1 00:00:00,120 --> 00:00:02,920 Speaker 1: Brought you by Bank of America Mary Lynch. Investing in 2 00:00:03,000 --> 00:00:07,840 Speaker 1: local communities, economies and a sustainable future. That's the power 3 00:00:08,080 --> 00:00:12,360 Speaker 1: of global connections. Mary Lynch, Pierce Fenner and Smith Incorporated 4 00:00:12,760 --> 00:00:27,400 Speaker 1: member s I p C. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:27,840 --> 00:00:31,520 Speaker 1: I'm Tom Keene with David Gura. Daily we bring you 6 00:00:31,560 --> 00:00:36,600 Speaker 1: insight from the best in economics, finance, investment, and international relations. 7 00:00:37,000 --> 00:00:41,600 Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and 8 00:00:41,680 --> 00:00:50,320 Speaker 1: of course, on the Bloomberg Stephen Roach has provided leadership 9 00:00:50,320 --> 00:00:54,000 Speaker 1: to all of Wall Street and academics with optimistic perspective 10 00:00:54,080 --> 00:00:57,960 Speaker 1: on China at Morgan Stanley for decades, arguably inventing a 11 00:00:58,040 --> 00:01:02,160 Speaker 1: Wall Street attack on lations with China. Stephen Roaches now 12 00:01:02,200 --> 00:01:04,960 Speaker 1: at Yale University and it joins us today. Really thrilled 13 00:01:05,000 --> 00:01:07,520 Speaker 1: it was you and Jonathan Spence. We were unfortunate not 14 00:01:07,600 --> 00:01:09,920 Speaker 1: to get Professor Spence with us today, but we are 15 00:01:10,000 --> 00:01:12,320 Speaker 1: thrilled to have you here. We're gonna talk China in 16 00:01:12,360 --> 00:01:14,400 Speaker 1: the next block, Steve, and then I want to talk 17 00:01:14,480 --> 00:01:18,640 Speaker 1: Rogoff and populism. But right now I want to recapitulate 18 00:01:18,680 --> 00:01:22,639 Speaker 1: why guys like you are so upset at Wilbur Ross, 19 00:01:22,760 --> 00:01:26,720 Speaker 1: Peter Navarro economics. What does the Secretary of Commerce and 20 00:01:26,760 --> 00:01:29,800 Speaker 1: the professor from Irvine, what do they get wrong about 21 00:01:29,800 --> 00:01:37,000 Speaker 1: a relationship with China. They're fixated on the bilateral UH 22 00:01:37,200 --> 00:01:41,080 Speaker 1: tensions in a multilateral relationship. They suffer from what I 23 00:01:41,160 --> 00:01:46,560 Speaker 1: call trade deficit disorder. The US has deficits tom with 24 00:01:46,600 --> 00:01:49,000 Speaker 1: a hundred and one countries around the world. That's a 25 00:01:49,120 --> 00:01:54,120 Speaker 1: multilateral problem, and it's a reflection of our shortfall of 26 00:01:54,240 --> 00:01:57,240 Speaker 1: national savings. When you don't save and you want to grow, 27 00:01:57,800 --> 00:02:00,800 Speaker 1: you run big current account deficits to attract foreign capital 28 00:02:00,840 --> 00:02:03,480 Speaker 1: to keep your growing, and you run big deficits with 29 00:02:03,560 --> 00:02:06,600 Speaker 1: lots of countries. If you put pressure on one of them. 30 00:02:06,680 --> 00:02:09,840 Speaker 1: China is the lightning rod in this um, then the 31 00:02:09,960 --> 00:02:12,800 Speaker 1: Chinese piece just goes somewhere else, usually to a higher 32 00:02:12,840 --> 00:02:17,840 Speaker 1: cost producer, attacks as American middle class workers as a result. 33 00:02:17,919 --> 00:02:21,880 Speaker 1: So this is a flawed strategy that does not take 34 00:02:21,919 --> 00:02:26,360 Speaker 1: into account the macro economic imbalances that the United States 35 00:02:26,360 --> 00:02:29,160 Speaker 1: is long faced. Ambassador harmasters with us the other day. 36 00:02:29,200 --> 00:02:32,320 Speaker 1: I can think of anyone across all of economics and 37 00:02:32,360 --> 00:02:35,200 Speaker 1: politics who knows the game theory comes into play. How 38 00:02:35,240 --> 00:02:40,200 Speaker 1: will China respond to an overt presentation today of Ross 39 00:02:40,360 --> 00:02:45,640 Speaker 1: Navarro economics. Well, they've they've certainly heard it before, and 40 00:02:45,880 --> 00:02:47,560 Speaker 1: but if they can come out to be face to 41 00:02:47,639 --> 00:02:50,079 Speaker 1: face in Florida, they're gonna hear this stuff. Well, they're 42 00:02:50,080 --> 00:02:55,560 Speaker 1: gonna They're gonna hear the campaign rhetoric of Candidate Trump, 43 00:02:55,600 --> 00:02:59,520 Speaker 1: which was very anti China. China was the lightning rod 44 00:02:59,600 --> 00:03:04,639 Speaker 1: of his America First UH campaign that was very attractive 45 00:03:05,080 --> 00:03:09,920 Speaker 1: obviously in securing an extraordinary victory for President Trump. So 46 00:03:10,360 --> 00:03:13,400 Speaker 1: you know, the Chinese will hear it, uh, and they 47 00:03:13,400 --> 00:03:17,799 Speaker 1: will not respond in kind, though they will. Uh. They 48 00:03:17,800 --> 00:03:20,640 Speaker 1: have their own agenda in terms of their their own 49 00:03:20,960 --> 00:03:26,480 Speaker 1: domestic and global initiatives, whether it's the Belton Road, uh 50 00:03:26,560 --> 00:03:32,400 Speaker 1: PAN Regional Investment Plan, the Asian Infrastructure Investment Bank, their 51 00:03:32,440 --> 00:03:37,880 Speaker 1: own version of uh PAN Regional Trade, this um RCEP 52 00:03:38,280 --> 00:03:43,320 Speaker 1: Regional Cooperation Economic Partnership Agreement that they are espousing. They 53 00:03:43,360 --> 00:03:47,280 Speaker 1: have their global agenda and the US is looking inwards. 54 00:03:47,320 --> 00:03:51,320 Speaker 1: So uh, this is UH two approaches that are very 55 00:03:51,400 --> 00:03:53,640 Speaker 1: very different. Right, Let's go to Guy Johnson and London. Guy, 56 00:03:53,640 --> 00:03:57,000 Speaker 1: good morning, good morning to Stephen Um. What you can 57 00:03:57,080 --> 00:03:59,680 Speaker 1: of my policies. Would you advise the administration therefore to 58 00:04:00,000 --> 00:04:02,840 Speaker 1: see you what would be the changes that you would 59 00:04:02,880 --> 00:04:04,760 Speaker 1: make and do you see any of them coming down 60 00:04:04,760 --> 00:04:09,120 Speaker 1: the pike out of the White House with the Treasury, etcetera, etcetera. Well, 61 00:04:08,960 --> 00:04:12,920 Speaker 1: the one area that I think, UH, is that I've 62 00:04:13,000 --> 00:04:17,320 Speaker 1: stressed and others of stressed. Guy is taking advantage of 63 00:04:17,320 --> 00:04:21,599 Speaker 1: the fact that China is rebalancing its economy opening up 64 00:04:21,920 --> 00:04:24,840 Speaker 1: consumer and services markets on a scale and scope at 65 00:04:24,839 --> 00:04:28,760 Speaker 1: the world UH has has not seen in a long time. 66 00:04:29,240 --> 00:04:31,880 Speaker 1: And so we need to focus our policies and getting 67 00:04:31,920 --> 00:04:35,960 Speaker 1: access to those markets. And there's no better approach to 68 00:04:36,040 --> 00:04:40,279 Speaker 1: do that than through this long and UH and arduous 69 00:04:40,360 --> 00:04:44,279 Speaker 1: negotiation for a bilateral investment treaty between the United States 70 00:04:44,279 --> 00:04:48,720 Speaker 1: and China. The President claims to be the world's greatest dealmaker. 71 00:04:49,160 --> 00:04:52,880 Speaker 1: What better opportunity for the art of the deal UH 72 00:04:52,880 --> 00:04:56,520 Speaker 1: than to push through on a bilateral investment treaty. All 73 00:04:56,560 --> 00:04:59,440 Speaker 1: of us who are engaged in the U. S. China 74 00:05:00,240 --> 00:05:03,640 Speaker 1: um our relationship would like nothing better than to see 75 00:05:03,680 --> 00:05:06,400 Speaker 1: something like that. What role does the dollar have to 76 00:05:06,400 --> 00:05:12,080 Speaker 1: play in this? The rem and B dollar cross rate 77 00:05:13,000 --> 00:05:18,880 Speaker 1: has again along been an area of focus UH for politicians. 78 00:05:19,760 --> 00:05:24,480 Speaker 1: The president is incorrectly accused China of manipulating the currency 79 00:05:25,120 --> 00:05:28,440 Speaker 1: right now. They did certainly do that historically. Even in 80 00:05:28,440 --> 00:05:32,080 Speaker 1: the last few years, they have been trying to defend 81 00:05:32,760 --> 00:05:36,839 Speaker 1: their currency from falling UM. This is a false issue 82 00:05:36,880 --> 00:05:42,120 Speaker 1: and not really of great strategic importance to this bilateral relationship. 83 00:05:53,080 --> 00:05:55,400 Speaker 1: I want to welcome to Schnit Surveillance here. He's the 84 00:05:55,400 --> 00:05:57,360 Speaker 1: head of the short term funding desk at pim Co. 85 00:05:57,480 --> 00:05:59,760 Speaker 1: Joins us here in our Bloomberg eleven three oh studios. 86 00:05:59,760 --> 00:06:02,320 Speaker 1: Great to see. Where to speak with you. Let me 87 00:06:02,360 --> 00:06:04,080 Speaker 1: start with the minutes we got yesterday. We can talk 88 00:06:04,080 --> 00:06:06,560 Speaker 1: about what they said about the balance sheet in the moment, 89 00:06:06,600 --> 00:06:09,159 Speaker 1: but in terms of economic outlook and the path forward 90 00:06:09,160 --> 00:06:11,680 Speaker 1: for raising rates. What did you learn from those minutes yesterday? 91 00:06:11,720 --> 00:06:13,920 Speaker 1: If if anything, Yeah, I think I think the main 92 00:06:13,920 --> 00:06:16,760 Speaker 1: point actually has to do with the fact that the 93 00:06:16,760 --> 00:06:19,400 Speaker 1: Fed wants to move forward with this normalization process. They 94 00:06:19,440 --> 00:06:22,680 Speaker 1: think the key components for growth are in place at 95 00:06:22,720 --> 00:06:25,600 Speaker 1: least UH and obviously not acknowledging the fiscal side of 96 00:06:25,600 --> 00:06:28,120 Speaker 1: the equation, but simply acknowledging the data side of the 97 00:06:28,120 --> 00:06:31,400 Speaker 1: equation that they protect that they project that rates are 98 00:06:31,400 --> 00:06:33,359 Speaker 1: going to be increased in normalizing this process over the 99 00:06:33,360 --> 00:06:37,120 Speaker 1: foreseeable future. What's most important to me is that when 100 00:06:37,120 --> 00:06:39,640 Speaker 1: you look at when you look at the data, obviously 101 00:06:39,680 --> 00:06:40,960 Speaker 1: the FED is going to react to that. That's the 102 00:06:41,040 --> 00:06:44,000 Speaker 1: hard reaction function. But we should recognize the fact that 103 00:06:44,000 --> 00:06:46,600 Speaker 1: this is not simply the beginning of a rate cycle, 104 00:06:46,680 --> 00:06:49,720 Speaker 1: but more importantly, which is very different than normal rate cycles, 105 00:06:50,000 --> 00:06:52,360 Speaker 1: is the beginning of the normalization process. So what we 106 00:06:52,400 --> 00:06:55,200 Speaker 1: saw yesterday, we're simply the pulling out of the recipe 107 00:06:55,240 --> 00:06:57,840 Speaker 1: card and trying to really figure out how that's going 108 00:06:57,880 --> 00:07:00,719 Speaker 1: to be done. The recipe and no recipe perfect you 109 00:07:00,720 --> 00:07:02,320 Speaker 1: know from the first ghost, they're going to try to 110 00:07:02,320 --> 00:07:04,039 Speaker 1: tinker with it. But they did sort of give us 111 00:07:04,080 --> 00:07:05,880 Speaker 1: as a timeframe, i e. How long to you know, 112 00:07:05,920 --> 00:07:08,479 Speaker 1: effectively bake the recipe and then more importantly what some 113 00:07:08,560 --> 00:07:11,560 Speaker 1: of the key ingredients were being treasury and mortgages at 114 00:07:11,560 --> 00:07:13,240 Speaker 1: that point in time. And so we're gonna see some 115 00:07:13,320 --> 00:07:15,560 Speaker 1: refinement over the next over the next few months, I think, 116 00:07:15,600 --> 00:07:18,320 Speaker 1: in terms of how we address address that normalization process, 117 00:07:18,600 --> 00:07:21,920 Speaker 1: leaving themselves plenty of optionality to produce the perfect product. 118 00:07:22,080 --> 00:07:24,200 Speaker 1: What's what's the cake gonna look like. What's the perfect 119 00:07:24,200 --> 00:07:26,520 Speaker 1: product gonna look like when we're done with the recipe, 120 00:07:26,600 --> 00:07:28,240 Speaker 1: or do we have a sense of what normalization looks 121 00:07:28,280 --> 00:07:29,880 Speaker 1: like or what it is. Well, it's going to be 122 00:07:29,880 --> 00:07:32,000 Speaker 1: slow and methodical, and I think that this is not 123 00:07:32,160 --> 00:07:33,760 Speaker 1: a one and done type of recipe. And you know, 124 00:07:33,800 --> 00:07:36,720 Speaker 1: there's gonna be many trials and trials and and and 125 00:07:36,720 --> 00:07:39,080 Speaker 1: and one thing we've seen, and as a practitioner of 126 00:07:39,120 --> 00:07:40,680 Speaker 1: the market is that, you know, looking at the plumbing 127 00:07:40,680 --> 00:07:44,120 Speaker 1: of the market, the FED is clearly methodical in that process. 128 00:07:44,160 --> 00:07:47,080 Speaker 1: When you look at previous episodes of you know, quantitative 129 00:07:47,080 --> 00:07:49,360 Speaker 1: easing or even implementation of new tools like the reverse 130 00:07:49,400 --> 00:07:52,320 Speaker 1: reboot policy, these are things that take quite some time 131 00:07:52,360 --> 00:07:54,520 Speaker 1: for them to get comfortable with. And they're not simply 132 00:07:54,760 --> 00:07:57,600 Speaker 1: you know, a dash assault and making things perfect. It's 133 00:07:57,640 --> 00:08:01,720 Speaker 1: actually quite a quite a long labors passion, if you will. 134 00:08:01,960 --> 00:08:03,920 Speaker 1: And and so the process here is going to be 135 00:08:03,960 --> 00:08:06,960 Speaker 1: one of trying to figure out what the reaction function 136 00:08:07,040 --> 00:08:08,920 Speaker 1: of the market is. They're not going to want to 137 00:08:08,920 --> 00:08:12,000 Speaker 1: tighten financial conditions markedly. They need to do that clearly 138 00:08:12,040 --> 00:08:15,200 Speaker 1: because their current normalization process of hiking rates doesn't tighten 139 00:08:15,200 --> 00:08:18,080 Speaker 1: financial conditions as much as they want, but on a 140 00:08:18,120 --> 00:08:20,800 Speaker 1: go forward basis, recognize the fact that there's going to 141 00:08:20,920 --> 00:08:22,960 Speaker 1: have to be a balance between being prudent with that 142 00:08:23,000 --> 00:08:26,280 Speaker 1: measurement I how much they taper, and then ultimately what 143 00:08:26,360 --> 00:08:29,280 Speaker 1: their ultimate goal is. The communication of the ladder is 144 00:08:29,320 --> 00:08:31,480 Speaker 1: actually key and essential and what we should get some 145 00:08:31,480 --> 00:08:33,840 Speaker 1: clarification on that later this year. That's what they're highlighting. 146 00:08:33,960 --> 00:08:35,760 Speaker 1: Is there a challenge here of walking and chewing gum 147 00:08:35,760 --> 00:08:37,040 Speaker 1: at the same time. In other words, you've got to 148 00:08:37,080 --> 00:08:38,520 Speaker 1: fit that wants to raise rates, You've got to fit 149 00:08:38,559 --> 00:08:40,880 Speaker 1: that wants to address the balance sheet. How complicated is it? 150 00:08:40,960 --> 00:08:43,240 Speaker 1: How complex is it to do both things at once? Well, 151 00:08:43,280 --> 00:08:46,000 Speaker 1: the fet is actually pretty good at walking entering at 152 00:08:46,000 --> 00:08:47,800 Speaker 1: the same time, but sometimes the gun get stuck on 153 00:08:47,800 --> 00:08:50,400 Speaker 1: the bottom of their shoe. So that's the challenge. And 154 00:08:50,600 --> 00:08:53,120 Speaker 1: I think admittedly, when when you look at it, you 155 00:08:53,160 --> 00:08:54,839 Speaker 1: know they have to walk a little quicker or walk 156 00:08:54,880 --> 00:08:57,080 Speaker 1: a little slower in order to avoid those pitfalls. The 157 00:08:57,080 --> 00:08:59,720 Speaker 1: fet is actually, you know, has a lot of optionality. 158 00:09:00,200 --> 00:09:02,480 Speaker 1: As as a market practitioner, sure it makes things a 159 00:09:02,520 --> 00:09:03,920 Speaker 1: little bit more difficult to me. I would love to 160 00:09:03,960 --> 00:09:05,839 Speaker 1: know how the recipe turns out, I would like to 161 00:09:05,880 --> 00:09:07,720 Speaker 1: know how quickly they're gonna walk or how slowly they're 162 00:09:07,720 --> 00:09:10,160 Speaker 1: gonna walk. But that's sort of the art, if you will, 163 00:09:10,280 --> 00:09:14,240 Speaker 1: behind their science, and ultimately our job as a you know, 164 00:09:14,320 --> 00:09:17,760 Speaker 1: as as practitioners and more important guardians of capital for 165 00:09:17,800 --> 00:09:21,120 Speaker 1: our clients is simply to focus on what those reaction 166 00:09:21,160 --> 00:09:24,400 Speaker 1: functions might be and use the best probable estimates to 167 00:09:24,440 --> 00:09:27,080 Speaker 1: figure out where the sources of volatility in the marketplace 168 00:09:27,120 --> 00:09:29,400 Speaker 1: that are underestimated. And I think that's really what we're 169 00:09:29,400 --> 00:09:31,600 Speaker 1: gonna have to be focusing on over the next six months, 170 00:09:31,720 --> 00:09:33,920 Speaker 1: not necessarily the you know, the fact that we're gonna 171 00:09:33,920 --> 00:09:36,280 Speaker 1: have a rate hikeer two, because that's in all likelihood, 172 00:09:36,440 --> 00:09:40,920 Speaker 1: but really more importantly the reaction function of that normalization process, 173 00:09:40,960 --> 00:09:43,600 Speaker 1: and more importantly, what we think that glide path is 174 00:09:43,600 --> 00:09:45,240 Speaker 1: going to look like. And I think that's going to 175 00:09:45,320 --> 00:09:48,160 Speaker 1: be the ultimate goal, because of that glide path, you know, 176 00:09:48,240 --> 00:09:50,760 Speaker 1: could in effect change the shape of the yolk are 177 00:09:50,960 --> 00:09:53,720 Speaker 1: very very quickly, and that and that's very dangerous to fix, 178 00:09:53,760 --> 00:09:56,800 Speaker 1: tek of investors. As within the mathliness of this, with 179 00:09:56,920 --> 00:10:01,400 Speaker 1: the reaction function on a smooth glide path, there's a 180 00:10:01,440 --> 00:10:04,240 Speaker 1: point where they run into the brick wall of neutral 181 00:10:04,440 --> 00:10:08,439 Speaker 1: or restrictive nature. Where is that level? Do you were, 182 00:10:08,559 --> 00:10:11,559 Speaker 1: you know, the four hundred other brilliant people at PIMCO, 183 00:10:11,679 --> 00:10:14,920 Speaker 1: Do you have a clue or the actual neutral level 184 00:10:15,080 --> 00:10:18,640 Speaker 1: is of FED rate or where they become restrictive? Yeah, 185 00:10:18,640 --> 00:10:25,640 Speaker 1: you know people. But but I would say I would 186 00:10:25,640 --> 00:10:28,520 Speaker 1: say that that process comes in twofold. One part of 187 00:10:28,520 --> 00:10:31,520 Speaker 1: its realizing where that natural rate of reserves is going 188 00:10:31,559 --> 00:10:34,080 Speaker 1: to be. So that's one aspect of it. So recognize 189 00:10:34,120 --> 00:10:36,360 Speaker 1: that it's not a zero bound of reserves. It's something 190 00:10:36,360 --> 00:10:38,480 Speaker 1: probably in the realm of two trillion two and a 191 00:10:38,480 --> 00:10:41,160 Speaker 1: half trillion. So that's one element to that. Second of 192 00:10:41,200 --> 00:10:43,520 Speaker 1: all that clearly goes into that is the rate itself, 193 00:10:43,800 --> 00:10:45,880 Speaker 1: and then ultimately where you think that terminal rate is 194 00:10:45,880 --> 00:10:47,640 Speaker 1: going to be. So it's probably going to be you know, 195 00:10:48,000 --> 00:10:51,040 Speaker 1: ideally aim around at zero real rates, but ultimately at 196 00:10:51,080 --> 00:10:53,040 Speaker 1: one percent real rates would put which puts you in 197 00:10:53,080 --> 00:10:55,680 Speaker 1: nominal terms, you know, roughly around two and three quarters 198 00:10:55,679 --> 00:10:59,080 Speaker 1: three percent, not so different than the summary of economic 199 00:10:59,080 --> 00:11:03,839 Speaker 1: projections the sep HE. Ultimately the challenges the trajectory of 200 00:11:03,880 --> 00:11:07,360 Speaker 1: those rates, and I think that's where money capital will 201 00:11:07,400 --> 00:11:10,000 Speaker 1: be made and lost over the next two, three five 202 00:11:10,120 --> 00:11:13,320 Speaker 1: years in many regard that might you know, might be 203 00:11:13,400 --> 00:11:15,480 Speaker 1: underappreciated by the market at this point in time. And 204 00:11:15,600 --> 00:11:19,000 Speaker 1: there's clearly other external factors, including fiscal which come into 205 00:11:19,080 --> 00:11:22,200 Speaker 1: that equation more and more so. While and this is 206 00:11:22,200 --> 00:11:24,760 Speaker 1: the interesting thing is what we're clearly in the handoff 207 00:11:24,800 --> 00:11:27,480 Speaker 1: stage of monetary to fiscal policy. As we've noted at 208 00:11:27,480 --> 00:11:31,120 Speaker 1: PIMCO over the past year, the challenges is that fiscal 209 00:11:31,160 --> 00:11:35,800 Speaker 1: policy will increasingly be noted or be be mandated by 210 00:11:35,840 --> 00:11:38,560 Speaker 1: their their their notion that they need to normalize policy, 211 00:11:38,720 --> 00:11:42,520 Speaker 1: but also ultimately react to any fiscal element, so that 212 00:11:42,559 --> 00:11:46,880 Speaker 1: normalization process might might ultimately be changing that terminal rate. 213 00:11:46,880 --> 00:11:48,600 Speaker 1: Tom and I think that's the goal. So the math 214 00:11:48,679 --> 00:11:51,680 Speaker 1: is important, but it's frankly the equation. You know, the 215 00:11:51,679 --> 00:11:54,200 Speaker 1: equation might simply be A equals B instead of A 216 00:11:54,320 --> 00:11:56,840 Speaker 1: plus B plus C equals x. You know, you just 217 00:11:56,920 --> 00:11:58,720 Speaker 1: need add a few more variables because it could be 218 00:11:58,800 --> 00:12:03,480 Speaker 1: incremental steps because too much excuse me, there's jobs stay tomorrow. 219 00:12:03,480 --> 00:12:07,040 Speaker 1: We're math free for the next four years. How big 220 00:12:07,080 --> 00:12:09,959 Speaker 1: an X factor is communication? You think back to the 221 00:12:09,960 --> 00:12:12,240 Speaker 1: way ben Burniki approach. This saw him with sixty minutes 222 00:12:12,280 --> 00:12:14,080 Speaker 1: at his hometown in South Carolina. You see the way 223 00:12:14,160 --> 00:12:17,520 Speaker 1: Jennet Yellen approaches FED communication. We're looking at some perhaps 224 00:12:17,600 --> 00:12:20,680 Speaker 1: radical personnel change at the FED. Does that complicate things? Could? Could? 225 00:12:20,679 --> 00:12:21,920 Speaker 1: The way that this is explained to the way that 226 00:12:21,920 --> 00:12:24,560 Speaker 1: the FED approach is communicating change as a result of that, 227 00:12:24,760 --> 00:12:29,640 Speaker 1: So the number one essential overlooked element of policy over 228 00:12:29,679 --> 00:12:31,520 Speaker 1: the next year is going to be the composition of 229 00:12:31,559 --> 00:12:34,319 Speaker 1: the FED. That's clearly going to be a challenge, uh, 230 00:12:34,720 --> 00:12:36,920 Speaker 1: not necessarily from a negative point of view, but just 231 00:12:36,960 --> 00:12:39,520 Speaker 1: in terms of clarity point of view. You know, we've 232 00:12:39,760 --> 00:12:42,960 Speaker 1: you know, I've been sort of uh suggesting of the 233 00:12:42,960 --> 00:12:46,400 Speaker 1: past three to six months since the election that basically 234 00:12:46,600 --> 00:12:48,960 Speaker 1: you might not necessarily get as hawkish of outcome of FED, 235 00:12:49,400 --> 00:12:51,880 Speaker 1: uh that you then you might expect, but something slightly 236 00:12:51,960 --> 00:12:55,840 Speaker 1: more hawkish than we currently have. And so the ultimately, 237 00:12:55,960 --> 00:12:58,040 Speaker 1: you know, the ultimate thing is when you look at vacancies, 238 00:12:58,080 --> 00:13:00,760 Speaker 1: the three and then obviously lacquer and then you have 239 00:13:00,800 --> 00:13:03,199 Speaker 1: the two vacant two potential vacancies, I should say, in 240 00:13:03,320 --> 00:13:06,080 Speaker 1: terms of chairman and vice chair, chair and vice chair 241 00:13:06,520 --> 00:13:09,280 Speaker 1: that is of itself, um, going to be a challenge 242 00:13:09,280 --> 00:13:12,120 Speaker 1: to sort of forecast ultimately what dots look like, what 243 00:13:12,160 --> 00:13:15,400 Speaker 1: that terminal rate looks like, and ultimately how normalizations as 244 00:13:15,440 --> 00:13:17,880 Speaker 1: to the car. One of the interesting things think about 245 00:13:17,880 --> 00:13:21,360 Speaker 1: it is when when when Dr Branankey you know, came 246 00:13:21,440 --> 00:13:23,880 Speaker 1: in and and sort of handed off, he sort of 247 00:13:23,920 --> 00:13:27,440 Speaker 1: set the ball in motion for the initial removal of Stimilos, 248 00:13:27,440 --> 00:13:30,960 Speaker 1: the initial you know, step outside that quei mode. You know, 249 00:13:31,000 --> 00:13:33,679 Speaker 1: maybe Jennet Yellen does the same thing and hands off 250 00:13:33,720 --> 00:13:35,600 Speaker 1: the ball or tease up the ball to run the 251 00:13:35,600 --> 00:13:37,760 Speaker 1: play going forward, even though she may not be the 252 00:13:37,840 --> 00:13:40,000 Speaker 1: QB at that point in time. I'm just suggesting. I'm 253 00:13:40,000 --> 00:13:42,079 Speaker 1: not suggesting that she does leave, but I'm saying that 254 00:13:42,120 --> 00:13:45,000 Speaker 1: maybe that you could draw similar parallels in that sense. 255 00:13:45,200 --> 00:13:48,040 Speaker 1: So ultimately, the number one question it is who fills 256 00:13:48,040 --> 00:13:50,360 Speaker 1: those seats. What type of people fill the seats is 257 00:13:50,360 --> 00:13:52,960 Speaker 1: probably not going to be as an econometric or or 258 00:13:53,040 --> 00:13:55,960 Speaker 1: maybe even mass savvy people. Um that puts fear and 259 00:13:56,040 --> 00:13:58,040 Speaker 1: you know, people's eyes. But at the same time, people 260 00:13:58,040 --> 00:14:00,360 Speaker 1: who understand the business side of the equation jan So 261 00:14:00,480 --> 00:14:02,640 Speaker 1: that in and of itself is a different reaction function 262 00:14:02,679 --> 00:14:04,480 Speaker 1: than we're used to for the past two decades. We'll 263 00:14:04,480 --> 00:14:06,000 Speaker 1: come back in just a couple of seconds here. But 264 00:14:06,120 --> 00:14:07,760 Speaker 1: do we have clues as to who those people might be? Here? 265 00:14:07,800 --> 00:14:09,319 Speaker 1: You are you getting a sense of of who the 266 00:14:09,360 --> 00:14:11,599 Speaker 1: president might pick. Um. You know it's probably gonna be 267 00:14:11,600 --> 00:14:13,400 Speaker 1: a moderate in some sense. You know, there's not really 268 00:14:13,480 --> 00:14:16,360 Speaker 1: hard clues. You know, you see some suggestions clearly community 269 00:14:16,360 --> 00:14:18,600 Speaker 1: banker or somebody like that is in the mix. Um. 270 00:14:18,679 --> 00:14:21,680 Speaker 1: You know, there's there's hardliners which are initially suggested in 271 00:14:21,960 --> 00:14:24,120 Speaker 1: you know, including Taylor, Kevin Warsh, people like that, who 272 00:14:24,200 --> 00:14:25,800 Speaker 1: might be in the milks if if it does go 273 00:14:26,200 --> 00:14:28,840 Speaker 1: to the more hawkish side. Um. But at the same time, 274 00:14:29,000 --> 00:14:31,960 Speaker 1: you know, uh, you know, more moderate, more moderate folks 275 00:14:32,080 --> 00:14:34,760 Speaker 1: um you know, might necessarily be might be in the mix. 276 00:14:34,800 --> 00:14:37,160 Speaker 1: And there's and there's you know, Jerome Powell as there's 277 00:14:37,160 --> 00:14:40,040 Speaker 1: one example being Republican could be could be that suggestion 278 00:14:40,120 --> 00:14:44,000 Speaker 1: again one option Jerome Schneider where this with PIMCO Right now, Jerome, 279 00:14:44,120 --> 00:14:48,600 Speaker 1: have you quantified the benefit and cost analysis of the 280 00:14:48,680 --> 00:14:52,200 Speaker 1: great distortion? I know it, benefit of the financial system, 281 00:14:52,400 --> 00:14:57,200 Speaker 1: benefit of the banks. We need a banking stability and simplistically, 282 00:14:57,280 --> 00:14:59,800 Speaker 1: on the other side of the Ledger, Savers got c 283 00:15:00,640 --> 00:15:03,240 Speaker 1: Have you ever seen that math. Yeah, it's actually pretty 284 00:15:03,240 --> 00:15:05,560 Speaker 1: pretty straightforward. Oddly enough, if you look at UM, if 285 00:15:05,600 --> 00:15:09,440 Speaker 1: you look at where you could basically invest cash effectively 286 00:15:09,480 --> 00:15:11,800 Speaker 1: over the past, let's say, since two thousand and eight, 287 00:15:11,800 --> 00:15:14,400 Speaker 1: two thousand nine, late two thousand nine or early two 288 00:15:14,400 --> 00:15:18,120 Speaker 1: thousand nine to today, you basically have lost in terms 289 00:15:18,120 --> 00:15:21,640 Speaker 1: of purchasing power roughly fifteen to sixteen percent of purchasing 290 00:15:21,680 --> 00:15:24,280 Speaker 1: power just by being in cash. So even though we've 291 00:15:24,320 --> 00:15:26,960 Speaker 1: been at a really relatively low nominal industry, and that's 292 00:15:27,000 --> 00:15:29,480 Speaker 1: arguable to pend on what metric you use, the ultimate 293 00:15:29,520 --> 00:15:33,320 Speaker 1: thing is looking at you know, looking at how that increases, 294 00:15:33,520 --> 00:15:37,480 Speaker 1: meaning that dispersion increases, that cost increases over the forestable 295 00:15:37,480 --> 00:15:41,239 Speaker 1: future as inflation increases, and so that is actually pretty quantifiable. 296 00:15:41,440 --> 00:15:44,160 Speaker 1: So simply put, you know, Tom, in a world over 297 00:15:44,200 --> 00:15:47,040 Speaker 1: the past few years where basically you had UM, you 298 00:15:47,120 --> 00:15:51,160 Speaker 1: had inflation modest your purchasing power today of a dollar 299 00:15:51,160 --> 00:15:53,320 Speaker 1: today versus a year from now might have only been 300 00:15:53,560 --> 00:15:57,560 Speaker 1: you know, cents, but now it's probably nine edging on 301 00:15:57,680 --> 00:16:01,040 Speaker 1: ninety seven cents every year that you get eroded, So 302 00:16:01,120 --> 00:16:03,800 Speaker 1: that that's really the focal point the damaging to the savers. 303 00:16:03,840 --> 00:16:07,480 Speaker 1: So long story, short is is savers weren't penalized enough 304 00:16:07,520 --> 00:16:11,240 Speaker 1: over the past seven eight nine years. The horses actually 305 00:16:11,360 --> 00:16:12,720 Speaker 1: had to come. So I hate to say that the 306 00:16:12,720 --> 00:16:16,120 Speaker 1: headlines are only getting worse. What what's your forecast for 307 00:16:16,200 --> 00:16:18,800 Speaker 1: volatility here? We've had such low volatility for for so long. 308 00:16:18,880 --> 00:16:21,560 Speaker 1: Now is your outlook that that's going to to pick up? 309 00:16:21,600 --> 00:16:23,400 Speaker 1: And how do you navigate that? Well? I think that's 310 00:16:23,400 --> 00:16:25,280 Speaker 1: the biggest challenge. And you can actually look at the headlines, 311 00:16:25,320 --> 00:16:27,600 Speaker 1: the real time headlines today in terms of in terms 312 00:16:27,640 --> 00:16:29,720 Speaker 1: of announcements of the Czech Central Bank, you know, looking 313 00:16:29,720 --> 00:16:32,360 Speaker 1: to remove their currency cap. That the end of itself 314 00:16:32,760 --> 00:16:36,320 Speaker 1: is a highlight that central banks are reacting in different 315 00:16:36,320 --> 00:16:39,120 Speaker 1: ways and and the reaction function not just of central banks, 316 00:16:39,160 --> 00:16:42,360 Speaker 1: but reaction function to central banks is something that has 317 00:16:42,400 --> 00:16:44,640 Speaker 1: created volatility in the market. You know, David, we've had 318 00:16:44,640 --> 00:16:47,600 Speaker 1: this really warm blanket over our shoulders the past seven 319 00:16:47,600 --> 00:16:50,920 Speaker 1: eight years. Um quantity of easying has really removed the 320 00:16:50,920 --> 00:16:53,440 Speaker 1: tail risk of a lot of risk assets. We know that. Well, 321 00:16:53,520 --> 00:16:55,840 Speaker 1: when you unwind that, when we get to that normalization 322 00:16:55,880 --> 00:16:57,720 Speaker 1: process that we're discussing at the top of the show. 323 00:16:58,120 --> 00:17:01,560 Speaker 1: You know, basically you have yourself too, a little bit 324 00:17:01,600 --> 00:17:04,080 Speaker 1: of tail risk, both right and left tail risk, because 325 00:17:04,080 --> 00:17:05,760 Speaker 1: we like to say at PIMCO and so, one of 326 00:17:05,800 --> 00:17:07,760 Speaker 1: the things we really think about in terms of portfolio 327 00:17:07,800 --> 00:17:10,639 Speaker 1: positioning for our clients is recognizing the fact that the 328 00:17:10,680 --> 00:17:14,880 Speaker 1: distribution of outcomes normalized outcomes has actually been reduced over 329 00:17:15,000 --> 00:17:18,640 Speaker 1: that horizon, meaning you should expect lower returns and it's 330 00:17:18,640 --> 00:17:22,359 Speaker 1: actually pushed out the tails the potential for volatility, So 331 00:17:22,440 --> 00:17:26,040 Speaker 1: volatility should increase pretty pretty much, squaring positions a little 332 00:17:26,040 --> 00:17:28,439 Speaker 1: bit at this point time for that optionality. What may 333 00:17:28,480 --> 00:17:32,240 Speaker 1: occur is actually more prudent. We have a hardwired intuitive 334 00:17:32,280 --> 00:17:35,920 Speaker 1: feel that if yield goes up, I believe price goes down, 335 00:17:36,680 --> 00:17:39,119 Speaker 1: does that mean money markets go down and value in 336 00:17:39,280 --> 00:17:43,560 Speaker 1: very very short term paper within two years in relative sense, yeah, 337 00:17:43,600 --> 00:17:45,560 Speaker 1: I mean money market funds don't move much. In Italy 338 00:17:45,720 --> 00:17:48,080 Speaker 1: you have a notion of of one dollar par and 339 00:17:48,119 --> 00:17:50,800 Speaker 1: maybes and close to one dollar par maybes. But although 340 00:17:50,840 --> 00:17:53,879 Speaker 1: they fluctuate for prime and credit money market funds, the 341 00:17:54,160 --> 00:17:56,880 Speaker 1: damaging effect is that a money market fund we've had 342 00:17:56,920 --> 00:17:59,520 Speaker 1: three rate hikes. You're not you know, you're not gonna 343 00:17:59,600 --> 00:18:02,160 Speaker 1: see the is the nominal yield on as many market 344 00:18:02,160 --> 00:18:05,399 Speaker 1: funds be linear one for one, I agree, and the 345 00:18:05,480 --> 00:18:10,080 Speaker 1: answer is to mitigate the natural price decline. They fix 346 00:18:10,160 --> 00:18:12,399 Speaker 1: it other ways, and the way as the nominal yield 347 00:18:12,440 --> 00:18:15,520 Speaker 1: goes up late it's delight How what's the typical delay 348 00:18:15,600 --> 00:18:18,800 Speaker 1: two years, two quarters? Well, in the history, it's actually 349 00:18:18,800 --> 00:18:22,040 Speaker 1: been really quick. It's been weeks days in fact. And yeah, 350 00:18:22,080 --> 00:18:24,000 Speaker 1: and and that's the problem with the reaction function. The 351 00:18:24,040 --> 00:18:27,480 Speaker 1: system has fundamentally changed in terms of how how slashy 352 00:18:27,520 --> 00:18:31,359 Speaker 1: if you will, that reaction function is a level four 353 00:18:33,240 --> 00:18:37,359 Speaker 1: Taylor Riggs is listening slash. I did take it twice 354 00:18:37,480 --> 00:18:39,359 Speaker 1: just to make sure I got that definition correct. But 355 00:18:39,359 --> 00:18:42,119 Speaker 1: the reality is is that when you look at that 356 00:18:42,320 --> 00:18:45,439 Speaker 1: on an upward basis, that dispersion only grows. Tom that 357 00:18:45,560 --> 00:18:50,159 Speaker 1: dispersion between protecting and get capturing those increasing rates is 358 00:18:50,200 --> 00:18:52,199 Speaker 1: actually more challenging. There's a couple of reasons also for 359 00:18:52,280 --> 00:18:55,080 Speaker 1: that is you might necessarily have a change in monetary 360 00:18:55,080 --> 00:18:57,440 Speaker 1: policy from the Fed, you know, not getting too lankish 361 00:18:57,480 --> 00:18:59,840 Speaker 1: and two into the details. But we've come so far 362 00:19:00,000 --> 00:19:02,200 Speaker 1: are in terms of how the FED thinks about managing rates. 363 00:19:02,200 --> 00:19:04,520 Speaker 1: We have a corridor system where you have a reverse 364 00:19:04,600 --> 00:19:08,480 Speaker 1: repo policy acting as the denominator that lower bound. So 365 00:19:08,520 --> 00:19:10,560 Speaker 1: if the FED decides over the next few years they 366 00:19:10,600 --> 00:19:12,840 Speaker 1: want to get away with it. Not a likely probability, 367 00:19:12,840 --> 00:19:15,439 Speaker 1: but a possibility, and to get more back to the 368 00:19:15,480 --> 00:19:18,240 Speaker 1: old fashioned way of draining and managing reserves on a 369 00:19:18,320 --> 00:19:21,679 Speaker 1: daily basis. Things change, these can fundamentally change in a 370 00:19:21,680 --> 00:19:24,919 Speaker 1: different way. Thank you so much, Jump. I greatly appreciated 371 00:19:25,119 --> 00:19:28,400 Speaker 1: always smart with PIMPCO and particularly here with these dynamics. 372 00:19:28,440 --> 00:19:29,800 Speaker 1: And you heard it. There are folks you said, the 373 00:19:29,800 --> 00:19:41,960 Speaker 1: great distortion may continue. Brought you by Bank of America, 374 00:19:42,040 --> 00:19:46,240 Speaker 1: Mary Lynch, dedicated to bringing our clients insights and solutions 375 00:19:46,560 --> 00:19:49,840 Speaker 1: to meet the challenges of a transforming world. That's the 376 00:19:49,920 --> 00:19:55,040 Speaker 1: power of global connections. Mary Lynch, Pierce Federan Smith Incorporated 377 00:19:55,200 --> 00:20:02,080 Speaker 1: Member s I p C. Diane Swamp, the founder of 378 00:20:02,160 --> 00:20:05,239 Speaker 1: ds Economics, joining us from Chicago. Dane, help me with 379 00:20:05,280 --> 00:20:08,200 Speaker 1: the numbers. We just got those initial jobless claims numbers 380 00:20:08,240 --> 00:20:11,520 Speaker 1: in concert with the A d P numbers. Yesterday's seventy 381 00:20:11,520 --> 00:20:14,199 Speaker 1: eight thousand jobs more than survey as we had to 382 00:20:14,280 --> 00:20:16,560 Speaker 1: Jobs Day tomorrow. What's your sense of of what we're 383 00:20:16,560 --> 00:20:20,000 Speaker 1: going to see. Well, the underlying economy in the jobs 384 00:20:20,040 --> 00:20:23,120 Speaker 1: market is improving, and that's the most important thing to remember. 385 00:20:23,160 --> 00:20:26,159 Speaker 1: We could see some very strange numbers tomorrow because of 386 00:20:26,920 --> 00:20:30,880 Speaker 1: unusually warm weather in February and really snowy weather in March. 387 00:20:30,960 --> 00:20:33,760 Speaker 1: One of the reasons that we saw the jobs claims 388 00:20:33,800 --> 00:20:36,760 Speaker 1: come off after they spiked in mid March was they 389 00:20:36,760 --> 00:20:39,760 Speaker 1: spiked during the survey week when we had blizzard like 390 00:20:39,880 --> 00:20:42,720 Speaker 1: conditions across months of the country, after we had seventies 391 00:20:42,720 --> 00:20:47,119 Speaker 1: and eighties here in Chicago in in the injury months, 392 00:20:47,119 --> 00:20:50,560 Speaker 1: So that really could pull some job gains ahead into 393 00:20:50,600 --> 00:20:54,520 Speaker 1: February and January and less in March. That said, the 394 00:20:54,560 --> 00:20:57,840 Speaker 1: story hasn't changed. The labor market is healing. It's finally 395 00:20:57,880 --> 00:21:01,240 Speaker 1: healing in a more broad based way. And most importantly, 396 00:21:01,800 --> 00:21:04,440 Speaker 1: um we're starting to see shortages pick up, and we're 397 00:21:04,480 --> 00:21:09,280 Speaker 1: starting to see wages accelerate and employers now invest once 398 00:21:09,320 --> 00:21:14,440 Speaker 1: again in training. That's something that was cut dramatically during 399 00:21:14,480 --> 00:21:17,280 Speaker 1: the crisis. It's something employers they could just cream the 400 00:21:17,320 --> 00:21:20,320 Speaker 1: top of the pool of employees and hire whoever they wanted. 401 00:21:20,600 --> 00:21:23,240 Speaker 1: Now they need to dip deeper into the pool of 402 00:21:23,280 --> 00:21:26,520 Speaker 1: potential workers and bring their skills up. This is something 403 00:21:26,760 --> 00:21:29,520 Speaker 1: we've not seen on mass and we certainly want to 404 00:21:29,520 --> 00:21:32,840 Speaker 1: see since the go go days of the late nineteen nineties. 405 00:21:33,119 --> 00:21:35,240 Speaker 1: You mentioned wage growth. If I'm not mistaking, the numbers 406 00:21:35,280 --> 00:21:37,600 Speaker 1: were all right last time. I think that they were there. Okay, 407 00:21:37,840 --> 00:21:42,440 Speaker 1: I can't remember exactly how much wage growth we saw. Yeah, 408 00:21:42,600 --> 00:21:45,159 Speaker 1: So what are you expecting tomorrow? In other words, is 409 00:21:45,359 --> 00:21:47,080 Speaker 1: the focus for you still going to be squarely on 410 00:21:47,119 --> 00:21:50,040 Speaker 1: wage growth? And we get this report tomorrow, wages and 411 00:21:50,119 --> 00:21:53,480 Speaker 1: also the stress measures of unemployment everything from you six 412 00:21:53,520 --> 00:21:56,320 Speaker 1: that measure that includes people working part time instead of 413 00:21:56,359 --> 00:21:59,240 Speaker 1: full time when they want to seek full time work. 414 00:21:59,520 --> 00:22:02,760 Speaker 1: Those two scourged in the workforce, those marginalized. So all 415 00:22:02,800 --> 00:22:06,440 Speaker 1: of the factors that had been very, very bad earlier 416 00:22:06,440 --> 00:22:09,560 Speaker 1: in the expansion are slowly not as fast as we like, 417 00:22:09,960 --> 00:22:12,879 Speaker 1: but slowly getting better. We're slowly whittling away. The question 418 00:22:12,920 --> 00:22:15,120 Speaker 1: is how far can we go. I'm hoping to see 419 00:22:15,119 --> 00:22:18,200 Speaker 1: wage gains at two point hold at two percent from 420 00:22:18,240 --> 00:22:20,159 Speaker 1: a year ago. The federal of thumb is that we 421 00:22:20,160 --> 00:22:24,080 Speaker 1: need three percent sustained wage growth to see sustained inflation 422 00:22:24,119 --> 00:22:26,400 Speaker 1: at two percent. We also know if that is now 423 00:22:26,440 --> 00:22:29,919 Speaker 1: thinking about raising dead inflation target of two percent, so 424 00:22:29,960 --> 00:22:32,280 Speaker 1: we can allow them catch up and maybe include more 425 00:22:32,280 --> 00:22:36,200 Speaker 1: people in this labor market recovering. Diane, I, it's a chart, 426 00:22:36,240 --> 00:22:39,240 Speaker 1: you know. I've taken claims which just came out, and 427 00:22:39,280 --> 00:22:41,560 Speaker 1: I compare it to the number employed, and I take 428 00:22:41,560 --> 00:22:45,959 Speaker 1: it back to Lyndon Baines Johnson. It is an absolutely 429 00:22:46,000 --> 00:22:50,880 Speaker 1: extraordinary chart of two America's. We spend all our time 430 00:22:50,960 --> 00:22:54,520 Speaker 1: on the gloom of an unemployed America. James Diamond of 431 00:22:54,600 --> 00:22:58,879 Speaker 1: JP Morgan, with that fabulous annual report looking at labor participation, 432 00:22:58,920 --> 00:23:04,200 Speaker 1: et cetera, help me with the good America, the employed America. 433 00:23:04,680 --> 00:23:09,680 Speaker 1: Those claims numbers tell me it's incredibly tight for employers 434 00:23:10,280 --> 00:23:14,119 Speaker 1: to get new people to work. Is that true? You 435 00:23:14,160 --> 00:23:16,720 Speaker 1: know it is? And it really gets to Jamie's letter. 436 00:23:16,760 --> 00:23:18,399 Speaker 1: And I read Jamie's letter as well. I used to 437 00:23:18,440 --> 00:23:20,359 Speaker 1: work for Jamie. I think very highly of them, but 438 00:23:20,480 --> 00:23:22,119 Speaker 1: I think, you know, to the letter and to the 439 00:23:22,160 --> 00:23:25,480 Speaker 1: point here is there is two Americas. There's urban America 440 00:23:25,600 --> 00:23:28,840 Speaker 1: and now reaching out into some suburbs it's broadening, and 441 00:23:28,880 --> 00:23:33,200 Speaker 1: then there's rural America. And when Jamie talked about those 442 00:23:33,200 --> 00:23:35,880 Speaker 1: who are sort of disenfranchised, he's talked about the ten 443 00:23:35,920 --> 00:23:38,880 Speaker 1: million workers that if we raise labor force participation rate 444 00:23:38,920 --> 00:23:41,840 Speaker 1: for prime age men, they could come back. But fifty 445 00:23:41,880 --> 00:23:45,119 Speaker 1: seven percent of those workers are on disability. Less than 446 00:23:45,200 --> 00:23:48,600 Speaker 1: one percent of people on disability ever come back, and 447 00:23:48,640 --> 00:23:52,040 Speaker 1: we know that many of those workers opted into destability 448 00:23:52,160 --> 00:23:55,040 Speaker 1: may be stretched on their reasons for disability because there 449 00:23:55,119 --> 00:23:57,760 Speaker 1: is no other safety net. The problem is in doing that, 450 00:23:58,000 --> 00:24:00,480 Speaker 1: it's hard to ever get them back into the lay force. 451 00:24:00,800 --> 00:24:03,479 Speaker 1: We also know that in urban areas there has been 452 00:24:03,480 --> 00:24:07,040 Speaker 1: a move. Last year was a remarkable first step towards 453 00:24:07,040 --> 00:24:10,200 Speaker 1: something more normal. We moved from just urban hotspots to 454 00:24:10,280 --> 00:24:14,680 Speaker 1: people doing better in metro suburban areas as well, going 455 00:24:14,760 --> 00:24:17,000 Speaker 1: further out into the suburbs to look not just the 456 00:24:17,119 --> 00:24:19,480 Speaker 1: urban center. Turns out millennials are willing to move out 457 00:24:19,520 --> 00:24:23,000 Speaker 1: to the suburbs when gas prices are lower and when 458 00:24:23,000 --> 00:24:26,720 Speaker 1: it's really expensive in the urban core. Also, employers are 459 00:24:26,760 --> 00:24:30,119 Speaker 1: now starting to look at less expensive areas. This is 460 00:24:30,240 --> 00:24:33,359 Speaker 1: what we need is a long expansion is one of 461 00:24:33,400 --> 00:24:35,399 Speaker 1: the things we can hope for the most to finally 462 00:24:35,480 --> 00:24:39,199 Speaker 1: spreading some of those gains at Athenian very urban areas 463 00:24:39,240 --> 00:24:41,760 Speaker 1: to more suburban and what we really hope is to 464 00:24:41,800 --> 00:24:44,800 Speaker 1: reach into those rural areas where vicious cycle and poverty 465 00:24:44,840 --> 00:24:47,280 Speaker 1: has erupted. Let's come back with Diane Swank. Let's tay 466 00:24:47,359 --> 00:24:49,600 Speaker 1: before the job take. We've been so busy, David, and 467 00:24:49,640 --> 00:24:52,080 Speaker 1: a week that wasn't supposed to be busy. I barely 468 00:24:52,119 --> 00:24:56,000 Speaker 1: focused on jobs. I'm glad you brought up those questions. Good. Yeah, 469 00:24:56,040 --> 00:24:59,199 Speaker 1: And and we have the usual cast of characters we 470 00:24:59,240 --> 00:25:03,680 Speaker 1: do to diminish what they are got Ellen Zender, Alan Krueger, 471 00:25:03,760 --> 00:25:06,119 Speaker 1: James Glassman, of course, said Bill Gross with this tomorrow, 472 00:25:06,320 --> 00:25:08,680 Speaker 1: I got Goose, I got I got Michael Barr, I've 473 00:25:08,680 --> 00:25:11,679 Speaker 1: got surveillance goose bumps right now. I mean, that's what 474 00:25:11,760 --> 00:25:14,960 Speaker 1: a line up, Ellen Endran Stanley, That's how I feel 475 00:25:14,960 --> 00:25:18,800 Speaker 1: when I'm sitting there. Please no, But it's just great. 476 00:25:18,840 --> 00:25:20,240 Speaker 1: I mean, I mean, this is why we get up. 477 00:25:22,320 --> 00:25:25,600 Speaker 1: He gets a free cup of coffee, It's why we 478 00:25:25,640 --> 00:25:27,040 Speaker 1: get up and do this. I mean, it's just a 479 00:25:27,040 --> 00:25:29,359 Speaker 1: great list. Tomorrow we're gonna continue on Diane Swung. I 480 00:25:29,400 --> 00:25:32,640 Speaker 1: want to talk to her. She's got visceral, visceral knowledge 481 00:25:32,640 --> 00:25:35,439 Speaker 1: of the American auto industry. She has like eight degrees 482 00:25:35,480 --> 00:25:39,280 Speaker 1: from Michigan I she bleeds blue. I mean's embarrassed, not 483 00:25:39,400 --> 00:25:45,840 Speaker 1: that you would understand. David really important voice on our 484 00:25:45,880 --> 00:25:49,520 Speaker 1: manufacturing industry. Diane, tell me about your ute in the 485 00:25:49,600 --> 00:25:53,840 Speaker 1: auto industry. What was it like being a child of 486 00:25:53,920 --> 00:26:02,080 Speaker 1: Michigan un You can write a book about it, Um, 487 00:26:02,119 --> 00:26:04,639 Speaker 1: it was. Actually the hardest part was growing up and 488 00:26:04,720 --> 00:26:08,200 Speaker 1: seeing the industry that my father thought was his dream 489 00:26:08,280 --> 00:26:12,960 Speaker 1: dine and watching my friends parents lose jobs, even as 490 00:26:13,000 --> 00:26:14,919 Speaker 1: my father still had a job and we had a 491 00:26:14,920 --> 00:26:17,280 Speaker 1: new car and they didn't, And that was a really 492 00:26:17,280 --> 00:26:20,560 Speaker 1: really hard reality to live with. One of the hardest 493 00:26:20,560 --> 00:26:23,040 Speaker 1: realities is when I had to, UM watch my father 494 00:26:23,240 --> 00:26:26,600 Speaker 1: drive all of the cars that GM made, rather than 495 00:26:26,720 --> 00:26:28,800 Speaker 1: just the nice ones, and he realized just how bad 496 00:26:28,840 --> 00:26:31,919 Speaker 1: a lot of them were back in the nine And 497 00:26:32,000 --> 00:26:35,119 Speaker 1: that is, folks, singularly, why Diane Swark joins us as 498 00:26:35,200 --> 00:26:38,520 Speaker 1: often as we can get around drag us forward to 499 00:26:38,560 --> 00:26:43,520 Speaker 1: the modern auto industry. Would your father know it? Uh? Yeah, 500 00:26:43,640 --> 00:26:45,760 Speaker 1: you know because he actually my dad was at the 501 00:26:45,760 --> 00:26:49,120 Speaker 1: cutting edge of technology, so he would know it extremely well. 502 00:26:49,160 --> 00:26:51,320 Speaker 1: One of the things that really happened when we started 503 00:26:51,359 --> 00:26:54,320 Speaker 1: to do UM just in time inventories and removed a 504 00:26:54,320 --> 00:26:58,239 Speaker 1: lot of inventories, of stacks of inventories from production on 505 00:26:58,320 --> 00:27:01,400 Speaker 1: these plant lots, and not only did machinery do things 506 00:27:01,480 --> 00:27:04,160 Speaker 1: more accurately than some of the people on the line 507 00:27:04,200 --> 00:27:07,040 Speaker 1: did um and repeatedly do it, do it more accurately 508 00:27:07,359 --> 00:27:10,560 Speaker 1: and also eliminated the ability to literally hide cars that 509 00:27:10,640 --> 00:27:14,000 Speaker 1: were made poorly underneath stacks of inventory. This really happened. 510 00:27:14,000 --> 00:27:16,480 Speaker 1: My father used to go out on expeditions when he 511 00:27:16,560 --> 00:27:20,600 Speaker 1: was young, onto the vehicle plans to look under stacks 512 00:27:20,640 --> 00:27:22,920 Speaker 1: of inventories to find the cars that were supposed to 513 00:27:22,960 --> 00:27:25,240 Speaker 1: have shown up off the production line. It didn't and 514 00:27:25,320 --> 00:27:27,919 Speaker 1: that we're really bad. So you know, we have to 515 00:27:27,960 --> 00:27:31,560 Speaker 1: also take into account the increases in quality. Output of 516 00:27:31,760 --> 00:27:34,280 Speaker 1: auto manufacturing. Is a share of the total is near 517 00:27:34,280 --> 00:27:36,800 Speaker 1: its peak in the US of what it was back 518 00:27:36,800 --> 00:27:39,600 Speaker 1: in the nineteen seventies. It's just to share of people 519 00:27:39,680 --> 00:27:42,280 Speaker 1: working in that industry is no longer what it once was, 520 00:27:42,600 --> 00:27:45,199 Speaker 1: and the qualifications to be able to work in the 521 00:27:45,280 --> 00:27:47,640 Speaker 1: industry are no longer what they once were. You need 522 00:27:47,680 --> 00:27:49,760 Speaker 1: to be able to work with computers, you need to 523 00:27:49,800 --> 00:27:53,879 Speaker 1: be able to fix very complex and computer electronics to 524 00:27:54,000 --> 00:27:56,919 Speaker 1: work in a vehicle plant. And there's many fewer people 525 00:27:56,920 --> 00:27:59,960 Speaker 1: in a vehicle plant. There's also fewer injuries. I saw 526 00:28:00,080 --> 00:28:02,560 Speaker 1: walked a lot of vehicle plants in my life, and 527 00:28:02,800 --> 00:28:05,560 Speaker 1: how dirty a plant was back in the nineteen seventies 528 00:28:05,640 --> 00:28:08,960 Speaker 1: versus today, how spotless they are and how few injuries 529 00:28:08,960 --> 00:28:12,840 Speaker 1: people get is really a phenomenal change. Then, let me 530 00:28:12,840 --> 00:28:14,440 Speaker 1: ask you. We had a conversation a couple of days 531 00:28:14,440 --> 00:28:16,760 Speaker 1: ago with Chris Repki of m efter Union Bank. We 532 00:28:16,840 --> 00:28:18,960 Speaker 1: were talking about the I s M manufacturing data that 533 00:28:19,080 --> 00:28:21,560 Speaker 1: come out, and he had a lot of optimism about 534 00:28:21,560 --> 00:28:23,359 Speaker 1: what that might mean for the job support we're going 535 00:28:23,400 --> 00:28:25,520 Speaker 1: to get tomorrow. He seems very optimistic that we're going 536 00:28:25,520 --> 00:28:28,720 Speaker 1: to see manufacturers hiring more. Do you see the same 537 00:28:28,720 --> 00:28:31,240 Speaker 1: connective tissue there between these these two sets of data 538 00:28:31,960 --> 00:28:33,800 Speaker 1: we do have. I mean, we have over three D 539 00:28:34,160 --> 00:28:36,760 Speaker 1: jobs and manufacturing sector that are unfilled the same as 540 00:28:36,800 --> 00:28:39,600 Speaker 1: two thousand and seven. Because of a skills gap, We've 541 00:28:39,600 --> 00:28:41,800 Speaker 1: been unable to fill those jobs, and so now we're 542 00:28:41,800 --> 00:28:44,680 Speaker 1: starting to train workers and create a pipeline. It's easier 543 00:28:44,760 --> 00:28:47,240 Speaker 1: to do in the manufacturing sector than it is someplace 544 00:28:47,320 --> 00:28:50,640 Speaker 1: like carpenters, which is a much more disperse kind of 545 00:28:51,040 --> 00:28:54,120 Speaker 1: population of workers that said, yes, I do think we'll 546 00:28:54,160 --> 00:28:58,280 Speaker 1: see strong manufacturing, but off of what level manufacturing peaked 547 00:28:58,320 --> 00:29:00,600 Speaker 1: as a share of employment in the West at over 548 00:29:01,800 --> 00:29:04,480 Speaker 1: it's running eight percent today. It will never go back 549 00:29:04,880 --> 00:29:08,400 Speaker 1: to because of the productivity gains we've seen, and I 550 00:29:08,440 --> 00:29:10,960 Speaker 1: think the training and the different kind of job that 551 00:29:11,000 --> 00:29:13,800 Speaker 1: we have today is very different, and it still can't 552 00:29:13,840 --> 00:29:17,760 Speaker 1: employ a mass number of unskilled workers. So the thought 553 00:29:17,800 --> 00:29:19,480 Speaker 1: that it can go back and do that is just 554 00:29:19,720 --> 00:29:22,840 Speaker 1: a falsehood. But then, do we need a public policy 555 00:29:22,880 --> 00:29:26,000 Speaker 1: a little Switzerland, even if it's federal alone, or it's 556 00:29:26,040 --> 00:29:29,720 Speaker 1: federal policy devolved at the state level, the county level, 557 00:29:29,960 --> 00:29:34,240 Speaker 1: the Lansing, Michigan level. Do we need a policy. We 558 00:29:34,280 --> 00:29:36,520 Speaker 1: need a policy, but it's not just manufacturing. I think 559 00:29:36,520 --> 00:29:39,000 Speaker 1: it's easier for manufacturers to actually hook up with a 560 00:29:39,120 --> 00:29:43,160 Speaker 1: local UH community college because in fact, they do have 561 00:29:43,240 --> 00:29:45,959 Speaker 1: enough volume of workers to train and to pay for 562 00:29:46,040 --> 00:29:48,800 Speaker 1: it and to make it economically feasible for both the 563 00:29:48,840 --> 00:29:51,520 Speaker 1: public private sector partnership to get these workers trained in 564 00:29:51,520 --> 00:29:53,680 Speaker 1: into the pipeline. I actually have seen that even in 565 00:29:53,720 --> 00:29:56,040 Speaker 1: the most rule of communities where people said people don't 566 00:29:56,040 --> 00:29:59,080 Speaker 1: have skills, they do and they can be trained it's 567 00:29:59,200 --> 00:30:02,239 Speaker 1: much harder for something like construction workers, where you've got 568 00:30:02,240 --> 00:30:05,640 Speaker 1: a lot of individual builders, you can't and even people 569 00:30:05,640 --> 00:30:10,240 Speaker 1: who repair say, um trucks and different kinds of machinery, 570 00:30:10,440 --> 00:30:13,400 Speaker 1: there's a smaller population of them. There's not enough critical 571 00:30:13,480 --> 00:30:16,360 Speaker 1: mass for these community college to take on the job 572 00:30:16,400 --> 00:30:19,160 Speaker 1: of training those workers. And that's where the gaps are 573 00:30:19,360 --> 00:30:22,480 Speaker 1: when they talk about apprenticeships and things like that. What 574 00:30:22,600 --> 00:30:26,400 Speaker 1: sounds nice in theory, in reality executing that it does 575 00:30:26,520 --> 00:30:30,040 Speaker 1: need help from a very macro level that we're not 576 00:30:30,160 --> 00:30:34,000 Speaker 1: seen and we've never really seen in this country. Diane, 577 00:30:34,000 --> 00:30:36,160 Speaker 1: How is all that's been happening or not happening in 578 00:30:36,160 --> 00:30:38,480 Speaker 1: Washington going to be reflected in the jobs report tomorrow? 579 00:30:38,480 --> 00:30:41,000 Speaker 1: I think about the debate over changes to the Affordable 580 00:30:41,000 --> 00:30:43,480 Speaker 1: Care Act. I think about the prospects for tax reform 581 00:30:43,560 --> 00:30:45,960 Speaker 1: when indeed that happens, If it does, are we going 582 00:30:46,000 --> 00:30:49,040 Speaker 1: to see that reflected in the data that we get tomorrow. Well, 583 00:30:49,040 --> 00:30:51,040 Speaker 1: what we're going to be watching closely for is, in 584 00:30:51,080 --> 00:30:54,040 Speaker 1: addition to these weather related you know, sort of bumps 585 00:30:54,080 --> 00:30:56,200 Speaker 1: in the road that could be there, you know that 586 00:30:56,360 --> 00:30:59,880 Speaker 1: there's the significance on these numbers is a hundred thous 587 00:31:00,000 --> 00:31:01,760 Speaker 1: and plus our minus. So it's a roll of the 588 00:31:01,800 --> 00:31:04,480 Speaker 1: dice that said, what are the things we're worried about. Well, 589 00:31:04,520 --> 00:31:06,920 Speaker 1: there is a federal hiring freeze, and there's twelve hundred 590 00:31:07,320 --> 00:31:10,080 Speaker 1: um presidential appointees that have yet to be even named, 591 00:31:10,160 --> 00:31:14,000 Speaker 1: let alone appointed. So those two things could lower federal hiring. 592 00:31:14,240 --> 00:31:16,720 Speaker 1: And there's an enormous amount of attrition at the federal level. 593 00:31:16,800 --> 00:31:19,280 Speaker 1: These are older workers, bureaucrats who are retiring out, and 594 00:31:19,320 --> 00:31:22,320 Speaker 1: morale is low in Washington, let's face it, and they 595 00:31:22,320 --> 00:31:24,720 Speaker 1: know that there's budget cuts coming. So we're gonna watch 596 00:31:24,800 --> 00:31:28,080 Speaker 1: that federal number. Also uncertainty about the Affordable Care Act. 597 00:31:28,400 --> 00:31:31,520 Speaker 1: Hiring in the healthcare industry had been very robust, particularly 598 00:31:31,520 --> 00:31:34,560 Speaker 1: in the areas most affected by the Affordable Care Act. 599 00:31:34,760 --> 00:31:37,360 Speaker 1: We've yet to see us slow down there, but anecdotally 600 00:31:37,600 --> 00:31:40,080 Speaker 1: we've been hearing some pull back. The other area, we're 601 00:31:40,080 --> 00:31:43,560 Speaker 1: going to be watching immigrants, everything from leisure and hospitality, 602 00:31:43,560 --> 00:31:46,440 Speaker 1: where immigrants play an outsized role in hiring. They have 603 00:31:46,520 --> 00:31:48,680 Speaker 1: not been showing up for work because of fears of 604 00:31:48,720 --> 00:31:53,400 Speaker 1: deportation and tourism itself. We've seen many large players complain 605 00:31:53,480 --> 00:31:56,360 Speaker 1: that tourism from abroad because of increased betting at the 606 00:31:56,400 --> 00:32:00,000 Speaker 1: airports has slowed down tourism and there's actually been some boycotts. 607 00:32:00,240 --> 00:32:02,360 Speaker 1: So those are the things we'll be looking for. On 608 00:32:02,440 --> 00:32:05,320 Speaker 1: a secular level, we're still waiting for that other shooter 609 00:32:05,400 --> 00:32:07,960 Speaker 1: drop in retail, the move from bricks to clicks, how 610 00:32:08,040 --> 00:32:10,640 Speaker 1: we shop and how what kind of model of what 611 00:32:10,800 --> 00:32:13,080 Speaker 1: it really means to be a retailer in this economy. 612 00:32:13,320 --> 00:32:16,360 Speaker 1: Even though we're spending money that is still going to 613 00:32:16,440 --> 00:32:18,880 Speaker 1: be affecting. Retail is one of the largest employers in 614 00:32:18,880 --> 00:32:20,640 Speaker 1: the country and that's going to be a big effect 615 00:32:20,640 --> 00:32:23,360 Speaker 1: on how the job numbers go out going forward. Sank, 616 00:32:23,440 --> 00:32:27,480 Speaker 1: thank you so much, particularly those comments on Michigan. In 617 00:32:27,560 --> 00:32:43,800 Speaker 1: your childhood she has was Dan Swank economics are he 618 00:32:43,920 --> 00:32:48,560 Speaker 1: is a tenth ambassador to China. Just simply that Gary 619 00:32:48,640 --> 00:32:51,800 Speaker 1: Locke the former ambassador to China, and it is the 620 00:32:51,920 --> 00:32:55,600 Speaker 1: most uh and good time to speak to uh. Gary, 621 00:32:55,640 --> 00:32:59,000 Speaker 1: like Gary, wonderful to speak to you, Ambassador. What was 622 00:32:59,040 --> 00:33:03,800 Speaker 1: it like your first day on the Watch invasion. Well, 623 00:33:04,240 --> 00:33:07,760 Speaker 1: it was quite a head of experience. I mean we 624 00:33:07,760 --> 00:33:12,320 Speaker 1: were received with great fanfare and and very very warm 625 00:33:12,360 --> 00:33:15,440 Speaker 1: welcome by both the Chinese people, the Chinese government and 626 00:33:15,480 --> 00:33:18,600 Speaker 1: also the employees of the embassy, and we had a 627 00:33:18,640 --> 00:33:20,520 Speaker 1: big job ahead of us. At that time. We were 628 00:33:20,560 --> 00:33:23,800 Speaker 1: really trying to increase the sale of American made goods 629 00:33:23,800 --> 00:33:27,000 Speaker 1: and services exports, because it is our belief that the 630 00:33:27,040 --> 00:33:30,200 Speaker 1: more US companies exported to China, the more they produced, 631 00:33:30,240 --> 00:33:32,280 Speaker 1: the more they produce, more workers they need, and that 632 00:33:32,320 --> 00:33:36,160 Speaker 1: means good paying jobs. Some people can talk about this, 633 00:33:36,800 --> 00:33:40,920 Speaker 1: others lived it. You lived at third generation Chinese. Your 634 00:33:40,960 --> 00:33:45,320 Speaker 1: father served in World War Two, Uh, your grandparents, and 635 00:33:45,520 --> 00:33:48,200 Speaker 1: you didn't speak English un til you went to kindergarten. 636 00:33:48,280 --> 00:33:52,280 Speaker 1: Is that true? That's about right, Uh, preschool and kindergartens 637 00:33:52,280 --> 00:33:54,120 Speaker 1: when I really learned English at the same time that 638 00:33:54,200 --> 00:33:56,800 Speaker 1: my mom was learning English to become a United States citizen. 639 00:33:56,840 --> 00:34:01,080 Speaker 1: And we remember that she was officially UH sworn in 640 00:34:01,120 --> 00:34:03,560 Speaker 1: as a citizen on fourth of July. What do you 641 00:34:03,640 --> 00:34:08,560 Speaker 1: need Americans to understand then about the modern Chinese experience 642 00:34:08,560 --> 00:34:12,239 Speaker 1: in the relationship of the President of China to the 643 00:34:12,360 --> 00:34:18,719 Speaker 1: Chinese Americans. Well, China has a great deal of nationalism 644 00:34:18,760 --> 00:34:21,680 Speaker 1: and great pride in its country, and they feel that 645 00:34:21,800 --> 00:34:25,719 Speaker 1: in the mid eighteen hundreds, and they were stunted UH 646 00:34:25,760 --> 00:34:31,000 Speaker 1: and subjugated and and basically colonized UH and abused by 647 00:34:31,000 --> 00:34:34,120 Speaker 1: the Western powers. UH, and so they have this big 648 00:34:34,160 --> 00:34:36,520 Speaker 1: and almost chip on their shoulder, and they really tried 649 00:34:36,560 --> 00:34:40,800 Speaker 1: to overcome that. Now, part of those UH stagnation and 650 00:34:40,840 --> 00:34:42,719 Speaker 1: the backwardness of China was also due to some of 651 00:34:42,719 --> 00:34:44,839 Speaker 1: the policies of the Chinese rulers. And then of course 652 00:34:44,880 --> 00:34:49,040 Speaker 1: there was a civil war between the Nationalist and the 653 00:34:49,080 --> 00:34:52,239 Speaker 1: Communist and the Communists took over nineteen forty nine. But 654 00:34:52,360 --> 00:34:55,600 Speaker 1: they have been on a tear on the mission to 655 00:34:55,680 --> 00:34:58,839 Speaker 1: try to catch up and regain their what they feel 656 00:34:58,840 --> 00:35:03,360 Speaker 1: as their rightful place in history. With all the modernization 657 00:35:03,480 --> 00:35:05,760 Speaker 1: that's gone on in the last just a few decades, 658 00:35:05,800 --> 00:35:08,960 Speaker 1: I mean, hundreds and hundreds of millions of Chinese people 659 00:35:08,960 --> 00:35:12,479 Speaker 1: have been lifted out of poverty UH. And China now 660 00:35:12,640 --> 00:35:14,960 Speaker 1: is perhaps one of the most modern countries, and it's 661 00:35:15,000 --> 00:35:19,080 Speaker 1: the most dramatic transformation the world has ever seen. And 662 00:35:19,120 --> 00:35:22,080 Speaker 1: so they're really trying to catch up and UH. And 663 00:35:22,120 --> 00:35:24,600 Speaker 1: in fact now they're the second largest economy in the world, 664 00:35:24,719 --> 00:35:28,399 Speaker 1: and so they have enormous challenges still UH. And so 665 00:35:28,520 --> 00:35:32,759 Speaker 1: they they feel that they're on a path to continue 666 00:35:32,960 --> 00:35:36,520 Speaker 1: to regain their glory and to assert their dominance and 667 00:35:36,560 --> 00:35:40,360 Speaker 1: their their glory, and so they're gonna approach the United 668 00:35:40,400 --> 00:35:44,480 Speaker 1: States in their eyes as as an equal bastard. Luck 669 00:35:44,760 --> 00:35:46,720 Speaker 1: we have the White House saying they want to preserve 670 00:35:46,800 --> 00:35:49,640 Speaker 1: some spontaneity at this twenty four hour meeting that they're 671 00:35:49,640 --> 00:35:51,719 Speaker 1: going to have it at mar Lago. I've been to 672 00:35:51,760 --> 00:35:54,359 Speaker 1: the Strategic and Economic Dialogue in Beijing, and I must 673 00:35:54,400 --> 00:35:56,240 Speaker 1: say I didn't detect much in the way of spotan 674 00:35:56,320 --> 00:35:58,640 Speaker 1: eighty at an event like that one. You've been at 675 00:35:58,680 --> 00:36:01,879 Speaker 1: many of these meetings with with Chinese officials. How hard 676 00:36:01,960 --> 00:36:04,200 Speaker 1: is it going to be to have an informal give 677 00:36:04,239 --> 00:36:07,560 Speaker 1: and take with the Chinese leadership depends on how they 678 00:36:07,600 --> 00:36:11,399 Speaker 1: set the framework. I mean, even if they take long walks, uh, 679 00:36:11,480 --> 00:36:14,160 Speaker 1: you know, the Chinese have their points. The Chinese leader 680 00:36:14,160 --> 00:36:17,040 Speaker 1: will have their points that people want to reiterate and 681 00:36:17,040 --> 00:36:21,480 Speaker 1: and express. I'm sure President Trump will do the same. Now, 682 00:36:21,719 --> 00:36:25,000 Speaker 1: given the personality President Trump, he's not one to be scripted, 683 00:36:25,040 --> 00:36:28,280 Speaker 1: and so I'm sure that the Chinese are are prepared 684 00:36:28,320 --> 00:36:31,600 Speaker 1: for that. I think that as long as they're not 685 00:36:31,640 --> 00:36:34,720 Speaker 1: sitting at a table across from each other with notes 686 00:36:34,920 --> 00:36:37,520 Speaker 1: in front of them, because you know what these meetings 687 00:36:37,520 --> 00:36:39,319 Speaker 1: and all the all the sides do is really just 688 00:36:39,400 --> 00:36:42,080 Speaker 1: read from their own notes and not even really listen 689 00:36:42,160 --> 00:36:44,319 Speaker 1: to the other side. They're almost talking past each other 690 00:36:44,360 --> 00:36:47,920 Speaker 1: and just reiterating their points and if someone if one 691 00:36:47,920 --> 00:36:50,560 Speaker 1: side raises a point, they have their stock response, and 692 00:36:50,600 --> 00:36:52,799 Speaker 1: so there's not real give and take. And let's hope 693 00:36:52,800 --> 00:36:56,640 Speaker 1: that that this will happen. It happened to a degree 694 00:36:56,840 --> 00:36:59,960 Speaker 1: with President Obama when they have that visit in California 695 00:37:00,000 --> 00:37:03,480 Speaker 1: and they were taking those long well on the Republican 696 00:37:03,560 --> 00:37:06,239 Speaker 1: side of it, I mean, I mean, Henry Paulson, as 697 00:37:06,280 --> 00:37:10,880 Speaker 1: Secretary of the Treasury was hugely pro dialogue with China, 698 00:37:10,920 --> 00:37:14,279 Speaker 1: I think more than anyone maybe uh you know, within 699 00:37:14,280 --> 00:37:18,400 Speaker 1: the Republican administrations. He had continued to advance the dialogue. 700 00:37:18,600 --> 00:37:20,840 Speaker 1: Let's just pick a topic. How about the border tax, 701 00:37:20,960 --> 00:37:24,840 Speaker 1: which is which is you know, discussed with Mexico. But 702 00:37:24,920 --> 00:37:28,759 Speaker 1: in my right ambassador that in import tax like a 703 00:37:28,840 --> 00:37:33,759 Speaker 1: border tax, would directly affect China. Well, of course, so 704 00:37:33,840 --> 00:37:36,080 Speaker 1: that will raise the price of Chinese goods. It will 705 00:37:36,120 --> 00:37:38,920 Speaker 1: also mean that these goods are much more expensive to 706 00:37:39,040 --> 00:37:42,080 Speaker 1: American consumers, which is why many people even on the 707 00:37:42,080 --> 00:37:44,400 Speaker 1: Republican side are opposed to it because it's going to 708 00:37:44,520 --> 00:37:48,400 Speaker 1: hit directly hit the pocketbooks of Americans when when you 709 00:37:48,440 --> 00:37:52,799 Speaker 1: buy products, whether it's microwave ovens, electronics, whether it's clothes 710 00:37:52,920 --> 00:37:57,799 Speaker 1: or shoes or games, iPhones, you name it. Uh, that's 711 00:37:57,840 --> 00:38:01,200 Speaker 1: gonna cost Americans more, which means they have less disposable 712 00:38:01,239 --> 00:38:06,960 Speaker 1: income for college education, medical care or college or just retirement. 713 00:38:07,200 --> 00:38:10,440 Speaker 1: But the point is that China will retaliate. China can 714 00:38:10,480 --> 00:38:15,680 Speaker 1: also impose attacks on US goods, and uh, the Chinese 715 00:38:15,680 --> 00:38:18,120 Speaker 1: people don't have to buy those American goods. I mean 716 00:38:18,480 --> 00:38:21,440 Speaker 1: they really like it. It's in great demand. And especially 717 00:38:21,480 --> 00:38:24,880 Speaker 1: like Bowing, where all Bowing airplanes are sold to China, 718 00:38:25,640 --> 00:38:29,080 Speaker 1: the Chinese airlines can easily buy Airbus. You will have 719 00:38:29,120 --> 00:38:32,080 Speaker 1: a dramatic impact on American jobs as well. And we 720 00:38:32,120 --> 00:38:36,319 Speaker 1: spoke to Airbus America's senior executive the other day. Ambassador, 721 00:38:36,360 --> 00:38:38,640 Speaker 1: We're going to have you back to continue this discussion. 722 00:38:39,000 --> 00:38:42,920 Speaker 1: Help me here with the idea of your watch in Beijing. 723 00:38:43,040 --> 00:38:49,879 Speaker 1: Did you observe the Chinese ever quote unquote retaliate. Oh? Yeah, 724 00:38:49,960 --> 00:38:56,080 Speaker 1: we saw various trade moves. Um. For instance, when we 725 00:38:56,480 --> 00:39:00,640 Speaker 1: America found that they were improperly illegally subsidizing as industries 726 00:39:00,719 --> 00:39:03,000 Speaker 1: or some of their industries were selling goods at below 727 00:39:03,120 --> 00:39:08,959 Speaker 1: normal normal cost. They were subjected to tariffs and penalties 728 00:39:09,760 --> 00:39:12,920 Speaker 1: by the US government, which is accordance to with our laws, 729 00:39:13,000 --> 00:39:15,359 Speaker 1: and we treat everyone fairly whether the goods are coming 730 00:39:15,360 --> 00:39:19,719 Speaker 1: from Mexico, France, or Canada or China. But the Chinese 731 00:39:19,719 --> 00:39:24,000 Speaker 1: would inevitably find another product from America and slap a 732 00:39:24,040 --> 00:39:29,239 Speaker 1: tariff on that and UH basically stopped the export or 733 00:39:29,440 --> 00:39:32,320 Speaker 1: significantly reduced the export of those made in U s 734 00:39:32,400 --> 00:39:36,880 Speaker 1: a American made goods coming into China, and that affected 735 00:39:36,920 --> 00:39:40,000 Speaker 1: the job situation of many industries in America. A few 736 00:39:40,000 --> 00:39:43,000 Speaker 1: more questions of Ambassador law Gary Lock, of course, our 737 00:39:43,080 --> 00:39:46,640 Speaker 1: tenth United States Ambassador to China. Gary, let's take it 738 00:39:46,640 --> 00:39:48,759 Speaker 1: away from China with a breaking news that we have. 739 00:39:49,200 --> 00:39:52,440 Speaker 1: We're starting to see some real turmoil of personnel, not 740 00:39:52,560 --> 00:39:56,560 Speaker 1: only a president that has not filled positions in cabinet 741 00:39:57,200 --> 00:40:01,560 Speaker 1: divisions in Washington, but also people people going tell us 742 00:40:01,560 --> 00:40:07,120 Speaker 1: about what that uproar does to bureaucracy in Washington. Well, 743 00:40:07,239 --> 00:40:11,440 Speaker 1: you have a lot of um career people, UH, but 744 00:40:11,560 --> 00:40:14,600 Speaker 1: they have to be supervised and policy and themes and 745 00:40:15,480 --> 00:40:19,000 Speaker 1: priorities established by the political appointees. And when the president, 746 00:40:19,040 --> 00:40:21,440 Speaker 1: any president, does not have a full team in place, 747 00:40:22,080 --> 00:40:24,839 Speaker 1: then the bureaucracy is going to basically just kind of 748 00:40:25,200 --> 00:40:29,279 Speaker 1: hunker down and just do what's absolutely necessary. But in 749 00:40:29,400 --> 00:40:32,520 Speaker 1: these tough, tough issues, whether the Middle East, whether it's Russia, 750 00:40:32,640 --> 00:40:36,279 Speaker 1: whether it's obviously China and North Korea, you need as 751 00:40:36,320 --> 00:40:40,600 Speaker 1: many people uh and hands on deck to help formulate 752 00:40:40,680 --> 00:40:45,799 Speaker 1: the policy so that the bureaucracy can execute uh and uh, 753 00:40:45,840 --> 00:40:48,640 Speaker 1: it's uh. He needs to put his national security team 754 00:40:48,640 --> 00:40:51,319 Speaker 1: in place. He needs to have the people at the 755 00:40:51,360 --> 00:40:54,520 Speaker 1: State Department who are going to be guiding these policies 756 00:40:54,640 --> 00:40:57,480 Speaker 1: in place as quickly as possible. One more question if 757 00:40:57,480 --> 00:40:59,000 Speaker 1: we could quickly and then we have to move on 758 00:40:59,040 --> 00:41:01,799 Speaker 1: to the breaking news and Hingeston. Ambassador Locke, you are 759 00:41:01,880 --> 00:41:04,759 Speaker 1: governor of Washington State. Can you take credit for the 760 00:41:04,760 --> 00:41:08,480 Speaker 1: rebuilding of the Gonzaga basketball program? Are you gonna take 761 00:41:08,480 --> 00:41:12,759 Speaker 1: full credit for that? They got a great coach, they've 762 00:41:12,760 --> 00:41:16,120 Speaker 1: got a great administration, they've got a great student body, 763 00:41:16,560 --> 00:41:21,080 Speaker 1: and obviously great players and loyal, loyal fans. So I'm 764 00:41:21,080 --> 00:41:24,160 Speaker 1: pleased to be one of those fans, right wonderful Ambassador 765 00:41:24,239 --> 00:41:34,600 Speaker 1: and Governor. Thank you so much for joining us. Thanks 766 00:41:34,600 --> 00:41:39,040 Speaker 1: for listening to the Bloomberg Surveillance Podcast. Subscribe and listen 767 00:41:39,120 --> 00:41:44,440 Speaker 1: to interviews on iTunes, SoundCloud, or whichever podcast platform you prefer. 768 00:41:45,200 --> 00:41:48,080 Speaker 1: I'm out on Twitter at Tom Keene. David Gura is 769 00:41:48,200 --> 00:41:51,919 Speaker 1: at David Gura. Before the podcast, you can always catch 770 00:41:52,040 --> 00:42:08,000 Speaker 1: us worldwide. I'm Bloomberg Radio. Yeah. Brought you by Bank 771 00:42:08,040 --> 00:42:12,080 Speaker 1: of America Mary Lynch. Dedicated to bringing our clients insights 772 00:42:12,080 --> 00:42:15,720 Speaker 1: and solutions to meet the challenges of a transforming world. 773 00:42:16,200 --> 00:42:19,920 Speaker 1: That's the power of global connections. Mary Lynch, Pierce, Fenner 774 00:42:20,000 --> 00:42:23,480 Speaker 1: and Smith Incorporated, Member s I p C.