Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Leie.
Speaker 1: 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 Steve
Speaker 1: Weisman coming into the studio this morning, and the first
Speaker 1: thing he says to me, I've got a joke. It's
Speaker 1: about CEOs. We'll let me tell it. And I'm like,
Speaker 1: should we do this? At the top of the conversation.
Speaker 1: Should we do this? It's clean and it's good. So
Speaker 1: I'm gonna let Steve Weisman do his joke. Heisman Group
Speaker 1: Newberger Berman Sr. Portfolio Manager, Good morning to Steve. Morning.
Speaker 1: I didn't know you're a comedian as well, So let's
Speaker 1: talk about it. Give us the joke off the top.
Speaker 1: What is it? All right? So the joke is guy
Speaker 1: who comes the CEO of a company reports to work
Speaker 1: on the first day, has lunked with the old CEO,
Speaker 1: and the old CEO says, I got a gift for you.
Speaker 1: Is him a box? And then the box he opens it,
Speaker 1: there's three envelopes and then numbered one, two, and three.
Speaker 1: He says, don't open them until you have your first crisis.
Speaker 1: Then open up the first envelope. So he said, okay,
Speaker 1: he puts the box in a drawer. Three years go by,
Speaker 1: he's got his first crisis, doesn't know what to do.
Speaker 1: He remembers the envelope, so he opens up the first envelope.
Speaker 1: He reads it and it says, blame your predecessor, and
Speaker 1: he says genius. So he does it, and crisis averted.
Speaker 1: Believe me, we've all seen this. And then two more
Speaker 1: years go by there's another crisis. He was from the envelope.
Speaker 1: So he opens up the second envelope and it says,
Speaker 1: take a huge restructuring charge, and it goes genius, and
Speaker 1: he takes a huge restructuring charge and crisis averted. And
Speaker 1: another three years go by. It doesn't know what to
Speaker 1: do because it's another crisis. He opens up the third
Speaker 1: envelope and that says, prepare three envelopes. That is fantastic,
Speaker 1: all right? So who your trust to? The which of
Speaker 1: your lungs? Right? You know, Steve, because it really strikes
Speaker 1: close to home. How many times have you seen that
Speaker 1: We're all wondering at LEASA points now you're talking about
Speaker 1: which company that I'm not going to say, but you are.
Speaker 1: I will say that I saw New Burger, I saw
Speaker 1: a CEO of a company that I'm sure and I
Speaker 1: will mention it because it's not fair. And as I
Speaker 1: was and I was thinking, and as you see it
Speaker 1: was presenting it, it it wasn't a great presentation, thinking this
Speaker 1: guy could just really use the three ovel are we talking?
Speaker 1: Let's talk about Elon Musk. Shall we test high profile
Speaker 1: short for many people? Steve, it's a short that you
Speaker 1: had and no longer have. How are you thinking about
Speaker 1: the company at the moment? What made you cover the short?
Speaker 1: Other than just getting your face ripped off? Imagine if
Speaker 1: you're getting a couple of at night. Everybody has a
Speaker 1: threshold of pain. Mine's pretty high. But when you look
Speaker 1: at when the stock started to go crazy on look,
Speaker 1: it started to go crazy because the deliveries were better
Speaker 1: than expected. It's probably better to expected than I expected.
Speaker 1: But you know, you started to read things about how
Speaker 1: you know in two thousand thirty two the company will
Speaker 1: make you know three thousand dollars per share or whatever.
Speaker 1: You know that there's no way to argue against that
Speaker 1: because it's ten years from now or twenty years from now,
Speaker 1: So you know when when when the narrative of stock
Speaker 1: starts to become like that, the best thing to do
Speaker 1: is at least to walk away stave. Anyone that's familiar
Speaker 1: with your work nice. How much homework you do, how
Speaker 1: well thought out every single position is. This isn't just
Speaker 1: done on a whim. But are the lessons to be
Speaker 1: learned when there is a popular short like the Testlas
Speaker 1: short for someone like yourself. Is that a red flag?
Speaker 1: Is that something you want to get involved in? Is
Speaker 1: that something you walk away from at the moment and
Speaker 1: thinks I'm not I'm not. I'm not afraid of getting
Speaker 1: involved with shorts that are heavily shorted. I don't like
Speaker 1: the constructed entire short portfolio of heavily shorted stocks. But
Speaker 1: if if I really believe in something i'll get, I'll
Speaker 1: get involved with it. But you have to be careful.
Speaker 1: So you you're made famous by the big short, right,
Speaker 1: But as the era of short shorting kind of ended,
Speaker 1: and I'm wondering because another of your shorts, Zillo back
Speaker 1: in October, has searched, you know, more than six since then,
Speaker 1: and a lot of people are saying, perhaps the fundamentals
Speaker 1: are getting disconnected from the market action, or it's very
Speaker 1: it's just funny, my zillok. I'm still short, zilo um.
Speaker 1: It was. What's very strange about that short is that
Speaker 1: when they report third quarter numbers, you know, if you
Speaker 1: looked at it carefully, the fundamentals actually deteriorated, and yet
Speaker 1: the narrative was positive. So that does sometimes make a
Speaker 1: stock difficult. At least it race is a good point
Speaker 1: his state just how much the price action has become
Speaker 1: divorced from the fundamentals. As you point out, you look
Speaker 1: at the numbers coming out of Zelo and it justifies
Speaker 1: in your mind as shut. But then the price actually
Speaker 1: is just doing something completely. I'm willing to stick with
Speaker 1: something if I think the fundamentals are actually deteriorating or
Speaker 1: fundamentally deteriorating the problem with with the Tesla short was
Speaker 1: the fundamental start to improve and and you know then
Speaker 1: then all you are left with is evaluation short. And
Speaker 1: one rule I have is I'm never sure of stock
Speaker 1: just because of evaluation, because in an age of both
Speaker 1: of disruption and free money, it's a recipe for just
Speaker 1: That's where I want to go. I mean the card
Speaker 1: rule is short says you short alausy company in a
Speaker 1: lausy group and allowsy market. That's pretty easy to do.
Speaker 1: Right now, you've got a central bank strategy massively pushing
Speaker 1: against a short belief? Does does long short just walk
Speaker 1: away from short until Chairman Powell changes his tune. I
Speaker 1: still think you can be long short. I think you
Speaker 1: have to have a very long bias right now, which
Speaker 1: I do. I think you can be selectively short individual
Speaker 1: names like you know. For example, I'm short of stock
Speaker 1: called ad Talum, which is a ad Talum. It's a
Speaker 1: for profit education company. It used to be called Davy,
Speaker 1: but they sold the actual part of the company called
Speaker 1: Davray for a dollar plus assumption of debt, which tells
Speaker 1: you how much on what's left is a nursing school
Speaker 1: and a medical school. I have no ethical issues about
Speaker 1: what dev is doing, and the biggest part of the
Speaker 1: company is nursing And the short these is very simply
Speaker 1: is that over the last couple of years has been
Speaker 1: new entrance of nonprofit schools that are doing exactly the
Speaker 1: same thing as devirived for half the price. Two other
Speaker 1: names that come to mind regarding your positioning HSBC standard charted? Yes,
Speaker 1: what are things looking like right now for you? I'm
Speaker 1: still short though, and we connected those shorts more to
Speaker 1: China than we are to Brexit. How do you think
Speaker 1: this has got nothing to do with Brexit? Nothing? It's
Speaker 1: it's it's that HSBC is about, off the top of
Speaker 1: my head, Hong Kong UH standard charters like Hong Kong
Speaker 1: UM and Hong Kong's in a recession and so they'll
Speaker 1: have credit issues. Period. Have you ever been less short
Speaker 1: stocks though? I mean you're talking about specific names, but
Speaker 1: you said you know you are. You've got a very
Speaker 1: long bias, and so I'm wondering, you know, the sort
Speaker 1: of longs to short ratios sort of over that's about
Speaker 1: as long as I get. Okay, I'm about six at
Speaker 1: long right now, and that's as long as you get,
Speaker 1: as long as I can go. Okay, And how long
Speaker 1: have you been the longest you can go? Late last year?
Speaker 1: What's the biggest mistake rookies make? Shorting? There's a lot
Speaker 1: of people out there. They don't believe in the FED strategy.
Speaker 1: They believe the Fed's gonna make John. Are we modeling
Speaker 1: one or two ray cuts? Right? Now wonder two. Okay, Fine,
Speaker 1: someday that's gonna end, and everybody's gonna want to go, Okay,
Speaker 1: I'm gonna get back on the short band record. What's
Speaker 1: the rookie mistake in shorting? I think the mistake people
Speaker 1: make is that because they think that it's wrong for
Speaker 1: the FED to have a free money policy, therefore they
Speaker 1: should shortstocks. Is because you think the Feds wrong. So
Speaker 1: what they have the FED? That's something you could you
Speaker 1: could think, but so many people have struggled with this.
Speaker 1: One struggled this smart. You know, don't fight the FED? Well,
Speaker 1: but does that does that sort of change the equation
Speaker 1: for specific names too? Well? They would you would need
Speaker 1: if you were going to fight the FED. And look,
Speaker 1: I did fight the FED in two thousand and seven
Speaker 1: and eight, um, but what you what What you had
Speaker 1: then was deteriorating credit. So if you're going to fight
Speaker 1: the FED, you need deteriorating credit quality. The problem is
Speaker 1: that credit quality United States is perfect. There's no problems anywhere,
Speaker 1: which is why you like the US banks one reason.
Speaker 1: But I only like the large banks. I think investing
Speaker 1: in anything outside of the large banks with very few exceptions,
Speaker 1: as a waste of time because they can't spend the
Speaker 1: money on acknowledging. Steve Icean, thank you so much from
Speaker 1: his appearances with Bloomberg saveillas today. I'm sure we'll write
Speaker 1: a whole bunch of we should cut that joke in theme.
Speaker 1: I was about to say, I play it a few times.
Speaker 1: I mean it was good. I did, like we should.
Speaker 1: We should play it when we talk about certain companies
Speaker 1: and what they're doing. You could play that joke for years.
Speaker 1: We will, I think happened. When are you going to
Speaker 1: tell us about which company you were talking about? Come on, no,
Speaker 1: I won't do it. Steve Issis at the Interview of
Speaker 1: the Day on these odd times in the markets will
Speaker 1: look short term, will look long term as well. In
Speaker 1: Paul Sweeney, we can do this to the gentleman, the
Speaker 1: only one we could speak to who actually knew fluidly
Speaker 1: how to use a bunker remo. Douglas Cast joined some
Speaker 1: series a few years ago, licking House at Putnam other
Speaker 1: venues looking at individual security selection. Doug Cast good morning, um,
Speaker 1: just to get to the perspective of a bunker remo
Speaker 1: from a few years ago. This, folks is pre Bloomberg
Speaker 1: is well have you ever seen a parabolic move of
Speaker 1: a company of the substance of Tesla. We've seen him,
Speaker 1: but have we really ever seen it with something is
Speaker 1: tangible as Tesla. Well, Tesla is almost a metaphor for
Speaker 1: the market um. The market caps a hundred forty five
Speaker 1: billion dollars. It's bigger than Costco. It's twice as big
Speaker 1: as Cat's, three times the size of GM, six times
Speaker 1: the size of Kellogg. When it is trading over eight
Speaker 1: hundred bucks. I think on Tuesday, fifty million shares of
Speaker 1: Tesla traded an average price of seven fifty. That equates
Speaker 1: to a nominal value of thirty five billion dollars, or
Speaker 1: one third it's market cap. Let's think about that. Tesla
Speaker 1: maybe the future and the company has obviously established first
Speaker 1: mover advantage in orders and batteries. But the share the
Speaker 1: dramatically overpriced and um, as you said, it's recent ascent
Speaker 1: radically eclipse his previous speculative urges of past cycles. Paul
Speaker 1: wants to jump in, but dutcasts quickly here, how are
Speaker 1: you a position this morning? And your trading accounts? You know,
Speaker 1: we talk a lot about price targets and whether we're
Speaker 1: bearish of bullish, and we don't spend enough time generally
Speaker 1: talking about conviction levels, and this is a period of
Speaker 1: time in which my conviction level is low. On the
Speaker 1: least few weeks, we've gotten the taste of a new
Speaker 1: regime of volatility, not only in Tesla but in the
Speaker 1: market as a whole. So all markets are not created equal.
Speaker 1: So Doug, and just on the Tesla, we're down about
Speaker 1: ten and a half percent here below eight hundreds. Of
Speaker 1: the volatility around Tesla shares continues. So, Doug, are you
Speaker 1: surprised at the resiliency in the equity markets in the
Speaker 1: face of I would say that you know the latest
Speaker 1: exogenous shock, which is the coronavirus and the impact that
Speaker 1: might have on global GDP. Are you surprising the resiliency
Speaker 1: the equity markets? I am not really. I'm certainly not
Speaker 1: surprised about the volatility, which I've been expecting. And I
Speaker 1: just think as we look at I think that the
Speaker 1: contour of the stock market is going to be importantly
Speaker 1: influenced in shape by both profits and politics, and I
Speaker 1: think we'll probably a lot of surprises in both ends.
Speaker 1: So do with with your loads of experience, how do
Speaker 1: you typically position yourself in an election year, particularly one
Speaker 1: which could be particularly contentious. Well, as I said, not
Speaker 1: all markets are creative equal. We shouldn't have conviction levels
Speaker 1: the same at all levels of the market, and the
Speaker 1: same applies to the election. Um, there's a great deal
Speaker 1: of uncertainty. Um. I think what I have learned is
Speaker 1: to expect the unexpected. Um. Just look at two thousand nineteen.
Speaker 1: No one looked for a rise in the SMP. No one.
Speaker 1: It was a universal view that interest rates, let's say
Speaker 1: the ten year was going to a three and a
Speaker 1: half percent yield, into the opposite occurred. So I think
Speaker 1: this year could be and out of the vix thinking
Speaker 1: and a mean reversion invaluation, stocks and profits. Doug cast
Speaker 1: for Partners will be with us a generous amount of
Speaker 1: time in this half hour. Doug, I've gotta go to
Speaker 1: what sticks out like a sore thumb and everybody you know,
Speaker 1: you're out on Twitter and you're the pin launch. Oh quiet,
Speaker 1: I don't want to go there, Doug. I mean I've
Speaker 1: been medicating that you've just given us a division title. Yes, Doug,
Speaker 1: I mean did Sandy call you up and just say
Speaker 1: this is the greatest things? Slice bread, Palmer said it
Speaker 1: was the stupidest deal he's ever heard. You give a
Speaker 1: franchise player unproven just because of a luxury tax. Okay,
Speaker 1: we're gonna rip up the scripture, folks. We gotta, we gotta,
Speaker 1: we gotta let the Red or the Knicks. Doug Cast Folks, Wisconsin, Florida,
Speaker 1: next to a guy named Palmer. He used to throw
Speaker 1: the orb for the Baltimore Orioles as well. We're honored
Speaker 1: to speak with Mr Palmer one day. One of my
Speaker 1: true heroes as a kid. Doug Cast. Jim Palmer says,
Speaker 1: this was a bad trade, awful trade. I'll get him
Speaker 1: on the phone next time I'm on you kill him.
Speaker 1: You just know, you know it was you Just to
Speaker 1: face reality. One of the mark say, good morning one
Speaker 1: or six one FM Boston. I got my black arm,
Speaker 1: but trust me, Doug Kiss, I want to go to
Speaker 1: What's so different for you? Which is a five year,
Speaker 1: six year, ten year conviction on Amazon. Let's start with
Speaker 1: the idea. How rare is it for you to have
Speaker 1: a big company long term conviction like that? I think
Speaker 1: that Amazon will trade of five thousand a share by
Speaker 1: three um in the last ten years has only been
Speaker 1: two companies that have exceeded organic growth, Google and Amazon
Speaker 1: and their modest tom are just getting deeper and deeper.
Speaker 1: The concerned about regulatory reform and how would impact the
Speaker 1: p N l UH is no longer a factor, and
Speaker 1: their mode is getting deeper and deeper and more impenetrable.
Speaker 1: UM I said to you about six or nine months
Speaker 1: ago that I expected a hockey stick in earnings growth
Speaker 1: foreign excess ten greater in two thousand, twenty to twenty
Speaker 1: two than the consensus forecast for on the south side
Speaker 1: of with regard to earnings, and I suspect that they're
Speaker 1: about nine months ahead ahead of my timetable based upon
Speaker 1: the last quarter, which is two dollars to share better
Speaker 1: than expectations, and indeed estimates rose by the reason cast
Speaker 1: comes on. He says he knows I'm doing logarithms on
Speaker 1: the Bloomberg on what he's saying. These are outlandish phrases
Speaker 1: by Mr Cass, No, they're not. If you take the
Speaker 1: long term regression of Amazon, folks back to the horrific
Speaker 1: bottom of oh one, you get out to a Cassian
Speaker 1: four thousand eight, five thousand three at the end of
Speaker 1: twenty three. So Doug, this is important. Doug's outrageous called
Speaker 1: Paul Sweeney is the linear log regression of the stock.
Speaker 1: He's stating the obvious employees either loan in doing that. Interesting, Doug,
Speaker 1: I mean you brought the regulatory overhang for not just Amazon,
Speaker 1: but some of these other big technology companies like Facebook
Speaker 1: and and Google. This is an alphabet free studio, so
Speaker 1: we call it Google. So, but for Amazon in particular, Doug,
Speaker 1: why do you think the regulatory risk is not that material? Um?
Speaker 1: I think that the more regulation placed on Amazon, the
Speaker 1: more it will increase their mode and their market share. Um.
Speaker 1: They're such first mover advantage. Now no one's, no one's
Speaker 1: even in the same league as they are, so it
Speaker 1: would actually be self defeating. Interesting to see the stock.
Speaker 1: It's amazing that Jeff Baso so another two billion dollars
Speaker 1: worth the stock and the stock is up fifty dollars
Speaker 1: in the last in the last two days. Interesting. So
Speaker 1: the and by the way, Thomas Thomas, Yes, speaking of
Speaker 1: linear lag regression. I teachum Robert Schiller's course at the
Speaker 1: Yale School of Management that I actually spent three hours
Speaker 1: on that last year. This is important, folks, This is
Speaker 1: going to logs, Doug All of US, Paul Sweeney, Douglas Cass,
Speaker 1: and I remember when the Securities Exchange Commission was afraid
Speaker 1: to use logs publicly because they thought it would confuse
Speaker 1: the public. And yet this is what adults do in
Speaker 1: the market, because the core equation is an exponential function.
Speaker 1: F E equals PV one plus out of the t
Speaker 1: Doug Cass, what's the biggest mistake in extrapolation people make?
Speaker 1: I mean, you're extrapolating out three weeks or three months
Speaker 1: or even up may I suggest five years with Amazon.
Speaker 1: What's the biggest extrapolation mistake investors make? I think, um, oddly, Um,
Speaker 1: the extrapolation of parabolic moves is a major trading an
Speaker 1: investment mistake. And I'm thinking obviously of Tesla. Um. You know,
Speaker 1: Tesla was has Tesla started the year at four under
Speaker 1: in eighteen dollars a share and traded to nine dollars. Now,
Speaker 1: Tesla is not going to automatically brush our teeth, and
Speaker 1: that it's not gonna walk our dog. That's not gonna
Speaker 1: heal the sick, it's not gonna cure the blind, it's
Speaker 1: not going to solve global warning warming it's not going
Speaker 1: to deliver world peace. Um. When you have parabolic moves
Speaker 1: and you extend that and traders by the relative strength,
Speaker 1: we have to remember that parabolic moves almost always returned
Speaker 1: to the point of breakout, and we're seeing that this morning.
Speaker 1: There's also another important lesson. It's not your question specifically,
Speaker 1: I see Tesla down another sixty dollars. It's an important
Speaker 1: lesson about short selling. UM. I, as a matter of practice,
Speaker 1: as you know, have as a basic tenant of my
Speaker 1: short selling, to avoid any stock with a large short
Speaker 1: interest relative to the average daily trading volume and or
Speaker 1: the float. For example, Tesla has twenty eight million shares short,
Speaker 1: a hundred and forty million share a float, which is
Speaker 1: really overstated because probably thirty million of that is in
Speaker 1: Ron Barron's hands and other law committed long term investor
Speaker 1: investors and cult members. So um that's a dangerous thing.
Speaker 1: And look I lived through Robert Wilson short Squeezeer Resorts International.
Speaker 1: I have the scars on my back shorting stocks at
Speaker 1: the dot cop dot com era a bit early. It
Speaker 1: worked out fine, but they show we're painful for a
Speaker 1: period of time. Doug Cass for the reason, of course
Speaker 1: in Florida, and uh is better than good. We protect
Speaker 1: the copyright of all of our guests. If you want
Speaker 1: Mr Casss literature, you know where to go for him.
Speaker 1: John Hudack with us, and this is important. There's a
Speaker 1: lot of punditry on politics and that. But who Deck
Speaker 1: is with Brookings. He's with their governance study group, and
Speaker 1: he takes very seriously the accesses of all this punditry
Speaker 1: and politics. He joins us. Now, John, you know we
Speaker 1: knew we were going to have you. That was before
Speaker 1: the Iowa blow up. I mean talk about a failed process.
Speaker 1: John Farrell mentioned it earlier. Is modern technology and voting,
Speaker 1: is it officially dead? Well, I don't think it's officially dead.
Speaker 1: You know, there's a lot of contractors out there who
Speaker 1: are looking to get party money, so I wouldn't declare
Speaker 1: it dead yet. But I think this is a lesson
Speaker 1: that a lot of Americans look at and they say,
Speaker 1: if our systems can get hacked by Russia, if our
Speaker 1: systems can sail. I think they look back to a
Speaker 1: paper ballot system or the old metal voting boots with
Speaker 1: the curtain and see that the good old thing. I
Speaker 1: mean John, I don't know what they do in England
Speaker 1: here the coolest thing You should go voting day and
Speaker 1: your father mother would pick you up and you could
Speaker 1: hit the little tabby things in the metal booth and
Speaker 1: the curtain closed. And did they have it? And when
Speaker 1: I used to vote in the UK, I just go
Speaker 1: and sign a piece of paper, just a little tick
Speaker 1: with a quill to the name. How did you do
Speaker 1: at least? Did you think you've got the wrong person here?
Speaker 1: I think it's Tom that used to turn up with
Speaker 1: a quill. Are you guys who really wound up to that?
Speaker 1: I will say if there were a little um levers
Speaker 1: that you pulled and then that big thing and we
Speaker 1: have a guest, John, are you John? Are we going
Speaker 1: back to that? You know, we're probably not going back
Speaker 1: to that. But I think the nostalgia around that and
Speaker 1: the security that people felt around that is going to
Speaker 1: make them furiously questioned. These new technological advances that people
Speaker 1: are promising will be flawless and secure, and I think
Speaker 1: it's going to be a serious conversation within the party
Speaker 1: about what what the future holds and what kind of
Speaker 1: backup systems in particular, will have to avoid chaos, Johns,
Speaker 1: at the end of the caucus. I would hope it's
Speaker 1: the end of the Iowa caucuses. I mean, these are outdated.
Speaker 1: They force a system in play where not everyone can participate.
Speaker 1: To see them on TV or to see them in person.
Speaker 1: Uh that they're foolish looking, and I think the party
Speaker 1: needs to recognize that this is not the direction of
Speaker 1: American politics right now, and it certainly shouldn't be its future.
Speaker 1: But a lot of criticism of the party in the
Speaker 1: last couple of days, for that matter, the last few
Speaker 1: months about how they order the states and who goes
Speaker 1: to vote first, whether you should do priorities and have
Speaker 1: no caucus anymore, Johnny, is there going to be a
Speaker 1: serious rethink at the very top of the party about
Speaker 1: how to achieve the best outcome, come up with the
Speaker 1: best candidate on a national level, and stop playing around
Speaker 1: in New Hampshire and Iowa. You know, it's not just
Speaker 1: the past few months that that criticism has been happening,
Speaker 1: and it's happened for both parties. I think if you
Speaker 1: asked me five or six years ago if that serious
Speaker 1: conversation was going to happen, I would say no. But
Speaker 1: what we saw after six is the Democratic Party responding
Speaker 1: by saying, we need to make some reforms And there
Speaker 1: were some serious reforms that were made at the state
Speaker 1: level and at the national level of how to select
Speaker 1: a president. And I think after this election, you're going
Speaker 1: to see that same conversation broadened to be more encompassing
Speaker 1: about more issues. John, there's also a question about the
Speaker 1: narrative emerging from the Iowa caucus. First of all, it's
Speaker 1: one of dysfunction. But second of all, it's the lack
Speaker 1: of a response to President Trump, who has basically going
Speaker 1: to herald the economy in his re election campaign, which
Speaker 1: we saw last night the State of the Union address.
Speaker 1: What should Democrats do in order to counter that or
Speaker 1: how important is it for them to get that narrative together.
Speaker 1: It's critically important for them to get that narrative together.
Speaker 1: What we have as a president who has a lot
Speaker 1: of economic data to brag about, and that is the
Speaker 1: president's prerogative. If the economy is doing well, um talk
Speaker 1: about it. And you know, part of the reason Republicans
Speaker 1: did so poorly in was that the President talked about
Speaker 1: immigration and not a booming economy, but the economic recovery
Speaker 1: and the continued economic success has not to everyone equally,
Speaker 1: and there are a lot of people who are struggling
Speaker 1: out there. And that's the message for Democrats, and they
Speaker 1: haven't crafted it properly yet. John. Let's take the punditry
Speaker 1: and bring it over to your serious political science. Mr Carville,
Speaker 1: who I adore, I've worked with them another time. James
Speaker 1: Carville of Louisiana says, I'm scared to death for the
Speaker 1: Democratic Party. That's a moderate voice. Is anyone listening to
Speaker 1: the Carvilles of the Democratic Party? Well, I will say
Speaker 1: there are a lot of moderate voices who are saying
Speaker 1: that who are scared to death of progressives who are
Speaker 1: scared to death of what that might mean for the
Speaker 1: future of the party. I'm not ready to pronounce the
Speaker 1: Democratic Party dead, but what I do think is that
Speaker 1: there are these moments in a party's history in which
Speaker 1: they face real challenges, a real question marks, and uh,
Speaker 1: we don't know what the future of the Democratic Party
Speaker 1: will hold. It could be the progressive is nominated and
Speaker 1: that progressive wins, and then we reset everything and say
Speaker 1: progressive politics is the wave of the future, or that
Speaker 1: progressive loses to Donald Trump and we say progressivism is dead,
Speaker 1: you know, long live uh Centrism. Depending on the outcome
Speaker 1: of this election will determine quite a bit about what
Speaker 1: the future of both the Democratic and Republican Party will be.
Speaker 1: But John, we've seen the outcome of things like this
Speaker 1: again and again and again. This comes back to a
Speaker 1: question that I've seen being asked in the United Kingdom constantly,
Speaker 1: a question of the left. Does it just have to
Speaker 1: come down to a purity test? Is it just about
Speaker 1: maintaining holding on to the moral high ground? Is that
Speaker 1: the hill you want to die on? If you really
Speaker 1: want to make change, you've got to govern, and to
Speaker 1: govern you've got to win. And John, from what I
Speaker 1: see right now, it's not a party that putting themselves
Speaker 1: in a position to really make the massive effort needed
Speaker 1: to win. You know, I think you're absolutely right about that.
Speaker 1: The purity tests that exists are ones the alienate voters
Speaker 1: and in purposefully alienate voters. And I think you're right.
Speaker 1: In order to govern you have to win. But also
Speaker 1: in order to govern, you have to govern. And what
Speaker 1: we have right now are candidates in this race both
Speaker 1: you know, some centrists and certainly some on the left
Speaker 1: who are putting plans out there that will never pass
Speaker 1: the United States Congress. And what worries me is someone
Speaker 1: who studies governance is the conversation is never extended to
Speaker 1: say this is the ideal, but here's the path we're
Speaker 1: going to go through to get there. Elizabeth Warren has
Speaker 1: tried this a little bit to say, if we can't
Speaker 1: have the perfect, here's our alternative done. And she's been
Speaker 1: slammed for this. John, It's it chases a really important
Speaker 1: point and exactly where I wanted to go, which is
Speaker 1: what proposals have you heard, either out of President Trump
Speaker 1: or the Democrats that you think are feasible, doable that
Speaker 1: markets should be taking more into account. You know, I
Speaker 1: think for Elizabeth Warren and for some of the other
Speaker 1: centrist candidates, they've talked about how difficult um health care
Speaker 1: is in the United States and how they need to
Speaker 1: work across the aisle that they're not going to get
Speaker 1: the Republic and send it to sign on to medicare
Speaker 1: for all, and that's something that is realistic. It's something
Speaker 1: that you know, markets don't have to think about medicare
Speaker 1: for all because Medicare for all is not going to happen.
Speaker 1: After the election, no matter whose president, but there's a
Speaker 1: lot of variation in what the alternatives are. John Hudeck,
Speaker 1: thank you so much. With Brookings, why don't you bring
Speaker 1: in Francisco Blondest Lisa. I mean, this guy is just
Speaker 1: like this is that gift for Lisa? That's nice for me.
Speaker 1: It's a very exciting time in oil. You're looking right
Speaker 1: now at oil prices rebounding up three per cent after
Speaker 1: absolutely being clawbered, with a lot of people saying that
Speaker 1: there was a secular shift in the entire crude market.
Speaker 1: Francisco Blanche of Bank of American Marrilage, head of Global Commodities,
Speaker 1: thank you so much for being with us. This would
Speaker 1: love to get your sense right now of where we are.
Speaker 1: The biggest one day rally since December. Is this the
Speaker 1: beginning of some sort of revival of oil prices? Hi?
Speaker 1: Thanks for having me. Look. I mean, I think a
Speaker 1: lot of it depends on how China balls from here.
Speaker 1: We've we've played out three scenarios at base case, major
Speaker 1: China slowdown scenario and a coal contingent scenario for for
Speaker 1: the coronavirus. But the base case we haven't really changed.
Speaker 1: Our numbers were still was still look for sixty twos
Speaker 1: in average for rent and fifty seven for w t
Speaker 1: I for the year. Uh I said, I haven't had
Speaker 1: all of the forecasts, um, partly because our economists think
Speaker 1: that the that the China s lowlan is gonna be
Speaker 1: a one quarter issue. So as long as that remains
Speaker 1: the case, this is a good buying opportunity for commodity markets. Obviously,
Speaker 1: the risk is that that UM the situation in China's
Speaker 1: and stabilize, in which in which case you may have
Speaker 1: a major slowdown or worse, a pandemic, in which case obviously, uh,
Speaker 1: you know, you would get hit pretty hard on in
Speaker 1: terms of all market would get hit harder. Yeah, but
Speaker 1: that's really the story here. I mean, the nand could
Speaker 1: really swing by a million barrel's day or about one
Speaker 1: percent of global of global demand. So that's that's the
Speaker 1: issue here, a buying opportunity. I'm wondering how the dollar
Speaker 1: factors into this. Jane Follio of Rubble Bank just telling
Speaker 1: us she expects the dollar to continue to strengthen. How
Speaker 1: much does that pressure commodities and does that factor into
Speaker 1: your call at all? Um? It is it is a factor,
Speaker 1: no question and remember that all are actually weakened a
Speaker 1: little bit against some of the European currencies. Um as
Speaker 1: rates came down, but not rates are going up obviously
Speaker 1: again as as the U. S. Economy, to your point earlier,
Speaker 1: is really really humming. Um So it's a factor. But
Speaker 1: I do think that I do think that ultimately we
Speaker 1: were in the early stages of a global recovery. I'm
Speaker 1: open a half ago, driven by the U. S. China
Speaker 1: trade deal and and also importantly by the massive he
Speaker 1: seeing that the Federal Reserve has given us as well
Speaker 1: as many centil facts we've had. We have three cuts
Speaker 1: last year by the FED, and we also had a
Speaker 1: big balance heat reversal. I think we talked about this
Speaker 1: in the past that the balancy of contraction was a
Speaker 1: massive tail, a massive headwind for the economy. Now with
Speaker 1: the FED, expanmies bouncy and and cutting reads, we have
Speaker 1: a huge style wind a couple with whatever else the
Speaker 1: central bines are doing. So so that's why risk assets
Speaker 1: are so excited um and and ultimately this will come
Speaker 1: down to commodities as well. But we do need China,
Speaker 1: we do need emerging markets to to us his strong
Speaker 1: consumption Francisco. As you point out, we've been in the
Speaker 1: early stages of a recovery. That recovery was not secured,
Speaker 1: not in Europe, not in Asia for that matter either.
Speaker 1: If it's really a one quarter event, what gives you, guys,
Speaker 1: the confidence that we come out the other side in
Speaker 1: this V shaped recovery when the situation was not secure
Speaker 1: to begin with. Well, I mean again, I'm not I'm
Speaker 1: not saying it will be. I'm not a virologist, so
Speaker 1: I can't I can't really make that call. I mean,
Speaker 1: I've just laid other three Francis are just based on
Speaker 1: the disruptions that you see to supply chains right now,
Speaker 1: the sudden stop to launch chunks of the Chinese economy
Speaker 1: right now. I agree with you, we shouldn't get into
Speaker 1: the medical issues, will leave that to the doctors. But
Speaker 1: as things stand right now, what gives you that confidence? Well, look,
Speaker 1: I mean one of the one of the big issues
Speaker 1: that that we had passed eighteen months is that inventories
Speaker 1: around the world came down a long and they came
Speaker 1: down a lot, because once you start playing around with Harris,
Speaker 1: people slow down their purchases. If you look at if
Speaker 1: you look at where global trade growth was running in
Speaker 1: in UH seventeen and eighteens, running around five percent year
Speaker 1: and year, following years of growth of two or three percent.
Speaker 1: Then basically last year global trade shut down completely. We
Speaker 1: had essentially a contraction because of the large increase in
Speaker 1: your STARTUS. And and now this year we just need
Speaker 1: we just need to see a inventory restocking cycle, um
Speaker 1: because consumption is strong, because labor growth is strong, because
Speaker 1: the the service economy is still doing so. So I
Speaker 1: think we need to bring those goods, those goods to
Speaker 1: the economy now longer term for sure. To your point,
Speaker 1: you're gonna have this disruptions and supply chains, and this
Speaker 1: is gonna change the Catholic cycle. So and we argue
Speaker 1: that in some of our pieces we will see a
Speaker 1: restocking cycle, but not a Catholic cycle under until there
Speaker 1: is claddity as to where this thing is going, Francis,
Speaker 1: we've gotta leave it there. Thank you so much. I
Speaker 1: appreciate this morning with the Bank of America. Right now
Speaker 1: Lindsay piegsa whether she writes brilliantly for step phil and
Speaker 1: what I love about her latest work. Dr Piazza says
Speaker 1: moderate growth as expected Lindsay, congratulations on a middle road here.
Speaker 1: How have you adjusted your moderate growth view given this
Speaker 1: morning's data and given serious Chinese issues of the last
Speaker 1: two weeks. Well, I think moderate is sort of the
Speaker 1: new normal for but we do have to put it
Speaker 1: in perspective that moderate is not great. The bar of
Speaker 1: expectations has been lowered so dramatically that it seems the
Speaker 1: market is celebrating even mediocrity at this point. Keep in
Speaker 1: mind that two percent is really the bare minimum that
Speaker 1: we should expect from the economy, assuming one percent gains population,
Speaker 1: one percent gains from productivity, and we're also just achieving
Speaker 1: that bare minimum with bloated government balance sheets an extremely
Speaker 1: low rate. So my concern is that moderate growth is here,
Speaker 1: but is it here to stay? Or does the economy
Speaker 1: lose momentum as we move further into Lindsay, I'm just
Speaker 1: not sure how many people are interested in the January
Speaker 1: data right now. It's just a rush to show me February.
Speaker 1: Just show me what February looks like for the global economy. Lindsay,
Speaker 1: how much can we read into the Jenuary economic data worldwide?
Speaker 1: You're being You're being cruel and unusual to lindsay, because
Speaker 1: it's February five, how are we supposed to look into
Speaker 1: February to read through in terms of the coronavirus is
Speaker 1: impact and down absolutely pretty much everyone, I think Lindsay
Speaker 1: thoughts right, so so so the market is looking for
Speaker 1: some cleaned and saying how much of this is just
Speaker 1: a temporary bliff because of this coronavirus and the fear
Speaker 1: of the spread as opposed to fundamental weakness. And I
Speaker 1: do think it's very difficult to pass this out. But
Speaker 1: what we can see is this declining trend that was
Speaker 1: well established before the first coronavirus. We saw momentum in
Speaker 1: the U. S economy slowing. We saw the consumer, yes,
Speaker 1: still out in the marketplace spending, but spending it a
Speaker 1: noticeably slower clip. And so I do expect those trends
Speaker 1: once we get clean data excluding the impact of the coronavirus,
Speaker 1: we do expect that trend to continue into and I
Speaker 1: think we we've seen that with some breaking news around
Speaker 1: maybe these closing stores, slower manufacturing data producers being very
Speaker 1: concerned that outside of the coronavirus, again, global growth, global
Speaker 1: demand is not an extremely steady footing as we look
Speaker 1: out to February and more importantly beyond MADI an estimate
Speaker 1: year end from the economist that we track on more
Speaker 1: straight lines as real GDP for the U S economy. Lindsey,
Speaker 1: what are you modeling at the moment? What are you
Speaker 1: looking for? Well? I think one point day for an
Speaker 1: annual GDP growth is reasonable. It's continuing with that loss
Speaker 1: of momentum. I would say a longer term trend for
Speaker 1: the domestic economy is closer to one point five. The
Speaker 1: fact a little more optimistic at one point nine. Again,
Speaker 1: what we're what we're seeing is that there is a
Speaker 1: lack of fundamental growth in the domestic economy, and in fact,
Speaker 1: what we're doing is increasingly relying on non traditional supports
Speaker 1: from the FED and the federal government. Are you modeling
Speaker 1: sub four current nominal GDP? I think that's very reasonable?
Speaker 1: Is okay, lindsay you're great at this? Is this politically
Speaker 1: acceptable in this nation? Republican or Democrat? Can Can any
Speaker 1: politician move forward assuming sub four animal spirit? I think so.
Speaker 1: I think the expectation of the average market participant or
Speaker 1: orn that the average American has come down so dramatically
Speaker 1: that two percent real GDP um even one and a half,
Speaker 1: let's round up to two percent real GDP? Is good enough?
Speaker 1: Good enough? That's the new metric for the economy. Is
Speaker 1: it good enough to get by? We're not looking for
Speaker 1: great we're not looking for a stellar boomer economy. Now
Speaker 1: the expectation is is it just good enough? Lindsay, what's
Speaker 1: the line between stall speed and goldilocks. Well, that's a
Speaker 1: very fine line. And my bigger concern when we talk
Speaker 1: about the economy losing momentum is not that we fall
Speaker 1: into recession, but as you point out, we go into
Speaker 1: that stall motor what I like to call a non
Speaker 1: accelerating economy, and that would be less than one percent.
Speaker 1: And we're not that far away from that very clear
Speaker 1: danger zone. Because if we do get to less than
Speaker 1: one percent, there's going to be an even larger reliance
Speaker 1: on non traditional, non organic metrics to continue to perpetuate growth,
Speaker 1: Meaning we're going to rely more and more on government
Speaker 1: spending more and more on lower rates, and it's going
Speaker 1: to be increasingly difficult. It's not impossible for then organic
Speaker 1: momentum to get us back into a stage of longer
Speaker 1: term prosperity. And so what we could see is perpetual
Speaker 1: growth below one for five ten Lindsay is going to
Speaker 1: sit there and accept that exactly, that's right. We wanted
Speaker 1: to go what's fed policy off of your call? Looks
Speaker 1: the feed has been forecasting perpetual two percent GDP and
Speaker 1: they double down down their commitment to getting prices back
Speaker 1: to not near but back to two. And so I
Speaker 1: do think that as the data continues to underperform, they
Speaker 1: have backed themselves into a corner and they're going to
Speaker 1: need to take action sooner than later. I don't think
Speaker 1: it's it's unreasonable to expect two additional basis point moves
Speaker 1: within the coming months. Did they have the fiscal space
Speaker 1: to attach to that? I mean, if you're running a
Speaker 1: trillion dollar deficity, you goose it out to one point
Speaker 1: three one point four trillion dollars to assist in your
Speaker 1: double rate cut? Why not? The FET is not concerned
Speaker 1: about Come, Lindsay, it's a free lunch. I mean, I mean,
Speaker 1: what's the price of your really important analysis of sub
Speaker 1: two forward? There's got to be a there's gotta be
Speaker 1: a price to it. There there is a price, but
Speaker 1: it's a longer term consequence that the FET is not
Speaker 1: going to concern themselves with near term. Their near term
Speaker 1: mandate is getting inflation back on track. And so whether
Speaker 1: that means growing the balance sheet back to four and
Speaker 1: a half, five and a half, what's six trillion among friends,
Speaker 1: that's how they're going to sell it. They're going to say, look,
Speaker 1: we need to get the economy back on track. This
Speaker 1: is how we do it. We can continue to hold
Speaker 1: these securities. We don't have to mark to market. We
Speaker 1: can hold these securities to maturity and let the cards
Speaker 1: lay where they will longer term. This has been fabulous.
Speaker 1: We'll have us out on podcast folks. Dr Piexo with
Speaker 1: Steeple just really really important there on a on a
Speaker 1: view of how you get to a sub two percent
Speaker 1: called Lindsay, thank you so much this morning. Thanks for
Speaker 1: listening to the Bloomberg Surveillance podcast. Subscribe and listen to
Speaker 1: interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer.
Speaker 1: I'm on Twitter at Tom Keene before the podcast, you
Speaker 1: can always catch us worldwide. I'm Bloomberg Radio