1 00:00:00,720 --> 00:00:12,960 Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane 2 00:00:13,480 --> 00:00:17,560 Speaker 1: Jai Ley. We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:31,720 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. John, 5 00:00:31,920 --> 00:00:34,240 Speaker 1: you know that there's Germany, which is a huge deal, 6 00:00:34,280 --> 00:00:37,280 Speaker 1: way bigger than the US press is given it. And 7 00:00:37,320 --> 00:00:39,479 Speaker 1: there's the budget in the United Kingdom. I guess we've 8 00:00:39,479 --> 00:00:42,680 Speaker 1: got to go like we did yesterday and Arsenal Tottenham. 9 00:00:42,720 --> 00:00:45,559 Speaker 1: The budget process in the United Kingdom, John, seems so 10 00:00:45,680 --> 00:00:48,960 Speaker 1: different than over here. What's a distinctive feature from the 11 00:00:49,040 --> 00:00:51,479 Speaker 1: lad from Coventry. Well, it's a parliamentary system and I 12 00:00:51,479 --> 00:00:53,159 Speaker 1: think it's a lot easier to execute the budget in 13 00:00:53,200 --> 00:00:55,560 Speaker 1: the United Kingdom than it is here in the United States. 14 00:00:56,000 --> 00:00:57,640 Speaker 1: For one, I mean there's so many people that have 15 00:00:57,720 --> 00:00:59,800 Speaker 1: told me when I first moved over here, when they 16 00:01:00,000 --> 00:01:02,000 Speaker 1: reduce the budget here in the United States, it's a 17 00:01:02,040 --> 00:01:04,160 Speaker 1: little bit different because it takes a long long time 18 00:01:04,200 --> 00:01:06,560 Speaker 1: to actually get any kind of approval. In the UK, 19 00:01:07,080 --> 00:01:09,920 Speaker 1: you have a majority in parliament, the chance to introduces 20 00:01:09,959 --> 00:01:12,920 Speaker 1: the budget, and it's kind of just done. You accept 21 00:01:12,959 --> 00:01:14,960 Speaker 1: what comes through and then that's it through the term 22 00:01:14,959 --> 00:01:17,800 Speaker 1: of parliament. Very good one, and then they redo it 23 00:01:17,840 --> 00:01:20,440 Speaker 1: the following year. Well spreads are in I mean, you 24 00:01:20,440 --> 00:01:21,840 Speaker 1: know that's where we are they going to deal with 25 00:01:21,840 --> 00:01:23,520 Speaker 1: that in the United Kingdom and EVERYWHERELSE, Why don't you 26 00:01:23,560 --> 00:01:27,319 Speaker 1: bring in our gentleman from Wells Fargo, John George Bori, 27 00:01:27,640 --> 00:01:30,960 Speaker 1: joining us now of course to BC Securities Global Equity 28 00:01:31,000 --> 00:01:33,120 Speaker 1: strategists on on the market. George is great to have 29 00:01:33,120 --> 00:01:35,920 Speaker 1: you with us on the program. Looking at the situation 30 00:01:36,520 --> 00:01:38,959 Speaker 1: at the moment, tom as I'm looking at the markets, 31 00:01:39,840 --> 00:01:44,520 Speaker 1: I'm looking at a situation where things futures are positive 32 00:01:44,600 --> 00:01:48,640 Speaker 1: at the moment by about sixty eight points, futures up 33 00:01:48,640 --> 00:01:52,000 Speaker 1: by about six or seven points. The story for me 34 00:01:52,960 --> 00:01:56,280 Speaker 1: looking at the situation in the United States is whether 35 00:01:56,320 --> 00:01:59,279 Speaker 1: they get tax reformed done? Is that going to happen? 36 00:01:59,720 --> 00:02:02,800 Speaker 1: And it's it gonna be the bill that we connrety see. Yeah, thanks, 37 00:02:03,000 --> 00:02:05,280 Speaker 1: it's good to be on the show this morning. You 38 00:02:05,280 --> 00:02:08,160 Speaker 1: know the tax bill, you know it, something is going 39 00:02:08,200 --> 00:02:10,120 Speaker 1: to get done. People keep saying that. I think it's 40 00:02:10,160 --> 00:02:12,640 Speaker 1: been repeated over and over that certainly our firm view 41 00:02:12,880 --> 00:02:15,320 Speaker 1: and that's what we expected. We don't think it's sort 42 00:02:15,360 --> 00:02:18,440 Speaker 1: of what is exactly proposed today. You know, we're going 43 00:02:18,520 --> 00:02:23,080 Speaker 1: through the process of iteration between the House and the Senate. 44 00:02:23,440 --> 00:02:25,680 Speaker 1: Um what seems very likely. It's it's sort of a 45 00:02:25,720 --> 00:02:28,520 Speaker 1: pro it's a pro business tax bill, likely to implement 46 00:02:28,600 --> 00:02:32,560 Speaker 1: meaningful tax cuts for corporations, and it's it's attempting to 47 00:02:32,600 --> 00:02:38,000 Speaker 1: incentivize companies to both bring money home through repatriation and 48 00:02:38,040 --> 00:02:40,640 Speaker 1: reinvest that money here in the US. UM. You know, 49 00:02:40,720 --> 00:02:43,040 Speaker 1: I balanced that should be a good thing, but the 50 00:02:43,160 --> 00:02:46,600 Speaker 1: question of whether it ultimately gets done is probably on 51 00:02:46,639 --> 00:02:48,640 Speaker 1: the other side of the ledger when you think about 52 00:02:48,680 --> 00:02:51,280 Speaker 1: what's happening with individuals. That's my fault. We have a 53 00:02:51,280 --> 00:02:54,640 Speaker 1: surveillance correction here. I told John Farrow's HSBC, and I 54 00:02:54,720 --> 00:02:57,400 Speaker 1: was I was looking east wells Fargo is like the 55 00:02:57,440 --> 00:03:00,720 Speaker 1: stage coaches, John, wherever you go there have age coaches 56 00:03:01,040 --> 00:03:05,399 Speaker 1: and it's far far west in San Francisco. But HSBC 57 00:03:05,600 --> 00:03:07,600 Speaker 1: is farther west across the Pacify that you have to 58 00:03:07,600 --> 00:03:11,280 Speaker 1: get to Asia's home. Yeah, completely went down in flames 59 00:03:11,280 --> 00:03:14,760 Speaker 1: on that excuse, right, No, I mean, and so I 60 00:03:14,800 --> 00:03:18,480 Speaker 1: think tax reform becomes absolutely pivotal for for next year 61 00:03:18,520 --> 00:03:20,560 Speaker 1: and in the corporate bondmark in the area that that 62 00:03:20,600 --> 00:03:23,200 Speaker 1: I focus on, you know that that becomes a very 63 00:03:23,240 --> 00:03:25,960 Speaker 1: big issue. So what a company is gonna do with 64 00:03:26,160 --> 00:03:29,200 Speaker 1: a that that tax cut and then ultimately with access 65 00:03:29,240 --> 00:03:31,440 Speaker 1: to sort of this money they have sitting all over 66 00:03:31,480 --> 00:03:34,239 Speaker 1: the world, and our basic expectation is they're going to 67 00:03:34,360 --> 00:03:36,920 Speaker 1: try and use it. They're gonna lever up that saved 68 00:03:36,960 --> 00:03:39,560 Speaker 1: earnings from a tax cut. They're gonna lever up that 69 00:03:39,800 --> 00:03:43,440 Speaker 1: cash that sits overseas and in various jurisdictions, and that 70 00:03:43,480 --> 00:03:46,000 Speaker 1: could drive a little bit of investment here in the US. 71 00:03:46,040 --> 00:03:47,600 Speaker 1: But I think what it's really going to drive is 72 00:03:47,640 --> 00:03:50,120 Speaker 1: a big increase in M and A. UM. You know, 73 00:03:50,240 --> 00:03:54,960 Speaker 1: they're they're a whole. That's fascinating because I T and 74 00:03:55,040 --> 00:03:58,240 Speaker 1: T is fronts and cents of worldwide. Today. A big 75 00:03:58,280 --> 00:04:00,600 Speaker 1: conversation about whether that deal was going to get blocks. 76 00:04:00,640 --> 00:04:03,880 Speaker 1: We thought this administration would have the doors open for 77 00:04:03,960 --> 00:04:06,320 Speaker 1: some big deals if these companies bring that money home 78 00:04:06,400 --> 00:04:07,960 Speaker 1: and want to do big M and I Are you 79 00:04:08,040 --> 00:04:11,480 Speaker 1: confident that it gets done well? I think certainty for 80 00:04:11,480 --> 00:04:15,040 Speaker 1: for tax reform is important, and I think if you 81 00:04:15,080 --> 00:04:17,880 Speaker 1: look at m and A activity over the past year. Uh, 82 00:04:17,880 --> 00:04:20,840 Speaker 1: it's down about from the prior year. We peaked in 83 00:04:21,000 --> 00:04:23,200 Speaker 1: M and A volumes back in two thousand and fifteen. 84 00:04:23,320 --> 00:04:25,760 Speaker 1: Sixteen was a pretty good year as well. This year 85 00:04:25,800 --> 00:04:28,400 Speaker 1: has been a notable slowdown. And I think there's there's 86 00:04:28,440 --> 00:04:30,960 Speaker 1: sort of two issues at play. One is political, as 87 00:04:31,000 --> 00:04:34,440 Speaker 1: you mentioned, and that has a few very deal specific 88 00:04:34,520 --> 00:04:37,320 Speaker 1: issues attached to it. But the other issue is is 89 00:04:37,360 --> 00:04:40,800 Speaker 1: really just what is your tax structure? A lot of 90 00:04:40,880 --> 00:04:42,960 Speaker 1: a lot of um M and A deals are are 91 00:04:43,040 --> 00:04:47,200 Speaker 1: driven around how how tax the tax structure sets up 92 00:04:47,279 --> 00:04:50,600 Speaker 1: for the deal. Once that's clear, then you have a 93 00:04:50,640 --> 00:04:54,560 Speaker 1: lot of industries, several very big industries that have a 94 00:04:54,640 --> 00:04:57,640 Speaker 1: significant amount of pipeline um M and A activity that 95 00:04:57,680 --> 00:05:00,600 Speaker 1: I think ultimately comes through George Boy this with Wells 96 00:05:00,640 --> 00:05:03,960 Speaker 1: Fargo how to credit strategy. George, Wells Fargo has got 97 00:05:03,960 --> 00:05:09,120 Speaker 1: a huge platform, a nationwide platform. What is the analysis 98 00:05:09,120 --> 00:05:12,040 Speaker 1: of the entire team, your credit strategy, your economics of 99 00:05:12,120 --> 00:05:15,359 Speaker 1: John Sylvia and the rest. What is the analysis of 100 00:05:15,400 --> 00:05:19,159 Speaker 1: this tax cut bill if it actually goes through, does 101 00:05:19,200 --> 00:05:23,800 Speaker 1: it really does it help business for you? Forget about 102 00:05:23,839 --> 00:05:26,720 Speaker 1: the middle class, forget about John Farrell forget about me, 103 00:05:26,760 --> 00:05:31,080 Speaker 1: forget about Rich Truman. Does it help businesses? It's called 104 00:05:32,160 --> 00:05:34,839 Speaker 1: I think on balance it should, and I think what 105 00:05:34,680 --> 00:05:37,760 Speaker 1: it what it can do? Um. You know, a material 106 00:05:37,839 --> 00:05:41,320 Speaker 1: tax cut to corporations improves cash flow, and then it 107 00:05:41,400 --> 00:05:44,039 Speaker 1: really becomes what do companies do with the cash flow? 108 00:05:44,200 --> 00:05:47,719 Speaker 1: I think the actual economic impact will be modest, you know, 109 00:05:47,760 --> 00:05:50,440 Speaker 1: a few tents of a few of a percent over 110 00:05:50,480 --> 00:05:53,440 Speaker 1: a couple of years. UM. That's sort of the actual 111 00:05:53,520 --> 00:05:57,720 Speaker 1: economic impact. But corporate activity should actually kind of kind 112 00:05:57,720 --> 00:05:59,400 Speaker 1: of pick up, and I think that's where you could 113 00:05:59,400 --> 00:06:02,479 Speaker 1: start to see, you know, maybe the momentum impact of 114 00:06:02,480 --> 00:06:05,040 Speaker 1: of of a tax change. The The other issue is 115 00:06:05,080 --> 00:06:08,640 Speaker 1: it does incentivized companies um to spend a little bit 116 00:06:08,640 --> 00:06:11,719 Speaker 1: more on capital spending that is a mild positive, and 117 00:06:11,839 --> 00:06:14,640 Speaker 1: to utilize kind of these big pools of cash that 118 00:06:14,680 --> 00:06:17,040 Speaker 1: are that are sitting all around the world. And then 119 00:06:17,040 --> 00:06:19,359 Speaker 1: the last bit, which doesn't really I didn't get a 120 00:06:19,360 --> 00:06:23,599 Speaker 1: lot of attention, UM, is it's it's intended to pull 121 00:06:24,080 --> 00:06:26,880 Speaker 1: money back to the US. A corporate tax rate of 122 00:06:27,640 --> 00:06:32,880 Speaker 1: for America makes the US corporate structure very competitive versus 123 00:06:32,880 --> 00:06:35,440 Speaker 1: the rest of the developed world and even some of 124 00:06:35,480 --> 00:06:38,279 Speaker 1: the not so developed world, so that that low cost 125 00:06:38,360 --> 00:06:42,479 Speaker 1: base could actually kind of pull some investment into the country. 126 00:06:42,680 --> 00:06:45,320 Speaker 1: To be fair, it is a redistribution of taxes, and 127 00:06:45,400 --> 00:06:48,200 Speaker 1: so you know, sort of that's where the economic impact 128 00:06:48,440 --> 00:06:51,320 Speaker 1: is a little uncertain because the individual doesn't benefit as 129 00:06:51,400 --> 00:06:54,800 Speaker 1: much as you know, maybe you know, the economy would rely. 130 00:06:54,920 --> 00:06:56,760 Speaker 1: I don't know what your males like, John John Farrell, 131 00:06:56,839 --> 00:07:00,719 Speaker 1: My male's brutal in this vicious and was sent. People 132 00:07:00,839 --> 00:07:03,440 Speaker 1: can't stand it. It's a top to a bout them 133 00:07:04,040 --> 00:07:08,400 Speaker 1: every politics. People are really upset about these two proposals. 134 00:07:08,839 --> 00:07:11,040 Speaker 1: I just think looking at the corpora sana things. George, 135 00:07:11,200 --> 00:07:14,400 Speaker 1: you mentioned the competitiveness of US companies. When I look 136 00:07:14,440 --> 00:07:18,280 Speaker 1: at US multinationals, I don't see a competitiveness problem. They're 137 00:07:18,280 --> 00:07:21,679 Speaker 1: dominating pretty much every sector therein So what's the argument 138 00:07:21,680 --> 00:07:24,200 Speaker 1: now that we need to come down Why? Well, I 139 00:07:25,000 --> 00:07:27,920 Speaker 1: think it it helps improve the competitiveness of the US. 140 00:07:28,040 --> 00:07:31,240 Speaker 1: It actually draws capital to the US. It creates a 141 00:07:31,240 --> 00:07:36,720 Speaker 1: competitive capital structure on an already competitive capital base, and 142 00:07:36,840 --> 00:07:39,040 Speaker 1: I think that you know, that ensures that you know, 143 00:07:39,200 --> 00:07:44,160 Speaker 1: US economic competitive competitiveness kind of persist for the foreseeable future. 144 00:07:44,720 --> 00:07:47,800 Speaker 1: And I think there's Also there's a much bigger rotation 145 00:07:47,840 --> 00:07:50,080 Speaker 1: here that governments sort of around the world have been 146 00:07:50,120 --> 00:07:53,200 Speaker 1: evolving to and that's you know, less taxes on corporations 147 00:07:53,200 --> 00:07:56,400 Speaker 1: and more taxes on individuals, and the US is trying 148 00:07:56,400 --> 00:07:58,800 Speaker 1: to thread that needle, if you will, and take it 149 00:07:58,920 --> 00:08:03,640 Speaker 1: one step further. How much price down should I enjoy 150 00:08:03,800 --> 00:08:07,040 Speaker 1: before I sweat? Is it like price down of a 151 00:08:07,120 --> 00:08:11,200 Speaker 1: year's coupon, price down of two years? What does price 152 00:08:11,280 --> 00:08:14,880 Speaker 1: down become painful down? Yeah? Yeah, pain you know, I 153 00:08:14,960 --> 00:08:18,160 Speaker 1: think you're talking about price down yields up. That would 154 00:08:18,200 --> 00:08:22,600 Speaker 1: be true. That's very good, John, John Ferrell Maker, Michael Barr. 155 00:08:22,640 --> 00:08:25,400 Speaker 1: This is too complicated for we just got a bump. 156 00:08:29,720 --> 00:08:33,040 Speaker 1: When the pain set it, I think it depends on 157 00:08:33,120 --> 00:08:35,200 Speaker 1: the pace of the pain. You can you can be 158 00:08:35,440 --> 00:08:37,120 Speaker 1: you know, it's sort of cut by a foul, you know, 159 00:08:37,200 --> 00:08:40,640 Speaker 1: death by a thousand cuts. You know, sometimes it hurts 160 00:08:40,640 --> 00:08:43,120 Speaker 1: a little over a long period of time versus one 161 00:08:43,200 --> 00:08:46,439 Speaker 1: fell swoop. And that seems to be the environment we 162 00:08:46,440 --> 00:08:49,640 Speaker 1: we seem to be moving into. We're not quite there yet. 163 00:08:49,760 --> 00:08:52,280 Speaker 1: So when you look at the front end of the curve, 164 00:08:52,320 --> 00:08:54,199 Speaker 1: I think it's a good good example of that. It 165 00:08:54,360 --> 00:08:57,480 Speaker 1: yields have crept a little bit higher. Believe, price went down. 166 00:08:57,520 --> 00:09:01,959 Speaker 1: Price went down, and and you are seeing some dislocations. 167 00:09:02,840 --> 00:09:05,240 Speaker 1: I think, I think hot some of the dislocations you've 168 00:09:05,240 --> 00:09:07,520 Speaker 1: seen in the high yield market over the last couple 169 00:09:07,520 --> 00:09:11,079 Speaker 1: of weeks are a function of those higher yields and 170 00:09:11,200 --> 00:09:15,160 Speaker 1: lower price. Some dislocations, as George Bori talked for, somebody 171 00:09:15,240 --> 00:09:20,600 Speaker 1: just gave up their bonus, some two institutional portfolio. George Bori, 172 00:09:20,720 --> 00:09:23,760 Speaker 1: thank you so much for spreading the glee on the Gloom. 173 00:09:24,000 --> 00:09:26,680 Speaker 1: He is with Wells Fargo head of Credit Strategy. We 174 00:09:26,720 --> 00:09:30,800 Speaker 1: greatly appreciate his attendance. It is a classic book. And 175 00:09:31,200 --> 00:09:33,560 Speaker 1: John Farrell, I'm sorry to say next year will be 176 00:09:33,600 --> 00:09:37,920 Speaker 1: thirty years on Jeffrey Burnba on the outstanding Jeffrey Burnbaum 177 00:09:37,920 --> 00:09:43,800 Speaker 1: with the outstanding Allen Murray showdown at Gucci Gulch. Steve 178 00:09:43,840 --> 00:09:47,720 Speaker 1: Bell has never worn Gucci, but he was there and 179 00:09:47,800 --> 00:09:51,400 Speaker 1: he's with us now. He's with a Bipartisan Policy Center 180 00:09:51,600 --> 00:09:55,760 Speaker 1: and was with Senate Budget in six and is truly 181 00:09:55,920 --> 00:09:58,800 Speaker 1: one of the wise men of Washington. Steve Bell, what 182 00:09:58,840 --> 00:10:01,839 Speaker 1: was it like two weeks four they got this thing 183 00:10:01,960 --> 00:10:06,440 Speaker 1: through the House in what was it like. I think 184 00:10:06,440 --> 00:10:11,480 Speaker 1: it was great enthusiasm. Um. Everyone knew that the votes 185 00:10:11,559 --> 00:10:15,800 Speaker 1: were there. You had bipartisan support, is support from the 186 00:10:15,800 --> 00:10:19,400 Speaker 1: President of course, um. And I think there was a 187 00:10:19,480 --> 00:10:24,600 Speaker 1: really upbeat mood. Uh. When you get something bipartisan like that, 188 00:10:25,080 --> 00:10:28,960 Speaker 1: you have Republicans and Democrats and the executive branch all 189 00:10:29,000 --> 00:10:32,120 Speaker 1: on the same page, you really can do something historic 190 00:10:32,200 --> 00:10:36,000 Speaker 1: like act. And I think that's the big difference between 191 00:10:36,120 --> 00:10:39,559 Speaker 1: now and thirty years ago. Within this, can you predict 192 00:10:39,640 --> 00:10:44,400 Speaker 1: with your immense experience experience of Baker, Dashville, Mitchell and 193 00:10:44,440 --> 00:10:50,319 Speaker 1: the rest, can you predict the next four weeks? Yeah, 194 00:10:50,360 --> 00:10:54,280 Speaker 1: I'm going to give give it a shot. Actually. One, 195 00:10:54,559 --> 00:10:56,320 Speaker 1: I think they're going to run into a lot of 196 00:10:56,360 --> 00:10:59,560 Speaker 1: problems on the floor of the Senate with the tax bill, 197 00:10:59,760 --> 00:11:03,240 Speaker 1: over reasons that not many people have mentioned. One, the 198 00:11:03,480 --> 00:11:06,960 Speaker 1: likelihood that this will increase the deficit much larger than 199 00:11:07,040 --> 00:11:11,199 Speaker 1: people expect. Number Two, I think they know that if 200 00:11:11,240 --> 00:11:14,120 Speaker 1: the deficit estimates go up, it's going to make it 201 00:11:14,280 --> 00:11:17,400 Speaker 1: very hard to pass all the spending bills that keep 202 00:11:17,440 --> 00:11:20,199 Speaker 1: the government open just three weeks from now Tom eight. 203 00:11:21,280 --> 00:11:24,280 Speaker 1: And at the bottom of it, there are elements in 204 00:11:24,320 --> 00:11:29,720 Speaker 1: here which seem to favor um real estate high income 205 00:11:30,160 --> 00:11:36,320 Speaker 1: UH recipient high income earns, and the possibility that the 206 00:11:36,360 --> 00:11:40,880 Speaker 1: fact that certain provisions may advantage the real estate industry 207 00:11:41,200 --> 00:11:44,800 Speaker 1: could make Democrats start to talk about the president's empire 208 00:11:45,240 --> 00:11:47,920 Speaker 1: in real estate again, as they did last year. So 209 00:11:48,000 --> 00:11:50,920 Speaker 1: I you know, I know that we'll solve state and 210 00:11:51,000 --> 00:11:54,559 Speaker 1: local in some way, will solve the mortgage interest deduction 211 00:11:54,640 --> 00:11:57,200 Speaker 1: in some way, So we'll take care of those things. 212 00:11:57,200 --> 00:11:59,920 Speaker 1: And that's what's been in the news. But underlying all 213 00:12:00,120 --> 00:12:03,800 Speaker 1: this are these generalized bears. What is this going to 214 00:12:03,960 --> 00:12:06,760 Speaker 1: do to deficit and debt? Because we have a debt 215 00:12:06,800 --> 00:12:11,000 Speaker 1: ceiling that's about ready to hit us probably early next year, 216 00:12:11,760 --> 00:12:14,160 Speaker 1: and you know, if we get if we get to 217 00:12:14,200 --> 00:12:17,640 Speaker 1: a trillion dollar deficit estimates, which I think we will 218 00:12:17,920 --> 00:12:21,040 Speaker 1: for f y n um, that's really want to bring 219 00:12:21,080 --> 00:12:23,560 Speaker 1: people's attention back to that, Steve, Steve, let me bring 220 00:12:23,559 --> 00:12:26,080 Speaker 1: in John Farrell, who wears glasses that look like Howard 221 00:12:26,120 --> 00:12:31,480 Speaker 1: Baker's from another time, and Steve about help me out here. 222 00:12:31,880 --> 00:12:37,160 Speaker 1: What's the rush? Oh, the Republicans need This is really simple, 223 00:12:37,200 --> 00:12:40,160 Speaker 1: and it's really kind of funny. They are frantic to 224 00:12:40,280 --> 00:12:46,800 Speaker 1: get something done, so they don't really care about what 225 00:12:46,840 --> 00:12:49,800 Speaker 1: people say about Roy Moore. All they want is to 226 00:12:49,840 --> 00:12:54,000 Speaker 1: get this done before if More loses in Alabama, before 227 00:12:54,120 --> 00:12:57,760 Speaker 1: his Democratic UH opponent would be seated in the Senate, 228 00:12:57,760 --> 00:13:01,360 Speaker 1: that would be about December of the rush. One, we 229 00:13:01,440 --> 00:13:04,600 Speaker 1: got to do something because they're frantic. Two, we have 230 00:13:04,720 --> 00:13:08,640 Speaker 1: to do it before December because we'll lose one vote 231 00:13:08,800 --> 00:13:11,760 Speaker 1: in the Senate, which is critical. And number three, we 232 00:13:11,800 --> 00:13:15,120 Speaker 1: have to be honest about this bill. This is a 233 00:13:15,160 --> 00:13:19,040 Speaker 1: bill that was designed to cut taxes for business and 234 00:13:19,160 --> 00:13:22,480 Speaker 1: admirable goal, but they said, you know that's not going 235 00:13:22,520 --> 00:13:24,520 Speaker 1: to fly in this day and age, So we have 236 00:13:24,600 --> 00:13:26,440 Speaker 1: to put in some stuff that looks like we're helping 237 00:13:26,480 --> 00:13:31,160 Speaker 1: the average worker. And that's really, in my view, strategically 238 00:13:31,160 --> 00:13:33,360 Speaker 1: how it was concocted. So I think for many people, 239 00:13:33,480 --> 00:13:36,160 Speaker 1: they're already looking ahead to the next election, the midterms. 240 00:13:36,720 --> 00:13:40,520 Speaker 1: What are the consequences if this bill gets rushed through 241 00:13:40,960 --> 00:13:45,640 Speaker 1: in the midterms next year. Well, Number one, Republicans think 242 00:13:45,679 --> 00:13:48,120 Speaker 1: it will really enhance their chances to retain the House 243 00:13:48,160 --> 00:13:51,160 Speaker 1: and Senate, especially in the House, whether there are there 244 00:13:51,200 --> 00:13:55,680 Speaker 1: are some questions about retention. Number two Democrats and we're 245 00:13:55,720 --> 00:13:58,760 Speaker 1: here to buy pars and policy center have active democrats 246 00:13:58,800 --> 00:14:01,160 Speaker 1: as well as active you do have democrats. You have 247 00:14:01,200 --> 00:14:06,760 Speaker 1: democrats in the building. Oh my goodness, Yes, surveillance break exclusive. 248 00:14:07,880 --> 00:14:09,679 Speaker 1: And one of the very best of them said to me, 249 00:14:09,960 --> 00:14:11,880 Speaker 1: you guys think you should pass this because it will 250 00:14:11,920 --> 00:14:14,480 Speaker 1: help you in two thousand eighteen. We think you should 251 00:14:14,480 --> 00:14:16,880 Speaker 1: pass it because it's gonna help us in two thousand eighteen. 252 00:14:17,000 --> 00:14:19,200 Speaker 1: And what do you think, Well, I think it's going 253 00:14:19,240 --> 00:14:22,560 Speaker 1: to help the Democrats. I think this bill, by the 254 00:14:22,560 --> 00:14:26,560 Speaker 1: time it's cost it out next year by independent people 255 00:14:26,600 --> 00:14:30,240 Speaker 1: liked a Congressional Budget office, by the time the distribution tables, 256 00:14:30,240 --> 00:14:34,440 Speaker 1: who gets how much benefit from it? I think this 257 00:14:34,520 --> 00:14:37,360 Speaker 1: will lead to a lot of nice thirty second ads 258 00:14:37,360 --> 00:14:40,200 Speaker 1: and a lot of social media adds. So, Steve, when 259 00:14:40,240 --> 00:14:44,480 Speaker 1: these senateces go back to that constituents this week, does 260 00:14:44,520 --> 00:14:48,680 Speaker 1: the penny drop. No. I think they have got talking 261 00:14:48,720 --> 00:14:51,000 Speaker 1: points you will get and you saw the talking points 262 00:14:51,040 --> 00:14:53,360 Speaker 1: on the House floor. You're going to get a thousand 263 00:14:53,400 --> 00:14:56,640 Speaker 1: dollar tax break. I promise you. They will not say 264 00:14:56,760 --> 00:15:00,800 Speaker 1: that that tax break is going to expire in seven years. Uh, 265 00:15:01,040 --> 00:15:03,160 Speaker 1: We're going to have a cut for business and we 266 00:15:03,280 --> 00:15:06,720 Speaker 1: have thousands and thousands of new jobs. They won't say 267 00:15:06,720 --> 00:15:11,840 Speaker 1: we're already at the lowest unemployment in decades, so they 268 00:15:11,880 --> 00:15:14,320 Speaker 1: will be able to get away. I think this week, 269 00:15:14,800 --> 00:15:18,920 Speaker 1: with people's attention really devoted to Thanksgiving and stuff, I 270 00:15:18,920 --> 00:15:22,280 Speaker 1: think they'll get away this week without a lot of kickback. 271 00:15:23,160 --> 00:15:26,720 Speaker 1: I think two weeks from now, UM, when we know 272 00:15:26,840 --> 00:15:28,920 Speaker 1: the results, three weeks from now, when we know the 273 00:15:28,920 --> 00:15:33,720 Speaker 1: results of the Alabama election. UM, when we have had 274 00:15:33,800 --> 00:15:36,480 Speaker 1: people really take a look at this bill and they 275 00:15:36,520 --> 00:15:40,800 Speaker 1: read editorials in the papers saying, hey, we'll get a 276 00:15:40,800 --> 00:15:43,120 Speaker 1: big tax that. Like you said, it's so and so 277 00:15:43,160 --> 00:15:48,120 Speaker 1: and so and so, I think then the erosion will start. Say. 278 00:15:48,200 --> 00:15:50,240 Speaker 1: Something we've explored on this program in the last twenty 279 00:15:50,240 --> 00:15:52,920 Speaker 1: four hours is the politics of the campaign trail and 280 00:15:52,960 --> 00:15:56,680 Speaker 1: the economics that underpend the win of President Donald Trump. 281 00:15:57,360 --> 00:16:01,360 Speaker 1: We seem to have a big divorce between that and 282 00:16:01,400 --> 00:16:03,800 Speaker 1: the policies they're executing down in DC. At the moment, 283 00:16:04,120 --> 00:16:06,560 Speaker 1: it does not appear to me that this tax bill 284 00:16:06,600 --> 00:16:10,400 Speaker 1: would address the inequality that came up on the campaign trail. 285 00:16:11,080 --> 00:16:14,920 Speaker 1: Does it address those things for you? Oh? No, I 286 00:16:14,960 --> 00:16:17,760 Speaker 1: think when you take a look at some of the details. UM. 287 00:16:18,040 --> 00:16:21,760 Speaker 1: For example, if you're a graduate assistant you're making twenty 288 00:16:22,200 --> 00:16:25,240 Speaker 1: dollars a year, you know, to be a graduate assistant, 289 00:16:26,120 --> 00:16:30,400 Speaker 1: and they forgive you your tuition very now, tens of 290 00:16:30,440 --> 00:16:34,160 Speaker 1: thousands of people do that. Now, under this bill, you 291 00:16:34,200 --> 00:16:37,520 Speaker 1: would be taxed on the tutition benefits. So let's say 292 00:16:37,560 --> 00:16:41,040 Speaker 1: that tuition was forty, you would be taxing at forty, 293 00:16:41,520 --> 00:16:45,720 Speaker 1: which means you wouldn't be making dollars for your work. Okay, well, 294 00:16:45,720 --> 00:16:48,160 Speaker 1: Steve Bell, let's take this to Washington. Good morning, nine 295 00:16:47,880 --> 00:16:51,640 Speaker 1: and nine one FM, Washington. Let's say that graduate assistant 296 00:16:51,720 --> 00:16:57,360 Speaker 1: is it American University? Killer school outside Washington. A lot 297 00:16:57,400 --> 00:16:59,600 Speaker 1: of people good, good morning, David Gregory. A lot of 298 00:16:59,640 --> 00:17:02,960 Speaker 1: people go there who really get things done down the road. 299 00:17:03,760 --> 00:17:06,920 Speaker 1: Is this just a mean spirited idea? I mean, you've 300 00:17:06,960 --> 00:17:10,960 Speaker 1: been doing this since time began? Where does this what's 301 00:17:10,960 --> 00:17:13,000 Speaker 1: the right word, John, there's a British word for this, Like, 302 00:17:13,320 --> 00:17:18,040 Speaker 1: where does this this mean spiritedness come from little tenC 303 00:17:18,200 --> 00:17:24,640 Speaker 1: weency thing to the next tenC weency thing? Is this original? Oh? 304 00:17:24,680 --> 00:17:27,360 Speaker 1: It's original? And and and frankly it's because they need 305 00:17:27,359 --> 00:17:29,959 Speaker 1: the money. It's just that, come on, well, what are 306 00:17:29,960 --> 00:17:31,879 Speaker 1: they going to get out of a graduate student of 307 00:17:31,920 --> 00:17:36,160 Speaker 1: American University Coast to coast a couple of million bucks. Yeah, 308 00:17:36,200 --> 00:17:41,520 Speaker 1: not very much. But I there are provisions in here 309 00:17:41,560 --> 00:17:44,199 Speaker 1: which make you scratch your head. I agree that you 310 00:17:44,240 --> 00:17:48,600 Speaker 1: wonder who is mad at the university's Well, apparently somebody 311 00:17:49,640 --> 00:17:53,200 Speaker 1: on the Senate Finance Committee or this Finance Committee staff 312 00:17:53,720 --> 00:17:56,239 Speaker 1: really doesn't like this break and doesn't like perhaps, as 313 00:17:56,240 --> 00:17:59,640 Speaker 1: you said, American University. So I I've got to tell 314 00:17:59,680 --> 00:18:02,840 Speaker 1: you that one has caused a lot of discussion among 315 00:18:02,880 --> 00:18:06,639 Speaker 1: the universities because he could have a significant impact on 316 00:18:06,720 --> 00:18:11,280 Speaker 1: gradual resistance and graculate education. There's some other things in here. 317 00:18:11,880 --> 00:18:15,240 Speaker 1: Let's take a look at this so called transfer. This 318 00:18:15,280 --> 00:18:18,000 Speaker 1: is a crazy thing. You buy a piece of art 319 00:18:18,040 --> 00:18:21,040 Speaker 1: for five million, now it's worth twenty. You come to 320 00:18:21,080 --> 00:18:23,240 Speaker 1: me and you say, Belle, you've got something worth twenty. 321 00:18:23,240 --> 00:18:26,000 Speaker 1: I want to trade you even under the law now 322 00:18:26,800 --> 00:18:29,800 Speaker 1: you're from five to twenty, but you weren't taxed on it. 323 00:18:29,840 --> 00:18:33,359 Speaker 1: May we just considered ten transfer. There's a language in 324 00:18:33,359 --> 00:18:36,679 Speaker 1: this bill. There's language in this bill that prohibits that 325 00:18:38,359 --> 00:18:42,560 Speaker 1: takes away your ability just to do that trade except 326 00:18:43,160 --> 00:18:47,960 Speaker 1: real estate development. That's interesting, isn't it. Steve, you gotta 327 00:18:48,000 --> 00:18:49,440 Speaker 1: leave it there, Steve Bell, thank you so much so 328 00:18:49,520 --> 00:18:54,840 Speaker 1: Bipartisan Policy Center today with US right now, Tobias Levkovich 329 00:18:55,480 --> 00:18:57,320 Speaker 1: of City Group, and Tobias, I really want to go 330 00:18:57,359 --> 00:19:01,480 Speaker 1: to the wheelhouse, which is these city groups surprise Index. 331 00:19:01,880 --> 00:19:04,879 Speaker 1: It's actually very cool. A lot of people outside City 332 00:19:04,880 --> 00:19:09,080 Speaker 1: Group follow it. What what does it say it right now? UM? 333 00:19:09,160 --> 00:19:11,240 Speaker 1: So the data is actually pretty strong. If you look 334 00:19:11,280 --> 00:19:14,600 Speaker 1: at the City US Economic Surprise Index, UM, it's kind 335 00:19:14,600 --> 00:19:16,840 Speaker 1: of nearing five year highs. That gets me a little 336 00:19:16,880 --> 00:19:19,080 Speaker 1: bit concerned that it could roll because there is some 337 00:19:19,280 --> 00:19:23,680 Speaker 1: inherent mean reversion to the model. UM. But I'm also 338 00:19:23,720 --> 00:19:26,560 Speaker 1: hoping the intellectual capital comment was not directed to me. 339 00:19:27,480 --> 00:19:29,960 Speaker 1: It's very much directed. It makes the boss don't worrying 340 00:19:29,960 --> 00:19:33,000 Speaker 1: about that going into next year. It's kind of shut 341 00:19:33,040 --> 00:19:35,440 Speaker 1: your eyes and hope for more from what I'm saying 342 00:19:35,480 --> 00:19:39,639 Speaker 1: in some of the forecasts on SMP year. So I 343 00:19:39,680 --> 00:19:42,480 Speaker 1: think it's, you know, a question about what you think 344 00:19:42,920 --> 00:19:47,680 Speaker 1: the concerns around FED policy, for example, relative to economic trend. 345 00:19:47,720 --> 00:19:50,800 Speaker 1: In other words, if economic trend is actually looking stronger, 346 00:19:50,800 --> 00:19:53,560 Speaker 1: and most of our leading indicators suggest it is, then 347 00:19:53,640 --> 00:19:55,560 Speaker 1: what's the pace at which the Fed moves and do 348 00:19:55,600 --> 00:19:59,280 Speaker 1: you kind of cap off the opportunity. There's also some 349 00:19:59,359 --> 00:20:01,720 Speaker 1: element of we're bringing forward some of the next year's 350 00:20:01,720 --> 00:20:05,120 Speaker 1: return into this year as a result of, for example, 351 00:20:05,240 --> 00:20:08,080 Speaker 1: tax policy initiatives to bias. I think a big thing 352 00:20:08,119 --> 00:20:10,439 Speaker 1: for money is waiting for that late cycle behavior that 353 00:20:10,560 --> 00:20:13,840 Speaker 1: melts up in equity market. A lot of people thought 354 00:20:13,880 --> 00:20:17,080 Speaker 1: it would happen this year. We've not seen it. Are 355 00:20:17,119 --> 00:20:19,080 Speaker 1: you starting to see signs of it? At least that 356 00:20:19,119 --> 00:20:21,240 Speaker 1: we're at that late cycle mounts up phase in the 357 00:20:21,320 --> 00:20:23,800 Speaker 1: in the bull market, So we haven't really seen signs 358 00:20:23,840 --> 00:20:26,160 Speaker 1: of in terms of big money flow coming in, which 359 00:20:26,200 --> 00:20:28,080 Speaker 1: is where the meltuple would come. We are seeing our 360 00:20:29,200 --> 00:20:32,879 Speaker 1: for example, are panickyphoria UH index or model which tracts 361 00:20:33,000 --> 00:20:36,000 Speaker 1: sentiment in a variety of ways, starting to edge higher. 362 00:20:36,000 --> 00:20:38,080 Speaker 1: It's still in neutral territory, but it's the upper end 363 00:20:38,119 --> 00:20:40,719 Speaker 1: of neutral. You've said, that's sending someone the yellow caution 364 00:20:40,840 --> 00:20:43,919 Speaker 1: sign at the moment, but not a red flag quite yet. 365 00:20:44,359 --> 00:20:45,919 Speaker 1: Um So I do see in that sense, but not 366 00:20:45,960 --> 00:20:48,040 Speaker 1: in the money flow. And I think investors are caught. 367 00:20:48,119 --> 00:20:51,000 Speaker 1: We refer to it as being caught between two very 368 00:20:51,000 --> 00:20:54,000 Speaker 1: powerful forces foam O, the fear of missing out, and 369 00:20:54,119 --> 00:20:57,000 Speaker 1: foam move the fear of messing up. So they're there, 370 00:20:57,080 --> 00:20:59,639 Speaker 1: they're you know, they had a nice run, they're little 371 00:20:59,720 --> 00:21:03,480 Speaker 1: do overstair welcome concern kind of question pops up or 372 00:21:03,960 --> 00:21:05,640 Speaker 1: did I miss the run? Do I come in now? 373 00:21:05,840 --> 00:21:07,640 Speaker 1: And then it comes down and I mess up? Well, 374 00:21:07,720 --> 00:21:10,159 Speaker 1: let's do the look back. But now twelve months trailing 375 00:21:11,200 --> 00:21:16,359 Speaker 1: return SMP return NASDAQ four could almost round it up 376 00:21:16,400 --> 00:21:20,879 Speaker 1: to return. I've been told that it's a single digit world. 377 00:21:21,520 --> 00:21:24,560 Speaker 1: I'm not observing that. When does it become a single 378 00:21:24,560 --> 00:21:27,480 Speaker 1: digit world? So what we suspect next year? But part 379 00:21:27,560 --> 00:21:29,639 Speaker 1: of it is also we've had double digit earnings growth 380 00:21:29,640 --> 00:21:31,639 Speaker 1: in the first to three quarters of the year, and 381 00:21:31,760 --> 00:21:33,680 Speaker 1: up and down the income statement, you've got the same 382 00:21:33,760 --> 00:21:37,920 Speaker 1: kind of constructive revenue down through the margins. It is 383 00:21:38,000 --> 00:21:41,119 Speaker 1: happening that way. But it's also momentum driven. So you're seeing, 384 00:21:41,480 --> 00:21:44,280 Speaker 1: for example, you sided number of statistics, but if you 385 00:21:44,280 --> 00:21:47,520 Speaker 1: look at momentum driven factors, you're probably up thirty seven percent. 386 00:21:48,119 --> 00:21:50,760 Speaker 1: So it's not across the board. Certain areas like energy, 387 00:21:50,760 --> 00:21:54,160 Speaker 1: telecom you've lost money this year. Um. What is fascinating 388 00:21:54,640 --> 00:21:57,040 Speaker 1: is if you look at the constituents of the SMP. 389 00:21:57,080 --> 00:21:59,080 Speaker 1: A lot of people have talked about faying. For example, 390 00:21:59,480 --> 00:22:03,119 Speaker 1: about fifty percent of the SMPI constituents have outperformed the 391 00:22:03,200 --> 00:22:06,159 Speaker 1: SMP this year, so it's a very widespread rally. It 392 00:22:06,240 --> 00:22:08,440 Speaker 1: is not just about four or five names. It's speaking 393 00:22:08,440 --> 00:22:10,640 Speaker 1: of momentum. To Bus, it seems to me that this year, 394 00:22:10,880 --> 00:22:13,320 Speaker 1: at the beginning of the year, if I'd said that's 395 00:22:13,320 --> 00:22:15,199 Speaker 1: in a bubble, that's in a bubble, that's in a bubble, 396 00:22:15,320 --> 00:22:17,760 Speaker 1: and you bought the bubbles, you've done pretty well this year. 397 00:22:17,840 --> 00:22:19,679 Speaker 1: Someone might have said the fangs were in a bubble, 398 00:22:19,840 --> 00:22:22,560 Speaker 1: You've done well. Bitcoin ev we won't go that to bus, 399 00:22:22,600 --> 00:22:24,760 Speaker 1: don't worry. I could have said that was a bubble 400 00:22:24,840 --> 00:22:27,040 Speaker 1: for the last five years, and you would have done 401 00:22:27,080 --> 00:22:29,200 Speaker 1: beautifully this year. What do you make it the momentum 402 00:22:29,240 --> 00:22:31,919 Speaker 1: that we have seen through seventeen and how strong is it? 403 00:22:32,600 --> 00:22:35,639 Speaker 1: So there is very powerful trends and technology that are 404 00:22:35,720 --> 00:22:37,639 Speaker 1: driving some of the names that that you've meant that 405 00:22:37,680 --> 00:22:41,359 Speaker 1: you're highly were hinting at, and we have you know, 406 00:22:41,440 --> 00:22:43,960 Speaker 1: just think about what's going on in technology today. You've 407 00:22:43,960 --> 00:22:46,480 Speaker 1: got cybersecurity, you've got a cloud, you've got mobility, you've 408 00:22:46,520 --> 00:22:50,919 Speaker 1: got um the little botics, automation, virtual reality. I mean, 409 00:22:50,920 --> 00:22:54,040 Speaker 1: there's so many different powerful trends that are forcing companies 410 00:22:54,080 --> 00:22:57,440 Speaker 1: to spend and that online versus brick and mortar type 411 00:22:57,440 --> 00:23:00,320 Speaker 1: of shift that's been going on because of convenience, sitting 412 00:23:00,359 --> 00:23:02,880 Speaker 1: at home and your jammies and ordering stuff to bias. 413 00:23:03,480 --> 00:23:07,880 Speaker 1: Nobody cares fills up in Montreal saying asked to bias. 414 00:23:08,359 --> 00:23:11,960 Speaker 1: There's thirty one teams in the National Hockey League. The 415 00:23:12,119 --> 00:23:15,560 Speaker 1: Halbs are thirty in goals per game, twenty ninth and 416 00:23:15,640 --> 00:23:20,919 Speaker 1: goals against in power play. And I've never seen a 417 00:23:20,960 --> 00:23:24,080 Speaker 1: team that is that bad. When do you take over 418 00:23:24,119 --> 00:23:26,960 Speaker 1: as coach? And I'll tell you as general manager or 419 00:23:26,960 --> 00:23:30,800 Speaker 1: president hockey operations any day. I apologize to my city employers, 420 00:23:30,800 --> 00:23:36,080 Speaker 1: but I'm he's gone. Tobias is so gone that I 421 00:23:36,119 --> 00:23:38,160 Speaker 1: can I can handle people yelling at me. But Mark 422 00:23:38,200 --> 00:23:41,400 Speaker 1: Bergeman has a lot of answer for the mirror mortals 423 00:23:41,440 --> 00:23:44,280 Speaker 1: that are non Canadians understand this is a national disgrace. 424 00:23:44,800 --> 00:23:46,760 Speaker 1: I don't think they quite understand, and I don't think 425 00:23:46,840 --> 00:23:50,440 Speaker 1: I don't think that justin Trudeau socks can solve it either. 426 00:23:50,800 --> 00:23:52,600 Speaker 1: Well there would be that as well, Phil. Thank you 427 00:23:52,680 --> 00:23:54,520 Speaker 1: so much for emailing and love to hear from you. 428 00:23:54,800 --> 00:23:58,680 Speaker 1: And there's your Canadians UH Montreal Canadians review with Mr Levkovich. 429 00:23:58,880 --> 00:24:03,080 Speaker 1: Assuming tax overhaul passes, We just had a whole conversation 430 00:24:03,160 --> 00:24:05,879 Speaker 1: with the pass Leftovic City Group chief US equity strategist 431 00:24:06,280 --> 00:24:11,280 Speaker 1: on the markets without discussing politics in d C. Is 432 00:24:11,320 --> 00:24:15,040 Speaker 1: there a reason for that to bias? Look, the if 433 00:24:15,040 --> 00:24:17,639 Speaker 1: you get tax reform, you could add nine ten to 434 00:24:17,640 --> 00:24:20,480 Speaker 1: earnings estimates next year, so it does have a real 435 00:24:20,600 --> 00:24:23,240 Speaker 1: market impact. Question that you'd have to ask yourself a 436 00:24:23,280 --> 00:24:25,480 Speaker 1: little bit is does the market give the same multiple 437 00:24:25,560 --> 00:24:28,679 Speaker 1: to tax related earnings as it does to operating efficiencies 438 00:24:28,680 --> 00:24:31,240 Speaker 1: within companies? And that I think is a fair one. Um. 439 00:24:31,320 --> 00:24:33,960 Speaker 1: We we've we wrote about this early in the year 440 00:24:34,440 --> 00:24:36,240 Speaker 1: that we didn't think the market would give you quite 441 00:24:36,240 --> 00:24:38,600 Speaker 1: the same multiple for the tax benefits. But again, it 442 00:24:38,640 --> 00:24:42,119 Speaker 1: would be very instrumental to the earning comparisons. You reverere 443 00:24:42,440 --> 00:24:44,479 Speaker 1: you've got the headline tax rate to bus and then 444 00:24:44,480 --> 00:24:47,280 Speaker 1: you've got the effective tax rate that these companies already pay. 445 00:24:47,359 --> 00:24:49,480 Speaker 1: So talk to me about sector to sector where the 446 00:24:49,480 --> 00:24:52,200 Speaker 1: biggest difference is actually going to be made effective tax 447 00:24:52,280 --> 00:24:56,040 Speaker 1: right now versus what they'll pay perhaps next year and beyond. 448 00:24:56,200 --> 00:24:57,960 Speaker 1: So if you look an aggregate for the SMP five 449 00:24:58,000 --> 00:24:59,600 Speaker 1: hundred tax rate over the past couple of years have 450 00:24:59,640 --> 00:25:04,399 Speaker 1: been about effectively and if it drops to that's the 451 00:25:04,440 --> 00:25:07,280 Speaker 1: seven point differential um we've we have already in our 452 00:25:07,359 --> 00:25:10,919 Speaker 1: estimates for next year rate, so about four dollars of 453 00:25:10,920 --> 00:25:14,680 Speaker 1: incremental learning capacity already built in. But you get about 454 00:25:14,720 --> 00:25:18,560 Speaker 1: ten dollars more if you went down to certain sectors 455 00:25:18,600 --> 00:25:22,800 Speaker 1: like financial's regional banks for example, clearly very uh exposed. 456 00:25:22,800 --> 00:25:25,560 Speaker 1: Some other ones utilities which are very domestic would probably 457 00:25:25,600 --> 00:25:27,119 Speaker 1: have to give that back in the rate base, so 458 00:25:27,160 --> 00:25:29,399 Speaker 1: they wouldn't really capture the benefits of it. So it 459 00:25:29,440 --> 00:25:31,320 Speaker 1: really depends you gotta go industry by the industry. The 460 00:25:31,320 --> 00:25:34,280 Speaker 1: big multinationals clearly don't have as much exposure here. I 461 00:25:34,280 --> 00:25:36,000 Speaker 1: don't want you to comme in a city group and 462 00:25:36,040 --> 00:25:38,119 Speaker 1: get you in trouble with your team. But is a 463 00:25:38,119 --> 00:25:40,840 Speaker 1: general rule, I believe we have curve flattening. What does 464 00:25:40,840 --> 00:25:45,560 Speaker 1: that do to finances? The tobias money aside. So clearly 465 00:25:46,320 --> 00:25:48,520 Speaker 1: the two things that you watch very carefully in the 466 00:25:48,520 --> 00:25:51,040 Speaker 1: banks would be bond yields in general and the deepness 467 00:25:51,040 --> 00:25:53,960 Speaker 1: of the curve, the defferminent stock price performance. UM. There 468 00:25:53,960 --> 00:25:56,800 Speaker 1: are a few other things going on, less regulation, UM, 469 00:25:57,400 --> 00:25:59,840 Speaker 1: you know, the the capital return stories of the of 470 00:25:59,880 --> 00:26:02,520 Speaker 1: the banks that also generate UM so interest. I think 471 00:26:02,560 --> 00:26:04,800 Speaker 1: the biggest story that is not really being told in 472 00:26:04,840 --> 00:26:06,960 Speaker 1: the banks right now is that we're going to see 473 00:26:06,960 --> 00:26:08,479 Speaker 1: a turn in the fourth quarter and to pick up 474 00:26:08,560 --> 00:26:11,640 Speaker 1: later in the year, later next year UM into the 475 00:26:12,080 --> 00:26:15,000 Speaker 1: commercial industrial loan activity. There's a six quarter lag between 476 00:26:15,000 --> 00:26:17,600 Speaker 1: the senioral and officers survey from the Fellow Reserve Board 477 00:26:17,680 --> 00:26:20,919 Speaker 1: on C and I are commercial industrial planning standards and loans, 478 00:26:20,960 --> 00:26:22,240 Speaker 1: and I think that's going to be the kind of 479 00:26:22,240 --> 00:26:25,080 Speaker 1: growth story for banks that aren't necessarily being captured. But 480 00:26:25,080 --> 00:26:27,679 Speaker 1: you're right, the curve does matter. Well do you have 481 00:26:27,760 --> 00:26:29,480 Speaker 1: can you give us a deep's number? I mean, I 482 00:26:29,480 --> 00:26:32,160 Speaker 1: know you're not bond guy, but it's I mean, Mr 483 00:26:32,200 --> 00:26:36,800 Speaker 1: Gross is talking tensions at two tens spread fifty forty 484 00:26:36,920 --> 00:26:39,840 Speaker 1: five basis points. George Borriot Wells Fargo agrees with that. 485 00:26:39,880 --> 00:26:42,240 Speaker 1: A lot of people don't do you have a number? 486 00:26:42,480 --> 00:26:44,320 Speaker 1: I don't look, I don't have a real number. Where 487 00:26:44,359 --> 00:26:46,320 Speaker 1: does everybody get nervous? Because it's hard to really get 488 00:26:46,359 --> 00:26:48,960 Speaker 1: into everything. But but I think as you start getting 489 00:26:48,960 --> 00:26:51,560 Speaker 1: closer and closer to flat, if it's twenty five basis 490 00:26:51,600 --> 00:26:55,000 Speaker 1: points twenty, people are gonna get very nervous about economic conditions, 491 00:26:55,000 --> 00:26:57,800 Speaker 1: and the FED may have to kind of manipulate the 492 00:26:57,840 --> 00:27:00,119 Speaker 1: longer end of the curve a bit um. You know, 493 00:27:00,240 --> 00:27:02,040 Speaker 1: you break a little fifty, people will start to worry 494 00:27:02,040 --> 00:27:04,359 Speaker 1: about twenty five. Break below twenty five, and everybody's going 495 00:27:04,440 --> 00:27:06,879 Speaker 1: to be terrified. I mean I should point out that 496 00:27:07,000 --> 00:27:09,520 Speaker 1: Mr Lefkovitch and I have been through this a few 497 00:27:09,560 --> 00:27:14,400 Speaker 1: times before. Let us talk about hydrocarbons. Have you made 498 00:27:14,400 --> 00:27:20,040 Speaker 1: a you're putting together your two thousand eighteen view, Excuse me, 499 00:27:20,080 --> 00:27:22,879 Speaker 1: we're sort of range e, but I would say almost 500 00:27:22,880 --> 00:27:25,200 Speaker 1: at the high end of range. Can you, with your 501 00:27:25,359 --> 00:27:29,679 Speaker 1: terrific commodities teams say a bottom to the oil market 502 00:27:29,720 --> 00:27:32,439 Speaker 1: finally at five zero? So I tend to defer, as 503 00:27:32,480 --> 00:27:35,160 Speaker 1: you know, to add Morris on this and commodity team 504 00:27:35,560 --> 00:27:37,600 Speaker 1: they're they're a little nervous that oil prices have run 505 00:27:37,600 --> 00:27:39,399 Speaker 1: a bit too high right now and that there's some 506 00:27:39,440 --> 00:27:42,400 Speaker 1: pullback nearer term. But I think generally speaking, they're still 507 00:27:42,440 --> 00:27:45,040 Speaker 1: thinking that we can get into those sixties UM on 508 00:27:45,080 --> 00:27:47,199 Speaker 1: a W T I basis, But you know, think of 509 00:27:47,200 --> 00:27:53,000 Speaker 1: it this way. UM as you get recount growth rates 510 00:27:53,000 --> 00:27:55,600 Speaker 1: start to diminish, which we've already started to see. It's 511 00:27:55,720 --> 00:27:58,399 Speaker 1: usually when energy stocks start to pick up, the market 512 00:27:58,440 --> 00:28:01,879 Speaker 1: starts to sense that their summary balancing coming, especially if 513 00:28:01,960 --> 00:28:04,640 Speaker 1: you think about jail projects and have three year lifespans. 514 00:28:04,640 --> 00:28:06,359 Speaker 1: So if you're not adding lots and lots of riggs, 515 00:28:06,400 --> 00:28:08,639 Speaker 1: eventually the production comes off and you get some balance. 516 00:28:08,920 --> 00:28:10,879 Speaker 1: So I think that's more the story and the stocks. 517 00:28:10,920 --> 00:28:13,800 Speaker 1: Let's less about the commodity. So let's let then go 518 00:28:13,840 --> 00:28:16,600 Speaker 1: to what's kept us going here? And I guess it's 519 00:28:16,640 --> 00:28:18,720 Speaker 1: it's I don't. I'm not as cynical as to say 520 00:28:18,720 --> 00:28:21,320 Speaker 1: it's financial engineering, but diviting growth in share buy back 521 00:28:21,920 --> 00:28:23,440 Speaker 1: have been a huge part of the story. I know 522 00:28:23,560 --> 00:28:25,840 Speaker 1: Zero has just that great chart where they go the 523 00:28:25,920 --> 00:28:28,879 Speaker 1: percentage of the market move that's been from share buy backs. 524 00:28:29,359 --> 00:28:31,520 Speaker 1: Have share buy back has been the strength of this 525 00:28:31,600 --> 00:28:34,520 Speaker 1: pool market. You buy that theory, No, I don't. I 526 00:28:34,560 --> 00:28:37,160 Speaker 1: think what we what we've actually looked at is what's 527 00:28:37,359 --> 00:28:40,560 Speaker 1: what's the change and shares outstanding as opposed to how 528 00:28:40,640 --> 00:28:42,520 Speaker 1: much money is being spent on bibacks. The peak here 529 00:28:42,520 --> 00:28:45,640 Speaker 1: for buybacks in dollar terms, for example, was two thousand seven, 530 00:28:45,720 --> 00:28:48,600 Speaker 1: right before the market's corp. Interesting. You're you're you're looking 531 00:28:48,640 --> 00:28:52,640 Speaker 1: at the unit change, how many shares outstanding are there? 532 00:28:52,720 --> 00:28:54,800 Speaker 1: And they've been coming off by about a half a 533 00:28:54,880 --> 00:28:57,480 Speaker 1: percent to maybe one percent a year the last five years. 534 00:28:57,800 --> 00:29:01,160 Speaker 1: So if you think about earnings per share, the contribution 535 00:29:01,240 --> 00:29:03,960 Speaker 1: from less shares outstanding is like a half a percent 536 00:29:04,240 --> 00:29:06,400 Speaker 1: to the earnings growth. So that's not really the story. 537 00:29:06,800 --> 00:29:09,520 Speaker 1: What it is doing, though, and this is valuable as well, 538 00:29:10,040 --> 00:29:13,720 Speaker 1: is it's it's removing share creep. So normally you would 539 00:29:13,720 --> 00:29:17,160 Speaker 1: have seen two, three, maybe even four percent incremental shares 540 00:29:17,160 --> 00:29:21,440 Speaker 1: outstanding through either share grants or bad acquisitions using stock. 541 00:29:21,840 --> 00:29:24,560 Speaker 1: So they're removing that, if you like, the dilution that 542 00:29:24,600 --> 00:29:27,160 Speaker 1: would have occurred otherwise. So there is value to it, 543 00:29:27,200 --> 00:29:30,560 Speaker 1: but it's not really contributing turnings. It's preventing the delution 544 00:29:30,600 --> 00:29:34,400 Speaker 1: of the earnings. How distorted? One final question, how distorted 545 00:29:34,520 --> 00:29:37,040 Speaker 1: is the do the new vogue? You know, it used 546 00:29:37,040 --> 00:29:39,720 Speaker 1: to be there was Buffett with an expensive share, and 547 00:29:39,760 --> 00:29:42,200 Speaker 1: now the new vogue is we're never gonna split, which 548 00:29:42,240 --> 00:29:44,120 Speaker 1: you know, it's fine, I get it, but does that 549 00:29:44,160 --> 00:29:46,400 Speaker 1: mean the DOU is You know, it's what we follow 550 00:29:46,480 --> 00:29:50,680 Speaker 1: twenty three thou thirty futures up a hundred eleven. Okay, 551 00:29:50,920 --> 00:29:54,640 Speaker 1: but is it as distorted as has ever been? Well? Again, 552 00:29:54,680 --> 00:29:57,240 Speaker 1: we tend to use the SMP five hundred more because 553 00:29:57,280 --> 00:30:00,400 Speaker 1: it's a broader index UM and the you can do 554 00:30:00,440 --> 00:30:03,120 Speaker 1: equally weighted chairs as well if you wanted to. There's 555 00:30:03,120 --> 00:30:07,400 Speaker 1: a value and arithmetic UM. So we don't focus that 556 00:30:07,520 --> 00:30:09,560 Speaker 1: much on the DOW. The doll was a residual for us. 557 00:30:09,600 --> 00:30:12,120 Speaker 1: It's less of the determining factor. We don't do earning 558 00:30:12,120 --> 00:30:14,280 Speaker 1: his estimates for the DOW because it's just too limited. 559 00:30:14,280 --> 00:30:16,840 Speaker 1: When you have thirty names were you're quickly on General 560 00:30:16,840 --> 00:30:18,920 Speaker 1: Electric and the industrials. I know you're not gonna comment. 561 00:30:19,000 --> 00:30:21,720 Speaker 1: I won't comment on the company specifically, but um, we 562 00:30:21,760 --> 00:30:24,240 Speaker 1: have We had been earlier in the year overweight capital 563 00:30:24,240 --> 00:30:27,800 Speaker 1: goods were kind of neutral. Right now we think selectively. 564 00:30:27,800 --> 00:30:30,360 Speaker 1: There's some really good names. Industrial activity is picking up 565 00:30:30,360 --> 00:30:32,640 Speaker 1: and like this day strong. You know, my background was 566 00:30:32,680 --> 00:30:34,600 Speaker 1: a machine reality, so I kind of like the old 567 00:30:34,600 --> 00:30:38,240 Speaker 1: cyclical names that I used to cover UM. But some 568 00:30:38,280 --> 00:30:40,160 Speaker 1: of them have run pretty strong already, and we've got 569 00:30:40,160 --> 00:30:42,400 Speaker 1: to be a little bit more careful. I've been through 570 00:30:42,440 --> 00:30:45,360 Speaker 1: this whole interview folks here on the surveillance Internet. I've 571 00:30:45,400 --> 00:30:47,600 Speaker 1: been looking at hockey News. I just did a word 572 00:30:47,600 --> 00:30:53,080 Speaker 1: search Canadians and Lefkovich and maybe next week, maybe a 573 00:30:53,080 --> 00:30:56,000 Speaker 1: couple of more losses they might you know, I'm open, 574 00:30:56,120 --> 00:30:59,360 Speaker 1: Mr Molson anytime, very Mr Mailson, Thank you for listening 575 00:30:59,440 --> 00:31:02,360 Speaker 1: up and come back this morning. Mr lev Cavechs with 576 00:31:02,440 --> 00:31:06,480 Speaker 1: City Group, of course, melding equities into all the other 577 00:31:06,560 --> 00:31:12,560 Speaker 1: things that we covered. Thanks for listening to the Bloomberg 578 00:31:12,560 --> 00:31:18,520 Speaker 1: Surveillance Podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, 579 00:31:18,880 --> 00:31:23,120 Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at 580 00:31:23,160 --> 00:31:27,360 Speaker 1: Tom Keene before the podcast. You can always catch us worldwide. 581 00:31:27,880 --> 00:31:28,960 Speaker 1: I'm Bloomberg Radio.