1 00:00:09,880 --> 00:00:13,800 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley. 2 00:00:13,960 --> 00:00:17,560 Speaker 1: We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:27,640 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg I'm 5 00:00:27,640 --> 00:00:30,200 Speaker 1: really place decide that. Joining us now on the phone 6 00:00:30,440 --> 00:00:32,720 Speaker 1: from Paris at the O e c D headquarters is 7 00:00:32,800 --> 00:00:36,200 Speaker 1: Lawrence Boon, O E c D Chief Economists. Lawrence, great 8 00:00:36,240 --> 00:00:38,040 Speaker 1: to have you with us. You're just out with your 9 00:00:38,240 --> 00:00:40,880 Speaker 1: year ahead, trimming the outlook, but seeing a much bigger 10 00:00:40,920 --> 00:00:44,320 Speaker 1: problem potentially brewing for the decade ahead. Just walk us 11 00:00:44,320 --> 00:00:48,360 Speaker 1: through what you're saying. So that's true. We've actually projecting 12 00:00:48,640 --> 00:00:52,600 Speaker 1: both to remain stuck at two point nine for the 13 00:00:52,680 --> 00:00:56,560 Speaker 1: next two years. And that's mostly due to all the 14 00:00:56,640 --> 00:01:00,840 Speaker 1: uncertainty related to the trade tensions, but so to China 15 00:01:00,920 --> 00:01:04,680 Speaker 1: economic slowdown and and much beyond that geo political and 16 00:01:04,720 --> 00:01:09,200 Speaker 1: political economy uncertainty. Lollis, how do you make a year 17 00:01:09,200 --> 00:01:12,240 Speaker 1: ahead calls the base case around trade? How difficult as 18 00:01:12,280 --> 00:01:16,320 Speaker 1: things this year? Well, you know, the difficulty with the 19 00:01:16,360 --> 00:01:20,039 Speaker 1: trade tensions is that they're very focused on a few tariffs, 20 00:01:20,160 --> 00:01:23,199 Speaker 1: which has which have a direct effect on the price 21 00:01:23,240 --> 00:01:27,400 Speaker 1: of important goods, so consumers the higher forward the the buy. 22 00:01:27,880 --> 00:01:31,839 Speaker 1: But the biggest effect is the uncertainty that's creating because 23 00:01:31,880 --> 00:01:34,800 Speaker 1: if you're affirmed today, you don't really know when you 24 00:01:35,040 --> 00:01:38,959 Speaker 1: where you're going to launch your next investment, because these 25 00:01:39,000 --> 00:01:44,600 Speaker 1: trange tensions jump from countries to countries to start and 26 00:01:44,600 --> 00:01:48,240 Speaker 1: and then they're at heart there is a performed in 27 00:01:48,360 --> 00:01:53,280 Speaker 1: satisfaction with the way that that a lot of support 28 00:01:53,360 --> 00:01:59,360 Speaker 1: to government subsidies, protection of inticule proterity technology transferred. All 29 00:01:59,440 --> 00:02:03,280 Speaker 1: these mingled within this discussion and they are very deep 30 00:02:03,360 --> 00:02:07,080 Speaker 1: rooted problems that will take a long time to address. 31 00:02:07,320 --> 00:02:10,120 Speaker 1: Right although you are seeing a guarded optimism of heading 32 00:02:10,120 --> 00:02:14,279 Speaker 1: into a lot of economists and investors seeing a resurgence 33 00:02:14,360 --> 00:02:16,400 Speaker 1: in the global economy, and you square that with the 34 00:02:16,440 --> 00:02:20,720 Speaker 1: deteriorating outlook from the O E c D. So I 35 00:02:20,760 --> 00:02:23,480 Speaker 1: think there are two things to distinguish. If you get 36 00:02:23,520 --> 00:02:27,120 Speaker 1: an agreement on what's called the Phase one between the 37 00:02:27,200 --> 00:02:30,840 Speaker 1: US and China, then yes, market will have some temporary 38 00:02:30,919 --> 00:02:33,959 Speaker 1: relief and chap But as I was saying, the issue 39 00:02:34,000 --> 00:02:37,320 Speaker 1: surrounding trade um much beyond what we are seeing here 40 00:02:37,760 --> 00:02:40,320 Speaker 1: um and they have to do with the way that 41 00:02:40,440 --> 00:02:45,840 Speaker 1: digital digitalization has changed trade and commercial exchanges. They have 42 00:02:46,000 --> 00:02:48,880 Speaker 1: to see with all the subsidies and the form of 43 00:02:48,960 --> 00:02:52,720 Speaker 1: government supports that out there which are undermining the level 44 00:02:52,760 --> 00:02:56,959 Speaker 1: playing field. And these issues we will take years to resolve, 45 00:02:57,200 --> 00:03:02,079 Speaker 1: especially if we're just focusing on by little tariffs. It's 46 00:03:02,120 --> 00:03:04,160 Speaker 1: like if you were focusing on the top of the 47 00:03:04,160 --> 00:03:07,680 Speaker 1: iceberg when the iceberg below the sea level is growing. 48 00:03:07,919 --> 00:03:10,920 Speaker 1: Laurent's your predecessor of those O E c D. Catherine 49 00:03:10,919 --> 00:03:14,079 Speaker 1: man Now at City Group, as an o E c 50 00:03:14,200 --> 00:03:18,520 Speaker 1: D was quite strident about the roll up that we're 51 00:03:18,520 --> 00:03:23,320 Speaker 1: seeing in world business because of slow economic growth. She 52 00:03:23,360 --> 00:03:26,720 Speaker 1: would speak of scale and the idea of monopsidy, the 53 00:03:26,800 --> 00:03:30,000 Speaker 1: idea of monopoly coming in to play. We're seeing that 54 00:03:30,040 --> 00:03:34,200 Speaker 1: in America this morning with a merger in discount brokerage 55 00:03:34,280 --> 00:03:38,320 Speaker 1: reported of Schwab and TD Ameritrade. Do you in Paris 56 00:03:38,840 --> 00:03:41,720 Speaker 1: still believe that we will see a roll up of 57 00:03:41,800 --> 00:03:47,080 Speaker 1: global business because of slow economic growth. So they are 58 00:03:47,200 --> 00:03:52,080 Speaker 1: things threatening globalization and that's the trade tension that we 59 00:03:52,200 --> 00:03:56,560 Speaker 1: have discussed, and it's also the possible tax fugmentation that 60 00:03:56,680 --> 00:03:59,600 Speaker 1: the O E c D is trying to address um 61 00:03:59,640 --> 00:04:03,920 Speaker 1: and that relates really well to how our business is 62 00:04:04,000 --> 00:04:08,280 Speaker 1: going to thrive in tomorrow's word, and for that we 63 00:04:08,360 --> 00:04:13,080 Speaker 1: need more certainty, more prectability, and the better level playing field. 64 00:04:13,240 --> 00:04:17,200 Speaker 1: And that means you know, ending this thought that tensions 65 00:04:17,200 --> 00:04:21,359 Speaker 1: and tariff. It also means concluding, as we expect, the 66 00:04:21,440 --> 00:04:26,719 Speaker 1: international negotiation on the taxation of multinational enterprises. As you know, 67 00:04:26,800 --> 00:04:29,280 Speaker 1: we've been working on this for a while now and 68 00:04:29,320 --> 00:04:31,920 Speaker 1: we really think that we can conclude an agreement in 69 00:04:32,040 --> 00:04:37,160 Speaker 1: twenty that would change this specimism of globalization. I mean, 70 00:04:37,200 --> 00:04:39,360 Speaker 1: what what this comes down to? A Lawrencebourne. I'm gonna 71 00:04:39,600 --> 00:04:43,799 Speaker 1: uh site here magdam desire. The London School of Economics, 72 00:04:43,920 --> 00:04:48,320 Speaker 1: which is all of economics, is about profitability. Given the 73 00:04:48,400 --> 00:04:51,960 Speaker 1: O E. C D view, how you extend your timeline 74 00:04:51,960 --> 00:04:55,239 Speaker 1: out to two thousand one, will there be a dearth 75 00:04:55,440 --> 00:04:58,800 Speaker 1: of prop prop prop I'll get it out three to one. 76 00:04:59,120 --> 00:05:02,359 Speaker 1: Will there be a earth of profitability? As we have 77 00:05:02,480 --> 00:05:06,760 Speaker 1: slower economic growth? But that's what that's one of the 78 00:05:06,839 --> 00:05:10,360 Speaker 1: things we're really concerned about. If you stay with various 79 00:05:10,360 --> 00:05:14,000 Speaker 1: sluggish growth for a long time, then there will not 80 00:05:14,200 --> 00:05:18,080 Speaker 1: be enough revenues to to you know, there will be 81 00:05:18,160 --> 00:05:21,880 Speaker 1: not enough growth to raise revenues, and that applies to 82 00:05:22,480 --> 00:05:27,520 Speaker 1: people as maternity applies to businesses. And also also if 83 00:05:27,520 --> 00:05:31,679 Speaker 1: you want profits to be lifted, you need investment, which 84 00:05:31,760 --> 00:05:36,640 Speaker 1: is why we're particularly invested in insisting on the need 85 00:05:36,800 --> 00:05:41,800 Speaker 1: for governments to level up public investment because that's one 86 00:05:41,920 --> 00:05:45,640 Speaker 1: of the main impediment to the implementation of private sector 87 00:05:46,040 --> 00:05:49,440 Speaker 1: investment plans. Lauren's point, thank you so much. We greatly 88 00:05:49,480 --> 00:06:10,440 Speaker 1: approiciate of economics the O E. C. D. Here right now, 89 00:06:10,560 --> 00:06:13,840 Speaker 1: Joe Quidlin, who's with us with decades of experience at 90 00:06:13,880 --> 00:06:17,719 Speaker 1: Maryland Bank of America private bank, and out of course 91 00:06:17,800 --> 00:06:21,240 Speaker 1: with investment perspective. But Joe, you and I are gonna 92 00:06:21,240 --> 00:06:25,880 Speaker 1: wax philosophical here. Remember the first day discount brokerage showed up. 93 00:06:26,400 --> 00:06:30,160 Speaker 1: You and I were like what, remember that, we can't 94 00:06:30,200 --> 00:06:32,120 Speaker 1: do it ourselves, but it was super cheap and we 95 00:06:32,160 --> 00:06:35,400 Speaker 1: all know they're never gonna last. John, there is discount 96 00:06:35,440 --> 00:06:39,960 Speaker 1: brokerage a big deal in London. Brokerage people have to 97 00:06:40,000 --> 00:06:43,919 Speaker 1: try farn exchange very well. We don't do that. But 98 00:06:44,040 --> 00:06:49,159 Speaker 1: it was Charles who remember that first open a whole 99 00:06:49,160 --> 00:06:52,160 Speaker 1: new frontier for retail investor. People laughed for about six 100 00:06:52,200 --> 00:06:54,960 Speaker 1: months until oh, so here we are with a mating 101 00:06:55,000 --> 00:06:57,720 Speaker 1: here and it goes to your work on a broader 102 00:06:57,800 --> 00:07:03,680 Speaker 1: investment strategy to slower economic growth, challenge profitability one one 103 00:07:03,680 --> 00:07:05,599 Speaker 1: in doubt. You have to mate, that's all, It's all 104 00:07:05,640 --> 00:07:08,520 Speaker 1: it's about. You have to look for that growth organically 105 00:07:08,640 --> 00:07:12,080 Speaker 1: is very tough given a democraphic slower growth, lack of productivity. So, 106 00:07:12,200 --> 00:07:15,080 Speaker 1: I mean, what's surprises me? Time? Like ten years after 107 00:07:15,120 --> 00:07:17,160 Speaker 1: the crisis, so to speak, we are starting to see 108 00:07:17,200 --> 00:07:20,200 Speaker 1: some of the financial companies thinking about, you know, marrying 109 00:07:20,280 --> 00:07:22,720 Speaker 1: or like at least observing each other. And well, I'm 110 00:07:22,760 --> 00:07:24,800 Speaker 1: on this is TD a merritrade folks. Of course, Joe 111 00:07:24,880 --> 00:07:28,000 Speaker 1: Ricketts firm to be taken up by Schwab. It is presumed, 112 00:07:28,040 --> 00:07:30,760 Speaker 1: it has not announced yet, CNBC reporting this and Fox 113 00:07:30,800 --> 00:07:33,880 Speaker 1: Biz putting a twenty six billion dollar number on it. 114 00:07:33,920 --> 00:07:36,200 Speaker 1: But it comes down to to bring it over to 115 00:07:36,320 --> 00:07:42,640 Speaker 1: John's uh world of yield, lower nominal GDP, some form 116 00:07:42,680 --> 00:07:46,240 Speaker 1: of disinflation and growth that just doesn't get it done 117 00:07:46,400 --> 00:07:48,560 Speaker 1: right right, It doesn't get it done and goes back 118 00:07:48,560 --> 00:07:50,560 Speaker 1: to what we talked about earlier time, like wanting and 119 00:07:50,640 --> 00:07:53,320 Speaker 1: needing the scale. So if you don't have scale, you 120 00:07:53,360 --> 00:07:56,760 Speaker 1: can't drive productivity or have the margin expansion. So this 121 00:07:56,840 --> 00:08:00,200 Speaker 1: is about scale and reaching for that type of not 122 00:08:00,360 --> 00:08:02,400 Speaker 1: organic growth, but kind of emerge growth. I want to 123 00:08:02,480 --> 00:08:04,760 Speaker 1: challenge the idea that this is simply a case of 124 00:08:04,800 --> 00:08:07,960 Speaker 1: slowing growth and really raise a question of an existential 125 00:08:08,000 --> 00:08:11,400 Speaker 1: crisis facing the asset management and brokerage businesses. People want 126 00:08:11,440 --> 00:08:14,120 Speaker 1: stuff for free, and how long it can mating and 127 00:08:14,200 --> 00:08:18,560 Speaker 1: scale sustain businesses that ultimately are going to zero fee models. Well, 128 00:08:18,600 --> 00:08:20,800 Speaker 1: I would push back a little bit of people want 129 00:08:21,280 --> 00:08:24,160 Speaker 1: for free because we've got a massive transfer of wealth 130 00:08:24,240 --> 00:08:27,920 Speaker 1: coming in this country, like nine trillion dollars, and in 131 00:08:27,960 --> 00:08:31,160 Speaker 1: the private wealth face they still want that service. They 132 00:08:31,200 --> 00:08:34,880 Speaker 1: still need tax strategy. So I think your average retail 133 00:08:35,200 --> 00:08:37,800 Speaker 1: investor does want it free and it's expecting it free. 134 00:08:37,800 --> 00:08:40,280 Speaker 1: But there's also part of the industry where I still 135 00:08:40,320 --> 00:08:44,360 Speaker 1: want to have access to UH specialty asset management. I 136 00:08:44,360 --> 00:08:46,400 Speaker 1: still want access to credit, I want the full line 137 00:08:46,440 --> 00:08:48,760 Speaker 1: of concier services. So I do think there is a 138 00:08:48,760 --> 00:08:50,840 Speaker 1: segment that wants it free. But when you look at 139 00:08:51,080 --> 00:08:55,200 Speaker 1: ten trillion dollars and inheritance being passed generationally, that's not 140 00:08:55,240 --> 00:08:57,920 Speaker 1: going to be done on a retail wire. Do you 141 00:08:57,960 --> 00:08:59,599 Speaker 1: see people went in to pipe for that? Oh, the 142 00:08:59,640 --> 00:09:02,760 Speaker 1: sevin is that you just described, they they're willing to 143 00:09:02,760 --> 00:09:06,200 Speaker 1: pay for. But because of the competition, yes, the margins 144 00:09:06,200 --> 00:09:09,240 Speaker 1: are coming down absolutely, which means we anyone like Bank 145 00:09:09,320 --> 00:09:11,600 Speaker 1: of America or anyone in the industry has to be 146 00:09:11,679 --> 00:09:14,640 Speaker 1: more productive, has to have the right products in place 147 00:09:14,880 --> 00:09:16,800 Speaker 1: and drive that growth and up. In this really strange 148 00:09:16,840 --> 00:09:19,280 Speaker 1: world where companies like schout Swab and tv amrit trade 149 00:09:19,400 --> 00:09:22,000 Speaker 1: end up making money like little banks a little bit 150 00:09:22,000 --> 00:09:23,920 Speaker 1: of candy for the deposits, they have taken a little 151 00:09:23,960 --> 00:09:26,320 Speaker 1: bit more candy on doing other things with the money. 152 00:09:26,360 --> 00:09:28,199 Speaker 1: What do you think of that as a business model, 153 00:09:28,200 --> 00:09:30,040 Speaker 1: that all of these companies just get bigger and start 154 00:09:30,040 --> 00:09:32,720 Speaker 1: behaving like little banks, like a little bit. I mean, 155 00:09:32,840 --> 00:09:34,920 Speaker 1: I mean I work for a big bank, so I 156 00:09:34,920 --> 00:09:37,400 Speaker 1: mean I'll preface it with that. We'll see if it 157 00:09:37,440 --> 00:09:39,720 Speaker 1: works or now. But yes, it's it's part. It's part 158 00:09:40,360 --> 00:09:42,720 Speaker 1: of birth right, it's it's part it's part of that. 159 00:09:42,800 --> 00:09:45,120 Speaker 1: Like I got my model isn't producing what I expected 160 00:09:45,120 --> 00:09:47,520 Speaker 1: in terms of revenue or profits. What do I do next? 161 00:09:47,520 --> 00:09:50,960 Speaker 1: And rarely does that. Is that sustainable and or is 162 00:09:50,960 --> 00:09:53,240 Speaker 1: it being being set up for more mergers? Got to 163 00:09:53,240 --> 00:09:55,240 Speaker 1: talk about your brought a market strategy as well. I 164 00:09:55,240 --> 00:09:57,080 Speaker 1: said at the top of the program. Investors at the 165 00:09:57,080 --> 00:10:01,160 Speaker 1: moment seemed to be lost between courcious optimism total confusion 166 00:10:01,200 --> 00:10:03,960 Speaker 1: of everything around China. How do you have any kind 167 00:10:04,000 --> 00:10:06,640 Speaker 1: of optimism gun into next year without any real climency 168 00:10:06,760 --> 00:10:08,520 Speaker 1: on some of these big issues. Well, I mean, look 169 00:10:08,520 --> 00:10:11,280 Speaker 1: at earnings, their corder earnings weren't that bad. They're better 170 00:10:11,280 --> 00:10:14,240 Speaker 1: and expected. You know, the economy is chugging along at 171 00:10:14,240 --> 00:10:16,679 Speaker 1: two percent. It's not great, but we're you know, an 172 00:10:16,760 --> 00:10:19,679 Speaker 1: eleven twelfth year of the expansion. The Chinese economy is 173 00:10:19,679 --> 00:10:23,080 Speaker 1: growing at five percent plus. Europe is looking slightly better. 174 00:10:23,240 --> 00:10:25,280 Speaker 1: Let's put it this way, Europe is looking less bad. 175 00:10:25,600 --> 00:10:29,120 Speaker 1: So globally we're bottoming out. The manufacturing numbers are getting better, 176 00:10:29,120 --> 00:10:31,160 Speaker 1: but it's too early to jump with both feets. So 177 00:10:31,400 --> 00:10:34,800 Speaker 1: you know, whether it's healthcare, technology, robotics, automa. Sure, there's 178 00:10:34,800 --> 00:10:37,319 Speaker 1: places to put money to work. And are you sustaining 179 00:10:37,520 --> 00:10:40,920 Speaker 1: US dominant investment? Do you still believe US large camp 180 00:10:40,960 --> 00:10:46,360 Speaker 1: will lead after Eno? I think will become more balanced 181 00:10:46,480 --> 00:10:49,520 Speaker 1: next year between more developed Europe, Japan and then the 182 00:10:49,559 --> 00:10:52,040 Speaker 1: emerging markets. But you know the emerging markets, we've been 183 00:10:52,040 --> 00:10:55,400 Speaker 1: waiting and waiting for exactly what's the is it China 184 00:10:55,440 --> 00:10:57,760 Speaker 1: trade clears? I think it's China trade cuder, But you know, 185 00:10:57,800 --> 00:11:00,960 Speaker 1: the emerging markets. I would just not throw the term 186 00:11:00,960 --> 00:11:05,119 Speaker 1: out of the vocabulary. Of course, specific it's say at sectors, 187 00:11:05,240 --> 00:11:09,520 Speaker 1: at countries technology versus consumption. That's issue. That's the key. 188 00:11:09,640 --> 00:11:12,400 Speaker 1: This has been a wonderful Joe Quilin thanks us with 189 00:11:12,440 --> 00:11:29,920 Speaker 1: a ton of breaking news, A potential time between challenge 190 00:11:29,960 --> 00:11:31,640 Speaker 1: Schwab and Tedium matters right, and as far as then 191 00:11:31,640 --> 00:11:35,199 Speaker 1: I tell them no comment from either company. I agree 192 00:11:35,200 --> 00:11:37,360 Speaker 1: in this school that you state that this is a 193 00:11:37,400 --> 00:11:39,800 Speaker 1: bit odd the way the flow is coming out. I 194 00:11:39,880 --> 00:11:43,280 Speaker 1: know Fox Biz put a twenty six billion dollar statistic 195 00:11:43,320 --> 00:11:46,320 Speaker 1: on the deal about five times sales. A tie up 196 00:11:46,360 --> 00:11:49,320 Speaker 1: would create a firm with roughly five trillion dollars and 197 00:11:49,440 --> 00:11:55,319 Speaker 1: combined asset and serious Jim Cramer's shop. Really interestingly, I 198 00:11:55,679 --> 00:11:59,040 Speaker 1: I didn't know this. Schwab's Commission trades, it's only eight 199 00:11:59,040 --> 00:12:01,880 Speaker 1: percent of their business. We're td imrig trade. That's what 200 00:12:01,920 --> 00:12:05,000 Speaker 1: you'd expect this on the program and leads away in 201 00:12:05,080 --> 00:12:08,360 Speaker 1: it's the it's the banks, the little banks within these brokerages. 202 00:12:08,400 --> 00:12:10,640 Speaker 1: That's how they're making the money. It's the hope to 203 00:12:10,679 --> 00:12:14,280 Speaker 1: bring in customers that they can actually pink and other 204 00:12:14,640 --> 00:12:17,160 Speaker 1: layers of revenue streams. But it is a question how 205 00:12:17,200 --> 00:12:18,680 Speaker 1: much are people willing to pay for that one of 206 00:12:18,720 --> 00:12:21,000 Speaker 1: these sort of demand free services there too? How do 207 00:12:21,040 --> 00:12:22,959 Speaker 1: you make money from it? That's a big question. Joining 208 00:12:23,000 --> 00:12:24,680 Speaker 1: us in the studio, I'm really pleased to say, looking 209 00:12:24,720 --> 00:12:26,800 Speaker 1: forward to this intoview lay too. Charlie joins us now 210 00:12:26,880 --> 00:12:30,400 Speaker 1: jo h c M Senior fund Manager. Good morning to Larie, 211 00:12:30,520 --> 00:12:32,839 Speaker 1: good morning. We won't be talking about tdumrrige trade and 212 00:12:32,920 --> 00:12:35,760 Speaker 1: charge SWAB. I can see embracing for potential question on that. 213 00:12:35,800 --> 00:12:37,839 Speaker 1: Don't worry, you know what we will talk about Bill 214 00:12:37,920 --> 00:12:40,480 Speaker 1: Dudley's peace out on Bloomberg Opinion in the last twenty 215 00:12:40,559 --> 00:12:44,520 Speaker 1: four hours Bloomberg Opinion columnist, formally the New York Fed President, 216 00:12:44,559 --> 00:12:46,240 Speaker 1: and of course he worked at government with you many 217 00:12:46,280 --> 00:12:49,200 Speaker 1: many years ago. Larly, his comments on triple beats, That's 218 00:12:49,200 --> 00:12:52,280 Speaker 1: where I want to start. Whenever this conversation comes up 219 00:12:52,360 --> 00:12:55,880 Speaker 1: anyone outside of the fixed income world says this is 220 00:12:55,880 --> 00:12:59,040 Speaker 1: a problem. Everyone inside of the fixed income world that 221 00:12:59,080 --> 00:13:01,560 Speaker 1: I get to speak to, Lisa and Tom have conversations 222 00:13:01,600 --> 00:13:04,839 Speaker 1: with us, well, say, this isn't a problem. Walk me 223 00:13:04,880 --> 00:13:08,120 Speaker 1: through the issues that play here. Sure. So. Well, first 224 00:13:08,160 --> 00:13:10,160 Speaker 1: of all, I'm really excited because I'm in the same 225 00:13:10,200 --> 00:13:12,320 Speaker 1: height as Tom, because usually I feel like a shrimp. 226 00:13:13,440 --> 00:13:18,040 Speaker 1: That is this is this is exciting so much at 227 00:13:18,120 --> 00:13:29,040 Speaker 1: lunch yesterday A little bit wow. Um. So the facts 228 00:13:29,040 --> 00:13:32,040 Speaker 1: are correct. The Triple Bees as a whole is about 229 00:13:32,040 --> 00:13:35,280 Speaker 1: half of the US Investment Great Index. And I think 230 00:13:35,280 --> 00:13:37,760 Speaker 1: when you look at the largest and actually came armed 231 00:13:37,760 --> 00:13:40,600 Speaker 1: with data, if you look at the top thirteen issuers 232 00:13:40,679 --> 00:13:44,640 Speaker 1: within that, the debt numbers are staggering, right, So the 233 00:13:44,679 --> 00:13:46,439 Speaker 1: top issues would be something like A T and T 234 00:13:47,040 --> 00:13:51,120 Speaker 1: hundred and ninety billion of that and you go down 235 00:13:51,200 --> 00:13:53,240 Speaker 1: the numbers. But if you look at these top thirteen, 236 00:13:54,160 --> 00:13:56,920 Speaker 1: what's unique about them is with the exception of the 237 00:13:56,960 --> 00:14:01,920 Speaker 1: auto an energy where perhaps you have a little bit 238 00:14:02,000 --> 00:14:05,040 Speaker 1: more well if you have more exposure to external shocks 239 00:14:05,080 --> 00:14:08,040 Speaker 1: that may not be in your control. Everybody else has 240 00:14:08,080 --> 00:14:11,280 Speaker 1: a very steady revenue stream. So the de leveraging path 241 00:14:11,440 --> 00:14:13,920 Speaker 1: is there. So I don't want to ignore the fact 242 00:14:14,000 --> 00:14:16,679 Speaker 1: that there are a large component. I just don't think 243 00:14:16,679 --> 00:14:19,560 Speaker 1: it people should be as alarmed as that they should be. Okay, So, 244 00:14:19,600 --> 00:14:22,640 Speaker 1: then is the risk of some sort of fallout from 245 00:14:22,680 --> 00:14:25,440 Speaker 1: the corporate debt build up that Bill Dudley was flagging? 246 00:14:26,000 --> 00:14:29,160 Speaker 1: Is that overstated or is that risk still there? Oh? 247 00:14:29,200 --> 00:14:32,280 Speaker 1: I think the corporate over uh debt build out, I 248 00:14:32,280 --> 00:14:34,680 Speaker 1: think the risk is in a different way. So to me, 249 00:14:35,400 --> 00:14:36,680 Speaker 1: you may know these numbers, but I think it's a 250 00:14:36,680 --> 00:14:38,720 Speaker 1: staggered number. The U, S I G and high yield 251 00:14:38,800 --> 00:14:42,120 Speaker 1: number is about eight and a half trillion dollars. Now 252 00:14:42,160 --> 00:14:46,840 Speaker 1: it's too excess the financial crisis. And if you look 253 00:14:46,880 --> 00:14:50,320 Speaker 1: at the debt in these credit assets that's in daily 254 00:14:50,400 --> 00:14:54,840 Speaker 1: liquid mutual funds, it's a little it's about a little 255 00:14:54,880 --> 00:14:58,640 Speaker 1: over a trillion, Okay. If you look at the US 256 00:14:58,800 --> 00:15:02,760 Speaker 1: broker balance sheet, it's of daily inventory of how much 257 00:15:02,800 --> 00:15:05,880 Speaker 1: they're willing to trade and sort of keep on the books. 258 00:15:06,160 --> 00:15:10,720 Speaker 1: Twelve billion. So to me, the mismatches not necessarily these 259 00:15:10,720 --> 00:15:13,240 Speaker 1: things are gonna get downgraded from triple B to double 260 00:15:13,280 --> 00:15:14,680 Speaker 1: B in the high yield is going to be a 261 00:15:14,680 --> 00:15:19,160 Speaker 1: total utter disaster to me. The issue is how do 262 00:15:19,200 --> 00:15:23,400 Speaker 1: you when the selling point comes, how does the plumbing works? 263 00:15:23,400 --> 00:15:25,920 Speaker 1: Because I don't think that's been tested and I don't 264 00:15:25,960 --> 00:15:28,360 Speaker 1: think people understand that. So what do you think will happen? 265 00:15:29,160 --> 00:15:31,520 Speaker 1: How do you think things will function? Well, A, you're 266 00:15:31,520 --> 00:15:34,840 Speaker 1: gonna it's gonna be a price discovery. So it's good 267 00:15:35,120 --> 00:15:38,160 Speaker 1: in that. I don't know. I mean, I think you 268 00:15:38,280 --> 00:15:41,400 Speaker 1: may test where your marks are not accurate. It has 269 00:15:41,440 --> 00:15:43,880 Speaker 1: nothing to do in some cases with the company's health. 270 00:15:43,960 --> 00:15:46,080 Speaker 1: It's it's like selling your house, right your house is 271 00:15:46,120 --> 00:15:47,960 Speaker 1: worth what somebody is willing to pay for it. You 272 00:15:47,960 --> 00:15:50,840 Speaker 1: may think it's a million bucks. It depends where the 273 00:15:50,880 --> 00:15:53,080 Speaker 1: bit comes in. So I spoke to Pimcom about these 274 00:15:53,120 --> 00:15:55,120 Speaker 1: kind of issues earlier this year and they said, just 275 00:15:55,160 --> 00:15:57,080 Speaker 1: in terms of their investment strategy, that why they want 276 00:15:57,120 --> 00:15:58,960 Speaker 1: to play this and outside this quite simply, and you 277 00:15:58,960 --> 00:16:00,760 Speaker 1: can add some new wants to it. We want to 278 00:16:00,760 --> 00:16:04,040 Speaker 1: be liquidity providers, not liquidity demanders. Wait for these kind 279 00:16:04,080 --> 00:16:07,440 Speaker 1: of gappy moves in credit and then deploy capital like 280 00:16:07,520 --> 00:16:09,400 Speaker 1: can you be that patient? Can you went around for 281 00:16:09,400 --> 00:16:12,560 Speaker 1: those kind of things? You certainly can, But look, I 282 00:16:12,560 --> 00:16:14,560 Speaker 1: mean this is another it's a pit peep of mind 283 00:16:14,680 --> 00:16:18,440 Speaker 1: and nothing against PIMCO. It's people always says there's cash 284 00:16:18,440 --> 00:16:20,280 Speaker 1: on the sidelines. There's no such thing as cash on 285 00:16:20,320 --> 00:16:22,960 Speaker 1: the sidelines, right, Nobody has bags of cash sitting in. 286 00:16:23,240 --> 00:16:26,440 Speaker 1: It's sitting in something else, right, And usually Tom Keane 287 00:16:26,560 --> 00:16:34,000 Speaker 1: actually has bags of cash and sitting on That's why 288 00:16:34,080 --> 00:16:37,880 Speaker 1: you're my height today. You're sitting on under yours. The 289 00:16:37,960 --> 00:16:44,240 Speaker 1: leverage cash continue. Oh boy, this conversation is getting dangerous. Um. 290 00:16:44,280 --> 00:16:48,240 Speaker 1: It's when when big fallofs happened, big wall events happen. 291 00:16:48,360 --> 00:16:50,880 Speaker 1: The markets are connected, right, everything kind of moves, so 292 00:16:50,920 --> 00:16:54,600 Speaker 1: you have to sell something to fund something else. And 293 00:16:54,680 --> 00:16:58,280 Speaker 1: that's where you know, it becomes a lot difficult. So yes, 294 00:16:58,440 --> 00:17:02,840 Speaker 1: in concept, can you buy hundred million two million? Sure? 295 00:17:03,160 --> 00:17:06,080 Speaker 1: Can you be able to deploy billions and immediately be 296 00:17:06,119 --> 00:17:09,040 Speaker 1: able to take advantage at that time? I don't know. 297 00:17:09,600 --> 00:17:14,639 Speaker 1: The solution always is the extenduration and extend maturity. Is 298 00:17:14,680 --> 00:17:17,800 Speaker 1: that the trap of next year when in doubt go 299 00:17:17,960 --> 00:17:20,480 Speaker 1: from x to X plus one X plus two. Is 300 00:17:20,480 --> 00:17:25,679 Speaker 1: that what's going to happen? I don't know. Duration. I 301 00:17:25,720 --> 00:17:29,119 Speaker 1: think it's a very tough call. Um. We we played 302 00:17:29,119 --> 00:17:31,160 Speaker 1: around with it a little bit and we played around 303 00:17:31,240 --> 00:17:35,080 Speaker 1: the context of Look, I think we're a little unsure 304 00:17:35,119 --> 00:17:37,680 Speaker 1: whether the recovery is happening or not, so perhaps we're 305 00:17:37,720 --> 00:17:41,040 Speaker 1: better off just literally buying ten year treasuries and just 306 00:17:41,119 --> 00:17:43,480 Speaker 1: not taking the credit risk as opposed to on i g. Credit. 307 00:17:43,680 --> 00:17:45,960 Speaker 1: There's also something that you're talking about before, which is 308 00:17:46,000 --> 00:17:48,399 Speaker 1: liquidity risk. You hear a lot of investors saying that 309 00:17:48,480 --> 00:17:51,119 Speaker 1: they are going into less liquid credit for the extra 310 00:17:51,200 --> 00:17:54,000 Speaker 1: premium embedded in what you're saying in terms of the 311 00:17:54,040 --> 00:17:58,240 Speaker 1: structural issue plumbing issue in credit markets is I believe 312 00:17:58,440 --> 00:18:01,320 Speaker 1: compared to what you said last time or here you 313 00:18:01,359 --> 00:18:04,040 Speaker 1: are not taking liquidity risk and you'd rather go into 314 00:18:04,080 --> 00:18:08,080 Speaker 1: stocks than risk here debt at this point based on liquidity, 315 00:18:08,119 --> 00:18:09,840 Speaker 1: can you give us a sense of where you are 316 00:18:09,880 --> 00:18:12,720 Speaker 1: on that now the same playbook, we run a daily 317 00:18:12,760 --> 00:18:16,320 Speaker 1: liquid mutual fund. Like I mean, I like the thing 318 00:18:16,359 --> 00:18:18,239 Speaker 1: that I will never get a redemption, but that's just 319 00:18:18,320 --> 00:18:22,959 Speaker 1: that's just not the real world. So credit funds investing 320 00:18:22,960 --> 00:18:26,119 Speaker 1: in stocks, well, we run a commingled for the product, 321 00:18:26,160 --> 00:18:28,240 Speaker 1: so it's not a pure credit, so it's credit and equity, 322 00:18:28,640 --> 00:18:31,360 Speaker 1: but we will always run it liquid. And look, there 323 00:18:31,359 --> 00:18:34,440 Speaker 1: have been numerous evidences of these liquidity issuing popping not 324 00:18:34,600 --> 00:18:37,600 Speaker 1: and funds unwinding over the last several years. We just 325 00:18:37,720 --> 00:18:40,800 Speaker 1: treat them as their episodic and we just blame the manager. 326 00:18:41,240 --> 00:18:44,040 Speaker 1: The underlying symptom is the same thing. You reach for 327 00:18:44,160 --> 00:18:47,399 Speaker 1: yield and you went a liquid and frankly, I have 328 00:18:47,480 --> 00:18:49,760 Speaker 1: a hard time when I buy a mutual fund to 329 00:18:49,840 --> 00:18:52,200 Speaker 1: figure out what they own. You really think people sit 330 00:18:52,240 --> 00:18:55,640 Speaker 1: there and go through the line items. Lonnie, thank you 331 00:18:56,160 --> 00:19:00,040 Speaker 1: as always, thank you for joining us. Don't triple for 332 00:19:00,119 --> 00:19:04,360 Speaker 1: the leverage. I felt I'd cut the into off. Cloni 333 00:19:04,400 --> 00:19:07,000 Speaker 1: can get away to television and run out of the studio. 334 00:19:07,119 --> 00:19:23,800 Speaker 1: I didn't know that. Okay, Kathy Jones is with Charles Schwab, 335 00:19:23,840 --> 00:19:25,800 Speaker 1: and the way the game has played, folks, is if 336 00:19:25,840 --> 00:19:30,120 Speaker 1: you're on staff, and particularly if you're on research staff, 337 00:19:30,600 --> 00:19:33,520 Speaker 1: you can't talk about the business. She's looking at her 338 00:19:33,520 --> 00:19:36,560 Speaker 1: phone through something. You ask her about the business. We're 339 00:19:36,560 --> 00:19:38,560 Speaker 1: not gonna ask her about the business soon. Of course, 340 00:19:38,560 --> 00:19:41,520 Speaker 1: it reports this morning of a mating between Schwab and 341 00:19:41,520 --> 00:19:43,720 Speaker 1: the Merrior trade. We will move on to fixed income, 342 00:19:44,040 --> 00:19:45,879 Speaker 1: and the host of the Real Yield will do I 343 00:19:46,000 --> 00:19:49,080 Speaker 1: forward that conversation. Let's talk about it, Kathy, you have 344 00:19:49,200 --> 00:19:52,000 Speaker 1: been a lot more conservative about your views and risk 345 00:19:52,040 --> 00:19:54,560 Speaker 1: assets and fixed income. How yield is getting back out 346 00:19:54,560 --> 00:19:57,200 Speaker 1: to in and around four hundred basis points just looking 347 00:19:57,240 --> 00:20:01,000 Speaker 1: at that spread, Kathy, your thoughts on the skipas of 348 00:20:01,080 --> 00:20:05,160 Speaker 1: fixed income at the moment, Yeah, John, we haven't really 349 00:20:05,240 --> 00:20:08,080 Speaker 1: changed our view that as you know, that spread has 350 00:20:08,119 --> 00:20:11,760 Speaker 1: been widening, narrowing, widening, narrowing all year, back and forth, 351 00:20:11,840 --> 00:20:14,840 Speaker 1: back and forth. And our concern is, you know, still 352 00:20:14,920 --> 00:20:19,320 Speaker 1: hasn't changed that we had deteriorating credit quality. UM much 353 00:20:19,359 --> 00:20:23,440 Speaker 1: more leverage in the corporate bond space than I think 354 00:20:23,560 --> 00:20:26,440 Speaker 1: is justified by the rate of growth. So corporate profits 355 00:20:26,440 --> 00:20:30,479 Speaker 1: are growing much more slowly UM than corporate leverage, and 356 00:20:30,520 --> 00:20:33,840 Speaker 1: all that sets us up for UM we think is 357 00:20:33,920 --> 00:20:37,520 Speaker 1: some sort of a correction in the market. So we're 358 00:20:37,640 --> 00:20:40,800 Speaker 1: underweight high yield and continue to think that that's just 359 00:20:41,520 --> 00:20:44,760 Speaker 1: too risky an area to have a lot of exposure 360 00:20:44,840 --> 00:20:47,080 Speaker 1: right now. Kathy, this has been scenario that people have 361 00:20:47,119 --> 00:20:49,320 Speaker 1: been hating on for a long time. Junk bonds not 362 00:20:49,520 --> 00:20:52,760 Speaker 1: a loved asset class, even as they've rallied. Now, however, 363 00:20:52,880 --> 00:20:55,959 Speaker 1: Goldman Sacces Asset Management, among others are starting to kind 364 00:20:56,000 --> 00:20:59,240 Speaker 1: of tiptoe into even the triple ce rated debt, the 365 00:20:59,320 --> 00:21:02,959 Speaker 1: lowest or of junk bonds. And I'm wondering, what are 366 00:21:02,960 --> 00:21:06,800 Speaker 1: they getting wrong in your view? You know, I'm not 367 00:21:06,840 --> 00:21:11,000 Speaker 1: really sure why, um, you would be crazy about triple ceas, 368 00:21:11,000 --> 00:21:14,439 Speaker 1: except that they've underperformed the rest of the high old market. 369 00:21:14,520 --> 00:21:16,879 Speaker 1: So maybe they you know, maybe there's a view that 370 00:21:17,400 --> 00:21:20,679 Speaker 1: they can take advantage of a convergence between triple seas 371 00:21:20,840 --> 00:21:23,560 Speaker 1: and the rest of the high old market in a 372 00:21:23,760 --> 00:21:28,000 Speaker 1: benign fed scenario, which is what we have. But it 373 00:21:28,200 --> 00:21:31,400 Speaker 1: strikes me as the old, the old idea of picking 374 00:21:31,480 --> 00:21:33,520 Speaker 1: up Nichols in front of the steam roller. You know, 375 00:21:34,040 --> 00:21:36,960 Speaker 1: it's not probably a game that most people want to play. 376 00:21:37,119 --> 00:21:41,760 Speaker 1: What's the trigger here to spur the sell off here? Well, 377 00:21:41,800 --> 00:21:44,640 Speaker 1: I think you could have a couple of things. One 378 00:21:44,760 --> 00:21:47,800 Speaker 1: could be, um, that the leverage gets to be too 379 00:21:47,840 --> 00:21:50,040 Speaker 1: much for some of the players and and we start 380 00:21:50,119 --> 00:21:54,120 Speaker 1: to see some weakening there, uh, and the spreads blowout 381 00:21:54,240 --> 00:21:59,640 Speaker 1: that way. UM, so more economically driven than anything else. 382 00:21:59,680 --> 00:22:01,240 Speaker 1: And on my to be just sector based. You know, 383 00:22:01,280 --> 00:22:04,000 Speaker 1: we've already seen underperformance by energy. If you had another 384 00:22:04,080 --> 00:22:07,399 Speaker 1: sector that suffered, um, that could be the case. Um 385 00:22:07,640 --> 00:22:10,960 Speaker 1: or it could be the surprising, surprising strength in the 386 00:22:11,000 --> 00:22:14,800 Speaker 1: economy which leans people towards viewing that reads might actually 387 00:22:14,800 --> 00:22:17,200 Speaker 1: go up for safe assets. Now we don't think that's 388 00:22:17,200 --> 00:22:20,879 Speaker 1: a real likely scenario, but um that could also cause 389 00:22:21,200 --> 00:22:23,960 Speaker 1: high yield spreads to move. Kathy Jones A charm of 390 00:22:24,000 --> 00:22:26,480 Speaker 1: what you do in Lizaran's understoods every day as you 391 00:22:26,560 --> 00:22:30,119 Speaker 1: understand flows of retail like no one, what is what 392 00:22:30,160 --> 00:22:33,360 Speaker 1: are people actually doing with their money in fixed income? 393 00:22:33,640 --> 00:22:36,240 Speaker 1: I'm fascinated by this they you know, you say, well 394 00:22:36,240 --> 00:22:38,879 Speaker 1: I want you to buy a two year coupon. You're like, really, 395 00:22:39,320 --> 00:22:41,720 Speaker 1: are they all out of twenty plus years trying to 396 00:22:41,760 --> 00:22:45,320 Speaker 1: make total return? Well, you know, of course we have 397 00:22:45,359 --> 00:22:48,399 Speaker 1: a wide variety. You know, a lot of jesters have 398 00:22:48,520 --> 00:22:51,720 Speaker 1: been saying very short duration because frankly, the yields aren't 399 00:22:51,760 --> 00:22:55,480 Speaker 1: that attractive to to take on duration risk. Some have 400 00:22:55,560 --> 00:22:57,840 Speaker 1: been moving into risk ear assets, but I would say 401 00:22:57,840 --> 00:23:01,880 Speaker 1: it's mostly a pretty much a short duration, high quality 402 00:23:01,920 --> 00:23:06,199 Speaker 1: story for many investors. I look at full faith and 403 00:23:06,240 --> 00:23:11,320 Speaker 1: credit versus full faith UH and credit versus the credit market, 404 00:23:11,840 --> 00:23:13,719 Speaker 1: and I guess you can pick up yield there. How 405 00:23:13,800 --> 00:23:16,359 Speaker 1: much do I actually pick up if I go into 406 00:23:16,359 --> 00:23:20,520 Speaker 1: the credit market versus government bonds in paper. So if 407 00:23:20,520 --> 00:23:22,320 Speaker 1: you're an investment rage, you're going to pick up a 408 00:23:22,400 --> 00:23:26,600 Speaker 1: hundred basis points or sell on change. Yeah, in a 409 00:23:26,720 --> 00:23:30,960 Speaker 1: higher quality um investment grade corporate bond. And you know 410 00:23:31,000 --> 00:23:32,680 Speaker 1: the thing is, we have a lot of investors and 411 00:23:32,760 --> 00:23:37,439 Speaker 1: municipal bonds and actually, after tax from many investors, bonds 412 00:23:37,480 --> 00:23:40,719 Speaker 1: make more sense than Okay, great, but what's the movement 413 00:23:40,720 --> 00:23:43,680 Speaker 1: in muni bonds has been extraordinary this year? I mean, 414 00:23:43,880 --> 00:23:46,359 Speaker 1: can you state that muni bonds price up, yield down, 415 00:23:46,480 --> 00:23:50,160 Speaker 1: or price to perfection? I wouldn't say price to perfection, 416 00:23:50,240 --> 00:23:53,479 Speaker 1: but you know, clearly valuations, particularly at the short end 417 00:23:53,520 --> 00:23:55,679 Speaker 1: of the curve, has have moved this year. As you 418 00:23:55,760 --> 00:23:59,040 Speaker 1: go out the curve, valuations have actually improved because we've 419 00:23:59,080 --> 00:24:01,359 Speaker 1: gotten a little bit more fly. Let's bring some life 420 00:24:01,400 --> 00:24:03,840 Speaker 1: to the investment grade part of the market. Kathy, we've 421 00:24:03,840 --> 00:24:05,800 Speaker 1: had this big discussion over the last couple of days 422 00:24:05,800 --> 00:24:07,800 Speaker 1: about triple b's. It's come up so many times over 423 00:24:07,880 --> 00:24:10,280 Speaker 1: the last couple of years for anyone outside of fixed 424 00:24:10,280 --> 00:24:13,000 Speaker 1: income tuning in and interested in the concept. If you 425 00:24:13,040 --> 00:24:16,040 Speaker 1: look at the market, every security that comes to market 426 00:24:16,080 --> 00:24:18,080 Speaker 1: will have a credit rating. The line of the sound 427 00:24:18,080 --> 00:24:21,399 Speaker 1: between investment grade and junk is triple B. And within 428 00:24:21,480 --> 00:24:25,119 Speaker 1: the triple B complex and big well known companies like Ford, A, 429 00:24:25,200 --> 00:24:27,600 Speaker 1: T and T, the likes of A B and A 430 00:24:27,720 --> 00:24:29,439 Speaker 1: B and BED and the worrior is Cathy that in 431 00:24:29,440 --> 00:24:32,440 Speaker 1: an economic downturn, these guys won't have done the hard work, 432 00:24:32,440 --> 00:24:34,720 Speaker 1: the banush sheets won't look good and they will drop 433 00:24:34,800 --> 00:24:37,600 Speaker 1: down to junk status. Cathy just weigh in to that 434 00:24:37,680 --> 00:24:40,960 Speaker 1: broader debate at the moment, Well, it's certainly a risk. 435 00:24:41,080 --> 00:24:43,399 Speaker 1: We know that a lot of those companies have stated 436 00:24:43,480 --> 00:24:46,880 Speaker 1: that they're focused on maintaining a triple B reading and 437 00:24:46,920 --> 00:24:51,680 Speaker 1: not getting U downgraded into two junk status. But um, 438 00:24:51,720 --> 00:24:55,159 Speaker 1: you know, good intentions are just bad good intentions. So 439 00:24:55,200 --> 00:24:57,280 Speaker 1: if we were to hit it down tour and you 440 00:24:57,320 --> 00:25:00,920 Speaker 1: would see some of these big companies down rated. The 441 00:25:00,960 --> 00:25:04,000 Speaker 1: market for high yield is much smaller, the pool of 442 00:25:04,000 --> 00:25:07,200 Speaker 1: buyers is much smaller than in the investment grade area. 443 00:25:07,280 --> 00:25:09,480 Speaker 1: And the worry is if you get one of these 444 00:25:09,520 --> 00:25:11,919 Speaker 1: big companies that gets down grade, if you have a 445 00:25:11,960 --> 00:25:15,280 Speaker 1: lot of securities hitting the high yield market, and inevitably 446 00:25:15,320 --> 00:25:17,880 Speaker 1: there's a big price gap that the whole market would 447 00:25:17,880 --> 00:25:20,359 Speaker 1: probably feel. I mean, this is to put this into English, 448 00:25:20,400 --> 00:25:22,680 Speaker 1: and we could do this with Lisa Bramo. It's farm Girl. 449 00:25:22,960 --> 00:25:25,920 Speaker 1: If Fargo North Dakota, I mean the twenty year piece 450 00:25:25,920 --> 00:25:29,000 Speaker 1: out of Fargo North Dakota is a four percent coupon 451 00:25:29,720 --> 00:25:33,480 Speaker 1: price to one ten yield. The worst is three point 452 00:25:33,680 --> 00:25:37,760 Speaker 1: three percent, and I'm joining a two percent coupon right now. 453 00:25:37,840 --> 00:25:41,240 Speaker 1: Fargo is reliable. Actually that's probably less risky than other areas. 454 00:25:41,240 --> 00:25:44,760 Speaker 1: But I'm just saying when I'm no. But but that's 455 00:25:44,800 --> 00:25:50,600 Speaker 1: an example of where it's a four investment code. I'm 456 00:25:50,600 --> 00:25:57,560 Speaker 1: getting you. I'm not saying coupon. I stand listen. Before 457 00:25:57,560 --> 00:26:00,520 Speaker 1: we let you go, and before we start talking about 458 00:26:00,520 --> 00:26:02,280 Speaker 1: the farm journal, I do want to get your sense 459 00:26:02,359 --> 00:26:05,600 Speaker 1: on liquidity risk because this is something that Lolly was 460 00:26:05,680 --> 00:26:08,840 Speaker 1: just talking about that she's really concerned about a breach 461 00:26:08,960 --> 00:26:11,480 Speaker 1: in the plumbing. Do you buy that? Is that still 462 00:26:11,480 --> 00:26:15,120 Speaker 1: a concern even though most people seem to have forgotten. Well, 463 00:26:15,400 --> 00:26:17,520 Speaker 1: it's obviously still on the radar, but I think the 464 00:26:17,520 --> 00:26:21,880 Speaker 1: FED has has made huge moves to address it right now, 465 00:26:21,920 --> 00:26:24,800 Speaker 1: so I wouldn't be as concerned as we were a 466 00:26:24,880 --> 00:26:27,240 Speaker 1: six months or a year ago. You know, it's funny 467 00:26:27,240 --> 00:26:29,840 Speaker 1: because it all sort of came to ahead in September 468 00:26:29,960 --> 00:26:32,640 Speaker 1: when we had the spike in the in the repo rate. 469 00:26:32,680 --> 00:26:34,960 Speaker 1: But this is something people have been talking about since 470 00:26:34,960 --> 00:26:38,560 Speaker 1: the FED started online. It's balance sheet, so um. I 471 00:26:38,600 --> 00:26:41,520 Speaker 1: think they've taken huge steps to to address it, and 472 00:26:41,560 --> 00:26:44,240 Speaker 1: I'm much less concerned than I was a while back. 473 00:26:44,520 --> 00:26:47,000 Speaker 1: Cathy johnest to catch how many cholnse wap chief Fixed 474 00:26:47,000 --> 00:27:04,679 Speaker 1: Income strategistic We finished strong today so my morning. It 475 00:27:04,720 --> 00:27:08,520 Speaker 1: has been spectacular to touch upon the Bloomberg New Economy 476 00:27:08,600 --> 00:27:11,840 Speaker 1: Forum in Beijing, and of course the highlight of this, 477 00:27:12,000 --> 00:27:16,960 Speaker 1: without question was Neil Ferguson's conversation with Henry Kissinger. We 478 00:27:17,000 --> 00:27:20,159 Speaker 1: are now almost fifty years on from what those of 479 00:27:20,240 --> 00:27:24,679 Speaker 1: us of a certain vintage remember, is absolutely shocking. I 480 00:27:24,760 --> 00:27:30,280 Speaker 1: can't begin to calculate the shock of that nineteen seventy 481 00:27:30,320 --> 00:27:34,399 Speaker 1: one morning. In the nineteen seventy two is President Nixon 482 00:27:34,440 --> 00:27:36,960 Speaker 1: went there. I've actually Paul had the honor of being 483 00:27:37,359 --> 00:27:39,679 Speaker 1: at the Pace Hotel in Shanghai, in the room that 484 00:27:39,720 --> 00:27:42,879 Speaker 1: Henry Kissinger was in literally the night before he flew 485 00:27:42,880 --> 00:27:45,960 Speaker 1: to Beijing to get this thing started. And we have 486 00:27:46,040 --> 00:27:48,520 Speaker 1: the right guest now he is Ambassador Bacus. He's a 487 00:27:48,520 --> 00:27:51,080 Speaker 1: gentleman from Montana. Of course you know him from his 488 00:27:51,160 --> 00:27:54,680 Speaker 1: public service to the nation as a senator, uh and 489 00:27:54,800 --> 00:27:58,480 Speaker 1: as our eleventh ambassador to China. We're just thrilled Max Bocus, 490 00:27:58,520 --> 00:28:01,600 Speaker 1: you could be with us at today, Max Shuart Stanford 491 00:28:01,880 --> 00:28:05,359 Speaker 1: and then on back to Montana's a politician. Do you 492 00:28:05,480 --> 00:28:10,800 Speaker 1: have a recollection of that absolute shock when America woke 493 00:28:10,960 --> 00:28:16,120 Speaker 1: up and in Nixon so changed that moment with China. 494 00:28:16,680 --> 00:28:20,480 Speaker 1: I do, I very much do, and remember the photographs 495 00:28:20,520 --> 00:28:24,840 Speaker 1: of occurred there when Nixon went over. It's interesting to 496 00:28:24,880 --> 00:28:27,600 Speaker 1: me too. This is not really directly on point, but 497 00:28:28,400 --> 00:28:32,879 Speaker 1: Mike manstill forming bastard um. I came across the speech 498 00:28:32,920 --> 00:28:37,600 Speaker 1: he wrote in nineteen sixty six, um explaining why the 499 00:28:37,720 --> 00:28:41,880 Speaker 1: United States should spend more time with China and understand China. 500 00:28:42,120 --> 00:28:45,400 Speaker 1: It was the best most effective statement I've ever read 501 00:28:45,400 --> 00:28:48,000 Speaker 1: by anybody on any subject. And I talked to him, 502 00:28:48,000 --> 00:28:51,200 Speaker 1: to Kristenier about that just last week and he said, yes, 503 00:28:51,480 --> 00:28:54,480 Speaker 1: Mike had a big influence on our going over to China, 504 00:28:54,680 --> 00:28:57,000 Speaker 1: on President Nixon going to China. So yeah, I was. 505 00:28:57,040 --> 00:29:00,640 Speaker 1: I was I do remember it, and this was so important, folks, 506 00:29:00,640 --> 00:29:04,120 Speaker 1: because Senator Bacchus and Senator Mansfield and others in the 507 00:29:04,200 --> 00:29:08,440 Speaker 1: House and in the dialogue, we're so isolated from a 508 00:29:08,520 --> 00:29:11,840 Speaker 1: discussion that came out of all of World War Two 509 00:29:12,480 --> 00:29:16,200 Speaker 1: in the fractious fifties and sixties. Here is Henry Kissinger 510 00:29:16,280 --> 00:29:20,440 Speaker 1: today with Bloomberg and Beijing Max Bacchus, looking at the 511 00:29:20,440 --> 00:29:24,680 Speaker 1: foothills of a cold war? How close are we to? 512 00:29:24,920 --> 00:29:28,000 Speaker 1: It's a beautiful phrase, How close are we to the 513 00:29:28,040 --> 00:29:31,280 Speaker 1: foothills of a cold war? After what you've observed the 514 00:29:31,440 --> 00:29:36,000 Speaker 1: US Chinese relationships in the last year or two. Well, 515 00:29:36,040 --> 00:29:40,600 Speaker 1: we're slipping in that direction unfortunately, UM and I think 516 00:29:40,640 --> 00:29:43,920 Speaker 1: it's it's a fridge. First of all, it's somewhat natural, 517 00:29:44,360 --> 00:29:47,239 Speaker 1: rising power, established power. People have talked about this so 518 00:29:47,320 --> 00:29:50,720 Speaker 1: called considities trap, but we're kind of accelerating at The 519 00:29:50,760 --> 00:29:56,200 Speaker 1: United States were helping. UM managed the relationship as well 520 00:29:56,200 --> 00:29:59,200 Speaker 1: as we should. And in the same vain president she 521 00:29:59,720 --> 00:30:03,880 Speaker 1: is the nationalistic He also is, I think contributing to 522 00:30:04,280 --> 00:30:07,400 Speaker 1: the problem. We have two very strong willed people each 523 00:30:07,440 --> 00:30:09,720 Speaker 1: side of the PA city and either one wants to 524 00:30:09,760 --> 00:30:12,200 Speaker 1: really do a deal in the way one should do 525 00:30:12,280 --> 00:30:15,560 Speaker 1: a deal. So, Senator, there seems to be bipartisan support 526 00:30:15,720 --> 00:30:19,400 Speaker 1: that there needs to be a real frank dialogue between 527 00:30:19,720 --> 00:30:23,840 Speaker 1: the China and the US about trade. Um. So that 528 00:30:23,960 --> 00:30:26,080 Speaker 1: seems to have some support. Where do you think this 529 00:30:26,200 --> 00:30:31,800 Speaker 1: may be going wrong here? I think, Frankly, Um, I 530 00:30:31,920 --> 00:30:36,120 Speaker 1: don't mean to sound particle a partisan political partisan. I 531 00:30:36,120 --> 00:30:39,520 Speaker 1: think part of the problem is as President Trump's approach 532 00:30:40,240 --> 00:30:44,640 Speaker 1: to this is a bit flawed. He is trying to 533 00:30:45,080 --> 00:30:50,640 Speaker 1: shape shake China up by slapping these tariffs on and that, frankly, 534 00:30:50,800 --> 00:30:52,800 Speaker 1: is not working. I created that said now is much 535 00:30:52,840 --> 00:30:56,640 Speaker 1: higer now was back when he took office. Second, it's 536 00:30:56,680 --> 00:30:58,800 Speaker 1: not going to get the heart of the problem. Heart 537 00:30:58,800 --> 00:31:01,920 Speaker 1: of the problem, clearly is is the structural problems in 538 00:31:02,000 --> 00:31:06,480 Speaker 1: China for technology transfer subsidies and the like. But John, 539 00:31:06,920 --> 00:31:10,160 Speaker 1: they solve it. It needed Frankly, somebody has sit down, 540 00:31:10,440 --> 00:31:13,600 Speaker 1: a president understands this, a president who really wants to 541 00:31:13,600 --> 00:31:18,040 Speaker 1: solve it, and and does so privately, not probably without 542 00:31:17,840 --> 00:31:20,640 Speaker 1: all that is in Twitter, and starts to build up 543 00:31:20,640 --> 00:31:24,800 Speaker 1: trust and confidence with the Chinese. That hasn't happened, Senator 544 00:31:24,800 --> 00:31:26,760 Speaker 1: bogg Is, because of news flow. We're gonna have to 545 00:31:26,840 --> 00:31:29,400 Speaker 1: keep it shorter today and it's most regrettable, but I 546 00:31:29,520 --> 00:31:34,120 Speaker 1: must touch upon Hong Kong. Senator McConnell has provided leadership 547 00:31:34,680 --> 00:31:39,160 Speaker 1: and with Senator Rubio of Florida in making a statement 548 00:31:39,400 --> 00:31:43,080 Speaker 1: about Hong Kong by our legislative branch, he succeeded in 549 00:31:43,160 --> 00:31:45,200 Speaker 1: that with the Senate of the House waiting for the 550 00:31:45,240 --> 00:31:51,760 Speaker 1: President's signature and signature on a legislative effort to tell 551 00:31:52,160 --> 00:31:55,200 Speaker 1: and send a message to Beijing for that matter, to 552 00:31:55,280 --> 00:31:59,280 Speaker 1: carry lamb in Hong Kong. Is this appropriate foreign diplomacy 553 00:31:59,360 --> 00:32:05,200 Speaker 1: by our legislative branch? Frankly, I have trouble whether, Um, 554 00:32:05,200 --> 00:32:08,840 Speaker 1: it's not going to help the protesters. Frankly, just more 555 00:32:08,920 --> 00:32:12,360 Speaker 1: it will probably hurt the protesters, because if the United 556 00:32:12,360 --> 00:32:14,560 Speaker 1: States is not to give a special status of Hong Kong, 557 00:32:14,680 --> 00:32:17,360 Speaker 1: or if it thanks to certain people and on congret 558 00:32:17,520 --> 00:32:20,760 Speaker 1: China over human rights, that's going to step back the protesters. 559 00:32:21,120 --> 00:32:23,840 Speaker 1: Second is going to also put another nail in the 560 00:32:24,240 --> 00:32:29,320 Speaker 1: buy bowler in in the coffin. That's driving the US 561 00:32:29,400 --> 00:32:32,400 Speaker 1: and China apart from each other because very much upset China. 562 00:32:32,560 --> 00:32:35,000 Speaker 1: And third is not going to help help us get 563 00:32:35,000 --> 00:32:36,960 Speaker 1: a trade deal. Frank. If I were in the Senate, 564 00:32:37,000 --> 00:32:39,400 Speaker 1: I vote against it. This will hurt the protesters not 565 00:32:39,520 --> 00:32:42,240 Speaker 1: helping Senator backs. Thank you so much. He's the eleventh 566 00:32:42,280 --> 00:32:45,240 Speaker 1: Ambassador of China for the United States and we're thrilled 567 00:32:45,520 --> 00:32:48,280 Speaker 1: thinking you join us today. Thanks for listening to the 568 00:32:48,320 --> 00:32:54,800 Speaker 1: Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, 569 00:32:55,160 --> 00:32:59,360 Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at 570 00:32:59,400 --> 00:33:03,640 Speaker 1: Tom Key before the podcast. You can always catch us worldwide. 571 00:33:04,120 --> 00:33:05,240 Speaker 1: I'm Bloomberg Radio