WEBVTT - Surveillance: Slowdown in 2020 But Not Recession, Hooper Says 0:00:00.080 --> 0:00:12.960 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Ley. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:32.320 Bloomberg dot Com, and of course on the Bloomberg Joint. 0:00:32.320 --> 0:00:33.960 To us here in New York City, I'm ready pleased 0:00:33.960 --> 0:00:38.040 to say Peter Hooper dropping by Deutsche Banks Securities Chief Economists. 0:00:38.040 --> 0:00:41.160 Good morning to Peter. Good morning Jonathan, great to catch 0:00:41.240 --> 0:00:43.720 up with you want today that global risk appetite appears 0:00:43.800 --> 0:00:45.839 to be returning. Are you confident that this has got 0:00:45.880 --> 0:00:49.360 some fundamental underpinnings. Well, John, I think there's several things 0:00:50.280 --> 0:00:53.400 at work here. One is, uh, you know, the the 0:00:53.479 --> 0:00:58.040 economy continues to tourtal along at three plus and recession 0:00:58.840 --> 0:01:01.600 people were concerned about near term reception risk. Those are receding. 0:01:02.360 --> 0:01:04.160 We put out a PC yesterday saying that there's a 0:01:04.160 --> 0:01:06.520 good chance at pal FED can achieve history here by 0:01:06.560 --> 0:01:11.520 avoiding a recession altogether. As you look into one, uh 0:01:11.600 --> 0:01:14.320 that that view could be having a bit of effect, 0:01:14.360 --> 0:01:18.800 And I think developments on the trade front probably overall 0:01:18.920 --> 0:01:22.800 a bit more positive. Certainly we're avoiding. Uh, it looks 0:01:22.840 --> 0:01:27.080 like we're avoiding a major trade war over NAFTA with Europe, 0:01:27.640 --> 0:01:30.039 and the Trump administration is pushing hard in the one 0:01:30.080 --> 0:01:33.960 area where there is a lot of bipartisan support because 0:01:34.000 --> 0:01:37.040 of each China. That's too much optimism for Friday morning, right, 0:01:37.920 --> 0:01:39.880 that's all gloom and doom Frinday. I mean, I'm waiting 0:01:39.880 --> 0:01:46.960 to go to cash. I mean, this is way do 0:01:46.959 --> 0:01:49.400 we allow this much optimism when we can allow it, 0:01:49.440 --> 0:01:51.000 We can allow it on a week where we've had 0:01:51.080 --> 0:01:54.960 that twenty five different economists talk about it downtown itxactly. 0:01:55.280 --> 0:01:57.600 You think it's different this time that you dare not 0:01:57.760 --> 0:01:59.840 right to in the pace that it's different this time. 0:02:00.160 --> 0:02:02.400 Tell me why it might be different this time. Well, 0:02:02.440 --> 0:02:04.840 we did actually put those words in the piece, uh, 0:02:05.000 --> 0:02:09.720 somewhat sheepishly. But it is different this time because you 0:02:09.760 --> 0:02:13.359 look at every recession we've had since the late nineteen forties, 0:02:14.080 --> 0:02:17.000 it's been a tight labor market and the FED tightening, 0:02:17.000 --> 0:02:20.200 but almost all of them have also been accompanied by 0:02:20.360 --> 0:02:25.120 a major investment overhang, overbuilding and housing, overbuilding and business 0:02:25.160 --> 0:02:29.040 equipment and structures. That's not there this time. I mean, 0:02:29.040 --> 0:02:32.200 this is that's what usually when when the FED starts 0:02:32.200 --> 0:02:35.040 to tighten, that's that's that kind of spending collapses and 0:02:35.080 --> 0:02:37.880 pushes you into recession. We don't have it. It's been 0:02:37.880 --> 0:02:45.639 a very slow gradual recovery. Housing vacancies are all all 0:02:45.720 --> 0:02:48.120 time highs, I mean all time lows. Excuse me, housing 0:02:48.200 --> 0:02:52.360 market quite tight. Uh. And no one says business capital 0:02:52.400 --> 0:02:55.679 has been booming this time around. Productivity growth still near 0:02:55.760 --> 0:02:58.280 historic lows. Uh. We we have a long ways to 0:02:58.320 --> 0:03:01.280 go there. So I think the Fed have some some 0:03:01.280 --> 0:03:03.079 some things going for it. So let's set up the 0:03:03.120 --> 0:03:04.959 framework for the way you think about things. Right now. 0:03:05.120 --> 0:03:07.280 Most of the people that come on this program look 0:03:07.280 --> 0:03:09.560 at four percent GDP growth and they say, yeah, great, 0:03:09.720 --> 0:03:13.600 But in we're heading for a recession potentially, you're saying 0:03:13.639 --> 0:03:15.760 we could come short of that, we could be doing okay, 0:03:16.000 --> 0:03:18.680 and that this time could be different. Typically, and I 0:03:18.720 --> 0:03:21.360 can't think of one historical example of whether the Federal 0:03:21.360 --> 0:03:25.960 Reserve is engineered a soft landing. Can you know? It 0:03:26.000 --> 0:03:28.919 hasn't happened before, But I think they have it. They 0:03:28.919 --> 0:03:30.880 have a chance this time. They do have to have 0:03:30.919 --> 0:03:33.880 a slowdown. We have to have a growth go below potential. 0:03:33.919 --> 0:03:36.520 It's got a drop below two percent, and we think 0:03:36.560 --> 0:03:39.360 it probably will be somewhere in the one one and 0:03:39.400 --> 0:03:41.680 a half percent range in twenty twenty. It will be 0:03:41.720 --> 0:03:44.120 a noticeable slow but it doesn't have to be a 0:03:44.160 --> 0:03:47.800 recession because you don't have that normal cyclical spending over 0:03:47.840 --> 0:03:51.520 spending which drives you down in place. We interrupt now. 0:03:51.600 --> 0:03:54.160 Jeffrey Frankel out with a great essay which I put 0:03:54.160 --> 0:03:58.400 out on Project Syndicate on China the President in Trade. 0:03:58.480 --> 0:04:01.080 He wrote an essay years ago I believe for M B. E. R. 0:04:01.840 --> 0:04:05.720 Dr Hooper about defining a recession and the I can 0:04:05.760 --> 0:04:09.080 we review. We haven't done this, John in Ages. But 0:04:09.680 --> 0:04:12.640 you know, the cannon is a recession is two negative 0:04:12.640 --> 0:04:16.040 GDP quarters And guys like you and Professor Frankel say, no, 0:04:16.240 --> 0:04:21.039 it isn't. It's more subtle than that. What's a recession? Well, 0:04:21.839 --> 0:04:24.560 a recession, you know, I'll go with a two negative 0:04:24.960 --> 0:04:29.200 quarters in GDP. That's that's not a bad proxy. Labor. 0:04:29.839 --> 0:04:32.760 Labor comes in here as well. You have to have 0:04:32.800 --> 0:04:37.320 a significant increase in unemployment, a probably a fairly sharp one. 0:04:37.400 --> 0:04:42.560 Typically labor market overshoots unemployment going well below the rout 0:04:42.839 --> 0:04:46.919 and then zooms up in a relatively brief period. Going back, 0:04:47.640 --> 0:04:49.840 we think this this zoom up can be a more 0:04:49.880 --> 0:04:53.760 gradual process. We could think slow down, uh with with 0:04:53.839 --> 0:04:56.359 a with a return to nehru over a couple of years, 0:04:56.360 --> 0:04:59.960 can do it without going into a deep downturn and recess. 0:05:00.480 --> 0:05:05.760 Where neighbor neighbor neighbor the non accelerating rate of unemployment, 0:05:06.680 --> 0:05:09.760 no one else does wise it is it is. It 0:05:09.880 --> 0:05:12.920 is exactly four point three five Now you know, it's 0:05:12.960 --> 0:05:15.280 somewhere in the four and a quarter four and a 0:05:15.320 --> 0:05:18.800 half percent range. The latest official number put out by 0:05:18.880 --> 0:05:21.400 Congratual Budget Office I think was four or six. I 0:05:21.400 --> 0:05:25.000 think you look at the f M CUM indications where 0:05:25.080 --> 0:05:28.760 long run unemployment is longer term, it's it's four five 0:05:28.920 --> 0:05:30.960 for four. I think probably we'll see it come down 0:05:31.000 --> 0:05:33.400 a little bit next week to four or four. What 0:05:33.480 --> 0:05:35.760 are the signs that we've gone through it? What are 0:05:35.800 --> 0:05:38.440 the signs we've gone through it? Well? We are seeing 0:05:38.960 --> 0:05:42.880 we are seeing a gradual uptrend in wage inflation. Now, 0:05:43.080 --> 0:05:46.719 both the average hourly earnings and employment cost index, which 0:05:47.240 --> 0:05:49.520 several years ago we're around one and a half percent, 0:05:49.600 --> 0:05:52.160 have now gotten up close to three percent. It's been 0:05:52.200 --> 0:05:55.560 a fairly steady march up as the labor market is tightened. 0:05:55.880 --> 0:05:58.520 I think that's probably the best indicator. How do you 0:05:58.560 --> 0:06:01.880 respond to yields? You wrote an important piece at Jorga 0:06:01.920 --> 0:06:04.599 Bank earlier this summer on the yield curve. You told 0:06:04.640 --> 0:06:08.159 everybody to calm down. But but in general, the yield 0:06:08.279 --> 0:06:10.719 lift of the past ten days, how do you respond 0:06:10.720 --> 0:06:14.160 to that? Uh, I'm saying, well, it's finally happening. We've 0:06:14.200 --> 0:06:17.520 been expecting this for some time. We wouldn't be surprised 0:06:17.560 --> 0:06:20.640 to see a ten year Ye'll get up somewhere closer 0:06:20.720 --> 0:06:23.480 to three and a half percent by late next late 0:06:23.520 --> 0:06:27.040 this year, early next year. Our our senses the economy 0:06:27.040 --> 0:06:30.640 has a lot of momentum, the labor markets continuing to tighten. 0:06:31.360 --> 0:06:34.200 Wage inflation has been rising price inflations back to where 0:06:34.200 --> 0:06:37.640 the Fed wants it, and it's likely to overshoot a bit. 0:06:38.160 --> 0:06:40.400 This is a recipe for the Fed to continue on 0:06:40.480 --> 0:06:43.320 this gradual piece of right hikes. It doesn't make sense 0:06:43.400 --> 0:06:48.640 that the tenure would would remain unchanged in this in 0:06:48.680 --> 0:06:53.320 this environment until it looks like we're going into a slowdown, 0:06:53.360 --> 0:06:54.880 and we don't think that will happen to the latter 0:06:54.880 --> 0:06:56.719 part of next year. I think most people would agree 0:06:56.760 --> 0:06:58.400 with that sentiment as well. Paid when I think what's 0:06:58.400 --> 0:07:01.159 interesting about this week as a global risk appetite has 0:07:01.200 --> 0:07:04.520 returned on a week where treasury yields half grinded higher. 0:07:04.560 --> 0:07:06.839 We're sitting in Japan this morning as well. With jgbs 0:07:06.839 --> 0:07:08.920 at the long end, you would started to drift high too. 0:07:08.920 --> 0:07:11.360 I think we've got twenty eighteen heights in the Japanese 0:07:11.400 --> 0:07:14.080 bond market in terms of yield. Do you think the 0:07:14.120 --> 0:07:17.600 economy can withstand high treasury yields because so far it's 0:07:17.600 --> 0:07:23.280 done absolutely fine. Oh, absolutely yes, I think you know. Uh. 0:07:23.640 --> 0:07:27.440 I think the key issue here is when interest sensitive 0:07:27.440 --> 0:07:32.040 spending globally interesting spending, the sensitive to US interest rates 0:07:32.040 --> 0:07:36.680 globally begins to have complain I don't think it's until 0:07:36.720 --> 0:07:39.440 the FED gets up to into the above three percent 0:07:39.520 --> 0:07:41.440 and three and quarter three and a half percent range. 0:07:41.920 --> 0:07:45.840 We're we're feeling some pain from emerging markets. Now, okay, 0:07:46.200 --> 0:07:51.040 that's mostly idiosyncratic. It's it's not contagion on a big 0:07:51.160 --> 0:07:54.080 on a big scale resulting from FED tightening. That will 0:07:54.200 --> 0:07:58.000 probably come. I think we're expecting something probably sometime in 0:07:58.040 --> 0:08:01.720 the second half next year. Uh, and that probably spill 0:08:01.800 --> 0:08:04.680 over into you know this this this risk on will 0:08:04.720 --> 0:08:08.680 become risk off and we'll see a drop in financial conditions. 0:08:08.680 --> 0:08:11.400 And that was that's what's along with some slowing of 0:08:11.520 --> 0:08:16.680 fiscal stimulus, that's what's going to generate this slowdown we're expecting. 0:08:16.680 --> 0:08:19.200 In Peter is great to catch out with you some 0:08:19.280 --> 0:08:21.760 really really thoughtful stuff from the Deutsche Bank team this 0:08:21.800 --> 0:08:24.400 week Peter Hoop at deutche Bank Securities chief Economists. Reach 0:08:24.480 --> 0:08:25.800 out to Peter and the team if you want to 0:08:25.800 --> 0:08:28.960 get the research how the foul pal fed can make 0:08:29.160 --> 0:08:32.319 history and White Tom Kane, it might be different this time. 0:08:32.320 --> 0:08:45.280 It's a really thoughtful piece. And now we're gonna go 0:08:45.440 --> 0:08:49.280 essentially to China because Free of Bemish of Pantheon has 0:08:49.480 --> 0:08:54.760 real hands on living in Chinese China experience. I should 0:08:54.800 --> 0:08:57.480 say for you, a good morning to you. What will 0:08:57.520 --> 0:09:01.160 be the response of the I mean this party and 0:09:01.200 --> 0:09:04.520 that's so much the people of China or President g 0:09:04.720 --> 0:09:08.439 and the elite of China, but just the party apparatus 0:09:08.880 --> 0:09:12.280 from see the shining Sea of China. What will there 0:09:12.320 --> 0:09:17.720 be a response their response be to President Trump's trade war? Well, 0:09:17.760 --> 0:09:20.600 I think at this stage we're seeing a very measured 0:09:20.640 --> 0:09:23.000 response from the Chinese trying to kind of take the 0:09:23.160 --> 0:09:26.080 high road, UM in that sense. And then I guess 0:09:26.120 --> 0:09:28.959 your question really speaks to what what UM is going 0:09:28.960 --> 0:09:31.360 to be the response of the people of of China 0:09:31.440 --> 0:09:33.760 to the extent that one can one can generalize, and 0:09:33.760 --> 0:09:36.880 will they accept the narrative, UM, that is coming from 0:09:37.000 --> 0:09:40.240 the leaders on high that we're protecting you by not 0:09:40.480 --> 0:09:44.040 escalating this trade war, by by not just responding to 0:09:44.240 --> 0:09:47.480 Mr Trump's tweets. And I guess we can we can 0:09:47.559 --> 0:09:49.839 hope at least that a lot of the kind of 0:09:50.160 --> 0:09:52.920 if one wants to say, vitriol of that is coming 0:09:52.920 --> 0:09:54.880 out of of the the U S side of this, 0:09:55.080 --> 0:09:58.440 of this UM. So the negotiations, if we can even 0:09:58.559 --> 0:10:02.360 call them negotiations, is UM. Maybe that starts to die 0:10:02.400 --> 0:10:04.960 down a bit after the mid term elections. UM. Certainly 0:10:05.080 --> 0:10:07.920 Mr Trump's most recent response, I'm not sure what the 0:10:08.000 --> 0:10:09.839 venue was for that. It might have been more kind 0:10:09.840 --> 0:10:13.640 of an audience type of response. I'm prepared to eat 0:10:13.720 --> 0:10:15.600 my words on this, it will at any stage, and 0:10:15.600 --> 0:10:19.319 then to revegitate them almost immediately afterwards if if the 0:10:20.120 --> 0:10:23.800 story changes. But looking at the short terms, he leaves here. Um. 0:10:23.960 --> 0:10:26.000 The what we've had this week is that we've had 0:10:26.040 --> 0:10:28.920 a big escalation for Mr from Mr Trump at the 0:10:28.920 --> 0:10:32.400 beginning of a week China and had a very measured 0:10:32.440 --> 0:10:35.000 response to that. They they said five to ten percent 0:10:35.120 --> 0:10:37.439 tariffs on on sixty billion of goods, which is kind 0:10:37.440 --> 0:10:39.560 of a drop in the water, really in the bucket 0:10:40.000 --> 0:10:42.520 um in the context of what's been imposed from from 0:10:42.640 --> 0:10:45.520 Mr Trump. Mr Trump has said he's gonna he's gonna 0:10:45.600 --> 0:10:48.800 slap the tariffs on on a further two hundred and 0:10:48.920 --> 0:10:52.520 sixty seven billion of goods um as soon as China retaliates. 0:10:52.520 --> 0:10:54.160 We haven't had that yet. We've had a kind of 0:10:54.160 --> 0:10:57.600 with some some rhetoric um. But at this stage, if 0:10:57.600 --> 0:11:01.680 he's willing to put off the twenty five percent until 0:11:01.800 --> 0:11:05.360 January to laughter Christmas to laughter in the midtimes, because 0:11:05.360 --> 0:11:08.320 of the to give businesses time to adjust, it doesn't 0:11:08.360 --> 0:11:10.640 seem likely at this stage that we're going to see 0:11:10.720 --> 0:11:12.920 him turn around and say, well, okay, well I'm going 0:11:12.960 --> 0:11:15.720 to immediately slap on the carriers on the two hundred 0:11:15.720 --> 0:11:18.240 and sixty seven. That's the short term answer to that, 0:11:18.360 --> 0:11:20.600 and there's a very different longer term answer to that, 0:11:20.679 --> 0:11:22.840 and certainly I see China and the US on a 0:11:22.840 --> 0:11:25.800 collision course. Then well, I think the longer term outcome 0:11:25.800 --> 0:11:27.960 warrants a much longer conversation at the time we have 0:11:28.040 --> 0:11:30.520 this morning. I think there's plenty of things that investors 0:11:30.559 --> 0:11:32.600 are interested in, But if I could pick two of them, 0:11:32.760 --> 0:11:35.480 one is the trade conversation you've just laid out for us. 0:11:35.520 --> 0:11:38.520 The second part is how China responds with policy tools 0:11:38.679 --> 0:11:42.240 outside of trade. Are we shifting towards an easing bias? 0:11:42.320 --> 0:11:44.280 And have we done that already? Were the signs that 0:11:44.320 --> 0:11:46.880 you see Freyer that that's happening right now in China? 0:11:48.320 --> 0:11:50.400 I think we are seeing that easing bias. I think 0:11:50.400 --> 0:11:52.400 we would have seen that regardless of what was going 0:11:52.440 --> 0:11:55.000 on in the trade wars by this stage of years. 0:11:55.040 --> 0:11:57.440 One of the indicators that I look at most closely 0:11:57.520 --> 0:12:00.240 is M one and M one is a great leading 0:12:00.280 --> 0:12:04.319 indicator for China because it's such a banking um centric economy, 0:12:04.320 --> 0:12:06.559 and there's shadow banking elements to that as well. But 0:12:06.600 --> 0:12:09.120 the M one tends to have a good kind of 0:12:09.120 --> 0:12:11.680 two or three quarter lead on on GDP growth, and 0:12:11.720 --> 0:12:15.000 I'm talking for nominal GDP growth here, and that's been 0:12:15.000 --> 0:12:20.960 showing a substantial slowdown UM since since the mid sixteen 0:12:21.120 --> 0:12:25.040 and together that indicates that GDP growth would be slowing 0:12:25.120 --> 0:12:28.040 into into the beginning of next year. UM, but we 0:12:28.080 --> 0:12:30.679 are starting to see it pick up again now that 0:12:30.760 --> 0:12:33.120 the Chinese easing response. We gotta rip up the scripture. 0:12:33.160 --> 0:12:36.400 This is really important M one. You mean M one 0:12:36.600 --> 0:12:40.400 in China, not M one in the United States right now. 0:12:40.640 --> 0:12:42.880 Actually in the United States that we don't see so 0:12:42.960 --> 0:12:47.400 much of that the money indicators being being so important. 0:12:47.400 --> 0:12:50.040 But in China and the likes of Europe, even where 0:12:50.080 --> 0:12:52.440 banks are more important than they are in in the 0:12:52.559 --> 0:12:56.280 US as a kind of as financial intermediaries relatively speaking 0:12:56.280 --> 0:12:59.480 relative to other forms of financing. M one in China 0:12:59.520 --> 0:13:03.920 and particular, you're very good neading indicator. Freya Bemish. Thank 0:13:03.960 --> 0:13:07.680 you so much greatly. I appreciate that. UH. This morning, 0:13:17.280 --> 0:13:21.720 John Farren toom Kean are Bloomberg Interactive Broker Studios. We 0:13:21.760 --> 0:13:24.079 are thrilled for the support from Interactor Brokers, and we're 0:13:24.080 --> 0:13:26.880 also thrilled to bring you what I think, on an 0:13:26.920 --> 0:13:32.320 almost theology basis, is the political interview of the weekend, UH. 0:13:32.440 --> 0:13:36.040 The Gentleman from the sixth Congressional District of Pennsylvania. Ryan 0:13:36.080 --> 0:13:41.319 Anthony Costello is in the absolute crosshairs of national gerrymandering 0:13:41.760 --> 0:13:45.959 and also a centrist. How rare is that he joins 0:13:46.040 --> 0:13:48.760 us now? Is he retires from Congress in a bit? 0:13:49.200 --> 0:13:52.400 But Ryan, far more importantly is the idea that you've 0:13:52.400 --> 0:13:55.120 had the courage to take a middle ground. You see 0:13:55.160 --> 0:13:57.920 it in the statistics out by all the pundon's, the 0:13:57.960 --> 0:14:00.959 Cook Report and and all that. How lonely is it 0:14:01.040 --> 0:14:05.640 to be in the middle in Washington? There are other 0:14:06.320 --> 0:14:09.520 members such as that. But what it does bring about, 0:14:09.600 --> 0:14:13.079 Tom is uh, no matter what you do, you always 0:14:13.080 --> 0:14:18.600 have about of the electorate uh ticked off at? Yeah, 0:14:20.880 --> 0:14:23.600 sometimes it changes though. Sometimes it's the left, sometimes it's 0:14:23.640 --> 0:14:25.960 the right, depending upon how is that changing? Right now? 0:14:25.960 --> 0:14:30.080 What's the what's the marginal change now between a polarized 0:14:30.160 --> 0:14:32.400 left and a polarized right? Or do we need to 0:14:32.400 --> 0:14:36.400 wait farther to get to see that? I think it 0:14:36.560 --> 0:14:41.480 probably uh farther to But of course the issue set uh, 0:14:41.800 --> 0:14:47.120 you know change as I mentioned who maybe take coffee 0:14:47.120 --> 0:14:49.840 of with. The goal obviously is always to try and 0:14:49.920 --> 0:14:53.320 work to get to that eight twenty solution where you 0:14:53.360 --> 0:14:55.520 can get percent of the people behind you. And I 0:14:55.560 --> 0:14:58.240 do think where we're falling short is it on some 0:14:58.320 --> 0:15:02.440 of these issues we can at eight twenty issues we mightn't. 0:15:02.440 --> 0:15:04.800 We might not be getting a percent of an issue solved, 0:15:04.840 --> 0:15:07.600 but we should be finding the areas where we you know, 0:15:07.640 --> 0:15:10.120 get get the find where the consensus is. Do that, 0:15:10.200 --> 0:15:12.440 and then the stuff we can't agree to, let let 0:15:12.440 --> 0:15:15.960 that linger another day and fight for another day. A 0:15:15.960 --> 0:15:18.720 pleasure to speak to you in terms of my Tuesday 0:15:18.760 --> 0:15:22.240 evening reality. Early in November of two thousand sixteen, I 0:15:22.280 --> 0:15:23.960 was standing in a living room, I believe I was 0:15:24.000 --> 0:15:28.480 watching CNN, and there was a dawning reality that Secretary 0:15:28.520 --> 0:15:33.080 Clinton would barely win Bucks County. I was thunderstruck and 0:15:33.160 --> 0:15:35.840 how the president did so well in Bucks County. And 0:15:35.880 --> 0:15:38.960 that was the first moment I realized we would have 0:15:39.080 --> 0:15:42.600 a President Trump if that election was held today, with 0:15:42.760 --> 0:15:46.480 the president get that close again in Bucks County, you know, 0:15:46.600 --> 0:15:50.440 less than three thousand votes, he would not. There are 0:15:50.520 --> 0:15:55.440 some polling I think that suggests that, uh, he's lost five, 0:15:56.200 --> 0:16:00.080 maybe even ten points um in that county. Uh and 0:16:00.120 --> 0:16:02.560 in that specific case, lower Bucks County, which has a 0:16:02.600 --> 0:16:05.600 lot more I don't want to over generalize, but working 0:16:05.640 --> 0:16:11.440 class UM voters uh saw and President Trump someone who 0:16:11.480 --> 0:16:15.960 was going to disrupt the system, who was speaking their language. Uh, 0:16:16.000 --> 0:16:18.960 you know, would be a trade deals or some other 0:16:19.320 --> 0:16:23.280 um even cultural issues he felt spoke to them, they 0:16:23.320 --> 0:16:26.320 felt spoke to them um at this point. And you're 0:16:26.400 --> 0:16:29.440 right though, that is I think where the tipping point 0:16:29.480 --> 0:16:33.240 for him in parts of Pennsylvania, Michigan, Wisconsin. I was 0:16:33.360 --> 0:16:36.320 very surprised. I did not expect President Trump to win. 0:16:36.520 --> 0:16:39.600 I thought Hillary Clinton in Bucks County or where I'm from, 0:16:39.680 --> 0:16:43.600 Chester County, in the Philadelphia Star would have performed better 0:16:43.640 --> 0:16:47.960 than she did. Within this Congressman, is the Tax Reform Act. 0:16:48.040 --> 0:16:50.360 There's a couple of articles this week clearly suggesting in 0:16:50.400 --> 0:16:55.320 the zeitgeist that it's not playing well with frontline, mainline Republicans. 0:16:55.400 --> 0:16:57.920 It's only a product for the rich and the guilded 0:16:57.960 --> 0:17:02.040 age that we live in. How the Republicans sell the 0:17:02.080 --> 0:17:06.000 benefits of the new tax reform to the broad spectrum 0:17:06.000 --> 0:17:10.080 of America, I think you have to do a couple 0:17:10.080 --> 0:17:14.000 of things. Number One, we don't have invertens anymore. So. 0:17:14.080 --> 0:17:17.800 The challenge here, I think you've correctly identified it is 0:17:17.920 --> 0:17:22.680 in talking about how corporate tax reform benefits everyone. Uh, 0:17:22.840 --> 0:17:25.560 that can get lost in the shuffle. It's an abstraction. 0:17:26.040 --> 0:17:27.879 I think you have to point to the stock market, 0:17:27.920 --> 0:17:30.200 you have to point to low unemployment, you have to 0:17:30.280 --> 0:17:34.520 point to um the fact that companies aren't leaving America anymore. 0:17:35.160 --> 0:17:38.040 That's one piece of the puzzle. The other one is 0:17:38.320 --> 0:17:41.000 looking at the wage increased growth. We've seen in the 0:17:41.040 --> 0:17:44.919 past year, wage increased growth of about three percent. That 0:17:45.080 --> 0:17:49.480 significant final piece here is and this is a bigger 0:17:49.560 --> 0:17:52.680 challenge because it hasn't happened yet. Folks have not filed obviously, 0:17:52.680 --> 0:17:55.520 they tax research. Yet that's when you're going to see 0:17:55.560 --> 0:17:59.720 that family, that middle and middle income class family ums 0:17:59.800 --> 0:18:04.080 them aided. Again the generalization of a couple of thousand dollars. 0:18:04.760 --> 0:18:07.880 We cannot rely as Republicans just on saying we pass 0:18:07.960 --> 0:18:10.920 tax reform, the economy is going good, vote for us. 0:18:10.960 --> 0:18:13.720 There has to be more than that. The other thing, 0:18:13.720 --> 0:18:16.960 I would say Democrats have really doubled and tripled down 0:18:17.160 --> 0:18:20.679 on their counter messaging on this, and that's what the 0:18:20.720 --> 0:18:23.240 other reason why I think it has not really been 0:18:23.320 --> 0:18:26.480 embedded as a positive in the minds of every single 0:18:26.520 --> 0:18:30.400 Republican voter or or every single independent or Democratic congresmand Cossello, 0:18:30.440 --> 0:18:33.920 where this is the sixth District of Pennsylvania Congressman. As 0:18:33.920 --> 0:18:37.119 you look across the aisle, there's, you know, developing Democrat 0:18:37.200 --> 0:18:40.880 party strategy, one of progressive, one of what someone suggests 0:18:40.880 --> 0:18:44.399 as extreme, and like the Republicans, trying to find a 0:18:44.440 --> 0:18:47.600 path to the middle in a distant part of Pennsylvania. 0:18:47.680 --> 0:18:50.880 I know you've never been to Pittsburgh, but just southwest 0:18:50.880 --> 0:18:54.560 of Pittsburgh, Mr Lamb did better than good. Is one 0:18:54.560 --> 0:18:57.679 of your great fears for the GOP is the Democrats 0:18:57.720 --> 0:19:03.040 find more Connor Lambs well, uh, not too far from 0:19:03.080 --> 0:19:07.639 me Burke's County, which I represent part of right now, 0:19:08.040 --> 0:19:11.320 and Levining County as you head towards Hershey, Pennsylvania used 0:19:11.359 --> 0:19:14.680 to be represented by Tim Holden, another blue dog Democrat. 0:19:15.240 --> 0:19:20.200 And what you're finding is that Democrats who are who 0:19:20.280 --> 0:19:26.840 do culturally connect with their region remind those Democratic voters 0:19:26.880 --> 0:19:29.640 that voted for Trump that there are Democrats out there 0:19:29.680 --> 0:19:32.840 like them. They're just looking for those kinds of Democrats. 0:19:33.200 --> 0:19:35.320 They're going to have the same challenge that Republicans have, 0:19:35.400 --> 0:19:37.720 and that is you have a progressive left, which if 0:19:37.720 --> 0:19:42.240 you pull it, um pe socialism as favorable, right, I 0:19:42.240 --> 0:19:45.639 mean that's really I mean we're talking really left type 0:19:46.280 --> 0:19:49.960 progressive and so they have the same ideological tensions that 0:19:50.040 --> 0:19:53.399 Republicans have at times. Um. And so you're sort of 0:19:53.400 --> 0:19:57.480 seeing this strange mixture in the Democratic Party where they're 0:19:57.480 --> 0:20:00.919 gonna have their own uh sets of issues. But in 0:20:01.000 --> 0:20:04.120 certain parts of Pennsylvania and across the country in the Midwest, 0:20:04.520 --> 0:20:08.920 and Pittsburgh is the Midwest. Um, Philadelphia, I would say, isn't. 0:20:09.440 --> 0:20:12.480 But in the Midwest, no, no, it's not. I mean Pittsburgh. 0:20:12.480 --> 0:20:14.840 I mean it's interesting. Pennsylvania's kind of the dividing line 0:20:14.840 --> 0:20:19.359 between the Midwest and western Pennsylvania and the northeast. This 0:20:19.640 --> 0:20:23.480 it's the Steelers verse Eagles baby, um and uh. In 0:20:23.560 --> 0:20:27.320 the Midwest, those Democrats have to be not only they 0:20:27.359 --> 0:20:30.000 have to be and they also have to be perceived 0:20:30.119 --> 0:20:33.720 as different Democrats than the progressive left in order to win, 0:20:33.960 --> 0:20:36.479 just like Republicans in my neck of the woods need 0:20:36.560 --> 0:20:39.920 to be viewed as you know, your suburban moderate centrist Republican, 0:20:40.040 --> 0:20:44.720 not your tea party anti establishment republican that's willing to 0:20:44.720 --> 0:20:47.280 shut the government down. A lot of voters are not 0:20:47.320 --> 0:20:49.879 going to go for that brand of Republicanism either. So 0:20:49.960 --> 0:20:54.000 it's it creates I think, actually, Tom the kind of 0:20:54.040 --> 0:20:57.439 America that we have, which is gone, that's constantly you know, 0:20:57.480 --> 0:20:59.399 the wind shift a little bit, and you have to 0:20:59.440 --> 0:21:02.520 reflect the passions of the time. But you also have 0:21:02.600 --> 0:21:06.280 to demonstrate thoughtfulness and a degree of independence as a 0:21:06.320 --> 0:21:09.840 member of Congress, because I think voters ultimately a lot 0:21:09.920 --> 0:21:11.920 of voters who aren't just going to vote straight are 0:21:12.040 --> 0:21:16.040 or straight d are looking for that uh, that that 0:21:16.160 --> 0:21:21.040 independent brand and that check and balance on executive branch, 0:21:21.119 --> 0:21:24.159 on regulatory agencies, and and are trying to focus on 0:21:24.200 --> 0:21:27.000 local issues. Did you see did you see John Farrell 0:21:27.080 --> 0:21:30.400 how the congressman got in that slam against the Pittsburgh Steelers. 0:21:30.400 --> 0:21:32.480 I felt for a moment like I was doing drive 0:21:32.520 --> 0:21:36.679 time Katie K Radio, CBS Radio, Pittsburgh. I do like 0:21:36.760 --> 0:21:38.840 to see. I like the Steelers, but I love the 0:21:39.119 --> 0:21:42.960 Oh you just thank god you're retiring congressman, Thank you 0:21:43.040 --> 0:21:46.600 so much. Ryan at Castello from Philadelphia might point out, 0:21:46.800 --> 0:21:51.600 and with Kevin Surreley all Eagles an important conversation there. 0:22:02.760 --> 0:22:07.560 Betsy Graci research piece reads dense, It is loaded with math, 0:22:07.760 --> 0:22:11.119 It is loaded with ratios, and it always ends up 0:22:11.160 --> 0:22:14.919 being a smart dissertation on what's going on, She joins 0:22:15.000 --> 0:22:18.240 us this morning, Betsy, the operating incomes of these beasts 0:22:18.240 --> 0:22:21.120 continues to grow? Is there no end in sight? Does 0:22:21.160 --> 0:22:24.520 the operating the profit of of our major banks? Does 0:22:24.560 --> 0:22:29.120 it just continue to advance? You know, Tom, there's uh. 0:22:29.400 --> 0:22:31.040 This note that we wrote is all about tech and 0:22:31.119 --> 0:22:35.760 technology and investing in tech, and it is driving operating leverage. 0:22:36.320 --> 0:22:38.600 And that's one of the key levers for why we 0:22:38.680 --> 0:22:42.800 do have some improvement here in operating profit of the 0:22:42.880 --> 0:22:45.919 US banks. US banks catching a bit of a bit 0:22:46.160 --> 0:22:48.520 over the last week, Betsy, largely off the back of 0:22:48.600 --> 0:22:51.920 this mild sort of statening of the yield curve back 0:22:52.000 --> 0:22:55.840 up to a massive twenty six basis points two versus tens. Betsy, 0:22:55.960 --> 0:22:58.639 how much support can you expect from the shape of 0:22:58.680 --> 0:23:01.560 a yield curve going forward from here? Yeah, you know, 0:23:01.680 --> 0:23:05.600 Jonathan's um state the curve definitely is a little bit 0:23:05.680 --> 0:23:09.800 of a help. But um, that's not the only thing 0:23:10.000 --> 0:23:13.480 that's driving our outlaws here for the institutions. You know, 0:23:14.040 --> 0:23:19.760 number one is the operating leverage from this investment spent 0:23:20.040 --> 0:23:22.960 in technology. And then you know, we also have I know, 0:23:23.359 --> 0:23:25.080 a little bit of loan growth. It's not as much 0:23:25.119 --> 0:23:27.359