1
00:00:09,880 --> 00:00:13,880
Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm m Keene jay Leie.

2
00:00:13,960 --> 00:00:17,560
Speaker 1: We bring you insight from the best in economics, finance, investment,

3
00:00:18,000 --> 00:00:23,520
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

4
00:00:23,600 --> 00:00:27,640
Speaker 1: Bloomberg dot com, and of course, on the Bloomberg questions

5
00:00:27,640 --> 00:00:30,480
Speaker 1: coming from Evercore I s I. I'll put the disclaimer

6
00:00:30,560 --> 00:00:33,239
Speaker 1: up front. Michael Bloomberg, the fan of majority owner of

7
00:00:33,280 --> 00:00:36,040
Speaker 1: Bloomberg ALP, the parent company of Bloomberg News, and the

8
00:00:36,159 --> 00:00:39,680
Speaker 1: question from Evercore I scias follows. Number one, can Bloomberg

9
00:00:39,760 --> 00:00:42,720
Speaker 1: right above the tach the attacks? Number two? Can anyone

10
00:00:42,800 --> 00:00:45,839
Speaker 1: deliver a blow to Sanders? Three can either Clobhan or

11
00:00:45,840 --> 00:00:48,479
Speaker 1: Buddha Usa debate stage yet again to bounce into polls?

12
00:00:48,479 --> 00:00:51,520
Speaker 1: And four can bide and use it to bounce back

13
00:00:51,840 --> 00:00:53,680
Speaker 1: in the run up to Super Tuesday? Lisa? Out of

14
00:00:53,680 --> 00:00:56,400
Speaker 1: those four, what's number one for you? I mean it? Look,

15
00:00:56,440 --> 00:00:59,800
Speaker 1: Michael Bloomberg, the founding, a majority partner of the majority

16
00:00:59,800 --> 00:01:02,080
Speaker 1: owner of Bloomberg LP. This is gonna be his first debate,

17
00:01:02,080 --> 00:01:03,600
Speaker 1: and I think a lot of people are really focused

18
00:01:03,600 --> 00:01:05,559
Speaker 1: on him, given how quickly he's risen in the polls.

19
00:01:05,640 --> 00:01:08,759
Speaker 1: That said, Bernie Sanders has really risen to the front,

20
00:01:08,959 --> 00:01:11,800
Speaker 1: the fact that he has like become the front runner,

21
00:01:12,120 --> 00:01:14,840
Speaker 1: after Pete Botaj had been it for a while, after

22
00:01:14,959 --> 00:01:17,360
Speaker 1: Elizabeth Warren had been it for a while. Can he

23
00:01:17,440 --> 00:01:20,680
Speaker 1: maintain that momentum and does he deliver the same sort

24
00:01:20,760 --> 00:01:22,520
Speaker 1: of your with me or against me, whether you're a

25
00:01:22,520 --> 00:01:25,920
Speaker 1: Democrat or not, leading to his supporters staying home if

26
00:01:25,920 --> 00:01:28,360
Speaker 1: he does not get nominated as and Tom mut go

27
00:01:28,400 --> 00:01:30,880
Speaker 1: as far as sand is this six in comparison with

28
00:01:30,920 --> 00:01:33,959
Speaker 1: candidate Donald Trump and the Republican Party that Bernie Sanders

29
00:01:34,040 --> 00:01:37,040
Speaker 1: is not the candidate the party might want or might

30
00:01:37,080 --> 00:01:39,560
Speaker 1: not want, but it could be the candidate they are

31
00:01:39,680 --> 00:01:43,360
Speaker 1: dealt with. I think they will go in the booth

32
00:01:43,440 --> 00:01:45,720
Speaker 1: and choose. And that's what happens is that we saw

33
00:01:45,760 --> 00:01:49,640
Speaker 1: that in New Hampshire with Avengerce Chuck Gabriel with a

34
00:01:49,720 --> 00:01:53,520
Speaker 1: he's with capital Alpha from Minneapolis today but always focused

35
00:01:53,520 --> 00:01:56,400
Speaker 1: on Washington. Is well, Chuck, what's going to be the

36
00:01:56,480 --> 00:01:59,480
Speaker 1: prism of the Washington you know? So well? As they

37
00:01:59,480 --> 00:02:02,720
Speaker 1: look at this debate in Nevada, how are Republicans and

38
00:02:02,800 --> 00:02:06,200
Speaker 1: Democrats on the hill, the senators, the members of the House,

39
00:02:06,520 --> 00:02:12,160
Speaker 1: how will they observe this debate. Well, thanks Tom. I

40
00:02:12,160 --> 00:02:15,080
Speaker 1: think everybody be looking very very closely at Michael Bloomberg

41
00:02:15,080 --> 00:02:17,519
Speaker 1: and to see how he can actually perform in an

42
00:02:17,600 --> 00:02:21,679
Speaker 1: uncontrolled environment taking punches from you know, four or five

43
00:02:21,680 --> 00:02:25,760
Speaker 1: other candidates that really resent his skipping the first four

44
00:02:25,800 --> 00:02:30,080
Speaker 1: events and sort of just paying his way past past

45
00:02:30,080 --> 00:02:32,880
Speaker 1: February and into Super Tuesday. So I think there'd be

46
00:02:32,919 --> 00:02:35,840
Speaker 1: a big focus on that. But you know, while everyone

47
00:02:35,960 --> 00:02:39,000
Speaker 1: is lamenting that Michael Bloomberg is so cuddly developed a

48
00:02:39,040 --> 00:02:42,560
Speaker 1: conscience about billions and taking on Wall Street sort of

49
00:02:43,120 --> 00:02:46,760
Speaker 1: in a peremptory way of looking forward to tomorrow to tonight,

50
00:02:47,639 --> 00:02:49,600
Speaker 1: I think the bigger story, of course, is that Bernie

51
00:02:49,639 --> 00:02:53,119
Speaker 1: Sanders is the one is the beneficiary of all of this. Uh.

52
00:02:53,120 --> 00:02:55,520
Speaker 1: And I think there's a sort of a you know,

53
00:02:55,560 --> 00:02:58,840
Speaker 1: that's the second dynamic that will really be in evidence

54
00:02:59,240 --> 00:03:03,320
Speaker 1: behind the bloomberghsteria tonight, And that is the stop Bonie

55
00:03:03,880 --> 00:03:07,200
Speaker 1: you have in the back of your wonderful research. Note

56
00:03:07,400 --> 00:03:10,679
Speaker 1: the paragraph on the new Wall Street policies not only

57
00:03:10,680 --> 00:03:13,840
Speaker 1: of mayor Bloomberg, what are the others as well? Can

58
00:03:13,919 --> 00:03:17,080
Speaker 1: you win coast to coast on an anti Wall Street theme.

59
00:03:18,440 --> 00:03:20,720
Speaker 1: I don't believe so for a minute. I really don't,

60
00:03:20,760 --> 00:03:23,400
Speaker 1: you know, there there has been no hue and cry

61
00:03:23,919 --> 00:03:27,080
Speaker 1: among the Democratic candidates outside of loose one, you know,

62
00:03:27,160 --> 00:03:30,079
Speaker 1: who's really you know, uniquely burdened on this, having had

63
00:03:30,200 --> 00:03:33,959
Speaker 1: led the Tarp Commission. There isn't in Congress. Uh. You know,

64
00:03:34,000 --> 00:03:36,800
Speaker 1: we actually had a bipartisan bill to to you know,

65
00:03:36,880 --> 00:03:39,160
Speaker 1: take back a little bit of the Dodd Frank just

66
00:03:39,240 --> 00:03:41,680
Speaker 1: a couple of years ago. So you know, when you

67
00:03:41,720 --> 00:03:45,320
Speaker 1: talk to Americans, they're not talking negatively about Wall Street

68
00:03:45,440 --> 00:03:49,360
Speaker 1: exact the extent there really you know, incited to do

69
00:03:49,440 --> 00:03:54,200
Speaker 1: so by these populoust sort of angry narratives. So I

70
00:03:54,400 --> 00:03:56,920
Speaker 1: don't think so at all, and I think they're really

71
00:03:57,040 --> 00:03:59,680
Speaker 1: you know, maybe that's good news that we won't have

72
00:03:59,720 --> 00:04:03,080
Speaker 1: a lot of time to discuss whether Michael Bloomberg has

73
00:04:03,120 --> 00:04:06,120
Speaker 1: made a financial transaction tax of ceiling rather the floor

74
00:04:06,240 --> 00:04:10,440
Speaker 1: rather than a ceiling for long, because you know, after

75
00:04:11,960 --> 00:04:15,480
Speaker 1: this Saturday's Nevada caucuses and then we go to a

76
00:04:15,560 --> 00:04:19,120
Speaker 1: South Carolina the following Saturday, you only have basically chosen

77
00:04:19,120 --> 00:04:22,000
Speaker 1: four percent of delegates. But then on Super Tuesday marked

78
00:04:22,000 --> 00:04:25,720
Speaker 1: third Boom three Super Tuesday six the vote in March.

79
00:04:26,200 --> 00:04:29,160
Speaker 1: It's happening very quickly, Chuck. So let's talk about electability.

80
00:04:29,360 --> 00:04:32,599
Speaker 1: Michael Bloomberg. Mr Bloomberg actenly has the opposite problem that

81
00:04:32,640 --> 00:04:35,720
Speaker 1: Senator Sanders had, at least in terms of perception. There

82
00:04:35,720 --> 00:04:37,920
Speaker 1: are people who believe Mr Bloomberg would struggle to get

83
00:04:37,920 --> 00:04:40,880
Speaker 1: the nomination ultimately, but ultimately he would do better in

84
00:04:40,920 --> 00:04:43,640
Speaker 1: the general, the opposite applying to Senator Sanders in the

85
00:04:43,640 --> 00:04:46,160
Speaker 1: minds of many. I'm just interested in the data, Chuck,

86
00:04:46,200 --> 00:04:48,039
Speaker 1: that you're looking at the moment. I'm looking at a

87
00:04:48,040 --> 00:04:51,039
Speaker 1: new pole from the Post and ABC that essentially still

88
00:04:51,080 --> 00:04:55,200
Speaker 1: sees Senator Sanders is the most selectable cited by thirty

89
00:04:55,640 --> 00:04:59,279
Speaker 1: at Democratic Leaners as best situated to beat Trump. What

90
00:04:59,400 --> 00:05:01,159
Speaker 1: do you see the polls in the data that you

91
00:05:01,200 --> 00:05:05,240
Speaker 1: look at, Chuck, Well, I do think that you know,

92
00:05:05,279 --> 00:05:09,320
Speaker 1: Sanders has a very very loyal basis support and and

93
00:05:09,400 --> 00:05:11,560
Speaker 1: you know there's not a single state where he doesn't have.

94
00:05:13,960 --> 00:05:16,240
Speaker 1: One of the reasons the Democrats are in this situation

95
00:05:16,320 --> 00:05:19,640
Speaker 1: is they changed the rules, they're their primary rules, to

96
00:05:19,720 --> 00:05:22,560
Speaker 1: basically front load more of the primaries and create the

97
00:05:22,680 --> 00:05:27,240
Speaker 1: fifteen percent proportional vote that you know, a candidate can't

98
00:05:27,240 --> 00:05:29,760
Speaker 1: get any delegates unless they get at least fift in

99
00:05:29,760 --> 00:05:33,279
Speaker 1: the congressional district or a state. So ironically, you know

100
00:05:33,279 --> 00:05:36,520
Speaker 1: you're gonna have a very congested field. And I and

101
00:05:36,560 --> 00:05:39,279
Speaker 1: I think that you know, I know what you're talking about.

102
00:05:39,320 --> 00:05:41,440
Speaker 1: You're talking about what where will be in the end.

103
00:05:41,520 --> 00:05:44,719
Speaker 1: But we'll get a very different look at Bloomberg at

104
00:05:44,760 --> 00:05:47,120
Speaker 1: that time. And I think for I think, really what

105
00:05:47,120 --> 00:05:50,680
Speaker 1: Bloomberg speaks to and those poles speak to is Democrats

106
00:05:50,760 --> 00:05:53,520
Speaker 1: just want to defeat Donald Trump, and they sense that

107
00:05:53,560 --> 00:05:56,360
Speaker 1: a centrist will do it, and they think another billionaire

108
00:05:56,400 --> 00:05:58,760
Speaker 1: who will get in the ring with the president is

109
00:05:58,800 --> 00:06:00,800
Speaker 1: the right way to go. But I don't think that's

110
00:06:00,800 --> 00:06:03,920
Speaker 1: the majority of the party. Took just twenty twenty seconds here.

111
00:06:03,920 --> 00:06:06,880
Speaker 1: I'm wondering, from your perspective, how close do you think

112
00:06:06,880 --> 00:06:10,359
Speaker 1: we are to sort of honing in on the candidate.

113
00:06:12,520 --> 00:06:16,440
Speaker 1: I think there's maybe a thirty chance that Lisa, that

114
00:06:16,520 --> 00:06:19,440
Speaker 1: we will actually have a better chance that people uh

115
00:06:20,000 --> 00:06:23,080
Speaker 1: suspect that we'll know who the Democratic nominee could be

116
00:06:23,080 --> 00:06:25,240
Speaker 1: in it very well could be Sanders by the end

117
00:06:25,279 --> 00:06:28,160
Speaker 1: of March early April, say mid April, with the New

118
00:06:28,240 --> 00:06:31,280
Speaker 1: York Primary. I think that's I think that's absolutely true,

119
00:06:31,320 --> 00:06:33,800
Speaker 1: and of course Wall Street will freak out a bit,

120
00:06:33,800 --> 00:06:36,279
Speaker 1: but nothing spooks this market, So why not do it now?

121
00:06:36,480 --> 00:06:38,680
Speaker 1: Chuck Cabriel, thank you so much. With Capital Alpha here

122
00:06:38,720 --> 00:06:43,440
Speaker 1: as we moved to the debate. Right now we take

123
00:06:43,480 --> 00:06:46,760
Speaker 1: over some time of Austin Gouldsby's he's at the April School, Chicago,

124
00:06:47,320 --> 00:06:50,320
Speaker 1: former chairman of the President's Council Economic Advisor. We've been

125
00:06:50,320 --> 00:06:53,840
Speaker 1: talking retail right now, Austin, I need to talk FED

126
00:06:53,920 --> 00:06:58,000
Speaker 1: policy with you, and I want you to defend William Dudley,

127
00:06:58,279 --> 00:07:00,880
Speaker 1: the former FED President of New York, who, in a

128
00:07:00,880 --> 00:07:05,680
Speaker 1: Bloomberg opinion piece was heated that this isn't about the

129
00:07:05,720 --> 00:07:08,520
Speaker 1: blunt instrument of a balance sheet, of the blunt instrument

130
00:07:08,560 --> 00:07:13,840
Speaker 1: about monetary policy. That monetary policy still has an effect

131
00:07:13,920 --> 00:07:17,320
Speaker 1: on the American economy. If they cut race once or

132
00:07:17,440 --> 00:07:23,840
Speaker 1: daresay twice from here, what does that do to our listeners. Well,

133
00:07:24,200 --> 00:07:27,960
Speaker 1: you've got a lot of listeners, so it probably does

134
00:07:28,040 --> 00:07:32,040
Speaker 1: different things to different ones of them. Um, I have

135
00:07:32,640 --> 00:07:37,320
Speaker 1: publicly said that I'm skeptical, not a look. I still

136
00:07:37,320 --> 00:07:42,000
Speaker 1: think conventional monetary policy and cutting interest rates does matter

137
00:07:42,080 --> 00:07:45,640
Speaker 1: for the economy. It's just that right now it matters

138
00:07:45,840 --> 00:07:50,400
Speaker 1: less than it basically has ever mattered because several of

139
00:07:50,480 --> 00:07:54,880
Speaker 1: the normal channels are not working. So when you cut

140
00:07:54,920 --> 00:08:00,920
Speaker 1: interest rates, normally, one of the big channels is there's

141
00:08:00,960 --> 00:08:03,600
Speaker 1: a pent up stock of people who say, want to

142
00:08:03,600 --> 00:08:07,080
Speaker 1: refinance their homes. They've been waiting for rates to come down,

143
00:08:07,480 --> 00:08:10,880
Speaker 1: and then when you cut the rates, you get a

144
00:08:10,920 --> 00:08:13,680
Speaker 1: whole bunch of these people who have been sitting on

145
00:08:13,720 --> 00:08:17,240
Speaker 1: the sidelines. And the same for business investment, and the

146
00:08:17,320 --> 00:08:21,240
Speaker 1: same for consumer durables, uh, you know, buying autos and

147
00:08:21,280 --> 00:08:25,440
Speaker 1: stuff like that. The problem is we've had the rates

148
00:08:25,520 --> 00:08:29,320
Speaker 1: so low for so long that anybody who was waiting

149
00:08:29,720 --> 00:08:32,560
Speaker 1: to buy a new car, to do a business investment,

150
00:08:32,600 --> 00:08:35,800
Speaker 1: to refinance their home, they were waiting for rates to

151
00:08:35,840 --> 00:08:38,320
Speaker 1: get low enough, they already did it. So there's not

152
00:08:38,480 --> 00:08:41,840
Speaker 1: any of that pent up demand, um, and so that

153
00:08:41,960 --> 00:08:46,200
Speaker 1: channel is less effective. And then the second is if

154
00:08:46,240 --> 00:08:48,840
Speaker 1: we were let's say, the coronavirus got over here and

155
00:08:48,880 --> 00:08:51,320
Speaker 1: people freaked out and stopped going to work, and we

156
00:08:51,600 --> 00:08:54,839
Speaker 1: and we had a downturn like what they're facing in China.

157
00:08:55,480 --> 00:08:59,280
Speaker 1: The normal FED move, as you know, is to cut

158
00:08:59,600 --> 00:09:03,520
Speaker 1: rates four to five hundred basis points over a relatively

159
00:09:03,559 --> 00:09:06,440
Speaker 1: short period of time. That's the kind of signature FED

160
00:09:06,600 --> 00:09:09,800
Speaker 1: move to fight off a recession. You can't got the

161
00:09:09,960 --> 00:09:12,720
Speaker 1: interest rate five o our basis points when it's already

162
00:09:12,840 --> 00:09:18,280
Speaker 1: too low. So I am a huge fan of Bill

163
00:09:18,360 --> 00:09:21,960
Speaker 1: Dudley's I was on the Economic Advisory Panel to the

164
00:09:22,000 --> 00:09:24,400
Speaker 1: New York FED when he was the President of the

165
00:09:24,400 --> 00:09:27,200
Speaker 1: New York FED, and I think there is a lot

166
00:09:27,280 --> 00:09:30,880
Speaker 1: of wisdom in his piece. But the part of it

167
00:09:31,200 --> 00:09:34,679
Speaker 1: in which he's kind of pleading to the world please

168
00:09:34,800 --> 00:09:40,079
Speaker 1: still respect are the power of our monetary policy, I

169
00:09:40,120 --> 00:09:44,200
Speaker 1: think it's that part is maybe overstated. So, professor, what

170
00:09:44,360 --> 00:09:47,760
Speaker 1: tools do you think the FED should use should it

171
00:09:47,880 --> 00:09:50,600
Speaker 1: need to act to stimulate our economy at some point

172
00:09:50,679 --> 00:09:54,600
Speaker 1: in the future. Well, look, they should use the conventional

173
00:09:54,600 --> 00:09:59,280
Speaker 1: monetary channel. It's just they got the shorter runway, so

174
00:09:59,320 --> 00:10:01,760
Speaker 1: you're not gonna be landing a seven forty seven on it.

175
00:10:02,280 --> 00:10:05,000
Speaker 1: You know, we're gonna we're gonna have to focus on

176
00:10:05,040 --> 00:10:09,120
Speaker 1: the on the smaller planes. And I continue to think

177
00:10:09,160 --> 00:10:15,280
Speaker 1: that the unconventional monetary policies like forward guidance, like QUI,

178
00:10:15,559 --> 00:10:20,439
Speaker 1: like a series of things are modestly effective, but they

179
00:10:20,520 --> 00:10:25,880
Speaker 1: should certainly be in the toolkit. Um. I think for

180
00:10:25,960 --> 00:10:30,160
Speaker 1: the people who believe that those unconventional monetary policies and

181
00:10:30,200 --> 00:10:35,280
Speaker 1: the balance sheet are super directive of the markets, are

182
00:10:35,320 --> 00:10:38,640
Speaker 1: they're the thing that has led stocks to rise. You know,

183
00:10:40,000 --> 00:10:45,680
Speaker 1: in I I would like to see what data they're

184
00:10:45,679 --> 00:10:47,840
Speaker 1: looking at, because my read of the data is their

185
00:10:48,320 --> 00:10:51,480
Speaker 1: their impact had There has been some impact, but it's

186
00:10:51,520 --> 00:10:54,560
Speaker 1: been a modest impact if you if you actually start

187
00:10:54,600 --> 00:10:58,040
Speaker 1: going and looking at the various assets. So as as

188
00:10:58,040 --> 00:11:00,320
Speaker 1: we take a look at today's economy, you know, it

189
00:11:00,480 --> 00:11:03,160
Speaker 1: has been clear for some time that it has been

190
00:11:03,240 --> 00:11:06,679
Speaker 1: driven in very very large part by the consumer. How

191
00:11:06,720 --> 00:11:11,800
Speaker 1: confident are you in the U S consumer today? I

192
00:11:11,880 --> 00:11:14,600
Speaker 1: think you're right, has been driven by the consumer and

193
00:11:14,640 --> 00:11:17,640
Speaker 1: the job market. That's the that's the that's the shining

194
00:11:17,720 --> 00:11:25,480
Speaker 1: part of the economy. I'm still pretty confident on them. Um. Though.

195
00:11:25,520 --> 00:11:31,360
Speaker 1: The only thing is anything that destroys consumer confidence puts

196
00:11:31,520 --> 00:11:34,760
Speaker 1: our recovery at risk. That that part is clear. And

197
00:11:35,720 --> 00:11:41,079
Speaker 1: I will say two things that historically can direct consumer

198
00:11:41,120 --> 00:11:47,880
Speaker 1: confidence in fast order are a massive political dysfunction and

199
00:11:48,000 --> 00:11:51,840
Speaker 1: meltdown in Washington. And did I say one or a

200
00:11:52,120 --> 00:11:56,400
Speaker 1: I think I said a b uh, natural disasters or

201
00:11:56,679 --> 00:12:01,440
Speaker 1: infectious disease for sure, if we got to ronavirus spreading

202
00:12:01,480 --> 00:12:05,320
Speaker 1: in the US, I think it's hard to fathom that

203
00:12:05,320 --> 00:12:09,199
Speaker 1: that would not freak out consumer confidence in a short basis,

204
00:12:09,200 --> 00:12:12,400
Speaker 1: short of an epidemic becoming a pandemic. There's a trillion

205
00:12:12,400 --> 00:12:15,360
Speaker 1: dollar deficit. Are you oblivious? I mean, come on, you

206
00:12:15,400 --> 00:12:17,920
Speaker 1: have to sit there and explain CBO to presidents and

207
00:12:18,040 --> 00:12:20,880
Speaker 1: that I'm looking at a one point three trillion dollar

208
00:12:21,000 --> 00:12:24,360
Speaker 1: run rate to begin with of a plugged in GDP number.

209
00:12:24,400 --> 00:12:28,040
Speaker 1: That's maybe it works, maybe it doesn't. Is Austin gools

210
00:12:28,000 --> 00:12:31,240
Speaker 1: to me telling me that Senator Dirkson's a billion here,

211
00:12:31,280 --> 00:12:34,800
Speaker 1: a billion there, a trillion here, a trillion there, doesn't matter,

212
00:12:36,200 --> 00:12:40,000
Speaker 1: you know, it does matter. The part that's disturbing is

213
00:12:40,000 --> 00:12:42,640
Speaker 1: not the one trillion. What is the part that's the

214
00:12:42,760 --> 00:12:47,720
Speaker 1: disturbing is the one trillion in a boom? Uh, Because

215
00:12:48,120 --> 00:12:50,760
Speaker 1: if then there weren't a boom, it's gonna be two

216
00:12:50,760 --> 00:12:53,600
Speaker 1: trillion plus. Well, no way, this is important. I don't

217
00:12:53,600 --> 00:12:55,120
Speaker 1: mean to interrupt you, but I'm gonna go out John

218
00:12:55,200 --> 00:12:58,520
Speaker 1: Taylor on you and automatic stabilizers. If you modeled in

219
00:12:58,600 --> 00:13:01,520
Speaker 1: an n b E R recent what would have one

220
00:13:01,600 --> 00:13:06,120
Speaker 1: point three trillion dollar deficit become double it? Yeah, probably

221
00:13:06,160 --> 00:13:08,760
Speaker 1: double it. You know, it depends on how deep the

222
00:13:08,800 --> 00:13:13,559
Speaker 1: recession is. So we saw the the deficit exploded to

223
00:13:13,679 --> 00:13:17,160
Speaker 1: record levels in the first one to two years of

224
00:13:17,160 --> 00:13:22,720
Speaker 1: the Obama administration because it was the deepest resonn As

225
00:13:22,760 --> 00:13:25,520
Speaker 1: the economy comes back, the deficit gets cut in half.

226
00:13:25,920 --> 00:13:29,680
Speaker 1: What we have basically never had in the United States

227
00:13:30,040 --> 00:13:34,040
Speaker 1: economic history is a circumstance where we're growing and the

228
00:13:34,160 --> 00:13:39,040
Speaker 1: unemployment rate is below four, but the deficit is exploding.

229
00:13:39,760 --> 00:13:43,640
Speaker 1: Uh So I think it easily could be above two

230
00:13:43,640 --> 00:13:47,320
Speaker 1: trillion in the event of a recession. And my thing

231
00:13:47,360 --> 00:13:50,000
Speaker 1: about deficits is it's not that it's going to be

232
00:13:50,080 --> 00:13:54,200
Speaker 1: a fiscal grease style fiscal crisis that drives the US

233
00:13:54,240 --> 00:13:57,760
Speaker 1: interst rate through the roof the problem of the debt

234
00:13:57,880 --> 00:14:00,760
Speaker 1: and the deficits is not that a drive up the

235
00:14:00,800 --> 00:14:03,640
Speaker 1: interest rate. It's that you have to pay back the money.

236
00:14:03,760 --> 00:14:08,280
Speaker 1: And so ten twent thirty years from now, our kids

237
00:14:08,320 --> 00:14:11,920
Speaker 1: are gonna becoming of age and need training. We're gonna

238
00:14:11,960 --> 00:14:16,360
Speaker 1: want to fund social security and scientific research and every

239
00:14:16,400 --> 00:14:20,040
Speaker 1: other thing that the government does, and we're going to

240
00:14:20,200 --> 00:14:22,800
Speaker 1: just have a bigger and bigger share of our budget

241
00:14:23,760 --> 00:14:26,360
Speaker 1: is being spent on interest on the debt that we're

242
00:14:26,400 --> 00:14:29,520
Speaker 1: that we're doing right now. That's the that's the problem.

243
00:14:29,640 --> 00:14:32,280
Speaker 1: That's the problem. What is if I'm a you know,

244
00:14:32,360 --> 00:14:36,560
Speaker 1: a bull on deficits and national debt, what's my argument

245
00:14:36,560 --> 00:14:41,480
Speaker 1: for saying it doesn't really matter? Well, it depends what

246
00:14:41,520 --> 00:14:47,720
Speaker 1: the it is um. The the debt capacity let's call it,

247
00:14:48,160 --> 00:14:51,880
Speaker 1: of the U. S Government is vastly an access of

248
00:14:52,000 --> 00:14:56,240
Speaker 1: where the debt is now, So it doesn't matter for

249
00:14:56,440 --> 00:15:01,800
Speaker 1: interest rates in the United States that we are doing this,

250
00:15:02,040 --> 00:15:06,200
Speaker 1: and the there is as you know, I've been a

251
00:15:06,440 --> 00:15:10,960
Speaker 1: public opponent and been blasted by the MMT people. There

252
00:15:11,120 --> 00:15:14,200
Speaker 1: is one aspect that I have always said the m

253
00:15:14,280 --> 00:15:19,560
Speaker 1: MT people are correct, which is, by by observed practice,

254
00:15:20,080 --> 00:15:23,920
Speaker 1: you can spend trillions of dollars, You can increase the

255
00:15:24,000 --> 00:15:27,720
Speaker 1: deficit by trillions of dollars without tanking the economy. We

256
00:15:27,800 --> 00:15:31,440
Speaker 1: did it with the George W. Bush two trillion dollars

257
00:15:31,520 --> 00:15:35,440
Speaker 1: tax cuts unpaid for, then a two trillion dollar war

258
00:15:35,600 --> 00:15:40,200
Speaker 1: in Iraq, unpaid for, and then Trump another two trillion

259
00:15:40,240 --> 00:15:43,440
Speaker 1: dollar tax cuts, unpaid for. Those things did not blow

260
00:15:43,560 --> 00:15:46,920
Speaker 1: up the interest rate, They didn't blow up the economy.

261
00:15:46,920 --> 00:15:49,880
Speaker 1: But we do have to pay back that money with interest.

262
00:15:49,960 --> 00:15:52,920
Speaker 1: That's my that's my point, Austin, thank you so much,

263
00:15:53,000 --> 00:15:55,800
Speaker 1: very generous of you. Professor Gouldsby is at the University

264
00:15:55,920 --> 00:16:05,040
Speaker 1: of Chicago. Let us begin a three hour conversation with

265
00:16:05,080 --> 00:16:09,280
Speaker 1: a gentleman from Yale University. Stephen Roach invented Morgan Stanley economics.

266
00:16:09,280 --> 00:16:12,240
Speaker 1: He literally brought the digital age to print economics a

267
00:16:12,280 --> 00:16:15,840
Speaker 1: million years ago. He is holding court giving up quality

268
00:16:15,960 --> 00:16:19,160
Speaker 1: sees at Yale University. Steve has been too long, wonderful

269
00:16:19,200 --> 00:16:22,120
Speaker 1: to have you one to talk to you, Tom and John.

270
00:16:22,320 --> 00:16:25,160
Speaker 1: In your book The Next Asia, you have a great

271
00:16:26,240 --> 00:16:32,960
Speaker 1: essay China's macro imperatives right now they have domestic imperatives.

272
00:16:33,000 --> 00:16:35,640
Speaker 1: From where you sit, what is the to do list

273
00:16:35,880 --> 00:16:40,560
Speaker 1: for Beijing? Number one, two and three is simply to

274
00:16:40,600 --> 00:16:44,119
Speaker 1: control the virus. The economy will come later. The economy

275
00:16:44,200 --> 00:16:49,200
Speaker 1: is strong, resilient, uh and changing, but it's being subjected

276
00:16:49,240 --> 00:16:54,200
Speaker 1: to a a powerful shock and um it's all hands

277
00:16:54,240 --> 00:16:56,240
Speaker 1: on deck to deal with that. And as I said,

278
00:16:56,840 --> 00:17:01,680
Speaker 1: the economy will um uh later, I mean within this

279
00:17:01,800 --> 00:17:03,480
Speaker 1: and Steve you've you know, I've seen you with the

280
00:17:03,520 --> 00:17:05,920
Speaker 1: panda's out in western China and your cheng Do and

281
00:17:05,960 --> 00:17:08,400
Speaker 1: all that. You know up the yangs River, you've got

282
00:17:09,280 --> 00:17:13,000
Speaker 1: Wuhan where that big bend is. What's the thing? The

283
00:17:13,119 --> 00:17:16,280
Speaker 1: media and for that matter, Global Wall Street get wrong

284
00:17:16,800 --> 00:17:21,159
Speaker 1: about the resiliency of China to bounce back once they

285
00:17:21,200 --> 00:17:26,199
Speaker 1: get through this virus. Well, you know, in the midst

286
00:17:26,240 --> 00:17:29,560
Speaker 1: of a crisis, Tom, whether it's you know, in the

287
00:17:29,640 --> 00:17:33,960
Speaker 1: depths of oh eight or in you know, other uh,

288
00:17:34,080 --> 00:17:37,600
Speaker 1: seemingly catastrophic developments like the financial to the Asian financial

289
00:17:37,640 --> 00:17:43,159
Speaker 1: crisis of it seems like the world or your favorite

290
00:17:43,200 --> 00:17:48,200
Speaker 1: economy is imploding. But these things have a way of passing.

291
00:17:48,920 --> 00:17:53,280
Speaker 1: Right now, you know, the uh, the evidence on infection

292
00:17:53,400 --> 00:17:57,679
Speaker 1: rates and totality rates remains worrisome. There's some second derivatives

293
00:17:57,720 --> 00:18:00,680
Speaker 1: that are looking a little bit better, but the situation

294
00:18:00,720 --> 00:18:06,560
Speaker 1: that you just alluded to in Japan is now increasingly problematic.

295
00:18:06,560 --> 00:18:09,720
Speaker 1: And I would just note here that Japan, the third

296
00:18:09,800 --> 00:18:13,720
Speaker 1: largest economy in the world, is probably back in recession again.

297
00:18:13,760 --> 00:18:17,560
Speaker 1: I mean, they had a horrible print on fourth quarter GDP.

298
00:18:17,760 --> 00:18:21,760
Speaker 1: The trade data released this morning point to spillovers into

299
00:18:21,840 --> 00:18:25,080
Speaker 1: the first quarter of this year. So you're looking at

300
00:18:25,119 --> 00:18:30,639
Speaker 1: two consecutive quarters of of decline for a long recession

301
00:18:30,640 --> 00:18:34,280
Speaker 1: prone Japanese economy who shot itself on the foot with

302
00:18:34,320 --> 00:18:40,040
Speaker 1: another increase in their consumption tax. So you know, China

303
00:18:40,280 --> 00:18:45,320
Speaker 1: is u it a standstill. All the daily trackers of CULP,

304
00:18:45,640 --> 00:18:53,720
Speaker 1: consumption and traffic are flat uh post Lunar New Year,

305
00:18:53,720 --> 00:18:57,440
Speaker 1: when they normally have bounced back dramatically, So that economy

306
00:18:57,560 --> 00:19:01,760
Speaker 1: is printing a very low number of barely positives at

307
00:19:01,800 --> 00:19:05,480
Speaker 1: all in the first quarter. The world economy is starting

308
00:19:05,520 --> 00:19:10,480
Speaker 1: to feel like a transitory, hopefully temporary recession in the

309
00:19:10,520 --> 00:19:13,320
Speaker 1: first half of this year. Professor, you did a fantastic

310
00:19:13,359 --> 00:19:15,880
Speaker 1: interview with Barren's recently in the last couple of weeks,

311
00:19:15,880 --> 00:19:17,399
Speaker 1: and I'd like to take the opportunity to point our

312
00:19:17,400 --> 00:19:19,640
Speaker 1: audience to go and pick that up if they can.

313
00:19:20,000 --> 00:19:22,600
Speaker 1: I'm just interested in exploring this further, Professor. Is not

314
00:19:22,640 --> 00:19:24,639
Speaker 1: just Japan, of course, it's Germany as well. The economy

315
00:19:24,680 --> 00:19:27,600
Speaker 1: stagnating there, just in terms of the dynamics that are

316
00:19:27,680 --> 00:19:30,360
Speaker 1: shaking the global economy just a little bit relatively speaking.

317
00:19:30,880 --> 00:19:33,920
Speaker 1: What is it you see that's transitory? What is temporary.

318
00:19:34,040 --> 00:19:35,560
Speaker 1: Why will we come out of this the other side

319
00:19:35,560 --> 00:19:40,080
Speaker 1: as the year grows older, in better shape. The virus

320
00:19:40,119 --> 00:19:43,840
Speaker 1: we now call a COVID nineteen UM. You know, if

321
00:19:43,880 --> 00:19:47,360
Speaker 1: you look at US stars trajectory, John, you know there

322
00:19:47,440 --> 00:19:51,600
Speaker 1: was a one quarter hit and then a very sharp

323
00:19:51,680 --> 00:19:55,880
Speaker 1: rebound over the next four quarters. This is not stars,

324
00:19:56,000 --> 00:19:59,840
Speaker 1: but it's an infection rate is higher, but it's mortal.

325
00:20:00,080 --> 00:20:03,600
Speaker 1: Your rate is lower. I think it will take longer

326
00:20:04,640 --> 00:20:07,880
Speaker 1: to um get a grip on this, but I think

327
00:20:07,960 --> 00:20:13,159
Speaker 1: that the trajectory is relevant and comfortable this time as well.

328
00:20:13,359 --> 00:20:18,040
Speaker 1: Professor wrote unbalanced the codepends codependency of America and China,

329
00:20:18,760 --> 00:20:21,600
Speaker 1: And I want to just put out a hypothetical that

330
00:20:21,760 --> 00:20:24,880
Speaker 1: say it takes longer to get the coronavirus under control,

331
00:20:25,320 --> 00:20:28,120
Speaker 1: this goes on for a longer period of time. Are

332
00:20:28,200 --> 00:20:33,280
Speaker 1: people overleas sanguine about the US economy economy being immune

333
00:20:33,680 --> 00:20:35,719
Speaker 1: to the impacts that we're seeing in China right now?

334
00:20:36,760 --> 00:20:38,280
Speaker 1: Of course they are at least I mean, you know,

335
00:20:38,520 --> 00:20:42,520
Speaker 1: the the U s economy is viewed as teflon like bulletproof. Uh,

336
00:20:42,720 --> 00:20:47,119
Speaker 1: and there's seemingly nothing that could touch it. But you know,

337
00:20:47,200 --> 00:20:50,280
Speaker 1: Greenspan had the best line of all. Actually, it was

338
00:20:50,320 --> 00:20:53,159
Speaker 1: back in where he said the US is not an

339
00:20:53,200 --> 00:20:58,200
Speaker 1: oasis and with the rest of the world China, Japan,

340
00:20:58,920 --> 00:21:02,680
Speaker 1: John pointed out German, Many and um, France as well,

341
00:21:03,160 --> 00:21:07,960
Speaker 1: Um on the skids here. Um, that's gonna come back

342
00:21:08,160 --> 00:21:11,239
Speaker 1: to to bite us as well. And so our growth rate,

343
00:21:11,320 --> 00:21:14,880
Speaker 1: which is not as weak as it is in other economies,

344
00:21:14,960 --> 00:21:18,320
Speaker 1: were as far from strong. Uh. And you know we're

345
00:21:18,400 --> 00:21:23,040
Speaker 1: we're cruising it too, which is not the biggest cushion

346
00:21:23,840 --> 00:21:27,320
Speaker 1: to deal with another global shock, Professor, Roach, where do

347
00:21:27,400 --> 00:21:30,640
Speaker 1: you expect to first see the effects of the slowdown

348
00:21:30,760 --> 00:21:37,720
Speaker 1: in China, in Japan, in Germany manifest themselves in the US? Well, yeah,

349
00:21:37,760 --> 00:21:41,520
Speaker 1: I think it'll come from our trade numbers. There's also

350
00:21:41,680 --> 00:21:47,760
Speaker 1: already as we've seen from Apple clogging of China centric

351
00:21:47,800 --> 00:21:52,440
Speaker 1: supply chains, which is going to stifle our ability to

352
00:21:52,760 --> 00:21:56,119
Speaker 1: to buy our favorite electronic device. And there are other

353
00:21:56,200 --> 00:21:59,080
Speaker 1: spellover effects as well. Steve, we've gotta go. But I

354
00:21:59,160 --> 00:22:01,760
Speaker 1: got one key question which is just so critical to know.

355
00:22:01,840 --> 00:22:05,080
Speaker 1: Our listeners want to hear your response to it. What

356
00:22:05,359 --> 00:22:09,520
Speaker 1: is the cost of the accommodation of this central bank?

357
00:22:09,840 --> 00:22:13,359
Speaker 1: I mean, the real FED funds target rate is back negative.

358
00:22:13,480 --> 00:22:16,200
Speaker 1: You know, we're not down at stand Fisher Alter accommodation,

359
00:22:16,320 --> 00:22:18,960
Speaker 1: but we're there are on our way there. I should say,

360
00:22:19,480 --> 00:22:24,840
Speaker 1: what's the price of the free lunch we've got right now? Well,

361
00:22:25,040 --> 00:22:29,520
Speaker 1: look it's a long, um long answer, Tom. But you know,

362
00:22:30,240 --> 00:22:36,560
Speaker 1: free money UM enables financial instability, UH. It enables UM

363
00:22:37,240 --> 00:22:42,800
Speaker 1: zombie like behavior of corporations who might otherwise be disciplined

364
00:22:42,880 --> 00:22:45,840
Speaker 1: with a more meaningful cost to capital. And of course

365
00:22:46,320 --> 00:22:51,920
Speaker 1: it facilitates the most reckless UH fiscal policy the United

366
00:22:51,960 --> 00:22:56,320
Speaker 1: States has ever had. In an economic condition, the FED

367
00:22:56,560 --> 00:23:02,520
Speaker 1: enables the Congress to keep printing a trillion dollar deaths

368
00:23:02,760 --> 00:23:04,760
Speaker 1: as far as the eye can see. Steve Roachs, thank

369
00:23:04,760 --> 00:23:07,040
Speaker 1: you so much with the university and update. There's been

370
00:23:07,080 --> 00:23:08,680
Speaker 1: way too long. We got to get him in more

371
00:23:08,760 --> 00:23:13,760
Speaker 1: of any regular because he's always busy, and he brings

372
00:23:13,800 --> 00:23:17,159
Speaker 1: a holistic theme, almost a balance sheet them to economics.

373
00:23:17,200 --> 00:23:20,000
Speaker 1: I've just enjoyed our exchanges on China and what happens

374
00:23:20,040 --> 00:23:27,280
Speaker 1: with global trite. This is gonna be fun because SA

375
00:23:27,560 --> 00:23:31,199
Speaker 1: and Society general, the great Derivatives House of paris Um

376
00:23:31,320 --> 00:23:34,120
Speaker 1: always has a sophisticated note, and they've been pretty cautious

377
00:23:34,160 --> 00:23:36,800
Speaker 1: on global GDP and U s GDP. Sophie Win with

378
00:23:36,880 --> 00:23:40,399
Speaker 1: US do a multi asset and Sophie has the word

379
00:23:40,640 --> 00:23:43,600
Speaker 1: in a report, John, what is it transitory? No? Not

380
00:23:44,119 --> 00:23:48,359
Speaker 1: not even existential, No, not even zeitgeist g o L.

381
00:23:49,480 --> 00:23:53,439
Speaker 1: We have a major house here talking gold, Sophie Win.

382
00:23:53,560 --> 00:23:55,720
Speaker 1: How do you put gold in the mix here in

383
00:23:55,840 --> 00:24:00,840
Speaker 1: your assets strategy? UM? Good morning. So from an essata

384
00:24:00,840 --> 00:24:03,920
Speaker 1: allocation standpoint, UM, we think that at this point having

385
00:24:04,000 --> 00:24:07,280
Speaker 1: a balance but firm makes sense. But having disport for

386
00:24:07,400 --> 00:24:11,680
Speaker 1: protection through treasuries on gold UM makes sense. So gold

387
00:24:11,840 --> 00:24:15,560
Speaker 1: is really one of the best prefer protection that you

388
00:24:15,640 --> 00:24:17,920
Speaker 1: could have your as dellocation. Well, I don't want to

389
00:24:17,920 --> 00:24:19,720
Speaker 1: go to the tent of a decimal point, but give

390
00:24:19,760 --> 00:24:25,080
Speaker 1: me a percentage in gold right here at s We

391
00:24:25,200 --> 00:24:28,639
Speaker 1: don't have a target on it, but I guess that

392
00:24:29,200 --> 00:24:33,480
Speaker 1: when you look at how gold and US dollar have

393
00:24:33,880 --> 00:24:38,760
Speaker 1: decorrelated UM in recent weeks, it really allows you to

394
00:24:38,960 --> 00:24:42,320
Speaker 1: understand that barbo portfolio is at this point is really

395
00:24:43,080 --> 00:24:47,040
Speaker 1: the trend for investors. So fear the risk medicating characteristics

396
00:24:47,080 --> 00:24:50,639
Speaker 1: of say gold becoming more attractive relative to say treasuries.

397
00:24:53,160 --> 00:24:56,800
Speaker 1: We like both, but it's clear that having gold at

398
00:24:56,880 --> 00:25:01,040
Speaker 1: these points where from a relate to the basis if

399
00:25:01,080 --> 00:25:04,320
Speaker 1: you look at gold versus copper and dealing with the

400
00:25:04,440 --> 00:25:09,080
Speaker 1: tenor treasuries, it's clear that gold is really a way

401
00:25:09,119 --> 00:25:11,359
Speaker 1: to protect. But following case of risk off, which is

402
00:25:11,480 --> 00:25:14,320
Speaker 1: the case right now with this black Swan scenario of

403
00:25:14,400 --> 00:25:19,919
Speaker 1: the coronavirus um when everyone is talking about how expensive

404
00:25:20,000 --> 00:25:23,120
Speaker 1: bombs are, so it feels like gold at this point

405
00:25:23,359 --> 00:25:27,440
Speaker 1: is really the best candidates, Sophie. Is it likely that

406
00:25:27,680 --> 00:25:34,520
Speaker 1: gold will keep rallying intedum with US equities? It feels

407
00:25:34,560 --> 00:25:39,400
Speaker 1: like this where you have some uncertainties regarding how long

408
00:25:39,600 --> 00:25:42,440
Speaker 1: this corona virus is gonna last. But also, as you

409
00:25:42,520 --> 00:25:47,920
Speaker 1: mentioned our my recession scenario that we're having with the

410
00:25:48,160 --> 00:25:53,120
Speaker 1: two negative quarters, these two quarters of negative gp um,

411
00:25:53,440 --> 00:25:58,080
Speaker 1: it could be a way for investors to have at

412
00:25:58,119 --> 00:26:00,440
Speaker 1: the same time equities and gold, you know, but folio

413
00:26:00,760 --> 00:26:02,480
Speaker 1: what kind of equities I mean? I mean you do

414
00:26:02,680 --> 00:26:05,680
Speaker 1: mulpay asset strategy, which is salvaging my four oh one k,

415
00:26:05,880 --> 00:26:07,520
Speaker 1: which is a two oh one K because I didn't

416
00:26:07,520 --> 00:26:11,200
Speaker 1: like Tesla when Pharaoh bought it, Sophie, what kind of

417
00:26:11,280 --> 00:26:14,640
Speaker 1: equities am I comfortable with? If I need to make

418
00:26:14,680 --> 00:26:20,120
Speaker 1: a return to catch up with everybody else. Yeah, very difficult.

419
00:26:20,520 --> 00:26:24,159
Speaker 1: So inc we do. It's Wednesday, difficult question day. What

420
00:26:24,400 --> 00:26:28,800
Speaker 1: kind of equities do I buy? UM? So for now

421
00:26:28,960 --> 00:26:33,040
Speaker 1: our strategy is more so into short terms, into short

422
00:26:33,080 --> 00:26:36,040
Speaker 1: term it feels like the US dollar assets are going

423
00:26:36,119 --> 00:26:39,520
Speaker 1: to benefit on this Black Song scenario, but more in

424
00:26:39,640 --> 00:26:42,840
Speaker 1: the long term we continue to stay away from US growth,

425
00:26:42,920 --> 00:26:45,000
Speaker 1: so we don't really like US tech. What do you

426
00:26:45,080 --> 00:26:49,280
Speaker 1: like to prefer to focus on value portions UM on

427
00:26:49,359 --> 00:26:53,800
Speaker 1: the equachy market, so basically EM equities where the growth

428
00:26:53,840 --> 00:26:58,920
Speaker 1: differentials is quite attractive, but also valuation perspective, it's good.

429
00:26:59,160 --> 00:27:01,520
Speaker 1: And also Jack music, which is so if you thank

430
00:27:01,520 --> 00:27:04,280
Speaker 1: you someone. Sophie Winn was Society General there today with

431
00:27:04,359 --> 00:27:08,040
Speaker 1: a really john almost controversial in Japanese equities there. I mean,

432
00:27:08,240 --> 00:27:10,440
Speaker 1: that's I'm going to call that an outlier. Should I

433
00:27:10,440 --> 00:27:13,119
Speaker 1: bring you in my five stages of diminishing bullishness? I

434
00:27:13,320 --> 00:27:17,440
Speaker 1: love that charge. This number one, you'll hear people saying

435
00:27:17,480 --> 00:27:20,800
Speaker 1: it's transitory. If things get worse, you'll hear them turn

436
00:27:20,920 --> 00:27:23,959
Speaker 1: to number two, that the US is resilient and if

437
00:27:24,000 --> 00:27:26,520
Speaker 1: things get a little but worse from there, you'll turn

438
00:27:26,600 --> 00:27:29,760
Speaker 1: to number three, which is the US is decoupling. And

439
00:27:29,920 --> 00:27:32,480
Speaker 1: then if things get a little bit worse from there,

440
00:27:32,840 --> 00:27:35,560
Speaker 1: you'll turn to number four, which is the Federal save us.

441
00:27:35,960 --> 00:27:40,560
Speaker 1: And then the final stage of diminishing bulishness is would doomed.

442
00:27:40,680 --> 00:27:50,320
Speaker 1: That's just full capitulation. We're in stage one transitory. In

443
00:27:50,400 --> 00:27:54,720
Speaker 1: the Wikipedia for Charles Schwab, there's a paragraph it's five

444
00:27:54,840 --> 00:27:59,240
Speaker 1: six eight pages down under history, and it doesn't capture

445
00:28:00,040 --> 00:28:04,280
Speaker 1: what happened in Some of us lived this and it

446
00:28:04,480 --> 00:28:10,000
Speaker 1: was absolutely extraordinary how an upstart out of San Francisco

447
00:28:10,160 --> 00:28:15,359
Speaker 1: and their first branch in Sacramento, California, came out and

448
00:28:15,920 --> 00:28:22,359
Speaker 1: revolutionized the investment business and revolutionized it step by step. Paul,

449
00:28:22,400 --> 00:28:25,920
Speaker 1: it's so important here as we bring in David Rubinstein,

450
00:28:26,680 --> 00:28:30,760
Speaker 1: is it didn't happen all of a sudden. It was

451
00:28:31,040 --> 00:28:35,440
Speaker 1: step by incremental by incremental steps through seventy five and

452
00:28:35,560 --> 00:28:39,720
Speaker 1: seventies sticks until we were there. Let's listen in the

453
00:28:39,960 --> 00:28:44,520
Speaker 1: Chars Schwab with David Rubinstein, they are children, are grandchildren.

454
00:28:44,760 --> 00:28:46,520
Speaker 1: Say you know, can you give me a stock tip

455
00:28:46,680 --> 00:28:48,760
Speaker 1: or something? Because I got some money and we have

456
00:28:49,000 --> 00:28:52,920
Speaker 1: a mutual fund actually index fund called the Schwablin thousand.

457
00:28:53,000 --> 00:28:54,680
Speaker 1: I use that all the time for my kids, the

458
00:28:54,760 --> 00:28:57,640
Speaker 1: ETF portion of the things I've taught them all about.

459
00:28:58,160 --> 00:29:00,160
Speaker 1: But in some respects it's a little bit more ring.

460
00:29:01,200 --> 00:29:04,200
Speaker 1: I'd rather have the kids buy individual stocks. So what

461
00:29:04,280 --> 00:29:07,400
Speaker 1: I'm gonna do coming up this spring, We're going to

462
00:29:07,600 --> 00:29:11,320
Speaker 1: introduce fractionalization of stock, so you can buy a small

463
00:29:11,840 --> 00:29:19,760
Speaker 1: fraction of Facebook, small fraction of Netscape or Amazon. Amazon

464
00:29:19,880 --> 00:29:22,040
Speaker 1: is a high price in the words on Amazon. Let's

465
00:29:22,040 --> 00:29:25,280
Speaker 1: say it's trading for a share. Some people can't afford

466
00:29:25,360 --> 00:29:28,200
Speaker 1: thirteen hundrellars of shares they could buy about thirty dollars.

467
00:29:28,280 --> 00:29:32,040
Speaker 1: How about thirteen mestors worth? Really important concept. It is

468
00:29:32,080 --> 00:29:34,480
Speaker 1: the talk of the industry right now. I know motif

469
00:29:34,920 --> 00:29:37,719
Speaker 1: H really leading on that, but many others looking at

470
00:29:37,760 --> 00:29:40,680
Speaker 1: fractional share of purpose right now, well, we look at

471
00:29:40,760 --> 00:29:44,040
Speaker 1: the complete David Rubinstein is peer to peer is just brilliant.

472
00:29:44,360 --> 00:29:47,600
Speaker 1: This time with Charles Schwabs. Mr Rubenstein joins us uh

473
00:29:47,720 --> 00:29:50,600
Speaker 1: this morning. David, what a joy to hear you and

474
00:29:50,680 --> 00:29:54,920
Speaker 1: a very vital Charles schwab walk through the past. What's

475
00:29:54,960 --> 00:30:00,400
Speaker 1: he say about the future of individual investor? Really? Nations

476
00:30:00,560 --> 00:30:05,280
Speaker 1: Rights and privileges. Well, remember he came from very modest

477
00:30:05,520 --> 00:30:08,760
Speaker 1: background and then revolutionize the industry, as you said, And

478
00:30:08,840 --> 00:30:11,520
Speaker 1: for those who don't remember the revolution was this in

479
00:30:11,640 --> 00:30:14,440
Speaker 1: the old days before seventy seventy five, if you bought

480
00:30:14,480 --> 00:30:17,240
Speaker 1: a stock, you paid a fixed commission, and everybody paid

481
00:30:17,280 --> 00:30:19,960
Speaker 1: the same commission around the country. He came up with

482
00:30:20,040 --> 00:30:22,880
Speaker 1: the idea after the federal government allowed UH this to

483
00:30:22,960 --> 00:30:25,840
Speaker 1: be deregulated to kind of have very low fees. Now

484
00:30:26,000 --> 00:30:29,440
Speaker 1: the fees are basically zero for buying stocks. But he's

485
00:30:29,440 --> 00:30:32,400
Speaker 1: built a company UH that is now managed about four

486
00:30:32,560 --> 00:30:36,080
Speaker 1: trillion dollars and it's the leader in UH in brokerage

487
00:30:36,640 --> 00:30:38,840
Speaker 1: accounts for for people all over the United States and

488
00:30:38,880 --> 00:30:42,680
Speaker 1: all over the world. And he's now eighty two years old. Um.

489
00:30:42,800 --> 00:30:46,040
Speaker 1: He overcame a lot of handicaps. He was dyslexic, didn't

490
00:30:46,040 --> 00:30:48,239
Speaker 1: know he was dyslexic, was not a good student. Never

491
00:30:48,280 --> 00:30:50,720
Speaker 1: found out until he was much older that he was dyslexic,

492
00:30:50,760 --> 00:30:52,200
Speaker 1: and that was the reason he wasn't a good student.

493
00:30:52,240 --> 00:30:55,040
Speaker 1: He almost flunked out of Stanford. He got into Stanford

494
00:30:55,040 --> 00:30:56,760
Speaker 1: initially because he was a great golfer. And he's still

495
00:30:56,760 --> 00:30:59,080
Speaker 1: a pretty good golfer, but he built a business that

496
00:30:59,240 --> 00:31:01,400
Speaker 1: is now legendary, and his face is so well known

497
00:31:01,760 --> 00:31:04,520
Speaker 1: because the original advertising people said to him, why don't

498
00:31:04,520 --> 00:31:06,280
Speaker 1: we use your face? He was reluctant to do it,

499
00:31:06,560 --> 00:31:08,320
Speaker 1: but then it was used and now became so well

500
00:31:08,400 --> 00:31:11,640
Speaker 1: known that his face is known to everybody in effect. So, David,

501
00:31:11,680 --> 00:31:14,400
Speaker 1: it's interesting. Just recently charged Swab kind of shocked the

502
00:31:14,440 --> 00:31:17,960
Speaker 1: market yet again by going to zero commissions on a

503
00:31:18,000 --> 00:31:22,160
Speaker 1: lot of equity transactions. What's the economics behind that? It

504
00:31:22,240 --> 00:31:25,760
Speaker 1: seems like that's a big hit to their revenue. Uh,

505
00:31:25,920 --> 00:31:27,440
Speaker 1: not so much. I mean I think they were probably

506
00:31:27,480 --> 00:31:30,640
Speaker 1: getting maybe four or so of the revenue from those commissions.

507
00:31:30,800 --> 00:31:32,360
Speaker 1: Where how do they afford to do it? Well, they

508
00:31:32,440 --> 00:31:35,960
Speaker 1: sell funds, and when you sell funds, you charge management

509
00:31:36,000 --> 00:31:39,440
Speaker 1: fees for those funds. But also they have enormous amounts

510
00:31:39,480 --> 00:31:42,240
Speaker 1: of cash reserves by people that keep their funds on

511
00:31:42,320 --> 00:31:44,880
Speaker 1: account with them, and so they're they're making interest on it,

512
00:31:44,920 --> 00:31:47,720
Speaker 1: and sometimes they're not charging that much to the client,

513
00:31:47,800 --> 00:31:49,440
Speaker 1: not paying that much of the client. So they have

514
00:31:49,640 --> 00:31:52,880
Speaker 1: a four trillion dollars and they're earning fees on that

515
00:31:53,040 --> 00:31:55,080
Speaker 1: and they're investing that. So that's how they can afford

516
00:31:55,120 --> 00:31:57,600
Speaker 1: to do it. Really, the brokerage commission business now is

517
00:31:57,640 --> 00:32:00,840
Speaker 1: relatively modest, and there are others are also going zero commission.

518
00:32:00,920 --> 00:32:03,440
Speaker 1: So it seems like us a gift and it is

519
00:32:03,480 --> 00:32:05,720
Speaker 1: giving away some money and maybe their stock will go

520
00:32:05,800 --> 00:32:07,640
Speaker 1: down a little bit because of it, But in truth

521
00:32:07,720 --> 00:32:09,440
Speaker 1: that they have so many other ways of making money,

522
00:32:09,480 --> 00:32:11,479
Speaker 1: it's not a big deal. Yeah, David. When I think

523
00:32:11,520 --> 00:32:13,680
Speaker 1: of retail investing in this country, I think that, you know,

524
00:32:13,720 --> 00:32:15,960
Speaker 1: the thundering herd of Merrill Lynch. I think, of course

525
00:32:16,680 --> 00:32:19,320
Speaker 1: Charles Schwabin some of their discount brokers. Yet a lot

526
00:32:19,360 --> 00:32:21,719
Speaker 1: of Americans still are not invested in the market. Does

527
00:32:21,840 --> 00:32:23,920
Speaker 1: Charles have a chuck of a sense of kind of

528
00:32:23,960 --> 00:32:28,000
Speaker 1: maybe having the increased participation. Of course, they want people

529
00:32:28,000 --> 00:32:30,200
Speaker 1: to buy more stocks, That's why I wanted he's talking

530
00:32:30,200 --> 00:32:32,960
Speaker 1: about fractionalization where people would buy stocks and so forth.

531
00:32:33,240 --> 00:32:35,760
Speaker 1: But remember a lot of people are investing through their

532
00:32:35,840 --> 00:32:38,280
Speaker 1: four oh one case and their I ras, and also

533
00:32:38,520 --> 00:32:41,320
Speaker 1: a lot of people have pension funds at their place

534
00:32:41,400 --> 00:32:43,440
Speaker 1: of employment, and the pension funds are investing in the

535
00:32:43,480 --> 00:32:45,480
Speaker 1: stock market. And you could argue and effect that they're

536
00:32:45,520 --> 00:32:48,840
Speaker 1: investing on mahaff of the future retirees clear to the

537
00:32:48,880 --> 00:32:50,720
Speaker 1: stock market is a much bigger business than it was

538
00:32:51,000 --> 00:32:53,960
Speaker 1: in seventy five. And the reason he was able to

539
00:32:54,040 --> 00:32:55,920
Speaker 1: pull this off it wasn't that he was the only

540
00:32:55,960 --> 00:32:59,160
Speaker 1: person who said let's have discount fees. He invested heavily

541
00:32:59,200 --> 00:33:02,000
Speaker 1: in technology and others were not willing to do that,

542
00:33:02,280 --> 00:33:04,120
Speaker 1: and he put a lot of his money into technology.

543
00:33:04,440 --> 00:33:06,920
Speaker 1: He ultimately sold his company after a few years to

544
00:33:07,080 --> 00:33:09,000
Speaker 1: Bank of America. Bank of America kind of ran it

545
00:33:09,080 --> 00:33:11,440
Speaker 1: into the ground, and he bought it back and then

546
00:33:11,480 --> 00:33:13,920
Speaker 1: he closed on the deal right before the bubble burst

547
00:33:14,000 --> 00:33:18,160
Speaker 1: in in October, and so his stock went way down

548
00:33:18,640 --> 00:33:20,680
Speaker 1: and he was worried whether he could company could survive.

549
00:33:20,760 --> 00:33:23,440
Speaker 1: But actually he came back and again invested heavily in

550
00:33:23,520 --> 00:33:26,640
Speaker 1: technology and became the market leader in this business. David,

551
00:33:26,720 --> 00:33:29,400
Speaker 1: thank you. David Rubin's TIN Peer to peer conversation is

552
00:33:29,440 --> 00:33:32,840
Speaker 1: really quite good. With Charles Schwab tonight nine pm. I'm

553
00:33:32,840 --> 00:33:37,920
Speaker 1: Bloomberg Television. Thanks for listening to the Bloomberg Surveillance podcast.

554
00:33:38,320 --> 00:33:43,240
Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or

555
00:33:43,400 --> 00:33:47,680
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom

556
00:33:47,840 --> 00:33:51,640
Speaker 1: Keane before the podcast. You can always catch us worldwide.

557
00:33:52,160 --> 00:33:53,200
Speaker 1: I'm Bloomberg Radio.