WEBVTT - Surveillance: Concerned About U.S. Trade Policy, Dudley Says 0:00:00.080 --> 0:00:12.960 Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane 0:00:13.480 --> 0:00:17.560 jay Ley. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:34.239 Bloomberg dot Com, and of course on the Bloomberg we 0:00:34.320 --> 0:00:37.640 have with us Marianna Moscato and Kenneth Rogoff and really 0:00:37.640 --> 0:00:40.560 talk about this economic moment that we are in into 0:00:40.560 --> 0:00:43.680 this autumn and into two thousand nineteen, and so much 0:00:43.840 --> 0:00:48.440 of that economic moment is this linkage of economics into finance, 0:00:48.520 --> 0:00:51.480 and is the banking and finance system. We had Mr 0:00:51.520 --> 0:00:55.560 Ackerman on earlier talking so much rationalizing out ten years 0:00:55.760 --> 0:00:57.880 and we've seen what Deutsche Bank has done in many 0:00:57.880 --> 0:01:01.720 other troubled banks. Is well, ken, what a gap between 0:01:02.720 --> 0:01:06.760 US banking and European banking did you expect to see 0:01:06.800 --> 0:01:11.160 that five years ago, seven years ago, ten years ago. Well, 0:01:11.200 --> 0:01:14.000 the banking system so much bigger in Europe as part 0:01:14.080 --> 0:01:16.479 of the problem, so that's made it harder for them 0:01:16.520 --> 0:01:19.080 to deal with They depend on the banking system more, 0:01:19.440 --> 0:01:24.640 but also the Balkanized regulate regulation, so they would do 0:01:24.680 --> 0:01:28.240 the stress tests in Europe. The Italians would stress test 0:01:28.280 --> 0:01:31.240 the Italian banks, the French would stress test. The French 0:01:31.280 --> 0:01:33.480 banks didn't even talk to each other, even though the 0:01:33.520 --> 0:01:36.720 loans were interconnected. They're changing that, they put the c 0:01:36.840 --> 0:01:39.480 B in charge of it, but it's still having trouble 0:01:39.560 --> 0:01:42.920 really forcefully taking the reins. So the European banks, that 0:01:43.040 --> 0:01:48.520 was a big part of why the recovery was so slow. Again, um, 0:01:48.560 --> 0:01:51.120 what what does it mean? So the recovery was so slow, 0:01:51.200 --> 0:01:55.080 But we're central banks right to do that? Or should 0:01:55.120 --> 0:01:57.520 they have done something else? If you look at inequality 0:01:57.560 --> 0:01:59.800 and maybe you know some of the stems of populism 0:01:59.880 --> 0:02:03.160 is do central banks and what they did? I mean, 0:02:03.320 --> 0:02:05.800 I I find that hard to see. I mean, I mean, 0:02:05.960 --> 0:02:10.119 cutting interest rates is usually considered redistributing from people who 0:02:10.120 --> 0:02:13.560 have money to people who are borrowing. So I think 0:02:13.560 --> 0:02:16.760 the central banks, frankly, I would have been more radical. 0:02:17.120 --> 0:02:19.360 I think I wrote a paper in December two thousand 0:02:19.639 --> 0:02:22.440 eight h for which I took a lot of criticism, 0:02:22.520 --> 0:02:27.120 saying inflation is not the lesser is not the greater evil? 0:02:27.240 --> 0:02:29.760 Right now you should worry about something much worse. So 0:02:29.880 --> 0:02:33.040 actually I think they were a little cautious. Uh and 0:02:33.120 --> 0:02:36.120 reluctant to be more creative in their use of instruments. 0:02:36.240 --> 0:02:38.560 But of course fiscal policy could have done more, but 0:02:38.680 --> 0:02:42.640 politically in Europe that wasn't easy. I advocated writing down 0:02:42.680 --> 0:02:45.519 the debts in the periphery countries and I think that 0:02:45.560 --> 0:02:48.400 would have been a good investment for Germany and for France. 0:02:48.800 --> 0:02:53.440 Didn't happen, Marianna, do you agree with that absolutely? And 0:02:53.600 --> 0:02:56.720 I mean I think that the key problem right now 0:02:56.800 --> 0:02:59.960 is that the source of the key if you want fact, 0:03:00.120 --> 0:03:03.080 is that led to the crisis. Things like private debt, 0:03:03.400 --> 0:03:05.720 private debt, not public debt, private debt being out of hand. 0:03:06.200 --> 0:03:08.640 The ratio of private debt to disposable income in the 0:03:08.720 --> 0:03:12.040 UK is back at record levels. We also have record 0:03:12.120 --> 0:03:15.799 level hoarding in the industrial sector. We have record level 0:03:15.880 --> 0:03:20.360 financialization um in industry, so increasing amount of profits just 0:03:20.440 --> 0:03:23.600 being used to boost share prices, stock options, surprise, surprise, 0:03:23.639 --> 0:03:26.920 executive pay so over three trillion dollars having been spent 0:03:26.960 --> 0:03:30.239 on share buybacks in the fortune companies. All these problems 0:03:30.280 --> 0:03:33.120 are actually getting worse. We have not reformed the fundamental system. 0:03:33.360 --> 0:03:35.520 And you can create all the money you want through KWI, 0:03:35.600 --> 0:03:37.840 but if you aren't also creating opportunities in the real 0:03:37.880 --> 0:03:39.760 economy that money to send up back in the bank. 0:03:39.960 --> 0:03:41.280 I want to go back to the banks as well. 0:03:41.320 --> 0:03:44.160 And this goes back to when Hyak won the Nobel 0:03:44.200 --> 0:03:46.000 Prize and the other guy, Myrtle, wouldnt even get up 0:03:46.000 --> 0:03:49.520 on stage. It was so controversial. And can you nail 0:03:49.600 --> 0:03:53.120 this in your latest Project Syndicate piece on how we 0:03:53.160 --> 0:03:57.280 didn't clear the grease problem? Why are we afraid Mariana 0:03:57.440 --> 0:04:01.200 to clear markets? Why are we afraid? Why are we 0:04:01.240 --> 0:04:05.640 so tentative about clearing the grease problem. We're clearing the 0:04:05.680 --> 0:04:08.720 banking problem. What's where did the fear come from? The 0:04:08.800 --> 0:04:11.600 timidity in your record? But the problem is how you 0:04:11.720 --> 0:04:13.920 define the grease problem. I mean, let me just talk 0:04:13.960 --> 0:04:16.320 about Italy for a minute, which is much worse than grease. 0:04:16.360 --> 0:04:20.800 If Italy goes bust, we're going to see Italy has 0:04:20.839 --> 0:04:24.880 had a lower deficit than Germany for the last twenty years. 0:04:24.960 --> 0:04:28.799 Italy's problem was not the deficit. Italy's debt to GDP 0:04:29.120 --> 0:04:31.559 is completely out of the roof. But why not because 0:04:31.560 --> 0:04:33.720 it was spending too much? But it wasn't. Both the 0:04:33.760 --> 0:04:37.360 private sector and the public sector were quite inertial. They 0:04:37.400 --> 0:04:40.520 had all sorts of parasitic relationships between them. There was 0:04:40.680 --> 0:04:45.200 lack of investment by key Italian industrial players like Fiat. Interestingly, 0:04:45.200 --> 0:04:48.240 when Fiat came here, Obama, in a moment of confidence, said, 0:04:48.240 --> 0:04:50.120 you know Chrysler, which was bailed out by the U. S. 0:04:50.200 --> 0:04:52.200 Government because we didn't just build out the banks, we 0:04:52.240 --> 0:04:54.800 also build that industry. He said, you have to invest 0:04:54.839 --> 0:04:57.320 in this country and hybrid technology if you want Chrysler. 0:04:57.440 --> 0:05:00.720 So Makiona, who passed away, who was a great uh entrepreneur, 0:05:00.720 --> 0:05:02.960 he said, fine, we will. But in Italy they didn't. 0:05:03.000 --> 0:05:05.640 In Italy, the relationship between public and private has been 0:05:05.640 --> 0:05:08.680 extremely problematic, and the public sector hasn't invested. Is Italy 0:05:08.720 --> 0:05:11.280 gonna be can in the fourth edition of this Time 0:05:11.360 --> 0:05:13.080 is different? I mean, is that where we're heading This 0:05:13.120 --> 0:05:15.440 is going to be like the Spain of sixteenth century? 0:05:15.920 --> 0:05:18.000 Could be? I mean, I think as long as real 0:05:18.040 --> 0:05:21.479 interest rates stay this low, will simply see a country that, 0:05:21.560 --> 0:05:24.320 as Marianna describes as a lot of corruption, is not 0:05:24.480 --> 0:05:27.799 highly functional, isn't growing at the rate that it could. 0:05:28.000 --> 0:05:30.920 I might add that Italy suffered a lot from China. 0:05:30.960 --> 0:05:33.360 They competed in a lot of spheres with China. It's 0:05:33.440 --> 0:05:35.640 part of why they didn't do well. But if real 0:05:35.680 --> 0:05:38.400 interest rates were to rise, I don't expect that, but 0:05:38.520 --> 0:05:40.920 I'm not going to say it could never happen. Then 0:05:40.960 --> 0:05:43.880 suddenly funding their deaths, that would be very want to 0:05:44.040 --> 0:05:46.880 fancy jump in here on your Italy please, I think 0:05:46.880 --> 0:05:51.520 this is important. Yeah, But does it all depend on Marianna. 0:05:51.760 --> 0:05:55.160 It depends on whether you know the markets maybe are 0:05:55.200 --> 0:05:57.480 too short termism. Is they just want to know from 0:05:57.480 --> 0:06:01.240 the populous leaders whether they will stick to the rules 0:06:01.480 --> 0:06:04.080 or not. Is that the wrong thing for the market 0:06:04.160 --> 0:06:06.799 to be focusing on the market should be fundamentally worried 0:06:06.839 --> 0:06:09.640 that you cannot have a monetary union with the level 0:06:09.720 --> 0:06:12.880 of skewed so different levels of competitiveness that we currently 0:06:12.920 --> 0:06:15.680 have in Europe. So instead of obsessing that everyone has 0:06:15.720 --> 0:06:18.880 to fit the three rule right the fiscal compact, what 0:06:19.000 --> 0:06:20.760 really we should be doing in Europe if we are 0:06:20.800 --> 0:06:23.240 going to have you know, cohesion, is to learn lessons 0:06:23.240 --> 0:06:25.479 from each other. So the kind of investments, again in 0:06:25.520 --> 0:06:27.360 both the private and the public sector, that had been 0:06:27.440 --> 0:06:30.240 made in Northern Europe. And I'm thinking also of the 0:06:30.279 --> 0:06:32.880 type of financial system that we have, for example in Germany, 0:06:32.880 --> 0:06:36.799 where you have patient, long term finance enabling, for example, 0:06:36.800 --> 0:06:40.120 the steel sector in Germany to really transform itself along 0:06:40.160 --> 0:06:42.920 the whole entity event, the green transformation of the country. 0:06:43.160 --> 0:06:45.839 We don't have that in Southern Europe. We have consumption 0:06:45.920 --> 0:06:48.599 led growth, we have you know there there just isn't 0:06:48.640 --> 0:06:51.719 that level of ambition, vision, national plan. We have a 0:06:51.760 --> 0:06:54.520 financial system which is actually quite short term. It's just 0:06:54.640 --> 0:06:57.360 like it is in the Anglo saccent world. But we mean, 0:06:57.480 --> 0:07:00.719 the opportunity for Europe right now is to think about 0:07:00.720 --> 0:07:04.039 itself as a hub of innovation. Think of itself of 0:07:04.120 --> 0:07:06.400 how does it actually differ from China, How does it 0:07:06.440 --> 0:07:08.479 differ also from the U S and terms for example 0:07:08.520 --> 0:07:12.720 of the stakeholder governance model in northern Europe. That could 0:07:12.720 --> 0:07:16.640 because I would just say and sort of seconding what 0:07:16.840 --> 0:07:20.880 Marianna said, but maybe emphasizing the fact the euro was 0:07:21.000 --> 0:07:24.360 just the mother of all mistakes here. They certainly shut 0:07:24.400 --> 0:07:27.960 a broad grease and uh, it'llly if they didn't weren't 0:07:28.000 --> 0:07:31.480 on the Euro Okay, they wouldn't be Sweden suddenly. But 0:07:31.680 --> 0:07:34.920 they've been able to deal more easily. They need more time, 0:07:34.960 --> 0:07:38.040 they have a lot of adjustments. Marianna described it very eloquently, 0:07:38.520 --> 0:07:40.920 but it's very hard to do with in the system. 0:07:41.000 --> 0:07:44.280 It's not just the fiscal deficits, it's the monitor to 0:07:44.440 --> 0:07:46.240 do it for four hours here and what I think 0:07:46.240 --> 0:07:47.720 for instant and I want to do is get it 0:07:47.720 --> 0:07:50.360 back to the theme and particularly folks, what we've see 0:07:50.360 --> 0:07:52.760 in America is of a guilded age and of what 0:07:52.800 --> 0:07:57.320 we've seen politically with President Trump as well. Is there 0:07:57.360 --> 0:08:00.840 a persistency to this guilded age? Can there be a 0:08:00.920 --> 0:08:05.880 persistency to the politics and the culture that Donald Trump represents? 0:08:07.000 --> 0:08:09.680 I hope not. But I mean I think in terms 0:08:09.680 --> 0:08:12.120 of the economy, a lot of what we're seeing is 0:08:12.200 --> 0:08:16.720 possibly sustainable. Uh there, Larry Summers sort of said we're 0:08:16.720 --> 0:08:21.280 in secular stagnation. I argued, no, we after a financial crisis, 0:08:21.360 --> 0:08:23.720 you have this long period of slow growth. It can 0:08:23.760 --> 0:08:25.960 take a to ten years to recover. There are some 0:08:26.040 --> 0:08:30.160 of these trends and demographics and productivity, etcetera. But some 0:08:30.360 --> 0:08:33.000 of what you were seeing was the financial crisis, probably 0:08:33.000 --> 0:08:35.439 at least half of it. And there's ketch up. So no, 0:08:35.720 --> 0:08:38.000 I think, uh, you know, knock on wood, it could 0:08:38.000 --> 0:08:40.160 go well for a while. In your index, there's no 0:08:40.280 --> 0:08:42.880 Donald Trump I was surprised by that. Why not, why 0:08:42.880 --> 0:08:45.679 didn't you write about President Trump in this movement that 0:08:45.720 --> 0:08:48.480 we see in America. I think I do mention that 0:08:48.480 --> 0:08:50.760 he's well. First of all, he's very unique. I bet 0:08:50.760 --> 0:08:53.360 you didn't know that, in the sense that he's the 0:08:53.400 --> 0:08:57.960 first U S president to really attack those institutions in 0:08:58.000 --> 0:09:01.240 the US which have been key for US competitiveness. The 0:09:01.280 --> 0:09:03.360 first thing he did, literally the first month in office, 0:09:03.360 --> 0:09:06.719 he went after ARPA, which is a sister organization of DARPA, 0:09:06.880 --> 0:09:08.920 but in the Department of Energy. DARPA, as you know, 0:09:09.120 --> 0:09:11.000 was key to founding the Internet and has been a 0:09:11.040 --> 0:09:14.120 key source of innovation, including of the serie UM in 0:09:14.160 --> 0:09:16.600 all our phones UM. In fact, everything in our phone 0:09:16.640 --> 0:09:19.240 is basically funded by the US government, Internet, GPS, SERI, 0:09:19.360 --> 0:09:22.440 touch screen. And he went after those organizations. And that's 0:09:22.600 --> 0:09:25.760 it's quite interesting because you know, China actually learned from 0:09:25.800 --> 0:09:28.800 the lessons of Silicon Valley, right, So China today is 0:09:28.840 --> 0:09:32.360 investing massively through different types of state actors alongside private 0:09:32.360 --> 0:09:34.960 actors UM and what I think will be the next 0:09:34.960 --> 0:09:37.800 big thing, which is the green revolution UM. And they 0:09:37.800 --> 0:09:40.079 wouldn't have been able to do that without the patient finance, 0:09:40.080 --> 0:09:43.480 for example of the China Development Bank UM different. They're 0:09:43.559 --> 0:09:46.480 increasing are in D spending by overcent in the last 0:09:46.480 --> 0:09:50.200 ten years. And so the US kind of talks Jefferson 0:09:50.320 --> 0:09:54.840 but as Hamilton's but like that, but China acts and 0:09:54.880 --> 0:09:59.680 talks Hamilton's but um Trump is dismantling the Hamiltonsian legacy. 0:09:59.679 --> 0:10:01.440 And I'm not talking about the musical. I'm talking about 0:10:01.480 --> 0:10:04.440 the real, you know, active strategic investments of the U 0:10:04.520 --> 0:10:07.600 S government which have been fundamental to the Internet revolution. 0:10:07.679 --> 0:10:11.040 Now Tottech, biot tech and clean love. That Tesla would 0:10:11.040 --> 0:10:13.640 not have existed without the US government. The last word 0:10:13.640 --> 0:10:16.320 of Mariana, which is appropriate Kendroga, thank you so much 0:10:16.320 --> 0:10:19.200 for joining us. I'm gonna put two books here, folks. 0:10:19.200 --> 0:10:21.920 I really can't say these are two really different books. 0:10:21.920 --> 0:10:25.199 A cursive cash now in it's fifteen printing. This is 0:10:25.240 --> 0:10:30.679 a brave book, to say the least on the cash economy, 0:10:30.760 --> 0:10:33.720 and also a negative interest rates and also as well, 0:10:33.840 --> 0:10:37.319 this must read the value of everything you agree, you disagree, 0:10:37.520 --> 0:10:39.520 you want to scream at, or you love her to death, 0:10:39.840 --> 0:10:59.200 Masaccado with the economic history you need to know. Always 0:10:59.200 --> 0:11:02.800 good to speak with James Rumor Jim Romor on commodities, 0:11:02.920 --> 0:11:06.480 on weather, But of course, with Hurricane Florence upon the 0:11:06.600 --> 0:11:09.200 nation and particularly in the southeast, it's good to catch 0:11:09.280 --> 0:11:13.560 up with Jim Rumor. Jim, what's your believability on the 0:11:13.600 --> 0:11:17.480 track of this hurricane. You've followed Elno, you've followed global 0:11:17.520 --> 0:11:21.000 temperature in oceans forever. Is this a run of the 0:11:21.040 --> 0:11:24.960 male hurricane ores or something different? Well? Thanks Tom, sorry 0:11:25.000 --> 0:11:28.040 miss you on TV or this morning. It's really being 0:11:28.040 --> 0:11:31.280 affected by um just a combination of a weekending lawn 0:11:31.520 --> 0:11:34.760 and warm Atlantic temperatures. Right now, we still feel overall 0:11:34.800 --> 0:11:37.600 though the hurricane season is gonna be weaker than normal 0:11:37.640 --> 0:11:40.040 for the Gulf Coast and also for Florida. That's good 0:11:40.160 --> 0:11:42.480 the orange juice crop. And also it won't have an 0:11:42.520 --> 0:11:45.640 effect on the on the energy markets. Well, I understand 0:11:45.679 --> 0:11:47.760 it won't have an effect on the energy markets, but 0:11:47.800 --> 0:11:50.600 it does on shipping as well. Let's start with square 0:11:50.640 --> 0:11:53.719 one in your history on this is great and I 0:11:54.240 --> 0:12:00.520 assume al Nino, but is a Pacific thing? Did did 0:12:00.559 --> 0:12:04.800 those things affect the Atlantic Ocean? Well, they certainly do. 0:12:04.960 --> 0:12:06.840 You know, we don't have an Almenia right now. The 0:12:06.880 --> 0:12:09.640 ocean temperature is off the coast at Peru are actually 0:12:09.800 --> 0:12:13.199 very cool and that's reducing sheer right now in the Atlantic. 0:12:13.240 --> 0:12:15.679 And the reason we're seeing flora's as strong as it is. 0:12:15.920 --> 0:12:18.520 When we have an alninia and warm Eastern Pacific temperatures, 0:12:18.559 --> 0:12:20.840 things tend to really die out. This storm I think's 0:12:20.880 --> 0:12:23.160 gonna be moving further south from something we call it 0:12:23.880 --> 0:12:27.640 fugi wah wah affect. Helena out in the Atlantic's gonna 0:12:27.640 --> 0:12:30.640 o curve this thing down towards the South Carolina coast. Yeah, 0:12:30.679 --> 0:12:33.719 flooding will be really detrimental. A lot of equities could 0:12:33.720 --> 0:12:37.360 be affected by this more than commodities are. Our Rob 0:12:37.480 --> 0:12:40.760 Caroline was very good on that as well. John. As 0:12:40.800 --> 0:12:42.920 I type here, I've got to type in the search 0:12:43.000 --> 0:12:51.000 engine of the crack Bloomberg surveillance search engine the Fujiwara effect. Okay, 0:12:51.040 --> 0:12:53.360 I'm up to speed here. And that's like to two 0:12:53.840 --> 0:12:57.560 hurricanes or tight foods together, right, Jim, that's right. Well, Actually, 0:12:57.920 --> 0:13:01.480 my new weekly report called Climate Telligence Report and on 0:13:01.520 --> 0:13:04.120 my on my website really talks about this in a 0:13:04.160 --> 0:13:07.480 blog this morning. Uh, this has happened quite a bit 0:13:07.600 --> 0:13:10.200 and and models tend to be wrong. So because of 0:13:10.240 --> 0:13:12.880 this Felena. We're gonna see this thing hug the coast, 0:13:12.880 --> 0:13:15.679 go down to South Carolina coast. Stocks such as A 0:13:15.800 --> 0:13:22.719 Generic Holdings, which is a a generator company. Generator is 0:13:22.720 --> 0:13:25.079 probably be the biggest lift as well as home deep. 0:13:25.440 --> 0:13:27.319 I was gonna say, what's on deep effect here, and 0:13:27.360 --> 0:13:29.520 the answer is it's got to be huge and demonstrable. 0:13:30.640 --> 0:13:34.520 That's right. In two days you received uh four or 0:13:34.520 --> 0:13:37.240 five percent return, which takes you know, several years again 0:13:37.280 --> 0:13:39.400 a T bill obviously, you know. So there are a 0:13:39.440 --> 0:13:41.120 lot of stocks out there are being affected more than 0:13:41.160 --> 0:13:43.360 the commodity markets right now. Let's go back right now 0:13:43.400 --> 0:13:46.760 to general commodities, GYM. We've seen an abundance of soybeans. 0:13:46.760 --> 0:13:50.760 We've got tariffs this that what is your perspective on 0:13:50.880 --> 0:13:56.760 the front loading of commodity purchases before these tariffs set in? Well, 0:13:56.800 --> 0:13:59.080 you know, demand that's certainly slacking me off. We're gonna 0:13:59.120 --> 0:14:02.160 have the largest soybing crop in history, so we're gonna 0:14:02.200 --> 0:14:04.480 see just all this farmers selling, I mean, beans are 0:14:04.480 --> 0:14:06.600 the lowest they've been in many years. We've been bearrassed 0:14:06.600 --> 0:14:09.040 all summer. The one market I thought would do better, 0:14:09.160 --> 0:14:12.160 which did well during June and July was wheat. We've 0:14:12.160 --> 0:14:14.720 had global weather problems and much of Europe and Austrial 0:14:14.720 --> 0:14:18.200 Australian Canada. So I think you're seeing the wheat market 0:14:18.240 --> 0:14:22.520 outperformed soybeans because of potential for demand. Leader for weeks. 0:14:22.520 --> 0:14:24.920 What's your number one car right now? Except plywood in 0:14:24.960 --> 0:14:30.240 the southeast. Some of the equities actually, uh, some of 0:14:30.240 --> 0:14:34.440 the I think, Um, I'm still pretty bears soybeans. I 0:14:34.480 --> 0:14:37.520 think that the sugar actually has a chance to break out. 0:14:37.960 --> 0:14:41.040 With droughts in India, we've had everybody bears the sugar market. 0:14:41.280 --> 0:14:43.800 Now we're seeing rule production actually come down, so that's 0:14:43.800 --> 0:14:46.040 a trade. I think we will go up eventually. And 0:14:46.080 --> 0:14:48.960 I'm still kind of barrassed. Jim Romer, thank you so much. 0:15:01.440 --> 0:15:04.440 We are now going to speak to the grizzled Steven 0:15:04.440 --> 0:15:09.240 A of Federated about what we have wrought through the day. 0:15:09.320 --> 0:15:13.440 From Kenneth Rogoff and Marianna Masacado. Steve as one of 0:15:13.480 --> 0:15:17.760 the great themes here which affects every listener, certainly in America, 0:15:17.760 --> 0:15:20.240 if not worldwide. And I want to go back on 0:15:20.400 --> 0:15:25.600 eight books right now you can buy for fifteen hundred 0:15:25.680 --> 0:15:32.600 dollars hardback Benjamin Graham David Dodd on Railroad Security Analysis, 0:15:32.600 --> 0:15:36.760 a book that changed everything about investment. And you got 0:15:36.840 --> 0:15:38.920 a copy of that book. I've got to copy that book. 0:15:38.960 --> 0:15:41.920 I didn't pay fifteen hundred dollars for it. What what 0:15:42.040 --> 0:15:45.600 I want to say? Steve is Ken Rogoff not once, 0:15:45.960 --> 0:15:52.560 not twice, but three times talked about monopoly among American companies, 0:15:52.600 --> 0:15:56.800 and particularly technology company. Are you buying blue chips in 0:15:56.840 --> 0:16:02.120 a time of monopoly? You know, these these tech there's 0:16:02.160 --> 0:16:04.720 nothing like a monopoly, Tommy, because they have pricing power. 0:16:05.440 --> 0:16:09.680 And these tech companies are, in fact, the new monopolies, 0:16:09.720 --> 0:16:12.600 aren't They really they have enormous pricing power, but they 0:16:12.600 --> 0:16:17.360 haven't really used it. They've they've reinvested it, if you will, 0:16:17.680 --> 0:16:20.520 and they keep lowering prices on it, run it around 0:16:20.600 --> 0:16:25.920 the economy. Um. So they've been benign monopolies in some ways. Okay, 0:16:25.960 --> 0:16:29.440 this is brilliant, their benign monopolies. Let's say let's pick 0:16:29.480 --> 0:16:31.600 up good morning. Mr Bezos were thrilled that you listen 0:16:31.640 --> 0:16:35.440 to Bloomberg surveillance. But Jeff Bezos has been benign. He 0:16:35.440 --> 0:16:39.240 would certainly say that, and as entourage would say that. 0:16:39.760 --> 0:16:43.600 But then there's a point, and the bargaining he has 0:16:43.720 --> 0:16:47.040 with his public is we never get to that pricing 0:16:47.120 --> 0:16:53.680 power point. Yeah, and I think most people think his 0:16:53.840 --> 0:16:55.720 model is such that he's not going to get there. 0:16:55.760 --> 0:16:58.080 I don't know. I mean, I I've been told, like, 0:16:58.160 --> 0:17:01.400 we had the PPI number this morning and a little 0:17:01.400 --> 0:17:03.920 surprising to people, a little lower. But what I keep 0:17:04.240 --> 0:17:08.560 emphasizing is you've got some price pressure in the economy 0:17:08.560 --> 0:17:11.760 on the wage side, but you've got these benign monopolies, 0:17:11.840 --> 0:17:14.679 if you will, the salesforce, dot COM's or whatever, providing 0:17:15.440 --> 0:17:18.800 companies with the tools to improve productivity in ways that 0:17:18.840 --> 0:17:23.800 aren't always measured. And on the other side, you've got 0:17:23.960 --> 0:17:26.879 Jeff Bezos up there on a hill loock with a 0:17:26.920 --> 0:17:31.640 gatling gun looking for volunteers to raise prices. And so 0:17:31.840 --> 0:17:34.400 we're not getting the kind of late so called late 0:17:34.440 --> 0:17:39.119 cycle inflationary impulse that we should be getting. Is dampening 0:17:39.800 --> 0:17:44.880 think and that's what's extending this cycle. It's so there's 0:17:44.880 --> 0:17:47.480 a benefit to all of us. Really. Okay, So this 0:17:47.520 --> 0:17:51.360 goes to yesterday's bombshell with Numura cutting out Tesla and 0:17:51.480 --> 0:17:54.639 using this word investible. And I said to someone, I said, 0:17:55.119 --> 0:17:58.040 in America. We don't say a Graham dot word, which 0:17:58.080 --> 0:18:02.520 was speculation. It's like an American to use the word speculation. 0:18:02.760 --> 0:18:06.520 Has this market, Steve Off, become more of a speculation 0:18:07.200 --> 0:18:11.200 because of some of these larger macro trends. I don't 0:18:11.200 --> 0:18:13.360 think so, Tom. I mean, you can buy and buy 0:18:13.400 --> 0:18:16.040 and own with comfort today, right, I mean, look at 0:18:16.040 --> 0:18:19.320 the the evaluation on the overall market has actually gone 0:18:19.359 --> 0:18:22.240 down in the last twelve months. We're trading here around 0:18:22.240 --> 0:18:27.199 seventeen times this year's earnings, seventeen times this year's Make 0:18:27.240 --> 0:18:31.520 America Great Again earnings. Yeah, that's not that's not in 0:18:31.640 --> 0:18:35.600 excessive at all. And and if you start looking at stocks, 0:18:35.640 --> 0:18:38.919 individual stocks, I mean there's a whole lot on my 0:18:39.080 --> 0:18:41.560 bio list they're trading at ten to twelve times earning. 0:18:41.680 --> 0:18:44.560 So this is some names or sectors. All the financial 0:18:44.720 --> 0:18:48.159 stocks are dirt cheap right now. JP Morgan's one that 0:18:48.200 --> 0:18:51.400 we like. As you know, the energy stocks are completely 0:18:51.400 --> 0:18:55.879 on their back talk John John Krinsky was talking up 0:18:56.119 --> 0:18:59.159 Schlumbers the other day. The industrials are loaded. You know, 0:18:59.240 --> 0:19:02.159 load a mid tea means even Apple, as much as 0:19:02.200 --> 0:19:04.720 it's had a nice, very nice run, it's trading out 0:19:04.800 --> 0:19:07.080 sixteen times. Let me rip up the scripture then, because 0:19:07.119 --> 0:19:10.440 two days ago we began the theme around a wonderful 0:19:10.480 --> 0:19:14.439 interview that said Apple is under owned by institutions. They 0:19:14.480 --> 0:19:17.800 did not mention federated, but people you know long only 0:19:17.840 --> 0:19:22.359 by side institutions, and those people that are behind Steve 0:19:22.480 --> 0:19:26.840 Off have to catch up, and by definition they have 0:19:26.960 --> 0:19:30.280 to acquire Apple, Microsoft and the Amazon and the others. 0:19:30.440 --> 0:19:32.760 Do you buy that idea that Apple has a wind 0:19:32.760 --> 0:19:37.159 behind it just because everybody's got a gunpoint by it. 0:19:37.240 --> 0:19:41.720 Maybe I don't necessarily that they're Certainly it's not over 0:19:41.800 --> 0:19:44.800 owned in that sense, although it is over on Tom 0:19:44.800 --> 0:19:47.760 in a way that the big flows in the last 0:19:48.240 --> 0:19:52.359 seven years have been to the passive funds, and that's 0:19:52.400 --> 0:19:55.639 partly been the wind behind the apples price rose, right 0:19:55.720 --> 0:19:59.840 so and the money flown in passes this year upside 0:19:59.840 --> 0:20:03.280 in Apple Tshu are right, it's been up. It's heavily 0:20:03.320 --> 0:20:05.959 owned by the country because a lot of them are 0:20:05.960 --> 0:20:07.960 in these passive funds. I don't think you could say 0:20:07.960 --> 0:20:11.760 it's under own within this with an equity is the 0:20:11.840 --> 0:20:14.840 surprise within the four accounting statements? What are you most 0:20:14.920 --> 0:20:18.199 focused on now? And to take away shareholder equity. What 0:20:18.240 --> 0:20:21.040 are you most focused on an income statement, balance sheet 0:20:21.080 --> 0:20:23.560 and cash flow statement? Well, we always are looking at 0:20:23.560 --> 0:20:26.679 balance sheets, Tom, because you know, you don't want to 0:20:26.720 --> 0:20:30.600 get yourself in a situation um with a dangerous level 0:20:30.600 --> 0:20:33.639 of leverage. I actually balance sheets are generally in good shape. 0:20:33.640 --> 0:20:36.680 There's some areas that are weak, but generally corporate balance 0:20:36.720 --> 0:20:39.639 sheets are pretty good. We look at cash flows because 0:20:39.720 --> 0:20:43.320 we think cash flow is really dry value and that 0:20:43.480 --> 0:20:46.879 for us is a big driver of our whole process 0:20:46.880 --> 0:20:50.040 on investing. And the cash flows to us look very 0:20:50.160 --> 0:20:52.320 very good, and the quality of earnings there for to 0:20:52.520 --> 0:20:57.480 us looks really solid across many sectors in the economy 0:20:57.560 --> 0:20:59.199 right now. The question I can ask you what I 0:20:59.200 --> 0:21:02.679 would ask and carry up at Pioneer and other value 0:21:02.760 --> 0:21:06.240 investors is cash. There's a huge pressure a mutual funds 0:21:06.240 --> 0:21:08.040 to be invested. There's usually do you have a do 0:21:08.080 --> 0:21:10.680 you have a maximum cash you can hold? By perspectus, 0:21:11.560 --> 0:21:14.320 most of our perspects don't don't do that. I mean 0:21:14.359 --> 0:21:18.080 we we we acknowledge that many of our investors, particularly 0:21:18.119 --> 0:21:21.400 we work with investor visors, they like to do their 0:21:21.400 --> 0:21:26.159 own allocating, so they prefer we're fully invested. We tell people. 0:21:26.280 --> 0:21:30.440 We will endeavor to be fully invested usually, but we've 0:21:30.560 --> 0:21:33.960 never We're not big at federated at you know, locking 0:21:33.960 --> 0:21:37.639 down our portfolio managers and not allowing them to use cash. 0:21:37.680 --> 0:21:41.240 We're very opportunistic in our portfolio approach, so we sometimes 0:21:41.240 --> 0:21:44.840 will hold ten cash in portfolio because we don't see 0:21:44.880 --> 0:21:48.320 any particular values at the moment. What are you lightening 0:21:48.440 --> 0:21:51.760 up on now as you find opportunities in banking and 0:21:51.880 --> 0:21:56.879 energy well at the margin? Uh let me let me 0:21:56.920 --> 0:21:59.200 rephrase us in a more delicate manner. Did you sell 0:21:59.240 --> 0:22:05.199 all your Amazon yesterday? No? How did you exactly? What 0:22:05.240 --> 0:22:07.840 are you like? It's one reason we like the market. Tom, 0:22:07.840 --> 0:22:11.359 we're lighting up on bonds more than we are one 0:22:14.000 --> 0:22:18.520 Christ up yield down and you just can't own him here. Yeah, yeah, 0:22:18.840 --> 0:22:22.919 we're we're max underweight right now on bonds, and you know, 0:22:23.119 --> 0:22:25.200 it's one reason we like the markets. You think the 0:22:25.240 --> 0:22:28.560 text stocks that have led to us still look fundamentally good. 0:22:28.640 --> 0:22:30.399 I think they probably do for a little bit of 0:22:30.400 --> 0:22:32.720 a pause, but I wouldn't guess a big pull back 0:22:33.320 --> 0:22:35.920 and the rest of it could play catch up. How 0:22:35.960 --> 0:22:38.280 to buy and hold? Do? I mean? I mean within 0:22:38.320 --> 0:22:41.520 the long term more conservative movement of a five year 0:22:41.520 --> 0:22:43.800 old a seven year older even Dare I say buy 0:22:43.880 --> 0:22:46.480 and hold? Is that a dangerous strategy? Now? Do you 0:22:46.520 --> 0:22:48.359 have to be more nimble? I think you've got a 0:22:48.359 --> 0:22:50.439 little be a little more nimble, Tom. But you know, 0:22:50.520 --> 0:22:53.879