09.880 of live with the costs that are incurred. Usually, you know, 0:03:09.919 --> 0:03:13.200 a shutdown on this length usually costs several billion dollars, 0:03:13.760 --> 0:03:15.960 not only in pay for federal employees, but for all 0:03:16.000 --> 0:03:19.360 sorts of disruptions to all sorts of services that the 0:03:19.360 --> 0:03:22.519 federal government provides to the economy. So you're going to 0:03:22.560 --> 0:03:24.560 see a cost here. But then Trump gets to be 0:03:24.560 --> 0:03:26.760 the hero by reopening. 0:03:26.280 --> 0:03:29.000 The government on his terms, and I think that's the 0:03:29.080 --> 0:03:29.880 way he's thinking. 0:03:30.280 --> 0:03:32.880 The debt ceiling is the interesting question here because the 0:03:32.919 --> 0:03:35.680 Republicans have voted against this bill yesterday, really voted against 0:03:35.680 --> 0:03:38.280 it because the dead ceiling extension ran through twenty twenty 0:03:38.360 --> 0:03:42.839 seven and basically gave Trump an unlimited checkbook. And they 0:03:42.880 --> 0:03:46.120 are deficit hawks, and even they were not willing to 0:03:46.160 --> 0:03:48.720 go there for Donald Trump. So there must be something 0:03:48.760 --> 0:03:51.160 that they're sensing about how they would face the voters 0:03:51.160 --> 0:03:53.800 again in twenty six that says we don't want to 0:03:53.800 --> 0:03:56.080 be responsible for blowing up the federal. 0:03:55.760 --> 0:03:57.400 Debt and the deficit even more than it is. 0:03:57.880 --> 0:04:00.280 I mean, we're sitting here in December, we're still about 0:04:00.280 --> 0:04:02.560 a month away from inauguration day. Paul and I were 0:04:02.600 --> 0:04:06.680 chatting earlier how typical Is it historically that we have 0:04:06.760 --> 0:04:10.600 the president elect implementing it weighing in on these things. 0:04:10.640 --> 0:04:13.880 Where is Biden and Harris in this conversation? Is this 0:04:13.960 --> 0:04:14.560 all typical? 0:04:15.760 --> 0:04:18.480 I mean, it's it's you know, we haven't had as 0:04:18.560 --> 0:04:22.840 much ringmanship, let's say, in December with an election switch. 0:04:23.080 --> 0:04:27.880 We've certainly hadmanship with Ronald Reagan in December, with Barack 0:04:27.920 --> 0:04:29.040 Obama in December. 0:04:29.240 --> 0:04:31.480 So you've had sitting presidents have this issue. 0:04:31.680 --> 0:04:34.840 But the transition in power, I mean, it does really happen, right, 0:04:34.880 --> 0:04:36.919 I mean, you won the election, You're going to be president. 0:04:37.279 --> 0:04:39.839 But in terms of the Trump sway of the GOP, 0:04:40.400 --> 0:04:42.160 that's what we're talking about here, is that it is 0:04:42.200 --> 0:04:45.520 a wholly owned subsidiary of Donald Trump. But right now 0:04:45.560 --> 0:04:48.159 we're seeing cracks in that coalition. And the question is 0:04:48.440 --> 0:04:51.719 what's driving those cracks. Is it get rid of Elon Musk. 0:04:52.240 --> 0:04:54.800 Is it thinking that this is just a bridge too 0:04:54.880 --> 0:04:57.240 far in terms of federal spending, or is that they 0:04:57.240 --> 0:04:59.560 think they'll get some political gain by shutting it down 0:04:59.600 --> 0:05:02.080 and we open under Trump with more capital with a 0:05:02.160 --> 0:05:04.960 Republican control House and Senate. We're just not getting any 0:05:05.040 --> 0:05:07.880 real signals from the Republicans that matter, meaning the ones 0:05:07.920 --> 0:05:09.360 that voted against the bill yesterday. 0:05:09.680 --> 0:05:11.760 But a shutdown is not a way to. 0:05:11.720 --> 0:05:15.560 Start an administration, no matter what Donald Trump thinks. It's disruptive, 0:05:15.760 --> 0:05:17.960 and he's got very high approval ratings. Now I'm not 0:05:17.960 --> 0:05:20.839 sure those are going to go higher by inconveniencing a 0:05:20.839 --> 0:05:22.760 lot of people over the next couple of weeks. 0:05:23.200 --> 0:05:26.960 Wendy is, do some people in Washington, on either side 0:05:27.040 --> 0:05:29.280 or both sides of the auduld that they view President 0:05:29.279 --> 0:05:32.200 elect Trump is maybe even a lame duck president. I 0:05:32.240 --> 0:05:35.200 don't really need to bend over backwards for this guy 0:05:35.279 --> 0:05:37.640 because he's only here for four years. 0:05:38.880 --> 0:05:40.919 Well, certainly, if you're a senator that was elected in 0:05:41.000 --> 0:05:44.920 twenty twenty four or even twenty twenty two, you're thinking 0:05:44.960 --> 0:05:48.440 you're probably going to outlast Trump. But then again, lots 0:05:48.480 --> 0:05:50.520 of people thought Trump might not run again, get the 0:05:50.560 --> 0:05:53.240 nomination and win again. I just don't think you can 0:05:53.320 --> 0:05:56.880 underestimate Donald Trump's political power. But you have an economy 0:05:56.920 --> 0:05:59.479 that seems to be coming along in terms of growth, 0:06:00.000 --> 0:06:02.560 and the employment numbers are sort of okay, you know, 0:06:02.600 --> 0:06:06.039 not disastrous or anything, but inflation is really sticky. 0:06:06.520 --> 0:06:09.520 And the question is if there isn't a real change in. 0:06:09.520 --> 0:06:12.160 People's perception of the economy by the summer, I think 0:06:12.200 --> 0:06:15.240 a lot of Trump's clout could diminish, even among his 0:06:15.320 --> 0:06:16.400 own base, and. 0:06:16.360 --> 0:06:18.240 Then you're looking at the next electoral cycle. 0:06:18.520 --> 0:06:21.880 So that is where separation of powers is really crucial here. 0:06:22.040 --> 0:06:25.159 It creates different incentives and we're seeing those incentives play. 0:06:25.040 --> 0:06:25.720 Out right now. 0:06:26.240 --> 0:06:28.760 When you am curious, do you know the intricacies of 0:06:28.800 --> 0:06:32.400 what the potential financial implications could be for non essential 0:06:32.440 --> 0:06:36.560 government workers? Do they get paid retroactively or do they 0:06:36.640 --> 0:06:37.719 just go without pay? 0:06:38.720 --> 0:06:42.520 Typically, Congress insists on passing a separate bill to authorize 0:06:42.560 --> 0:06:47.560 retroactive pay for federal employees that have been furloughed or 0:06:47.600 --> 0:06:50.880 not paid during a shutdown, So you know, it varies 0:06:51.520 --> 0:06:54.279 depending on the shutdown, depending on the Congress. You can 0:06:54.360 --> 0:06:58.240 see where most people would want to see people paid 0:06:58.520 --> 0:07:01.320 for work that they do, but if you're not working, 0:07:01.520 --> 0:07:03.480 then there could be an argument, well, you weren't working, 0:07:03.520 --> 0:07:05.560 so this is a bloat of the federal government, and 0:07:05.720 --> 0:07:07.800 we're not paying you for work that you didn't do. 0:07:08.440 --> 0:07:10.200 You know, the problem with the Republican Party is that 0:07:10.240 --> 0:07:13.880 the federal government civilian force is large and diverse and 0:07:13.920 --> 0:07:17.000 spread out all across the country. So in every congressional 0:07:17.040 --> 0:07:19.920 district there will be federal employees or people associated with 0:07:19.920 --> 0:07:22.640 the federal government that will lose income because of a shutdown, 0:07:22.880 --> 0:07:24.080 and those congress people are going. 0:07:24.040 --> 0:07:25.200 To hear from those employees. 0:07:25.560 --> 0:07:28.960 So this becomes very sticky if they don't agree to 0:07:29.200 --> 0:07:31.320 retroactively reimburse these employees. 0:07:31.760 --> 0:07:33.960 But remember the reason that Donald Trump. 0:07:33.840 --> 0:07:37.160 Quote unquote caved in twenty eighteen and reopened the government 0:07:37.240 --> 0:07:40.240 was that the FAA and air traffic controllers and sort 0:07:40.240 --> 0:07:43.800 of our TSA employees, all of that became very difficult 0:07:44.000 --> 0:07:45.000 for people who weren't. 0:07:44.760 --> 0:07:46.680 Getting paid and decided not to show up for work. 0:07:46.920 --> 0:07:50.040 And that clog in the economy is what pushed Trump 0:07:50.080 --> 0:07:52.160 to the table, and so that's why it's curious that 0:07:52.200 --> 0:07:54.960 he'd want to start an administration with another clog in 0:07:55.000 --> 0:07:55.640 the economy. 0:07:56.240 --> 0:07:58.120 All Right, Wendy, thank you so much. We appreciate that. 0:07:58.160 --> 0:08:00.800 Wendy Shulis, she's a professor at Brown University and she 0:08:00.920 --> 0:08:03.720 is the intermim director of the Watson Institute. Joining us 0:08:04.040 --> 0:08:08.320 from Providence O Rhode Island versus that zoom thing. So again, 0:08:08.400 --> 0:08:12.800 I guess the initial deadline is going to be midnight tonight, right, 0:08:12.840 --> 0:08:14.840 so we'll wake up tomorrow and the government will need to. 0:08:14.840 --> 0:08:18.000 Be open or not right obviously, like you exactly. 0:08:19.600 --> 0:08:23.480 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:08:23.560 --> 0:08:27.080 weekdays at ten am Eastern on applecar Play and Android 0:08:27.120 --> 0:08:29.880 Auto with the Bloomberg Business App. You can also listen 0:08:30.000 --> 0:08:33.080 live on Amazon Alexa from our flagship New York station, 0:08:33.480 --> 0:08:36.520 Just say Alexa Play Bloomberg eleven thirty. 0:08:37.200 --> 0:08:39.640 Normal Linda sitting in for Alex Steel here today on 0:08:39.720 --> 0:08:43.240 Paul Suni where you are streaming live on YouTube. Ahead 0:08:43.240 --> 0:08:45.960 over to YouTube dot com and search Bloomberg Podcast. Also 0:08:46.480 --> 0:08:48.640 doing this whole live thing from the Bloomberg Interactive Broker 0:08:48.720 --> 0:08:52.120 studio here in New York City. The government shutdown is 0:08:52.160 --> 0:08:55.199 a thing, and we kind of kind of getting used 0:08:55.200 --> 0:08:57.000 to it. I guess it seems to happen at least 0:08:57.600 --> 0:08:59.839 once a year these days. Let's put this whole thing 0:08:59.880 --> 0:09:04.520 in perspective and how the next several days might unfurlier. 0:09:04.600 --> 0:09:07.319 Christopher smart joint is he's a managing partner at our 0:09:07.320 --> 0:09:09.720 Growth Group, and he's a former Special Assistant to the 0:09:09.760 --> 0:09:13.960 President for International Economics. Joining us from Boston via that 0:09:14.080 --> 0:09:17.040 zoom thing. Hey, Chris, thanks so much for joining us here. 0:09:17.640 --> 0:09:21.760 I guess again, we've all in this market become I guess, 0:09:21.880 --> 0:09:24.760 kind of used to these threats of government shutdowns. What's 0:09:24.760 --> 0:09:26.240 a little bit different this time is we have a 0:09:26.240 --> 0:09:29.480 couple of civilians that are really weighing in and almost 0:09:29.600 --> 0:09:32.080 driving part of the conversation. That is President elect Trump 0:09:32.679 --> 0:09:37.199 and Elon Musk really involved here. What do you make 0:09:37.200 --> 0:09:40.240 of that whole dynamic, because that seems a little bit unique. 0:09:41.920 --> 0:09:45.000 It seems very unique. I'm not sure we're supposed add 0:09:45.040 --> 0:09:48.880 modify us to unique, but it is a very different 0:09:49.320 --> 0:09:54.400 rhythm from the traditional government shutdown background music that many 0:09:54.400 --> 0:09:58.400 investors are used to at this time of year. Along 0:09:58.440 --> 0:10:02.560 with the Salvation Army bell ringers and anybody singing carols 0:10:02.559 --> 0:10:06.520 at your door. There is always the drama of when 0:10:06.559 --> 0:10:09.040 Congress will go home, will there be a budget or 0:10:09.040 --> 0:10:12.680 will there be a continuing resolution? And what services married 0:10:12.679 --> 0:10:14.680 and I may not get shut down for a few days, 0:10:14.920 --> 0:10:17.120 as you say, the difference, one big difference this time 0:10:17.200 --> 0:10:19.800 is we have a president elect who's not really president, 0:10:21.080 --> 0:10:25.960 scuttling what had been agreed by all sides earlier this 0:10:26.040 --> 0:10:28.680 week we have, as you say, as civilians, somebody who's 0:10:28.760 --> 0:10:32.440 not even headed for a government role, an official government 0:10:32.480 --> 0:10:36.800 role at least, who's also sort of driving the dynamics 0:10:36.840 --> 0:10:40.760 on social media that we haven't really seen anywhere. 0:10:40.280 --> 0:10:40.880 In the past. 0:10:41.120 --> 0:10:42.720 And then I guess to me the third thing, as 0:10:43.120 --> 0:10:46.280 from the market's perspective, there's one thing that the markets 0:10:46.360 --> 0:10:49.840 always hate, which is the debt limit debate that comes 0:10:49.880 --> 0:10:51.840 up from time to time and the threat of the 0:10:51.920 --> 0:10:55.720 United States defaulting here the fact that President like Trump 0:10:55.800 --> 0:10:59.240 has sort of introduced this is one of his asks 0:10:59.280 --> 0:11:02.360 in the continuing Resolution, at least that's what it's been 0:11:02.400 --> 0:11:04.400 in the last twenty four hours. We'll see how that evolved. 0:11:04.679 --> 0:11:07.120 But markets would love to see this thing go away. 0:11:07.720 --> 0:11:10.400 The problem is getting the math to work on that 0:11:10.440 --> 0:11:14.920 particular part of an already complicated bill becomes very, very difficult. 0:11:16.000 --> 0:11:18.040 It feels like in markets we have so many things 0:11:18.040 --> 0:11:20.800 to worry about right now. Honestly, my eyes are on 0:11:20.880 --> 0:11:22.600 so many different things right now, especially with this being 0:11:22.640 --> 0:11:24.560 a FED week. But of course as a concern, as 0:11:24.600 --> 0:11:27.160 we're thinking about the uncertainty that could be upcoming in 0:11:27.200 --> 0:11:31.719 this situation, what is the impact on markets here? Historically 0:11:31.760 --> 0:11:34.120 do we really care about a government shut down in 0:11:34.160 --> 0:11:36.719 terms of the near term, I. 0:11:36.679 --> 0:11:39.080 Think probably less so this time around. First of all, 0:11:39.240 --> 0:11:43.120 the sell off that we've seen this week was squarely 0:11:43.440 --> 0:11:48.439 linked to the fed's statements and more hawkish music coming 0:11:48.440 --> 0:11:53.400 from that part of Washington. If we were sort of 0:11:53.480 --> 0:11:56.160 really on the verge of a recession and you worried 0:11:56.200 --> 0:11:59.480 that government spending would be cut off and government activity 0:12:00.000 --> 0:12:02.920 would tip the balance into a recession, then I think 0:12:03.200 --> 0:12:06.160 markets will be paying much more, much closer attention to 0:12:06.200 --> 0:12:08.280 what's going on right now. But you have an economy 0:12:08.280 --> 0:12:10.120 that is on the margin running a little bit hotter 0:12:10.160 --> 0:12:14.160 than the FED would like, and you know, from a 0:12:14.160 --> 0:12:18.120 macroeconomic perspective, a little bit of cooling, even if it 0:12:18.160 --> 0:12:22.720 comes from a shutdown, is probably not a bad thing overall. Obviously, 0:12:22.720 --> 0:12:26.040 from a governance perspective, from a predictability perspective, from a 0:12:26.080 --> 0:12:28.680 political perspective, it's it's never a good thing when you 0:12:28.760 --> 0:12:32.679 have it this kind of dynamic in the in the background. 0:12:32.720 --> 0:12:35.600 And I think the thing around these government shut off 0:12:35.679 --> 0:12:39.240 shutdown excuse me, is that once they happen, it's never 0:12:39.720 --> 0:12:42.920 clearer if it's going to be a quick one or 0:12:42.960 --> 0:12:46.520 a long one, and once ide start digging in, this 0:12:46.559 --> 0:12:48.760 could go on well into the into the new year. 0:12:49.720 --> 0:12:52.880 So again, we were just talking with one of our analysts, 0:12:52.920 --> 0:12:56.560 Bloomberg Intelligence, who covers the Washington policy, and he had 0:12:56.640 --> 0:12:59.280 raised his risk of a shutdown or os of a 0:12:59.320 --> 0:13:01.480 shutdown to forty percent. That's up from I think twenty 0:13:01.559 --> 0:13:04.520 or thirty percent just a day or two ago. My senses, 0:13:04.559 --> 0:13:07.320 you feel like it's maybe even higher than that. 0:13:07.480 --> 0:13:07.640 Here. 0:13:07.679 --> 0:13:10.520 What are the what's the politics of a shutdown here? 0:13:10.520 --> 0:13:13.080 How would you view the politics of a shutdown that 0:13:13.160 --> 0:13:15.079 might go through the holidays. 0:13:18.240 --> 0:13:18.880 Well, I'm not. 0:13:18.800 --> 0:13:22.959 Sure anybody benefits from a shutdown, but the question is 0:13:23.000 --> 0:13:29.000 always can you blame the other person more? And obviously 0:13:29.040 --> 0:13:31.560 I think at this stage it looks like this has 0:13:31.559 --> 0:13:33.880 been a shutdown that's been triggered by Elon Musk and 0:13:33.960 --> 0:13:40.680 Donald Trump scuppering this late deal that the Republicans Democrats 0:13:40.720 --> 0:13:43.960 had agreed to. Having said that President Trump just won 0:13:44.000 --> 0:13:47.280 a big election, it's very easy for him to write 0:13:47.280 --> 0:13:51.120 the narrative that this is Washington insider backroom dealing that 0:13:51.200 --> 0:13:56.080 he is fighting against and has promised to eliminate in Washington. 0:13:56.200 --> 0:13:58.840 So I'm not sure I think both sides feel like 0:13:58.840 --> 0:14:01.160 they've got the upper hand here, which should think, as 0:14:01.200 --> 0:14:03.440 you say, leads me to believe that the odds are 0:14:03.760 --> 0:14:06.600 maybe higher than forty percent. Although you know, these things 0:14:06.679 --> 0:14:09.360 tend to change very quickly from one hour to the next. 0:14:09.679 --> 0:14:13.440 It just doesn't seem to me that anybody's got a 0:14:13.559 --> 0:14:19.280 real reason to compromise at this stage. The one, you know, 0:14:19.400 --> 0:14:22.240 minor deadline that's coming up is actually the president's inauguration. 0:14:22.320 --> 0:14:24.560 Does he want to be sworn into office with the 0:14:24.600 --> 0:14:28.040 government still shut down? But between now and then, I'm 0:14:28.040 --> 0:14:30.560 not sure what's going to force one side or the 0:14:30.600 --> 0:14:32.280 other to come to the table. 0:14:32.800 --> 0:14:35.600 When we're thinking about the market, what sectors in particular 0:14:35.720 --> 0:14:38.640 could be potentially exposed to the impact of a government 0:14:38.640 --> 0:14:39.160 shut down. 0:14:42.160 --> 0:14:46.080 Again, if it's shutting things down for a week or 0:14:46.080 --> 0:14:51.120 a month, even two months, the macroeconomic impact is fairly 0:14:51.200 --> 0:14:54.680 fairly limited. Obviously, you can see government contracts that don't 0:14:54.680 --> 0:14:57.240 get written, you know, maybe defense contracts that don't get 0:14:57.280 --> 0:15:00.680 done this year or get pushed into next year. You 0:15:00.760 --> 0:15:03.480 get a lot of uncertainty. You know that maybe some 0:15:03.560 --> 0:15:06.680 businesses aren't planning their investments the way they would like 0:15:06.760 --> 0:15:11.160 to given the uncertainty around government spending. But the real 0:15:11.240 --> 0:15:13.960 questions are not so much around the shutdown itself, as 0:15:14.040 --> 0:15:19.720 I think everybody is looking to both the tax debate 0:15:19.760 --> 0:15:22.080 that's going to come into line very quickly and what 0:15:22.160 --> 0:15:24.400 sort of differences they can expect in terms of corporate 0:15:24.400 --> 0:15:33.240 taxes and potential rollbacks of President Biden's subsidies to the automotive, 0:15:33.280 --> 0:15:37.200 to the electric vehicle, to the clean energy industry. And 0:15:37.240 --> 0:15:38.960 then the other piece of that I think that he's 0:15:39.040 --> 0:15:41.320 driving things are the terraff wars that are building up. 0:15:41.880 --> 0:15:44.000 Christopher Smart, thank you so much for joining us. Chris Smart, 0:15:44.000 --> 0:15:46.720 he's a managing partner in a growth group, former Special 0:15:46.760 --> 0:15:49.880 Assistant to the President for International economics, just giving us 0:15:49.920 --> 0:15:53.720 his thoughts here on the potential shutdown. I think as 0:15:53.840 --> 0:15:55.560 Chris was just mentioning, he kind of feels like this 0:15:55.960 --> 0:15:58.640 is somebody that may come to fruition and so have 0:15:58.720 --> 0:16:01.400 to see will pay attention. That's starting midnight tonight. 0:16:02.880 --> 0:16:06.760 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:16:06.840 --> 0:16:09.560 weekdays at ten am Eastern on Apple car Playing and 0:16:09.680 --> 0:16:12.560 Broun Auto with the Bloomberg Business app. Listen on demand 0:16:12.600 --> 0:16:18.080 wherever you get your podcasts, or watch us live on YouTube. 0:16:17.880 --> 0:16:19.880 Normal Linda sitting in for Alex Steel on Paul Swooney 0:16:19.920 --> 0:16:21.880 Your Life here in our Bloomberg Interactive Brokers studio, or 0:16:21.920 --> 0:16:23.920 streaming live on YouTube as well. So check us out 0:16:23.920 --> 0:16:27.960 on YouTube dot com slots Boom Bloomberg podcast Again, Like 0:16:28.080 --> 0:16:29.480 Charlie Pellet, I'm trying to figure out what the heck 0:16:29.560 --> 0:16:31.440 going on in this market, what's driving the higher here? 0:16:32.080 --> 0:16:33.520 You know, I'm seeing a couple of things, maybe, you know, 0:16:33.640 --> 0:16:35.680 I'm looking at the top go on the Bloomberg terminal, 0:16:35.680 --> 0:16:40.600 Fed's favorite inflation gauge cools to the slowest pace since May. 0:16:41.680 --> 0:16:43.760 So maybe this economic data people is really starting to 0:16:43.760 --> 0:16:45.680 digest it and say, all right, maybe this inflation thing 0:16:45.760 --> 0:16:49.240 is is not as concerning as maybe we thought. That 0:16:49.360 --> 0:16:51.360 might give the FED some room on the rates here, 0:16:53.080 --> 0:16:57.920 you know. And I think the question is maybe the 0:16:57.960 --> 0:17:01.280 reaction to the Fed's meeting on Wednesday again, SMP off 0:17:01.320 --> 0:17:03.680 two and a half percent last top of three and 0:17:03.720 --> 0:17:05.560 a half percent. Maybe that's a little bit of an overreaction. 0:17:05.720 --> 0:17:07.760 We're seeing real estate the best performing sector today and 0:17:07.760 --> 0:17:09.960 then information technology is the second best. 0:17:10.160 --> 0:17:11.640 Real estate and that's my career. 0:17:11.920 --> 0:17:12.400 Real estate. 0:17:12.440 --> 0:17:16.439 All right, very good. We appreciate that Sandy Berger joins us. 0:17:16.440 --> 0:17:18.560 She's the chief client officer. I'm sure she's got some 0:17:18.600 --> 0:17:24.439 thoughts here. The firm's experient and she joins us via zoom. Sandy, 0:17:24.440 --> 0:17:26.560 what do you make of the last I don't know, 0:17:26.600 --> 0:17:30.160 four five, six days in this marketplace. We've got geopolitics, 0:17:30.160 --> 0:17:33.000 we've got domestic politics with the government shutdown, We've got 0:17:33.359 --> 0:17:35.840 federal reserve. Boy, there's a lot of cross currents for 0:17:36.280 --> 0:17:37.400 investors to navigate. 0:17:38.160 --> 0:17:40.720 Well, it's been an exciting week, and every day there 0:17:40.760 --> 0:17:43.679 is a new twist. In turn. We've been telling our clients, 0:17:43.720 --> 0:17:47.679 who are corporate executives, family business owners and entrepreneurs to 0:17:47.720 --> 0:17:51.840 be ready for anything and to be thoughtfully and thoughtfully 0:17:51.840 --> 0:17:54.600 diversified in their portfolios. That's what we've been doing for them. 0:17:55.040 --> 0:17:58.920 But in terms of the economy right now, things are 0:17:58.920 --> 0:18:02.160 looking pretty good in our We have a strong economy, 0:18:02.200 --> 0:18:07.160 strong corporate earnings. There are some wild cards on out 0:18:07.200 --> 0:18:09.960 there that could change things, and I think we got 0:18:09.960 --> 0:18:11.880 a taste of some of those wild cards this week, 0:18:11.960 --> 0:18:16.400 especially in terms of the Fed's decision regarding interest rates 0:18:16.440 --> 0:18:19.840 and slowing down the pace. There so a lot of 0:18:20.720 --> 0:18:25.160 volatility within the week. We wouldn't be surprised if volatility 0:18:25.200 --> 0:18:28.080 continued into twenty twenty five. But at this point on 0:18:28.119 --> 0:18:31.760 our base case scenario, we're not expecting any major changes. 0:18:32.000 --> 0:18:33.399 We think things look good out there. 0:18:33.760 --> 0:18:37.080 Sandy, you mentioned wild cards. There's so much volatility. Where 0:18:37.080 --> 0:18:39.320 are you guys staying, what do you like right now? 0:18:39.480 --> 0:18:40.480 And where are you avoiding? 0:18:41.800 --> 0:18:44.760 So within our portfolios, as I was mentioning, we really 0:18:45.240 --> 0:18:49.639 truly believe that now more than ever, diversification is important, 0:18:50.080 --> 0:18:54.120 and we're pretty well balanced between bonds and equities, though 0:18:54.160 --> 0:18:58.760 tilting toward equities. Within the equity markets, we do like 0:18:58.880 --> 0:19:04.200 the US market, particularly large cap value. It really has 0:19:04.400 --> 0:19:06.639 not been the place to be for a long time. 0:19:07.640 --> 0:19:10.440 On balance, we think that there's some real opportunity there. 0:19:10.760 --> 0:19:13.280 We also like small caps in the United States, also 0:19:13.280 --> 0:19:15.480 on the value side, and really looking at the higher 0:19:15.560 --> 0:19:18.800 quality small company so companies that have strong balance sheets, 0:19:18.840 --> 0:19:21.040 that have great business models, that are going to do 0:19:21.080 --> 0:19:24.399 well during good economic times and bad. And then we 0:19:24.440 --> 0:19:31.440 do have some of our allocation overseas. We're particularly more 0:19:31.520 --> 0:19:35.359 bullish on Europe at this point and also Japan. 0:19:35.920 --> 0:19:37.320 When we look at the fact that we've hit so 0:19:37.400 --> 0:19:39.440 many record highs for the S and P five hundred 0:19:39.480 --> 0:19:42.440 in the market more broadly this year more than fifty times. 0:19:42.800 --> 0:19:45.520 Is there any discussion around whether or not market valuations 0:19:45.520 --> 0:19:47.560 have been too high? 0:19:47.600 --> 0:19:52.280 In our estimation, the US large cap growth area is 0:19:52.920 --> 0:19:56.119 running pretty hot. Still, we think valuations are high there. 0:19:56.520 --> 0:20:01.680 You look at the SMP five hundred earnings currently pees 0:20:01.720 --> 0:20:05.320 at twenty two, an average is more like sixteen. So 0:20:05.600 --> 0:20:08.520 you could make some arguments that some stocks have gotten 0:20:08.560 --> 0:20:11.320 ahead of themselves. That's why we are tilting toward value 0:20:12.040 --> 0:20:14.240 in some of the areas of the market that haven't 0:20:14.280 --> 0:20:18.320 gotten as much play. But you know, it all depends 0:20:18.400 --> 0:20:22.399 upon what happens in the economy in how corporate ar 0:20:22.440 --> 0:20:26.679 needs continue in the period ahead. And again, without some 0:20:26.720 --> 0:20:29.880 of these wild cards coming into tuition I talked about inflation, 0:20:30.080 --> 0:20:32.320 interest rates would be another wild card, and of course 0:20:32.320 --> 0:20:37.159 we have deficits and tariffs out there as well. We 0:20:37.240 --> 0:20:40.120 could see sustained levels in the markets if those wild 0:20:40.200 --> 0:20:44.400