1 00:00:00,040 --> 00:00:02,600 Speaker 1: Who you put your trust in matters. Investors have put 2 00:00:02,680 --> 00:00:07,000 Speaker 1: their trust and independent registered investment advisors to the two 3 00:00:07,280 --> 00:00:11,360 Speaker 1: four trillion dollars Why Learn more at find your Independent 4 00:00:11,400 --> 00:00:26,960 Speaker 1: Advisor dot com. Welcome to the Bloomberg Surveillance Podcast. I'm 5 00:00:27,040 --> 00:00:30,920 Speaker 1: Tom Keene with David Gura. Daily we bring you insight 6 00:00:31,000 --> 00:00:35,560 Speaker 1: from the best in economics, finance, investment, and international relations. 7 00:00:35,960 --> 00:00:40,559 Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and 8 00:00:40,640 --> 00:00:48,199 Speaker 1: of course on the Bloomberg. Now, what do we know 9 00:00:48,240 --> 00:00:50,600 Speaker 1: about Monte Posky? Well, we don't know much, so so 10 00:00:50,680 --> 00:00:53,519 Speaker 1: let's get a brief with Lisa Martinuzzi. She is from 11 00:00:53,560 --> 00:00:55,960 Speaker 1: Bloomberg US in New York. Were still with Gary Shilling, 12 00:00:56,040 --> 00:00:58,680 Speaker 1: a Gary Shilling President and founder and Chris Whalen, a 13 00:00:58,760 --> 00:01:02,279 Speaker 1: cur Bond Raying Agency Senior Managing director. At least at 14 00:01:02,320 --> 00:01:05,360 Speaker 1: what we know is that the ECB actually said no, 15 00:01:05,440 --> 00:01:07,640 Speaker 1: we want extend your deadline. What we also know is 16 00:01:07,680 --> 00:01:11,520 Speaker 1: from the Commissioner Mr Dombrowski saying that Italy isn't constructive 17 00:01:11,520 --> 00:01:16,040 Speaker 1: to contact with Monte Pasky. Constructive contact? What does that mean? 18 00:01:16,080 --> 00:01:18,279 Speaker 1: They're looking at all options? That's right, I mean basically 19 00:01:18,280 --> 00:01:21,080 Speaker 1: this is the last ditch effort, last ditch attempt to 20 00:01:21,120 --> 00:01:22,720 Speaker 1: try and raise as much as money as you can 21 00:01:22,920 --> 00:01:25,560 Speaker 1: privately and then whatever the market doesn't sell, carp I 22 00:01:25,600 --> 00:01:27,800 Speaker 1: guess you know. The plan is now, as we understand it, 23 00:01:28,200 --> 00:01:30,360 Speaker 1: for the government to sea comp any of the remaining 24 00:01:30,920 --> 00:01:33,840 Speaker 1: UM funds that the bank has to raise UM. So 25 00:01:33,920 --> 00:01:36,040 Speaker 1: you're looking at a two prompt approach. You'll try to 26 00:01:36,080 --> 00:01:38,600 Speaker 1: market fast and then sort of backstop from the government. 27 00:01:38,760 --> 00:01:41,040 Speaker 1: So overall it was a five billion plan. One billion 28 00:01:41,040 --> 00:01:43,560 Speaker 1: they've gotten in swaps, right they need they're looking for 29 00:01:43,560 --> 00:01:45,440 Speaker 1: four billion at the movement. How much do we think 30 00:01:45,480 --> 00:01:47,480 Speaker 1: they can raise? That's right. So what they're trying to 31 00:01:47,520 --> 00:01:49,160 Speaker 1: do now is they're trying to get more from the 32 00:01:49,160 --> 00:01:51,000 Speaker 1: debt frequty. So they're going to make it easier for 33 00:01:51,000 --> 00:01:54,400 Speaker 1: some consumer investors to take that off UM and that 34 00:01:54,480 --> 00:01:56,760 Speaker 1: could be from what we understand, you know, another billion 35 00:01:57,120 --> 00:01:59,760 Speaker 1: up to two billion, and then you've got potentially an 36 00:01:59,760 --> 00:02:01,800 Speaker 1: ant in vast that we're talking that we're hearing talks 37 00:02:01,840 --> 00:02:05,080 Speaker 1: about coming in UM and that would leave you know, 38 00:02:05,120 --> 00:02:07,720 Speaker 1: the remainder for the market. But clearly the more momentum 39 00:02:07,760 --> 00:02:09,320 Speaker 1: is built to begin with, you know, kind of has 40 00:02:09,320 --> 00:02:11,880 Speaker 1: a snowball, I fact that more investors wants to come in. Um, 41 00:02:11,919 --> 00:02:14,000 Speaker 1: so it's about getting you know, getting that momentum going. 42 00:02:14,480 --> 00:02:16,440 Speaker 1: If the if the government actually has to step in, 43 00:02:16,600 --> 00:02:19,640 Speaker 1: does it mean they'll have to bail in certain creditors 44 00:02:20,040 --> 00:02:23,080 Speaker 1: as pre EU rules? Yes, the way we understand it, 45 00:02:23,080 --> 00:02:26,280 Speaker 1: what what could be through something's called a precautionary recapitalization, 46 00:02:26,360 --> 00:02:29,240 Speaker 1: which sees yes, some investors having to you know, share 47 00:02:29,280 --> 00:02:32,480 Speaker 1: the button of this cost and and stakeholders too because 48 00:02:32,600 --> 00:02:35,680 Speaker 1: in many cases that would potentially see the stock going 49 00:02:36,200 --> 00:02:39,440 Speaker 1: close to zero. From what we understand, Lisa, I want 50 00:02:39,440 --> 00:02:41,639 Speaker 1: to go over un Credit. I get all the idea 51 00:02:41,720 --> 00:02:46,440 Speaker 1: that it's focused on on Monte de Passy. Bring up 52 00:02:46,480 --> 00:02:48,720 Speaker 1: the chart here right now, and it's JP Morgan with 53 00:02:48,760 --> 00:02:52,960 Speaker 1: a diamond, Moonshot appears Bemp perry By, here's Deutsche Bank 54 00:02:53,000 --> 00:02:56,080 Speaker 1: and Uncredit is dog of dogs. Liza, is this going 55 00:02:56,120 --> 00:02:58,960 Speaker 1: to be a normal road show for some twelve billion 56 00:02:59,000 --> 00:03:02,120 Speaker 1: euros of cash call for Unit Credit? I mean, did 57 00:03:02,120 --> 00:03:04,079 Speaker 1: they go out and do a rubber chicken dinner in 58 00:03:04,160 --> 00:03:07,360 Speaker 1: Milan and everybody shows up with their checkbook open? I 59 00:03:07,400 --> 00:03:11,600 Speaker 1: don't buy it for a minute. Well, Um, what a 60 00:03:11,600 --> 00:03:13,320 Speaker 1: caution of us. We don't know exactly what the amount 61 00:03:13,360 --> 00:03:14,799 Speaker 1: is going to be agreed. We're going to be told 62 00:03:14,840 --> 00:03:17,720 Speaker 1: that tomorrow. M But there's you know, there is a 63 00:03:17,760 --> 00:03:21,160 Speaker 1: reorganization that will accompany the need for more funds. So 64 00:03:21,200 --> 00:03:24,160 Speaker 1: you've seen the bank sell its businesses in Poland, it's 65 00:03:24,160 --> 00:03:27,560 Speaker 1: setting its asset management business. We don't know yet what 66 00:03:27,600 --> 00:03:29,639 Speaker 1: the bank is thinking about in the way of costs, 67 00:03:29,960 --> 00:03:32,200 Speaker 1: in the way of reducing the cost Barson. So I 68 00:03:32,240 --> 00:03:34,520 Speaker 1: think you know that what will accompany the you know, 69 00:03:34,560 --> 00:03:36,920 Speaker 1: the fund raising will determine, you know, how successful the 70 00:03:36,920 --> 00:03:39,040 Speaker 1: company is going to be in raising. What you say, 71 00:03:39,320 --> 00:03:41,080 Speaker 1: what we are expecting to be a large amount. I 72 00:03:41,080 --> 00:03:43,160 Speaker 1: mean the company is worth around fifteen if I'm almost 73 00:03:43,160 --> 00:03:45,160 Speaker 1: take them, yeah, I mean, Chris wall and help me 74 00:03:45,280 --> 00:03:48,960 Speaker 1: or nothing here seems normal, and yet everybody's job boning normal. 75 00:03:49,040 --> 00:03:51,360 Speaker 1: I don't buy it for a minute. No. And the 76 00:03:51,360 --> 00:03:53,800 Speaker 1: thing you guys have to remember is debt frequity swap 77 00:03:53,800 --> 00:03:57,080 Speaker 1: store exactly. Let's stop. We gotta stop this. So this 78 00:03:57,120 --> 00:04:01,000 Speaker 1: is critically important worldwide. The herd of the matter is 79 00:04:01,040 --> 00:04:05,400 Speaker 1: you're taking senior better debt or junior subordinated debt and 80 00:04:05,440 --> 00:04:10,320 Speaker 1: you're saying hi equity, right, Well, your window dressing a 81 00:04:10,400 --> 00:04:13,200 Speaker 1: loss that's already occurred. But you're not raising new cash 82 00:04:13,240 --> 00:04:15,760 Speaker 1: for the bank. At least in the case of UniCredit, 83 00:04:15,800 --> 00:04:19,880 Speaker 1: they're selling assets, they're getting cash because with muti depeche, 84 00:04:19,960 --> 00:04:22,920 Speaker 1: you know, this whole notion of debt equity swamps all 85 00:04:22,920 --> 00:04:25,440 Speaker 1: the fuss that's made by the bureaucrats in Europe over 86 00:04:25,480 --> 00:04:27,960 Speaker 1: these policies, so they don't address the issue, which is 87 00:04:27,960 --> 00:04:30,520 Speaker 1: at the enterprise needs new cash. What is a pro 88 00:04:30,920 --> 00:04:33,960 Speaker 1: like you watch as we see a deeply troubled bank 89 00:04:34,480 --> 00:04:36,800 Speaker 1: or a too big to fail UNI credit? What's a 90 00:04:36,880 --> 00:04:40,000 Speaker 1: pro like you watch in all this jaw owning that 91 00:04:40,040 --> 00:04:42,560 Speaker 1: I don't buy for a minute. Well, we watched with 92 00:04:42,680 --> 00:04:47,599 Speaker 1: trepidation because the the accounting in Europe gives you no confidence. 93 00:04:47,680 --> 00:04:50,520 Speaker 1: You don't know what's really happening. You know, you say 94 00:04:50,520 --> 00:04:52,680 Speaker 1: what you want about the US, but our approach to 95 00:04:53,120 --> 00:04:57,360 Speaker 1: both financial disclosure and bank solvency is why the US 96 00:04:57,440 --> 00:05:00,960 Speaker 1: system is so strong today. There's no Paris, and you 97 00:05:00,960 --> 00:05:04,040 Speaker 1: you have a reasonable idea of what's going on inside 98 00:05:04,120 --> 00:05:07,359 Speaker 1: most US banks today, whereas in Europe you just have 99 00:05:07,600 --> 00:05:10,120 Speaker 1: really no idea. And as a someone who has an 100 00:05:10,160 --> 00:05:13,279 Speaker 1: offered opinion, for example on credit. This is very troubling 101 00:05:13,320 --> 00:05:16,920 Speaker 1: because you don't have anything anchor your opinions too, right, Chris, 102 00:05:16,960 --> 00:05:18,920 Speaker 1: I mean, let me remind you, you you know, Freddie Fanny 103 00:05:19,040 --> 00:05:21,120 Speaker 1: all of that stuff during the financial crisis. I mean, 104 00:05:21,160 --> 00:05:23,280 Speaker 1: you guys had tarp. You guys went through a lot 105 00:05:23,320 --> 00:05:25,960 Speaker 1: of pain in the financial crisis. You could argue, like 106 00:05:26,000 --> 00:05:28,240 Speaker 1: a lot of investors are arguing that Europe now has 107 00:05:28,279 --> 00:05:31,600 Speaker 1: to take that, but you know the American banks were 108 00:05:31,600 --> 00:05:33,839 Speaker 1: not immune to anything six years ago. Well no, but 109 00:05:34,000 --> 00:05:36,719 Speaker 1: in that case, you're absolutely right, Fancyine. It was off 110 00:05:36,720 --> 00:05:40,080 Speaker 1: balance sheet transactions that were hidden. That was our real 111 00:05:40,120 --> 00:05:42,520 Speaker 1: achilles heel in the US. But if you look at 112 00:05:42,520 --> 00:05:44,880 Speaker 1: the way the US industry cleaned up its own mess, 113 00:05:44,880 --> 00:05:48,080 Speaker 1: which they did, and if you look generally at disclosure 114 00:05:48,080 --> 00:05:51,320 Speaker 1: of losses, the way loans have to be written off 115 00:05:51,320 --> 00:05:53,840 Speaker 1: in a certain period, that sort of thing. Just from 116 00:05:53,880 --> 00:05:57,159 Speaker 1: an analytical perspective, you have a much higher degree of 117 00:05:57,200 --> 00:05:59,520 Speaker 1: comfort with the US Bank than you do with a 118 00:05:59,560 --> 00:06:03,360 Speaker 1: bank under the international accounting rules because they allow you 119 00:06:03,400 --> 00:06:06,640 Speaker 1: to hide the problem. They allow you to pretend, for example, 120 00:06:06,640 --> 00:06:09,359 Speaker 1: to a crewe interest on a loan that's not making 121 00:06:09,440 --> 00:06:13,919 Speaker 1: interest payments, and this is a problem. I mean, I 122 00:06:13,960 --> 00:06:15,680 Speaker 1: do like reminding the Americans that you know, they had 123 00:06:15,760 --> 00:06:21,040 Speaker 1: leaving brothers, which almost baltar. Yeah, but Frantzie, this is serious, 124 00:06:21,160 --> 00:06:23,719 Speaker 1: This is this is what I'm not being serious to 125 00:06:23,880 --> 00:06:27,080 Speaker 1: what I'm what I'm talking I'm what I'm talking about, right, 126 00:06:27,160 --> 00:06:29,960 Speaker 1: isn't there there's a difference between a lot of the 127 00:06:30,000 --> 00:06:33,200 Speaker 1: way that the American investors look at the Italian banks 128 00:06:33,240 --> 00:06:35,520 Speaker 1: and the way that the Italians view that. Not saying 129 00:06:35,560 --> 00:06:38,520 Speaker 1: there's a bad or wrong way, I'm just saying that 130 00:06:38,600 --> 00:06:42,320 Speaker 1: the Italian banks are struggling also because of growth, so 131 00:06:42,360 --> 00:06:46,520 Speaker 1: it's not only all about the fact that they're hiding stuff. Alza, 132 00:06:47,160 --> 00:06:50,680 Speaker 1: what is the knowledge of the non performing loans in 133 00:06:50,800 --> 00:06:53,240 Speaker 1: a good bank like UNI Credit? Do you have a 134 00:06:53,240 --> 00:06:57,159 Speaker 1: clue what their npls are? Well, we do, we have 135 00:06:57,200 --> 00:06:59,919 Speaker 1: their you know, their accounting statements. I think what is 136 00:07:00,240 --> 00:07:01,919 Speaker 1: is fair to point out as that, you know, the 137 00:07:01,960 --> 00:07:04,279 Speaker 1: e c B as a regulator has come in only 138 00:07:04,400 --> 00:07:07,400 Speaker 1: very recently, of course in Europe, and what it is doing, 139 00:07:07,640 --> 00:07:12,040 Speaker 1: slowly but surely, it is providing consistency because clearly each bank, 140 00:07:12,160 --> 00:07:16,000 Speaker 1: each each country was looking after the supervision of its 141 00:07:16,000 --> 00:07:18,800 Speaker 1: own banks slightly differently, and what the ECB is doing 142 00:07:18,840 --> 00:07:21,880 Speaker 1: now is creating a standard that is common to all 143 00:07:21,880 --> 00:07:24,560 Speaker 1: the banks that are supervised in the region. And part 144 00:07:24,560 --> 00:07:27,040 Speaker 1: of what we're seeing now, in particular relation to the 145 00:07:27,080 --> 00:07:30,040 Speaker 1: Italian bank we clean up, is a reflection of that. 146 00:07:30,120 --> 00:07:31,520 Speaker 1: You know, the e c B is going in is 147 00:07:31,520 --> 00:07:33,280 Speaker 1: taking it close so look and it's applying the same 148 00:07:33,320 --> 00:07:36,920 Speaker 1: standards across the board. And hence this is what is 149 00:07:37,240 --> 00:07:39,520 Speaker 1: driving some of what we're seeing now. At least if 150 00:07:39,560 --> 00:07:43,560 Speaker 1: you look at Multipasky. If the outcome were that the 151 00:07:43,560 --> 00:07:45,960 Speaker 1: government had to step in, which I guess is more 152 00:07:46,000 --> 00:07:47,680 Speaker 1: likely now than it was two weeks ago because of 153 00:07:47,720 --> 00:07:50,560 Speaker 1: the referendum and the troubles in Italy, is it if 154 00:07:50,560 --> 00:07:52,360 Speaker 1: it goes under? So I know, I don't know if 155 00:07:52,520 --> 00:07:54,960 Speaker 1: what the what the potential for that is. But is 156 00:07:55,000 --> 00:07:57,520 Speaker 1: it systemic? Is it a systemic risk? Well you have 157 00:07:57,560 --> 00:07:59,560 Speaker 1: you know, different views on that, but I think yes. 158 00:07:59,640 --> 00:08:01,920 Speaker 1: I think the bank is deemed sufficiently large to be 159 00:08:01,960 --> 00:08:04,920 Speaker 1: systemic in the in the type of um you know, 160 00:08:05,000 --> 00:08:07,520 Speaker 1: the effect it could have on the broader confidence in 161 00:08:07,800 --> 00:08:10,920 Speaker 1: Italian banks of course, um So, while per se could 162 00:08:10,920 --> 00:08:13,680 Speaker 1: be contained if it has re percussions on how households 163 00:08:13,720 --> 00:08:16,760 Speaker 1: view their savings other banks, for example. In that way, 164 00:08:16,760 --> 00:08:18,720 Speaker 1: it can be systemic. But I think at the moment, 165 00:08:18,760 --> 00:08:21,920 Speaker 1: you know, there is no question about the bank being viable. UM. 166 00:08:21,920 --> 00:08:25,160 Speaker 1: It is a question of you know, raising sufficient funds 167 00:08:25,200 --> 00:08:27,960 Speaker 1: to clean up the balance sheet. Um. In a very 168 00:08:27,960 --> 00:08:31,400 Speaker 1: short period of time, Gary Shilling, you're watching the bank debate, 169 00:08:31,520 --> 00:08:35,000 Speaker 1: go this is removed from your bigger view, or maybe 170 00:08:35,080 --> 00:08:38,400 Speaker 1: it isn't. Did the Italian dynamics does that play into 171 00:08:38,440 --> 00:08:43,040 Speaker 1: a Shilling euro view? Well? Well, sure, because you know 172 00:08:43,160 --> 00:08:46,360 Speaker 1: what what what's happened in in the last couple of decades, 173 00:08:46,360 --> 00:08:49,680 Speaker 1: You've had a tremendous expansion of finance. If you look 174 00:08:49,720 --> 00:08:52,080 Speaker 1: at the growth in the economy, and this is what 175 00:08:52,120 --> 00:08:56,040 Speaker 1: I did my PhD dissertation on is the debt versus 176 00:08:56,120 --> 00:09:00,320 Speaker 1: the versus the non financial economy. Then you lay the 177 00:09:00,400 --> 00:09:03,559 Speaker 1: financial on top of that and you've you've gotten tremendous 178 00:09:03,600 --> 00:09:06,839 Speaker 1: amount of intermediation is called ombers. You get layers and 179 00:09:06,920 --> 00:09:09,800 Speaker 1: layers and layers, and that's what's really at risk here 180 00:09:09,840 --> 00:09:12,480 Speaker 1: with banks. In other words, banks have gotten so far 181 00:09:12,559 --> 00:09:16,640 Speaker 1: from from spread lending, the traditional banking that a lot 182 00:09:16,679 --> 00:09:19,480 Speaker 1: of this is really unwinding that. And we've done much 183 00:09:19,520 --> 00:09:22,120 Speaker 1: more of a job in this country and doing that 184 00:09:22,640 --> 00:09:25,320 Speaker 1: than they have in Europe. I mean, you look what 185 00:09:25,440 --> 00:09:29,560 Speaker 1: happened coming out of the big bailout. Uh Congress basically 186 00:09:29,559 --> 00:09:32,960 Speaker 1: said we want to bust you back to spread lending. 187 00:09:33,600 --> 00:09:35,600 Speaker 1: We want to get rid of all these very profitable 188 00:09:35,640 --> 00:09:40,000 Speaker 1: areas like prop trading and drivat origination and trading off 189 00:09:40,040 --> 00:09:44,319 Speaker 1: balance sheet activities, and and of course the banks pushed back. 190 00:09:45,040 --> 00:09:47,559 Speaker 1: But but the point is that there's been a lot 191 00:09:47,559 --> 00:09:49,319 Speaker 1: more progress on that in the U S. And there 192 00:09:49,320 --> 00:09:53,600 Speaker 1: has in Europe. Chris, is there any doubt in your 193 00:09:53,640 --> 00:09:57,959 Speaker 1: mind that actually the Italian government would never let Montepowski down. 194 00:09:58,120 --> 00:09:59,880 Speaker 1: We have a lot of investors coming on this, pro 195 00:10:00,000 --> 00:10:02,640 Speaker 1: Graham saying, like, guys, look, it's a safe bet if 196 00:10:02,679 --> 00:10:06,400 Speaker 1: you raise into the capitol because the Italian banking system 197 00:10:06,440 --> 00:10:09,400 Speaker 1: and the government can't afford to let it go. Well, no, 198 00:10:09,520 --> 00:10:12,080 Speaker 1: I think you're quite right, fancy, but this is the problem. 199 00:10:12,120 --> 00:10:14,600 Speaker 1: If you go back to two thousand thirteen, when a 200 00:10:14,600 --> 00:10:18,960 Speaker 1: guy named Mario drag allowed the merger of the bunk 201 00:10:19,040 --> 00:10:24,280 Speaker 1: of believe it was Antonta that was an insolvent bank. 202 00:10:24,360 --> 00:10:26,679 Speaker 1: It needed to be wound up, and so instead they 203 00:10:26,720 --> 00:10:29,600 Speaker 1: merged it with Monte di Pace and now you have 204 00:10:29,679 --> 00:10:33,640 Speaker 1: a larger bank that is clearly systemic. But it illustrates 205 00:10:33,679 --> 00:10:37,240 Speaker 1: how the central bankers refuse, both in this country and 206 00:10:37,280 --> 00:10:40,560 Speaker 1: in Europe to deal with insolvency. Instead they merged good 207 00:10:40,559 --> 00:10:43,080 Speaker 1: banks with bad banks, and you end up with a Zombo. 208 00:10:43,760 --> 00:10:45,920 Speaker 1: This has been fabulous. Chris Whalen, thank you so much. 209 00:10:46,000 --> 00:10:48,920 Speaker 1: We'll continue Gary shilling as well. Liza Martin Newsy, thank 210 00:10:48,960 --> 00:10:51,280 Speaker 1: you so much. With Bloomberg News, you know, and she 211 00:10:51,400 --> 00:10:54,920 Speaker 1: has truly let our coverage on Italian banking since the 212 00:10:55,000 --> 00:11:14,520 Speaker 1: beginning of this crisis, oil has changed. We need perspective. 213 00:11:14,520 --> 00:11:17,840 Speaker 1: Futile Gate is with the UPco Oppenheimer and Company, and 214 00:11:17,880 --> 00:11:22,880 Speaker 1: he truly has decades of seeing surprises and carteled and 215 00:11:23,040 --> 00:11:26,040 Speaker 1: non carteled oil foughtle We could talk to you for 216 00:11:26,160 --> 00:11:28,560 Speaker 1: two hours today, one hour on oil and one hour 217 00:11:29,200 --> 00:11:33,760 Speaker 1: on the Secretary of State. Let's first do the real 218 00:11:33,800 --> 00:11:39,200 Speaker 1: business of oil. Is this sustainable or is it fragile? 219 00:11:39,320 --> 00:11:44,559 Speaker 1: And if it's fragile, define that well, it is sustainable 220 00:11:44,840 --> 00:11:49,600 Speaker 1: as long as they believe that the alternative can bring 221 00:11:49,720 --> 00:11:53,080 Speaker 1: up prices down by twenty dollar So they have seen 222 00:11:53,160 --> 00:11:56,280 Speaker 1: twenty dollar oil and obviously didn't like it at all. 223 00:11:56,960 --> 00:11:59,640 Speaker 1: So right now they are going to patch up with 224 00:12:00,120 --> 00:12:04,960 Speaker 1: differences we have for them to survive. Most of these 225 00:12:05,640 --> 00:12:10,480 Speaker 1: most of these countries. Venezuela, for example, is technically bankrupt, 226 00:12:10,880 --> 00:12:14,840 Speaker 1: so they just cannot afford, you know, much lower prices 227 00:12:14,920 --> 00:12:19,360 Speaker 1: for any longer period of time. Russia isn't back running 228 00:12:19,360 --> 00:12:22,120 Speaker 1: out of foreign currency in the middle of next year. 229 00:12:22,440 --> 00:12:26,839 Speaker 1: Everybody should know that. So they are willing to cut 230 00:12:27,040 --> 00:12:31,120 Speaker 1: and lead the cut out of OPEC because the desperate 231 00:12:31,320 --> 00:12:34,440 Speaker 1: we need more done, and and and David Gurrow. That 232 00:12:34,440 --> 00:12:37,440 Speaker 1: goes back to Shannon O'Neill in our interview on Friday, 233 00:12:37,480 --> 00:12:39,760 Speaker 1: look for that on iTunes podcast on an interview with 234 00:12:39,800 --> 00:12:43,600 Speaker 1: the Council on Foreign Relations, Shannon O'Neill fascinating discussion about 235 00:12:43,760 --> 00:12:46,640 Speaker 1: Venezuela in particular. Here fun let me ask you about 236 00:12:46,679 --> 00:12:50,360 Speaker 1: sort of what what what the major accomplishment was this 237 00:12:50,400 --> 00:12:52,760 Speaker 1: weekend we had the OPEC meeting, only it seems like 238 00:12:52,800 --> 00:12:55,240 Speaker 1: a week a week ago, and at that meeting there 239 00:12:55,280 --> 00:12:58,320 Speaker 1: was so much conversation about the role of non OPEC producers. 240 00:12:58,480 --> 00:13:01,199 Speaker 1: What does it say about the future of the oil market. 241 00:13:01,200 --> 00:13:03,720 Speaker 1: The way that the steel was cut, well, they will 242 00:13:03,760 --> 00:13:08,920 Speaker 1: definitely know that. You know, the price ward did not work. 243 00:13:09,320 --> 00:13:13,559 Speaker 1: They didn't get rid of the fractors. The US shall 244 00:13:13,640 --> 00:13:17,160 Speaker 1: producers they have to recognize and I think most of 245 00:13:17,200 --> 00:13:20,120 Speaker 1: them have already that Shell is here to stay. Shell 246 00:13:20,240 --> 00:13:24,480 Speaker 1: is a technology, and technology and time are not on 247 00:13:24,640 --> 00:13:29,440 Speaker 1: opic side. So oil prices will go higher, not because 248 00:13:29,440 --> 00:13:33,360 Speaker 1: the OPEC does or does not do whatever they promised 249 00:13:33,360 --> 00:13:37,720 Speaker 1: to do, but eventually supply and demand will balance. Why 250 00:13:37,840 --> 00:13:42,080 Speaker 1: because the industry cut capital spending by se the industry 251 00:13:42,120 --> 00:13:45,960 Speaker 1: couldn't replace production at hundred dollar oil, so obviously not 252 00:13:45,960 --> 00:13:48,680 Speaker 1: going to be able to trace production at fourty dollar 253 00:13:48,800 --> 00:13:51,520 Speaker 1: or fifty dollar oil. We are going to get to 254 00:13:51,760 --> 00:13:54,120 Speaker 1: what I believe to be the new normal, which is 255 00:13:54,160 --> 00:13:59,680 Speaker 1: sixty dollar, and Shell is going to be the speed bumps. 256 00:14:00,080 --> 00:14:03,240 Speaker 1: If oil prices to go significantly about sixty, we are 257 00:14:03,320 --> 00:14:06,840 Speaker 1: going to see a pullback, significant pullback in all prices. 258 00:14:07,000 --> 00:14:09,560 Speaker 1: And if all prices go below fest we are going 259 00:14:09,600 --> 00:14:11,360 Speaker 1: to see the same thing. You're going to see more 260 00:14:11,440 --> 00:14:15,600 Speaker 1: cost cuts, more cooperation by open come and overfect because 261 00:14:15,640 --> 00:14:18,720 Speaker 1: they have to survive and they cannot survive by over 262 00:14:18,800 --> 00:14:22,000 Speaker 1: supplying the market. From the commentary that we heard over 263 00:14:22,040 --> 00:14:24,360 Speaker 1: the weekend on the heels of this meeting, do you 264 00:14:24,400 --> 00:14:27,280 Speaker 1: get the sense that non opened producers are cognizant of 265 00:14:27,360 --> 00:14:29,120 Speaker 1: that of the role that the sail is going to 266 00:14:29,160 --> 00:14:33,880 Speaker 1: play here? Oh? Absolutely again, you know, you know, if 267 00:14:33,920 --> 00:14:37,400 Speaker 1: they closed their eye doesn't mean that the you know, 268 00:14:37,600 --> 00:14:41,280 Speaker 1: things are not happening. Whether or not they like it 269 00:14:41,440 --> 00:14:43,280 Speaker 1: or like, they have to live with it. They have 270 00:14:43,440 --> 00:14:46,960 Speaker 1: to live with potential shield production in the US between 271 00:14:47,040 --> 00:14:49,920 Speaker 1: five and ten million barrels a day in the next 272 00:14:49,960 --> 00:14:53,080 Speaker 1: five years. They have to live with that. So if 273 00:14:53,120 --> 00:14:56,000 Speaker 1: they want to go all out and repeat what they 274 00:14:56,000 --> 00:14:59,040 Speaker 1: have done, I guarantee you that there will be regime 275 00:14:59,120 --> 00:15:02,200 Speaker 1: changes in Peck and not all the countries if oil 276 00:15:02,280 --> 00:15:05,480 Speaker 1: prices go back to fortica. I love the microeconomics, but 277 00:15:05,560 --> 00:15:09,080 Speaker 1: where's the discipline? Is the not I don't mean rule 278 00:15:09,120 --> 00:15:12,560 Speaker 1: of law, rule of contract, but where is the almost 279 00:15:12,560 --> 00:15:16,000 Speaker 1: the will? If you will to finally be adults? Is it? 280 00:15:16,240 --> 00:15:19,520 Speaker 1: Do you observe it? Their final? Well, I've been following 281 00:15:19,560 --> 00:15:22,160 Speaker 1: this industry for thirty five years and I can tell 282 00:15:22,240 --> 00:15:25,360 Speaker 1: you the one that is consistent that OPEC has never 283 00:15:25,440 --> 00:15:28,400 Speaker 1: kept its work so I am not sure this is 284 00:15:28,440 --> 00:15:31,840 Speaker 1: going to be any different. They have seen you know, 285 00:15:32,000 --> 00:15:36,160 Speaker 1: economical laps before and they got together and and and 286 00:15:36,280 --> 00:15:40,360 Speaker 1: you know, build themselves out. This time around, I do 287 00:15:40,520 --> 00:15:43,000 Speaker 1: believe it is going to be much more dangerous because, 288 00:15:43,000 --> 00:15:46,280 Speaker 1: as I said before, they had a new competitors that 289 00:15:46,320 --> 00:15:48,040 Speaker 1: they are not going to be able to get rid of, 290 00:15:48,160 --> 00:15:50,880 Speaker 1: and that is the shield producer. Because technology continued to 291 00:15:50,920 --> 00:15:54,080 Speaker 1: improve and shield production, the break even point continue to 292 00:15:54,080 --> 00:15:59,119 Speaker 1: go down. So the industry, the US industry, is more resilient, 293 00:15:59,280 --> 00:16:02,440 Speaker 1: lower price than ever before. And that is something that 294 00:16:02,480 --> 00:16:06,000 Speaker 1: opics finitely recognize. They are not going to be pushed 295 00:16:06,040 --> 00:16:09,760 Speaker 1: over anymore. Shield production is here to stay. Well. I 296 00:16:09,800 --> 00:16:12,920 Speaker 1: go back into the archives to two thousand six when 297 00:16:12,920 --> 00:16:15,280 Speaker 1: Rex Tillerson was named the new head of x On 298 00:16:15,480 --> 00:16:18,240 Speaker 1: Mobile and one fiddle Guide being quoted in the New 299 00:16:18,320 --> 00:16:20,240 Speaker 1: York Times as it's the same old wine in a 300 00:16:20,280 --> 00:16:22,880 Speaker 1: new bottle. You can't expect a company this size to 301 00:16:22,960 --> 00:16:24,800 Speaker 1: change on a dime, but you might see changes in 302 00:16:24,840 --> 00:16:27,920 Speaker 1: how it projects its image to the public to its clients. 303 00:16:27,920 --> 00:16:30,720 Speaker 1: Findle Gate there speaking about the change to a new 304 00:16:31,400 --> 00:16:35,080 Speaker 1: chairman and executive chairman and CEO, Rex Tillerson, at x 305 00:16:35,120 --> 00:16:38,120 Speaker 1: on Mobile. Fiddle Kick joins us now from Oppenheimer going 306 00:16:38,120 --> 00:16:40,040 Speaker 1: back to two thousands like look in two thousand six too, Now, 307 00:16:40,080 --> 00:16:41,920 Speaker 1: how much did x on Mobile change? How much has 308 00:16:42,040 --> 00:16:45,560 Speaker 1: x on Mobile change on the leadership of Rex Tillerson. Uh, 309 00:16:45,560 --> 00:16:49,200 Speaker 1: as I said before, it's you know again, it's the 310 00:16:49,360 --> 00:16:53,760 Speaker 1: playbook that hasn't changed in fifty years. Uh. To get 311 00:16:53,800 --> 00:16:55,480 Speaker 1: to the top of the xx on you have to 312 00:16:55,520 --> 00:16:58,640 Speaker 1: be you have to prove over and over over again 313 00:16:59,080 --> 00:17:03,960 Speaker 1: that you are going to just stay the course, and 314 00:17:04,200 --> 00:17:06,800 Speaker 1: that would happened. You know that, you know, if you 315 00:17:06,920 --> 00:17:15,080 Speaker 1: want stable company, predictable company, no surprises, it's excellent. Excellent 316 00:17:15,160 --> 00:17:19,040 Speaker 1: sets the tune for the industry. But over the last 317 00:17:19,080 --> 00:17:21,800 Speaker 1: ten years the stock really has not done well at all. 318 00:17:22,760 --> 00:17:27,160 Speaker 1: Chevron has been a better stock than Excellent stand Excellent 319 00:17:27,800 --> 00:17:33,120 Speaker 1: relatively speaking, Shell on hard times a few months ago 320 00:17:33,240 --> 00:17:36,159 Speaker 1: for the sign in decades they lost the triple A 321 00:17:36,320 --> 00:17:40,200 Speaker 1: credits rating. UH seven or eight years ago, Excellent had 322 00:17:40,240 --> 00:17:43,120 Speaker 1: thirty seven billion dollars in cash. Today they have fortified 323 00:17:43,160 --> 00:17:48,000 Speaker 1: billion dollars in debt. So obviously, recent years have not 324 00:17:48,240 --> 00:17:52,639 Speaker 1: been very kind to Exam and unfortunately Expellers and you 325 00:17:52,640 --> 00:17:57,199 Speaker 1: know everything goes under his watch. So uh, that is 326 00:17:57,440 --> 00:18:00,760 Speaker 1: as far as the scorecard final. I mean, I understand 327 00:18:00,800 --> 00:18:04,280 Speaker 1: the major distinction of choosing a secretary state is if 328 00:18:04,320 --> 00:18:07,439 Speaker 1: you you choose someone from Austin and the Longhorns, or 329 00:18:07,480 --> 00:18:10,120 Speaker 1: you choose someone in the fighting Texas Aggies. I mean, 330 00:18:10,160 --> 00:18:13,800 Speaker 1: I get that idea. But but seriously, Rex to us 331 00:18:13,920 --> 00:18:16,720 Speaker 1: and I believe puts his pants on one leg at 332 00:18:16,760 --> 00:18:20,000 Speaker 1: a time out of Worcester Polytech, east of west of 333 00:18:20,000 --> 00:18:23,520 Speaker 1: Boston and out of Texas. I get that. From where 334 00:18:23,560 --> 00:18:27,240 Speaker 1: you sit is an oil guy, does he have any 335 00:18:27,440 --> 00:18:32,879 Speaker 1: attributes that lead to diplomacy, Well, he had to negotiate 336 00:18:33,320 --> 00:18:38,320 Speaker 1: very long term deals. We're not talking about six months 337 00:18:38,440 --> 00:18:41,480 Speaker 1: or even six years. He's looking at something that not 338 00:18:41,760 --> 00:18:46,600 Speaker 1: his successor or you know, the fellow after his successor 339 00:18:46,920 --> 00:18:50,439 Speaker 1: will find that the vote still has a lot of 340 00:18:50,600 --> 00:18:54,399 Speaker 1: nuggets there to keep the company going for multi decades. 341 00:18:54,400 --> 00:18:58,160 Speaker 1: So this is basically passing the bacon. If you will, 342 00:18:58,440 --> 00:19:02,120 Speaker 1: you'll try to get the better than when you inherit it. 343 00:19:02,359 --> 00:19:05,879 Speaker 1: That is how excellent keeps the internal score. Who have 344 00:19:06,000 --> 00:19:09,440 Speaker 1: done better in their ten years tenure, whether it's clear 345 00:19:09,520 --> 00:19:14,080 Speaker 1: aiming before Excellerston and so forth, so it's a company 346 00:19:14,119 --> 00:19:17,680 Speaker 1: that doesn't look at the clock every two minutes. Do 347 00:19:17,720 --> 00:19:21,040 Speaker 1: you look at the clock every few years? Not? Not? 348 00:19:21,040 --> 00:19:25,800 Speaker 1: Not not in a short term uh format Uh. Having 349 00:19:25,840 --> 00:19:31,399 Speaker 1: said that, it is obviously it's difficult or different to 350 00:19:31,520 --> 00:19:35,840 Speaker 1: deal with the head state or or or powerful person 351 00:19:36,080 --> 00:19:41,600 Speaker 1: in you know, whether it's Russia or Saudi Arabia or elsewhere. Uh, 352 00:19:41,720 --> 00:19:44,960 Speaker 1: as a deal maker, as a guy who's going to 353 00:19:45,080 --> 00:19:50,520 Speaker 1: find the project, say ten billions dollar over multi decade, 354 00:19:51,080 --> 00:19:55,600 Speaker 1: then somebody who's going to negotiate it is treaties, say 355 00:19:55,800 --> 00:20:00,639 Speaker 1: between the Israelis and Palestinians, or uh, you know, stop 356 00:20:00,680 --> 00:20:04,879 Speaker 1: the bloodshed in Syria. These are things that you know, 357 00:20:05,000 --> 00:20:08,160 Speaker 1: I am not sure obviously that not Excellerson or anybody 358 00:20:08,160 --> 00:20:10,719 Speaker 1: else has the answer for that very quickly here by 359 00:20:10,720 --> 00:20:12,920 Speaker 1: now we've all seen the photograph of Rex Taylorson with 360 00:20:13,000 --> 00:20:15,000 Speaker 1: Vladimir Putin, and I wonder if you could tell us 361 00:20:15,040 --> 00:20:17,320 Speaker 1: a bit about the relationship that he has had with 362 00:20:17,320 --> 00:20:20,240 Speaker 1: with Russia. He certainly pushed through some some big projects 363 00:20:20,240 --> 00:20:23,520 Speaker 1: for Excellent Mobile as the head of that company. Yeah. Correct, 364 00:20:23,640 --> 00:20:27,440 Speaker 1: One thing that excell and uh with Rex Tellerson at 365 00:20:27,440 --> 00:20:31,320 Speaker 1: the Holm or even when Lea Raymond before him. They 366 00:20:31,440 --> 00:20:36,520 Speaker 1: try to make sure that you separate politics from economics. 367 00:20:36,720 --> 00:20:39,320 Speaker 1: But here is to do business. We don't. We are 368 00:20:39,359 --> 00:20:42,639 Speaker 1: not here to change government to to to say we 369 00:20:42,680 --> 00:20:46,200 Speaker 1: don't deal with you because you're not elected, you or 370 00:20:46,240 --> 00:20:49,800 Speaker 1: a dictator whatever. So this is the way they excel 371 00:20:49,800 --> 00:20:52,760 Speaker 1: and went out of its way ten years ago or 372 00:20:52,760 --> 00:20:58,920 Speaker 1: twelve years ago to criticize the State Department interfere in 373 00:20:59,040 --> 00:21:03,000 Speaker 1: the take over or unical by the Chinese little company. 374 00:21:03,560 --> 00:21:05,760 Speaker 1: The only company that went out of the way to 375 00:21:05,800 --> 00:21:09,280 Speaker 1: say that this is not right. Okay, we gotta leave it. 376 00:21:09,320 --> 00:21:23,600 Speaker 1: Their final gay timely thank you. This is Bloomberg, who 377 00:21:23,680 --> 00:21:26,959 Speaker 1: you put your trust in matters. Investors have put their 378 00:21:27,000 --> 00:21:30,800 Speaker 1: trust in independent registered investment advisors to the two and 379 00:21:30,840 --> 00:21:34,399 Speaker 1: of four trillion dollars. Why they see their roles to serve, 380 00:21:34,680 --> 00:21:38,000 Speaker 1: not sell. That's why Charles Schwab is committed to the 381 00:21:38,119 --> 00:21:44,240 Speaker 1: success over seven thousand independent financial advisors who passionately dedicate 382 00:21:44,280 --> 00:21:49,080 Speaker 1: themselves to helping people achieve their financial goals. Learn more 383 00:21:49,560 --> 00:21:58,439 Speaker 1: and find your independent advisor dot com, which we now 384 00:21:58,480 --> 00:22:00,879 Speaker 1: by horn Band Holds. He's us all right, top Tom Jumps. 385 00:22:01,200 --> 00:22:03,760 Speaker 1: You have a Twitter update. We just had three tweets 386 00:22:03,960 --> 00:22:07,439 Speaker 1: blasted out and will report him and then you know, 387 00:22:07,600 --> 00:22:11,600 Speaker 1: move on as we do, talking about Russia, CIA card 388 00:22:11,680 --> 00:22:14,919 Speaker 1: and then another one talking about hackers. And then the 389 00:22:14,960 --> 00:22:18,679 Speaker 1: other one is the F thirty five program and cost 390 00:22:18,760 --> 00:22:21,600 Speaker 1: is out of control. Billions of dollars can and will 391 00:22:21,640 --> 00:22:25,879 Speaker 1: be saved on military and other purchases after January. So 392 00:22:26,400 --> 00:22:28,640 Speaker 1: these are Mr Trump's tweets. They've just come out here 393 00:22:28,640 --> 00:22:31,320 Speaker 1: in the last number of minutes. And and and David, 394 00:22:31,359 --> 00:22:33,840 Speaker 1: I point out that last week it was Air Force one, 395 00:22:34,520 --> 00:22:36,520 Speaker 1: and this week it's the F thirty five. Next week 396 00:22:36,560 --> 00:22:40,960 Speaker 1: will be the surveying the thirty five. Now, I think 397 00:22:41,040 --> 00:22:43,879 Speaker 1: a lot of people on board with those counts. David 398 00:22:43,960 --> 00:22:49,720 Speaker 1: bringing Mr Elect here, keenly interested in Navid anyway, very good. 399 00:22:50,080 --> 00:22:52,680 Speaker 1: Those of course, three tweets from the President elect at 400 00:22:52,760 --> 00:22:55,239 Speaker 1: real Donald Trump. I wanna bring harm bandholds Now. He's 401 00:22:55,280 --> 00:22:58,160 Speaker 1: chief US economist at Unit Credit joining US now And 402 00:22:58,160 --> 00:23:00,639 Speaker 1: and Harm I mentioned the the dearth of data today 403 00:23:00,680 --> 00:23:03,240 Speaker 1: going into this meeting in Washington, d C. But set 404 00:23:03,240 --> 00:23:05,239 Speaker 1: the table for us there in the Eccles building when 405 00:23:05,280 --> 00:23:06,560 Speaker 1: you look at the data, When you look at the 406 00:23:06,600 --> 00:23:10,560 Speaker 1: data they'll be pouring over. How does it look um, 407 00:23:10,600 --> 00:23:13,040 Speaker 1: I think it looks well. Certainly the federal is going 408 00:23:13,040 --> 00:23:16,040 Speaker 1: to raise rates. The data that we have received over 409 00:23:16,080 --> 00:23:17,960 Speaker 1: the past several weeks came in, if anything, on the 410 00:23:18,000 --> 00:23:19,720 Speaker 1: stronger side. I mean, if you look at your own 411 00:23:19,960 --> 00:23:22,880 Speaker 1: economic surprise in therex, it is absolidly in the positive 412 00:23:22,960 --> 00:23:27,080 Speaker 1: territory um the highest in in I think several quarters 413 00:23:27,080 --> 00:23:30,880 Speaker 1: at least um. So, so the the macro environment looks 414 00:23:30,640 --> 00:23:33,000 Speaker 1: all pretty good. And I mean we had have heard 415 00:23:33,080 --> 00:23:36,760 Speaker 1: Chair yelling at her most recent Congression testimony, where she 416 00:23:36,840 --> 00:23:40,160 Speaker 1: basically adopted the language of the more hawker Is members 417 00:23:40,160 --> 00:23:43,320 Speaker 1: that any further delays in the rate high causes may 418 00:23:43,400 --> 00:23:47,760 Speaker 1: may have some risks, including increased financial instability and all 419 00:23:47,760 --> 00:23:51,880 Speaker 1: that stuff. So so yeah, I mean this this meeting 420 00:23:51,880 --> 00:23:53,720 Speaker 1: is probably one of the least anticipated in terms of 421 00:23:53,720 --> 00:23:56,919 Speaker 1: the policy outcome. Okay, Greg published this this morning and 422 00:23:56,960 --> 00:24:00,840 Speaker 1: he's done. In the world of hard bundles, But um, 423 00:24:01,119 --> 00:24:05,040 Speaker 1: FED always has a moment to surprise. Can't they go 424 00:24:05,240 --> 00:24:08,960 Speaker 1: Arthur Burns on us here three eights or half a 425 00:24:09,040 --> 00:24:13,960 Speaker 1: point just to get everybody right sized quickly. Yeah, I 426 00:24:13,960 --> 00:24:17,000 Speaker 1: think that's I mean, he said, it's probably a different world. 427 00:24:17,040 --> 00:24:19,199 Speaker 1: Sometimes I feel like one of the main jobs of 428 00:24:19,240 --> 00:24:22,360 Speaker 1: the economists is to keep markets a bit honest. I mean, 429 00:24:23,000 --> 00:24:25,560 Speaker 1: even if you, as an economists have a pretty pretty 430 00:24:25,560 --> 00:24:28,679 Speaker 1: steady outlook, the market will fluctuate around you, saying at 431 00:24:28,720 --> 00:24:31,040 Speaker 1: one point you're too pessimistic, and then two weeks later 432 00:24:31,119 --> 00:24:33,760 Speaker 1: you are too optimistic. I think that's what we're seeing 433 00:24:33,760 --> 00:24:36,440 Speaker 1: with the market right now. For months, if not years, 434 00:24:36,440 --> 00:24:40,360 Speaker 1: the market has been saying that the economist rate outlook 435 00:24:40,480 --> 00:24:43,880 Speaker 1: and the fat rate outlook is too hawkish. It's too hawkish. 436 00:24:44,000 --> 00:24:46,399 Speaker 1: Now that we got mister Trump elected, and the months 437 00:24:46,440 --> 00:24:49,359 Speaker 1: later they turned from being way more dubblish than the 438 00:24:49,400 --> 00:24:52,800 Speaker 1: fat and many economists to becoming more hawkish. So I 439 00:24:52,840 --> 00:24:55,920 Speaker 1: think that is going too far. I think the big change, 440 00:24:55,920 --> 00:24:58,240 Speaker 1: if you want, is that the FAT is not further 441 00:24:58,320 --> 00:25:03,280 Speaker 1: lowering the dots. I think they keep them flat twenty 442 00:25:03,280 --> 00:25:05,200 Speaker 1: five basis points. And they are not doing an awful 443 00:25:05,200 --> 00:25:06,760 Speaker 1: lot with the outlook for now. I mean they have 444 00:25:06,880 --> 00:25:09,360 Speaker 1: they don't know exactly what the stimulus will be. Yeah, 445 00:25:09,480 --> 00:25:12,280 Speaker 1: the older years, David Girl and of course Arthur Burns 446 00:25:12,280 --> 00:25:16,399 Speaker 1: is five years ago two thousand one, which of course 447 00:25:16,480 --> 00:25:20,760 Speaker 1: was more than eventful with a huge tragedy of September eleventh, 448 00:25:21,080 --> 00:25:25,200 Speaker 1: But before September eleventh they went fifty base points, another fifty, 449 00:25:25,240 --> 00:25:29,040 Speaker 1: another fifty, then twenty five, then twenty five, and then 450 00:25:29,080 --> 00:25:33,280 Speaker 1: to the September seventeen meeting following nine eleven they went 451 00:25:33,280 --> 00:25:36,280 Speaker 1: another fifty basis points and on from there. With a 452 00:25:36,280 --> 00:25:39,560 Speaker 1: good morning to the vice chairman at the time, Roger 453 00:25:39,600 --> 00:25:45,840 Speaker 1: co Roger Ferguson, who drove that ship for chairman Greenspan Harmon. 454 00:25:46,440 --> 00:25:48,560 Speaker 1: Tom mentions Roger Ferguson, There's been a lot of talking 455 00:25:48,680 --> 00:25:50,880 Speaker 1: about who who might fill the seats on the FED 456 00:25:50,960 --> 00:25:53,240 Speaker 1: was zero's board of governors, and certainly chair and vice 457 00:25:53,320 --> 00:25:56,280 Speaker 1: chair Roger Ferguson's name has been mentioned before. What's your 458 00:25:56,320 --> 00:25:59,240 Speaker 1: sense of the ideological shape of this FED here in 459 00:25:59,240 --> 00:26:04,520 Speaker 1: the next eighteen months. Yeah, so I think the two 460 00:26:04,560 --> 00:26:07,720 Speaker 1: open board seats um they might be filled with somebody 461 00:26:07,760 --> 00:26:11,560 Speaker 1: who is more in the from from a bit more 462 00:26:11,600 --> 00:26:15,600 Speaker 1: hawkers side. And but what would makes them more tricky? 463 00:26:15,640 --> 00:26:17,800 Speaker 1: It should be a person who is not that much 464 00:26:17,800 --> 00:26:20,120 Speaker 1: in favor of regulations. So that's a bit tough, right, 465 00:26:20,119 --> 00:26:23,000 Speaker 1: I mean, traditionally you have the more hawkers FIRFORMC members 466 00:26:23,000 --> 00:26:26,520 Speaker 1: are also those who favor more strict regulation. Now you 467 00:26:26,720 --> 00:26:28,200 Speaker 1: try have to look for somebody who will may be 468 00:26:28,280 --> 00:26:31,160 Speaker 1: a bit more hawks on monetary policy but less hawkish 469 00:26:31,320 --> 00:26:33,399 Speaker 1: on regulation. I don't know any names. I mean, the 470 00:26:33,440 --> 00:26:36,600 Speaker 1: speculation is out there, but that's I think the ideological 471 00:26:36,640 --> 00:26:41,040 Speaker 1: background of of at least one of the of the 472 00:26:41,080 --> 00:26:45,440 Speaker 1: incoming governors. I would not extrapolate this to the next 473 00:26:45,600 --> 00:26:50,000 Speaker 1: set chair because when share Yellin's terms up at the 474 00:26:50,040 --> 00:26:53,280 Speaker 1: beginning of two thousand eighteen, and there's been so much 475 00:26:53,320 --> 00:26:56,680 Speaker 1: talk about that the President elect Trump will will replace 476 00:26:56,760 --> 00:27:00,360 Speaker 1: her with the hawkish policy makeup, I'm not so sure 477 00:27:00,400 --> 00:27:01,720 Speaker 1: about it. I mean, I think there has been so 478 00:27:01,800 --> 00:27:05,040 Speaker 1: much talk about Mr Trump's changes in the rhetoric, about 479 00:27:05,720 --> 00:27:09,040 Speaker 1: the policy outlook he likes. But I think now that 480 00:27:09,080 --> 00:27:12,040 Speaker 1: he would benefit from low interest rates, he would go 481 00:27:12,119 --> 00:27:15,040 Speaker 1: back to his to his original DNA as a developer 482 00:27:15,160 --> 00:27:17,639 Speaker 1: liking low interest rates. So so again, I think the 483 00:27:18,040 --> 00:27:21,840 Speaker 1: governors he may follow through on on the more republican 484 00:27:22,160 --> 00:27:24,840 Speaker 1: rhetoric if you want a bit more hawkish person, But 485 00:27:25,040 --> 00:27:27,080 Speaker 1: when it comes to who is running the show, I 486 00:27:27,119 --> 00:27:28,920 Speaker 1: don't think it will be a very hawkish new fet 487 00:27:29,000 --> 00:27:31,359 Speaker 1: Chip har Bundles is getting us to Wednesday and of 488 00:27:31,359 --> 00:27:34,359 Speaker 1: course our FED coverage look for it on Wednesday, David, 489 00:27:34,400 --> 00:27:39,399 Speaker 1: I believe Michael McKee will be askonced Washington scarlet food 490 00:27:39,480 --> 00:27:44,119 Speaker 1: driving our coverage. There's only scarlet food. Can they've invited 491 00:27:44,160 --> 00:27:47,199 Speaker 1: me to darken the well? Have some cool charts, including 492 00:27:47,240 --> 00:27:50,760 Speaker 1: the dots very important. When Harron Bundles said there about 493 00:27:51,280 --> 00:27:53,520 Speaker 1: well and a lack a lack of adjustment to the 494 00:27:53,560 --> 00:27:56,840 Speaker 1: dots is really there's two moving parts to the dots, 495 00:27:56,840 --> 00:27:59,479 Speaker 1: the yellow dots and that red line down below has 496 00:27:59,520 --> 00:28:02,800 Speaker 1: come up up the market vigil and he's maybe catching 497 00:28:02,880 --> 00:28:05,639 Speaker 1: up with a FED in dynamic harm Bundles with us 498 00:28:05,760 --> 00:28:08,360 Speaker 1: as we look at the American economy her with all 499 00:28:08,359 --> 00:28:11,199 Speaker 1: the enthusiasm, the hockey stick move and a five year, 500 00:28:11,320 --> 00:28:17,240 Speaker 1: five year forward inflations expectations, Oh that's great. Will they 501 00:28:17,320 --> 00:28:21,880 Speaker 1: invest more? Do you see any indication yet of increased 502 00:28:22,119 --> 00:28:27,920 Speaker 1: private investment? Um? There are I think we a couple 503 00:28:27,960 --> 00:28:31,440 Speaker 1: of years ago we use the phrase green shoots. Maybe 504 00:28:31,440 --> 00:28:34,080 Speaker 1: there are a few if you look at durable goods orders. 505 00:28:34,119 --> 00:28:36,680 Speaker 1: So it is it has stabilized in training a little 506 00:28:36,720 --> 00:28:40,200 Speaker 1: bit higher. Certainly there's not anything like a big rebound, 507 00:28:40,240 --> 00:28:42,760 Speaker 1: I mean, given the restraints that we have seen over 508 00:28:42,760 --> 00:28:44,800 Speaker 1: the past several quarters. You would think there's a little 509 00:28:44,800 --> 00:28:47,120 Speaker 1: bit more pent up demand in the system, but so 510 00:28:47,160 --> 00:28:49,800 Speaker 1: far there are no signs of this unfolding. UM. I 511 00:28:49,840 --> 00:28:53,280 Speaker 1: think there's fundamentally there's some there is there is hope 512 00:28:53,320 --> 00:28:57,120 Speaker 1: for a little bit of better capex outlook. Most importantly 513 00:28:57,160 --> 00:29:00,160 Speaker 1: the recession in the in the energy sector as over, 514 00:29:00,160 --> 00:29:03,200 Speaker 1: and that has been an important contributor or reason for 515 00:29:03,200 --> 00:29:06,240 Speaker 1: for the for the weakness and cap ex spending UM 516 00:29:06,280 --> 00:29:10,760 Speaker 1: not only directly in in mining equipment, but also UM 517 00:29:10,800 --> 00:29:13,640 Speaker 1: but also in transportation, you know, talking railroad cars and 518 00:29:13,680 --> 00:29:15,760 Speaker 1: all that stuff. So I think that is that is improving. 519 00:29:15,920 --> 00:29:17,840 Speaker 1: Plus the earning side has gotten a little bit better, 520 00:29:17,880 --> 00:29:20,479 Speaker 1: which was an additional effector for for the for the weakness. Well, 521 00:29:20,640 --> 00:29:22,440 Speaker 1: so there as hope that we do not yet see 522 00:29:22,440 --> 00:29:26,600 Speaker 1: it that much in the data beyond a slight slight 523 00:29:26,640 --> 00:29:29,640 Speaker 1: improvement endurable goods orders. How about the you know, I 524 00:29:29,960 --> 00:29:32,600 Speaker 1: wondered about the timetable for how this could affect the economy, 525 00:29:32,640 --> 00:29:35,640 Speaker 1: looking at infrastructure, looking at tax changes to tax policy 526 00:29:36,040 --> 00:29:40,160 Speaker 1: as well. What's your forecast for that? UM? I think 527 00:29:40,160 --> 00:29:45,800 Speaker 1: the most likely scenarios is that that the that the 528 00:29:45,840 --> 00:29:48,200 Speaker 1: tax cut will be who will be approved somehow by 529 00:29:48,200 --> 00:29:50,320 Speaker 1: the middle of next year, and then it starts to 530 00:29:50,360 --> 00:29:53,040 Speaker 1: affect the economy, most likely someone in the second half 531 00:29:53,080 --> 00:29:58,680 Speaker 1: of two thousand seventeen. UM. On the corporate side, I am. 532 00:29:57,160 --> 00:30:01,680 Speaker 1: In general, we have to acknowledge that the multiplier of 533 00:30:01,720 --> 00:30:04,800 Speaker 1: corporate tax cuts is not very high, meaning that even 534 00:30:04,800 --> 00:30:07,480 Speaker 1: if the government gives all the tax rates to corporates, 535 00:30:07,520 --> 00:30:10,760 Speaker 1: that usually does not translate into a huge boost in 536 00:30:10,920 --> 00:30:14,160 Speaker 1: in investment spending. Um. Instead, companies are using part of 537 00:30:14,200 --> 00:30:17,800 Speaker 1: that windfall, you know, to to bolster their balance sheets. 538 00:30:17,840 --> 00:30:20,040 Speaker 1: So the big story is really the the tax cuts 539 00:30:20,080 --> 00:30:23,040 Speaker 1: to individuals, which means that the US economy becomes even 540 00:30:23,080 --> 00:30:26,640 Speaker 1: more consumption depends. That's what we're going to see. Brilliant, brilliant. 541 00:30:27,120 --> 00:30:32,280 Speaker 1: What do you see a policy to steer tax cuts 542 00:30:32,560 --> 00:30:39,080 Speaker 1: and also the tax repatriation to investment that will create jobs. No, 543 00:30:39,200 --> 00:30:43,440 Speaker 1: there's no, UM. I mean, there's is a weak link 544 00:30:43,560 --> 00:30:47,560 Speaker 1: between overall growth and investment spending, but not certainly, not 545 00:30:47,560 --> 00:30:49,880 Speaker 1: not to that extent that you just suggested. You know 546 00:30:49,920 --> 00:30:52,520 Speaker 1: that that there's a policy that steers all these tax 547 00:30:52,600 --> 00:30:55,560 Speaker 1: cuts towards and investment in creating more jobs. No, I don't. 548 00:30:55,760 --> 00:30:58,440 Speaker 1: I don't think so. I mean, of course, if consumer 549 00:30:58,480 --> 00:31:02,400 Speaker 1: spending goes up, there's more demand for domestically created services. 550 00:31:02,440 --> 00:31:04,960 Speaker 1: But that's not really what the new administration is talking about, right. 551 00:31:05,040 --> 00:31:06,920 Speaker 1: We want to have manufacturing jobs back, We want to 552 00:31:06,960 --> 00:31:10,240 Speaker 1: produce stuff, and I have my doubts that this is happening. 553 00:31:10,680 --> 00:31:13,600 Speaker 1: And if it's not happening, you know, that may further 554 00:31:13,880 --> 00:31:17,120 Speaker 1: strengthen To talk about protection is M because the historic 555 00:31:17,440 --> 00:31:23,120 Speaker 1: relationship between domestic demand, US domestic demand and import growth 556 00:31:23,680 --> 00:31:27,760 Speaker 1: is pretty significant. Meaning if the administration is able to 557 00:31:28,560 --> 00:31:33,040 Speaker 1: um spur consumer spending and domestic demand in general, that 558 00:31:33,120 --> 00:31:36,680 Speaker 1: of course benefits all the foreign countries who producing stuff 559 00:31:36,760 --> 00:31:39,560 Speaker 1: that is ultimately consumed in the US. And if we 560 00:31:39,760 --> 00:31:43,440 Speaker 1: and that, that, of course in turn or sets part 561 00:31:43,440 --> 00:31:46,440 Speaker 1: of the GDP impact U I mean, up to up 562 00:31:46,440 --> 00:31:52,480 Speaker 1: to thirty or even of the increase in domestic demand 563 00:31:52,480 --> 00:31:56,000 Speaker 1: can be absorbed by higher import And if we see that, 564 00:31:56,080 --> 00:31:58,400 Speaker 1: of course, then the whole topic about protection is M 565 00:31:58,440 --> 00:32:00,840 Speaker 1: and all the negatives about globally, they will be coming 566 00:32:00,880 --> 00:32:03,640 Speaker 1: back maybe at the turn of next year two thousand seventy, 567 00:32:03,680 --> 00:32:06,560 Speaker 1: two thousand eighteen, once that becomes obvious in the data. 568 00:32:07,320 --> 00:32:11,040 Speaker 1: When when you look at the X factor of protection is, um, 569 00:32:11,800 --> 00:32:13,640 Speaker 1: how big an X factor is that? In other words, 570 00:32:13,640 --> 00:32:15,800 Speaker 1: we've heard the rhetoric about trade, we've seen the tweets 571 00:32:15,800 --> 00:32:19,000 Speaker 1: about about China, When when you forecast out how much 572 00:32:19,000 --> 00:32:21,760 Speaker 1: of a destabilizing factor is is what could happen here 573 00:32:21,760 --> 00:32:24,680 Speaker 1: with regard to trade policy? I mean huge? That is 574 00:32:24,720 --> 00:32:27,360 Speaker 1: the biggest X factor and the biggest and the biggest 575 00:32:27,360 --> 00:32:30,760 Speaker 1: negative uncertainty of the new incoming administration. And I mean 576 00:32:30,800 --> 00:32:33,240 Speaker 1: if you look at financial markets, they're completely brushed that 577 00:32:33,320 --> 00:32:35,440 Speaker 1: aside so far. And there's of course hope that it 578 00:32:35,520 --> 00:32:40,840 Speaker 1: just remains a risk to the baseline outlook. Um, it 579 00:32:41,000 --> 00:32:43,760 Speaker 1: is really hard to say how this whole, the whole 580 00:32:43,800 --> 00:32:48,400 Speaker 1: thing would would develop once we're seeing bigger steps towards 581 00:32:48,400 --> 00:32:52,320 Speaker 1: protectionism i e. These thirty five forty percent tariffs. And 582 00:32:52,440 --> 00:32:54,920 Speaker 1: again we we hope it's just a risk factor. It's 583 00:32:54,960 --> 00:32:57,480 Speaker 1: not part of our baseline. UM. But you know, the 584 00:32:57,480 --> 00:33:00,440 Speaker 1: Peter's Institute had a few months ago out with the 585 00:33:00,480 --> 00:33:04,880 Speaker 1: piece what happens to US employment and GDP growth if 586 00:33:05,040 --> 00:33:07,840 Speaker 1: China and Mexico retaliate. So that is all ugly and 587 00:33:07,840 --> 00:33:11,720 Speaker 1: will will probably cause a reception in the US. What 588 00:33:11,800 --> 00:33:17,960 Speaker 1: will you listen for Wednesday from Cherry Ellen. Well, first 589 00:33:17,960 --> 00:33:20,280 Speaker 1: of all, my I do not expect any big changes. 590 00:33:20,320 --> 00:33:22,000 Speaker 1: I think she gave us a blueprint in her most 591 00:33:22,000 --> 00:33:26,920 Speaker 1: recent testimony. UM. I think she will given not to 592 00:33:27,080 --> 00:33:31,160 Speaker 1: the uncertainty about the outlook, that there is probably a 593 00:33:31,200 --> 00:33:35,160 Speaker 1: little bit better growth UM, and that they may have 594 00:33:35,360 --> 00:33:38,480 Speaker 1: to have to adjust the outlook once they know more. 595 00:33:38,880 --> 00:33:40,720 Speaker 1: But let me come back to what I what I 596 00:33:40,760 --> 00:33:43,480 Speaker 1: said before. The big change really is that the FAT 597 00:33:43,640 --> 00:33:46,720 Speaker 1: is not going to lower the dots UM. Since the 598 00:33:46,760 --> 00:33:49,480 Speaker 1: two thousand seven teen dots have been introduced in late 599 00:33:49,520 --> 00:33:54,959 Speaker 1: two thousand fourteen, the FAT has lowered them with every 600 00:33:55,000 --> 00:33:57,800 Speaker 1: forecast update. The same is true for the two thousand 601 00:33:57,800 --> 00:34:00,080 Speaker 1: eighteen dots. Since they have been introduced in late in 602 00:34:00,080 --> 00:34:04,719 Speaker 1: September two fifteen, there has been lowered with every forecast update. 603 00:34:04,880 --> 00:34:07,680 Speaker 1: So it's not trivial that the FED at this meeting 604 00:34:08,120 --> 00:34:10,680 Speaker 1: is only keeping the dots unchanged. I know the market 605 00:34:10,800 --> 00:34:13,239 Speaker 1: were now talking about the increasing the dots, but but 606 00:34:13,360 --> 00:34:16,839 Speaker 1: that is too much, so we're gonna have to leave 607 00:34:16,840 --> 00:34:20,239 Speaker 1: it their hard boundles. Thank you so much. Just the 608 00:34:20,280 --> 00:34:23,840 Speaker 1: cross currents right now, David straordinary and we could go 609 00:34:23,960 --> 00:34:25,799 Speaker 1: every guest. It's like, we could go on for an 610 00:34:25,840 --> 00:34:30,719 Speaker 1: hour just on the tangential stuff to whatever the theme 611 00:34:30,840 --> 00:34:34,600 Speaker 1: is and the interaction of fiscal policy and military policy. 612 00:34:34,640 --> 00:34:37,279 Speaker 1: And one of the most important conversations I had was 613 00:34:37,320 --> 00:34:39,840 Speaker 1: at a cocktail party this week of for Beverage of 614 00:34:39,840 --> 00:34:43,799 Speaker 1: My Choice, and the Washington lobbyist John Tucker said, basically, 615 00:34:44,160 --> 00:34:50,160 Speaker 1: the phone hasn't stopped ringing. Without exaggeration, he said, November nine, 616 00:34:50,280 --> 00:34:53,960 Speaker 1: early in the morning, the phone started ringing, and it 617 00:34:54,080 --> 00:34:58,719 Speaker 1: just keeps on ringing in the swamp. In the swamp, Yes, 618 00:34:58,880 --> 00:35:01,280 Speaker 1: very rid olds right, think about this swamp this morning. 619 00:35:02,000 --> 00:35:07,480 Speaker 1: But to me, it's it's it's remarkable, David, the linkage 620 00:35:07,520 --> 00:35:11,600 Speaker 1: of all this political talk into the markets. Yeah, and 621 00:35:11,640 --> 00:35:14,399 Speaker 1: I think, still being driven by the uncertainty about where 622 00:35:14,400 --> 00:35:16,759 Speaker 1: all the political talk is, he is headed to. Uh, 623 00:35:17,040 --> 00:35:19,879 Speaker 1: you know, despite the name of all these personnel, still 624 00:35:19,960 --> 00:35:21,959 Speaker 1: you know, who knows what's gonna Anybody got a guest 625 00:35:21,960 --> 00:35:25,520 Speaker 1: amount of the tenure yield six days out or six 626 00:35:25,560 --> 00:35:29,680 Speaker 1: months out? No clue, yeah, right in, no clue, two 627 00:35:29,719 --> 00:35:34,280 Speaker 1: point five zero percent. We got there quickly. Many people 628 00:35:34,360 --> 00:35:36,800 Speaker 1: predicted that Steve Major I mentioned they just be SE's 629 00:35:36,800 --> 00:35:40,239 Speaker 1: been way out front with a identifier two point five 630 00:35:41,000 --> 00:35:44,319 Speaker 1: per cent. We identify that We're thrilled you with us 631 00:35:44,320 --> 00:35:55,360 Speaker 1: on economics, finance, investment, international relations. Thanks for listening to 632 00:35:55,400 --> 00:36:01,480 Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interview on iTunes, SoundCloud, 633 00:36:01,880 --> 00:36:06,160 Speaker 1: or whichever podcast platform you prefer. I'm out on Twitter 634 00:36:06,239 --> 00:36:10,000 Speaker 1: at Tom Keene. David Gura is at David Gura. Before 635 00:36:10,040 --> 00:36:14,400 Speaker 1: the podcast, you can always catch us worldwide on Bloomberg Radio. 636 00:36:26,840 --> 00:36:29,480 Speaker 1: Who you put your trust in matters. Investors have put 637 00:36:29,520 --> 00:36:33,879 Speaker 1: their trust and independent registered investment advisors to the two 638 00:36:33,880 --> 00:36:37,520 Speaker 1: and four trillion dollars. Why Learn more at find your 639 00:36:37,600 --> 00:36:40,359 Speaker 1: Independent Advisor dot com