Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane
Speaker 1: Jai Ley. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. John,
Speaker 1: you know that there's Germany, which is a huge deal,
Speaker 1: way bigger than the US press is given it. And
Speaker 1: there's the budget in the United Kingdom. I guess we've
Speaker 1: got to go like we did yesterday and Arsenal Tottenham.
Speaker 1: The budget process in the United Kingdom, John, seems so
Speaker 1: different than over here. What's a distinctive feature from the
Speaker 1: lad from Coventry. Well, it's a parliamentary system and I
Speaker 1: think it's a lot easier to execute the budget in
Speaker 1: the United Kingdom than it is here in the United States.
Speaker 1: For one, I mean there's so many people that have
Speaker 1: told me when I first moved over here, when they
Speaker 1: reduce the budget here in the United States, it's a
Speaker 1: little bit different because it takes a long long time
Speaker 1: to actually get any kind of approval. In the UK,
Speaker 1: you have a majority in parliament, the chance to introduces
Speaker 1: the budget, and it's kind of just done. You accept
Speaker 1: what comes through and then that's it through the term
Speaker 1: of parliament. Very good one, and then they redo it
Speaker 1: the following year. Well spreads are in I mean, you
Speaker 1: know that's where we are they going to deal with
Speaker 1: that in the United Kingdom and EVERYWHERELSE, Why don't you
Speaker 1: bring in our gentleman from Wells Fargo, John George Bori,
Speaker 1: joining us now of course to BC Securities Global Equity
Speaker 1: strategists on on the market. George is great to have
Speaker 1: you with us on the program. Looking at the situation
Speaker 1: at the moment, tom as I'm looking at the markets,
Speaker 1: I'm looking at a situation where things futures are positive
Speaker 1: at the moment by about sixty eight points, futures up
Speaker 1: by about six or seven points. The story for me
Speaker 1: looking at the situation in the United States is whether
Speaker 1: they get tax reformed done? Is that going to happen?
Speaker 1: And it's it gonna be the bill that we connrety see. Yeah, thanks,
Speaker 1: it's good to be on the show this morning. You
Speaker 1: know the tax bill, you know it, something is going
Speaker 1: to get done. People keep saying that. I think it's
Speaker 1: been repeated over and over that certainly our firm view
Speaker 1: and that's what we expected. We don't think it's sort
Speaker 1: of what is exactly proposed today. You know, we're going
Speaker 1: through the process of iteration between the House and the Senate.
Speaker 1: Um what seems very likely. It's it's sort of a
Speaker 1: pro it's a pro business tax bill, likely to implement
Speaker 1: meaningful tax cuts for corporations, and it's it's attempting to
Speaker 1: incentivize companies to both bring money home through repatriation and
Speaker 1: reinvest that money here in the US. UM. You know,
Speaker 1: I balanced that should be a good thing, but the
Speaker 1: question of whether it ultimately gets done is probably on
Speaker 1: the other side of the ledger when you think about
Speaker 1: what's happening with individuals. That's my fault. We have a
Speaker 1: surveillance correction here. I told John Farrow's HSBC, and I
Speaker 1: was I was looking east wells Fargo is like the
Speaker 1: stage coaches, John, wherever you go there have age coaches
Speaker 1: and it's far far west in San Francisco. But HSBC
Speaker 1: is farther west across the Pacify that you have to
Speaker 1: get to Asia's home. Yeah, completely went down in flames
Speaker 1: on that excuse, right, No, I mean, and so I
Speaker 1: think tax reform becomes absolutely pivotal for for next year
Speaker 1: and in the corporate bondmark in the area that that
Speaker 1: I focus on, you know that that becomes a very
Speaker 1: big issue. So what a company is gonna do with
Speaker 1: a that that tax cut and then ultimately with access
Speaker 1: to sort of this money they have sitting all over
Speaker 1: the world, and our basic expectation is they're going to
Speaker 1: try and use it. They're gonna lever up that saved
Speaker 1: earnings from a tax cut. They're gonna lever up that
Speaker 1: cash that sits overseas and in various jurisdictions, and that
Speaker 1: could drive a little bit of investment here in the US.
Speaker 1: But I think what it's really going to drive is
Speaker 1: a big increase in M and A. UM. You know,
Speaker 1: they're they're a whole. That's fascinating because I T and
Speaker 1: T is fronts and cents of worldwide. Today. A big
Speaker 1: conversation about whether that deal was going to get blocks.
Speaker 1: We thought this administration would have the doors open for
Speaker 1: some big deals if these companies bring that money home
Speaker 1: and want to do big M and I Are you
Speaker 1: confident that it gets done well? I think certainty for
Speaker 1: for tax reform is important, and I think if you
Speaker 1: look at m and A activity over the past year. Uh,
Speaker 1: it's down about from the prior year. We peaked in
Speaker 1: M and A volumes back in two thousand and fifteen.
Speaker 1: Sixteen was a pretty good year as well. This year
Speaker 1: has been a notable slowdown. And I think there's there's
Speaker 1: sort of two issues at play. One is political, as
Speaker 1: you mentioned, and that has a few very deal specific
Speaker 1: issues attached to it. But the other issue is is
Speaker 1: really just what is your tax structure? A lot of
Speaker 1: a lot of um M and A deals are are
Speaker 1: driven around how how tax the tax structure sets up
Speaker 1: for the deal. Once that's clear, then you have a
Speaker 1: lot of industries, several very big industries that have a
Speaker 1: significant amount of pipeline um M and A activity that
Speaker 1: I think ultimately comes through George Boy this with Wells
Speaker 1: Fargo how to credit strategy. George, Wells Fargo has got
Speaker 1: a huge platform, a nationwide platform. What is the analysis
Speaker 1: of the entire team, your credit strategy, your economics of
Speaker 1: John Sylvia and the rest. What is the analysis of
Speaker 1: this tax cut bill if it actually goes through, does
Speaker 1: it really does it help business for you? Forget about
Speaker 1: the middle class, forget about John Farrell forget about me,
Speaker 1: forget about Rich Truman. Does it help businesses? It's called
Speaker 1: I think on balance it should, and I think what
Speaker 1: it what it can do? Um. You know, a material
Speaker 1: tax cut to corporations improves cash flow, and then it
Speaker 1: really becomes what do companies do with the cash flow?
Speaker 1: I think the actual economic impact will be modest, you know,
Speaker 1: a few tents of a few of a percent over
Speaker 1: a couple of years. UM. That's sort of the actual
Speaker 1: economic impact. But corporate activity should actually kind of kind
Speaker 1: of pick up, and I think that's where you could
Speaker 1: start to see, you know, maybe the momentum impact of
Speaker 1: of of a tax change. The The other issue is
Speaker 1: it does incentivized companies um to spend a little bit
Speaker 1: more on capital spending that is a mild positive, and
Speaker 1: to utilize kind of these big pools of cash that
Speaker 1: are that are sitting all around the world. And then
Speaker 1: the last bit, which doesn't really I didn't get a
Speaker 1: lot of attention, UM, is it's it's intended to pull
Speaker 1: money back to the US. A corporate tax rate of
Speaker 1: for America makes the US corporate structure very competitive versus
Speaker 1: the rest of the developed world and even some of
Speaker 1: the not so developed world, so that that low cost
Speaker 1: base could actually kind of pull some investment into the country.
Speaker 1: To be fair, it is a redistribution of taxes, and
Speaker 1: so you know, sort of that's where the economic impact
Speaker 1: is a little uncertain because the individual doesn't benefit as
Speaker 1: much as you know, maybe you know, the economy would rely.
Speaker 1: I don't know what your males like, John John Farrell,
Speaker 1: My male's brutal in this vicious and was sent. People
Speaker 1: can't stand it. It's a top to a bout them
Speaker 1: every politics. People are really upset about these two proposals.
Speaker 1: I just think looking at the corpora sana things. George,
Speaker 1: you mentioned the competitiveness of US companies. When I look
Speaker 1: at US multinationals, I don't see a competitiveness problem. They're
Speaker 1: dominating pretty much every sector therein So what's the argument
Speaker 1: now that we need to come down Why? Well, I
Speaker 1: think it it helps improve the competitiveness of the US.
Speaker 1: It actually draws capital to the US. It creates a
Speaker 1: competitive capital structure on an already competitive capital base, and
Speaker 1: I think that you know, that ensures that you know,
Speaker 1: US economic competitive competitiveness kind of persist for the foreseeable future.
Speaker 1: And I think there's Also there's a much bigger rotation
Speaker 1: here that governments sort of around the world have been
Speaker 1: evolving to and that's you know, less taxes on corporations
Speaker 1: and more taxes on individuals, and the US is trying
Speaker 1: to thread that needle, if you will, and take it
Speaker 1: one step further. How much price down should I enjoy
Speaker 1: before I sweat? Is it like price down of a
Speaker 1: year's coupon, price down of two years? What does price
Speaker 1: down become painful down? Yeah? Yeah, pain you know, I
Speaker 1: think you're talking about price down yields up. That would
Speaker 1: be true. That's very good, John, John Ferrell Maker, Michael Barr.
Speaker 1: This is too complicated for we just got a bump.
Speaker 1: When the pain set it, I think it depends on
Speaker 1: the pace of the pain. You can you can be
Speaker 1: you know, it's sort of cut by a foul, you know,
Speaker 1: death by a thousand cuts. You know, sometimes it hurts
Speaker 1: a little over a long period of time versus one
Speaker 1: fell swoop. And that seems to be the environment we
Speaker 1: we seem to be moving into. We're not quite there yet.
Speaker 1: So when you look at the front end of the curve,
Speaker 1: I think it's a good good example of that. It
Speaker 1: yields have crept a little bit higher. Believe, price went down.
Speaker 1: Price went down, and and you are seeing some dislocations.
Speaker 1: I think, I think hot some of the dislocations you've
Speaker 1: seen in the high yield market over the last couple
Speaker 1: of weeks are a function of those higher yields and
Speaker 1: lower price. Some dislocations, as George Bori talked for, somebody
Speaker 1: just gave up their bonus, some two institutional portfolio. George Bori,
Speaker 1: thank you so much for spreading the glee on the Gloom.
Speaker 1: He is with Wells Fargo head of Credit Strategy. We
Speaker 1: greatly appreciate his attendance. It is a classic book. And
Speaker 1: John Farrell, I'm sorry to say next year will be
Speaker 1: thirty years on Jeffrey Burnba on the outstanding Jeffrey Burnbaum
Speaker 1: with the outstanding Allen Murray showdown at Gucci Gulch. Steve
Speaker 1: Bell has never worn Gucci, but he was there and
Speaker 1: he's with us now. He's with a Bipartisan Policy Center
Speaker 1: and was with Senate Budget in six and is truly
Speaker 1: one of the wise men of Washington. Steve Bell, what
Speaker 1: was it like two weeks four they got this thing
Speaker 1: through the House in what was it like. I think
Speaker 1: it was great enthusiasm. Um. Everyone knew that the votes
Speaker 1: were there. You had bipartisan support, is support from the
Speaker 1: President of course, um. And I think there was a
Speaker 1: really upbeat mood. Uh. When you get something bipartisan like that,
Speaker 1: you have Republicans and Democrats and the executive branch all
Speaker 1: on the same page, you really can do something historic
Speaker 1: like act. And I think that's the big difference between
Speaker 1: now and thirty years ago. Within this, can you predict
Speaker 1: with your immense experience experience of Baker, Dashville, Mitchell and
Speaker 1: the rest, can you predict the next four weeks? Yeah,
Speaker 1: I'm going to give give it a shot. Actually. One,
Speaker 1: I think they're going to run into a lot of
Speaker 1: problems on the floor of the Senate with the tax bill,
Speaker 1: over reasons that not many people have mentioned. One, the
Speaker 1: likelihood that this will increase the deficit much larger than
Speaker 1: people expect. Number Two, I think they know that if
Speaker 1: the deficit estimates go up, it's going to make it
Speaker 1: very hard to pass all the spending bills that keep
Speaker 1: the government open just three weeks from now Tom eight.
Speaker 1: And at the bottom of it, there are elements in
Speaker 1: here which seem to favor um real estate high income
Speaker 1: UH recipient high income earns, and the possibility that the
Speaker 1: fact that certain provisions may advantage the real estate industry
Speaker 1: could make Democrats start to talk about the president's empire
Speaker 1: in real estate again, as they did last year. So
Speaker 1: I you know, I know that we'll solve state and
Speaker 1: local in some way, will solve the mortgage interest deduction
Speaker 1: in some way, So we'll take care of those things.
Speaker 1: And that's what's been in the news. But underlying all
Speaker 1: this are these generalized bears. What is this going to
Speaker 1: do to deficit and debt? Because we have a debt
Speaker 1: ceiling that's about ready to hit us probably early next year,
Speaker 1: and you know, if we get if we get to
Speaker 1: a trillion dollar deficit estimates, which I think we will
Speaker 1: for f y n um, that's really want to bring
Speaker 1: people's attention back to that, Steve, Steve, let me bring
Speaker 1: in John Farrell, who wears glasses that look like Howard
Speaker 1: Baker's from another time, and Steve about help me out here.
Speaker 1: What's the rush? Oh, the Republicans need This is really simple,
Speaker 1: and it's really kind of funny. They are frantic to
Speaker 1: get something done, so they don't really care about what
Speaker 1: people say about Roy Moore. All they want is to
Speaker 1: get this done before if More loses in Alabama, before
Speaker 1: his Democratic UH opponent would be seated in the Senate,
Speaker 1: that would be about December of the rush. One, we
Speaker 1: got to do something because they're frantic. Two, we have
Speaker 1: to do it before December because we'll lose one vote
Speaker 1: in the Senate, which is critical. And number three, we
Speaker 1: have to be honest about this bill. This is a
Speaker 1: bill that was designed to cut taxes for business and
Speaker 1: admirable goal, but they said, you know that's not going
Speaker 1: to fly in this day and age, So we have
Speaker 1: to put in some stuff that looks like we're helping
Speaker 1: the average worker. And that's really, in my view, strategically
Speaker 1: how it was concocted. So I think for many people,
Speaker 1: they're already looking ahead to the next election, the midterms.
Speaker 1: What are the consequences if this bill gets rushed through
Speaker 1: in the midterms next year. Well, Number one, Republicans think
Speaker 1: it will really enhance their chances to retain the House
Speaker 1: and Senate, especially in the House, whether there are there
Speaker 1: are some questions about retention. Number two Democrats and we're
Speaker 1: here to buy pars and policy center have active democrats
Speaker 1: as well as active you do have democrats. You have
Speaker 1: democrats in the building. Oh my goodness, Yes, surveillance break exclusive.
Speaker 1: And one of the very best of them said to me,
Speaker 1: you guys think you should pass this because it will
Speaker 1: help you in two thousand eighteen. We think you should
Speaker 1: pass it because it's gonna help us in two thousand eighteen.
Speaker 1: And what do you think, Well, I think it's going
Speaker 1: to help the Democrats. I think this bill, by the
Speaker 1: time it's cost it out next year by independent people
Speaker 1: liked a Congressional Budget office, by the time the distribution tables,
Speaker 1: who gets how much benefit from it? I think this
Speaker 1: will lead to a lot of nice thirty second ads
Speaker 1: and a lot of social media adds. So, Steve, when
Speaker 1: these senateces go back to that constituents this week, does
Speaker 1: the penny drop. No. I think they have got talking
Speaker 1: points you will get and you saw the talking points
Speaker 1: on the House floor. You're going to get a thousand
Speaker 1: dollar tax break. I promise you. They will not say
Speaker 1: that that tax break is going to expire in seven years. Uh,
Speaker 1: We're going to have a cut for business and we
Speaker 1: have thousands and thousands of new jobs. They won't say
Speaker 1: we're already at the lowest unemployment in decades, so they
Speaker 1: will be able to get away. I think this week,
Speaker 1: with people's attention really devoted to Thanksgiving and stuff, I
Speaker 1: think they'll get away this week without a lot of kickback.
Speaker 1: I think two weeks from now, UM, when we know
Speaker 1: the results, three weeks from now, when we know the
Speaker 1: results of the Alabama election. UM, when we have had
Speaker 1: people really take a look at this bill and they
Speaker 1: read editorials in the papers saying, hey, we'll get a
Speaker 1: big tax that. Like you said, it's so and so
Speaker 1: and so and so, I think then the erosion will start. Say.
Speaker 1: Something we've explored on this program in the last twenty
Speaker 1: four hours is the politics of the campaign trail and
Speaker 1: the economics that underpend the win of President Donald Trump.
Speaker 1: We seem to have a big divorce between that and
Speaker 1: the policies they're executing down in DC. At the moment,
Speaker 1: it does not appear to me that this tax bill
Speaker 1: would address the inequality that came up on the campaign trail.
Speaker 1: Does it address those things for you? Oh? No, I
Speaker 1: think when you take a look at some of the details. UM.
Speaker 1: For example, if you're a graduate assistant you're making twenty
Speaker 1: dollars a year, you know, to be a graduate assistant,
Speaker 1: and they forgive you your tuition very now, tens of
Speaker 1: thousands of people do that. Now, under this bill, you
Speaker 1: would be taxed on the tutition benefits. So let's say
Speaker 1: that tuition was forty, you would be taxing at forty,
Speaker 1: which means you wouldn't be making dollars for your work. Okay, well,
Speaker 1: Steve Bell, let's take this to Washington. Good morning, nine
Speaker 1: and nine one FM, Washington. Let's say that graduate assistant
Speaker 1: is it American University? Killer school outside Washington. A lot
Speaker 1: of people good, good morning, David Gregory. A lot of
Speaker 1: people go there who really get things done down the road.
Speaker 1: Is this just a mean spirited idea? I mean, you've
Speaker 1: been doing this since time began? Where does this what's
Speaker 1: the right word, John, there's a British word for this, Like,
Speaker 1: where does this this mean spiritedness come from little tenC
Speaker 1: weency thing to the next tenC weency thing? Is this original? Oh?
Speaker 1: It's original? And and and frankly it's because they need
Speaker 1: the money. It's just that, come on, well, what are
Speaker 1: they going to get out of a graduate student of
Speaker 1: American University Coast to coast a couple of million bucks. Yeah,
Speaker 1: not very much. But I there are provisions in here
Speaker 1: which make you scratch your head. I agree that you
Speaker 1: wonder who is mad at the university's Well, apparently somebody
Speaker 1: on the Senate Finance Committee or this Finance Committee staff
Speaker 1: really doesn't like this break and doesn't like perhaps, as
Speaker 1: you said, American University. So I I've got to tell
Speaker 1: you that one has caused a lot of discussion among
Speaker 1: the universities because he could have a significant impact on
Speaker 1: gradual resistance and graculate education. There's some other things in here.
Speaker 1: Let's take a look at this so called transfer. This
Speaker 1: is a crazy thing. You buy a piece of art
Speaker 1: for five million, now it's worth twenty. You come to
Speaker 1: me and you say, Belle, you've got something worth twenty.
Speaker 1: I want to trade you even under the law now
Speaker 1: you're from five to twenty, but you weren't taxed on it.
Speaker 1: May we just considered ten transfer. There's a language in
Speaker 1: this bill. There's language in this bill that prohibits that
Speaker 1: takes away your ability just to do that trade except
Speaker 1: real estate development. That's interesting, isn't it. Steve, you gotta
Speaker 1: leave it there, Steve Bell, thank you so much so
Speaker 1: Bipartisan Policy Center today with US right now, Tobias Levkovich
Speaker 1: of City Group, and Tobias, I really want to go
Speaker 1: to the wheelhouse, which is these city groups surprise Index.
Speaker 1: It's actually very cool. A lot of people outside City
Speaker 1: Group follow it. What what does it say it right now? UM?
Speaker 1: So the data is actually pretty strong. If you look
Speaker 1: at the City US Economic Surprise Index, UM, it's kind
Speaker 1: of nearing five year highs. That gets me a little
Speaker 1: bit concerned that it could roll because there is some
Speaker 1: inherent mean reversion to the model. UM. But I'm also
Speaker 1: hoping the intellectual capital comment was not directed to me.
Speaker 1: It's very much directed. It makes the boss don't worrying
Speaker 1: about that going into next year. It's kind of shut
Speaker 1: your eyes and hope for more from what I'm saying
Speaker 1: in some of the forecasts on SMP year. So I
Speaker 1: think it's, you know, a question about what you think
Speaker 1: the concerns around FED policy, for example, relative to economic trend.
Speaker 1: In other words, if economic trend is actually looking stronger,
Speaker 1: and most of our leading indicators suggest it is, then
Speaker 1: what's the pace at which the Fed moves and do
Speaker 1: you kind of cap off the opportunity. There's also some
Speaker 1: element of we're bringing forward some of the next year's
Speaker 1: return into this year as a result of, for example,
Speaker 1: tax policy initiatives to bias. I think a big thing
Speaker 1: for money is waiting for that late cycle behavior that
Speaker 1: melts up in equity market. A lot of people thought
Speaker 1: it would happen this year. We've not seen it. Are
Speaker 1: you starting to see signs of it? At least that
Speaker 1: we're at that late cycle mounts up phase in the
Speaker 1: in the bull market, So we haven't really seen signs
Speaker 1: of in terms of big money flow coming in, which
Speaker 1: is where the meltuple would come. We are seeing our
Speaker 1: for example, are panickyphoria UH index or model which tracts
Speaker 1: sentiment in a variety of ways, starting to edge higher.
Speaker 1: It's still in neutral territory, but it's the upper end
Speaker 1: of neutral. You've said, that's sending someone the yellow caution
Speaker 1: sign at the moment, but not a red flag quite yet.
Speaker 1: Um So I do see in that sense, but not
Speaker 1: in the money flow. And I think investors are caught.
Speaker 1: We refer to it as being caught between two very
Speaker 1: powerful forces foam O, the fear of missing out, and
Speaker 1: foam move the fear of messing up. So they're there,
Speaker 1: they're you know, they had a nice run, they're little
Speaker 1: do overstair welcome concern kind of question pops up or
Speaker 1: did I miss the run? Do I come in now?
Speaker 1: And then it comes down and I mess up? Well,
Speaker 1: let's do the look back. But now twelve months trailing
Speaker 1: return SMP return NASDAQ four could almost round it up
Speaker 1: to return. I've been told that it's a single digit world.
Speaker 1: I'm not observing that. When does it become a single
Speaker 1: digit world? So what we suspect next year? But part
Speaker 1: of it is also we've had double digit earnings growth
Speaker 1: in the first to three quarters of the year, and
Speaker 1: up and down the income statement, you've got the same
Speaker 1: kind of constructive revenue down through the margins. It is
Speaker 1: happening that way. But it's also momentum driven. So you're seeing,
Speaker 1: for example, you sided number of statistics, but if you
Speaker 1: look at momentum driven factors, you're probably up thirty seven percent.
Speaker 1: So it's not across the board. Certain areas like energy,
Speaker 1: telecom you've lost money this year. Um. What is fascinating
Speaker 1: is if you look at the constituents of the SMP.
Speaker 1: A lot of people have talked about faying. For example,
Speaker 1: about fifty percent of the SMPI constituents have outperformed the
Speaker 1: SMP this year, so it's a very widespread rally. It
Speaker 1: is not just about four or five names. It's speaking
Speaker 1: of momentum. To Bus, it seems to me that this year,
Speaker 1: at the beginning of the year, if I'd said that's
Speaker 1: in a bubble, that's in a bubble, that's in a bubble,
Speaker 1: and you bought the bubbles, you've done pretty well this year.
Speaker 1: Someone might have said the fangs were in a bubble,
Speaker 1: You've done well. Bitcoin ev we won't go that to bus,
Speaker 1: don't worry. I could have said that was a bubble
Speaker 1: for the last five years, and you would have done
Speaker 1: beautifully this year. What do you make it the momentum
Speaker 1: that we have seen through seventeen and how strong is it?
Speaker 1: So there is very powerful trends and technology that are
Speaker 1: driving some of the names that that you've meant that
Speaker 1: you're highly were hinting at, and we have you know,
Speaker 1: just think about what's going on in technology today. You've
Speaker 1: got cybersecurity, you've got a cloud, you've got mobility, you've
Speaker 1: got um the little botics, automation, virtual reality. I mean,
Speaker 1: there's so many different powerful trends that are forcing companies
Speaker 1: to spend and that online versus brick and mortar type
Speaker 1: of shift that's been going on because of convenience, sitting
Speaker 1: at home and your jammies and ordering stuff to bias.
Speaker 1: Nobody cares fills up in Montreal saying asked to bias.
Speaker 1: There's thirty one teams in the National Hockey League. The
Speaker 1: Halbs are thirty in goals per game, twenty ninth and
Speaker 1: goals against in power play. And I've never seen a
Speaker 1: team that is that bad. When do you take over
Speaker 1: as coach? And I'll tell you as general manager or
Speaker 1: president hockey operations any day. I apologize to my city employers,
Speaker 1: but I'm he's gone. Tobias is so gone that I
Speaker 1: can I can handle people yelling at me. But Mark
Speaker 1: Bergeman has a lot of answer for the mirror mortals
Speaker 1: that are non Canadians understand this is a national disgrace.
Speaker 1: I don't think they quite understand, and I don't think
Speaker 1: I don't think that justin Trudeau socks can solve it either.
Speaker 1: Well there would be that as well, Phil. Thank you
Speaker 1: so much for emailing and love to hear from you.
Speaker 1: And there's your Canadians UH Montreal Canadians review with Mr Levkovich.
Speaker 1: Assuming tax overhaul passes, We just had a whole conversation
Speaker 1: with the pass Leftovic City Group chief US equity strategist
Speaker 1: on the markets without discussing politics in d C. Is
Speaker 1: there a reason for that to bias? Look, the if
Speaker 1: you get tax reform, you could add nine ten to
Speaker 1: earnings estimates next year, so it does have a real
Speaker 1: market impact. Question that you'd have to ask yourself a
Speaker 1: little bit is does the market give the same multiple
Speaker 1: to tax related earnings as it does to operating efficiencies
Speaker 1: within companies? And that I think is a fair one. Um.
Speaker 1: We we've we wrote about this early in the year
Speaker 1: that we didn't think the market would give you quite
Speaker 1: the same multiple for the tax benefits. But again, it
Speaker 1: would be very instrumental to the earning comparisons. You reverere
Speaker 1: you've got the headline tax rate to bus and then
Speaker 1: you've got the effective tax rate that these companies already pay.
Speaker 1: So talk to me about sector to sector where the
Speaker 1: biggest difference is actually going to be made effective tax
Speaker 1: right now versus what they'll pay perhaps next year and beyond.
Speaker 1: So if you look an aggregate for the SMP five
Speaker 1: hundred tax rate over the past couple of years have
Speaker 1: been about effectively and if it drops to that's the
Speaker 1: seven point differential um we've we have already in our
Speaker 1: estimates for next year rate, so about four dollars of
Speaker 1: incremental learning capacity already built in. But you get about
Speaker 1: ten dollars more if you went down to certain sectors
Speaker 1: like financial's regional banks for example, clearly very uh exposed.
Speaker 1: Some other ones utilities which are very domestic would probably
Speaker 1: have to give that back in the rate base, so
Speaker 1: they wouldn't really capture the benefits of it. So it
Speaker 1: really depends you gotta go industry by the industry. The
Speaker 1: big multinationals clearly don't have as much exposure here. I
Speaker 1: don't want you to comme in a city group and
Speaker 1: get you in trouble with your team. But is a
Speaker 1: general rule, I believe we have curve flattening. What does
Speaker 1: that do to finances? The tobias money aside. So clearly
Speaker 1: the two things that you watch very carefully in the
Speaker 1: banks would be bond yields in general and the deepness
Speaker 1: of the curve, the defferminent stock price performance. UM. There
Speaker 1: are a few other things going on, less regulation, UM,
Speaker 1: you know, the the capital return stories of the of
Speaker 1: the banks that also generate UM so interest. I think
Speaker 1: the biggest story that is not really being told in
Speaker 1: the banks right now is that we're going to see
Speaker 1: a turn in the fourth quarter and to pick up
Speaker 1: later in the year, later next year UM into the
Speaker 1: commercial industrial loan activity. There's a six quarter lag between
Speaker 1: the senioral and officers survey from the Fellow Reserve Board
Speaker 1: on C and I are commercial industrial planning standards and loans,
Speaker 1: and I think that's going to be the kind of
Speaker 1: growth story for banks that aren't necessarily being captured. But
Speaker 1: you're right, the curve does matter. Well do you have
Speaker 1: can you give us a deep's number? I mean, I
Speaker 1: know you're not bond guy, but it's I mean, Mr
Speaker 1: Gross is talking tensions at two tens spread fifty forty
Speaker 1: five basis points. George Borriot Wells Fargo agrees with that.
Speaker 1: A lot of people don't do you have a number?
Speaker 1: I don't look, I don't have a real number. Where
Speaker 1: does everybody get nervous? Because it's hard to really get
Speaker 1: into everything. But but I think as you start getting
Speaker 1: closer and closer to flat, if it's twenty five basis
Speaker 1: points twenty, people are gonna get very nervous about economic conditions,
Speaker 1: and the FED may have to kind of manipulate the
Speaker 1: longer end of the curve a bit um. You know,
Speaker 1: you break a little fifty, people will start to worry
Speaker 1: about twenty five. Break below twenty five, and everybody's going
Speaker 1: to be terrified. I mean I should point out that
Speaker 1: Mr Lefkovitch and I have been through this a few
Speaker 1: times before. Let us talk about hydrocarbons. Have you made
Speaker 1: a you're putting together your two thousand eighteen view, Excuse me,
Speaker 1: we're sort of range e, but I would say almost
Speaker 1: at the high end of range. Can you, with your
Speaker 1: terrific commodities teams say a bottom to the oil market
Speaker 1: finally at five zero? So I tend to defer, as
Speaker 1: you know, to add Morris on this and commodity team
Speaker 1: they're they're a little nervous that oil prices have run
Speaker 1: a bit too high right now and that there's some
Speaker 1: pullback nearer term. But I think generally speaking, they're still
Speaker 1: thinking that we can get into those sixties UM on
Speaker 1: a W T I basis, But you know, think of
Speaker 1: it this way. UM as you get recount growth rates
Speaker 1: start to diminish, which we've already started to see. It's
Speaker 1: usually when energy stocks start to pick up, the market
Speaker 1: starts to sense that their summary balancing coming, especially if
Speaker 1: you think about jail projects and have three year lifespans.
Speaker 1: So if you're not adding lots and lots of riggs,
Speaker 1: eventually the production comes off and you get some balance.
Speaker 1: So I think that's more the story and the stocks.
Speaker 1: Let's less about the commodity. So let's let then go
Speaker 1: to what's kept us going here? And I guess it's
Speaker 1: it's I don't. I'm not as cynical as to say
Speaker 1: it's financial engineering, but diviting growth in share buy back
Speaker 1: have been a huge part of the story. I know
Speaker 1: Zero has just that great chart where they go the
Speaker 1: percentage of the market move that's been from share buy backs.
Speaker 1: Have share buy back has been the strength of this
Speaker 1: pool market. You buy that theory, No, I don't. I
Speaker 1: think what we what we've actually looked at is what's
Speaker 1: what's the change and shares outstanding as opposed to how
Speaker 1: much money is being spent on bibacks. The peak here
Speaker 1: for buybacks in dollar terms, for example, was two thousand seven,
Speaker 1: right before the market's corp. Interesting. You're you're you're looking
Speaker 1: at the unit change, how many shares outstanding are there?
Speaker 1: And they've been coming off by about a half a
Speaker 1: percent to maybe one percent a year the last five years.
Speaker 1: So if you think about earnings per share, the contribution
Speaker 1: from less shares outstanding is like a half a percent
Speaker 1: to the earnings growth. So that's not really the story.
Speaker 1: What it is doing, though, and this is valuable as well,
Speaker 1: is it's it's removing share creep. So normally you would
Speaker 1: have seen two, three, maybe even four percent incremental shares
Speaker 1: outstanding through either share grants or bad acquisitions using stock.
Speaker 1: So they're removing that, if you like, the dilution that
Speaker 1: would have occurred otherwise. So there is value to it,
Speaker 1: but it's not really contributing turnings. It's preventing the delution
Speaker 1: of the earnings. How distorted? One final question, how distorted
Speaker 1: is the do the new vogue? You know, it used
Speaker 1: to be there was Buffett with an expensive share, and
Speaker 1: now the new vogue is we're never gonna split, which
Speaker 1: you know, it's fine, I get it, but does that
Speaker 1: mean the DOU is You know, it's what we follow
Speaker 1: twenty three thou thirty futures up a hundred eleven. Okay,
Speaker 1: but is it as distorted as has ever been? Well? Again,
Speaker 1: we tend to use the SMP five hundred more because
Speaker 1: it's a broader index UM and the you can do
Speaker 1: equally weighted chairs as well if you wanted to. There's
Speaker 1: a value and arithmetic UM. So we don't focus that
Speaker 1: much on the DOW. The doll was a residual for us.
Speaker 1: It's less of the determining factor. We don't do earning
Speaker 1: his estimates for the DOW because it's just too limited.
Speaker 1: When you have thirty names were you're quickly on General
Speaker 1: Electric and the industrials. I know you're not gonna comment.
Speaker 1: I won't comment on the company specifically, but um, we
Speaker 1: have We had been earlier in the year overweight capital
Speaker 1: goods were kind of neutral. Right now we think selectively.
Speaker 1: There's some really good names. Industrial activity is picking up
Speaker 1: and like this day strong. You know, my background was
Speaker 1: a machine reality, so I kind of like the old
Speaker 1: cyclical names that I used to cover UM. But some
Speaker 1: of them have run pretty strong already, and we've got
Speaker 1: to be a little bit more careful. I've been through
Speaker 1: this whole interview folks here on the surveillance Internet. I've
Speaker 1: been looking at hockey News. I just did a word
Speaker 1: search Canadians and Lefkovich and maybe next week, maybe a
Speaker 1: couple of more losses they might you know, I'm open,
Speaker 1: Mr Molson anytime, very Mr Mailson, Thank you for listening
Speaker 1: up and come back this morning. Mr lev Cavechs with
Speaker 1: City Group, of course, melding equities into all the other
Speaker 1: things that we covered. Thanks for listening to the Bloomberg
Speaker 1: Surveillance Podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at
Speaker 1: Tom Keene before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio.