WEBVTT - Surveillance: The Pros and Cons of A "Rules-Based" Fed 0:00:00.040 --> 0:00:02.640 Who you put your trust in matters. Investors have put 0:00:02.680 --> 0:00:07.040 their trust and independent registered investment advisors to the two 0:00:07.040 --> 0:00:10.680 and four trillion dollars. Why learn more at find your 0:00:10.760 --> 0:00:26.360 Independent Advisor dot com. Welcome to the Bloomberg Surveillance Podcast. 0:00:26.760 --> 0:00:30.480 I'm Tom Keene with David Gura. Daily we bring you 0:00:30.520 --> 0:00:35.560 insight from the best in economics, finance, investment, and international relations. 0:00:35.960 --> 0:00:40.559 Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and 0:00:40.640 --> 0:00:48.920 of course on the Bloomberg. Alberto Gallo was at RBS 0:00:48.960 --> 0:00:51.680 now at Algebras and we want to dive into the 0:00:51.720 --> 0:00:54.520 market view right now with Alberto. Bring up the chart, Anthony, 0:00:54.560 --> 0:00:56.440 if you would. This is a chart we showed four 0:00:56.560 --> 0:00:59.279 or five years ago about three times a day. This 0:00:59.360 --> 0:01:03.640 is the Spanish German spread, the difference in yield between 0:01:03.680 --> 0:01:06.120 Spain and Germany. And all you need to know is 0:01:06.160 --> 0:01:09.080 albert O Galla loaded the boat right there and did 0:01:09.240 --> 0:01:12.520 better than good in trying to game how race would 0:01:12.560 --> 0:01:16.720 come down for Spain, Italy, Greece and the rest of them. 0:01:16.800 --> 0:01:20.319 And the major question, Alberto is we're down here now 0:01:20.959 --> 0:01:24.280 and what does that symbolize for the old and the 0:01:24.360 --> 0:01:28.040 new levels of Spain. Is it a new regime for Spain? 0:01:28.560 --> 0:01:33.200 Is it all clear for Spain? It's a law and 0:01:33.280 --> 0:01:37.399 you're supposed to be cautious. Spain fortunately has a stable 0:01:37.520 --> 0:01:41.320 political situation. But generally what we're gonna see in Europe 0:01:41.520 --> 0:01:44.399 is the emergence of the same populous wave that we 0:01:44.480 --> 0:01:47.480 are that we have seen in the UK and the US. 0:01:48.040 --> 0:01:51.000 I think the next week points the next vulnerable countries 0:01:51.000 --> 0:01:54.480 are Italy and France. So that's the areas where we're 0:01:54.520 --> 0:01:57.960 more worried about the rising eilds and in spreads. Italy 0:01:58.000 --> 0:01:59.960 goes to vote a referendum on the fourth of the 0:02:00.000 --> 0:02:04.920 December about simplifying the constitution and simplifying the government. But 0:02:05.080 --> 0:02:07.560 this vote has been painted by the opposition as a 0:02:07.600 --> 0:02:10.400 way to kick out the current government, a little bit 0:02:10.400 --> 0:02:12.679 like Brexit was painted as a way to kick the 0:02:12.840 --> 0:02:15.600 former UK government. And then you have in France the 0:02:15.720 --> 0:02:21.639 risk of le pan um rising. While the current leading 0:02:21.840 --> 0:02:24.880 center right candidate is very harsh on economic policy is 0:02:24.919 --> 0:02:29.440 a general statement and Marty Feldstein was on yesterday talking 0:02:29.480 --> 0:02:35.119 about asset bubbles. Professor Feldstein with real concern about elevated markets. 0:02:35.400 --> 0:02:39.440 Do you agree with that our markets frothy or is 0:02:39.480 --> 0:02:42.640 there value there in the galo bonds space or for 0:02:42.760 --> 0:02:47.280 that matter, the non galo equity space. We have been 0:02:47.440 --> 0:02:50.280 cautious on bonds. We've been calling for this bubble to 0:02:50.639 --> 0:02:54.200 deflate for many months, and particularly you know, we're worried 0:02:54.200 --> 0:02:57.320 about Italian bonds, were worried about French bonds and about 0:02:57.480 --> 0:02:59.960 UK bonds. You know, here in the UK inflation expect 0:03:00.000 --> 0:03:02.840 stations are three and a half. You're getting one point 0:03:02.919 --> 0:03:06.160 four percent on Guild ten year yields. So there is 0:03:06.200 --> 0:03:08.680 no value in bonds. You've got to be in a 0:03:08.880 --> 0:03:12.639 type of investment which is positioned for a rising inflation 0:03:12.720 --> 0:03:15.840 or environment and a rising bond yield environment. And currently 0:03:15.880 --> 0:03:19.120 bond funds are not set for that environment because they 0:03:19.120 --> 0:03:21.240 were all long, they were all in a lot of 0:03:21.240 --> 0:03:25.080 btfs where all positive strategies, and as an investor in 0:03:25.120 --> 0:03:28.520 those funds, you're sitting doc right. But Alberto, we need 0:03:28.639 --> 0:03:31.320 risk back on the markets right. What DTV has done 0:03:31.320 --> 0:03:33.640 it rightly so is to give time for fiscal spending 0:03:33.720 --> 0:03:35.560 so you don't price risk when when you look at 0:03:35.600 --> 0:03:38.000 bond yields anymore. This has to come back if we're 0:03:38.000 --> 0:03:40.200 going to keep in check so some kind of populous 0:03:40.200 --> 0:03:44.880 measures which are counterproductive. Yeah, but you know, risk buying 0:03:44.880 --> 0:03:47.320 bonds is not really a risk trade. It's it's when 0:03:47.360 --> 0:03:50.560 you think at the moment. Yeah, if you think growth 0:03:50.600 --> 0:03:52.480 is low and and central banks are going to keep 0:03:52.520 --> 0:03:54.520 the world from falling apart, you buy bonds. If you 0:03:54.560 --> 0:03:56.760 actually think that there is some growth and fiscal spending, 0:03:57.040 --> 0:03:59.480 then you start buying. Either you buy high yield bonds, 0:03:59.560 --> 0:04:02.440 or you buy stocks or your position for a steeper 0:04:02.480 --> 0:04:05.160 yield curve. You buy banks and insurance companies. You buy 0:04:05.160 --> 0:04:07.600 all those things that people were not looking at because 0:04:07.600 --> 0:04:10.520 they were linked to growth. Remember, even inequities. People were 0:04:10.520 --> 0:04:13.760 buying utilities and telecoms, which was a dividend trade. It 0:04:13.880 --> 0:04:17.400 wasn't a growth trade. So we're seeing a huge rotation now, right. 0:04:17.440 --> 0:04:19.600 But you remember, probably as much as I do, there 0:04:19.680 --> 0:04:21.839 there was a point when berluscing Sylvia Brosco and it 0:04:21.839 --> 0:04:24.159 was in charge. There was no growth. But actually the 0:04:24.200 --> 0:04:27.240 real opposition wasn't political. It was a bond market that 0:04:27.320 --> 0:04:30.040 kicked him out right, and we had a technocratic government. 0:04:30.120 --> 0:04:33.440 We don't have that anymore. We don't have that. But 0:04:33.520 --> 0:04:37.400 you know, you know, drug is living in January. If 0:04:37.440 --> 0:04:39.440 we have a no vote in Italy, and if we 0:04:39.480 --> 0:04:42.159 have lepan rising in France, you know, do whatever it takes. 0:04:42.200 --> 0:04:44.880 Pledge is not gonna work as well. So we could 0:04:44.880 --> 0:04:48.680 still see Italy spread going above two hundred against boons 0:04:48.800 --> 0:04:51.919 and France spread going around the hundred against boons if 0:04:51.960 --> 0:04:54.039 there is a no vote at the referendum in Italy, 0:04:54.600 --> 0:04:58.080 which is possible, or if there is a chance of 0:04:58.160 --> 0:05:00.559 lepan higher than thirty percent, which is and to become 0:05:00.600 --> 0:05:03.039 true and and and this this is the real issue, 0:05:03.080 --> 0:05:06.880 inequality leading to population. Monetary policy hasn't solved the problem. 0:05:07.080 --> 0:05:09.280 I want to send this up with economics here, Alberto, 0:05:09.320 --> 0:05:11.400 I think this is just absolutely critical. Let's bring up 0:05:11.400 --> 0:05:14.479 the Francy and the quadrart. This is nominal GDP in 0:05:14.560 --> 0:05:17.240 Francis Italy and it's not a pretty story. There is 0:05:17.279 --> 0:05:20.960 the presidential four year moving average of the animal spirit 0:05:20.960 --> 0:05:24.680 of Italy and it ain't there. Do you see and 0:05:24.720 --> 0:05:28.360 with with davidy Sarah, do you see albert O Gallo 0:05:28.560 --> 0:05:33.400 any indication of economic growth or does Mr Trump and 0:05:33.480 --> 0:05:36.520 Chancellor Miracle and others have to work within a no 0:05:36.640 --> 0:05:41.520 growth analysis. I think it's very different. I think the 0:05:41.560 --> 0:05:44.520 US we're gonna see a stronger growth because sound of 0:05:44.520 --> 0:05:47.240 fiscal policies will have an impact. In particular, if you 0:05:47.320 --> 0:05:50.840 do infrastructure spending, you spend a dollar, you increase GDP 0:05:51.040 --> 0:05:53.560 by around a dollar or maybe even more. If you 0:05:53.640 --> 0:05:56.240 cut taxes to the one percent, then you don't have 0:05:56.320 --> 0:05:59.839 that same effect. But infrastructure spending is good. In the UK, 0:06:00.080 --> 0:06:02.440 you're probably gonna see the same although inflation is going 0:06:02.480 --> 0:06:05.880 to outpace GDP because the pound is weak and there's 0:06:05.920 --> 0:06:09.440 a lot of uncertainty. So but in Europe, show ball. 0:06:09.520 --> 0:06:11.800 The German finance minister yesterday said we're going to double 0:06:11.839 --> 0:06:13.800 the incer plan. The inucor plan is only zero point 0:06:13.839 --> 0:06:16.760 one percent of GDP, so you actually need to to 0:06:17.160 --> 0:06:19.919 make it ten times eager to have an impact in Europe, 0:06:20.080 --> 0:06:22.960 there's a problem. Yeah, that factor analysis is important. Let's 0:06:23.000 --> 0:06:24.800 finally look at the euro here and I look at 0:06:24.800 --> 0:06:27.680 the markets, folks with Alberto Gala, Alberto, do you just 0:06:27.839 --> 0:06:32.040 sum a dashed through parody? Once twice, three four times? 0:06:32.279 --> 0:06:35.719 We've made the dash to parity is a weaker yro 0:06:36.200 --> 0:06:41.839 the solution for all these different issues. I think it helps, 0:06:42.720 --> 0:06:45.640 but we it's not the solution. It helps, and we're 0:06:45.640 --> 0:06:48.640 gonna see another dash to party. I agree with you 0:06:48.800 --> 0:06:52.480 as you suggested, but I think the Europe the weak 0:06:52.560 --> 0:06:56.120 ero helps Germany, helps some countries, some businesses that export, 0:06:56.440 --> 0:06:59.720 but you really need inclusive growth policies, so you need 0:06:59.800 --> 0:07:02.560 some spending in infrastructure, You need some spending in the 0:07:02.600 --> 0:07:05.840 periphery countries. I have done austerity like Greece or you know, 0:07:06.000 --> 0:07:10.000 or Spain or Italy. Because now the dividing growth between Germany, 0:07:10.520 --> 0:07:12.800 which benefits the most by the week euro versus the 0:07:12.840 --> 0:07:15.440 other countries, you know, it is too large. And if 0:07:15.520 --> 0:07:18.040 the other countries all vote for populist governments, then there's 0:07:18.040 --> 0:07:21.920 no more Europe. Europe parody with the dollar will ever happen. Yeah, 0:07:21.960 --> 0:07:24.160 I think your party is in the cards, especially if 0:07:24.200 --> 0:07:27.200 you see a no vote at the Italian referenum, or 0:07:27.200 --> 0:07:30.040 if you see lepen rising in France. All these trends 0:07:30.280 --> 0:07:33.480 are going to weaken the Europe definitely and and increased 0:07:33.480 --> 0:07:36.559 spreads in peripheral bonds. All right, there you go, Berta 0:07:36.600 --> 0:07:40.160 Gallus saying your parody tom possibly in the cards, depending 0:07:40.200 --> 0:07:43.240 of course, on the outcome of this referendomnity December four. 0:07:54.920 --> 0:07:56.760 It's a great pleasure to have with a small Street Coumar, 0:07:56.800 --> 0:07:59.400 president of Street Umar Global Strategies. Here in are Bloomberg 0:07:59.440 --> 0:08:01.320 eleven three or is it years? And New york'sre great 0:08:01.360 --> 0:08:05.840 to see. Let's start with the dollar against slightly weaker today, 0:08:06.000 --> 0:08:08.040 but this has been a strong dollar story at least 0:08:08.200 --> 0:08:10.200 since the election. How long do you do you expect 0:08:10.240 --> 0:08:13.560 that to persist? And what's driving it? I have been 0:08:13.600 --> 0:08:16.240 a dollar bull for quite some time. I think this 0:08:16.480 --> 0:08:18.720 is the start. For instance, if you were to look 0:08:18.760 --> 0:08:22.240 in terms of where the dollar euro exchange rate is going, 0:08:23.160 --> 0:08:25.480 I have been saying two clients that we should expect 0:08:25.640 --> 0:08:28.560 the euro to go to parody. We are now talking 0:08:28.600 --> 0:08:30.560 about one or six, one or seven, so we have 0:08:30.640 --> 0:08:33.960 a little bit further to go. What propels it, David, 0:08:34.960 --> 0:08:37.840 is the fact that one you have a FED hike, 0:08:37.920 --> 0:08:40.920 which was will they hike in December? Won't they hike 0:08:41.000 --> 0:08:42.959 in December? And as you just said a couple of 0:08:43.040 --> 0:08:46.440 minutes ago, you now have a hundred percent probability according 0:08:46.520 --> 0:08:50.640 to the marketer. And I think the Trump election and 0:08:50.760 --> 0:08:53.199 the fact that he has said that he will not 0:08:53.440 --> 0:08:57.920 renominate Janet Yellen to the chairmanship when her term expires 0:08:58.040 --> 0:09:03.040 in January tween means that the Fed essentially has no pull. 0:09:03.520 --> 0:09:05.240 She's not going to get if she's not going to 0:09:05.320 --> 0:09:08.000 be renominated, she might as well do what is necessary 0:09:08.080 --> 0:09:11.400 and hike. And I'm looking for at least two hikes 0:09:11.440 --> 0:09:13.520 next year, which is again a switch from what I 0:09:13.600 --> 0:09:16.760 thought before the elections. So the elections have changed it 0:09:16.880 --> 0:09:18.600 quite a bit. You're going to have quite a few 0:09:18.640 --> 0:09:22.680 more rate hikes and that boost the dollar. In addition, 0:09:23.200 --> 0:09:26.240 if there is anything like a trade restriction taking place 0:09:26.400 --> 0:09:28.520 on the part of Trump, I hope not. I hope 0:09:28.559 --> 0:09:31.920 it's more on the fiscal stimulus side rather than trade restrictions. 0:09:32.559 --> 0:09:35.800 But if restrictions come into force, that is going to 0:09:35.920 --> 0:09:39.959 strengthen the dollar as well. It increases global uncertainty, it 0:09:40.080 --> 0:09:44.199 increases increases global risk, and global investors bring money into 0:09:44.240 --> 0:09:46.839 the United States. When that happens, all of that is 0:09:46.880 --> 0:09:49.800 going to be good for the dollar. And the side 0:09:50.120 --> 0:09:53.760 point to what you asked, David, as that happens, I 0:09:54.000 --> 0:09:57.400 have started to say that the two thirty five ten 0:09:57.480 --> 0:09:59.360 year yield we saw in the last couple of days 0:09:59.400 --> 0:10:02.000 and today it's just below two thirty, it's just not 0:10:02.240 --> 0:10:05.640 sustainable because you have such a we have more than 0:10:05.679 --> 0:10:09.560 a two percent spread with the German tenure Buld. It's 0:10:09.640 --> 0:10:13.880 the highest we have had since nine and this is 0:10:14.080 --> 0:10:16.839 just unsustainable. At what I think it means is that 0:10:16.920 --> 0:10:19.800 the bond vigilantes have gone a bit too far in 0:10:19.960 --> 0:10:23.040 terms of selling the treasury. So it's a treasury yields 0:10:23.120 --> 0:10:26.160 come down and the dollar continues to strengthen. What you're 0:10:26.200 --> 0:10:27.760 you're implying there, I guess, is that you have a 0:10:27.800 --> 0:10:31.000 father's politically aware, not necessarily political as a as an institution. 0:10:31.040 --> 0:10:33.520 They would fiercely say that that they're not, but there 0:10:33.600 --> 0:10:35.680 was some awareness here that that they could doing something 0:10:35.720 --> 0:10:38.000 at the last meeting, could have done something with regard 0:10:38.040 --> 0:10:40.880 to to the election. How politically cognizant is this Federal Reserve? 0:10:40.960 --> 0:10:44.840 Do you think? Well, we have one again in controvertible fact, 0:10:45.120 --> 0:10:49.840 And that is according to the Federal Election Commission. Lyle Brainard, 0:10:49.880 --> 0:10:53.439 who is a permanent voter and a member of the 0:10:53.520 --> 0:10:56.120 FED Board of Governors. She was a contributor to the 0:10:56.200 --> 0:10:58.679 Hillary Clinton campaign, rumored to be in the running for 0:10:58.960 --> 0:11:03.839 Treasury secretary in a Clinton administration, and the responses this 0:11:04.080 --> 0:11:06.480 is properly legal. But the question to you and me 0:11:06.720 --> 0:11:09.520 is does it. How does it look whether it is 0:11:09.600 --> 0:11:12.120 legal or not. So I think it puts the whole 0:11:12.240 --> 0:11:17.120 question of political independence into into issue. And we have 0:11:17.280 --> 0:11:20.520 had a long history in this country, David, of presidents 0:11:20.559 --> 0:11:23.760 from time to time bullying the FED. One of the 0:11:25.240 --> 0:11:29.360 star instances I think of is my the former chairman 0:11:29.440 --> 0:11:33.160 of my economics department at Columbia, Author Burns, who became 0:11:33.200 --> 0:11:37.200 the chairman in the early seventies, essentially was bullied into 0:11:37.320 --> 0:11:41.120 increasing the money supply in n seventy two to finance 0:11:41.360 --> 0:11:45.200 Richard Nixon's Vietnam War, and so it has been done. 0:11:45.360 --> 0:11:50.239 So the FED does not have a history of continued independence. 0:11:50.440 --> 0:11:53.600 Paul Wolker, if anything, was probably an exception to the rule. 0:11:54.040 --> 0:11:56.680 What was Arthur Burns like to review for our young 0:11:57.440 --> 0:12:04.040 number ones here today? There was Cherry chairman, Bernanke, Chairman Greenspan, 0:12:04.240 --> 0:12:08.240 huge uproar when we went from Greenspan Bernankey, and before 0:12:08.360 --> 0:12:12.360 that there were selected others. But Arthur Burns defined a 0:12:12.520 --> 0:12:16.319 kind of economics. Could he do economics today? In the 0:12:16.400 --> 0:12:19.520 need for transparency today? I mean, would we accept him 0:12:19.559 --> 0:12:22.679 pipe smoking in the House of the Senate, Humphrey Hawkins, 0:12:22.840 --> 0:12:25.040 just as one idea, I think the world has changed. 0:12:25.200 --> 0:12:28.319 I think your your question is spot on, Tom, because 0:12:28.400 --> 0:12:33.480 I don't see the author Burns kind of pipe smoking 0:12:34.520 --> 0:12:40.960 uh omp chat economist, contemplative thinking hard right. I mean, David, 0:12:41.040 --> 0:12:42.600 this is a serious deal because if you go back 0:12:42.640 --> 0:12:46.839 and look, Arthur Burns wasn't measured. He wasn't measured. I 0:12:46.880 --> 0:12:50.040 mean they made serious jumps in yields when they chose 0:12:50.080 --> 0:12:54.559 to and of course not to forget one more, David, 0:12:54.600 --> 0:12:58.240 since you asked a question about political independence. We had 0:12:58.360 --> 0:13:02.679 a very little remembered FED chairman called g William Miller 0:13:03.040 --> 0:13:06.599 who lasted in his job for exactly one year, in 0:13:08.360 --> 0:13:13.319 challenging to say the last when when when you look 0:13:13.400 --> 0:13:17.400 at that we bought the show to a complete Arthur 0:13:18.280 --> 0:13:24.040 once again with three commands, I fell asleep, No, no, 0:13:24.080 --> 0:13:26.960 no three. When you when you look at the future 0:13:27.000 --> 0:13:29.000 of this FED over the next twelve months eighteen months, 0:13:29.559 --> 0:13:31.880 Donald Trump the president, let us have a huge opportunity 0:13:31.960 --> 0:13:34.439 here to reshape it, whether we're not not even necessarily 0:13:34.480 --> 0:13:36.320 by bullying. He's going to have a lot of personnel 0:13:36.400 --> 0:13:38.920 changes that that that he can make. What does a 0:13:39.200 --> 0:13:41.160 Donald Trump FED look like? And we've been talking about 0:13:41.200 --> 0:13:43.680 past chairman what what is the the ideal Donald Trump, 0:13:43.760 --> 0:13:46.719 Chairman of the Fan. That's a great question, David. I 0:13:46.960 --> 0:13:49.959 would characterize the FED policy that we have had in 0:13:50.000 --> 0:13:52.920 the last few years as essentially seat of the pants 0:13:53.200 --> 0:13:57.719 policy making. You look at the latest data point that 0:13:57.840 --> 0:14:00.480 you get and then decide whether to hike or not 0:14:00.640 --> 0:14:03.280 to hike. If there is the slightest bit of a 0:14:03.440 --> 0:14:06.880 problem elsewhere, you decide to postpone. And that was the 0:14:07.640 --> 0:14:10.560 That's what happened. For instance, in September of twenty fifteen, 0:14:11.120 --> 0:14:14.240 when there was in the Jackson Hole a month prior, 0:14:14.880 --> 0:14:18.120 the FED had essentially Janet Ellen seemed to indicate a 0:14:18.200 --> 0:14:21.360 September eight hike which never happened groundworkers there, and so 0:14:22.120 --> 0:14:24.680 that is what we had. So the markets have been 0:14:24.800 --> 0:14:28.040 pushed up, held back by what the FED is going 0:14:28.120 --> 0:14:31.000 to do. So the change I would like to see, 0:14:31.160 --> 0:14:34.000 and I think many of the conservative people advising the 0:14:34.080 --> 0:14:37.800 President elect come from that camp, is more rules based. 0:14:38.440 --> 0:14:41.360 For instance, another one of my professors in my PhD 0:14:41.520 --> 0:14:45.080 dissertation was John Taylor, famous for his tailor rule, who 0:14:45.160 --> 0:14:48.800 is now at Stanford University. And in terms of what 0:14:48.960 --> 0:14:52.520 it is my cap by my calculation, the tailor rule 0:14:52.560 --> 0:14:54.880 would call for a federal funds rate of about plus 0:14:55.040 --> 0:14:58.040 one and a half percent today, which shown also about 0:14:58.080 --> 0:15:02.320 the let's talk to you now, Rules versus discretion. Sherman 0:15:02.360 --> 0:15:06.360 Greenspan says more discretion. John Taylor Stanford says more rules, 0:15:06.440 --> 0:15:10.200 which works. Three. Absolutely. I'm in favor of rules because 0:15:10.280 --> 0:15:13.880 I think discretion gives rise to all kinds of subjectivity 0:15:13.920 --> 0:15:17.480 which you do not want. The market gets certainty as 0:15:17.520 --> 0:15:20.600 a result of rules. In other words, the problem there, 0:15:20.720 --> 0:15:24.480 Tom is not rules versus discretion as much as the 0:15:24.560 --> 0:15:28.360 fact that a rule space policy makes it unnecessary to 0:15:28.520 --> 0:15:32.600 have these twelve members voting on the Federal Reserve decisions. 0:15:32.960 --> 0:15:35.520 You and I can guess exactly what the fit should 0:15:35.520 --> 0:15:38.520 be doing, and the market has certainty. Street Commar with 0:15:38.640 --> 0:15:41.080 Us from Street Commar Global Strategy is one of the 0:15:41.120 --> 0:15:44.440 great joys of having doctor uh Commar in with us 0:15:44.640 --> 0:15:47.960 is the idea of eighteen things to talk about. Let 0:15:48.040 --> 0:15:50.440 me go to the emotion of our listeners, which is, 0:15:50.480 --> 0:15:54.200 where's the next pay raise, whether it's them, their kids, whatever. 0:15:55.040 --> 0:15:58.720 So if I get a Trumpian inflation, do you just 0:15:58.880 --> 0:16:01.880 assume I get be in growth with that? Or is 0:16:01.920 --> 0:16:05.560 the worst outcome here? I get a higher inflation without 0:16:05.600 --> 0:16:08.880 the growth that drives wage growth, which is I think 0:16:09.480 --> 0:16:13.280 you are going to have some inflation pickup, Tom, if 0:16:13.360 --> 0:16:16.960 you have a significant increase in physical spending and before 0:16:17.080 --> 0:16:20.760 that has an impact on productivity. The spending alone is 0:16:20.840 --> 0:16:24.120 likely to push up prices. Now, whether you get a 0:16:24.280 --> 0:16:29.080 salary increase or not compared with that inflation is going 0:16:29.160 --> 0:16:32.160 to depend very much in terms of what kind of 0:16:32.280 --> 0:16:35.960 work that person is doing. For instance, the low wage 0:16:36.520 --> 0:16:40.120 or manufacturing jobs where the competitors happened to be in 0:16:40.240 --> 0:16:44.440 Mexico or China or other countries, those jobs are gone forever. 0:16:44.720 --> 0:16:47.840 I don't think trade restrictions are threats by the new 0:16:47.920 --> 0:16:53.280 president Electrump do for those people you just describe who 0:16:53.320 --> 0:16:57.280 were his core constituency. We have a lesson there from 0:16:57.360 --> 0:17:00.680 what happened in Germany in two thousand three, Tom. What 0:17:00.880 --> 0:17:04.399 they had was known as the Hearts Reforms, which cost 0:17:04.520 --> 0:17:08.159 the Den Chancellor Gerhard Schreuder to be thrown out of office. 0:17:08.200 --> 0:17:11.320 In two thousand five, Angela Merkel came in, but it 0:17:11.520 --> 0:17:14.760 essentially said workers need to be retrained, they need to 0:17:14.840 --> 0:17:18.399 be educated in jobs which have a greater demand. And 0:17:18.560 --> 0:17:21.680 as you go for an education, as you accept the training, 0:17:21.880 --> 0:17:25.400 you will get some form of salary to keep you going, 0:17:26.000 --> 0:17:28.280 and in the future you will be self sustaining as 0:17:28.320 --> 0:17:30.960 a result of better skills. But if you're going to 0:17:31.080 --> 0:17:33.200 stay with your skill level and you want to be 0:17:33.280 --> 0:17:36.280 supported and you want to get a job, you cannot 0:17:36.359 --> 0:17:40.320 prevent the Chinese, Indians and Mexicans from competing with you. 0:17:40.920 --> 0:17:43.120 Do you think that it's a certitude here that we're 0:17:43.160 --> 0:17:45.720 going to get a big fiscal stimulus package, that we're 0:17:45.720 --> 0:17:47.560 going to get the kind of infrastructure spending the Donald 0:17:47.560 --> 0:17:50.720 Trump was talking about on the campaign trail. Uh? And 0:17:50.880 --> 0:17:52.760 and and if that's the case, what are the lessons 0:17:52.840 --> 0:17:54.679 learned from back in two thousand and eight two thousand nine, 0:17:54.680 --> 0:17:56.639 how do you make this package more effected than the 0:17:56.680 --> 0:18:00.119 one back then? Uh? I'll answer you into a three 0:18:00.200 --> 0:18:03.200 parts because you have a number of questions that I think, yes, 0:18:03.320 --> 0:18:06.720 there is going to be fiscal stimulus. The easy part 0:18:06.840 --> 0:18:10.720 of the fiscal stimulus is to give tax cuts. Rather 0:18:10.840 --> 0:18:13.360 than decide how to build a bridge and where you're 0:18:13.359 --> 0:18:15.160 going to spend the money, that's going to take quite 0:18:15.200 --> 0:18:18.359 a bit longer to get done. So the tax cuts 0:18:18.440 --> 0:18:21.440 themselves are immediately going to give some form of a 0:18:21.520 --> 0:18:24.119 flip in terms increase on the growth rate in the 0:18:24.200 --> 0:18:27.760 short term. Give a temporary stimulus. Now, how much of 0:18:27.880 --> 0:18:32.000 benefit that has depends on where the tax cut is structured. 0:18:32.600 --> 0:18:34.520 If it is structed, if it is structured to give 0:18:34.560 --> 0:18:37.360 it only at the highest income levels, it's not going 0:18:37.440 --> 0:18:41.160 to percolate down to the core Trump supporters who brought 0:18:41.240 --> 0:18:43.920 him to office. And that's not going to work. And 0:18:44.119 --> 0:18:47.399 in terms of what needs to be done subsequently is 0:18:47.480 --> 0:18:52.240 you need to have these fiscal stimulus programs on infrastructure 0:18:52.320 --> 0:18:56.040 to be well set. You need the participation of the 0:18:56.160 --> 0:18:58.640 private sector. For instance, you can have a toll road 0:18:58.720 --> 0:19:01.600 where the private sector in est has the benefit in 0:19:01.640 --> 0:19:04.520 the tones being used. Then you have less expenditure on 0:19:04.600 --> 0:19:07.119 the part of the public. All of those are important 0:19:07.320 --> 0:19:09.760 and they're going to take time. That's why I don't 0:19:09.800 --> 0:19:12.680 think you're going to have a big bust and growth immediately. 0:19:12.960 --> 0:19:15.240 Three and I'm depressed. Yea. I came out of the 0:19:15.320 --> 0:19:18.719 building yesterday. Folks were next to Bloomingdale's here on Lexington Avenue. 0:19:18.720 --> 0:19:22.840 On there the windows are open, rest of lights and 0:19:22.880 --> 0:19:25.920 the holiday windows, and they said, should I walk home? 0:19:26.840 --> 0:19:30.720 And it's four blocks, I mean three four city blocks. 0:19:31.560 --> 0:19:35.399 There's a photo on on Twitter folks of young David Gura. David, 0:19:35.440 --> 0:19:38.160 you live just this side of the Hampton's. How long 0:19:38.359 --> 0:19:42.560 is it you walk on ourt? That's about six that's 0:19:42.560 --> 0:19:49.880 about six miles, but six miles, Yeah, I've never done. 0:19:49.920 --> 0:19:51.959 That's like a marathon. There you go. Let me get 0:19:51.960 --> 0:19:54.760 a headline in the headline here crossing the turbo from 0:19:54.800 --> 0:19:57.680 MSNBC which says President elect Donald Trump will not pursue 0:19:58.040 --> 0:20:01.520 an investigation into Hillary Clinton. Again, this is report from 0:20:01.640 --> 0:20:04.160 MSNBC that's not been confirmed by Bloomberg, saining Donald Trump 0:20:04.160 --> 0:20:07.919 will not pursue an investigation into Hillary Clinton. Remember during 0:20:07.920 --> 0:20:09.680 the campaign he often pledged to do that if he 0:20:09.720 --> 0:20:11.919 were to be elected. He launched an investigation over her 0:20:12.280 --> 0:20:14.719 usage of personal email, so he appears to be reversing 0:20:14.760 --> 0:20:17.160 course on that. Again, an unconfirmed report here from MSNBC. 0:20:17.200 --> 0:20:19.600 And will bring you more details on that as we 0:20:19.640 --> 0:20:21.320 get the most of The New York Times responding Michael 0:20:21.320 --> 0:20:23.680 Barr mentioning the fact that Donald Trump canceled his meeting 0:20:24.080 --> 0:20:26.440 with The New York Times today, The New York Times 0:20:26.440 --> 0:20:28.800 saying it first became aware of that when it when 0:20:28.920 --> 0:20:31.000 the editor where they saw the tweet from Doc Donald 0:20:31.040 --> 0:20:33.240 Trump this morning while we're looking at the news flow 0:20:33.920 --> 0:20:38.080 NBC saying that Mr Giuliani Mayor Giuliani considered for Trump 0:20:38.240 --> 0:20:43.640 National Intelligence director, sort of the stream of consciousness. It's 0:20:43.680 --> 0:20:46.080 it's a whole new world day. Yeah, more meetings today 0:20:46.080 --> 0:20:48.119 a Trump tower before he heads to to Florida. I 0:20:48.160 --> 0:20:51.119 think for the president in two or three or four terms, 0:20:51.440 --> 0:20:55.520 do they use Snapchat? What platform is next? What's the 0:20:55.560 --> 0:21:00.359 next president chatting American public? I don't know. It's a 0:21:00.440 --> 0:21:04.800 brave new world. We're thrilled you're with us worldwide Bloomberg surveillance. 0:21:04.880 --> 0:21:17.120 This is Bloomberg. Who you put your trust in matters. 0:21:17.280 --> 0:21:21.920 Investors have put their trust in independent registered investment advisors 0:21:22.240 --> 0:21:24.959 to the two and of four trillion dollars. Why they 0:21:25.040 --> 0:21:28.280 see their roles to serve, not sell. That's why Charles 0:21:28.359 --> 0:21:32.760 Schwab is committed to the success over seven thousand independent 0:21:32.880 --> 0:21:38.640 financial advisors who passionately dedicate themselves to helping people achieve 0:21:38.960 --> 0:21:43.840 their financial goals. Learn more and find your independent advisor 0:21:44.280 --> 0:21:52.240 dot com. Write what I said at the top of 0:21:52.280 --> 0:21:54.280 the show, the w I r P function on the 0:21:54.280 --> 0:21:57.879 bloomber looking at fed at funds future showing a probability 0:21:57.880 --> 0:22:01.640 of a race went probably like, come on, I must 0:22:01.680 --> 0:22:07.240 have like astonished. I have not seen that before, but 0:22:07.640 --> 0:22:10.000 indeed it's been that way since yesterday afternoon. I want 0:22:10.000 --> 0:22:12.560 to bring Kim show Holts, Professor of Management Practice in 0:22:12.600 --> 0:22:14.760 the Economics Department n y U Sturring School of Business, 0:22:14.800 --> 0:22:17.240 form a global chief economist at City Group. It's great 0:22:17.240 --> 0:22:18.879 to have you with us. And we were talking to 0:22:19.080 --> 0:22:21.960 to Sri Kumar a few minutes ago about the the 0:22:22.160 --> 0:22:24.560 the pluses and minuses of a rules based system for 0:22:24.760 --> 0:22:27.200 for the FED Reserve. This is something that Congress is 0:22:27.200 --> 0:22:29.720 actively chewing over. It seems like there is a possibility 0:22:29.760 --> 0:22:31.960 we could see this happen here in the new term 0:22:32.160 --> 0:22:34.280 walkerster as you see at the the the pluses and 0:22:34.320 --> 0:22:37.840 minuses of a system like that the Fords and the against. Well, 0:22:38.000 --> 0:22:41.000 let's start with where we are. We currently have a 0:22:41.080 --> 0:22:45.320 system in which Congress monitors the Fed and judges their 0:22:45.359 --> 0:22:49.040 performance against a mandate. The mandate is price stability and 0:22:49.359 --> 0:22:55.000 keeping unemployment close to some low sustainable level. And on 0:22:55.160 --> 0:22:58.000 that basis, the Fed has done a reasonably good job, 0:22:58.200 --> 0:23:02.000