Speaker 1: Bloomberg Audio Studios, podcasts, radio News.
Speaker 2: We begin this out with Trump's treasury pick still very
Speaker 2: much up in the air, following meetings with Apollos, Mark
Speaker 2: Rowan and former FED Governor Kevin Walsh. Investors still waiting
Speaker 2: for President elect Donald Trump to make a final decision
Speaker 2: on the individual who will go into twenty twenty five
Speaker 2: facing down a huge to do list. Joining us around
Speaker 2: a table, the IBM Vice chair, the former National Economic
Speaker 2: Council Director Gary Cone. Gary, good morning, Good morning, Thanks
Speaker 2: se Yah, thanks for being here. I think we need
Speaker 2: to take a big step back. In fact, go several
Speaker 2: years back to twenty sixteen, twenty seventeen. Just frame for
Speaker 2: us what you had to face down in sixteen going
Speaker 2: into seventeen and how long the to do list was
Speaker 2: back then.
Speaker 1: So I think we should take even a bigger step
Speaker 1: back and remember what the environment was. If you go
Speaker 1: back to the economic environment as we were going through
Speaker 1: this exact period, we had a environment where we had
Speaker 1: just started just barely started to come out of the
Speaker 1: fed's zero interest rate policy, quantitative easing, and a decade
Speaker 1: of Fed articles would ever be inflation again. We were
Speaker 1: just starting to turn that corner. We had come through
Speaker 1: an Obama four years or eight years of basically saying,
Speaker 1: you know, there's been a very tough business environment, highly regulated.
Speaker 1: You know, how do we get business re engaged in
Speaker 1: Trump won this victory. It looks very similar where we
Speaker 1: are today, except you know, FED funds were seventy six
Speaker 1: basis points back then. They're four and a half percent today.
Speaker 1: National debt was about twenty trillion. We're thirty five trillion
Speaker 1: dollars right now. So we're in a pretty fundamentally different place.
Speaker 1: And then as you look where we are today, not
Speaker 1: only have we a pretty decisively different position in rates
Speaker 1: and debt, I think the President elect is walking into
Speaker 1: an environment with that high interest rate vironment where housing
Speaker 1: prices have gotten really out of touch for most Americans
Speaker 1: and there's a real push to try and make housing
Speaker 1: more affordable. You look at the way Treasury has decided
Speaker 1: to fund.
Speaker 3: That additional debt.
Speaker 1: They've been very short dated on the curve, which I
Speaker 1: think provides an enormous amount of risk in refunding. And
Speaker 1: we all worry about refunding of Treasury. So I think
Speaker 1: we've got to have a a real refunding situation where
Speaker 1: we roll out maturities. I remember talking to the president
Speaker 1: like eight years ago by doing a fifty year and
Speaker 1: one hundred year. I still think we should have done
Speaker 1: a fift year one hundred year when rates were low.
Speaker 1: And then you think about the situation with state and
Speaker 1: local government. State and local governments were not in great
Speaker 1: position eight years ago. Now, think of what's going on
Speaker 1: with the migrant population. How much money some of these
Speaker 1: cities and states have spent on immigrants.
Speaker 3: Now, they didn't say anything.
Speaker 1: Prior to the election, but I will be shocked if
Speaker 1: there's not a huge outcry from some of the major
Speaker 1: cities in this country about the of money they've spent
Speaker 1: and how much help they're going to need from Washington
Speaker 1: to make their budgets come together. So that's you know,
Speaker 1: that's where you start. That's literally day one. That's January
Speaker 1: twenty of twelve noon you walk into that.
Speaker 3: Yep.
Speaker 1: So there's a fundamental difference from where we are. But
Speaker 1: there's a similarity to coming off of the Obama administration
Speaker 1: versus the Biden administration. The excitement of business, the opportunity
Speaker 1: going forward, those are the excitements.
Speaker 3: You know.
Speaker 1: Then you go back eight years ago and say Okay,
Speaker 1: what did.
Speaker 3: We walk into as well?
Speaker 1: Well, Look, the number one policy that we really wanted
Speaker 1: to get done initially was tax reform. Tax reforms are
Speaker 1: number one objective. Unfortunately, you know, the House had sort
Speaker 1: of gotten ahead of the White House during the last
Speaker 1: few weeks of the prior administration. The House had gone
Speaker 1: ahead with repeal of Obamacare, So we walked into repeal
Speaker 1: and replace without really a replace.
Speaker 2: Which I have to admit I totally forgot about. I
Speaker 2: totally forgot about the McCain. Yeah, totally forgotten that you'd
Speaker 2: walked into that back in seventeen. How did that complicate
Speaker 2: things to get taxes done?
Speaker 3: Well, a highly complicated thing. You know.
Speaker 1: We all thought on the economic team that we were
Speaker 1: walking in, we were going to, you know, January twentieth,
Speaker 1: we were going to start on tax policy, tax policy,
Speaker 1: tax policy. I think all of us got thrown into healthcare, healthcare, healthcare,
Speaker 1: trying to figure out healthcare. None of us were really
Speaker 1: healthcare experts, none of us had been doing work on
Speaker 1: healthcare for the prior three months. Trying to get ready
Speaker 1: to walk in, we'd all been working on tax policy
Speaker 1: and trying to figure that out. So everyone got derailed for.
Speaker 3: The better part of I would say.
Speaker 1: Two months or three months, knowing that we wanted to
Speaker 1: go through taxes in year one because we wanted to
Speaker 1: use that budget that existed and we wanted to use
Speaker 1: budget reconciliation to get taxes done that year. So every
Speaker 1: day we were spending on healthcare, we were losing a
Speaker 1: day of tax policy, which was you know, it was
Speaker 1: anxiety creating, let's put it that way. So we were
Speaker 1: trying to get rid of the healthcare issuess quickly as
Speaker 1: we could.
Speaker 4: It's going to be the priority when they walk in
Speaker 4: January this time around. Is it going to be tariffs
Speaker 4: or is it going to be cutting taxes?
Speaker 1: So I think there's two priorities day one on the
Speaker 1: economic side, and you'll argue there's both economics. I think
Speaker 1: it's going to be taxes because again you've got a deadline.
Speaker 3: Remember the personal side.
Speaker 1: Of the tax policy ends at twelve midnight December thirty first,
Speaker 1: twenty twenty five. So there is a forcing function, and
Speaker 1: Washington operates really.
Speaker 3: Well with a forcing function. They need deadline, they need deadlines,
Speaker 3: they need that.
Speaker 1: Journalists, well I don't know about journalists, but I know
Speaker 1: about Washington.
Speaker 3: They need a deadline.
Speaker 1: There is a hard and fast deadline. Now, look, they
Speaker 1: could extend it, but that would be another Act of
Speaker 1: Congress to extend it. So they have a firm deadline
Speaker 1: in play. So Number one thing on the I would
Speaker 1: say the economic policy front is they're going to deal
Speaker 1: with taxes. Number two is I think simultaneously we could
Speaker 1: argue this is this is economics as well.
Speaker 3: They need to deal with the immigration policy.
Speaker 1: I think we will see Trump come back to many
Speaker 1: of the executive orders and many of the policies that
Speaker 1: he had going out on January twentieth. He will reinstate
Speaker 1: all of those policies to shut the border and at
Speaker 1: least stop the flow of illegal immigrants in the United States.
Speaker 1: So I think they will work on both of those simultaneously.
Speaker 3: I do think there will be some.
Speaker 1: Tariff policy going in there as well, and I think
Speaker 1: the tariff policy that will be relatively easy for them
Speaker 1: to go on is to tear iff things that we
Speaker 1: are currently manufacturing in the United States. Where you would
Speaker 1: put tariffs in place to protect jobs and protect the
Speaker 1: products that we are currently making for the United States.
Speaker 4: Okay, so if personal's policy, we have two out of
Speaker 4: the three, we have a borders are he's announced, and
Speaker 4: we also have Howard Latnett going over as to commerce.
Speaker 4: What is going on with the treasury pick. We have
Speaker 4: three men who I've been told the President thinks of
Speaker 4: a high caliber Scott Besson, Mark Rowan, Kevin Walsh in
Speaker 4: Palm Beach yesterday, having these conversations with the president sident,
Speaker 4: you know how he operates. Why is this pick taking
Speaker 4: so long? If he ran an economic agenda campaign.
Speaker 1: So I think you just answered a little bit. He
Speaker 1: ran an economic agenda campaign. This is in his opinion,
Speaker 1: this is one of the most important, if not the
Speaker 1: most important pick he is going to make, so getting
Speaker 1: it right is important. I'll also remind you something. We'll
Speaker 1: go back to eight years ago. The economic picks were
Speaker 1: made the week after Thanksgiving. I was hired the week
Speaker 1: after Thanksgiving. When Neutrient was put into his job the
Speaker 1: week after Thanksgiving. So the transition team is a couple
Speaker 1: weeks and probably a month ahead on most of the picks.
Speaker 1: So we've all got this anxiety because this is a
Speaker 1: second term president, so he knows how to get stuff
Speaker 1: done quickly. But if you think of what happened eight
Speaker 1: years ago. Those picks were made in the last week
Speaker 1: of November, first week in December, and we were all
Speaker 1: ready to go in our chairs in place by twelve
Speaker 1: years in January twenty. So there's plenty of time to
Speaker 1: get it right. And I think the president knows. The
Speaker 1: President like knows, getting the right person is more important
Speaker 1: right now than getting the pick done today or tomorrow.
Speaker 4: Do you think it's a name that I have not
Speaker 4: reported on.
Speaker 1: I look, I'm not involved in the process. I think
Speaker 1: the President will put any in every name that he
Speaker 1: thinks can do the job well on the list, and
Speaker 1: he will choose what he thinks is the best person.
Speaker 3: To do the job.
Speaker 5: Do you think it's feasible for President elect Donald Trump
Speaker 5: to achieve his goals of the tariffs that he's put
Speaker 5: out there while acquiescing or creating some calm in the
Speaker 5: bond market.
Speaker 1: We will see what actually happens in policy. You know,
Speaker 1: I always remind people what you say to get elected
Speaker 1: and what you do in actual policy are two different things.
Speaker 1: You know, Americans like to hear what your ultimate idea
Speaker 1: is to get done. But we've got a very rigorous
Speaker 1: policy process in the United States. We've got a House,
Speaker 1: we've got a Senate, We've got lots of constituencies, and
Speaker 1: when it comes down to actually executing implementing policy, it
Speaker 1: is not exactly what the president wants. In fact, every
Speaker 1: piece of legislation is a compromise. There's no perfect piece
Speaker 1: of legislation in America because at some point people have
Speaker 1: to compromise. So we'll see what the president can get done.
Speaker 1: I think we're all confident there'll be something on taxes.
Speaker 1: We're one hundred percent confident there'll be something on immigration,
Speaker 1: and there'll be something on tariffs. But again, each of
Speaker 1: these will be a compromise. No one is going to
Speaker 1: get one hundred percent.
Speaker 3: Of what they want.
Speaker 5: I guess the reason why people are so interested in
Speaker 5: the Treasury pick is because people want to understand what
Speaker 5: that compromise might look like, and the individual might give
Speaker 5: some insight into that. Do we have a sense and
Speaker 5: will this sort of be the ultimate test for you
Speaker 5: how much Congress pushes back on some of the picks
Speaker 5: that have already been announced that are controversial even among Republicans.
Speaker 5: Will that be sort of a test of just whether
Speaker 5: the checks and balances will work. At the same time,
Speaker 5: when a lot of people are saying this time is
Speaker 5: different and that this president elect actually has something of
Speaker 5: a mandate that is very different than in twenty sixteen.
Speaker 1: I think every Congress and every president, when they come
Speaker 1: in and they pick, they put their nominations through, and
Speaker 1: they go through the consent process. It's different. Every four years.
Speaker 1: Every president goes through a different process. You have a
Speaker 1: different makeup of a Senate. You have a different sort
Speaker 1: of body.
Speaker 3: And by the way, the body will.
Speaker 1: Be different at the end of this year, and then
Speaker 1: it will transition. I think it's January third is the
Speaker 1: swearing of the new Senate. It will change January third
Speaker 1: in the middle of the process. So some of these
Speaker 1: nominees could actually go through an approval process with this
Speaker 1: current sitting.
Speaker 3: Senate, some may go through with a new Senate.
Speaker 1: That probably the vast majority will go through with the
Speaker 1: new Senate, because it takes time to get the paperwork through,
Speaker 1: it takes time to get the vetting through. But every
Speaker 1: one of these events is unique, and it's uniquely different
Speaker 1: because they're different personalities involved. There's different people went through
Speaker 1: different elections. Certain states changed, they became redder, So the
Speaker 1: center may may or may not be more comfortable taking
Speaker 1: a certain point of view, so you literally have to
Speaker 1: watch each.
Speaker 3: Of these as an individual, unique event.
Speaker 5: So you did mention the financing of the deficit, and
Speaker 5: that's very interesting to me, especially at a time where
Speaker 5: you talked about the short term nature of a lot
Speaker 5: of the financing. Do you expect that to change, for
Speaker 5: there to be a lot more longer dated issuance regardless
Speaker 5: of where yields are at with the next Treasure Secretary,
Speaker 5: whoever that might be.
Speaker 1: But I think it's really prudent risk management to start
Speaker 1: elongating the debt of the United States and not have
Speaker 1: to live off very large short term auctions and not
Speaker 1: have to live off a short term demand for treasuries.
Speaker 1: Like we're always worried about financing the deficit and what
Speaker 1: could happen. Like as a person that grew up as
Speaker 1: a risk manager running a large balance sheet for a
Speaker 1: large percentage of my life, you would want to de
Speaker 1: risk that. How do you de risk that from a
Speaker 1: treasury standpoint? You roll out maturities as long as you can,
Speaker 1: so you cut down the amount that you have to
Speaker 1: fund at each of these auctions. So I would think
Speaker 1: that this administration would want to get that done and
Speaker 1: roll out maturities.
Speaker 2: You've been in the room with President elect Donald Trump
Speaker 2: maney a time, including to interview. What's it like to interview.
Speaker 3: With Donald Trump?
Speaker 1: Well, look, look, it's always a stressful experience. You know,
Speaker 1: you're sitting there with the President elect and a large
Speaker 1: amount of his team.
Speaker 3: Like usually when you're in the room.
Speaker 1: With the President elect doing these interviews, there's multiple other
Speaker 1: people in the room.
Speaker 3: You know.
Speaker 1: I always reminded myself, I'm speaking of the President elect.
Speaker 1: I'm not speaking to other people in the room, so
Speaker 1: you've got to sort of block out the other people
Speaker 1: in the room. But he's rigorous in his questions, and
Speaker 1: he tends to go multiple different directions, so you know,
Speaker 1: he'll go from from topic A to topic B, to topic C,
Speaker 1: back to topic A.
Speaker 3: It's interesting.
Speaker 1: You've got to be on your game when you're in there.
Speaker 1: You've got to be on your game. And he's thinking,
Speaker 1: you know, in multiple directions, and it's very interesting and
Speaker 1: he's always got a interesting.
Speaker 3: Spin on things. You know.
Speaker 1: I think the president like Trump, is one of the
Speaker 1: best marketers and branders there is I've ever seen. So
Speaker 1: when I'm always talking about an answer and how I
Speaker 1: would think of something from a policy standpoint.
Speaker 3: He's talking about.
Speaker 1: It, how is he going to sell this to America
Speaker 1: and how's it going.
Speaker 3: To affect people?
Speaker 1: And how's it good for the country, And he's thinking
Speaker 1: in that term. So we're always having an interesting conversation
Speaker 1: where I'm thinking about it from an economic policy, markets
Speaker 1: policy standpoint, and he's thinking about it from how do
Speaker 1: I sell this and how do I get momentum for this.
Speaker 2: Some space in the media are describing this process as
Speaker 2: looking for a yes man, someone who would just say
Speaker 2: yes to some of his policy proposals, including the trade.
Speaker 2: You had disagreements with him on trade. You were very
Speaker 2: open about that. We're all aware of it at the
Speaker 2: time in the first term. How open is he to
Speaker 2: those disagreements.
Speaker 3: Look, I believe.
Speaker 1: It's the job and an advisor in the White House
Speaker 1: to tell the president the truth and tell them things
Speaker 1: that he.
Speaker 3: Doesn't want to hear.
Speaker 1: Now you get to tell him plain of things he
Speaker 1: does want to hear, you know, Like it was, it
Speaker 1: was always fun to go in there with the economic data.
Speaker 1: You know, you get the economic data of the night
Speaker 1: before it's released, and there are many nice where I
Speaker 1: got to go in there and talk to him about
Speaker 1: the economic data, what it was, how good it was,
Speaker 1: how the markets were going to react. Those are great conversations.
Speaker 1: But along with those great conversations, you get to go
Speaker 1: in there and have conversations that say, hey, look, if
Speaker 1: we do X, I think I don't know, I think
Speaker 1: the reaction is going to be this. Are we prepared
Speaker 1: for this intended or unintended consequence?
Speaker 3: And I think those are the.
Speaker 1: Jobs of the people that sit in the White House's
Speaker 1: advisors to make sure when the president does something they
Speaker 1: understand the intended and unintended consequences. They should never a
Speaker 1: president should never be blindsided by a.
Speaker 4: Decision when it comes to the check and the pushback
Speaker 4: on Trump two point zero, John talked about this his
Speaker 4: first four years. All the time the Trump put it
Speaker 4: was a stock market that he cared about. He would
Speaker 4: reverse core some potentially something he want to do in
Speaker 4: executive order, just because he saw the fallout of the
Speaker 4: financial markets. What's going to be that check this time?
Speaker 1: I think think Trump is going to care as much
Speaker 1: about the stock market these next four years as he
Speaker 1: did the first four years. That is a benchmark that
Speaker 1: he will measure himself. It's a very public benchmark. It's
Speaker 1: one that he uses. He talks about it in every speech.
Speaker 1: He's already started talking about it in the transition. How
Speaker 1: well the market's done since election night. I don't think
Speaker 1: that will change over the next four years.
Speaker 2: Do you think the bond market takes on additional importance?
Speaker 2: We started this whole conversation about the difference between now
Speaker 2: versus say, twenty sixteen to seventeen, certainly in fixed income
Speaker 2: in a very different position.
Speaker 1: I think the bond market deserves a long discussion here.
Speaker 1: I think there's a lot going on. When I talked it,
Speaker 1: when I talked a little bit ago. You know where
Speaker 1: FED funds were at seventy six spaces points where they're
Speaker 1: four and a half percent. Now, that's only half the story.
Speaker 1: You know, we had a flat yield curve and then
Speaker 1: we've gone through an inverted yield curve over the last
Speaker 1: four years because everyone's worried about a recession. And now
Speaker 1: we're going back to something that we forgot what it
Speaker 1: is called a normal yield curve.
Speaker 2: How stafe is a normal year?
Speaker 1: Yeah, at least you've been around long enough to ask
Speaker 1: a question, how steep is a normal yield curve, because
Speaker 1: a lot of people don't even remember a normal yield
Speaker 1: curve is steep.
Speaker 3: You know, we've seen since.
Speaker 1: The Fed started cutting interest rates, ten years have gone
Speaker 1: up sixty to seventy basis points.
Speaker 3: I'm not surprised by that.
Speaker 1: I think we're renormalizing a yield curve. If we've taken
Speaker 1: recession fears off the table, and the ten years is
Speaker 1: going to go to a normalized rate of let's call
Speaker 1: it three, three and a half percent, you know, there
Speaker 1: has to be at least one hundred, one hundred and
Speaker 1: twenty five basis points of steepness in FED funds ten years.
Speaker 1: I think it's at least one hundred and twenty five.
Speaker 1: If we're going to three, that's at least four and
Speaker 1: a quarter.
Speaker 3: If we're going to three and a half, you.
Speaker 1: Know, we're talking four to seventy five, and we're going
Speaker 1: to continue steepness out the curve. And that's before we
Speaker 1: get to what I consider a pretty large refinancing wall
Speaker 1: coming up in twenty five and beyond. You know, I
Speaker 1: think many people forgot that. You know, twenty twenty, the
Speaker 1: COVID year, we did a lot of refinancing in the market,
Speaker 1: but they were all most of them were five year refinance,
Speaker 1: so a lot of that COVID paper that was done.
Speaker 3: At pretty favorable rates because.
Speaker 1: The Fed again went into very accommodated policy. A lot
Speaker 1: of that COVID paper comes as due next year, so
Speaker 1: we've got a lot of refinancing coming due in twenty
Speaker 1: twenty five. So I think the yieldker smartly and normally
Speaker 1: starting to renticipate what's going to happen in the bond market.
Speaker 2: We could sell cool morning, Let's do it for now.
Speaker 2: Next time. It's going to see you, sir, great singing.
Speaker 2: I appreciate it. Gary Cone, the IBM Vice chairman and
Speaker 2: former Director of the National Economic Council under Donald Trump.