WEBVTT - Germany Clears Path for Early Election 0:00:02.400 --> 0:00:09.080 Bloomberg Audio Studios, podcasts, radio news. You're listening to the 0:00:09.119 --> 0:00:13.280 Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 0:00:13.320 --> 0:00:15.760 Eastern on Apple Card, play in Android Auto with the 0:00:15.760 --> 0:00:19.680 Bloomberg Business app, Listen on demand wherever you get your podcasts, 0:00:19.880 --> 0:00:22.720 or watch us live on YouTube. 0:00:23.480 --> 0:00:25.080 All right, here we go. Here's the headline. 0:00:25.200 --> 0:00:29.000 German Parliament clears the way for early election in February. 0:00:29.280 --> 0:00:33.320 So then it does imply that Olaf Schultz did lose 0:00:33.400 --> 0:00:35.680 the snap election and will excuse me, did lose the 0:00:35.720 --> 0:00:37.600 vote of no confidence and then we'll have the snap 0:00:37.640 --> 0:00:42.839 election in late February. So to that point, expenditures on machinery, 0:00:42.880 --> 0:00:46.640 for example, are more than nine percent below pre pandemic levels. 0:00:46.640 --> 0:00:49.680 And it's those family owned companies that's saying they're not 0:00:50.000 --> 0:00:54.360 even planning to replace what breaks, and they're blaming breocracy 0:00:54.400 --> 0:00:58.639 and unpredictable policies. I mean, yikes, that's a tough one. 0:00:58.760 --> 0:01:00.640 It really is. And then again, and I'm just looking 0:01:00.680 --> 0:01:03.200 at some reporting from Bloomberg and just you know, saying, 0:01:03.320 --> 0:01:06.440 like Germany, in many parts of the world, Germany's politics 0:01:06.440 --> 0:01:10.000 has shifted to the right and it is fragmented, so 0:01:10.160 --> 0:01:15.959 making getting a coalition government together perhaps even more difficult 0:01:16.000 --> 0:01:18.240 than in past times. And we're seeing something similar in 0:01:18.360 --> 0:01:21.840 France as well, with their left and right. It kind 0:01:21.840 --> 0:01:23.759 of makes what we do here seem a little bit 0:01:23.800 --> 0:01:27.119 more a little better than maybe we sometimes think. 0:01:28.440 --> 0:01:31.119 All right, Oliver Krook joins us now All Bloomberg europe 0:01:31.120 --> 0:01:33.800 correspondent for more on this. I mean again that headline 0:01:33.880 --> 0:01:36.440 is German parliament clears the way for the early. 0:01:36.280 --> 0:01:40.400 Election in February. All right, Oliver, give us the details. 0:01:40.560 --> 0:01:42.840 Quite a day for all Off Schultz before the parliament. 0:01:42.840 --> 0:01:45.399 This all began basically a one pm local time here 0:01:45.440 --> 0:01:48.360 with a twenty five minute speech by Olof Schultz where 0:01:48.360 --> 0:01:50.080 he was really sort of putting out his sort of 0:01:50.120 --> 0:01:51.880 stakes in terms of what he would like to have 0:01:52.000 --> 0:01:54.360 to do with another term as chancellor. Then a two 0:01:54.480 --> 0:01:58.240 hour debate by all the lawmakers in the Bundestag. This 0:01:58.440 --> 0:02:01.680 is a pretty spirited, i would say, campaign event, in 0:02:01.720 --> 0:02:05.480 a campaign generally speaking by German standards, it's been fairly personal. 0:02:05.520 --> 0:02:08.320 It's been quite vicious at points. I mean, Olaf Schultz 0:02:08.360 --> 0:02:10.800 was talking about the FDP, that is the party that 0:02:10.840 --> 0:02:13.880 had the finance ministry. He fired as Finance minister because 0:02:13.919 --> 0:02:16.679 of disagreement over the budget. He's saying that basically they're 0:02:16.720 --> 0:02:19.919 morally unfit to govern. Mertz, for his part, the head 0:02:19.919 --> 0:02:23.160 of the CDU, Angela Markles, Merkel's traditional party, so that 0:02:23.240 --> 0:02:25.480 you know Schultz is a failed chancellor. And then on 0:02:25.520 --> 0:02:27.200 the other side of things, on the far right, you 0:02:27.240 --> 0:02:30.160 have the Alternative for Deutschland, the far right group that 0:02:30.200 --> 0:02:32.359 has twenty percent of the vote going into this election, 0:02:32.720 --> 0:02:35.040 saying that basically Germany is on the brink of collapse. 0:02:35.240 --> 0:02:37.519 In a vote for Frederic Mertz and the CDU is 0:02:37.560 --> 0:02:39.760 a vote for war with Russia. So that's some of 0:02:39.800 --> 0:02:42.040 the flavor of what we had today. And after that, 0:02:42.080 --> 0:02:44.920 we had these lawmakers going forward and putting forward and 0:02:45.000 --> 0:02:47.679 voting against Ola Schultz government as it turns out of 0:02:47.680 --> 0:02:49.600 the end, and this is the last step to basically 0:02:49.680 --> 0:02:52.080 Ola Schultz to go to the President of Germany to 0:02:52.120 --> 0:02:54.320 basically dissolve the government and basically pave the way for 0:02:54.360 --> 0:02:56.920 that election that is slated for February the twenty third. 0:02:57.120 --> 0:02:59.760 All right, feb s fast forward to February twenty third. 0:02:59.800 --> 0:03:03.240 Is any expectation of how this may go. To talk 0:03:03.280 --> 0:03:05.520 to us about what are some of the options for 0:03:05.560 --> 0:03:06.280 the German people. 0:03:06.600 --> 0:03:08.840 Yeah, so what you have right now is the CDU, 0:03:08.960 --> 0:03:11.960 the again the conservative center right party of Germany that 0:03:12.080 --> 0:03:14.760 is basically leading the polls really since the beginning and 0:03:14.800 --> 0:03:16.239 for you know, a couple of years. Now I have 0:03:16.280 --> 0:03:18.680 about thirty one percent of the vote. What is interesting, 0:03:18.800 --> 0:03:21.079 what makes this election quite a bit different from ones 0:03:21.120 --> 0:03:22.720 in the past, is that you have the Alternative for 0:03:22.760 --> 0:03:26.720 Deutschland again, the really quite far right party in Germany 0:03:26.760 --> 0:03:29.560 with number two spot with twenty percent, basically a fifth 0:03:29.639 --> 0:03:32.560 of the German vote. That has not happened in really 0:03:32.639 --> 0:03:35.840 post war Germany at all. So that is sort of 0:03:35.840 --> 0:03:38.120 one of these sort of clear issues there. And the 0:03:38.120 --> 0:03:40.400 thing is that nobody will work with them. Basically, no 0:03:40.520 --> 0:03:42.840 coalition is possible with the AfD. This has been made 0:03:42.880 --> 0:03:45.400 clear even by you know, the conservative parties within Germany. 0:03:45.520 --> 0:03:48.040 They just won't basically touch it. Then Olaf Schultz has 0:03:48.040 --> 0:03:50.360 been closing the gap a little bit on third place, 0:03:50.640 --> 0:03:53.320 and that basically sets us off for a grand coalition 0:03:53.480 --> 0:03:57.000 CDU SPD. This is something that has happened a lot 0:03:57.040 --> 0:04:01.040 in history. Merkel, you know, had this this arrangement. In fact, 0:04:01.120 --> 0:04:04.160 Olof Schultz was the finance minister under Merkel under that coalition. 0:04:04.520 --> 0:04:07.000 The issue that that brings is that that may bring 0:04:07.080 --> 0:04:09.320 some of the same problems that we had with this government, 0:04:09.360 --> 0:04:12.240 which is massive disagreements on how to spend money at 0:04:12.240 --> 0:04:14.640 a time when the German economy is really limping, there 0:04:14.680 --> 0:04:17.120 is zero growth, and as a consequence, as we're learning 0:04:17.120 --> 0:04:19.000 in France as well, when you have zero growth, you 0:04:19.040 --> 0:04:20.640 don't have as much money to play with, you have 0:04:20.680 --> 0:04:22.360 budgets that bring down the government. 0:04:23.040 --> 0:04:26.400 Here's my totally unfair question to you, Oliver. I'm just 0:04:26.440 --> 0:04:30.800 wondering in what capacity in Europe is snap elections ever worked. 0:04:30.839 --> 0:04:32.960 I'm like genuinely trying to think back, and it seems 0:04:32.960 --> 0:04:35.800 like a lot of times the individual and power things 0:04:35.800 --> 0:04:38.760 that it will help cement a mandate at some point, 0:04:38.760 --> 0:04:41.640 and that's why this sort of eventually evolves, but it 0:04:41.680 --> 0:04:43.159 never seems to work well. 0:04:43.200 --> 0:04:45.039 So listen, that's what makes it. That's the sort of 0:04:45.040 --> 0:04:47.480 distinction between the German snap election and the French one. 0:04:47.520 --> 0:04:47.680 Right. 0:04:47.680 --> 0:04:50.719 The German one is basically forced because they basically fired 0:04:50.839 --> 0:04:52.960 one part of their coalition government and basically kicked them 0:04:52.960 --> 0:04:55.279 out of government and no longer had a mandate to govern, 0:04:55.440 --> 0:04:57.200 so they just basically had to do it. This is 0:04:57.200 --> 0:04:59.119 not going to go well for Olof Schultz, that is clear. 0:04:59.320 --> 0:05:01.120 The mac Hoole one was a bit more of a 0:05:01.120 --> 0:05:03.880 wild card, really a kind of you know, really a 0:05:03.920 --> 0:05:07.240 skydive into sort of political uncertainty, and really I think 0:05:07.839 --> 0:05:10.880 seen by most as a real miscalculation because it did 0:05:10.880 --> 0:05:12.880 not go at all his way, and we're seeing the 0:05:12.920 --> 0:05:15.800 sort of consequences of that. To say when it has worked, 0:05:15.839 --> 0:05:17.640 I mean I only because I was reading about this today. 0:05:17.640 --> 0:05:19.279 If we have to go back to the nineteen seventies, 0:05:19.320 --> 0:05:21.839 I can give you an example of Willie Brandt in 0:05:21.920 --> 0:05:23.840 the sort of west of Germany. So that was one 0:05:23.920 --> 0:05:26.760 to sort of consolidate some power. But yeah, I have 0:05:26.800 --> 0:05:29.159 to say the last few, certainly this year, have not 0:05:29.200 --> 0:05:30.720 really gone that way for these leaders. 0:05:31.240 --> 0:05:34.520 And Oliver, you're mentioning about the AfD, the far right 0:05:34.600 --> 0:05:38.560 party now roughly twenty percent of the votes. I'm not 0:05:38.600 --> 0:05:41.040 sure you can ignore them anymore. I mean, how can 0:05:41.080 --> 0:05:44.040 a couplation go from ignore one in five voters. 0:05:44.520 --> 0:05:46.520 Well, this is a very interesting part of the debate, 0:05:46.560 --> 0:05:48.440 and I think it's something that we've seen across the 0:05:48.440 --> 0:05:51.000 political spectrum in a number of different countries. I mean 0:05:51.040 --> 0:05:53.680 you arguably, you know you've had this happen In Italy. 0:05:53.760 --> 0:05:57.200 You have Georgia Maloney, who was once really considered a 0:05:57.360 --> 0:05:59.440 sort of pariah, this sort of Brothers of Italy. She 0:05:59.520 --> 0:06:02.400 is now Minister Vidley and in some ways the European 0:06:02.480 --> 0:06:05.480 leader with the most powerful mandate in all of Europe. 0:06:05.600 --> 0:06:07.840 You're seeing the same thing happening in France with Marine 0:06:07.920 --> 0:06:09.880 Lepenn who you know, for a very long time was 0:06:09.920 --> 0:06:13.520 basically totally ignored by the political establishment in France and 0:06:13.560 --> 0:06:16.400 that is no longer an option. The question is when 0:06:16.480 --> 0:06:18.839 does that come to Germany. Of course, the issue with 0:06:18.920 --> 0:06:23.599 Germany that comes fraught in Leyden with much more political 0:06:23.720 --> 0:06:26.719 charged issues from the past and basically with the far 0:06:26.800 --> 0:06:29.000 right and the sort of history of fascism that has 0:06:29.000 --> 0:06:32.240 occurred in Germany. This is a very sensitive topic for 0:06:32.360 --> 0:06:34.560 the Germans and for many people in Germany, which is 0:06:34.600 --> 0:06:36.720 why you see a lot of protesting in the streets 0:06:36.760 --> 0:06:39.960 against this party. But again increasingly something that just cannot 0:06:40.000 --> 0:06:40.560 be ignored. 0:06:41.200 --> 0:06:45.200 And my real question is does any outcome lead the 0:06:45.240 --> 0:06:48.480 German government to spend more money? Period, That's the only 0:06:48.520 --> 0:06:49.839 thing that's going to make a big difference. 0:06:50.360 --> 0:06:53.680 Yeah, and the answer no likely outcome will basically lead 0:06:53.720 --> 0:06:55.800 to that. Because there was some debate about this going 0:06:55.839 --> 0:06:57.960 into the election that we were seeing from the CDU, 0:06:58.640 --> 0:07:00.920 the center right party, basically saying that they were, hey, 0:07:01.000 --> 0:07:03.400 maybe going to think about, you know, releasing the debt break. 0:07:03.440 --> 0:07:05.800 There would be some conditions. But we actually saw a 0:07:05.839 --> 0:07:08.080 copy of their early draft of their platform which they 0:07:08.080 --> 0:07:11.000 haven't yet released, that says that basically, you know, dead 0:07:11.040 --> 0:07:12.880 of today is the tax of tomorrow. We are not 0:07:12.960 --> 0:07:14.680 going to touch the debt break. And this is the 0:07:14.680 --> 0:07:17.240 fundamental point here in Germany, right, what is the point 0:07:17.280 --> 0:07:20.000 and this is what many critics think of having really 0:07:20.080 --> 0:07:22.640 really low borrowing costs if you don't borrow any money 0:07:22.640 --> 0:07:25.480 when you're in a crisis situation. And what is interesting 0:07:25.520 --> 0:07:28.200 is that Angela Merkel has actually just released her memoir 0:07:28.440 --> 0:07:30.120 and she is the one who actually brought in the 0:07:30.160 --> 0:07:31.800 debt break in two thousand and nine. And just to 0:07:31.840 --> 0:07:34.400 remind people, this is part of the constitution, This is 0:07:34.440 --> 0:07:36.360 not just the law. This takes two thirds of the 0:07:36.360 --> 0:07:40.600 parliament to change the debt break. She is advocating now 0:07:40.800 --> 0:07:42.880 that they do something about the debt break and they 0:07:42.920 --> 0:07:44.320 change it. So this is going to be at the 0:07:44.440 --> 0:07:47.000 very center of things, but at the moment not looking 0:07:47.040 --> 0:07:48.000 like it's going to change. 0:07:48.720 --> 0:07:52.640 Is there any expectation that there could be a very 0:07:53.160 --> 0:07:55.920 a challenge to this change in power, that there may 0:07:55.960 --> 0:07:58.840 be some I don't know, just something around this election 0:07:58.880 --> 0:08:01.239 that could get even worse here for the German people. 0:08:01.600 --> 0:08:03.440 I mean, I think that the problem with this election 0:08:03.600 --> 0:08:06.360 and this sort of again another coalition government and you 0:08:06.400 --> 0:08:08.680 know a bit of disagreement, is that it's just basically 0:08:08.720 --> 0:08:11.480 not going to solve Germany's fundamental problems. And I think 0:08:11.480 --> 0:08:13.200 that even when you look at the platforms of what 0:08:13.280 --> 0:08:16.360 a lot of these politicians are offering, the business community 0:08:16.400 --> 0:08:19.160 that I speak to, the lobby groups that I speak to, 0:08:19.640 --> 0:08:22.200 is basically, you know, everyone seems to be coming to 0:08:22.240 --> 0:08:24.920 the sick man of Europe with cyclical medicines. What we 0:08:24.960 --> 0:08:26.320 have is a structural illness. 0:08:26.400 --> 0:08:26.560 Right. 0:08:26.760 --> 0:08:29.040 There are problems with the energy sector, there are problems 0:08:29.040 --> 0:08:31.160 with labor costs, and there's a problem with a business 0:08:31.160 --> 0:08:34.160 model that was basically very export oriented, where you have 0:08:34.240 --> 0:08:36.560 all of your inputs that are much more expensive in journey. 0:08:36.800 --> 0:08:39.120 Also at a time when you have just much less 0:08:39.160 --> 0:08:42.280 globalization and everyone turning inwards and you're competing against the 0:08:42.400 --> 0:08:44.960 United States with the Inflation Reduction Act, you're competing with 0:08:45.040 --> 0:08:47.720 China with huge amounts of state support, and the Germans 0:08:47.760 --> 0:08:50.680 are just not seemingly sort of realizing the situation. You 0:08:50.679 --> 0:08:53.440 can cut tax, you can cut bureaucracy. That will help, 0:08:53.559 --> 0:08:55.960 but the question will still remain, what is going to 0:08:56.040 --> 0:08:59.200 drive growth in Germany. They don't have a sprawling tech sector. 0:08:59.360 --> 0:09:02.080 They have huge amounts of engineering sort of prowess, but 0:09:02.120 --> 0:09:04.160 they really need to get this economy moving, and that 0:09:04.320 --> 0:09:07.440 is the sort of big problem for politicians here really 0:09:07.440 --> 0:09:08.679 don't have an answer to that question. 0:09:09.240 --> 0:09:10.360 I'm going to steal that from you. 0:09:10.440 --> 0:09:13.360 So it's structural issues, but everything has a cyclical solution. 0:09:13.440 --> 0:09:16.120 I'm going to totally paraphrase it and steal it. But 0:09:16.160 --> 0:09:19.440 before I let you go, do we've the investors that 0:09:19.480 --> 0:09:23.000 you speak to feel like this situation is adequately reflected 0:09:23.000 --> 0:09:24.880 in the stock market and the bond market. 0:09:25.320 --> 0:09:27.800 Well, this is what's interesting, right, The sort of guarantee 0:09:27.840 --> 0:09:30.160 in the bond market is the fact that basically Germany 0:09:30.200 --> 0:09:32.199 has very very little debt and they're not going to 0:09:32.280 --> 0:09:34.400 that's not going to change any time anytime soon. Right, 0:09:34.640 --> 0:09:36.240 So that is sort of puts a cap and that 0:09:36.320 --> 0:09:39.199 sort of you know, keeps the vigilantes sort of away 0:09:39.240 --> 0:09:41.079 from the bond market, and everything's sort of more or 0:09:41.160 --> 0:09:43.400 less tidy there. Right In terms of the stock market, 0:09:43.440 --> 0:09:45.200 I mean, we have been hitting sort of all time 0:09:45.280 --> 0:09:49.040 highs on the decks, you know, this year periodically, which 0:09:49.080 --> 0:09:51.520 again is a little bit confounding. I mean, part of 0:09:51.520 --> 0:09:53.760 that story is that, you know, Ryan Mettal, the biggest 0:09:53.760 --> 0:09:56.560 defense company in Europe, is listed in Germany, and you 0:09:56.559 --> 0:09:58.360 know they've had like a you know, almost six hundred 0:09:58.360 --> 0:10:00.520 percent rally since the war in Ukraine. So you do 0:10:00.600 --> 0:10:03.160 have some bright spots. Actually, sort of interesting conversation I 0:10:03.200 --> 0:10:06.600 had last week with the CEO of a defense company, Hensol. 0:10:06.679 --> 0:10:08.839 So they make sort of satellites and sensors, sorry, not 0:10:08.920 --> 0:10:13.040 satellite sensors and radars. They are actually taking a lot 0:10:13.080 --> 0:10:15.040 of workers that are being laid off from the auto 0:10:15.080 --> 0:10:18.320 sector and incorporating full teams from the auto sector moving 0:10:18.400 --> 0:10:20.600 from auto to defense. So that is sort of an 0:10:20.600 --> 0:10:23.600 interesting silver lining, though admittedly a very thin silver lining, 0:10:23.640 --> 0:10:25.760 because the auto industry is worth just hundreds of thousands 0:10:25.800 --> 0:10:27.520 of jobs in this country. But some of the way 0:10:27.559 --> 0:10:29.559 that the sort of job market is evolving in Germany. 0:10:30.120 --> 0:10:32.480 All right, Oliver, thank you so much. We really appreciate Oliver 0:10:32.559 --> 0:10:36.680 Crook Bloomberg News giving us the latest on Germany again. 0:10:36.720 --> 0:10:39.760 A no vote has taken place today and then they 0:10:39.760 --> 0:10:42.760 are now setting elections for February. So we will stay 0:10:42.800 --> 0:10:44.400 on top of that with continued reporting. 0:10:45.920 --> 0:10:49.800 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:10:49.880 --> 0:10:53.400 weekdays at ten am Eastern on applecar Play and Android 0:10:53.440 --> 0:10:56.199 Auto with the Bloomberg Business app. You can also listen 0:10:56.320 --> 0:10:59.439 live on Amazon Alexa from our flagship New York station, 0:11:00.000 --> 0:11:03.640 Hey Alexa play Bloomberg eleven thirty oh. 0:11:03.679 --> 0:11:07.040 Alex Steel here alongside Paul Sweeney is a Bloomberg Intelligence Radio. 0:11:07.080 --> 0:11:09.280 We bring you all the top news and business, economics 0:11:09.280 --> 0:11:12.040 and finance. There are a lens of our Bloomberg Intelligence folks. 0:11:12.040 --> 0:11:14.040 They cover two thousand companies in one hundred and thirty 0:11:14.120 --> 0:11:16.880 industries worldwide. 0:11:17.640 --> 0:11:20.160 What do you do if breadth is not great? We're 0:11:20.200 --> 0:11:21.120 headed into the FED. 0:11:21.760 --> 0:11:23.719 We should be in a Santa Claus rally, but it's 0:11:23.760 --> 0:11:25.400 only being led by a handful of stocks. 0:11:25.400 --> 0:11:27.560 What does that mean then for your portfolio for next year? 0:11:27.600 --> 0:11:30.360 Phil Orlando one of the best out there, chief equity 0:11:30.400 --> 0:11:33.200 market strategists and head of client portfolio management and federator 0:11:33.280 --> 0:11:34.800 Armies is joining us. 0:11:34.800 --> 0:11:36.840 Hey, Phil, what do you make of this? 0:11:37.120 --> 0:11:40.440 Every day in December there's been a weak breath in 0:11:40.480 --> 0:11:42.920 a month that's supposed to be relatively positive with the 0:11:42.920 --> 0:11:45.640 Santa Claus rally for most assets. 0:11:45.640 --> 0:11:46.400 What do you think of that? 0:11:47.400 --> 0:11:49.839 First of all, good morning, Alex. Thank you very much 0:11:49.880 --> 0:11:53.599 for having me back on the program. Let's not discount 0:11:53.640 --> 0:11:57.559 the fact that since the first week or so in August, 0:11:57.720 --> 0:12:01.360 the S and P five hundred and nineteen percent, so 0:12:01.640 --> 0:12:06.800 what you would normally have expected, you know, during the 0:12:07.160 --> 0:12:10.360 month of December Santa Claus rally, and on top of 0:12:10.400 --> 0:12:14.240 that a post election rally. Normally the stock market November 0:12:14.240 --> 0:12:16.679 and December post and election is up about five to 0:12:16.720 --> 0:12:20.360 ten percent. We got a tremendous amount of that in 0:12:20.440 --> 0:12:24.080 August and September and October, which historically are are you know, 0:12:24.160 --> 0:12:27.839 sort of choppy months, so I wouldn't lose a lot 0:12:27.880 --> 0:12:30.120 of sleep over it. Our full year target to this 0:12:30.280 --> 0:12:34.640 year is sixty two hundred. We're at sixty one one 0:12:34.720 --> 0:12:39.560 hundred change, so I think we've done okay. The market's 0:12:39.640 --> 0:12:40.400 doing fine. 0:12:41.679 --> 0:12:45.720 So twenty twenty five, Phil, what are the drivers of 0:12:45.760 --> 0:12:48.720 this market? Is it the FED, is a good old 0:12:48.760 --> 0:12:51.280 fashioned earnings What do you think is going to move 0:12:51.280 --> 0:12:53.959 this market one way or the other in twenty five The. 0:12:53.920 --> 0:13:00.000 Short answers yesah, okay. So our SMP five hundred target 0:13:00.120 --> 0:13:02.560 for next year is seven thousand, So we're going to 0:13:02.600 --> 0:13:04.960 go from sixty two hundred we think to seven thousand. 0:13:05.720 --> 0:13:11.000 What will largely drive that is continued improvement in economic 0:13:11.080 --> 0:13:14.640 growth and corporate earnings growth. The stock market will continue 0:13:14.679 --> 0:13:20.400 to grind higher, and with the change in administration, we 0:13:20.559 --> 0:13:24.760 believe that we are likely to see a reduction in regulations, 0:13:25.440 --> 0:13:29.520 perhaps later in the year, an extension and a making 0:13:29.640 --> 0:13:33.800 permanence of the corporate and individual tax rates. All of 0:13:33.840 --> 0:13:39.600 that is boosting animal spirits. Right now. Business and consumer 0:13:39.679 --> 0:13:44.600 confidence are soaring, and we think that's going to continue 0:13:44.640 --> 0:13:49.920 to drive strong economic growth, strong corporate corporate earnings growth, 0:13:49.960 --> 0:13:52.840 and ultimately the stock market is going to reflect that 0:13:52.880 --> 0:13:53.880 improvement in earnings. 0:13:54.240 --> 0:13:57.280 Many strategists are coming out and saying like something similar, 0:13:57.400 --> 0:13:59.680 but that it's really going to be in the growth trade. 0:14:00.520 --> 0:14:03.480 You really need to see stronger earnings and stronger economic 0:14:03.559 --> 0:14:05.280 data for the value trade to take over. 0:14:05.360 --> 0:14:05.760 What do you. 0:14:05.679 --> 0:14:10.240 Think, Well, the growth trade has had a pretty good 0:14:10.600 --> 0:14:14.080 couple of years, I mean, driven largely by the mag sevens. 0:14:15.080 --> 0:14:17.440 You know, You've got some terrific companies there. I'm not 0:14:17.480 --> 0:14:20.480 going to argue against that, but the reality is that 0:14:20.560 --> 0:14:23.440 we do expect that this rally to broaden out the 0:14:24.120 --> 0:14:27.640 valuation in balance, if you will. With the mag seven's, 0:14:27.720 --> 0:14:29.600 we think there's going to be a reversion to the 0:14:29.640 --> 0:14:32.560 mean that to some degree has started in the back 0:14:32.600 --> 0:14:34.880 half of this year. We think that continues over the 0:14:34.880 --> 0:14:38.840 course of next year, and we play significant catch up 0:14:38.880 --> 0:14:42.200 with the small caps, both growth and value and the 0:14:42.280 --> 0:14:45.480 large cap value. And we think that the large cap 0:14:45.560 --> 0:14:48.680 growth you know, continues to do well because they're they're 0:14:48.680 --> 0:14:53.440 growing fine. I'll throw one additional wrinkle into this. We 0:14:53.800 --> 0:14:56.760 think that the surprise next year might be how well 0:14:57.200 --> 0:15:00.840 emerging markets. Do you know? China has been you know, 0:15:00.920 --> 0:15:02.720 flat on its back to the better part of the 0:15:02.800 --> 0:15:05.080 last couple of years. We think that they're starting to 0:15:05.120 --> 0:15:08.239 get the memo in terms of we need some aggressive 0:15:08.280 --> 0:15:11.840 fiscal and monetary policy stimulus to get their economies and 0:15:11.880 --> 0:15:17.520 their financial markets going. Valuations extraordinarily attractive, and from a 0:15:17.680 --> 0:15:20.200 stock market standpoint, we think em ought to be a 0:15:20.200 --> 0:15:21.920 pretty good performer next year as well. 0:15:22.440 --> 0:15:24.400 Hey Phil, did your outlook and a look of your 0:15:24.680 --> 0:15:28.240 colleagues at Federated? Did it change materially the day after 0:15:28.560 --> 0:15:30.120 the presidential election? 0:15:31.520 --> 0:15:35.880 The short answers know, because you know, we had forecasts 0:15:35.920 --> 0:15:40.440 that that Trump would win, that that we would run 0:15:40.480 --> 0:15:44.000 the table with the with the seven key swing states, 0:15:44.040 --> 0:15:47.840 that the Senate would flip to Republican control regardless of 0:15:47.880 --> 0:15:51.000 who won the election, and the down ballid impact on 0:15:51.080 --> 0:15:54.120 the House. Whoever won the presidency was likely to win 0:15:54.200 --> 0:15:56.880 the House. So that suggested that we thought that there 0:15:56.920 --> 0:15:59.840 would be a red wave and we positioned for that 0:16:00.200 --> 0:16:02.960 ahead of time. So, you know, we've we've had a 0:16:02.960 --> 0:16:07.040 pretty good year in terms of performance and the confluence 0:16:07.080 --> 0:16:12.240 of politics and economics and and you know, the financial 0:16:12.320 --> 0:16:16.080 markets have all sort of come together beautifully for us 0:16:16.120 --> 0:16:16.480 this year. 0:16:16.920 --> 0:16:18.800 So when you look at your target for next year, 0:16:19.080 --> 0:16:22.480 does the sequencing of Trump's agenda matter in terms of 0:16:22.480 --> 0:16:27.920 how you position in terms of say, immigration, tax cuts, tariffs, deregulation. 0:16:28.720 --> 0:16:31.560 Yeah. So, so our expectation is that we're likely to 0:16:31.560 --> 0:16:36.520 get immigration and tariff stuff early, let's say the first 0:16:36.520 --> 0:16:41.160 half of this year, we think that the tax stuff, 0:16:41.360 --> 0:16:45.760 the extension of the individual and corporate rates, is likely 0:16:45.840 --> 0:16:49.480 to be a post Labor Day kind of an event. 0:16:49.800 --> 0:16:51.560 And then we think right at the back end of 0:16:51.560 --> 0:16:54.720 the year, about this time next year, we're likely to 0:16:54.760 --> 0:16:59.080 get some news on Trump's ideas about the transition of 0:16:59.120 --> 0:17:03.000 the leadership of AT or reserve that Powell's term as 0:17:03.040 --> 0:17:05.800 the Chairman of the FED will expire in May of 0:17:05.960 --> 0:17:09.479 twenty six, so it would be completely appropriate for the 0:17:09.480 --> 0:17:12.600 President to announce that he's either going to recommit for 0:17:12.680 --> 0:17:15.960 a third term for Powell or go to another candidate, 0:17:16.200 --> 0:17:19.840 such as Kevin Walsh, for example, right around Christmas of 0:17:19.880 --> 0:17:20.440 twenty five. 0:17:21.160 --> 0:17:22.679 All right, Phil, thank you so much for joining us. 0:17:22.760 --> 0:17:23.479 Really appreciate it. 0:17:23.520 --> 0:17:24.159 Phil Orlando. 0:17:24.200 --> 0:17:26.199 He's a chief equity market strategist and head of the 0:17:26.200 --> 0:17:30.920 client portfolio management team at Federator Hermes. Joining us from NYC. 0:17:32.640 --> 0:17:36.480 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:17:36.600 --> 0:17:39.680 weekdays at ten am Eastern on Apple Cardplay and Android 0:17:39.680 --> 0:17:42.800 Auto with the Bloomberg Business app. Listen on demand wherever 0:17:42.840 --> 0:17:46.680 you get your podcasts, or watch us live on YouTube. 0:17:47.400 --> 0:17:50.120 Alex Dean Paul Swiney live here in our Bloomberg Interactive 0:17:50.119 --> 0:17:52.639 Broker Studio and streaming live on YouTube as well, So 0:17:52.720 --> 0:17:54.800 head over to YouTube dot com and search Bloomberg a 0:17:54.960 --> 0:17:58.160 podcast Susanne Willie joins us here. She's kind of starts 0:17:58.160 --> 0:18:00.159 getting a lot of readership on the Bloomberg Terminal. Is 0:18:00.200 --> 0:18:02.919 a personal finance reporter for Bloomberg News, joining us here 0:18:02.960 --> 0:18:06.880 in our Bloomberg Interactive Brookers Studio. Need to grind retirement 0:18:06.880 --> 0:18:09.320 crunch haunts Americans nearing sixty. So we get some of 0:18:09.359 --> 0:18:13.200 these gen X folks starting to think about retirement and 0:18:13.240 --> 0:18:15.000 they're looking at their four one K and they're like, 0:18:15.200 --> 0:18:17.720 I'm not sure this is going to cover. So what's 0:18:17.760 --> 0:18:18.640 your reporting find. 0:18:19.200 --> 0:18:21.679 Yeah, there's a lot of stress about it because, you know, 0:18:21.800 --> 0:18:25.160 as the oldest exers become sixty, I mean they were 0:18:25.160 --> 0:18:27.679 sort of the guinea pigs for four one ks. The 0:18:27.720 --> 0:18:31.199 boomers had pensions, you know, and the four one K 0:18:31.320 --> 0:18:34.160 on top of that, and now the exers are sort 0:18:34.200 --> 0:18:39.800 of looking at their balances and looking at the news 0:18:39.800 --> 0:18:42.560 about maybe Social Security having to be reformed within the 0:18:42.600 --> 0:18:45.600 next decade, and looking at the money that they're spending 0:18:45.600 --> 0:18:49.800 supporting their adult children and possibly also their parents aging parents, 0:18:50.480 --> 0:18:54.639 and it's just leading to a lot of concern about 0:18:54.960 --> 0:18:57.560 how the heck are you going to be able to 0:18:57.640 --> 0:18:59.359 retire in comfort anytime soon. 0:19:00.040 --> 0:19:02.000 I was struck by it, was it forty three percent 0:19:02.200 --> 0:19:04.440 say they can't afford to retire at sixty five. 0:19:04.760 --> 0:19:05.800 That is staggering. 0:19:06.240 --> 0:19:11.320 It is staggering, you know. It's it's just a combination 0:19:11.440 --> 0:19:14.239 of a lot of things. I mean, housing affordability has 0:19:14.280 --> 0:19:16.399 been an issue, you know, the high cost of living 0:19:16.520 --> 0:19:19.399 is an issue. These are sort of the peak earning 0:19:19.480 --> 0:19:22.040 years for a lot of exers, and they're hit with 0:19:22.080 --> 0:19:24.159 the pandemic, which a lot of them say was a 0:19:24.160 --> 0:19:28.080 big blow to their savings, you know, and then just 0:19:28.200 --> 0:19:31.760 the cost of groceries, the cost of housing. Everything has 0:19:31.800 --> 0:19:34.399