1
00:00:05,120 --> 00:00:09,200
Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

2
00:00:09,240 --> 00:00:13,200
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz. Daily we bring you

3
00:00:13,320 --> 00:00:18,600
Speaker 1: insight from the best and economics, finance, investment, and international relations.

4
00:00:18,960 --> 00:00:23,840
Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com

5
00:00:23,920 --> 00:00:30,560
Speaker 1: and of course on the Bloomberg terminal right now. On

6
00:00:30,600 --> 00:00:34,040
Speaker 1: the financial system of our international economics, no one is

7
00:00:34,080 --> 00:00:37,040
Speaker 1: better than William Lee at the Milken Institute, is tour

8
00:00:37,120 --> 00:00:39,240
Speaker 1: of duty at the I m F and of course

9
00:00:39,360 --> 00:00:42,600
Speaker 1: expert on a Pacific rim as well. I want to

10
00:00:42,600 --> 00:00:44,960
Speaker 1: do the calculus today, Bill Lee. And of course we

11
00:00:45,080 --> 00:00:48,880
Speaker 1: don't do differential equations on Friday, we do simple math.

12
00:00:49,360 --> 00:00:54,440
Speaker 1: G twenty takeaway G seven. I believe as a G thirteen.

13
00:00:54,640 --> 00:00:59,160
Speaker 1: Nobody talks about how does a G thirteen Eastern year

14
00:00:59,240 --> 00:01:02,200
Speaker 1: up in the red? How do they observe this G

15
00:01:02,360 --> 00:01:06,039
Speaker 1: seven meeting. They're anxiously looking at what the G seven

16
00:01:06,080 --> 00:01:08,760
Speaker 1: is doing with the corporate tax deal that they've come

17
00:01:08,840 --> 00:01:11,760
Speaker 1: up with to say that the smaller countries have to

18
00:01:11,800 --> 00:01:14,800
Speaker 1: start to raise their tax rates, like Ireland and some

19
00:01:14,840 --> 00:01:17,560
Speaker 1: of the smaller countries that have developed the model, to

20
00:01:17,600 --> 00:01:20,840
Speaker 1: say we're gonna develop our country by attracting foreign multinationals

21
00:01:20,840 --> 00:01:23,600
Speaker 1: to our country by lowering our our corporate tax rate.

22
00:01:23,880 --> 00:01:25,520
Speaker 1: That is going to go by the wayside because they

23
00:01:25,560 --> 00:01:28,520
Speaker 1: have come up. That's going to be a challenge. Uh.

24
00:01:28,640 --> 00:01:30,880
Speaker 1: The other thing they're looking at is how on earth

25
00:01:30,880 --> 00:01:33,440
Speaker 1: are we going to deal with China and the G seven.

26
00:01:33,560 --> 00:01:36,199
Speaker 1: The G seven already are in a mess in trying

27
00:01:36,200 --> 00:01:39,040
Speaker 1: to find a way to cooperatively deal with China. Uh,

28
00:01:39,360 --> 00:01:43,399
Speaker 1: China's a customer, China's a big input into their production lighting,

29
00:01:43,920 --> 00:01:46,319
Speaker 1: but but no human rights. How do we live up

30
00:01:46,319 --> 00:01:48,480
Speaker 1: to our values of human rights and worker rights? You know,

31
00:01:48,480 --> 00:01:51,520
Speaker 1: I AMSUSA believe that Michael Milken, taking advantage of William

32
00:01:51,600 --> 00:01:55,560
Speaker 1: Lee and Employment dialed one Bill Lee and said Bill

33
00:01:55,640 --> 00:01:58,960
Speaker 1: Lee on that tax prep plan isn't dead on arrival.

34
00:01:59,440 --> 00:02:04,120
Speaker 1: Every port we see from Hungary, from Ireland is major pushback.

35
00:02:04,400 --> 00:02:06,680
Speaker 1: They want to exempt the city of London, which is

36
00:02:06,720 --> 00:02:11,119
Speaker 1: absolutely absurd. Is it dead on arrival? Well, it's it's

37
00:02:11,160 --> 00:02:14,600
Speaker 1: dead in the sense that no one really agrees firmly

38
00:02:14,639 --> 00:02:16,680
Speaker 1: that the corporate tax is the best space to use

39
00:02:16,720 --> 00:02:20,440
Speaker 1: the finance government spending. One of the greatest controversial economists

40
00:02:20,600 --> 00:02:23,720
Speaker 1: who bears the cost of paying the corporate text and

41
00:02:23,720 --> 00:02:27,280
Speaker 1: and studies have ranged from as low as workers paying

42
00:02:27,480 --> 00:02:30,639
Speaker 1: to as much as workers paying and and and most

43
00:02:30,639 --> 00:02:35,240
Speaker 1: studies show at least over so raising the corporate taxes

44
00:02:35,280 --> 00:02:38,480
Speaker 1: pushes the burden of paying the tax more on the workers.

45
00:02:38,520 --> 00:02:41,280
Speaker 1: And that's a very big controversy that that has yet

46
00:02:41,280 --> 00:02:43,560
Speaker 1: to be settled. And for the G seven to rely

47
00:02:43,680 --> 00:02:47,519
Speaker 1: on the corporate taxes space to finance government expenditures is

48
00:02:47,560 --> 00:02:50,600
Speaker 1: a real political wild card. Well, just to elaborate a

49
00:02:50,600 --> 00:02:53,000
Speaker 1: little bit, bill some people would push back and say, actually,

50
00:02:53,080 --> 00:02:56,359
Speaker 1: if you look at corporate profits, they've increased dramatically. Why

51
00:02:56,360 --> 00:02:58,960
Speaker 1: couldn't it come out of that rather than from the workers? Mean,

52
00:02:59,000 --> 00:03:02,400
Speaker 1: why is that the as a person who's paying for it? Well,

53
00:03:02,520 --> 00:03:05,160
Speaker 1: the I think the political movement now is to stay

54
00:03:05,160 --> 00:03:08,720
Speaker 1: away from taxing workers, especially lower paid workers, and so

55
00:03:08,800 --> 00:03:11,600
Speaker 1: we want to try to tap tap into the resources

56
00:03:11,600 --> 00:03:14,480
Speaker 1: that the very rich have. The question is the corporate

57
00:03:14,560 --> 00:03:16,760
Speaker 1: tax the best vehicle to do that? Because so much

58
00:03:16,800 --> 00:03:20,320
Speaker 1: of the corporate tax is shifted into consumers, workers, and

59
00:03:20,639 --> 00:03:23,600
Speaker 1: people other than the owners of capital. We already know

60
00:03:23,680 --> 00:03:26,520
Speaker 1: that corporate taxes are unfair in the sense that it's

61
00:03:26,520 --> 00:03:28,760
Speaker 1: a double tax sessue the course the taxing the corporate

62
00:03:28,800 --> 00:03:31,440
Speaker 1: income at the source as well as at the shareholder

63
00:03:31,680 --> 00:03:35,880
Speaker 1: level in taxing dividends. So so those questions of incidents

64
00:03:35,960 --> 00:03:39,920
Speaker 1: have played economists for generations and there's no clear answer,

65
00:03:40,280 --> 00:03:43,360
Speaker 1: and all is polluted by a lot of politics that

66
00:03:43,360 --> 00:03:46,400
Speaker 1: that that governed, right, So let's let's try to strip

67
00:03:46,440 --> 00:03:49,080
Speaker 1: out the politics and use an empirical example. And I'm

68
00:03:49,080 --> 00:03:52,520
Speaker 1: looking at President Trump's tax cuts, and you'd expect the

69
00:03:52,560 --> 00:03:55,000
Speaker 1: reverse to be true if that were the case, that

70
00:03:55,080 --> 00:03:57,960
Speaker 1: a tax cut should juice growth and give more money

71
00:03:57,960 --> 00:04:01,440
Speaker 1: to the workers. Is that what happened, Well, what happened

72
00:04:01,440 --> 00:04:03,360
Speaker 1: with the textbook with the Trump administration is that so

73
00:04:03,440 --> 00:04:06,280
Speaker 1: much of the corporate profits that were released went into

74
00:04:06,320 --> 00:04:09,000
Speaker 1: share shared by box. Uh. Now, the question is that

75
00:04:09,120 --> 00:04:11,160
Speaker 1: the shared bock backs lead to more investment. If you

76
00:04:11,200 --> 00:04:14,520
Speaker 1: look at the data UM and the research that I've done, UH,

77
00:04:14,560 --> 00:04:16,960
Speaker 1: it shows that the share bike backs actually lead to

78
00:04:17,000 --> 00:04:20,160
Speaker 1: more investment, but there's a huge lag, almost as long

79
00:04:20,200 --> 00:04:22,719
Speaker 1: as three to four years before we see that investment

80
00:04:22,720 --> 00:04:25,279
Speaker 1: take place. Right now, we have the highest level investment

81
00:04:25,680 --> 00:04:29,160
Speaker 1: in the US for for many many years. Bill one

82
00:04:29,160 --> 00:04:32,600
Speaker 1: of the biggest problems with UM corporate tax beyond the

83
00:04:32,640 --> 00:04:37,240
Speaker 1: double taxation issue, which I'm not sure everyone UM has

84
00:04:37,279 --> 00:04:40,840
Speaker 1: fully wrapped his or her head around, is what companies

85
00:04:40,920 --> 00:04:42,919
Speaker 1: do to try and avoid it. Often here in the

86
00:04:43,000 --> 00:04:45,159
Speaker 1: U S or here in the U S. I'm in Berlin,

87
00:04:45,279 --> 00:04:48,200
Speaker 1: but my home in the US UM they try and

88
00:04:48,240 --> 00:04:52,200
Speaker 1: avoid it with debt financing. So we're basically pushing these

89
00:04:52,240 --> 00:04:59,200
Speaker 1: companies into UM some more risky financing. UM Solutions Does

90
00:04:59,240 --> 00:05:01,960
Speaker 1: that turner round when you see the tax cut at

91
00:05:02,040 --> 00:05:04,800
Speaker 1: least have pointed out well. One of the things that

92
00:05:04,839 --> 00:05:08,400
Speaker 1: Mike has always emphasized to me is the corporate capital

93
00:05:08,440 --> 00:05:11,719
Speaker 1: structure really matters, and pushing people into more debt finance

94
00:05:12,360 --> 00:05:16,360
Speaker 1: has the impact of changing the shape of investment. Investment

95
00:05:16,400 --> 00:05:19,120
Speaker 1: now goes into more safe projects because the one thing

96
00:05:19,160 --> 00:05:21,120
Speaker 1: that death holders wanted to get their money back, They

97
00:05:21,120 --> 00:05:23,960
Speaker 1: couldn't share less that profits lead to more investments that

98
00:05:24,040 --> 00:05:25,920
Speaker 1: lead to more productivity. They just want to get their

99
00:05:25,920 --> 00:05:29,479
Speaker 1: money back. So if you tell a borrower, UH, take

100
00:05:29,520 --> 00:05:31,200
Speaker 1: my money, but make sure you give it back to me,

101
00:05:31,400 --> 00:05:33,920
Speaker 1: all he's gonna do is to invest in the same

102
00:05:33,920 --> 00:05:35,880
Speaker 1: projects that work in the past. We're not going to

103
00:05:35,960 --> 00:05:39,240
Speaker 1: get the innovative investments that we need to draw productivity

104
00:05:39,400 --> 00:05:41,719
Speaker 1: and raise the standard of living among workers and the

105
00:05:41,760 --> 00:05:46,080
Speaker 1: rest of the world. Well, let's talk about the possibility

106
00:05:46,160 --> 00:05:50,120
Speaker 1: of getting a global minimum tax. We've already heard reports

107
00:05:50,240 --> 00:05:53,440
Speaker 1: that the UK wants to exempt the City of London,

108
00:05:53,800 --> 00:05:55,720
Speaker 1: and the City of London has a bigger GDP than

109
00:05:55,760 --> 00:05:58,920
Speaker 1: the Republic of Ireland. If we all start asking for

110
00:05:58,960 --> 00:06:01,839
Speaker 1: these little loophole holes, is it going to be possible

111
00:06:01,880 --> 00:06:04,760
Speaker 1: to get the kind of blanket global minimum tax that

112
00:06:04,839 --> 00:06:07,839
Speaker 1: they've set out for in the first place. This is

113
00:06:07,880 --> 00:06:10,800
Speaker 1: the slippery slope of getting exemptions and loopholes, And this

114
00:06:10,839 --> 00:06:12,800
Speaker 1: is the one thing that has made the tax system

115
00:06:12,839 --> 00:06:14,919
Speaker 1: in the United States and the rest of the world fail,

116
00:06:15,279 --> 00:06:17,919
Speaker 1: which is that creates so many loopholes that regardless of

117
00:06:17,960 --> 00:06:20,080
Speaker 1: what you do with the rate, the amount of revenue

118
00:06:20,279 --> 00:06:24,440
Speaker 1: you raise is actually much less than anticipated. So, Bill,

119
00:06:24,520 --> 00:06:27,359
Speaker 1: we're talking about the corporate tax rate, and the backdrop

120
00:06:27,480 --> 00:06:30,480
Speaker 1: of this is a huge question mark about the trajectory

121
00:06:30,520 --> 00:06:33,679
Speaker 1: of the global economy, whether we're heading into an inflationary period,

122
00:06:33,680 --> 00:06:36,719
Speaker 1: whether it's going to be disinflationary post the pandemic boost

123
00:06:36,720 --> 00:06:39,599
Speaker 1: boost that we're getting from consumer prices Where do you

124
00:06:39,640 --> 00:06:42,080
Speaker 1: stand on this, especially as we see the bond market

125
00:06:42,080 --> 00:06:45,720
Speaker 1: way in and say inflation is not a concern. Well, Lisa,

126
00:06:45,920 --> 00:06:48,600
Speaker 1: we I think are seeing the face of the new

127
00:06:48,800 --> 00:06:52,320
Speaker 1: shape of inflation in the post pandemic world. Supply side

128
00:06:52,360 --> 00:06:55,800
Speaker 1: induced price jumps. Now, price jumps that clear the market

129
00:06:55,800 --> 00:06:58,920
Speaker 1: because of supply shortages, to me, is not inflation. It's

130
00:06:58,960 --> 00:07:01,279
Speaker 1: not regardless inflation but of fit or any other central

131
00:07:01,279 --> 00:07:03,480
Speaker 1: bank Inflation of the sort that they worry about is

132
00:07:03,520 --> 00:07:08,320
Speaker 1: the corrosive increase in wages, costs, and prices that firms

133
00:07:08,400 --> 00:07:10,520
Speaker 1: fail to be able to keep up with that that

134
00:07:10,840 --> 00:07:14,080
Speaker 1: erode profit margins and and and worker and savings and

135
00:07:14,200 --> 00:07:18,920
Speaker 1: and and worker wages. That's kind of corrosive continuing rise

136
00:07:19,000 --> 00:07:22,200
Speaker 1: in prices that exceed expectations is the sort of thing

137
00:07:22,200 --> 00:07:24,600
Speaker 1: that everyone is watching for. But there's no sign that

138
00:07:24,680 --> 00:07:28,520
Speaker 1: the supply side price jumps, which is not inflation, uh,

139
00:07:28,640 --> 00:07:31,160
Speaker 1: is going to lead to that corrosive continuing inflation that

140
00:07:31,200 --> 00:07:34,280
Speaker 1: we had in the seventies. Billy, I want to end

141
00:07:34,560 --> 00:07:38,800
Speaker 1: on your wheelhouse, which is the Pacific rim Every indication

142
00:07:38,960 --> 00:07:42,520
Speaker 1: I see is of a pricing for boom. Now they

143
00:07:42,520 --> 00:07:46,200
Speaker 1: haven't had the fiscal stimulus the United States of America has.

144
00:07:46,240 --> 00:07:49,520
Speaker 1: But do you frame out over the next twelve twenty four,

145
00:07:49,720 --> 00:07:54,480
Speaker 1: thirty six months a Pacific RIM boom. I would love to,

146
00:07:54,680 --> 00:07:59,040
Speaker 1: but the kind of supply size, shortage, overhang and the

147
00:07:59,120 --> 00:08:02,280
Speaker 1: overhang of Chi in the Pacific RIM is really distorting

148
00:08:02,320 --> 00:08:04,040
Speaker 1: the picture of where growth it's going to come from.

149
00:08:04,280 --> 00:08:08,000
Speaker 1: The Pacific RIM has so much depended upon China as

150
00:08:08,040 --> 00:08:13,160
Speaker 1: an intermediary and also as a final demand market that

151
00:08:13,240 --> 00:08:16,560
Speaker 1: with without China coming online and and and being a

152
00:08:16,600 --> 00:08:18,960
Speaker 1: locomotive for the Pacific, it's going to be very difficult

153
00:08:19,000 --> 00:08:20,840
Speaker 1: for the rest of the country's to grow. Right now,

154
00:08:20,960 --> 00:08:25,200
Speaker 1: China has a dual strap, dual strategy of investing in itself,

155
00:08:25,600 --> 00:08:29,120
Speaker 1: developing inst domestic markets, and almost withdrawing from the world

156
00:08:29,160 --> 00:08:33,440
Speaker 1: except in very strategic ways. Strategic ways is to dominate

157
00:08:33,440 --> 00:08:36,720
Speaker 1: the supply chain in technology. Their phrase is so sensitive

158
00:08:36,720 --> 00:08:38,679
Speaker 1: and so current. I mean, we could talk to almost

159
00:08:38,679 --> 00:08:41,960
Speaker 1: Travidas about it. But Bill Lee to say that China

160
00:08:42,200 --> 00:08:45,720
Speaker 1: is withdrawing from the world, and yet our listeners and

161
00:08:45,800 --> 00:08:48,800
Speaker 1: viewers are are familiar with the expansion of the South

162
00:08:48,920 --> 00:08:51,720
Speaker 1: China see and of the Belt in the Road initiative,

163
00:08:52,040 --> 00:08:56,120
Speaker 1: which is it. They're withdrawing their domestic markets from the

164
00:08:56,160 --> 00:08:59,319
Speaker 1: world because they want to develop their technologies. They're expanding

165
00:08:59,360 --> 00:09:02,040
Speaker 1: the military political influence in the world because they want

166
00:09:02,080 --> 00:09:05,920
Speaker 1: to be recognized as a large country power and and

167
00:09:06,040 --> 00:09:09,080
Speaker 1: yet still have the benefits of w t O emerging

168
00:09:09,120 --> 00:09:11,199
Speaker 1: market status. They want to have their cake and eat

169
00:09:11,240 --> 00:09:13,360
Speaker 1: it too. And that's the tension that said is going

170
00:09:13,400 --> 00:09:16,480
Speaker 1: to have to deal with pairing these two ideas together,

171
00:09:16,520 --> 00:09:19,800
Speaker 1: this idea of where inflation is going and the fate

172
00:09:19,840 --> 00:09:22,920
Speaker 1: of China. I'm wondering how much the change in China's

173
00:09:22,960 --> 00:09:26,439
Speaker 1: economy is going to feature in the world inflation outlook.

174
00:09:26,440 --> 00:09:28,720
Speaker 1: The idea that China was the factory to the world,

175
00:09:29,000 --> 00:09:31,320
Speaker 1: it was the low cost factory, and it was importing

176
00:09:31,400 --> 00:09:35,600
Speaker 1: disinflation overseas. Now we have a very different China, a

177
00:09:35,640 --> 00:09:39,720
Speaker 1: lot wealthier, with drawing liquidity, trying to upgrade itself into

178
00:09:39,800 --> 00:09:44,120
Speaker 1: developed market status. How much does that reverse this disinflationary

179
00:09:44,120 --> 00:09:46,880
Speaker 1: trend that we've seen over the past twenty years. That's

180
00:09:46,880 --> 00:09:49,440
Speaker 1: a great question least because what we see about the

181
00:09:49,480 --> 00:09:51,840
Speaker 1: new face of inflation in China is happening right there.

182
00:09:52,080 --> 00:09:55,640
Speaker 1: The factory prices have gone up by uh and all

183
00:09:55,679 --> 00:09:58,120
Speaker 1: down to the supply chain. In China, we see more

184
00:09:58,120 --> 00:10:00,600
Speaker 1: and more pricing increases, and yet at the simmer level

185
00:10:00,800 --> 00:10:03,760
Speaker 1: we see prices going up at one. So what we

186
00:10:03,800 --> 00:10:07,360
Speaker 1: see is a profit margin squeeze because the Chinese don't

187
00:10:07,360 --> 00:10:10,040
Speaker 1: want to destroy the domestic economy, and they're putting in

188
00:10:10,120 --> 00:10:13,040
Speaker 1: price controls at the factory level to contain a lot

189
00:10:13,080 --> 00:10:15,559
Speaker 1: of these commodity price jumps. And I think that's a

190
00:10:15,640 --> 00:10:18,480
Speaker 1: very successful way that they're implementing to try to limit

191
00:10:18,760 --> 00:10:22,559
Speaker 1: the follow through of price jumps, preventing it from spiraling

192
00:10:22,559 --> 00:10:25,840
Speaker 1: into the corrosive inflation we had in the seventies. Billy,

193
00:10:25,920 --> 00:10:28,600
Speaker 1: thank you so much, greatly, greatly appreciated. With Michael Milkin

194
00:10:28,640 --> 00:10:38,760
Speaker 1: in the Milk and Institute their chief economists right now

195
00:10:38,800 --> 00:10:41,560
Speaker 1: on G seven and on these markets. It is thrilling

196
00:10:41,640 --> 00:10:44,160
Speaker 1: to give you your beach reading for the summer. It's

197
00:10:44,200 --> 00:10:46,280
Speaker 1: not a secret that my book of the summer is

198
00:10:46,320 --> 00:10:49,760
Speaker 1: two thousand thirty four. It is by Elliot Ackerman and

199
00:10:49,840 --> 00:10:55,400
Speaker 1: James Travitis. It is absolutely stunning. This is a scary,

200
00:10:56,000 --> 00:10:59,839
Speaker 1: dangerous book. It reeks of a Netflix movie. And maybe

201
00:11:00,000 --> 00:11:04,000
Speaker 1: will see that not your usual expectation from Admiral Stevinus,

202
00:11:04,080 --> 00:11:07,280
Speaker 1: but there is it is a triumph, the author joins us.

203
00:11:07,280 --> 00:11:10,400
Speaker 1: This morning, the former NATO commander James to vinis, I

204
00:11:10,440 --> 00:11:12,439
Speaker 1: want to go to the work of Richard hass And

205
00:11:12,600 --> 00:11:15,319
Speaker 1: is wonderful the world, and particularly John Muzheimer from the

206
00:11:15,400 --> 00:11:20,520
Speaker 1: University of Chicago, and it's your fault. They suggest with

207
00:11:20,679 --> 00:11:24,280
Speaker 1: respect that the G seven world and that the NATO

208
00:11:24,400 --> 00:11:29,040
Speaker 1: countries overreached and expanded too far east too quickly for

209
00:11:29,240 --> 00:11:33,280
Speaker 1: Mr Putin and Russia. Did NATO in Europe overreach to

210
00:11:33,400 --> 00:11:38,240
Speaker 1: pick up Eastern European countries? I don't think so. It's

211
00:11:38,280 --> 00:11:41,760
Speaker 1: always easy in hindsight to say, hey, we could, we

212
00:11:41,920 --> 00:11:45,120
Speaker 1: would oh we should have done something differently. Um, But

213
00:11:45,280 --> 00:11:48,320
Speaker 1: if I could rewind the clock to the days when

214
00:11:48,360 --> 00:11:51,760
Speaker 1: the when the wall fell, you've got to remember the

215
00:11:51,840 --> 00:11:55,760
Speaker 1: zeitgeist for the moment. They were not NATO tanks rolling

216
00:11:55,880 --> 00:12:01,040
Speaker 1: into Prague. There were not NATO aircraft flying over Warsaw.

217
00:12:01,280 --> 00:12:05,199
Speaker 1: Those countries were begging to join NATO, and they wanted

218
00:12:05,240 --> 00:12:07,880
Speaker 1: to join NATO because they've been under the boot of

219
00:12:07,920 --> 00:12:11,240
Speaker 1: the Soviet Union. I don't see in a real world

220
00:12:11,360 --> 00:12:14,560
Speaker 1: where we could have just said, now you stay over there.

221
00:12:14,920 --> 00:12:17,520
Speaker 1: We would have delivered them back to Russia would have

222
00:12:17,559 --> 00:12:20,200
Speaker 1: been a bad moment in my view long agoing far

223
00:12:20,240 --> 00:12:25,000
Speaker 1: away Admiral King and his gentlemen with their courage folks.

224
00:12:25,040 --> 00:12:27,600
Speaker 1: The Tom Anks movie of this year on the courage

225
00:12:27,600 --> 00:12:31,079
Speaker 1: of the Navy across the North Atlantic in nineteen forty one,

226
00:12:31,240 --> 00:12:34,199
Speaker 1: James Travitas, they got together off I believe Newfoundland and

227
00:12:34,240 --> 00:12:37,520
Speaker 1: did the Atlantic Charter. Now we have the politicians with

228
00:12:37,600 --> 00:12:41,040
Speaker 1: the TV moment doing a new Atlantic charter. Is there

229
00:12:41,040 --> 00:12:45,400
Speaker 1: any substance to this new Atlantic Charter? I don't think

230
00:12:45,480 --> 00:12:51,120
Speaker 1: there's anything new in the new Atlantic Charter, but that's okay.

231
00:12:51,240 --> 00:12:55,920
Speaker 1: What it reaffirms is this Transatlantic bridge that frankly has

232
00:12:55,960 --> 00:12:58,960
Speaker 1: been a little creaky for the last four years. Now

233
00:12:59,000 --> 00:13:03,200
Speaker 1: it's a gay strength gaining air speed. And I think

234
00:13:03,240 --> 00:13:06,880
Speaker 1: in this post bregsit moment, it makes geo political sense

235
00:13:06,960 --> 00:13:10,200
Speaker 1: to kind of draw a line under that relationship between

236
00:13:10,200 --> 00:13:13,320
Speaker 1: the United States and the United Kingdom. I'll close Tom

237
00:13:13,360 --> 00:13:16,920
Speaker 1: by saying, even as we're having this conversation, what ship

238
00:13:17,160 --> 00:13:22,920
Speaker 1: is at sea? The sixty thousand ton aircraft carrier Queen

239
00:13:22,960 --> 00:13:28,680
Speaker 1: Elizabeth with British escorts, British submarines, British auxiliary ships. We

240
00:13:28,679 --> 00:13:31,679
Speaker 1: would call that a carrier strike group, and it's headed

241
00:13:31,720 --> 00:13:34,960
Speaker 1: to the Indian Ocean and into the South China Sea.

242
00:13:35,280 --> 00:13:38,440
Speaker 1: They're a good ally to have James Travinus in your

243
00:13:38,440 --> 00:13:40,880
Speaker 1: book two thousand thirty four, folks, And I'm gonna be honest,

244
00:13:40,920 --> 00:13:43,560
Speaker 1: it's so damn good. I'm gonna be very careful here

245
00:13:43,640 --> 00:13:46,240
Speaker 1: not to give it away, but the heart and soul

246
00:13:46,400 --> 00:13:50,240
Speaker 1: of two thousand thirty four in our modern technology is

247
00:13:50,240 --> 00:13:53,640
Speaker 1: a lack of communication. It starts in that opening scene

248
00:13:53,760 --> 00:13:56,720
Speaker 1: in the South China. See how does this G seven

249
00:13:56,760 --> 00:14:01,320
Speaker 1: set up a communication process too? Of void your two

250
00:14:01,320 --> 00:14:06,400
Speaker 1: thousand thirty four, um, First and foremost it's about cyber

251
00:14:06,440 --> 00:14:10,680
Speaker 1: and cyber security and protecting our networks and by the way,

252
00:14:10,679 --> 00:14:14,920
Speaker 1: protecting undersea cables as well. That comes up in the book.

253
00:14:15,520 --> 00:14:20,800
Speaker 1: It's this, uh, putting together the technologies of cyber of space,

254
00:14:21,120 --> 00:14:25,160
Speaker 1: of undersea control, all of that has to be protected.

255
00:14:25,520 --> 00:14:28,640
Speaker 1: That's a job not just for NATO, because NATO's in

256
00:14:28,680 --> 00:14:31,760
Speaker 1: the end a regional alliance. That's a job for all

257
00:14:31,800 --> 00:14:34,480
Speaker 1: the democracies. I think that's going to be a significant

258
00:14:34,520 --> 00:14:37,800
Speaker 1: part of the conversation today in Cornwall. Admiral Steady is

259
00:14:37,840 --> 00:14:40,600
Speaker 1: there's a question about the alliance and how strong it

260
00:14:40,760 --> 00:14:45,040
Speaker 1: is and coming up with a strategy with respect to China. Uh,

261
00:14:45,280 --> 00:14:48,480
Speaker 1: there is. As we get the arrivals at the G seven,

262
00:14:48,520 --> 00:14:52,120
Speaker 1: we have Angele and Merkel German chancellor arriving in Germany

263
00:14:52,160 --> 00:14:55,160
Speaker 1: has an incredible trade partnership with China, even as it

264
00:14:55,200 --> 00:14:58,880
Speaker 1: does take a harder stance. How much of a consensus

265
00:14:59,040 --> 00:15:02,240
Speaker 1: is there on the right approach for the allies versus

266
00:15:02,320 --> 00:15:07,000
Speaker 1: China in terms of reconfiguring trade. I think that's the

267
00:15:07,160 --> 00:15:12,720
Speaker 1: through line for G seven tornato um and and in

268
00:15:12,760 --> 00:15:15,560
Speaker 1: fact the Atlantic Charter is all part of this. And

269
00:15:15,800 --> 00:15:18,880
Speaker 1: one central element to this, Lisa, that you'll be well

270
00:15:18,920 --> 00:15:23,200
Speaker 1: aware of are the Chinese claims of territorial ownership in

271
00:15:23,240 --> 00:15:26,360
Speaker 1: the South China Sea. We are pushing back on that

272
00:15:26,480 --> 00:15:30,320
Speaker 1: by driving our ships through those international waters. That's a

273
00:15:30,360 --> 00:15:35,440
Speaker 1: set piece that opens four. In the today's world. The

274
00:15:35,520 --> 00:15:38,760
Speaker 1: Brits are headed there, the French are doing it, the

275
00:15:38,880 --> 00:15:42,400
Speaker 1: Germans have pledged to send a ship there to stand

276
00:15:42,440 --> 00:15:45,400
Speaker 1: with us. A lot of it derives from concern about

277
00:15:45,560 --> 00:15:49,360
Speaker 1: human rights, but also your point about trade and access

278
00:15:49,440 --> 00:15:52,920
Speaker 1: to Chinese markets. Um. I think there's gonna be a

279
00:15:52,960 --> 00:15:58,280
Speaker 1: continuous conversation about China and Western China relations that run

280
00:15:58,320 --> 00:16:03,320
Speaker 1: from geopolitics to ge economics, to mercantile to market access.

281
00:16:03,560 --> 00:16:05,960
Speaker 1: How good of a job has the Western world done

282
00:16:06,000 --> 00:16:10,640
Speaker 1: at vaccine diplomacy, at shoring up support from regions near

283
00:16:10,680 --> 00:16:13,520
Speaker 1: the South China Sea in their outrage to try to

284
00:16:13,560 --> 00:16:16,520
Speaker 1: help us all get out of the pandemic versus China,

285
00:16:16,840 --> 00:16:19,280
Speaker 1: which has been more aggressive or at least aggressive on

286
00:16:19,360 --> 00:16:22,600
Speaker 1: a pr stands about their efforts on that front. Yeah,

287
00:16:22,640 --> 00:16:27,760
Speaker 1: this is a reflection of the clever, capable Chinese strategy

288
00:16:27,880 --> 00:16:30,840
Speaker 1: one Belt, One Road or sometimes called the Belt and

289
00:16:31,040 --> 00:16:35,240
Speaker 1: Road Initiative b r I. It's a clever strategy that

290
00:16:36,000 --> 00:16:41,160
Speaker 1: seeks to engage China geoeconomically in a mercantile fashion, and

291
00:16:41,560 --> 00:16:44,880
Speaker 1: vaccines have become part of that. That's why the president's

292
00:16:44,880 --> 00:16:50,360
Speaker 1: announcement of five million doses, no strings attached, fightser gold

293
00:16:50,400 --> 00:16:53,920
Speaker 1: standard coming from the United States. Uh, that's a big

294
00:16:53,920 --> 00:16:56,680
Speaker 1: deal and it kind of wraps together, if you will,

295
00:16:56,840 --> 00:17:02,560
Speaker 1: the three c's of the G seven, COVID, China, and cyber.

296
00:17:02,760 --> 00:17:06,879
Speaker 1: We've now hit all three of those. Must venis Anglo

297
00:17:06,920 --> 00:17:09,679
Speaker 1: Medicare is about ready to descend upon her last G

298
00:17:09,840 --> 00:17:13,280
Speaker 1: seven meeting at sixty six years old. She is esteemed

299
00:17:13,280 --> 00:17:18,879
Speaker 1: and venerated. She is a quantum chemist from Eaton, eastern Germany.

300
00:17:18,960 --> 00:17:23,280
Speaker 1: What has been her chemistry? Her impact on the Western world,

301
00:17:23,560 --> 00:17:27,520
Speaker 1: your tour of duty at NATO and after that. I

302
00:17:27,640 --> 00:17:31,760
Speaker 1: met with the Chancellor many, many times, and honestly, there

303
00:17:31,840 --> 00:17:34,600
Speaker 1: is no leader that I would put above her in

304
00:17:34,720 --> 00:17:38,880
Speaker 1: terms of her integrity, her willingness to make hard decisions.

305
00:17:38,920 --> 00:17:42,520
Speaker 1: Germany and nation of eighty million, took in a million

306
00:17:42,640 --> 00:17:46,520
Speaker 1: refugees from Syria. The United States took in less than

307
00:17:46,560 --> 00:17:51,119
Speaker 1: twenty thousand. She made the hard political choices. She's a

308
00:17:51,280 --> 00:17:55,360
Speaker 1: four term chancellor. She's like f DR elected four times

309
00:17:55,400 --> 00:18:00,359
Speaker 1: to office. I cannot say enough good about Angelo Meracle.

310
00:18:00,640 --> 00:18:03,800
Speaker 1: I hope she does not go gently into that good

311
00:18:03,920 --> 00:18:06,520
Speaker 1: night back to a physics lab somewhere, and I don't

312
00:18:06,520 --> 00:18:08,959
Speaker 1: think she will. She's got my vote to be the

313
00:18:09,000 --> 00:18:12,359
Speaker 1: Secretary General of the United Nations. Well there you go.

314
00:18:13,240 --> 00:18:16,359
Speaker 1: Servin is working on the resume for miracle U. Matt

315
00:18:16,440 --> 00:18:19,159
Speaker 1: Miller is in Berlin, and of course she celebrates a

316
00:18:19,240 --> 00:18:24,760
Speaker 1: political domestic victory Matt in the recent days. In recent days,

317
00:18:24,800 --> 00:18:27,280
Speaker 1: but you know those polls come and those polls go.

318
00:18:27,720 --> 00:18:30,960
Speaker 1: I think, Um, the Admiral's point is an interesting one.

319
00:18:31,200 --> 00:18:34,160
Speaker 1: Miracle would make a great secretary general. When I attended

320
00:18:34,160 --> 00:18:38,080
Speaker 1: the G twenty meeting in Hamburg, she got a standing

321
00:18:38,200 --> 00:18:42,359
Speaker 1: ovation from all of the other leaders when she entered

322
00:18:42,400 --> 00:18:46,320
Speaker 1: the the the the opera hall. There. At the end

323
00:18:46,320 --> 00:18:50,480
Speaker 1: of the meeting, she essentially was leading the G twenty.

324
00:18:50,560 --> 00:18:52,520
Speaker 1: And it'll be interesting to see what she can do

325
00:18:52,720 --> 00:18:55,760
Speaker 1: here at the G seven. To me, Admiral, the interesting um,

326
00:18:55,800 --> 00:18:58,840
Speaker 1: the most interesting thing about Miracle is all of the

327
00:18:59,600 --> 00:19:02,160
Speaker 1: all of the good deeds she's done you just listed,

328
00:19:02,280 --> 00:19:05,439
Speaker 1: and yet she is so insistent on building this Nords

329
00:19:05,480 --> 00:19:11,240
Speaker 1: dream to pipeline to Russia, essentially funding you know, billions,

330
00:19:11,359 --> 00:19:16,000
Speaker 1: hundreds of billions of dollars to Vladimir Putin um to

331
00:19:16,200 --> 00:19:20,960
Speaker 1: finance things like the annexation of Crimea. Why. I think

332
00:19:21,000 --> 00:19:23,600
Speaker 1: it would be hard to find any leader who backs

333
00:19:24,040 --> 00:19:27,159
Speaker 1: a thousand. In other words, uh, I think all of

334
00:19:27,240 --> 00:19:29,840
Speaker 1: us can look at any of our leaders and say, hey,

335
00:19:29,880 --> 00:19:32,080
Speaker 1: you got this one wrong, you got that one wrong.

336
00:19:32,160 --> 00:19:35,560
Speaker 1: To to the pipeline question, Miracle, I would say to

337
00:19:35,640 --> 00:19:39,879
Speaker 1: her Chancellor, you've got that one wrong. And it reflects

338
00:19:40,280 --> 00:19:44,560
Speaker 1: her sometimes our greatest strength can be our greatest weakness.

339
00:19:44,960 --> 00:19:48,120
Speaker 1: Um and in many ways she wants to build consensus.

340
00:19:48,119 --> 00:19:51,720
Speaker 1: She wants to pull Russia to the west. There's a

341
00:19:51,800 --> 00:19:55,800
Speaker 1: strategic sense to that, but it won't work with Vladimir Putin.

342
00:19:56,080 --> 00:19:59,879
Speaker 1: Therefore I would score her less perfect on that. For

343
00:20:00,000 --> 00:20:05,880
Speaker 1: particular point, Venus, if you've framed out Russia after Putin,

344
00:20:06,480 --> 00:20:09,639
Speaker 1: I guess none of us are doing that. Miracle is

345
00:20:09,680 --> 00:20:13,680
Speaker 1: thinking forward always, as you say, the Chancellor and others,

346
00:20:14,200 --> 00:20:18,200
Speaker 1: what does Russia look like pulled to the west after Putin?

347
00:20:19,520 --> 00:20:22,239
Speaker 1: Let's hope it happens. And if you look at the

348
00:20:22,320 --> 00:20:25,719
Speaker 1: history of Russia in terms of leaders, you roll the

349
00:20:25,760 --> 00:20:29,320
Speaker 1: cosmic dice. Sometimes you get Peter the Great, the next

350
00:20:29,359 --> 00:20:32,760
Speaker 1: time you get Ivan the Terrible, you get a Joseph Stalin,

351
00:20:33,040 --> 00:20:36,280
Speaker 1: then you get a Gorba job those dice landed on

352
00:20:36,359 --> 00:20:38,879
Speaker 1: Vladimir Putin. He will be the Tsar of all the

353
00:20:38,960 --> 00:20:43,320
Speaker 1: Russians still the day he dies. He's alive in four

354
00:20:43,400 --> 00:20:47,240
Speaker 1: as an octogenarian. But what comes afterward. Let's hope the

355
00:20:47,320 --> 00:20:51,080
Speaker 1: dice land on a different kind of leader. It's possible

356
00:20:51,119 --> 00:20:54,720
Speaker 1: if you look at Russian history, the strategic opening to

357
00:20:54,880 --> 00:20:58,840
Speaker 1: pull Russia away from China is a powerful moment for

358
00:20:58,880 --> 00:21:02,879
Speaker 1: the West. It won't come into Vladimir Putin passes on

359
00:21:02,960 --> 00:21:06,040
Speaker 1: to the Great Commune in the Sky. James Travides, thank

360
00:21:06,080 --> 00:21:13,800
Speaker 1: you so much for joining us this morning. Folks. We're

361
00:21:13,800 --> 00:21:16,280
Speaker 1: gonna get all the answers to the bond market mysteries

362
00:21:16,320 --> 00:21:20,120
Speaker 1: to Badra. Japa has them all. She's standing by ceciatasion

363
00:21:20,200 --> 00:21:22,359
Speaker 1: or our ahead of us rate strategy. And there is

364
00:21:22,400 --> 00:21:25,840
Speaker 1: this question of what has been behind the incredible rally

365
00:21:26,119 --> 00:21:28,439
Speaker 1: in ten your treasuries. I was saying, a lot of

366
00:21:28,440 --> 00:21:32,640
Speaker 1: people are attributing it to a short squeeze. Is that it? Well,

367
00:21:32,680 --> 00:21:35,040
Speaker 1: I think it's one of many factors. Right, You're definitely

368
00:21:35,080 --> 00:21:39,520
Speaker 1: seeing a little bit of positioning being very skewed towards shorts,

369
00:21:39,560 --> 00:21:42,240
Speaker 1: and typically when you see, uh, you know, when position

370
00:21:42,280 --> 00:21:45,679
Speaker 1: gets a little bit skewed, you tennessee a short covering rally.

371
00:21:46,280 --> 00:21:49,439
Speaker 1: But it's also you're seeing very very strong demand coming

372
00:21:49,520 --> 00:21:54,200
Speaker 1: from you know, real money accounts, overseas accounts. In auctions

373
00:21:54,240 --> 00:21:56,800
Speaker 1: this week, if you look at the auction metrics, both

374
00:21:56,840 --> 00:21:59,399
Speaker 1: indirects as well as directs, you know the participation has

375
00:21:59,440 --> 00:22:02,399
Speaker 1: been very very strong. So the primary dealers are not

376
00:22:02,480 --> 00:22:05,919
Speaker 1: taking down these auctions. It's real money investors and end

377
00:22:05,960 --> 00:22:08,639
Speaker 1: investors that are taking down this auction. So it's a

378
00:22:08,680 --> 00:22:11,600
Speaker 1: combination of positioning as well as strong demand from end

379
00:22:11,600 --> 00:22:15,160
Speaker 1: investors for treasuries, which I think is kind of counterintuitive.

380
00:22:15,200 --> 00:22:18,480
Speaker 1: Like you pointed out, at this stage in the recovery,

381
00:22:18,800 --> 00:22:22,080
Speaker 1: you shouldn't be expecting a gradual rising yields. So in

382
00:22:22,119 --> 00:22:24,280
Speaker 1: some respects, the sort of rally that we've seen in

383
00:22:24,280 --> 00:22:26,119
Speaker 1: the last week, at least to me, is somewhat countered

384
00:22:26,160 --> 00:22:28,880
Speaker 1: you do. So that really raises the question how much

385
00:22:29,040 --> 00:22:31,320
Speaker 1: does this rally have legs or is this a one off,

386
00:22:31,520 --> 00:22:36,520
Speaker 1: a sort of positional shakeout that's poised to reverse. I

387
00:22:36,560 --> 00:22:39,040
Speaker 1: think I'm more in the camp that you know, once

388
00:22:39,080 --> 00:22:42,199
Speaker 1: we get this position shakeout, we should see, uh, you know,

389
00:22:42,320 --> 00:22:46,080
Speaker 1: yields start to head ever so gradually towards you know,

390
00:22:46,240 --> 00:22:49,720
Speaker 1: a higher trajectory. And in some respects where we are

391
00:22:49,880 --> 00:22:52,720
Speaker 1: right now is very similar to what we saw earlier

392
00:22:52,720 --> 00:22:55,439
Speaker 1: on this year, you know, in tenny yields where eighty

393
00:22:55,560 --> 00:22:58,600
Speaker 1: or ninety basis points. When we began the year, we

394
00:22:58,640 --> 00:23:00,440
Speaker 1: thought the world would come to an end when tenny

395
00:23:00,520 --> 00:23:03,440
Speaker 1: yields got to the Fed's definitely gonna, you know, talk

396
00:23:03,480 --> 00:23:05,439
Speaker 1: down the market. They're not gonna let yields rise to one.

397
00:23:06,400 --> 00:23:08,440
Speaker 1: Guess what the FED just stepped aside and said, you

398
00:23:08,480 --> 00:23:11,920
Speaker 1: know what, it's okay for yields to rise. We're exactly

399
00:23:11,960 --> 00:23:15,119
Speaker 1: at that same juncture heading into the June meeting where

400
00:23:15,119 --> 00:23:19,439
Speaker 1: tenny years at one forty five, the FED is gradually

401
00:23:19,440 --> 00:23:22,439
Speaker 1: thinking about carrying back acid purchases. They're gonna look at

402
00:23:22,680 --> 00:23:25,120
Speaker 1: tens at one forty five, equities at all time highs

403
00:23:25,200 --> 00:23:27,000
Speaker 1: and say, you know what, we have a little bit

404
00:23:27,000 --> 00:23:29,119
Speaker 1: more room to sound a little bit more hawkish on

405
00:23:29,160 --> 00:23:32,359
Speaker 1: the market, and it yields right, So right, so what

406
00:23:32,760 --> 00:23:34,640
Speaker 1: you know, there's a lot more room for yields to rise.

407
00:23:35,000 --> 00:23:37,280
Speaker 1: So that's kind of where I you know, I think

408
00:23:37,280 --> 00:23:40,000
Speaker 1: the big risk heading into next week is that there's

409
00:23:40,000 --> 00:23:42,280
Speaker 1: a there's a decent out of complacency in the bond

410
00:23:42,320 --> 00:23:45,120
Speaker 1: market that the Fed's going to keep things status Well,

411
00:23:45,200 --> 00:23:47,159
Speaker 1: we'll talk a little bit more about the complacency, and

412
00:23:47,160 --> 00:23:50,960
Speaker 1: I guess the potential here is sabadra for volatility. Should

413
00:23:51,000 --> 00:23:53,800
Speaker 1: we finally start to get a little bit clearer communication

414
00:23:53,840 --> 00:23:56,200
Speaker 1: about the FED, Because while they may be standing pat

415
00:23:56,320 --> 00:23:58,040
Speaker 1: right now. I mean, they've also made it clear that

416
00:23:58,280 --> 00:24:00,480
Speaker 1: at some point things are going up, and we're going

417
00:24:00,560 --> 00:24:03,320
Speaker 1: to get that communication, some sort of roadmap hopefully soon.

418
00:24:03,720 --> 00:24:05,880
Speaker 1: And I'm wondering as we start to drift lower here

419
00:24:05,880 --> 00:24:08,840
Speaker 1: whether that just sets us up for a more volatile

420
00:24:08,840 --> 00:24:12,240
Speaker 1: spike higher at some point soon. Yeah, I know, definitely,

421
00:24:12,280 --> 00:24:14,240
Speaker 1: I think that there's I think the summer itself is

422
00:24:14,240 --> 00:24:16,960
Speaker 1: going to be somewhat more volity. It's not just fed

423
00:24:17,000 --> 00:24:19,760
Speaker 1: communication that good spur bolatility from here on, it's also

424
00:24:19,800 --> 00:24:22,119
Speaker 1: the data. If there's anything we've learned in the last

425
00:24:22,160 --> 00:24:23,879
Speaker 1: couple of months, it's that you can't just turn on

426
00:24:23,960 --> 00:24:26,920
Speaker 1: a switch and have the economy come back online. There's

427
00:24:26,920 --> 00:24:29,680
Speaker 1: just a lot of bottlenecks that each behind out. Uh.

428
00:24:29,720 --> 00:24:32,240
Speaker 1: You know, there's there's data that we're going to get

429
00:24:32,359 --> 00:24:34,760
Speaker 1: that that you know, we don't know. The trajectory for

430
00:24:34,760 --> 00:24:37,639
Speaker 1: employment is it turns out to be a lot slower

431
00:24:37,640 --> 00:24:39,520
Speaker 1: than what we're anticipating. It's not going to be a

432
00:24:39,560 --> 00:24:43,360
Speaker 1: million dollar jobs per month, So you know, at least

433
00:24:43,400 --> 00:24:46,080
Speaker 1: till till we get through the third second quarder and

434
00:24:46,240 --> 00:24:48,160
Speaker 1: third quarder, I think we're going to see a little

435
00:24:48,200 --> 00:24:51,960
Speaker 1: of all, Clilady, the data and the FED is long overdue.

436
00:24:51,960 --> 00:24:54,200
Speaker 1: I would say, in my opinion, to start thinking about

437
00:24:54,800 --> 00:24:57,840
Speaker 1: tapering acid purchases and communicating those intentions. And I think

438
00:24:57,840 --> 00:25:00,720
Speaker 1: that those intentions are going to start getting communicated as

439
00:25:00,720 --> 00:25:04,639
Speaker 1: early as next week on a strategy basis. So Brita,

440
00:25:05,320 --> 00:25:09,440
Speaker 1: with where we are, what does CFOs do? Do you look?

441
00:25:09,600 --> 00:25:11,600
Speaker 1: I mean, is the great unspoken here? There's going to

442
00:25:11,680 --> 00:25:14,560
Speaker 1: be a wall of bond issuance coming out in the

443
00:25:14,600 --> 00:25:17,479
Speaker 1: next six months. I mean I've lost track of you know,

444
00:25:17,520 --> 00:25:20,080
Speaker 1: what the corporations are actually gonna do. Are they going

445
00:25:20,119 --> 00:25:23,439
Speaker 1: to pile on more debt? Yeah? I mean I think

446
00:25:23,480 --> 00:25:25,840
Speaker 1: if interestrates a that's what you should be doing, right

447
00:25:26,040 --> 00:25:31,879
Speaker 1: boring as Yeah, and you know, there's there's definitely a

448
00:25:31,920 --> 00:25:34,160
Speaker 1: case to be made, and it's already happened. I mean

449
00:25:34,480 --> 00:25:37,200
Speaker 1: a good portion of this year we've seen tremendous amounts

450
00:25:37,200 --> 00:25:40,359
Speaker 1: of corporate bond issuance. What's really interesting is the amount

451
00:25:40,359 --> 00:25:42,800
Speaker 1: of demand has been from ended masters for all this

452
00:25:42,960 --> 00:25:45,280
Speaker 1: issuance that's coming to the market. I mean, whether it

453
00:25:45,359 --> 00:25:49,600
Speaker 1: be investment grade or high yield, spreads are extraordinarily tight,

454
00:25:50,160 --> 00:25:53,240
Speaker 1: so you know, and this demand continues. That's where I

455
00:25:53,280 --> 00:25:55,760
Speaker 1: wanted to go, this idea that high yield bonds are

456
00:25:55,800 --> 00:25:59,040
Speaker 1: now yielding one basis point away from the lowest ever

457
00:25:59,320 --> 00:26:02,080
Speaker 1: sub four percent. We're looking at three point eight nine

458
00:26:02,119 --> 00:26:05,160
Speaker 1: percent on high old bonds, and the record sales pace

459
00:26:05,240 --> 00:26:07,800
Speaker 1: has been absolutely employ your sox off. I mean, basically,

460
00:26:07,840 --> 00:26:09,760
Speaker 1: that's the c f A term. Tom. There is a

461
00:26:09,840 --> 00:26:12,639
Speaker 1: question about the moral hazard here, the idea of the

462
00:26:12,680 --> 00:26:16,280
Speaker 1: complacency of a low rate regime here on out tied

463
00:26:16,400 --> 00:26:20,080
Speaker 1: with companies selling bonds to raise money to buy bitcoin,

464
00:26:20,359 --> 00:26:23,320
Speaker 1: like the micro Strategy bond, to raise money to pay dividends,

465
00:26:23,720 --> 00:26:26,239
Speaker 1: to pay money to the private equity ownership. At what

466
00:26:26,359 --> 00:26:28,399
Speaker 1: point does this become a problem or are we in

467
00:26:28,440 --> 00:26:32,679
Speaker 1: a never ending a cycle of ever lower yields. So

468
00:26:32,720 --> 00:26:34,920
Speaker 1: I was listening to Romaine earlier on and he was saying,

469
00:26:34,920 --> 00:26:37,040
Speaker 1: at some point there's going to be a correction. So

470
00:26:37,080 --> 00:26:40,439
Speaker 1: I'm kind of in that same camp that, you know,

471
00:26:40,600 --> 00:26:43,680
Speaker 1: things do get a little bit out of hand and

472
00:26:43,720 --> 00:26:45,640
Speaker 1: then you're going to see some sort of a correction,

473
00:26:45,920 --> 00:26:48,400
Speaker 1: and for that to happen, it's going to come from

474
00:26:48,440 --> 00:26:51,840
Speaker 1: a change in the policy stands right now, you know,

475
00:26:51,880 --> 00:26:55,639
Speaker 1: the FEDS, you know, keeping its asset purchases. At some

476
00:26:55,720 --> 00:26:58,399
Speaker 1: point when they start tapering asset purchases, these real yields

477
00:26:58,440 --> 00:27:01,560
Speaker 1: that you're seeing a negative of nine two basis points

478
00:27:01,680 --> 00:27:04,879
Speaker 1: negative one are going to have to move higher. And

479
00:27:04,920 --> 00:27:07,760
Speaker 1: guess what when when really you start moving higher in

480
00:27:07,760 --> 00:27:11,640
Speaker 1: a steady systematic way because it fed's trying to remove accommodation.

481
00:27:12,080 --> 00:27:14,560
Speaker 1: This is going to have an impact on on risky assets.

482
00:27:14,920 --> 00:27:17,800
Speaker 1: So we're not there yet. It's really hard to time this,

483
00:27:18,280 --> 00:27:21,920
Speaker 1: but definitely that's that's a risk in the horizon's brout

484
00:27:21,960 --> 00:27:24,680
Speaker 1: to thank you so much, harp so to drop of

485
00:27:24,720 --> 00:27:28,760
Speaker 1: there from society general on US rates and the derivative

486
00:27:28,840 --> 00:27:31,840
Speaker 1: heritage of such in there, on the dynamics of these

487
00:27:32,000 --> 00:27:35,160
Speaker 1: rates and the major dynamics in shock and awe here.

488
00:27:40,760 --> 00:27:45,080
Speaker 1: One of the great hallmarks of securities research is how

489
00:27:45,200 --> 00:27:47,440
Speaker 1: you read the research. And one of the you know,

490
00:27:47,640 --> 00:27:49,879
Speaker 1: I literally I do lectures on this, folks. You get

491
00:27:49,920 --> 00:27:52,120
Speaker 1: a four page report and as a way to read

492
00:27:52,119 --> 00:27:54,560
Speaker 1: it in twenty two seconds and get what's out of it.

493
00:27:55,080 --> 00:27:58,119
Speaker 1: And then there's the fifteen page report and you do that,

494
00:27:58,880 --> 00:28:01,280
Speaker 1: and then there's Paul him are you This goes way

495
00:28:01,359 --> 00:28:06,160
Speaker 1: back the reports some kidder pebody behere you go. Damn,

496
00:28:06,280 --> 00:28:08,920
Speaker 1: I've got to read this whole thing. It was Joe

497
00:28:09,000 --> 00:28:12,800
Speaker 1: Almato's fault. It was his fault. Was like that, and

498
00:28:12,880 --> 00:28:17,159
Speaker 1: he went through a story career in securities research. And

499
00:28:17,600 --> 00:28:20,880
Speaker 1: I would suggest the integrity of it. It wasn't about

500
00:28:20,960 --> 00:28:25,800
Speaker 1: by hold cell. It was about inform you about where

501
00:28:25,880 --> 00:28:30,280
Speaker 1: the company fit in within sector in terms of growth evaluation.

502
00:28:30,800 --> 00:28:33,679
Speaker 1: And there wasn't a Motto heritage there, heritage there all

503
00:28:33,680 --> 00:28:35,560
Speaker 1: the way up to Lehman Brothers and and Tom. I

504
00:28:35,680 --> 00:28:38,000
Speaker 1: first bumped into Joe Motto when I was a young analyst.

505
00:28:38,040 --> 00:28:40,000
Speaker 1: I interviewed when he was a director of research at

506
00:28:40,120 --> 00:28:43,240
Speaker 1: Lehman Brothers for media research analyst position and boy, the

507
00:28:43,360 --> 00:28:47,280
Speaker 1: team he said, he probably it was. It was fun.

508
00:28:47,360 --> 00:28:48,760
Speaker 1: We had a we had a good discussion. He had

509
00:28:48,800 --> 00:28:50,760
Speaker 1: a great team there. Joe, thanks so much for joining

510
00:28:50,800 --> 00:28:52,240
Speaker 1: us here at Joe A Motto. He's a new Burger

511
00:28:52,280 --> 00:28:57,080
Speaker 1: Berman President and chief investment officer. Um, Joe, thanks so

512
00:28:57,160 --> 00:28:59,080
Speaker 1: much for joining us here. I mean, you've had such

513
00:28:59,120 --> 00:29:02,280
Speaker 1: a storied career, have seen at all? What are you

514
00:29:02,480 --> 00:29:06,320
Speaker 1: telling your clients here as they think about I got

515
00:29:06,400 --> 00:29:09,640
Speaker 1: a global reopening of this economy like we've never seen before.

516
00:29:10,080 --> 00:29:14,160
Speaker 1: What do I do? Well, good morning, and thanks for

517
00:29:14,240 --> 00:29:18,680
Speaker 1: having me, and thanks certainly for those kind words. Um uh, Well,

518
00:29:18,880 --> 00:29:23,520
Speaker 1: we are certainly uh constructive on the outlook, and we're

519
00:29:24,080 --> 00:29:26,200
Speaker 1: you know, we're talking with clients about the strength of

520
00:29:26,320 --> 00:29:30,520
Speaker 1: the global growth recovery that is clearly in in in

521
00:29:30,680 --> 00:29:34,239
Speaker 1: full swing and how to position oneself for that, uh,

522
00:29:34,440 --> 00:29:38,880
Speaker 1: certainly talking through the inflation risks and the rate outlook.

523
00:29:38,920 --> 00:29:42,000
Speaker 1: All that are quite relevant to how one looks at,

524
00:29:42,760 --> 00:29:45,000
Speaker 1: you know, an acid allocation across the board, whether it

525
00:29:45,040 --> 00:29:47,440
Speaker 1: be in equities or fixed income or what have you.

526
00:29:47,560 --> 00:29:50,520
Speaker 1: But but bottom line is, we're you know, we're constructive

527
00:29:50,560 --> 00:29:54,120
Speaker 1: on risk assets. We see the outlook uh is a

528
00:29:54,200 --> 00:29:57,640
Speaker 1: positive one. We're probably going to achieve record earnings. I know,

529
00:29:57,760 --> 00:30:00,440
Speaker 1: lots of folks have been talking about achieving record uh

530
00:30:00,960 --> 00:30:03,880
Speaker 1: levels in equity valuations right now. But you're also going

531
00:30:03,920 --> 00:30:08,880
Speaker 1: to see equity earnings UM at record levels. So Joe,

532
00:30:09,080 --> 00:30:12,160
Speaker 1: you know, coming out of the financial crisis, Um, you know,

533
00:30:12,280 --> 00:30:15,880
Speaker 1: the great bullmarket coming out of financial crisis was driven

534
00:30:15,920 --> 00:30:20,200
Speaker 1: in large part by these big tech growth stocks that

535
00:30:20,320 --> 00:30:24,440
Speaker 1: work so well uh for most investors. Yet we see

536
00:30:24,480 --> 00:30:27,800
Speaker 1: a nice rotation into more cyclical kind of sectors of

537
00:30:27,840 --> 00:30:32,080
Speaker 1: this economy. I'm thinking, uh, energy, financials. Where do you

538
00:30:32,200 --> 00:30:35,960
Speaker 1: guys see the performance coming from over the next twelve

539
00:30:36,000 --> 00:30:39,840
Speaker 1: to twenty four months. Well, right now, we're we're definitely

540
00:30:40,200 --> 00:30:44,400
Speaker 1: positive toward the value sector, the cyclical sector. We think

541
00:30:44,440 --> 00:30:47,960
Speaker 1: there's more legs to the economic recovery here that you

542
00:30:48,040 --> 00:30:51,520
Speaker 1: can position oneself for to take advantage of it. In

543
00:30:51,680 --> 00:30:54,240
Speaker 1: that In that time frame that you're that you're talking about,

544
00:30:55,000 --> 00:30:58,920
Speaker 1: it's we're going to see economic growth levels GDP levels

545
00:30:58,960 --> 00:31:00,640
Speaker 1: that we haven't seen in a in a long time,

546
00:31:00,920 --> 00:31:02,800
Speaker 1: and I think you want to be positioned for that.

547
00:31:03,000 --> 00:31:07,600
Speaker 1: And during periods of accelerating economic activity, you want to

548
00:31:07,640 --> 00:31:10,640
Speaker 1: be positioned in cyclicals and and and value stocks. And

549
00:31:10,760 --> 00:31:13,160
Speaker 1: that's what you've seen has been working. As you think

550
00:31:13,200 --> 00:31:18,400
Speaker 1: beyond that time frame, one debate we certainly have internally

551
00:31:18,600 --> 00:31:21,880
Speaker 1: is what level of sustainable sort of trend line growth

552
00:31:22,440 --> 00:31:25,320
Speaker 1: you're going to see out to three years from now.

553
00:31:25,520 --> 00:31:27,760
Speaker 1: And we do think the growth is going to slow down,

554
00:31:28,440 --> 00:31:30,960
Speaker 1: and during that period of slow down, you typically will

555
00:31:31,160 --> 00:31:34,040
Speaker 1: rotate back into your secular growers. I don't think it's

556
00:31:34,120 --> 00:31:36,080
Speaker 1: time for that yet, but it is something that you

557
00:31:36,160 --> 00:31:39,440
Speaker 1: know we're thinking about as we as we position position

558
00:31:39,520 --> 00:31:43,960
Speaker 1: portfolios for for long term um uh investment. Joe about it.

559
00:31:44,000 --> 00:31:47,360
Speaker 1: You guys are very sophisticated investors. I think in Charles

560
00:31:47,480 --> 00:31:50,560
Speaker 1: Cantor and his leadership in the equity market, so many

561
00:31:50,600 --> 00:31:54,080
Speaker 1: many others at Newburger Berman, I want you to talk

562
00:31:54,440 --> 00:31:58,160
Speaker 1: to what our listeners are living, which is active passive

563
00:31:59,320 --> 00:32:03,000
Speaker 1: the giant ormous successive passive Joe, j enormous c f

564
00:32:03,080 --> 00:32:06,680
Speaker 1: A word incasion. An familiar with that, but but passive

565
00:32:06,840 --> 00:32:11,320
Speaker 1: is taken over state the case for active Charles Cantor

566
00:32:11,440 --> 00:32:15,880
Speaker 1: like management insecurities research where there's no money in it

567
00:32:16,000 --> 00:32:18,880
Speaker 1: for the street anymore. Six cents used to be big living.

568
00:32:18,960 --> 00:32:23,880
Speaker 1: It's gone. Tell me how we move forward doing active research.

569
00:32:26,040 --> 00:32:30,200
Speaker 1: We still certainly believe that there are real benefits that

570
00:32:30,400 --> 00:32:36,480
Speaker 1: will enhance ultimately returns by doing good, bottom up fundamental research,

571
00:32:36,720 --> 00:32:41,040
Speaker 1: and they're they're still in our view even in markets

572
00:32:41,120 --> 00:32:44,239
Speaker 1: like large cap us which often as I describe as

573
00:32:44,320 --> 00:32:48,520
Speaker 1: ground zero for the active passive debate. Even in that market,

574
00:32:48,600 --> 00:32:51,360
Speaker 1: their pockets of inefficiency that you could take advantage of.

575
00:32:51,920 --> 00:32:55,160
Speaker 1: The challenge active managers have had is when that handful

576
00:32:55,400 --> 00:32:57,640
Speaker 1: of whether you want to call it fang or just

577
00:32:57,800 --> 00:33:01,000
Speaker 1: do super large cap stocks do well. It's very hard

578
00:33:01,080 --> 00:33:04,320
Speaker 1: for an active manager to out perform because very few

579
00:33:04,320 --> 00:33:08,160
Speaker 1: active managers are going to be way overweight five stocks

580
00:33:08,200 --> 00:33:11,520
Speaker 1: that represent thirty of the index. But but as you

581
00:33:11,600 --> 00:33:16,520
Speaker 1: see in small cap land, in non US world, emerging markets, world,

582
00:33:16,560 --> 00:33:20,160
Speaker 1: active managers actually have had a more sustained level of

583
00:33:21,480 --> 00:33:26,080
Speaker 1: of performance relative to indices, and and so you know,

584
00:33:26,160 --> 00:33:29,000
Speaker 1: we we don't just look at large cap US. That's

585
00:33:29,040 --> 00:33:32,120
Speaker 1: been tough. It's been better recently because as the fang

586
00:33:32,200 --> 00:33:34,360
Speaker 1: stocks have slowed down a bit, it's given opportunity for

587
00:33:34,400 --> 00:33:37,440
Speaker 1: active manager to show to show their wares. And the

588
00:33:37,480 --> 00:33:42,640
Speaker 1: other point I would make is in engaging companies and

589
00:33:42,840 --> 00:33:47,600
Speaker 1: acting like active owners and real shareholders, because as you know, Tom,

590
00:33:47,680 --> 00:33:50,120
Speaker 1: we invest for you know, the long term. We're not

591
00:33:50,200 --> 00:33:55,400
Speaker 1: We're not a high frequency trader. If you will not, uh,

592
00:33:55,760 --> 00:34:01,440
Speaker 1: you know that Engaging companies, being response sable owners, whether

593
00:34:01,440 --> 00:34:06,600
Speaker 1: it be capital allocation decisions, the board makeup, compensation of

594
00:34:06,680 --> 00:34:09,319
Speaker 1: the alignment of the senior executives, are all important things

595
00:34:09,880 --> 00:34:12,400
Speaker 1: that I think active manager has been an enormous amount

596
00:34:12,440 --> 00:34:16,239
Speaker 1: of the table. What about diverse diversification or is Peter

597
00:34:16,360 --> 00:34:19,040
Speaker 1: Lynch would say diversification. I mean if in this mill,

598
00:34:19,200 --> 00:34:21,400
Speaker 1: you in this oddity of I don't know where the

599
00:34:21,480 --> 00:34:24,360
Speaker 1: risk free rate is. Maybe you know, but I don't.

600
00:34:25,480 --> 00:34:29,640
Speaker 1: Do you approach this less diversified or more diversified than

601
00:34:29,719 --> 00:34:34,400
Speaker 1: what we were trained as well? If I would, I

602
00:34:34,400 --> 00:34:37,799
Speaker 1: would think about in components. If you're thinking just intra equities,

603
00:34:38,320 --> 00:34:40,719
Speaker 1: I think it pays to be diversified. If you look

604
00:34:40,760 --> 00:34:44,680
Speaker 1: at the powerful swings that are nearly impossible to predict

605
00:34:44,760 --> 00:34:48,440
Speaker 1: in the short term. Write the rotation between growth and

606
00:34:48,560 --> 00:34:52,240
Speaker 1: values small and large US non US. Those were enormous

607
00:34:52,360 --> 00:34:54,719
Speaker 1: alpha generators if you timed it right. But timing it

608
00:34:54,880 --> 00:34:58,879
Speaker 1: is nearly impossible in the short term, So so diversifying

609
00:34:58,960 --> 00:35:01,880
Speaker 1: across those levels. For those investors who came into the

610
00:35:01,960 --> 00:35:05,840
Speaker 1: new year with very little value exposure, they really suffered

611
00:35:06,400 --> 00:35:09,480
Speaker 1: because value is dramatically outperformed growth, just like the reverse

612
00:35:09,480 --> 00:35:12,920
Speaker 1: occurred back in two thousand twenty. As you move across

613
00:35:13,160 --> 00:35:17,360
Speaker 1: asset classes equity fixed income, you do start to question

614
00:35:17,480 --> 00:35:23,560
Speaker 1: the benefits of that sixty forty traditional type diversification because

615
00:35:23,640 --> 00:35:28,239
Speaker 1: your bonds in the past gave you good ballast. If

616
00:35:28,280 --> 00:35:31,200
Speaker 1: you will versus your equity risk and now it feels

617
00:35:31,239 --> 00:35:37,600
Speaker 1: like you get less of that. Yeah, the new Amazon. Hey, Joe,

618
00:35:37,719 --> 00:35:38,920
Speaker 1: you know I'm going to ask you to put your

619
00:35:39,080 --> 00:35:42,600
Speaker 1: director research had on from years ago. How do research

620
00:35:42,640 --> 00:35:44,680
Speaker 1: analysts do their jobs these days in the world of

621
00:35:44,719 --> 00:35:46,960
Speaker 1: a pandemic? I used to be on the road the

622
00:35:47,120 --> 00:35:52,800
Speaker 1: time visitor my companies. Yeah, but mine was going to

623
00:35:52,960 --> 00:35:57,560
Speaker 1: the theme park world to play golf exactly. So, Joe,

624
00:35:57,600 --> 00:35:59,799
Speaker 1: how do you how are the analyst at Burman kind

625
00:35:59,840 --> 00:36:03,800
Speaker 1: of doing their jobs and adapting here? Well, certainly the

626
00:36:04,360 --> 00:36:09,600
Speaker 1: inability to to go kick tires, visit manufacturing facilities, meet

627
00:36:09,680 --> 00:36:12,680
Speaker 1: companies in their offices. What have you have have been

628
00:36:12,800 --> 00:36:16,200
Speaker 1: dramatically affected by, you know, the last fifteen months or so,

629
00:36:17,520 --> 00:36:21,520
Speaker 1: the availability of company managements to talk, whether it be

630
00:36:21,680 --> 00:36:25,120
Speaker 1: through video conference or a phone call or what have

631
00:36:25,239 --> 00:36:28,000
Speaker 1: you certainly gone up because they're just more available, But

632
00:36:28,160 --> 00:36:31,759
Speaker 1: you don't necessarily get the same interaction in that in

633
00:36:31,840 --> 00:36:34,120
Speaker 1: that form. One of the things that I think is

634
00:36:34,239 --> 00:36:40,200
Speaker 1: enhanced fundamental analytical rigor is data science. So we've invested

635
00:36:40,239 --> 00:36:45,960
Speaker 1: a lot in evaluating alternative data sets using the processing

636
00:36:46,040 --> 00:36:49,800
Speaker 1: power that is available today to look at ways that

637
00:36:50,040 --> 00:36:52,719
Speaker 1: in the past, whether it be my early days as

638
00:36:52,719 --> 00:36:55,160
Speaker 1: an analysts or others, you just didn't have access to

639
00:36:55,560 --> 00:36:58,960
Speaker 1: really really interesting, insightful data. And now that I think

640
00:36:59,000 --> 00:37:01,600
Speaker 1: gives gives a lot of our team a big edge.

641
00:37:01,880 --> 00:37:04,200
Speaker 1: Charles Cantor still has a slide rule on his desk.

642
00:37:04,680 --> 00:37:07,560
Speaker 1: Joel Motto, Thank you so much. Joe Moddo, one of

643
00:37:07,600 --> 00:37:10,359
Speaker 1: the legends of the business thrillies with us today, Chief

644
00:37:10,440 --> 00:37:13,680
Speaker 1: Investment Officer Equities, New Burger Bourman. This is the Bloomberg

645
00:37:13,719 --> 00:37:18,040
Speaker 1: Surveillance Podcast. Thanks for listening. Join us live weekdays from

646
00:37:18,120 --> 00:37:21,480
Speaker 1: seven to ten am Eastern on Bloomberg Radio and on

647
00:37:21,560 --> 00:37:25,840
Speaker 1: Bloomberg Television each day from six to nine am for

648
00:37:26,120 --> 00:37:31,000
Speaker 1: insight from the best in economics, finance, investment, and international relations.

649
00:37:31,520 --> 00:37:36,160
Speaker 1: And subscribe to the Surveillance podcast on Apple podcast, SoundCloud,

650
00:37:36,360 --> 00:37:39,879
Speaker 1: Bloomberg dot com, and of course on the terminal. I'm

651
00:37:40,000 --> 00:37:42,640
Speaker 1: Tom Keene and this is Bloomberg