Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm m 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 questions
Speaker 1: coming from Evercore I s I. I'll put the disclaimer
Speaker 1: up front. Michael Bloomberg, the fan of majority owner of
Speaker 1: Bloomberg ALP, the parent company of Bloomberg News, and the
Speaker 1: question from Evercore I scias follows. Number one, can Bloomberg
Speaker 1: right above the tach the attacks? Number two? Can anyone
Speaker 1: deliver a blow to Sanders? Three can either Clobhan or
Speaker 1: Buddha Usa debate stage yet again to bounce into polls?
Speaker 1: And four can bide and use it to bounce back
Speaker 1: in the run up to Super Tuesday? Lisa? Out of
Speaker 1: those four, what's number one for you? I mean it? Look,
Speaker 1: Michael Bloomberg, the founding, a majority partner of the majority
Speaker 1: owner of Bloomberg LP. This is gonna be his first debate,
Speaker 1: and I think a lot of people are really focused
Speaker 1: on him, given how quickly he's risen in the polls.
Speaker 1: That said, Bernie Sanders has really risen to the front,
Speaker 1: the fact that he has like become the front runner,
Speaker 1: after Pete Botaj had been it for a while, after
Speaker 1: Elizabeth Warren had been it for a while. Can he
Speaker 1: maintain that momentum and does he deliver the same sort
Speaker 1: of your with me or against me, whether you're a
Speaker 1: Democrat or not, leading to his supporters staying home if
Speaker 1: he does not get nominated as and Tom mut go
Speaker 1: as far as sand is this six in comparison with
Speaker 1: candidate Donald Trump and the Republican Party that Bernie Sanders
Speaker 1: is not the candidate the party might want or might
Speaker 1: not want, but it could be the candidate they are
Speaker 1: dealt with. I think they will go in the booth
Speaker 1: and choose. And that's what happens is that we saw
Speaker 1: that in New Hampshire with Avengerce Chuck Gabriel with a
Speaker 1: he's with capital Alpha from Minneapolis today but always focused
Speaker 1: on Washington. Is well, Chuck, what's going to be the
Speaker 1: prism of the Washington you know? So well? As they
Speaker 1: look at this debate in Nevada, how are Republicans and
Speaker 1: Democrats on the hill, the senators, the members of the House,
Speaker 1: how will they observe this debate. Well, thanks Tom. I
Speaker 1: think everybody be looking very very closely at Michael Bloomberg
Speaker 1: and to see how he can actually perform in an
Speaker 1: uncontrolled environment taking punches from you know, four or five
Speaker 1: other candidates that really resent his skipping the first four
Speaker 1: events and sort of just paying his way past past
Speaker 1: February and into Super Tuesday. So I think there'd be
Speaker 1: a big focus on that. But you know, while everyone
Speaker 1: is lamenting that Michael Bloomberg is so cuddly developed a
Speaker 1: conscience about billions and taking on Wall Street sort of
Speaker 1: in a peremptory way of looking forward to tomorrow to tonight,
Speaker 1: I think the bigger story, of course, is that Bernie
Speaker 1: Sanders is the one is the beneficiary of all of this. Uh.
Speaker 1: And I think there's a sort of a you know,
Speaker 1: that's the second dynamic that will really be in evidence
Speaker 1: behind the bloomberghsteria tonight, And that is the stop Bonie
Speaker 1: you have in the back of your wonderful research. Note
Speaker 1: the paragraph on the new Wall Street policies not only
Speaker 1: of mayor Bloomberg, what are the others as well? Can
Speaker 1: you win coast to coast on an anti Wall Street theme.
Speaker 1: I don't believe so for a minute. I really don't,
Speaker 1: you know, there there has been no hue and cry
Speaker 1: among the Democratic candidates outside of loose one, you know,
Speaker 1: who's really you know, uniquely burdened on this, having had
Speaker 1: led the Tarp Commission. There isn't in Congress. Uh. You know,
Speaker 1: we actually had a bipartisan bill to to you know,
Speaker 1: take back a little bit of the Dodd Frank just
Speaker 1: a couple of years ago. So you know, when you
Speaker 1: talk to Americans, they're not talking negatively about Wall Street
Speaker 1: exact the extent there really you know, incited to do
Speaker 1: so by these populoust sort of angry narratives. So I
Speaker 1: don't think so at all, and I think they're really
Speaker 1: you know, maybe that's good news that we won't have
Speaker 1: a lot of time to discuss whether Michael Bloomberg has
Speaker 1: made a financial transaction tax of ceiling rather the floor
Speaker 1: rather than a ceiling for long, because you know, after
Speaker 1: this Saturday's Nevada caucuses and then we go to a
Speaker 1: South Carolina the following Saturday, you only have basically chosen
Speaker 1: four percent of delegates. But then on Super Tuesday marked
Speaker 1: third Boom three Super Tuesday six the vote in March.
Speaker 1: It's happening very quickly, Chuck. So let's talk about electability.
Speaker 1: Michael Bloomberg. Mr Bloomberg actenly has the opposite problem that
Speaker 1: Senator Sanders had, at least in terms of perception. There
Speaker 1: are people who believe Mr Bloomberg would struggle to get
Speaker 1: the nomination ultimately, but ultimately he would do better in
Speaker 1: the general, the opposite applying to Senator Sanders in the
Speaker 1: minds of many. I'm just interested in the data, Chuck,
Speaker 1: that you're looking at the moment. I'm looking at a
Speaker 1: new pole from the Post and ABC that essentially still
Speaker 1: sees Senator Sanders is the most selectable cited by thirty
Speaker 1: at Democratic Leaners as best situated to beat Trump. What
Speaker 1: do you see the polls in the data that you
Speaker 1: look at, Chuck, Well, I do think that you know,
Speaker 1: Sanders has a very very loyal basis support and and
Speaker 1: you know there's not a single state where he doesn't have.
Speaker 1: One of the reasons the Democrats are in this situation
Speaker 1: is they changed the rules, they're their primary rules, to
Speaker 1: basically front load more of the primaries and create the
Speaker 1: fifteen percent proportional vote that you know, a candidate can't
Speaker 1: get any delegates unless they get at least fift in
Speaker 1: the congressional district or a state. So ironically, you know
Speaker 1: you're gonna have a very congested field. And I and
Speaker 1: I think that you know, I know what you're talking about.
Speaker 1: You're talking about what where will be in the end.
Speaker 1: But we'll get a very different look at Bloomberg at
Speaker 1: that time. And I think for I think, really what
Speaker 1: Bloomberg speaks to and those poles speak to is Democrats
Speaker 1: just want to defeat Donald Trump, and they sense that
Speaker 1: a centrist will do it, and they think another billionaire
Speaker 1: who will get in the ring with the president is
Speaker 1: the right way to go. But I don't think that's
Speaker 1: the majority of the party. Took just twenty twenty seconds here.
Speaker 1: I'm wondering, from your perspective, how close do you think
Speaker 1: we are to sort of honing in on the candidate.
Speaker 1: I think there's maybe a thirty chance that Lisa, that
Speaker 1: we will actually have a better chance that people uh
Speaker 1: suspect that we'll know who the Democratic nominee could be
Speaker 1: in it very well could be Sanders by the end
Speaker 1: of March early April, say mid April, with the New
Speaker 1: York Primary. I think that's I think that's absolutely true,
Speaker 1: and of course Wall Street will freak out a bit,
Speaker 1: but nothing spooks this market, So why not do it now?
Speaker 1: Chuck Cabriel, thank you so much. With Capital Alpha here
Speaker 1: as we moved to the debate. Right now we take
Speaker 1: over some time of Austin Gouldsby's he's at the April School, Chicago,
Speaker 1: former chairman of the President's Council Economic Advisor. We've been
Speaker 1: talking retail right now, Austin, I need to talk FED
Speaker 1: policy with you, and I want you to defend William Dudley,
Speaker 1: the former FED President of New York, who, in a
Speaker 1: Bloomberg opinion piece was heated that this isn't about the
Speaker 1: blunt instrument of a balance sheet, of the blunt instrument
Speaker 1: about monetary policy. That monetary policy still has an effect
Speaker 1: on the American economy. If they cut race once or
Speaker 1: daresay twice from here, what does that do to our listeners. Well,
Speaker 1: you've got a lot of listeners, so it probably does
Speaker 1: different things to different ones of them. Um, I have
Speaker 1: publicly said that I'm skeptical, not a look. I still
Speaker 1: think conventional monetary policy and cutting interest rates does matter
Speaker 1: for the economy. It's just that right now it matters
Speaker 1: less than it basically has ever mattered because several of
Speaker 1: the normal channels are not working. So when you cut
Speaker 1: interest rates, normally, one of the big channels is there's
Speaker 1: a pent up stock of people who say, want to
Speaker 1: refinance their homes. They've been waiting for rates to come down,
Speaker 1: and then when you cut the rates, you get a
Speaker 1: whole bunch of these people who have been sitting on
Speaker 1: the sidelines. And the same for business investment, and the
Speaker 1: same for consumer durables, uh, you know, buying autos and
Speaker 1: stuff like that. The problem is we've had the rates
Speaker 1: so low for so long that anybody who was waiting
Speaker 1: to buy a new car, to do a business investment,
Speaker 1: to refinance their home, they were waiting for rates to
Speaker 1: get low enough, they already did it. So there's not
Speaker 1: any of that pent up demand, um, and so that
Speaker 1: channel is less effective. And then the second is if
Speaker 1: we were let's say, the coronavirus got over here and
Speaker 1: people freaked out and stopped going to work, and we
Speaker 1: and we had a downturn like what they're facing in China.
Speaker 1: The normal FED move, as you know, is to cut
Speaker 1: rates four to five hundred basis points over a relatively
Speaker 1: short period of time. That's the kind of signature FED
Speaker 1: move to fight off a recession. You can't got the
Speaker 1: interest rate five o our basis points when it's already
Speaker 1: too low. So I am a huge fan of Bill
Speaker 1: Dudley's I was on the Economic Advisory Panel to the
Speaker 1: New York FED when he was the President of the
Speaker 1: New York FED, and I think there is a lot
Speaker 1: of wisdom in his piece. But the part of it
Speaker 1: in which he's kind of pleading to the world please
Speaker 1: still respect are the power of our monetary policy, I
Speaker 1: think it's that part is maybe overstated. So, professor, what
Speaker 1: tools do you think the FED should use should it
Speaker 1: need to act to stimulate our economy at some point
Speaker 1: in the future. Well, look, they should use the conventional
Speaker 1: monetary channel. It's just they got the shorter runway, so
Speaker 1: you're not gonna be landing a seven forty seven on it.
Speaker 1: You know, we're gonna we're gonna have to focus on
Speaker 1: the on the smaller planes. And I continue to think
Speaker 1: that the unconventional monetary policies like forward guidance, like QUI,
Speaker 1: like a series of things are modestly effective, but they
Speaker 1: should certainly be in the toolkit. Um. I think for
Speaker 1: the people who believe that those unconventional monetary policies and
Speaker 1: the balance sheet are super directive of the markets, are
Speaker 1: they're the thing that has led stocks to rise. You know,
Speaker 1: in I I would like to see what data they're
Speaker 1: looking at, because my read of the data is their
Speaker 1: their impact had There has been some impact, but it's
Speaker 1: been a modest impact if you if you actually start
Speaker 1: going and looking at the various assets. So as as
Speaker 1: we take a look at today's economy, you know, it
Speaker 1: has been clear for some time that it has been
Speaker 1: driven in very very large part by the consumer. How
Speaker 1: confident are you in the U S consumer today? I
Speaker 1: think you're right, has been driven by the consumer and
Speaker 1: the job market. That's the that's the that's the shining
Speaker 1: part of the economy. I'm still pretty confident on them. Um. Though.
Speaker 1: The only thing is anything that destroys consumer confidence puts
Speaker 1: our recovery at risk. That that part is clear. And
Speaker 1: I will say two things that historically can direct consumer
Speaker 1: confidence in fast order are a massive political dysfunction and
Speaker 1: meltdown in Washington. And did I say one or a
Speaker 1: I think I said a b uh, natural disasters or
Speaker 1: infectious disease for sure, if we got to ronavirus spreading
Speaker 1: in the US, I think it's hard to fathom that
Speaker 1: that would not freak out consumer confidence in a short basis,
Speaker 1: short of an epidemic becoming a pandemic. There's a trillion
Speaker 1: dollar deficit. Are you oblivious? I mean, come on, you
Speaker 1: have to sit there and explain CBO to presidents and
Speaker 1: that I'm looking at a one point three trillion dollar
Speaker 1: run rate to begin with of a plugged in GDP number.
Speaker 1: That's maybe it works, maybe it doesn't. Is Austin gools
Speaker 1: to me telling me that Senator Dirkson's a billion here,
Speaker 1: a billion there, a trillion here, a trillion there, doesn't matter,
Speaker 1: you know, it does matter. The part that's disturbing is
Speaker 1: not the one trillion. What is the part that's the
Speaker 1: disturbing is the one trillion in a boom? Uh, Because
Speaker 1: if then there weren't a boom, it's gonna be two
Speaker 1: trillion plus. Well, no way, this is important. I don't
Speaker 1: mean to interrupt you, but I'm gonna go out John
Speaker 1: Taylor on you and automatic stabilizers. If you modeled in
Speaker 1: an n b E R recent what would have one
Speaker 1: point three trillion dollar deficit become double it? Yeah, probably
Speaker 1: double it. You know, it depends on how deep the
Speaker 1: recession is. So we saw the the deficit exploded to
Speaker 1: record levels in the first one to two years of
Speaker 1: the Obama administration because it was the deepest resonn As
Speaker 1: the economy comes back, the deficit gets cut in half.
Speaker 1: What we have basically never had in the United States
Speaker 1: economic history is a circumstance where we're growing and the
Speaker 1: unemployment rate is below four, but the deficit is exploding.
Speaker 1: Uh So I think it easily could be above two
Speaker 1: trillion in the event of a recession. And my thing
Speaker 1: about deficits is it's not that it's going to be
Speaker 1: a fiscal grease style fiscal crisis that drives the US
Speaker 1: interst rate through the roof the problem of the debt
Speaker 1: and the deficits is not that a drive up the
Speaker 1: interest rate. It's that you have to pay back the money.
Speaker 1: And so ten twent thirty years from now, our kids
Speaker 1: are gonna becoming of age and need training. We're gonna
Speaker 1: want to fund social security and scientific research and every
Speaker 1: other thing that the government does, and we're going to
Speaker 1: just have a bigger and bigger share of our budget
Speaker 1: is being spent on interest on the debt that we're
Speaker 1: that we're doing right now. That's the that's the problem.
Speaker 1: That's the problem. What is if I'm a you know,
Speaker 1: a bull on deficits and national debt, what's my argument
Speaker 1: for saying it doesn't really matter? Well, it depends what
Speaker 1: the it is um. The the debt capacity let's call it,
Speaker 1: of the U. S Government is vastly an access of
Speaker 1: where the debt is now, So it doesn't matter for
Speaker 1: interest rates in the United States that we are doing this,
Speaker 1: and the there is as you know, I've been a
Speaker 1: public opponent and been blasted by the MMT people. There
Speaker 1: is one aspect that I have always said the m
Speaker 1: MT people are correct, which is, by by observed practice,
Speaker 1: you can spend trillions of dollars, You can increase the
Speaker 1: deficit by trillions of dollars without tanking the economy. We
Speaker 1: did it with the George W. Bush two trillion dollars
Speaker 1: tax cuts unpaid for, then a two trillion dollar war
Speaker 1: in Iraq, unpaid for, and then Trump another two trillion
Speaker 1: dollar tax cuts, unpaid for. Those things did not blow
Speaker 1: up the interest rate, They didn't blow up the economy.
Speaker 1: But we do have to pay back that money with interest.
Speaker 1: That's my that's my point, Austin, thank you so much,
Speaker 1: very generous of you. Professor Gouldsby is at the University
Speaker 1: of Chicago. Let us begin a three hour conversation with
Speaker 1: a gentleman from Yale University. Stephen Roach invented Morgan Stanley economics.
Speaker 1: He literally brought the digital age to print economics a
Speaker 1: million years ago. He is holding court giving up quality
Speaker 1: sees at Yale University. Steve has been too long, wonderful
Speaker 1: to have you one to talk to you, Tom and John.
Speaker 1: In your book The Next Asia, you have a great
Speaker 1: essay China's macro imperatives right now they have domestic imperatives.
Speaker 1: From where you sit, what is the to do list
Speaker 1: for Beijing? Number one, two and three is simply to
Speaker 1: control the virus. The economy will come later. The economy
Speaker 1: is strong, resilient, uh and changing, but it's being subjected
Speaker 1: to a a powerful shock and um it's all hands
Speaker 1: on deck to deal with that. And as I said,
Speaker 1: the economy will um uh later, I mean within this
Speaker 1: and Steve you've you know, I've seen you with the
Speaker 1: panda's out in western China and your cheng Do and
Speaker 1: all that. You know up the yangs River, you've got
Speaker 1: Wuhan where that big bend is. What's the thing? The
Speaker 1: media and for that matter, Global Wall Street get wrong
Speaker 1: about the resiliency of China to bounce back once they
Speaker 1: get through this virus. Well, you know, in the midst
Speaker 1: of a crisis, Tom, whether it's you know, in the
Speaker 1: depths of oh eight or in you know, other uh,
Speaker 1: seemingly catastrophic developments like the financial to the Asian financial
Speaker 1: crisis of it seems like the world or your favorite
Speaker 1: economy is imploding. But these things have a way of passing.
Speaker 1: Right now, you know, the uh, the evidence on infection
Speaker 1: rates and totality rates remains worrisome. There's some second derivatives
Speaker 1: that are looking a little bit better, but the situation
Speaker 1: that you just alluded to in Japan is now increasingly problematic.
Speaker 1: And I would just note here that Japan, the third
Speaker 1: largest economy in the world, is probably back in recession again.
Speaker 1: I mean, they had a horrible print on fourth quarter GDP.
Speaker 1: The trade data released this morning point to spillovers into
Speaker 1: the first quarter of this year. So you're looking at
Speaker 1: two consecutive quarters of of decline for a long recession
Speaker 1: prone Japanese economy who shot itself on the foot with
Speaker 1: another increase in their consumption tax. So you know, China
Speaker 1: is u it a standstill. All the daily trackers of CULP,
Speaker 1: consumption and traffic are flat uh post Lunar New Year,
Speaker 1: when they normally have bounced back dramatically, So that economy
Speaker 1: is printing a very low number of barely positives at
Speaker 1: all in the first quarter. The world economy is starting
Speaker 1: to feel like a transitory, hopefully temporary recession in the
Speaker 1: first half of this year. Professor, you did a fantastic
Speaker 1: interview with Barren's recently in the last couple of weeks,
Speaker 1: and I'd like to take the opportunity to point our
Speaker 1: audience to go and pick that up if they can.
Speaker 1: I'm just interested in exploring this further, Professor. Is not
Speaker 1: just Japan, of course, it's Germany as well. The economy
Speaker 1: stagnating there, just in terms of the dynamics that are
Speaker 1: shaking the global economy just a little bit relatively speaking.
Speaker 1: What is it you see that's transitory? What is temporary.
Speaker 1: Why will we come out of this the other side
Speaker 1: as the year grows older, in better shape. The virus
Speaker 1: we now call a COVID nineteen UM. You know, if
Speaker 1: you look at US stars trajectory, John, you know there
Speaker 1: was a one quarter hit and then a very sharp
Speaker 1: rebound over the next four quarters. This is not stars,
Speaker 1: but it's an infection rate is higher, but it's mortal.
Speaker 1: Your rate is lower. I think it will take longer
Speaker 1: to um get a grip on this, but I think
Speaker 1: that the trajectory is relevant and comfortable this time as well.
Speaker 1: Professor wrote unbalanced the codepends codependency of America and China,
Speaker 1: And I want to just put out a hypothetical that
Speaker 1: say it takes longer to get the coronavirus under control,
Speaker 1: this goes on for a longer period of time. Are
Speaker 1: people overleas sanguine about the US economy economy being immune
Speaker 1: to the impacts that we're seeing in China right now?
Speaker 1: Of course they are at least I mean, you know,
Speaker 1: the the U s economy is viewed as teflon like bulletproof. Uh,
Speaker 1: and there's seemingly nothing that could touch it. But you know,
Speaker 1: Greenspan had the best line of all. Actually, it was
Speaker 1: back in where he said the US is not an
Speaker 1: oasis and with the rest of the world China, Japan,
Speaker 1: John pointed out German, Many and um, France as well,
Speaker 1: Um on the skids here. Um, that's gonna come back
Speaker 1: to to bite us as well. And so our growth rate,
Speaker 1: which is not as weak as it is in other economies,
Speaker 1: were as far from strong. Uh. And you know we're
Speaker 1: we're cruising it too, which is not the biggest cushion
Speaker 1: to deal with another global shock, Professor, Roach, where do
Speaker 1: you expect to first see the effects of the slowdown
Speaker 1: in China, in Japan, in Germany manifest themselves in the US? Well, yeah,
Speaker 1: I think it'll come from our trade numbers. There's also
Speaker 1: already as we've seen from Apple clogging of China centric
Speaker 1: supply chains, which is going to stifle our ability to
Speaker 1: to buy our favorite electronic device. And there are other
Speaker 1: spellover effects as well. Steve, we've gotta go. But I
Speaker 1: got one key question which is just so critical to know.
Speaker 1: Our listeners want to hear your response to it. What
Speaker 1: is the cost of the accommodation of this central bank?
Speaker 1: I mean, the real FED funds target rate is back negative.
Speaker 1: You know, we're not down at stand Fisher Alter accommodation,
Speaker 1: but we're there are on our way there. I should say,
Speaker 1: what's the price of the free lunch we've got right now? Well,
Speaker 1: look it's a long, um long answer, Tom. But you know,
Speaker 1: free money UM enables financial instability, UH. It enables UM
Speaker 1: zombie like behavior of corporations who might otherwise be disciplined
Speaker 1: with a more meaningful cost to capital. And of course
Speaker 1: it facilitates the most reckless UH fiscal policy the United
Speaker 1: States has ever had. In an economic condition, the FED
Speaker 1: enables the Congress to keep printing a trillion dollar deaths
Speaker 1: as far as the eye can see. Steve Roachs, thank
Speaker 1: you so much with the university and update. There's been
Speaker 1: way too long. We got to get him in more
Speaker 1: of any regular because he's always busy, and he brings
Speaker 1: a holistic theme, almost a balance sheet them to economics.
Speaker 1: I've just enjoyed our exchanges on China and what happens
Speaker 1: with global trite. This is gonna be fun because SA
Speaker 1: and Society general, the great Derivatives House of paris Um
Speaker 1: always has a sophisticated note, and they've been pretty cautious
Speaker 1: on global GDP and U s GDP. Sophie Win with
Speaker 1: US do a multi asset and Sophie has the word
Speaker 1: in a report, John, what is it transitory? No? Not
Speaker 1: not even existential, No, not even zeitgeist g o L.
Speaker 1: We have a major house here talking gold, Sophie Win.
Speaker 1: How do you put gold in the mix here in
Speaker 1: your assets strategy? UM? Good morning. So from an essata
Speaker 1: allocation standpoint, UM, we think that at this point having
Speaker 1: a balance but firm makes sense. But having disport for
Speaker 1: protection through treasuries on gold UM makes sense. So gold
Speaker 1: is really one of the best prefer protection that you
Speaker 1: could have your as dellocation. Well, I don't want to
Speaker 1: go to the tent of a decimal point, but give
Speaker 1: me a percentage in gold right here at s We
Speaker 1: don't have a target on it, but I guess that
Speaker 1: when you look at how gold and US dollar have
Speaker 1: decorrelated UM in recent weeks, it really allows you to
Speaker 1: understand that barbo portfolio is at this point is really
Speaker 1: the trend for investors. So fear the risk medicating characteristics
Speaker 1: of say gold becoming more attractive relative to say treasuries.
Speaker 1: We like both, but it's clear that having gold at
Speaker 1: these points where from a relate to the basis if
Speaker 1: you look at gold versus copper and dealing with the
Speaker 1: tenor treasuries, it's clear that gold is really a way
Speaker 1: to protect. But following case of risk off, which is
Speaker 1: the case right now with this black Swan scenario of
Speaker 1: the coronavirus um when everyone is talking about how expensive
Speaker 1: bombs are, so it feels like gold at this point
Speaker 1: is really the best candidates, Sophie. Is it likely that
Speaker 1: gold will keep rallying intedum with US equities? It feels
Speaker 1: like this where you have some uncertainties regarding how long
Speaker 1: this corona virus is gonna last. But also, as you
Speaker 1: mentioned our my recession scenario that we're having with the
Speaker 1: two negative quarters, these two quarters of negative gp um,
Speaker 1: it could be a way for investors to have at
Speaker 1: the same time equities and gold, you know, but folio
Speaker 1: what kind of equities I mean? I mean you do
Speaker 1: mulpay asset strategy, which is salvaging my four oh one k,
Speaker 1: which is a two oh one K because I didn't
Speaker 1: like Tesla when Pharaoh bought it, Sophie, what kind of
Speaker 1: equities am I comfortable with? If I need to make
Speaker 1: a return to catch up with everybody else. Yeah, very difficult.
Speaker 1: So inc we do. It's Wednesday, difficult question day. What
Speaker 1: kind of equities do I buy? UM? So for now
Speaker 1: our strategy is more so into short terms, into short
Speaker 1: term it feels like the US dollar assets are going
Speaker 1: to benefit on this Black Song scenario, but more in
Speaker 1: the long term we continue to stay away from US growth,
Speaker 1: so we don't really like US tech. What do you
Speaker 1: like to prefer to focus on value portions UM on
Speaker 1: the equachy market, so basically EM equities where the growth
Speaker 1: differentials is quite attractive, but also valuation perspective, it's good.
Speaker 1: And also Jack music, which is so if you thank
Speaker 1: you someone. Sophie Winn was Society General there today with
Speaker 1: a really john almost controversial in Japanese equities there. I mean,
Speaker 1: that's I'm going to call that an outlier. Should I
Speaker 1: bring you in my five stages of diminishing bullishness? I
Speaker 1: love that charge. This number one, you'll hear people saying
Speaker 1: it's transitory. If things get worse, you'll hear them turn
Speaker 1: to number two, that the US is resilient and if
Speaker 1: things get a little but worse from there, you'll turn
Speaker 1: to number three, which is the US is decoupling. And
Speaker 1: then if things get a little bit worse from there,
Speaker 1: you'll turn to number four, which is the Federal save us.
Speaker 1: And then the final stage of diminishing bulishness is would doomed.
Speaker 1: That's just full capitulation. We're in stage one transitory. In
Speaker 1: the Wikipedia for Charles Schwab, there's a paragraph it's five
Speaker 1: six eight pages down under history, and it doesn't capture
Speaker 1: what happened in Some of us lived this and it
Speaker 1: was absolutely extraordinary how an upstart out of San Francisco
Speaker 1: and their first branch in Sacramento, California, came out and
Speaker 1: revolutionized the investment business and revolutionized it step by step. Paul,
Speaker 1: it's so important here as we bring in David Rubinstein,
Speaker 1: is it didn't happen all of a sudden. It was
Speaker 1: step by incremental by incremental steps through seventy five and
Speaker 1: seventies sticks until we were there. Let's listen in the
Speaker 1: Chars Schwab with David Rubinstein, they are children, are grandchildren.
Speaker 1: Say you know, can you give me a stock tip
Speaker 1: or something? Because I got some money and we have
Speaker 1: a mutual fund actually index fund called the Schwablin thousand.
Speaker 1: I use that all the time for my kids, the
Speaker 1: ETF portion of the things I've taught them all about.
Speaker 1: But in some respects it's a little bit more ring.
Speaker 1: I'd rather have the kids buy individual stocks. So what
Speaker 1: I'm gonna do coming up this spring, We're going to
Speaker 1: introduce fractionalization of stock, so you can buy a small
Speaker 1: fraction of Facebook, small fraction of Netscape or Amazon. Amazon
Speaker 1: is a high price in the words on Amazon. Let's
Speaker 1: say it's trading for a share. Some people can't afford
Speaker 1: thirteen hundrellars of shares they could buy about thirty dollars.
Speaker 1: How about thirteen mestors worth? Really important concept. It is
Speaker 1: the talk of the industry right now. I know motif
Speaker 1: H really leading on that, but many others looking at
Speaker 1: fractional share of purpose right now, well, we look at
Speaker 1: the complete David Rubinstein is peer to peer is just brilliant.
Speaker 1: This time with Charles Schwabs. Mr Rubenstein joins us uh
Speaker 1: this morning. David, what a joy to hear you and
Speaker 1: a very vital Charles schwab walk through the past. What's
Speaker 1: he say about the future of individual investor? Really? Nations
Speaker 1: Rights and privileges. Well, remember he came from very modest
Speaker 1: background and then revolutionize the industry, as you said, And
Speaker 1: for those who don't remember the revolution was this in
Speaker 1: the old days before seventy seventy five, if you bought
Speaker 1: a stock, you paid a fixed commission, and everybody paid
Speaker 1: the same commission around the country. He came up with
Speaker 1: the idea after the federal government allowed UH this to
Speaker 1: be deregulated to kind of have very low fees. Now
Speaker 1: the fees are basically zero for buying stocks. But he's
Speaker 1: built a company UH that is now managed about four
Speaker 1: trillion dollars and it's the leader in UH in brokerage
Speaker 1: accounts for for people all over the United States and
Speaker 1: all over the world. And he's now eighty two years old. Um.
Speaker 1: He overcame a lot of handicaps. He was dyslexic, didn't
Speaker 1: know he was dyslexic, was not a good student. Never
Speaker 1: found out until he was much older that he was dyslexic,
Speaker 1: and that was the reason he wasn't a good student.
Speaker 1: He almost flunked out of Stanford. He got into Stanford
Speaker 1: initially because he was a great golfer. And he's still
Speaker 1: a pretty good golfer, but he built a business that
Speaker 1: is now legendary, and his face is so well known
Speaker 1: because the original advertising people said to him, why don't
Speaker 1: we use your face? He was reluctant to do it,
Speaker 1: but then it was used and now became so well
Speaker 1: known that his face is known to everybody in effect. So, David,
Speaker 1: it's interesting. Just recently charged Swab kind of shocked the
Speaker 1: market yet again by going to zero commissions on a
Speaker 1: lot of equity transactions. What's the economics behind that? It
Speaker 1: seems like that's a big hit to their revenue. Uh,
Speaker 1: not so much. I mean I think they were probably
Speaker 1: getting maybe four or so of the revenue from those commissions.
Speaker 1: Where how do they afford to do it? Well, they
Speaker 1: sell funds, and when you sell funds, you charge management
Speaker 1: fees for those funds. But also they have enormous amounts
Speaker 1: of cash reserves by people that keep their funds on
Speaker 1: account with them, and so they're they're making interest on it,
Speaker 1: and sometimes they're not charging that much to the client,
Speaker 1: not paying that much of the client. So they have
Speaker 1: a four trillion dollars and they're earning fees on that
Speaker 1: and they're investing that. So that's how they can afford
Speaker 1: to do it. Really, the brokerage commission business now is
Speaker 1: relatively modest, and there are others are also going zero commission.
Speaker 1: So it seems like us a gift and it is
Speaker 1: giving away some money and maybe their stock will go
Speaker 1: down a little bit because of it, But in truth
Speaker 1: that they have so many other ways of making money,
Speaker 1: it's not a big deal. Yeah, David. When I think
Speaker 1: of retail investing in this country, I think that, you know,
Speaker 1: the thundering herd of Merrill Lynch. I think, of course
Speaker 1: Charles Schwabin some of their discount brokers. Yet a lot
Speaker 1: of Americans still are not invested in the market. Does
Speaker 1: Charles have a chuck of a sense of kind of
Speaker 1: maybe having the increased participation. Of course, they want people
Speaker 1: to buy more stocks, That's why I wanted he's talking
Speaker 1: about fractionalization where people would buy stocks and so forth.
Speaker 1: But remember a lot of people are investing through their
Speaker 1: four oh one case and their I ras, and also
Speaker 1: a lot of people have pension funds at their place
Speaker 1: of employment, and the pension funds are investing in the
Speaker 1: stock market. And you could argue and effect that they're
Speaker 1: investing on mahaff of the future retirees clear to the
Speaker 1: stock market is a much bigger business than it was
Speaker 1: in seventy five. And the reason he was able to
Speaker 1: pull this off it wasn't that he was the only
Speaker 1: person who said let's have discount fees. He invested heavily
Speaker 1: in technology and others were not willing to do that,
Speaker 1: and he put a lot of his money into technology.
Speaker 1: He ultimately sold his company after a few years to
Speaker 1: Bank of America. Bank of America kind of ran it
Speaker 1: into the ground, and he bought it back and then
Speaker 1: he closed on the deal right before the bubble burst
Speaker 1: in in October, and so his stock went way down
Speaker 1: and he was worried whether he could company could survive.
Speaker 1: But actually he came back and again invested heavily in
Speaker 1: technology and became the market leader in this business. David,
Speaker 1: thank you. David Rubin's TIN Peer to peer conversation is
Speaker 1: really quite good. With Charles Schwab tonight nine pm. I'm
Speaker 1: Bloomberg Television. Thanks for listening to the Bloomberg Surveillance podcast.
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