Speaker 1: Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane
Speaker 1: Jay Ley. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot com, and of course, on the Bloomberg Douglas
Speaker 1: Cast with Sea Breeze. Now on caution in the market, Doug,
Speaker 1: where are you in your training right now? Are you
Speaker 1: you know, dooming bloom short? Are you doing something different now?
Speaker 1: I'm doing something different. I'm still carrying a small, knit,
Speaker 1: long exposure with a plan. Tom and John too short
Speaker 1: strengths as the SMP rises to what I believe to
Speaker 1: be the top end of the range, which is, you know,
Speaker 1: another fifty SMP points or so. Look, my forward looking
Speaker 1: concerns are plentiful. Trade war is the message of the
Speaker 1: bond market, as well as the message of the bank
Speaker 1: stock market, the rising ambiguity of global economic growth, the
Speaker 1: possible repudiation of the so called synchronized global economic recovery UM,
Speaker 1: the rising geopolitical risk, particularly in Europe with the immigration
Speaker 1: issues dividing the EU and splintering some of the entrenched parties,
Speaker 1: and also most importantly, the possibility of policy mistakes at
Speaker 1: both the White House and said as the latter what
Speaker 1: what what I want to talk about is the wall
Speaker 1: of dooming gloom literature that's out right now. The world's
Speaker 1: coming to it end. You read it like I read it.
Speaker 1: We both try to ignore it as we try to
Speaker 1: think about what we're gonna do with investment. My major
Speaker 1: thesis is corporations adapt like a Boeing doing a JV
Speaker 1: with you know, a dominant manufacturer in Brazil. Do you
Speaker 1: still see corporations adapting to the different economic and finance
Speaker 1: its out there? Are they adapting in a constructive way?
Speaker 1: I think they're adapting. UM, But UM policy remains foremost
Speaker 1: in my concern on the front front burner. You know,
Speaker 1: history has proven that one trade parish gets another than another.
Speaker 1: Until you get a full blown trade war, no one
Speaker 1: ever wins. In the consumer seems to always get screwed.
Speaker 1: Currency wars offered lead to trade wars and vice versa,
Speaker 1: which in turn can devolve into hot wars. So that
Speaker 1: cooperation which you described maybe UM in my view, rather
Speaker 1: short lived. UM. I told you in the past, and
Speaker 1: I've told John and Pin in the past that that
Speaker 1: I approach each day asking three important questions. As it
Speaker 1: relates to your example of boeing, we live in a paperless,
Speaker 1: in cloudy world. Are investors and citizens as safe as
Speaker 1: the markets assume we are? And my answer is no. Secondly,
Speaker 1: we're in a lab and interconnected world. Is it even
Speaker 1: possible for America to be an oasis of prosperity in
Speaker 1: the driver or a vengeon of global economic growth? And
Speaker 1: I don't believe so. And finally, most important, as it
Speaker 1: relates to Trump in the administration with the G eight
Speaker 1: political coordination at an all time low, getting back to
Speaker 1: what Kaplan was talking about in the last segment, how
Speaker 1: slow and the nept will the reaction be if the
Speaker 1: wheels do come off? And what does it mean for
Speaker 1: global trade and economic growth? Doug is something that the
Speaker 1: United States economy could be insulated from. And I'm just
Speaker 1: wondering if you become more defensive, just in terms of
Speaker 1: your investments, what is the most the optimal way of
Speaker 1: being defensive? And can you keep along on the SMP
Speaker 1: five given that over the last couple of months it
Speaker 1: has been somewhat resilient. Yeah, I understand, but we're to
Speaker 1: me we're in this vortex of uncertainty and certainly in
Speaker 1: a new regime of volatility. Um Monetary policy around the
Speaker 1: world has suppressed volatility, and that's that's changing. We're gonna
Speaker 1: soon see the end of UH. The E C B
Speaker 1: S QUI by your end with with it being cut
Speaker 1: half in half and three months. This is a really
Speaker 1: big deal, John, as liquidity becomes a train both here
Speaker 1: and over there. So I think the summarize last year,
Speaker 1: two thousand seventeen was a year of hope in which
Speaker 1: the SMPS index valuation experienced almost a three handle valuation
Speaker 1: increase and basically Wall Street triumph over Main Street. And
Speaker 1: this year is a year of reality in which we're
Speaker 1: seeing contraction, compression and multiples. Main Street is triumphing over
Speaker 1: Wall Street. It's what happens, you know. Charlie Munger had
Speaker 1: a great quote. He says, it's not supposed to be easy.
Speaker 1: Anyone who finds it easiest stupid. And I think a
Speaker 1: lot of people that are looking UH and saying there's
Speaker 1: an absence of uncertainty are really applying first level thinking
Speaker 1: and not second level thinking. Where this Douglas cast of
Speaker 1: Sea Breeze with a short term perspective most of us
Speaker 1: and are you know in our lives we're not trading
Speaker 1: or positioning? Is maybe Mr Casses, but it's always interesting
Speaker 1: to get the whims out there. Doug, what is your
Speaker 1: interpretation of the media event Fox Disney Comcast? How do
Speaker 1: you interpret that? How do you screen that? Well? I
Speaker 1: have two exposures. I've been shot at Disney, UM, but
Speaker 1: not because of that event, um, not because the possible
Speaker 1: acquisition of Fox by Disney. I have been shot Disney
Speaker 1: because I thought that the company's secular growth rate was
Speaker 1: probably half of the eight percent historical rate when Wall
Speaker 1: Street consensus was still looking from the mid teens sort
Speaker 1: of annual growth. UM. And I'm long Comcast, and I
Speaker 1: bought it after Comcasts fell from about forty three to
Speaker 1: thirty one on the basis that Roberts has you know,
Speaker 1: who has all of his family's net worth and comcurse.
Speaker 1: Comcast is not going to totally shoot himself in the foot. Yeah,
Speaker 1: but if he goes out, Doug, what's so interesting here
Speaker 1: on a net present value? And folks, I hate to
Speaker 1: say this, but Cast is really good at moving the
Speaker 1: numbers around. He'll never admit including the red Sox one
Speaker 1: game ahead of the Yankees. But Doug, what I would
Speaker 1: point out here is the private equity slash sovereign wealth
Speaker 1: plug that Mr Roberts may get is essentially free money,
Speaker 1: isn't it. Yes, it is. I mean it's like a
Speaker 1: plug in, John, This is really important in the Newtonian
Speaker 1: mechanics of this game. It's like a slug or plug
Speaker 1: in of just cash, right, Doug. Yes, And I do
Speaker 1: think that the that the incremental free cash flow whether
Speaker 1: Comcast or Disney gets Fox is enough that Um, while
Speaker 1: the near term UH debt to enterprise value that they're
Speaker 1: paying is large, it will be paid off in a
Speaker 1: reasonably short time. And remember Roberts is using he's not
Speaker 1: using a forever perspective like Warren Buffet, but he's you know,
Speaker 1: he's thinking intermediate John, He's not day trading Fox exactly.
Speaker 1: But John, what's so important here is Mr Roberts may
Speaker 1: have forever money, which is what sovereign wealth funds are like. Yeah, maybe,
Speaker 1: but the short term date traders so to speak, or
Speaker 1: the investors in the stock right now. Every time this
Speaker 1: deal looks less likely, um, Comcast rallies. What does that say?
Speaker 1: I don't think that I, as as I said before, John,
Speaker 1: I don't think they're robbers. Is going to shoot himself
Speaker 1: on the foot and pay a ridiculous price. I think
Speaker 1: that that Comcast ends up with Sky, Disney ends up
Speaker 1: with Fox, Comcast shares trade back up to the high thirties,
Speaker 1: and Comcast initiates, reinitiates, UM re establishes it's buy back program.
Speaker 1: So that's why I'm in Comcast. That's spout out quite clearly,
Speaker 1: Thank you, Dusk. And just going forward, you see more
Speaker 1: companies like what we're seeing in media at the moment,
Speaker 1: leverage the balance sheet. And do you think now is
Speaker 1: a good time to do that? Yeah? I think they were, John.
Speaker 1: There are two industries that have to be rationalized, the
Speaker 1: media business and the consumer package good business. And you
Speaker 1: see it in Nelson Pell's going after Procter and Gamble.
Speaker 1: You see it in Dan Loebe uh and others attracted
Speaker 1: to Campbell Soup, which I mentioned in the past to
Speaker 1: Tom as one of my holdings. UM and UM. All
Speaker 1: these businesses have to be rationalized. Uh. You need synergies,
Speaker 1: you need cut in cuts in the fixed cost structure
Speaker 1: in order to survive the secular change in the case
Speaker 1: of media, you know what the changes are the court cutting.
Speaker 1: In the case of consumer package goods, Um, it's just
Speaker 1: moved towards healthy products and generic competition and Amazon. You
Speaker 1: dug out one final question, and you've always been very
Speaker 1: collegial about the battle of you know, the struggle of
Speaker 1: making and losing money. Mr Einhor in The Great Fun
Speaker 1: Investors really had a tough goal of it. Is it
Speaker 1: just simply non diversification, you know, like on a c
Speaker 1: F a kind of chat, most hedge funds are just underdiversified.
Speaker 1: I think, Um, yes, I think that's partially the case. UM.
Speaker 1: But in in a world tom of suppressed volatility UM,
Speaker 1: in which you're being paid management or thereabouts of the
Speaker 1: profit in order to deliver alpha, there's a need, there's
Speaker 1: a need to be non diversified and concentrated making your
Speaker 1: best bets. I'm very fond and friendly with David Einharn
Speaker 1: and I have the absolute most respect for him as
Speaker 1: an investment manager and as a poker player. I am
Speaker 1: both as well, and I think he's currently in the
Speaker 1: World Series of Poker in Las Vegas participating. You can
Speaker 1: watch it on ESPN live tonight. UM and um you
Speaker 1: know he plays the odds. He's very, very smart, and
Speaker 1: I'm totally confident, even though he faced the performance problems
Speaker 1: which we get redemption problems, that he will be a survival,
Speaker 1: as will Um, as will the others that have faced pressure,
Speaker 1: like Acman Duck Cast. Thank you so much for a
Speaker 1: Thursday brief and greatly appreciated. Doug Cast, of course always
Speaker 1: supporting the dreaded Yankees. A major shout out to all
Speaker 1: of you the huge response we got two days ago
Speaker 1: in our interview with Russell Shorto and his new book
Speaker 1: Revolution Song on six people in the Revolutionary Ward, including
Speaker 1: Mr Washington, and also with Gordon would of Brown University.
Speaker 1: That was a real special moment, and we thank you
Speaker 1: for your comments. We drive that conversation forward now with
Speaker 1: Robert Kaplan with my book of the Summer, the Return
Speaker 1: of Marco Polo's World, Thin Gorgeous twelve or so essays
Speaker 1: that will make you brighter about the cacophony we're living in.
Speaker 1: And Robert Camplan. I want to dovetail these two books together.
Speaker 1: There's the moment in Shorto's book where Washington meets Lafayette.
Speaker 1: I had no idea for starters at Lafayette was twenty
Speaker 1: years old went or twenty three rather when they met,
Speaker 1: and we forget about the relationship of the United States
Speaker 1: with England and France. Now that's away from what you've
Speaker 1: been doing recently. But the president's gonna vault over to
Speaker 1: John Farrell's United Kingdom. How's he going to be greeted
Speaker 1: or critically, how should he be greeted by the British Normally,
Speaker 1: uh an American president going to the United Kingdom would
Speaker 1: be greeted as an ally, as a tried and true,
Speaker 1: trusted ally, going back to the late nineteenth century, because
Speaker 1: it was when the British Navy went downhill that weet
Speaker 1: Britain slowly started to hand off global responsibilities to the
Speaker 1: United States. So there's no greater historical relationship united by
Speaker 1: language culture in the world. But now we're in a
Speaker 1: different world, where in a world where the American president
Speaker 1: has rhetorically disdained Britain and other European allies, and where
Speaker 1: Britain is completely um you know, you know, is completely
Speaker 1: absorbed with its own nightmare over leaving the European Union.
Speaker 1: So this is not going to be a meeting or
Speaker 1: this is not going to be a greeting in a
Speaker 1: in it that makes any sense. Historically, going back about
Speaker 1: a hundred and thirty years, it was in Prime Minster
Speaker 1: Main one of the first, if not the first, to
Speaker 1: to visit the White House. Um. I believe she was,
Speaker 1: and I believe that she and world leaders all over,
Speaker 1: particularly the Chinese, find whereas we may find Trump vulgar
Speaker 1: and and in every a distasteful for leaders who have
Speaker 1: to do world leaders who have to deal with an
Speaker 1: American president, they don't know how to process him, particularly
Speaker 1: the Chinese. Uh, you know, how how to analyze him,
Speaker 1: how to predict him, which is something that world leaders
Speaker 1: do with each other all the time because they're all
Speaker 1: members of the same elite who have been to similar schools,
Speaker 1: have achieved what they have through normal meritocracy. And so when,
Speaker 1: for instance, of Trump says to Uh, Trump says to
Speaker 1: shijin Ping, let's be friends, will make will make a
Speaker 1: deal on the basis of friendship, the Chinese don't know
Speaker 1: how to process that. In their culture, friends don't make deals.
Speaker 1: You make deals with based on your personal interests that
Speaker 1: intersect with another powers personal interest that has nothing to
Speaker 1: do with friendship. But just in terms of the politics.
Speaker 1: They sort of couz a friendship with the global elites.
Speaker 1: Isn't that part of the problem. Well, that's part of
Speaker 1: the problem, but it's nothing new. If you go back
Speaker 1: to the early nineteenth century, the late eighteenth century, you
Speaker 1: look at Metternick, Tallyron Castle, Reay. All of these people
Speaker 1: represented different powers, but they were all members of the
Speaker 1: same elite. In the early modern world, before the modern world,
Speaker 1: which is the world between the Renaissance and the Industrial Revolution,
Speaker 1: everyone was related to each other through royal families, so
Speaker 1: you know, everyone had some relationship to Queen Victoria. So
Speaker 1: so they're the global elite was even more into what
Speaker 1: I'm trying to do. It just got a better understanding
Speaker 1: of the Prime minister's relationship with the president given the
Speaker 1: fact that they given the fact that the Prime Minister
Speaker 1: was the first leader from the West to go into
Speaker 1: the wine house, I don't think it helps her, not
Speaker 1: because he has no loyalty to anything or anybody. Everything
Speaker 1: is a zero sum. Everything is a zero sum issue
Speaker 1: for him. One of the things that changed your Robert
Speaker 1: kaplan is it was Tillerson and now it's POMPEII. Here's
Speaker 1: the first of his class at West Point. I guess
Speaker 1: he's getting high marks from everybody just to rebuild State.
Speaker 1: How's he doing? And will Pompeo make a difference in Helsinki? Uh? Yeah.
Speaker 1: First of all, Pompeo was treated with the suspicion at
Speaker 1: the CIA, but got high marks when he left because
Speaker 1: he has a history of caring for the agency. He leads,
Speaker 1: you know, listening to advice. Uh So, Pompeo left the CIA,
Speaker 1: you know, with a very high reputation and and it's state.
Speaker 1: He's seen as much better than Tillerson. Um so that
Speaker 1: Pompel himself is an improvement over the beginning of the
Speaker 1: Trump administration. But it always comes back to the president decides.
Speaker 1: That's the American system. If the president has an instinct
Speaker 1: for something, the secretary of State has to go with that.
Speaker 1: Because the secretary of State is not like the Secretary
Speaker 1: of Defense. The secretary of Defense has a lot of equities.
Speaker 1: He can have a bad relationship with the White House
Speaker 1: and still be a successful secretary of Defense. It's not
Speaker 1: true at Foggy Bottom. Let's forget the main thing with
Speaker 1: primus to make and the speculation about whether he'll be
Speaker 1: well received or not and get away from that and
Speaker 1: get to the meeting with President Putin. Now, traditionally, as
Speaker 1: you know, when two heads of state meet, it is
Speaker 1: incredibly orchestrated. What they're going to talk about has already
Speaker 1: been decided, The outcome of the meeting has already been
Speaker 1: decided before they have the meeting. We now have reports
Speaker 1: suggesting that we could have in a room just the
Speaker 1: President of the United States and the Russian president and
Speaker 1: nobody else. How unpresidented is this, um, it's unprecedented. Keep
Speaker 1: in mind that Putin is always well prepared, well staffed
Speaker 1: for every meeting he has. C e o s who
Speaker 1: have met with him say they have never met a
Speaker 1: more prepared, impressive person. Whatever the issue you're going to
Speaker 1: talk to him about, he studied it for at least
Speaker 1: a half an hour before meeting with you. All right,
Speaker 1: So Putin is going to come prepare. The question is
Speaker 1: will Trump based on experience, He's not. He's not going
Speaker 1: to be nearly as prepared. And there's a context problem.
Speaker 1: The context is it's fine to have a cordial meeting
Speaker 1: with your adversary, provided your clothes, with your allies. What
Speaker 1: are we going to give away if the president slips up.
Speaker 1: I think we had a good idea of what he
Speaker 1: gives away with North Korea? What do we give away
Speaker 1: with Mr? Putin? At this point, I can't see anything
Speaker 1: because the Russians have interfered to a greater or lesser
Speaker 1: extent in our electoral process allegedly. Um and um you
Speaker 1: know Ukraine, Uh, Syria, Crimea. You know it's it. It
Speaker 1: were in a weak position. We don't have much to
Speaker 1: give away at this point in the time we got left.
Speaker 1: I'm sending four or five books to a student who
Speaker 1: will do international relations at New York University, and it's
Speaker 1: the usual nine, Power and Independence. I threw in in
Speaker 1: a week moment, I threw in a Kaplan book as well.
Speaker 1: Uh into this, I did William Easterly's Great White White
Speaker 1: you know Bill Easterly's classic. Blah blah blah. What's the
Speaker 1: book right now? Are our listeners should get that? You
Speaker 1: just say, is so immediate? What's the book right now?
Speaker 1: Where Robert Cappens has just shut up and read this?
Speaker 1: I said, talking about my own books. Your other people's boss,
Speaker 1: all right, I want to know what's out there that
Speaker 1: needs to be read right now? Um. Henry Kissinger's first book,
Speaker 1: written when he was twenty six years old, A World Restored.
Speaker 1: Fascinating because I've read Diplomacy. Yeah, this is when it
Speaker 1: was a young Kissinger, absolutely brilliant with twenty six with
Speaker 1: the mind of a seventy year old who has no assistance,
Speaker 1: nobody editing him. He does it all in his you know,
Speaker 1: in his dorm room or so. No, that's why it's
Speaker 1: urgent um. And what it's about is how elites from
Speaker 1: different European countries constructed a world order at the end
Speaker 1: of the Napoleonic Wars. And the lessons it teaches about
Speaker 1: conservatism real is him are timeless. This is fast. I mean,
Speaker 1: I mean my book of the Year a couple years
Speaker 1: ago is his on world Order or whatever those essues. Um.
Speaker 1: The thing, this is where you get the real young
Speaker 1: brilliant twenty years without handlers, without handling. This is kissing
Speaker 1: your without handlers, without editors, et cetera. Fascinating. That's great, Jeoffrey.
Speaker 1: I have to read that. Yeah, I want to see
Speaker 1: Tom Kane without handlers. Right. I fall apart, I mean
Speaker 1: I completely fall apart. What do I do? What we asking?
Speaker 1: When the show began, Baby wipes, don't don't want it
Speaker 1: was you know you the turret that we're in. I
Speaker 1: wanted the desk clings. Just Robert Captain, have you seen
Speaker 1: this side at Tom King? Does he not show this
Speaker 1: on Saving? I think it happens when he comes into
Speaker 1: They use Q tips on TV? Is that Robert Capping?
Speaker 1: Thank you so much. Just wonderful book, The Return of
Speaker 1: Marco Polo's World. Really can't say enough about it. Eight
Speaker 1: twelve essays, including too fresh and new ones on the
Speaker 1: ever changing relationship of China and across Eurasia as well,
Speaker 1: Mr capitants with Ian Bremer at the Eurasia Group. Right
Speaker 1: now as we talked to Robert Caplan moments ago with
Speaker 1: Euraise your group, this is a joy to revisit where
Speaker 1: we are with Ben Steele with a Council on Foreign Relations.
Speaker 1: He's their director of International Economics, which means he he
Speaker 1: tells me what to do when I do panels there,
Speaker 1: uh and and and stuff. And right now the panel
Speaker 1: that would be great with the President traveling to Europe
Speaker 1: is the idea of a new martial plan to your
Speaker 1: wonderful book, The Martial Plan Dawn of a Cold War.
Speaker 1: If we needed a martial plan right now. Would this
Speaker 1: president have done it? No, I would go further than
Speaker 1: just looking at the money. Tom. It's not just that
Speaker 1: this president wouldn't play Santa Claus, which is probably how
Speaker 1: he's thinks about the Marshal Plant, but so many of
Speaker 1: the institutions that we take for granted today as pillars
Speaker 1: of the post war liberal order. For example, the World
Speaker 1: Trade Organization UM created seven as as an accompaniment to
Speaker 1: the Marshall Plan. The European Union and NATO were direct
Speaker 1: offshoots of the Marshall Planet's It's actually inconceivable that we
Speaker 1: could have an EU and NATO today without the Marsha
Speaker 1: with within. This is his desire for the Europeans to
Speaker 1: put up their fair share. I saw a bar chart
Speaker 1: that clearly shows most of them are not. How do
Speaker 1: you respond to that? Is a president onto something? Well wait, wait,
Speaker 1: without question, I mean we've we've been pressuring the the
Speaker 1: Europeans from for many years to to boost their UM
Speaker 1: commitments on defense spending. This certainly preceded this president and
Speaker 1: he's right to highlight it, but the way he does
Speaker 1: it is is dangerous because the so called Article five
Speaker 1: security guarantees Um. That so we are extending to our
Speaker 1: NATO allies in Europe are are critical to the effective
Speaker 1: functioning of that alliance, and you should not be undermining.
Speaker 1: But as you, as you point out, Bend, I mean
Speaker 1: we should. Let's maybe not refer to as the Marshall
Speaker 1: Plan just for this conversation and refer to to what
Speaker 1: it was called. It was the European Recovery Plan. It
Speaker 1: was because Europe was on its knees. Um. Europe is
Speaker 1: not on its knees. But to your point, they haven't
Speaker 1: been spending enough on on military spending. So what is
Speaker 1: the right approach to get them to do that? Well,
Speaker 1: it's a it's both a combination of of friendly cajoling
Speaker 1: Um and making clear to the Europeans that their own
Speaker 1: security is at stake here. With Russia clearly UM ratcheting
Speaker 1: up its aggressive actions on NATO's borders, particularly in in
Speaker 1: in the Baltics. UM. I think this can be done
Speaker 1: without undermining the cohesion of the of the alliance. I
Speaker 1: think right now President Trump is really playing being into
Speaker 1: Putin's hands by doing that, so certainly up my job
Speaker 1: to take a position on this. So this is really
Speaker 1: just a question. But The approach that he's taken right
Speaker 1: now is basically saying just that you've taken the Knights
Speaker 1: guarantee for grants it. You haven't spent enough on the military.
Speaker 1: You know that we will um, and therefore you've taken
Speaker 1: the whole institution for granted. UM. Have they? I know?
Speaker 1: I don't think that would be fair. The Article five
Speaker 1: security mutual security guarantees have only been invoked once in
Speaker 1: the Alliance's history, and that was after September eleventh, two
Speaker 1: thousand and one, when this country was attacked in America's
Speaker 1: allies invoked Article five to support US, and they did
Speaker 1: in Afghanistan, so they did step up. It would be
Speaker 1: wrong to see them as free riders. They haven't been
Speaker 1: on trade, have they been? No. If you look at
Speaker 1: raps broadly in the developed world, Canada, the EU, the
Speaker 1: United States, UM, um, they're they're roughly equivalent um. President
Speaker 1: Trump rightly emphasizes that um auto tarraps in the United
Speaker 1: United States for cars coming into the United States are
Speaker 1: considerably lower than those in the EU, But he doesn't
Speaker 1: like to talk about our own taraups on trucks, which
Speaker 1: are massively higher than those which back I believe to
Speaker 1: the Chicken texts exactly. So we're talking about tax there
Speaker 1: and he doesn't want to negotiate that. So there are
Speaker 1: there are good grounds by all means to for revisiting
Speaker 1: these things, and that could have been part of the
Speaker 1: productive discussion on a transatlantic trade treaty. We've been still
Speaker 1: with us with the Council on Foreign Relations. Of course,
Speaker 1: we celebrate the Marshall Plan. It's made a huge splash
Speaker 1: in a timely splash looking back and six and seven
Speaker 1: you've got another book, The Battle of Bretton Woods, would
Speaker 1: basically won every award out there about the history of
Speaker 1: how we piece together modern central banking? Is our central
Speaker 1: banking independent at risk? Lawrence Cudlow had a tweet out
Speaker 1: the other day, not directly talking about rates, but linking
Speaker 1: inflation to jobs. There was why I I tweeted out
Speaker 1: and others there was the first selvo. Is our independence
Speaker 1: of a central bank at risk? Look, some of Larry
Speaker 1: Cudlo's comments were unusual and crossed a traditional line or
Speaker 1: the administration typically did yes, did not comment on monetary affairs.
Speaker 1: Having said that, um, Larry is in some some sense
Speaker 1: pushing on an open door. What he's referring to his
Speaker 1: growing support among monetary economists for what's called nominal GDP targeting,
Speaker 1: that is, effectively targeting nominal demand rather than inflation UM
Speaker 1: as a way of stabilizing the the economy. So that's
Speaker 1: that's not really a radical direction and cheese pushing things.
Speaker 1: I would not be surprised to see the Fed moving
Speaker 1: in that direction. You see more pressure coming down on
Speaker 1: the Federal Reserve though. I mean, one thing this administration
Speaker 1: has done brilliantly is nominate really good people to the
Speaker 1: f O m C and stare well away from getting
Speaker 1: involved in monastery policy. And if you look at Trump's
Speaker 1: appointment so far, UM, there's no evidence that he's trying
Speaker 1: to steer rates in one direction or another. What he
Speaker 1: has done, UM looking at the composition of the FOMC
Speaker 1: now is put more of a deregulatory bias um into
Speaker 1: the organization that was expected and of course is very
Speaker 1: welcome in the industry. Do you buy the nominal GDP store.
Speaker 1: I'm thinking of Scott Sumner at Bentley University and George Mason.
Speaker 1: I mean, the fact is Janet Yellen and Chair Powell
Speaker 1: and maybe even Richard Clarens by Chairman. They're not thinking
Speaker 1: in that top line animal spirit term, are they? You know?
Speaker 1: I think there's a there's great logic behind U n
Speaker 1: g DP targeting. One could argue that if we had
Speaker 1: pursued a policy along those lines in two thousand nine, UM,
Speaker 1: we would have loosened policy earlier, which was clearly called for.
Speaker 1: My big concern about it, Tom, is that I think
Speaker 1: the support on the left for n g DP targeting
Speaker 1: is very soft. UM. That is, there's no inherent bias
Speaker 1: in n g T n g DP targeting towards loosening policy.
Speaker 1: Often it can tell you to tighten policy when an
Speaker 1: inflation to symmetric. It's yeah, exactly. And I think the
Speaker 1: moment an n g DP framework tells you to start
Speaker 1: tightening UH policy, the left will abandon support for it.
Speaker 1: And so you know, I'm not convinced it has legs. Bestil,
Speaker 1: thank you so much for stopping by. And July Thursday,
Speaker 1: the book The Marshall Plan Dawn of the Cold War
Speaker 1: for those of you who trying to find the tapestry
Speaker 1: from World War Two forward, and of course with General Marshall,
Speaker 1: you can do no better than the Marshall Plan. Ben's
Speaker 1: Steals with the council on for relations. We need to
Speaker 1: talk tomorrow's jobs report. We usually start the two, three
Speaker 1: or four days ahead. I've mentioned at once. Diane Swack
Speaker 1: solves the problem. Grant Thornton looking for another solid month
Speaker 1: of employment. Diane, the run rate on non farm payrolls
Speaker 1: is a hundred and nineties some thousand. It's not supposed
Speaker 1: to be. It's supposed to be like a hundred and twenty, right, Well,
Speaker 1: it's given our demographics. Yes, and that higher run rate
Speaker 1: is also what's been pushing unemployment rate down and continue
Speaker 1: to see it new lows. So the good news is
Speaker 1: the more we have that higher run rate, the more
Speaker 1: we have hopes of re engaging those on the sidelines,
Speaker 1: which we really do have. Um will still on the sidelines,
Speaker 1: and we really want to bring them back in from
Speaker 1: the workwork like we did in the late nineties. Diane,
Speaker 1: I get the only thing I get more mail on
Speaker 1: than this is the Chicago Cubs this year. Other than that,
Speaker 1: it's people go. People like you say we're fully employed,
Speaker 1: and I get so much mail that says Diane swanks
Speaker 1: out of her mind. We see that in our neighborhood,
Speaker 1: which is about full employment my comments on I get
Speaker 1: it on Twitter two and I understand it. I understand
Speaker 1: what it means that it's not the same three percent
Speaker 1: we saw back in April of two thousand. In terms
Speaker 1: of the unemployment rate, we do have more primate adults
Speaker 1: who are not engaged, people whose skills have eroded long
Speaker 1: term unemployment has left them on the sidelines. And we
Speaker 1: also have some very deep crisis use that we have
Speaker 1: to address the opioid crisis we didn't have that we
Speaker 1: do today, where people literally in their prime age. Much
Speaker 1: of the reduction in particularly men participating in labor hood
Speaker 1: force that means twenty five to fifty four year olds,
Speaker 1: is because they're addicted to drugs, not just prescription drugs
Speaker 1: but also now non prescription drugs. And these are really
Speaker 1: big hurdles that we have to overcome and re engage
Speaker 1: those people. And frankly, there's no magic wand to do it.
Speaker 1: Diane Swank, I'm gonna ask you to just go into
Speaker 1: the future a little bit, and if you were to
Speaker 1: look back at this time, let's say, a year from now,
Speaker 1: are we going to be saying that this is as
Speaker 1: good as it gets. Well, that depends I hate to
Speaker 1: say that as an economist, but it depends on what
Speaker 1: we do with trade. We could have this expansion, make
Speaker 1: it to be the longest expansion of the post World
Speaker 1: War to era and surpass that of the nineties by
Speaker 1: making it into summer of nine if we avoid a
Speaker 1: major trade war. That's not where we're going at the minute,
Speaker 1: but we could late. We could you know, back things
Speaker 1: off a bit and avoid a major trade war and
Speaker 1: get some longevity. That's what we need, is we need
Speaker 1: to pace ourselves in this expansion, because the longer the
Speaker 1: expansion is, it's like fine wine, it gets better with time.
Speaker 1: We more of a chance of actually bringing back those
Speaker 1: workers who have been left on the sideline that you've
Speaker 1: heard of Knesian theory. That's the Mogen David Um Diane.
Speaker 1: Let's let's just rather than the hope, let's just UH
Speaker 1: sort of play out the scenario that there is a
Speaker 1: trade war, that the Chinese and the United States failed
Speaker 1: to reach some kind of consensus, or if they do,
Speaker 1: it is UH in a way obscured by price increases
Speaker 1: that are already filtering into the economy. What's your best
Speaker 1: case scenario? There? Best case scenarios that we get what
Speaker 1: we call growth recession, and that is that growth slows.
Speaker 1: It continues, but it slows, and it fails to bring
Speaker 1: down the unemployment rate further and may even allow the
Speaker 1: unemployment rate to rise again. At the growth recession where
Speaker 1: you have growth but the unemployment, it's not enough growth
Speaker 1: to accommodate those people coming into the labor force and
Speaker 1: that still need jobs. The other issues, of course, that
Speaker 1: would derail some of the wage gains. And you do have,
Speaker 1: of course higher prices tied to tariffs, tariffs or taxes
Speaker 1: and their higher prices, and we're already seeing them come through.
Speaker 1: The inflation is already beginning to come through. In these
Speaker 1: facts have been much larger than many people expected. Uneven
Speaker 1: marginal tariffs, and that's because relating the business cycle, we
Speaker 1: don't have all that excess capacity. Wounds had to absorb
Speaker 1: these kinds of shocks without it being passed immediately. And
Speaker 1: the consumers. What is your twelve months forward g d P.
Speaker 1: We've got a broad range from all the different voices
Speaker 1: we speak to. Are you more cautious? I'm cautious, UM
Speaker 1: cautiously optimistic that will stay close to two in terms
Speaker 1: of our growth potential I'm afraid of though, even without
Speaker 1: a trade war, we're set up for what's called a
Speaker 1: fiscal cliff in the third quarter of ten because of
Speaker 1: the way our government has decided to spend a lot
Speaker 1: of money today where it all ends in the end
Speaker 1: of the third quarter of ten, which would precipitate itself
Speaker 1: with recession at the end of And believe me, we've
Speaker 1: seen recessions in election years before. Our government isn't that
Speaker 1: smart when it comes to figuring these pies out. And
Speaker 1: then in to your point buried in the News Soul
Speaker 1: last week because the CBO report, which was sobering greeting
Speaker 1: you said the last swak with Grant Thor and he's
Speaker 1: always good. She gives us such value, particularly on FED Day.
Speaker 1: We're thrilled to have her on the Scarlet Food and
Speaker 1: her FED coverage to give her perspective as well. Thanks
Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen
Speaker 1: to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform
Speaker 1: you prefer. I'm on Twitter at Tom Keane Before the podcast,
Speaker 1: you can always catch us worldwide. I'm Bloomberg Radio