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 --> 00:00:08,000 Speaker 1: local communities, economies and a sustainable future. That's a 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 CEA. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:27,840 --> 00:00:31,520 Speaker 1: I'm Tom Keene with David Gura Dailey. 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 --> 00:00:49,360 Speaker 1: of course on the Bloomberg. Let's turn our eye now 9 00:00:49,440 --> 00:00:51,880 Speaker 1: to foreign affairs. I want to bring in our first guest, 10 00:00:51,920 --> 00:00:54,200 Speaker 1: Micah Zenko. He is a senior fellow at the Council 11 00:00:54,240 --> 00:00:57,000 Speaker 1: on Foreign Relations. Mica, thanks for joining us here here 12 00:00:57,000 --> 00:00:59,640 Speaker 1: in this beautiful morning Pierre Power Breakfast. We've got the 13 00:00:59,640 --> 00:01:02,720 Speaker 1: place all to ourselves. A lovely view across the park, 14 00:01:02,840 --> 00:01:05,560 Speaker 1: Central Park with the snowfalling. What do you think the 15 00:01:05,640 --> 00:01:09,520 Speaker 1: view is from China of the new Trump administration. We 16 00:01:09,720 --> 00:01:14,520 Speaker 1: learned that the President Donald Trump sent a letter rather 17 00:01:14,600 --> 00:01:18,200 Speaker 1: than a tweet, or rather than an actual phone call 18 00:01:18,560 --> 00:01:22,160 Speaker 1: to Chinese President Jijing Ping, and I believe the President 19 00:01:22,240 --> 00:01:24,920 Speaker 1: has spoken with a variety of foreign leaders. Why is 20 00:01:25,200 --> 00:01:28,000 Speaker 1: this the way he's communicating with China? But most importantly, 21 00:01:28,000 --> 00:01:30,560 Speaker 1: he's spoken by phone with the Taiwanese president before he 22 00:01:30,600 --> 00:01:34,160 Speaker 1: spoke by phone with the leader recognized political leader of China. 23 00:01:34,680 --> 00:01:37,520 Speaker 1: So it's hard to read the mindset of the individuals 24 00:01:37,560 --> 00:01:41,400 Speaker 1: in Beijing. But the contrasting messages from senior officials from 25 00:01:41,440 --> 00:01:45,319 Speaker 1: a president who makes the consistent claims of currency manipulation 26 00:01:45,319 --> 00:01:48,360 Speaker 1: and trade wars to a Secretary of State and a 27 00:01:48,400 --> 00:01:50,760 Speaker 1: White House spokesperson who has said that the United States 28 00:01:50,760 --> 00:01:53,960 Speaker 1: will prevent China from building on islands which it claims 29 00:01:53,960 --> 00:01:58,000 Speaker 1: it's there's essentially placing a naval blockade around them. So 30 00:01:58,120 --> 00:02:00,880 Speaker 1: if I'm the Chinese government, I still know what Trump 31 00:02:00,920 --> 00:02:02,720 Speaker 1: is serious about and what he means when he wants 32 00:02:02,720 --> 00:02:05,240 Speaker 1: to have a constructive quote relationship. Well, maybe they'll be 33 00:02:05,320 --> 00:02:08,200 Speaker 1: checking their Twitter account in order to get that information. 34 00:02:08,240 --> 00:02:10,400 Speaker 1: And I just want to give you information about Twitter. 35 00:02:10,520 --> 00:02:15,280 Speaker 1: Twitter coming in uh fourth a quarter adjusted earnings per 36 00:02:15,320 --> 00:02:18,960 Speaker 1: share of sixteen cents versus the estimate of twelve cents, 37 00:02:19,000 --> 00:02:23,079 Speaker 1: so a four cent beat and monthly users match estimates, 38 00:02:23,120 --> 00:02:25,720 Speaker 1: So a lot of people still using Twitter, but perhaps 39 00:02:26,040 --> 00:02:29,519 Speaker 1: not moving ahead I'm wondering if you could tell me, Mica, 40 00:02:29,760 --> 00:02:33,120 Speaker 1: is there a strategy that you can divine from the 41 00:02:33,160 --> 00:02:35,960 Speaker 1: actions of the Trump administration, because we know that China 42 00:02:36,200 --> 00:02:38,920 Speaker 1: is in the cross hairs when it comes to trade 43 00:02:38,960 --> 00:02:42,680 Speaker 1: but also when it comes to currency values. Sure. Well, 44 00:02:43,080 --> 00:02:46,200 Speaker 1: my my assessment is this administration is still very young. Uh. 45 00:02:47,840 --> 00:02:51,120 Speaker 1: Campaigns are consequence free events. You can say whatever you want, 46 00:02:51,200 --> 00:02:55,000 Speaker 1: but once you become the running the running the actual country, 47 00:02:55,360 --> 00:02:57,960 Speaker 1: you have to actually develop an implement policies. Right now, 48 00:02:58,000 --> 00:02:59,880 Speaker 1: we haven't seen any. We've seen a series of BLUs 49 00:03:00,000 --> 00:03:03,280 Speaker 1: there's to Iran that you're very non specific, telling them 50 00:03:03,280 --> 00:03:06,480 Speaker 1: their unnoticed uh, seemingly giving a pass about some of 51 00:03:06,560 --> 00:03:10,400 Speaker 1: russians aggressive actions in the Baltics, as well as its 52 00:03:10,440 --> 00:03:13,639 Speaker 1: inability to resolve it's military dispute in Crimea, and then 53 00:03:13,639 --> 00:03:16,160 Speaker 1: taking a hard line with China, but again not making 54 00:03:16,200 --> 00:03:20,200 Speaker 1: any specific demands on Chinese behavior. So, uh, the sense 55 00:03:20,200 --> 00:03:23,880 Speaker 1: that there's a strategy, which means a clear vision and 56 00:03:24,000 --> 00:03:27,560 Speaker 1: prioritized efforts to do so, there's nothing like that yet, 57 00:03:27,600 --> 00:03:29,560 Speaker 1: but that doesn't mean there won't be. This is early 58 00:03:29,600 --> 00:03:33,120 Speaker 1: stages now, the early stages also with the President and 59 00:03:33,240 --> 00:03:37,320 Speaker 1: the administration's relationship with the Russia and Europe. And I'm 60 00:03:37,320 --> 00:03:40,360 Speaker 1: wondering if you could just describe what is Vladimir Putin's 61 00:03:40,360 --> 00:03:43,920 Speaker 1: intention and how does that fit into what's going on 62 00:03:44,040 --> 00:03:46,880 Speaker 1: with the European Union. It seems as though he's being 63 00:03:46,920 --> 00:03:49,600 Speaker 1: successful at least in stirring the pot with Europe. Well, 64 00:03:49,640 --> 00:03:52,040 Speaker 1: if you were a chriminologist and you could read Vladimir 65 00:03:52,080 --> 00:03:54,280 Speaker 1: Putin's mind, you would do really well UH in the 66 00:03:54,320 --> 00:03:57,680 Speaker 1: currency markets, and you should have a job doing risk analysis, 67 00:03:57,680 --> 00:04:01,040 Speaker 1: because nobody's really quite known what Latim Reputin wants. The 68 00:04:01,040 --> 00:04:03,680 Speaker 1: one thing we do know from his behavior and statements 69 00:04:03,760 --> 00:04:07,120 Speaker 1: is he cares about the political outcomes in which Russia 70 00:04:07,160 --> 00:04:09,200 Speaker 1: has an interest, as lots of great powers do, as 71 00:04:09,240 --> 00:04:12,200 Speaker 1: the United States does in the Middle East, as China 72 00:04:12,280 --> 00:04:15,880 Speaker 1: does in East Asia. And it's his willingness to use 73 00:04:16,440 --> 00:04:21,960 Speaker 1: information influence UH, using military force at below the threshold 74 00:04:21,960 --> 00:04:26,160 Speaker 1: of actual conflict to have to influence outcomes in those states. 75 00:04:26,240 --> 00:04:29,400 Speaker 1: That's what's most destabilize them, to destabilize them, but also 76 00:04:29,520 --> 00:04:33,680 Speaker 1: to bring into bear political outcomes that are advantageous to him. 77 00:04:33,720 --> 00:04:36,440 Speaker 1: There are certain parties that the Russian government favors over others, 78 00:04:36,520 --> 00:04:39,200 Speaker 1: and they're very explicit about that. They're willing to funnel 79 00:04:39,240 --> 00:04:43,039 Speaker 1: money to resources to provide messaging through the Internet and 80 00:04:43,080 --> 00:04:46,800 Speaker 1: social media on behalf of them. And that has destabilized 81 00:04:46,800 --> 00:04:48,719 Speaker 1: a lot of European Union because it's doing it faster 82 00:04:48,839 --> 00:04:52,000 Speaker 1: and more successfully than any great power has done in 83 00:04:52,040 --> 00:04:55,360 Speaker 1: the past. Um, we're speaking with Micah Zenko. He is 84 00:04:55,400 --> 00:04:58,680 Speaker 1: a senior fellow at the Council on Foreign Relations. Were 85 00:04:58,680 --> 00:05:02,159 Speaker 1: coming to from the p Year Hotel, the Power Breakfast 86 00:05:02,200 --> 00:05:06,320 Speaker 1: at Perne and you know, Mica, as we look at 87 00:05:06,440 --> 00:05:10,560 Speaker 1: the future of policy, it's going to be a different Europe, right. 88 00:05:10,560 --> 00:05:13,480 Speaker 1: I mean, you have the UK leaving the European Union, 89 00:05:13,520 --> 00:05:16,120 Speaker 1: you have elections that are coming up in the Netherlands 90 00:05:16,120 --> 00:05:20,400 Speaker 1: and France and in Germany. Has Vladimir Putin, with the 91 00:05:20,440 --> 00:05:25,039 Speaker 1: maybe unintended help of President Trump, has he been able 92 00:05:25,080 --> 00:05:27,880 Speaker 1: to drive a wedge? And really, is it possible that 93 00:05:27,880 --> 00:05:31,120 Speaker 1: the European Union could fracture as a result of these pressures? Well, 94 00:05:31,320 --> 00:05:34,960 Speaker 1: any great power wants to fracture combined forces a rate 95 00:05:35,000 --> 00:05:37,080 Speaker 1: against them, or believes that there are a raid against 96 00:05:37,120 --> 00:05:39,600 Speaker 1: and well certainly perceives the rate against them. And as 97 00:05:39,640 --> 00:05:41,880 Speaker 1: stated that if you read Russian military doctrine, if you 98 00:05:41,920 --> 00:05:43,960 Speaker 1: read the statements of the Foreign Ministry, they believe the 99 00:05:43,960 --> 00:05:47,400 Speaker 1: European Union is actively looking to suppress and contain Russia. 100 00:05:47,520 --> 00:05:49,640 Speaker 1: That is their narrative. Okay, But having said see that's 101 00:05:49,680 --> 00:05:53,840 Speaker 1: interesting because having said that, you ask yourself if the 102 00:05:53,880 --> 00:05:57,640 Speaker 1: President Trump, throughout the campaign, it's one has disparaged the 103 00:05:57,680 --> 00:06:01,919 Speaker 1: defense spending of European nation. And if we take for 104 00:06:02,040 --> 00:06:04,880 Speaker 1: fact that maybe the European military coordination is not as 105 00:06:04,960 --> 00:06:08,440 Speaker 1: great as others the United States, then what is Vladiman 106 00:06:08,480 --> 00:06:11,279 Speaker 1: Putin really worried about? Is it's psychological and political to 107 00:06:11,360 --> 00:06:14,479 Speaker 1: deal with his own domestic issues or is there really something? 108 00:06:14,480 --> 00:06:18,279 Speaker 1: What kind of threat really does the European Union militarily pose? 109 00:06:19,440 --> 00:06:22,719 Speaker 1: Zero at the time being. But this is an old debate. 110 00:06:22,760 --> 00:06:25,240 Speaker 1: As you remember, President Eisenhower used to say, the Europeans 111 00:06:25,279 --> 00:06:27,800 Speaker 1: are playing Uncle Sam for Uncle Sucker. This is not 112 00:06:27,960 --> 00:06:31,559 Speaker 1: something new that President Defense and bring umber our defense 113 00:06:31,600 --> 00:06:35,599 Speaker 1: umbrella not spending adequate money. The difference is that under 114 00:06:35,839 --> 00:06:40,360 Speaker 1: a NATO informal agreement that Russia the European defensemanners spent 115 00:06:40,400 --> 00:06:43,080 Speaker 1: two of their GDP on defense, so only a handful 116 00:06:43,120 --> 00:06:45,400 Speaker 1: of them do the United States States spends about two 117 00:06:45,440 --> 00:06:48,039 Speaker 1: and a half to three pc. But what Trump is 118 00:06:48,040 --> 00:06:50,400 Speaker 1: saying is differently. He is claiming that he wants the 119 00:06:50,400 --> 00:06:54,400 Speaker 1: Europeans to reimburse the U S. Treasury for the U 120 00:06:54,480 --> 00:06:57,679 Speaker 1: S forces in Europe and for the mutual defense treaty 121 00:06:57,720 --> 00:07:00,320 Speaker 1: that we have with them. That's a significantly different thing. 122 00:07:00,400 --> 00:07:03,120 Speaker 1: And nobody in Europe is going to hand money to 123 00:07:03,160 --> 00:07:05,479 Speaker 1: the U S. Treasury on behalf of the U S 124 00:07:05,480 --> 00:07:08,280 Speaker 1: serving as a Heshian mercenary army for the Europeans. So 125 00:07:08,880 --> 00:07:12,560 Speaker 1: what Trump is worried about is the perceived efforts of 126 00:07:12,760 --> 00:07:18,040 Speaker 1: Western forces to destabilize the political outcomes in Georgia and Ukraine. 127 00:07:18,360 --> 00:07:21,800 Speaker 1: And there were what Western interests trying to have different outcomes, 128 00:07:21,840 --> 00:07:24,960 Speaker 1: and in Georgian Ukraine, he believes those are within his 129 00:07:25,040 --> 00:07:28,320 Speaker 1: sphere of influence, those are his orbit and Russia should 130 00:07:28,320 --> 00:07:31,920 Speaker 1: determine the political outcomes there. So that is the primary difference, 131 00:07:31,960 --> 00:07:35,080 Speaker 1: and he worries that coming across the border into Russian territory. 132 00:07:35,360 --> 00:07:38,240 Speaker 1: We have yet to even discuss trade policy when it 133 00:07:38,280 --> 00:07:41,320 Speaker 1: comes to Mexico and the United States. Is this a 134 00:07:41,560 --> 00:07:45,360 Speaker 1: political fight that the president is after or is there 135 00:07:45,400 --> 00:07:49,640 Speaker 1: really some substantive economic goal that can be achieved. The 136 00:07:49,720 --> 00:07:52,640 Speaker 1: underlying issue is based on fear, which is the fear 137 00:07:52,720 --> 00:07:55,320 Speaker 1: of what emerges from Mexico. I mean, he famously kicked 138 00:07:55,360 --> 00:07:59,640 Speaker 1: off his campaign and June mischaracterizing the threat of rapists 139 00:07:59,640 --> 00:08:03,440 Speaker 1: and ref gs and diseases, etcetera. I think trade practices 140 00:08:03,480 --> 00:08:06,080 Speaker 1: are one that is just UH, the latest of an 141 00:08:06,200 --> 00:08:10,880 Speaker 1: array of foreign fears if you open up NAFTA. As 142 00:08:10,920 --> 00:08:13,400 Speaker 1: people who know about this much greater than I do say, 143 00:08:13,920 --> 00:08:15,640 Speaker 1: it's unclear to me that the United States are going 144 00:08:15,680 --> 00:08:18,120 Speaker 1: to cut a greater deal that is predictable, that is 145 00:08:18,200 --> 00:08:22,520 Speaker 1: time bound, that provides the the assurances for US businesses 146 00:08:22,560 --> 00:08:25,760 Speaker 1: and traders along the along the border, that will allow 147 00:08:25,880 --> 00:08:29,040 Speaker 1: the US to do long term capital investments in Mexico 148 00:08:29,160 --> 00:08:31,920 Speaker 1: and Mexico businesses to do trade with the United States. 149 00:08:31,960 --> 00:08:35,720 Speaker 1: So I think once you start hearing from senior business 150 00:08:35,800 --> 00:08:39,040 Speaker 1: leaders about the actual implications of opening up NAFTA, this 151 00:08:39,080 --> 00:08:41,679 Speaker 1: administration will become much more reticent than how active they 152 00:08:41,720 --> 00:08:44,839 Speaker 1: do that. I'm pim fox in for David go Our 153 00:08:44,880 --> 00:08:48,160 Speaker 1: guest is Micah Zenko. He is a senior fellow at 154 00:08:48,200 --> 00:08:51,520 Speaker 1: the Council on Foreign Relations UH, joining me now is 155 00:08:51,640 --> 00:08:54,400 Speaker 1: uh my co host or actually I'm your co host, 156 00:08:54,440 --> 00:08:58,040 Speaker 1: Tom Keen. Great to have you here at the Pierre. 157 00:08:58,120 --> 00:09:02,400 Speaker 1: It's like real snow out there. It is. Michael Dart 158 00:09:02,440 --> 00:09:04,199 Speaker 1: and I were going to walk over to can leisurely 159 00:09:04,240 --> 00:09:08,839 Speaker 1: walk over the hold handle. Our taxicabs got us here 160 00:09:09,080 --> 00:09:11,160 Speaker 1: in style. I gotta say, I thought the snow plowers 161 00:09:11,160 --> 00:09:13,320 Speaker 1: were all out. Everything is good. You know the system 162 00:09:13,400 --> 00:09:16,680 Speaker 1: is working. Does that work? Okay? That gives me my 163 00:09:16,760 --> 00:09:18,840 Speaker 1: segue because I want to talk. I want to bring 164 00:09:19,280 --> 00:09:22,440 Speaker 1: Micah Zenko. You know we talked about the system is 165 00:09:22,600 --> 00:09:26,520 Speaker 1: working from your perception and your experience, and I know 166 00:09:26,559 --> 00:09:29,120 Speaker 1: that you've also written a lot about drones. You've written 167 00:09:29,120 --> 00:09:32,240 Speaker 1: about about military policy. Can you say that the system 168 00:09:32,360 --> 00:09:35,040 Speaker 1: is working when the Press Secretary of the of the 169 00:09:35,080 --> 00:09:37,880 Speaker 1: President of the United States has asked a question having 170 00:09:37,920 --> 00:09:41,120 Speaker 1: to do with whether the government of Yemen has asked 171 00:09:41,520 --> 00:09:45,480 Speaker 1: the United States to suspend drone strikes and you can't 172 00:09:45,480 --> 00:09:48,880 Speaker 1: seem to get a specific yes or no answer. Why 173 00:09:49,000 --> 00:09:52,520 Speaker 1: is that difficult? What? What is that message? Well, to 174 00:09:52,600 --> 00:09:55,679 Speaker 1: be fair to the white spokesperson, he may want to 175 00:09:55,720 --> 00:09:58,040 Speaker 1: be protecting whether or not the government you haven't approves 176 00:09:58,120 --> 00:10:01,600 Speaker 1: these operations, there is domestic sense, it's there's domestic political 177 00:10:01,600 --> 00:10:05,280 Speaker 1: sensitivities within Yemen. These are deeply unpopular operations, but the 178 00:10:05,360 --> 00:10:08,040 Speaker 1: United States provides hundreds of millions of dollars over the 179 00:10:08,120 --> 00:10:11,400 Speaker 1: years too. But who doesn't know that? I mean, that's 180 00:10:11,440 --> 00:10:14,280 Speaker 1: like out in the media, online, social I mean, that's everywhere. 181 00:10:14,280 --> 00:10:17,880 Speaker 1: Everybody knows it. And when an air strike, for example, 182 00:10:18,000 --> 00:10:21,120 Speaker 1: the military even uh speaks directly to it. Well, the 183 00:10:21,200 --> 00:10:23,160 Speaker 1: question is whether or not Well, when they're done by 184 00:10:23,160 --> 00:10:24,959 Speaker 1: the U. S. Military, yes, we do. When they're done 185 00:10:24,960 --> 00:10:27,360 Speaker 1: by the CIA, we pretend they don't. So that's and 186 00:10:27,400 --> 00:10:30,760 Speaker 1: in Yemen, the CIA and the military run parallel drone programs, 187 00:10:30,800 --> 00:10:32,880 Speaker 1: which is part of the confusion. So we cannot say 188 00:10:32,920 --> 00:10:35,440 Speaker 1: which ones we actually do. That's the tripe. But I 189 00:10:35,440 --> 00:10:36,920 Speaker 1: was going to say that the people on the ground 190 00:10:37,000 --> 00:10:39,240 Speaker 1: don't care. No, they don't care who drops a bomb, 191 00:10:39,280 --> 00:10:42,160 Speaker 1: including if it's the Saudi government, the American government, the CIA, 192 00:10:42,240 --> 00:10:44,360 Speaker 1: or the military. You're correct, But they want to be 193 00:10:44,400 --> 00:10:47,640 Speaker 1: able to maintain some distance, some degree of dissent when 194 00:10:47,679 --> 00:10:50,920 Speaker 1: civilian casualties occur, as they did on the January with 195 00:10:51,000 --> 00:10:54,360 Speaker 1: this raid in central Yemen. Uh So the bigger question 196 00:10:54,440 --> 00:10:58,719 Speaker 1: was the spokesperson said phenomenally said, anyone who questions the 197 00:10:58,760 --> 00:11:02,120 Speaker 1: success of this raid puts at risk the Navy seal 198 00:11:02,160 --> 00:11:04,880 Speaker 1: who had been killed, which is quite remarkable because if 199 00:11:04,920 --> 00:11:07,360 Speaker 1: you spend time with the military, they're the most critical 200 00:11:07,400 --> 00:11:10,360 Speaker 1: and self honest to have their own operations. Well, I 201 00:11:10,400 --> 00:11:12,520 Speaker 1: want to go back to what you wrote six years ago. 202 00:11:12,600 --> 00:11:14,880 Speaker 1: This was very important at the time between threats and 203 00:11:14,960 --> 00:11:20,120 Speaker 1: ward US discrete military operations in the post corld world. 204 00:11:20,720 --> 00:11:23,080 Speaker 1: Your next essay in the post Trump world will be 205 00:11:23,440 --> 00:11:27,400 Speaker 1: the discrete military operations of the Secretary of Defense. What 206 00:11:27,440 --> 00:11:31,320 Speaker 1: are you watching for from General Maddis is he tries 207 00:11:31,360 --> 00:11:36,240 Speaker 1: to bring normality to our defense and offense dialogue. Right. Well, 208 00:11:36,240 --> 00:11:38,960 Speaker 1: Secretary Maddis now has a very different vision than when 209 00:11:38,960 --> 00:11:41,560 Speaker 1: he was the commander of Central Command, which is the 210 00:11:41,600 --> 00:11:43,800 Speaker 1: geographic area in the Middle East. The primary things that 211 00:11:43,840 --> 00:11:46,600 Speaker 1: he wants to do is a share one. The homeland 212 00:11:46,679 --> 00:11:49,959 Speaker 1: is secure, a shared defense systems are being protected and secure, 213 00:11:50,240 --> 00:11:53,679 Speaker 1: US nuclear turrent works, and our Mutual Defense treaty allies 214 00:11:53,720 --> 00:11:57,080 Speaker 1: feel comfortable. The problem is those four core missions of 215 00:11:57,080 --> 00:11:59,720 Speaker 1: the U. S military are put at risk when President 216 00:11:59,720 --> 00:12:02,760 Speaker 1: Trump says flipping things about nuclear weapons when he tells 217 00:12:02,800 --> 00:12:04,839 Speaker 1: our tree allies, you better pay. Let me ask the 218 00:12:04,960 --> 00:12:08,320 Speaker 1: question for all of our listeners worldwide, and particularly the 219 00:12:08,320 --> 00:12:10,880 Speaker 1: people stuck in a snow bank on the East coast 220 00:12:10,880 --> 00:12:14,760 Speaker 1: this morning, when do the adults enter the room? Well, 221 00:12:14,800 --> 00:12:16,960 Speaker 1: the question is when do the adults and the presidents 222 00:12:16,960 --> 00:12:19,760 Speaker 1: starts speaking on the same level. When do they start 223 00:12:19,800 --> 00:12:22,920 Speaker 1: saying the same things? Because what Secretary Mattis says is calm, 224 00:12:23,200 --> 00:12:26,640 Speaker 1: consistent in the US history and reassuring what has been 225 00:12:26,679 --> 00:12:29,440 Speaker 1: said ince on the confirmation hearing is by Secretary Tillerson. 226 00:12:29,559 --> 00:12:32,079 Speaker 1: What the White House says, uh is very different. So 227 00:12:32,120 --> 00:12:34,800 Speaker 1: the question is when is the president and his candid 228 00:12:34,880 --> 00:12:38,720 Speaker 1: going to speak consistently about core foreign policy messages Because 229 00:12:38,760 --> 00:12:40,800 Speaker 1: they aren't yet. Well, let's just as student that they're not. 230 00:12:40,920 --> 00:12:44,040 Speaker 1: Let's just assume that this is the new normal. To 231 00:12:44,280 --> 00:12:48,679 Speaker 1: paraphrase Muhammad al Arian, it's the new normal in foreign policy. 232 00:12:49,160 --> 00:12:52,800 Speaker 1: Take us through what you believe to be the biggest 233 00:12:52,960 --> 00:12:57,200 Speaker 1: flashpoints that could erupt in the next six months. The 234 00:12:57,240 --> 00:12:59,720 Speaker 1: single biggest flash point day to day is the Korean Peninsula, 235 00:12:59,760 --> 00:13:02,680 Speaker 1: because that's where US and South Korean forces are prepared, 236 00:13:02,720 --> 00:13:05,520 Speaker 1: as they say, to fight tonight because there could be 237 00:13:05,640 --> 00:13:08,840 Speaker 1: a skirmish on the DMZ. There could be an exchange 238 00:13:08,840 --> 00:13:11,920 Speaker 1: of fire which escalates to a full scale war. The 239 00:13:12,000 --> 00:13:13,960 Speaker 1: U S forces have to be prepared to deter that 240 00:13:14,040 --> 00:13:16,280 Speaker 1: sort of outcome. The second big one, and the most 241 00:13:16,320 --> 00:13:19,160 Speaker 1: worrisome now is in the Persian Gulf because US and 242 00:13:19,160 --> 00:13:22,880 Speaker 1: Iranian forces in the maritime domain there are raged so 243 00:13:22,920 --> 00:13:24,960 Speaker 1: closely it's like they're in a phone booth together. They 244 00:13:25,040 --> 00:13:28,199 Speaker 1: encounter each other within yards meters of each other consistently, 245 00:13:28,760 --> 00:13:31,760 Speaker 1: and our National Security Advisor Michael Flynn has said that 246 00:13:31,800 --> 00:13:34,480 Speaker 1: we are putting Iran on notice. They're trying to scare 247 00:13:34,520 --> 00:13:37,160 Speaker 1: Iran to change its behavior. What Iran is supposed to 248 00:13:37,200 --> 00:13:39,040 Speaker 1: change this behavior is unclear, and what the U S 249 00:13:39,040 --> 00:13:41,320 Speaker 1: will do in responses uncertain. We need to you have 250 00:13:41,320 --> 00:13:43,960 Speaker 1: a home more extundon conversation. I just put your book 251 00:13:43,960 --> 00:13:47,520 Speaker 1: out on Twitter, folks, making Zenko's important book on discreet 252 00:13:47,559 --> 00:13:50,840 Speaker 1: war from a number of years ago. A lot of 253 00:13:51,160 --> 00:13:53,440 Speaker 1: work as well, Yeah, a lot of newer work as 254 00:13:53,480 --> 00:13:57,319 Speaker 1: well with the Council on Foreign Relations. Mika Zinko, thank you, really, 255 00:13:57,360 --> 00:13:59,160 Speaker 1: thank you, thank you for coming in through the snow 256 00:13:59,240 --> 00:14:02,880 Speaker 1: glad to hopefully here the Pure Hotel always beautiful, but 257 00:14:02,920 --> 00:14:18,560 Speaker 1: now it's your reindeers parked outside. The reindeers outside non 258 00:14:18,720 --> 00:14:20,640 Speaker 1: coming down here. For all of you, drive careful on 259 00:14:20,680 --> 00:14:24,400 Speaker 1: the Eastern seaboard. Bloomberg twelve hundred, Boston, Bloomberg eleven three 260 00:14:24,400 --> 00:14:26,960 Speaker 1: oh in New York. We say good morning to the 261 00:14:26,960 --> 00:14:30,120 Speaker 1: rest of you. Check your plane flights. Even if you're 262 00:14:30,200 --> 00:14:33,480 Speaker 1: Dallas to Denver. Things could get messed up today. There's 263 00:14:33,520 --> 00:14:36,160 Speaker 1: a lot of delays here, a lot of flight cancelations. 264 00:14:36,240 --> 00:14:37,840 Speaker 1: Flight aware of saying that I think there were more 265 00:14:37,840 --> 00:14:43,360 Speaker 1: than flight cancelations already. Michael Darda took the surveillance Sikorski 266 00:14:43,400 --> 00:14:45,920 Speaker 1: to get here from Connecticut and he joins us now 267 00:14:45,920 --> 00:14:48,200 Speaker 1: and then Kim, we've been talking through the morning with 268 00:14:48,320 --> 00:14:51,320 Speaker 1: Mr Darta. Let's let's start with the animal spirit. Can 269 00:14:51,360 --> 00:14:53,920 Speaker 1: we get nominal g d P out of a four percent? 270 00:14:54,000 --> 00:14:57,120 Speaker 1: Can we get real growth plus inflation to a point 271 00:14:57,120 --> 00:15:00,520 Speaker 1: where the confidence really gets restored? Well, Um, I think 272 00:15:00,520 --> 00:15:05,160 Speaker 1: the answer is uh plus four percent on nominal temporarily yes, 273 00:15:05,320 --> 00:15:08,000 Speaker 1: But from a longer term perspective that will really depend 274 00:15:08,040 --> 00:15:11,240 Speaker 1: on whether productivity growth picks up in a meaningful way. 275 00:15:11,240 --> 00:15:14,120 Speaker 1: And that's a much bigger question mark. So think of 276 00:15:14,160 --> 00:15:18,800 Speaker 1: the sustainable nominal growth rate is growth potential productivity plus 277 00:15:18,880 --> 00:15:21,200 Speaker 1: labor force growth. You know that's been running it just 278 00:15:21,280 --> 00:15:24,000 Speaker 1: about one percent per annum over the last five or 279 00:15:24,040 --> 00:15:28,400 Speaker 1: six years, plus the FEDS two percent inflation target. So 280 00:15:28,480 --> 00:15:31,360 Speaker 1: we've been using a figure of three to four percent 281 00:15:31,480 --> 00:15:36,480 Speaker 1: in terms of sustainable long term nominal GDP growth. Four 282 00:15:36,520 --> 00:15:39,600 Speaker 1: percent being on the optimistic end, three percent more of 283 00:15:39,600 --> 00:15:44,520 Speaker 1: the pessimistic side. But for figures that are well beyond that, 284 00:15:44,560 --> 00:15:46,560 Speaker 1: I think we're gonna need to see a pretty hefty 285 00:15:46,600 --> 00:15:50,840 Speaker 1: pickup in productivity. Hope springs eternal, but you know we'll see. 286 00:15:51,000 --> 00:15:54,000 Speaker 1: Hope's not a strategy either, you know, Michael, he mentioned 287 00:15:54,000 --> 00:15:58,400 Speaker 1: the two key elements, right, productivity and labor force growth. 288 00:15:58,920 --> 00:16:01,400 Speaker 1: Let's take each one of the If we can labor 289 00:16:01,640 --> 00:16:07,320 Speaker 1: force growth, this is a demographic change exactly based on 290 00:16:07,400 --> 00:16:10,880 Speaker 1: the actual numbers that you have looked at. Does it 291 00:16:10,920 --> 00:16:14,760 Speaker 1: make sense to limit or make more difficult the entry 292 00:16:14,760 --> 00:16:17,200 Speaker 1: to the United States of more people who are willing 293 00:16:17,240 --> 00:16:20,000 Speaker 1: to work? Great question. The answer is no, it does not. 294 00:16:20,280 --> 00:16:24,479 Speaker 1: So there's a lot of optimism about whether certain reforms 295 00:16:24,480 --> 00:16:28,960 Speaker 1: to you know, regulation or taxation will lift productivity. But 296 00:16:29,120 --> 00:16:33,120 Speaker 1: the other part of productive potential is these low working 297 00:16:33,160 --> 00:16:37,120 Speaker 1: age population growth figures just point point five pc per 298 00:16:37,240 --> 00:16:40,080 Speaker 1: and I'm expected over the next few decades about a 299 00:16:40,160 --> 00:16:43,400 Speaker 1: third of the post war average growth rate in a 300 00:16:43,520 --> 00:16:47,240 Speaker 1: much more restrictive posture. And immigration will only and I 301 00:16:47,320 --> 00:16:49,960 Speaker 1: ramplify the headwinds, you know. And I raised this not 302 00:16:49,960 --> 00:16:53,160 Speaker 1: not to really bring up necessarily immigration issue, but the 303 00:16:53,200 --> 00:16:55,800 Speaker 1: worker issue, because if you don't have enough workers contributing 304 00:16:55,840 --> 00:16:59,040 Speaker 1: to things like social security and paying taxes, you're gonna 305 00:16:59,040 --> 00:17:02,080 Speaker 1: blow a whole even a bigger hole through the federal 306 00:17:02,160 --> 00:17:05,199 Speaker 1: budget exactly. And you know, one issue that we have, 307 00:17:05,280 --> 00:17:07,240 Speaker 1: and it makes sense to put this in the context 308 00:17:07,320 --> 00:17:10,520 Speaker 1: of what kind of tax changes can we expect. There's 309 00:17:10,560 --> 00:17:15,159 Speaker 1: about a four percentage point you know of GDP increase 310 00:17:15,320 --> 00:17:19,159 Speaker 1: in spending on the back of an aging population in medicare. 311 00:17:19,720 --> 00:17:23,440 Speaker 1: So where is the room to move to dramatic and 312 00:17:23,560 --> 00:17:26,080 Speaker 1: draconian tax cuts that you know, at least on a 313 00:17:26,080 --> 00:17:29,119 Speaker 1: static basis, lose a lot of revenue. There just isn't 314 00:17:29,240 --> 00:17:31,560 Speaker 1: room for that. So if you know, going for more 315 00:17:31,560 --> 00:17:36,680 Speaker 1: efficiency in the code, yes, but huge unfunded tax reductions, 316 00:17:36,880 --> 00:17:39,160 Speaker 1: I don't think so. Let's come back and talk about 317 00:17:39,160 --> 00:17:41,160 Speaker 1: this sort of the the word that's not being set 318 00:17:41,200 --> 00:17:44,000 Speaker 1: through all this is austerity, and what is the state 319 00:17:44,000 --> 00:17:46,359 Speaker 1: of austerity in Europe? What is the state of austerity? 320 00:17:46,440 --> 00:17:51,160 Speaker 1: Particularly within the majority Republicans on Capitol Hill. We're talking 321 00:17:51,160 --> 00:17:54,560 Speaker 1: to Michael Dart about the austerity that isn't or maybe 322 00:17:55,040 --> 00:18:00,639 Speaker 1: it is. Is this an austere Congress? There is? Mrs 323 00:18:00,640 --> 00:18:04,360 Speaker 1: Reagan said years ago, We'll just say no, that's the mystery, 324 00:18:04,400 --> 00:18:07,399 Speaker 1: isn't it. Well, that's really the pressing question, Tom. What 325 00:18:07,480 --> 00:18:10,520 Speaker 1: I will say is there are a handful of Republican 326 00:18:11,000 --> 00:18:15,159 Speaker 1: senators now who have expressed reservations about going down the 327 00:18:15,400 --> 00:18:21,400 Speaker 1: George W. Bush path of shoehorning a tax cuts through 328 00:18:21,400 --> 00:18:25,440 Speaker 1: a reconciliation process, which is essentially a stick of dynamite 329 00:18:25,480 --> 00:18:29,040 Speaker 1: that blows up on a future Congress with no spending 330 00:18:29,119 --> 00:18:32,639 Speaker 1: restraint in rising debt levels. But but to be clear 331 00:18:32,960 --> 00:18:36,520 Speaker 1: here at the Pierre Hotel, are we not talking Reagan, 332 00:18:36,920 --> 00:18:40,280 Speaker 1: but we're really talking in ethos of the governor uh 333 00:18:40,320 --> 00:18:43,680 Speaker 1: and former Vice President Nelson Rockefeller. Is that really what 334 00:18:43,680 --> 00:18:47,120 Speaker 1: we're reducing? Well, well, we'll have to see about that. 335 00:18:47,400 --> 00:18:50,359 Speaker 1: I guess from a broader perspective, I would just say 336 00:18:50,840 --> 00:18:55,439 Speaker 1: sixty vote hurdle for permanent tax changes. If we want 337 00:18:55,840 --> 00:18:59,080 Speaker 1: changes in regulatory or tax policy to have an impact 338 00:18:59,280 --> 00:19:04,240 Speaker 1: on sentives in productivity, they need to be permanent, not temporary. 339 00:19:04,359 --> 00:19:06,919 Speaker 1: The demand side effects will end up offset by the 340 00:19:06,920 --> 00:19:10,640 Speaker 1: federal reserve, So that really needs to be the focus. 341 00:19:10,840 --> 00:19:14,240 Speaker 1: Is it permanent or temporary? Does it have the ability 342 00:19:14,240 --> 00:19:17,520 Speaker 1: to lift incentives and productivity? And then we can move 343 00:19:17,560 --> 00:19:19,680 Speaker 1: on from there. But I think at least in terms 344 00:19:19,680 --> 00:19:21,560 Speaker 1: of the proposals that are out there, we'd have to 345 00:19:21,640 --> 00:19:25,000 Speaker 1: expect that they'd be pretty watered down and may not 346 00:19:25,119 --> 00:19:27,320 Speaker 1: even happen in some cases. We'll see what can get 347 00:19:27,320 --> 00:19:30,560 Speaker 1: through the U. S. Senate. Uh, Michael Darta, you're an economist, 348 00:19:30,600 --> 00:19:32,840 Speaker 1: so you get to have two opinions about this. And 349 00:19:32,880 --> 00:19:35,280 Speaker 1: I want to focus on dot frank for just a moment, 350 00:19:35,359 --> 00:19:38,359 Speaker 1: because this is a very important industry and you know, 351 00:19:38,600 --> 00:19:41,280 Speaker 1: it has gone through the financial business has gone through 352 00:19:41,280 --> 00:19:44,119 Speaker 1: a revolution in you know, the space of seven years. 353 00:19:44,200 --> 00:19:48,400 Speaker 1: Let's say, is there anything that can be done that 354 00:19:48,520 --> 00:19:53,399 Speaker 1: would not create huge delays from opposition and confrontation. Is 355 00:19:53,400 --> 00:19:55,679 Speaker 1: there anything that can be done and let's say the 356 00:19:55,720 --> 00:20:03,080 Speaker 1: next three months that would make people who are experts 357 00:20:03,200 --> 00:20:07,879 Speaker 1: at making decisions on credit, uh feel like they're not 358 00:20:08,000 --> 00:20:10,720 Speaker 1: being watched twenty four hours a day, seven days a 359 00:20:10,760 --> 00:20:15,280 Speaker 1: week by a regulator or or someone who might uh 360 00:20:15,680 --> 00:20:18,439 Speaker 1: be a right might want to be a regulator. Right. Well, 361 00:20:18,720 --> 00:20:21,200 Speaker 1: perhaps I would just say, and if we're talking about 362 00:20:21,280 --> 00:20:25,280 Speaker 1: Dodd Frank the Vocal Rule financial regulatory reform, the banks 363 00:20:25,280 --> 00:20:27,879 Speaker 1: have put together this big wish list which looks more 364 00:20:27,960 --> 00:20:30,520 Speaker 1: like roll it all back and nothing that replaces it 365 00:20:30,600 --> 00:20:34,080 Speaker 1: in essence, as my friend Scott Sumner says, a return 366 00:20:34,600 --> 00:20:37,920 Speaker 1: to the regulatory structure that led to the banking crises 367 00:20:37,960 --> 00:20:40,920 Speaker 1: of the eighties and then the subprime meltdown. So that's 368 00:20:40,920 --> 00:20:45,400 Speaker 1: probably not a viable option. Uh So we'll see what happens. 369 00:20:45,720 --> 00:20:48,600 Speaker 1: Fed Chair Yelling recently said, take a look at making 370 00:20:48,840 --> 00:20:51,680 Speaker 1: you know, some of the reforms more efficient and effective. 371 00:20:52,119 --> 00:20:55,359 Speaker 1: That's quite different than a wholesale roll back with nothing 372 00:20:55,400 --> 00:20:57,600 Speaker 1: to replace it. And you could actually go down the 373 00:20:57,600 --> 00:21:00,240 Speaker 1: same path of reasoning for the A. C. A. Obama here, 374 00:21:00,560 --> 00:21:03,399 Speaker 1: you know, repeal and replace, what replaces it? What are 375 00:21:03,440 --> 00:21:05,560 Speaker 1: the effects if you end up with millions of people 376 00:21:05,640 --> 00:21:08,520 Speaker 1: losing coverage? At least you end up with a political 377 00:21:09,359 --> 00:21:13,640 Speaker 1: bomb exploding, and so you know, both with regulatory reform 378 00:21:13,800 --> 00:21:16,639 Speaker 1: and the A C. A. I'm waiting with bated breath, 379 00:21:17,000 --> 00:21:19,400 Speaker 1: bated waiting with bated breath on the on the Fed, 380 00:21:19,480 --> 00:21:22,040 Speaker 1: how many interest rate increases this year and when market 381 00:21:22,040 --> 00:21:26,000 Speaker 1: expects to dot plot is looking for three? My guests 382 00:21:26,000 --> 00:21:29,000 Speaker 1: would be three in the last three quarters of the years. 383 00:21:29,280 --> 00:21:33,280 Speaker 1: You get there with your nominal GDP call, well, I 384 00:21:33,320 --> 00:21:35,719 Speaker 1: get there this way. That was just under four, right, 385 00:21:35,760 --> 00:21:38,240 Speaker 1: He was saying, what was the point, I think we're 386 00:21:38,280 --> 00:21:41,400 Speaker 1: going to be over for this year, But he said 387 00:21:41,440 --> 00:21:44,119 Speaker 1: on the trend, Yeah, the trend is going to be 388 00:21:44,280 --> 00:21:47,119 Speaker 1: three to four. In my opinion, if growth potential is 389 00:21:47,240 --> 00:21:50,200 Speaker 1: running between one and two and you are being generous there, 390 00:21:50,640 --> 00:21:55,400 Speaker 1: four's jet four sustained for is generous. So I think 391 00:21:55,480 --> 00:21:58,240 Speaker 1: with the recovery and credit markets that's taken place over 392 00:21:58,280 --> 00:22:00,760 Speaker 1: the course of the last year, and the bump up 393 00:22:00,760 --> 00:22:04,280 Speaker 1: and inflation expectations in the improvement in the labor market, 394 00:22:04,640 --> 00:22:08,080 Speaker 1: the FED will be able to to lift rates gradually 395 00:22:08,119 --> 00:22:11,320 Speaker 1: this year without throwing the business cycle off of a cliff. 396 00:22:11,680 --> 00:22:15,440 Speaker 1: So two to three I think is reasonable. Um, And 397 00:22:15,560 --> 00:22:17,720 Speaker 1: you know, we know that the futures markets aren't looking 398 00:22:17,880 --> 00:22:20,960 Speaker 1: you know, probabilities very low for March, so it would 399 00:22:21,000 --> 00:22:23,640 Speaker 1: have to be more back end loaded if they're going 400 00:22:23,680 --> 00:22:26,120 Speaker 1: to do three. But I thought everybody who I thought, 401 00:22:26,160 --> 00:22:28,000 Speaker 1: I think all the labor reports have been saying that 402 00:22:28,080 --> 00:22:30,000 Speaker 1: labor markets are tight that you know, in fact, it 403 00:22:30,080 --> 00:22:33,080 Speaker 1: was a mismatch, right, something like five point five million 404 00:22:33,160 --> 00:22:37,760 Speaker 1: openings for four point six million unemployed, So wage pressure, 405 00:22:37,800 --> 00:22:41,399 Speaker 1: I mean, really only three. Is there anybody out there 406 00:22:41,400 --> 00:22:45,000 Speaker 1: who you think who says four rate increases this year? Uh, 407 00:22:45,040 --> 00:22:47,960 Speaker 1: it's uh, I'm sure that there's somebody calling for that. 408 00:22:48,040 --> 00:22:51,439 Speaker 1: But the issue is the FED would already have to 409 00:22:51,480 --> 00:22:55,199 Speaker 1: be guiding markets to a March rate. Rice is going 410 00:22:55,240 --> 00:22:57,439 Speaker 1: to do one per quarter, and they didn't take the 411 00:22:57,440 --> 00:22:59,480 Speaker 1: occasion of the last meeting to do that at all. 412 00:22:59,480 --> 00:23:02,040 Speaker 1: In the state. Given the guilded age that we're living 413 00:23:02,800 --> 00:23:06,640 Speaker 1: or that is personified by our new president, Janet Yellen 414 00:23:07,200 --> 00:23:11,320 Speaker 1: as protector in her mind of a lot of other Americans, 415 00:23:11,480 --> 00:23:14,080 Speaker 1: is going to continue to focus on slack in the 416 00:23:14,119 --> 00:23:19,359 Speaker 1: economy in a bimodal America to America's She's got to 417 00:23:19,400 --> 00:23:22,120 Speaker 1: pay attention to the part of America that's not enjoying 418 00:23:22,600 --> 00:23:25,880 Speaker 1: full employment right and she has. You know, I think 419 00:23:25,920 --> 00:23:28,960 Speaker 1: will she continue though that's the question. As long as 420 00:23:29,000 --> 00:23:32,199 Speaker 1: she's there, um, you know, you'll have a federal reserve 421 00:23:32,280 --> 00:23:36,000 Speaker 1: that cares about the dual mandate. And we've essentially, at 422 00:23:36,080 --> 00:23:39,760 Speaker 1: least according to the FED, reached the full employment part 423 00:23:39,800 --> 00:23:42,560 Speaker 1: of the mandate, or are very close. Unemployment rate has fallen, 424 00:23:42,640 --> 00:23:45,399 Speaker 1: essentially to the Fed's calculation of the natural rate, the 425 00:23:45,480 --> 00:23:49,760 Speaker 1: rate that sustainable over the long haul. The broader measures 426 00:23:49,760 --> 00:23:52,680 Speaker 1: of under employment, like the U six rate, not quite there, 427 00:23:52,720 --> 00:23:55,040 Speaker 1: but pretty much as close as we've been since the 428 00:23:55,119 --> 00:23:59,119 Speaker 1: recovery started, almost so we're much closer in The wage 429 00:23:59,119 --> 00:24:01,840 Speaker 1: growth figures are modest, but you know, two and a 430 00:24:01,920 --> 00:24:05,280 Speaker 1: half percent hourly earnings growth up from about a two 431 00:24:05,280 --> 00:24:08,520 Speaker 1: percent trend or just above two and a half is 432 00:24:08,560 --> 00:24:11,720 Speaker 1: also consistent with a labor market that is closer to 433 00:24:11,760 --> 00:24:15,240 Speaker 1: full health. Keep in mind that the nominal wage figures 434 00:24:15,520 --> 00:24:18,159 Speaker 1: add or above four percent towards the tail end of 435 00:24:18,160 --> 00:24:21,480 Speaker 1: the last two business cycles. Probably that's out of reach. 436 00:24:22,040 --> 00:24:25,560 Speaker 1: We really shouldn't expect nominal wage growth much above the 437 00:24:25,640 --> 00:24:29,560 Speaker 1: sum of productivity, and the FEDS inflation target. Productivity has 438 00:24:29,560 --> 00:24:32,959 Speaker 1: been sub one the FEDS inflation target is too, so 439 00:24:33,200 --> 00:24:35,240 Speaker 1: two and a half to three, you know, might not 440 00:24:35,440 --> 00:24:38,439 Speaker 1: be outside the orbit of what we can expect. And 441 00:24:38,440 --> 00:24:40,840 Speaker 1: we're pretty close to that now on on wages. So 442 00:24:42,119 --> 00:24:45,520 Speaker 1: from the perspective of normalization, we might be getting closer. 443 00:24:45,720 --> 00:24:49,040 Speaker 1: You have an outlook if this is the peak. If 444 00:24:49,080 --> 00:24:50,480 Speaker 1: I was to say this is as good as it 445 00:24:50,520 --> 00:24:53,600 Speaker 1: gets right now, well if you just look at the 446 00:24:53,720 --> 00:24:57,640 Speaker 1: unemployment rate, you know, and and to bring this into 447 00:24:59,680 --> 00:25:02,960 Speaker 1: uh well it last quarter it was it was better. 448 00:25:03,040 --> 00:25:04,760 Speaker 1: We'll have to see. I mean, you want to smooth 449 00:25:04,800 --> 00:25:08,120 Speaker 1: out the jumping numbers. The average of the last five 450 00:25:08,240 --> 00:25:10,919 Speaker 1: or six years has been seven tenths of a percent 451 00:25:10,960 --> 00:25:14,040 Speaker 1: per annum. Hopefully we move up to the ten year average, 452 00:25:14,040 --> 00:25:17,040 Speaker 1: which is just over one. Even if that's the case, 453 00:25:17,280 --> 00:25:19,840 Speaker 1: you know, my range in terms of long run nominal 454 00:25:19,880 --> 00:25:22,680 Speaker 1: growth of three to four is still where we are. Michael, 455 00:25:22,680 --> 00:25:24,600 Speaker 1: I hope you enjoy the presidential suite here at the 456 00:25:24,600 --> 00:25:28,520 Speaker 1: Pier Hotel. Anybody coming out today's so don't you think, pim, 457 00:25:28,640 --> 00:25:31,120 Speaker 1: why not get you know what, or maybe he gets 458 00:25:31,119 --> 00:25:36,120 Speaker 1: a shovel two. You don't need to go to the gym. 459 00:25:36,200 --> 00:25:38,680 Speaker 1: You just need to, you know, put a little backbone 460 00:25:38,680 --> 00:25:41,280 Speaker 1: into it right. Good workout, Michael d Thank you so 461 00:25:41,359 --> 00:25:52,600 Speaker 1: much for coming out. Brought you by Bank of America, 462 00:25:52,680 --> 00:25:56,920 Speaker 1: Mary Lynch. Dedicated to bringing our clients insights and solutions 463 00:25:57,200 --> 00:26:00,480 Speaker 1: to meet the challenges of a transforming world. That's the 464 00:26:00,560 --> 00:26:05,679 Speaker 1: power of global connections. Mary Lynch, Pierce Feerin Smith Incorporated, 465 00:26:05,840 --> 00:26:13,119 Speaker 1: Member s I p C One, Dennis Gartment Dennis, good morning, 466 00:26:14,000 --> 00:26:18,240 Speaker 1: Good morning Tom. Within the struggle in the cacophony of 467 00:26:18,359 --> 00:26:23,080 Speaker 1: uncertainties plural that we have right now, how do you 468 00:26:23,280 --> 00:26:26,919 Speaker 1: distill all this when you were there at four am, 469 00:26:27,000 --> 00:26:31,960 Speaker 1: three am writing your acclaimed morning letter, where is your 470 00:26:32,000 --> 00:26:35,840 Speaker 1: focal point? What is the uncertainty you choose to look at? 471 00:26:36,880 --> 00:26:39,000 Speaker 1: You know that? What a great question and and the 472 00:26:39,000 --> 00:26:42,640 Speaker 1: answer is, I really don't know. The answer is there's 473 00:26:42,720 --> 00:26:45,480 Speaker 1: always something to talk about, there's always something to write about. 474 00:26:46,040 --> 00:26:47,960 Speaker 1: And perhaps it's just because I've been at it for 475 00:26:47,960 --> 00:26:52,960 Speaker 1: forty years, the things that really are important seem to you, 476 00:26:53,040 --> 00:26:55,080 Speaker 1: seem to make their way to de sive that is 477 00:26:55,160 --> 00:26:57,560 Speaker 1: my my mind and say this is the thing this 478 00:26:57,600 --> 00:26:59,800 Speaker 1: morning that I want to talk about. This is what's important. 479 00:27:00,240 --> 00:27:02,920 Speaker 1: I start by writing, first of all, the first thing 480 00:27:02,960 --> 00:27:05,439 Speaker 1: I look at when I arise at one am, is 481 00:27:05,480 --> 00:27:08,399 Speaker 1: what has the foreign exchange market done overseas? I'll always 482 00:27:08,400 --> 00:27:11,040 Speaker 1: look at the forex market first. Then I'll go around 483 00:27:11,080 --> 00:27:13,959 Speaker 1: to various pages on the net or newspapers that come 484 00:27:14,000 --> 00:27:16,480 Speaker 1: in or a news wires that I have, and see 485 00:27:16,520 --> 00:27:21,720 Speaker 1: what what small piece of information UH politically has has 486 00:27:21,760 --> 00:27:24,199 Speaker 1: developed that has made its way from page thirty two 487 00:27:24,560 --> 00:27:26,720 Speaker 1: two weeks ago two is making its way to page 488 00:27:26,720 --> 00:27:28,840 Speaker 1: two or three, and eventually shall make its way to 489 00:27:28,880 --> 00:27:32,159 Speaker 1: page one. So it's a matter of sifting through the 490 00:27:32,200 --> 00:27:35,440 Speaker 1: minutia and saying, this to me looks to be important. 491 00:27:35,920 --> 00:27:37,600 Speaker 1: And here I hold it out to you. Take a 492 00:27:37,600 --> 00:27:39,520 Speaker 1: look and see if you think this is important also, 493 00:27:39,600 --> 00:27:42,159 Speaker 1: And this is what I think it means. So, Dennis, 494 00:27:42,200 --> 00:27:44,440 Speaker 1: what's on page thirty two right now? We want two 495 00:27:44,440 --> 00:27:48,040 Speaker 1: steps ahead? What's on page thirty two right? And then 496 00:27:48,080 --> 00:27:51,159 Speaker 1: I guess something that has been that used to be 497 00:27:51,240 --> 00:27:53,879 Speaker 1: back on page thirty two and every once in a 498 00:27:53,880 --> 00:27:56,240 Speaker 1: while makes it to page one recently and then goes 499 00:27:56,320 --> 00:27:59,520 Speaker 1: back to page two or three. Is those circumstances prevailing 500 00:27:59,560 --> 00:28:02,640 Speaker 1: between China and the United States in the South China. See, 501 00:28:02,680 --> 00:28:04,439 Speaker 1: I can remember when I started writing about that a 502 00:28:04,480 --> 00:28:07,800 Speaker 1: decade ago that no one paid attention. Now everybody does. 503 00:28:07,840 --> 00:28:10,040 Speaker 1: But I don't think enough attention is really being paid 504 00:28:10,080 --> 00:28:15,680 Speaker 1: to what has transpired. Secondly, what's on page five. There's 505 00:28:15,680 --> 00:28:18,320 Speaker 1: not that many things on page thirty two anymore. Now 506 00:28:18,359 --> 00:28:20,600 Speaker 1: it's on page five and making its way to page one. 507 00:28:20,680 --> 00:28:24,800 Speaker 1: Is the concern everywhere about the United States and trade protection, 508 00:28:25,240 --> 00:28:27,520 Speaker 1: and I don't think enough people are paying enough attention 509 00:28:27,960 --> 00:28:31,199 Speaker 1: or giving that enough importance. Well, let me propose a 510 00:28:31,240 --> 00:28:33,840 Speaker 1: page thirty two if if I might um. One of 511 00:28:33,840 --> 00:28:36,639 Speaker 1: the big issues that China has no matter what is 512 00:28:36,720 --> 00:28:40,320 Speaker 1: the availability of potable water. And this is something that 513 00:28:40,360 --> 00:28:43,360 Speaker 1: has not garnered a lot of attention, but the Chinese 514 00:28:43,440 --> 00:28:47,280 Speaker 1: government knows very well that you must have potable water 515 00:28:47,440 --> 00:28:52,800 Speaker 1: available to a growing population. That water typically exists that 516 00:28:52,920 --> 00:28:57,840 Speaker 1: they can have access to. In Russia, uh, we've seen 517 00:28:57,920 --> 00:29:02,560 Speaker 1: in the West has always reacted to any combination of 518 00:29:03,040 --> 00:29:07,240 Speaker 1: Russia and China. But given a new Trump administration, I'm 519 00:29:07,240 --> 00:29:10,280 Speaker 1: wondering if you could comment on is it possible that 520 00:29:10,280 --> 00:29:13,600 Speaker 1: though that relationship between the three countries changes over the 521 00:29:13,640 --> 00:29:16,200 Speaker 1: next four years. Oh, I don't think there's any question 522 00:29:16,360 --> 00:29:20,440 Speaker 1: that that the relationship between the United States, Russia and 523 00:29:20,560 --> 00:29:23,240 Speaker 1: China changes over the course of the next two weeks, 524 00:29:23,720 --> 00:29:26,520 Speaker 1: over the course of the next two hours. That relationship 525 00:29:27,000 --> 00:29:30,280 Speaker 1: is always changing, and clearly it's the most important relationship 526 00:29:30,680 --> 00:29:34,600 Speaker 1: and relationships in the world today, the important. What's interesting 527 00:29:34,680 --> 00:29:37,480 Speaker 1: is you bring up the concept of water. Water is 528 00:29:37,680 --> 00:29:42,360 Speaker 1: at the basis of almost all political dissension in the world. 529 00:29:42,400 --> 00:29:45,640 Speaker 1: In in the Middle East, it's really a water problem. 530 00:29:45,680 --> 00:29:47,840 Speaker 1: Where does the water come from? Does it flow down 531 00:29:47,840 --> 00:29:50,280 Speaker 1: the various rivers, doesn't make it to the ocean? Can 532 00:29:50,280 --> 00:29:52,840 Speaker 1: it be used? Can it be changed? Can it be 533 00:29:52,880 --> 00:29:57,720 Speaker 1: forced bed? Yeah? I mean it's it's a very water 534 00:29:57,800 --> 00:30:01,840 Speaker 1: is central and U your your point about water between 535 00:30:02,280 --> 00:30:05,000 Speaker 1: China and Russia is something quite honestly, I have not considered. 536 00:30:05,080 --> 00:30:07,280 Speaker 1: I shall now spend some time thinking about that. That's 537 00:30:07,320 --> 00:30:11,120 Speaker 1: a fascinating topic. Dennis. Let me get some advice on 538 00:30:11,160 --> 00:30:14,920 Speaker 1: this equity market. It has been brutal. Hedge funds really 539 00:30:14,960 --> 00:30:19,880 Speaker 1: struggling every one time. Keen struggling, Dennis, carbon struggling. You 540 00:30:19,920 --> 00:30:22,480 Speaker 1: were in about chapter eight of Reminiscence of a Stock 541 00:30:22,520 --> 00:30:25,600 Speaker 1: Operator from a few years ago, and we're great in 542 00:30:25,680 --> 00:30:28,760 Speaker 1: cardinal rules of that classic book. Think folks, the thirties. 543 00:30:29,440 --> 00:30:33,320 Speaker 1: Is the idea when there's no trend, just stop doing 544 00:30:33,360 --> 00:30:36,120 Speaker 1: this and get out of the way. When do you 545 00:30:36,240 --> 00:30:42,240 Speaker 1: know in a listless trend to act, Uh, The first 546 00:30:42,240 --> 00:30:44,160 Speaker 1: thing I'll look at is what are the charts telling me? 547 00:30:45,360 --> 00:30:47,400 Speaker 1: Many of your listeners are going to find this amusing 548 00:30:47,440 --> 00:30:51,200 Speaker 1: and stupid, but I think there's wisdom here. Is the 549 00:30:51,240 --> 00:30:53,280 Speaker 1: market moving from the lower left to the upper right. 550 00:30:53,560 --> 00:30:55,480 Speaker 1: Is the market moving from the upper left to the 551 00:30:55,520 --> 00:30:59,560 Speaker 1: lower right. Are the highs higher, are the lows higher? 552 00:31:00,200 --> 00:31:02,760 Speaker 1: Or are the high is lower and the lows lower? 553 00:31:03,440 --> 00:31:06,400 Speaker 1: Can can trend lines be drawn? Sometimes it's not simple. 554 00:31:06,480 --> 00:31:08,240 Speaker 1: Sometimes you need to put the chart on the wall, 555 00:31:08,320 --> 00:31:10,960 Speaker 1: stand twenty five ft away from it, and ask your 556 00:31:10,960 --> 00:31:14,240 Speaker 1: four year old nephew Tommy, which way is this moving? 557 00:31:14,360 --> 00:31:16,440 Speaker 1: Sometimes looking at a market through the eyes of a 558 00:31:16,440 --> 00:31:19,560 Speaker 1: four year old makes more sense. As as the Great 559 00:31:19,680 --> 00:31:23,640 Speaker 1: Turkey said in in Reminiscences of a Stock Operator, after 560 00:31:23,680 --> 00:31:26,760 Speaker 1: all it is still a bull market. And after all, 561 00:31:26,840 --> 00:31:29,800 Speaker 1: in the case today, it is still a bull market. 562 00:31:29,920 --> 00:31:31,680 Speaker 1: The markets still move from the lower left to the 563 00:31:31,720 --> 00:31:34,600 Speaker 1: upper right. I find myself fighting at many times, and 564 00:31:34,640 --> 00:31:37,440 Speaker 1: almost every time I do, it's proven to be wrong. 565 00:31:37,520 --> 00:31:40,400 Speaker 1: It's still a bull market. When does it end? Write 566 00:31:40,400 --> 00:31:42,840 Speaker 1: this down. It shall end. When it ends, it will 567 00:31:42,960 --> 00:31:47,120 Speaker 1: end in a moment before then. That's what I've learned. Well, 568 00:31:47,160 --> 00:31:50,280 Speaker 1: you've learned a lot, and we always appreciate your sharing 569 00:31:50,280 --> 00:31:52,200 Speaker 1: it with us. So let me pose to let me 570 00:31:52,280 --> 00:31:56,080 Speaker 1: pose this. Do you given that that you know money 571 00:31:56,120 --> 00:31:59,200 Speaker 1: can be sticky depending upon how liquid it is, of course, 572 00:32:00,040 --> 00:32:03,760 Speaker 1: and disruption of markets and all those great things, build 573 00:32:03,800 --> 00:32:07,000 Speaker 1: that into a program for what to do. If you 574 00:32:07,120 --> 00:32:11,160 Speaker 1: believe that history might not repeat itself, but that it rhymes, 575 00:32:11,400 --> 00:32:14,400 Speaker 1: what do you do well in this case? I mean, 576 00:32:14,440 --> 00:32:16,800 Speaker 1: first of all, that's I've always liked that line, because 577 00:32:16,880 --> 00:32:19,880 Speaker 1: history does repeat itself, and more often than not, when 578 00:32:19,920 --> 00:32:23,400 Speaker 1: it doesn't, it does indeed rhyme. The similarities between today 579 00:32:23,440 --> 00:32:26,200 Speaker 1: and what happened forty years ago and what happened a 580 00:32:26,320 --> 00:32:30,960 Speaker 1: hundred years ago are startling, startlingly the same. What's what's 581 00:32:30,960 --> 00:32:33,480 Speaker 1: going on right now? Well, I think fundamentally we have 582 00:32:33,560 --> 00:32:36,640 Speaker 1: to understand that the monetary authorities in Japan and in 583 00:32:36,960 --> 00:32:41,000 Speaker 1: Europe are are still expansionary, while the monetary authorities here 584 00:32:41,000 --> 00:32:44,760 Speaker 1: in the United States, if not already contractionary, are certainly 585 00:32:44,840 --> 00:32:47,720 Speaker 1: leading in that direction. What does that mean. It means 586 00:32:47,760 --> 00:32:51,680 Speaker 1: on balance, stock prices in Japan and Europe may well 587 00:32:51,760 --> 00:32:54,000 Speaker 1: do better than stock prices here in the United States. 588 00:32:54,080 --> 00:32:57,360 Speaker 1: It certainly means that the dollar will do better because 589 00:32:57,480 --> 00:33:00,200 Speaker 1: less of them are being created, and that the row 590 00:33:00,200 --> 00:33:02,400 Speaker 1: and the yen will probably weaken on balance, And it 591 00:33:02,520 --> 00:33:05,840 Speaker 1: probably means that in terms of the euro, in the end, 592 00:33:05,920 --> 00:33:09,960 Speaker 1: gold will probably rise. That's probably what all. That's probably 593 00:33:09,960 --> 00:33:12,600 Speaker 1: what I can put my arms around and believe, Dennis, 594 00:33:12,600 --> 00:33:14,840 Speaker 1: I'm gonna put a fancy chart out here. Haven't had 595 00:33:14,840 --> 00:33:17,560 Speaker 1: a time to make it up yet. On Twitter of 596 00:33:17,640 --> 00:33:21,240 Speaker 1: Dennis Gartment owning golden dollars or euros or some other 597 00:33:21,320 --> 00:33:27,680 Speaker 1: beleaguered currency, you look like a genius hedging gold in 598 00:33:27,800 --> 00:33:33,200 Speaker 1: foreign exchange. Should we hedge our equity holdings like we 599 00:33:33,280 --> 00:33:38,240 Speaker 1: hedge gold in other currencies? Well, a very good question. 600 00:33:38,240 --> 00:33:41,320 Speaker 1: First of all, let's talk about the gold in US 601 00:33:41,400 --> 00:33:43,840 Speaker 1: dollar terms, in the nonsense terms, we'll get to the 602 00:33:43,880 --> 00:33:50,080 Speaker 1: idea of hedging UH equity exposure. You have to understand it. 603 00:33:50,160 --> 00:33:52,600 Speaker 1: When you own gold in dollar terms, you have effectively 604 00:33:52,600 --> 00:33:54,640 Speaker 1: taken a short position in the US dollar. And I 605 00:33:54,680 --> 00:33:57,480 Speaker 1: don't think in the current environment that one wants to 606 00:33:57,520 --> 00:34:00,320 Speaker 1: be short of the dollar. We are by death of mission. 607 00:34:00,480 --> 00:34:03,600 Speaker 1: If you believe that the adjusted monetary basis the stock 608 00:34:03,680 --> 00:34:07,200 Speaker 1: from which all soups of the broad monetary aggregates are derived. 609 00:34:07,640 --> 00:34:10,040 Speaker 1: If you believe that, and I do well, Actually, the 610 00:34:10,160 --> 00:34:13,600 Speaker 1: supply of dollars in the world is declining rather dramatically 611 00:34:13,640 --> 00:34:15,919 Speaker 1: over the course the past fifteen months. On the other hand, 612 00:34:16,239 --> 00:34:19,920 Speaker 1: the monetary authorities in Europe and in Japan are continuing 613 00:34:19,960 --> 00:34:23,480 Speaker 1: their experiment with quantitative easing. In that environment, you would 614 00:34:23,640 --> 00:34:26,360 Speaker 1: much rather own gold in the terms of the currencies 615 00:34:26,400 --> 00:34:28,960 Speaker 1: that are being created, rather than in terms of the 616 00:34:29,000 --> 00:34:31,560 Speaker 1: currency that is that is disappearing in dollars are in 617 00:34:31,640 --> 00:34:35,759 Speaker 1: fact disappearing. If that holds true, then perhaps it is 618 00:34:35,800 --> 00:34:38,920 Speaker 1: wise if you own for if you are long of 619 00:34:39,000 --> 00:34:42,040 Speaker 1: equities elsewhere and you are a dollar buyer, when you 620 00:34:42,120 --> 00:34:46,440 Speaker 1: have bought Japanese securities, for example, you have effectively sold 621 00:34:46,440 --> 00:34:49,600 Speaker 1: short the dollar. Perhaps you should head to that dollar exposure. 622 00:34:49,880 --> 00:34:51,680 Speaker 1: There are times when it is wise to do so. 623 00:34:51,719 --> 00:34:54,840 Speaker 1: There are times when when it is pat tacitly unwise 624 00:34:54,920 --> 00:34:56,920 Speaker 1: to do so. And right now I think if you 625 00:34:56,960 --> 00:34:59,959 Speaker 1: are effectively taking a position short of the US dollar, 626 00:35:00,480 --> 00:35:02,160 Speaker 1: you're on the wrong side. You want to head to 627 00:35:02,160 --> 00:35:06,719 Speaker 1: that risk away. So the answer to your question is yes, yes, 628 00:35:06,800 --> 00:35:09,680 Speaker 1: they're okay. Well that was an answer. I like that then, 629 00:35:09,719 --> 00:35:11,279 Speaker 1: as because I was going to challenge a little bit 630 00:35:11,320 --> 00:35:16,240 Speaker 1: on the bull gold because uh, I just don't understand 631 00:35:16,280 --> 00:35:20,759 Speaker 1: I mean, I understand the thesis, but it has no 632 00:35:20,920 --> 00:35:24,000 Speaker 1: value other than the value that people place on it. 633 00:35:24,040 --> 00:35:27,319 Speaker 1: I mean, it has no connections him. I won't argue 634 00:35:27,400 --> 00:35:32,360 Speaker 1: that the gold is clearly a psychological circumstance under most events. 635 00:35:32,440 --> 00:35:35,319 Speaker 1: Under most and I see because well, that's this th 636 00:35:35,360 --> 00:35:38,040 Speaker 1: thing is that under those events the government closes the 637 00:35:38,080 --> 00:35:41,280 Speaker 1: gold window and makes it impossible for you to actually 638 00:35:41,360 --> 00:35:44,120 Speaker 1: access your gold anyway, or whatever, or some kind of 639 00:35:44,160 --> 00:35:47,080 Speaker 1: scenario like that. What is the scenario? What what is 640 00:35:47,120 --> 00:35:50,680 Speaker 1: the state of the world in which that gold call 641 00:35:51,160 --> 00:35:55,359 Speaker 1: ends up being correct? Uh, the state of the world 642 00:35:55,400 --> 00:35:57,279 Speaker 1: in which that gold call being correct is the same 643 00:35:57,320 --> 00:35:59,279 Speaker 1: state of the world that has existed for the past 644 00:35:59,440 --> 00:36:02,839 Speaker 1: two years or so. As I said, dollars are being diminished, 645 00:36:03,200 --> 00:36:06,120 Speaker 1: euros and yen are being created in that environment, which 646 00:36:06,200 --> 00:36:08,759 Speaker 1: is probably going to be at least I think we 647 00:36:08,800 --> 00:36:11,319 Speaker 1: are now in the post deflation era. I'm not sure 648 00:36:11,320 --> 00:36:15,080 Speaker 1: we're in the inflationary era, but I think we're certainly 649 00:36:15,160 --> 00:36:18,600 Speaker 1: in the post deflationary era. In those circumstances, with the 650 00:36:18,640 --> 00:36:22,240 Speaker 1: monetary authorities being expansive in Europe and end, why would 651 00:36:22,239 --> 00:36:24,480 Speaker 1: you not wish to own at least some gold? And 652 00:36:24,719 --> 00:36:27,319 Speaker 1: clearly the market has told you that's the right thing 653 00:36:27,360 --> 00:36:30,279 Speaker 1: to do. That's perhaps the most important circumstance of all. 654 00:36:30,320 --> 00:36:32,960 Speaker 1: The market has said by its vote, you're right in 655 00:36:33,040 --> 00:36:34,960 Speaker 1: doing so, and I'll continue to do it until the 656 00:36:34,960 --> 00:36:39,400 Speaker 1: market tells me that I'm wrong. At twelve announce, well 657 00:36:39,440 --> 00:36:42,759 Speaker 1: at twelve forty announced. In US dollar terms, I'm ambivalent 658 00:36:42,840 --> 00:36:46,320 Speaker 1: to gold given, but again, I really don't care about 659 00:36:46,320 --> 00:36:49,279 Speaker 1: golden dollars in dollar terms. I care about gold in 660 00:36:49,400 --> 00:36:51,959 Speaker 1: yen and Euro terms, and in both of those terms, 661 00:36:52,000 --> 00:36:54,720 Speaker 1: gold has been an unprotracted bull market for four years 662 00:36:54,760 --> 00:36:57,839 Speaker 1: and continues to be so. Dennis, I thank you so much. 663 00:36:57,880 --> 00:36:59,480 Speaker 1: I just want to tell you, Dennis, I've come up 664 00:36:59,520 --> 00:37:03,080 Speaker 1: with a great chart that shows the Gartman euro gold trade. 665 00:37:03,320 --> 00:37:06,440 Speaker 1: And the only reason I'm putting this out on Twitter, Dennis, 666 00:37:06,560 --> 00:37:08,560 Speaker 1: is not so you can see it or Doug cast 667 00:37:08,600 --> 00:37:10,680 Speaker 1: can see it. The one time a day he goes 668 00:37:10,719 --> 00:37:12,800 Speaker 1: out on Twitter but I want the President of the 669 00:37:12,880 --> 00:37:16,960 Speaker 1: United States to see golden euro terms. Maybe he'll subscribe 670 00:37:16,960 --> 00:37:20,920 Speaker 1: to the Gartment letter. You know he won't because he 671 00:37:21,040 --> 00:37:23,399 Speaker 1: gets taken the task too often in my news letter. 672 00:37:23,920 --> 00:37:26,000 Speaker 1: Well that would be true too, Dennis Gartman, thank you 673 00:37:26,040 --> 00:37:29,440 Speaker 1: so much for perspectives. Oh it's just amazing the outperformance 674 00:37:29,480 --> 00:37:33,279 Speaker 1: of golden euro terms from the financial crisis in particularly 675 00:37:33,719 --> 00:37:49,040 Speaker 1: in the last three years. I just could not be 676 00:37:49,160 --> 00:37:52,720 Speaker 1: better at time. Oliver Channon writes piercing notes for Cowen 677 00:37:53,400 --> 00:37:56,600 Speaker 1: on the state of fashion. He will write on Macy's 678 00:37:56,640 --> 00:38:00,239 Speaker 1: and the huge challenge that Fortress Londren is having. He 679 00:38:00,320 --> 00:38:03,759 Speaker 1: will write on some of the specialty retailers. Oliver, I 680 00:38:03,800 --> 00:38:05,560 Speaker 1: thought the New York Times hit the ball out of 681 00:38:05,560 --> 00:38:08,239 Speaker 1: the park today with their kickoff New York Fashion Week 682 00:38:08,280 --> 00:38:12,680 Speaker 1: piece the challenges of the business, the challenges of celebrity. 683 00:38:12,719 --> 00:38:16,879 Speaker 1: But all of this is the challenges of the consumer. 684 00:38:17,400 --> 00:38:20,880 Speaker 1: It's a new consumer. Help Vanessa Friedman and all the 685 00:38:20,880 --> 00:38:24,120 Speaker 1: other people wired into this in New York City, in London, 686 00:38:24,480 --> 00:38:28,440 Speaker 1: around the world. Who's getting it right right now? Who 687 00:38:28,680 --> 00:38:34,040 Speaker 1: is meeting the customer challenge best right now? Well, the 688 00:38:34,080 --> 00:38:37,640 Speaker 1: customer challenges are quite eclectic so who's getting it right? 689 00:38:37,680 --> 00:38:40,200 Speaker 1: I would say deep value. You think about ros stores, 690 00:38:40,239 --> 00:38:42,840 Speaker 1: t j X, mixing and matching, the customer is no 691 00:38:42,920 --> 00:38:47,080 Speaker 1: longer loyal or once a specific headset toe look of 692 00:38:47,120 --> 00:38:50,160 Speaker 1: a brand. That's trouble for Macy's. I'm going to suggest 693 00:38:50,400 --> 00:38:53,360 Speaker 1: that the luxury crew don't darken the door of t 694 00:38:53,560 --> 00:38:56,040 Speaker 1: j X. That, you know, let's let's let's start with 695 00:38:56,080 --> 00:38:59,920 Speaker 1: that assumption. Is anybody getting it right up scale or 696 00:39:00,120 --> 00:39:02,799 Speaker 1: is it such a free for all? Is Vanessa and 697 00:39:02,800 --> 00:39:05,920 Speaker 1: the good people at the Times captured today that you 698 00:39:06,000 --> 00:39:09,080 Speaker 1: don't know. Vanessa doesn't know, Robert Burke doesn't know. No 699 00:39:09,120 --> 00:39:11,719 Speaker 1: one knows really where where luxury is going. Well, there 700 00:39:11,760 --> 00:39:15,400 Speaker 1: are certain aspects of luxury that are working. We're recommending Southby's, 701 00:39:15,560 --> 00:39:18,239 Speaker 1: we are recommending Tiffany and Company as well. I would 702 00:39:18,239 --> 00:39:21,759 Speaker 1: say luxury apparel is where there's been more problems, and 703 00:39:21,800 --> 00:39:24,440 Speaker 1: I think the rise of Amazon, the rise of mobile 704 00:39:24,800 --> 00:39:28,360 Speaker 1: price comparison, as well as great alternatives and apparel is 705 00:39:28,400 --> 00:39:32,439 Speaker 1: really negatively impacting that business. Merchandise, margins and apparels under 706 00:39:32,440 --> 00:39:36,120 Speaker 1: a deflationary pressure, you know all One of the things 707 00:39:36,120 --> 00:39:38,720 Speaker 1: that happens at breakfast is where you like really reveal 708 00:39:38,920 --> 00:39:41,920 Speaker 1: the details secrets of what goes on in an industry. 709 00:39:42,320 --> 00:39:45,680 Speaker 1: And we're not that far from the flagship store of 710 00:39:45,840 --> 00:39:51,080 Speaker 1: Ralph lauren which just lost its chief executive. Um. Also, 711 00:39:51,520 --> 00:39:55,920 Speaker 1: I believe that just across the street that Tiffany losing 712 00:39:55,960 --> 00:39:59,319 Speaker 1: its chief executive. Could you explain what is going on 713 00:39:59,440 --> 00:40:02,799 Speaker 1: at that higher ranks of these companies. Yeah, there's a 714 00:40:02,840 --> 00:40:06,759 Speaker 1: revolution going on in retail, end of transformation. So what's 715 00:40:06,800 --> 00:40:10,560 Speaker 1: happening here is there's a real problem malls are over developed. Also, 716 00:40:10,760 --> 00:40:12,040 Speaker 1: No, no no, no, I know that. I know that, but 717 00:40:12,080 --> 00:40:16,399 Speaker 1: do you can for example with Ralph Laurence, right, can 718 00:40:16,440 --> 00:40:19,799 Speaker 1: you do you know why? Uh that did not work out? 719 00:40:20,960 --> 00:40:23,120 Speaker 1: I think when you think about what's happening here is 720 00:40:23,560 --> 00:40:27,160 Speaker 1: a struggle in terms of thinking about creative versus business 721 00:40:27,360 --> 00:40:30,160 Speaker 1: and how to maximize profits in the context of this stress. 722 00:40:30,719 --> 00:40:33,680 Speaker 1: But the department store problems are very relevant because a 723 00:40:33,760 --> 00:40:37,080 Speaker 1: lot of these companies that's their most significant customers. No, no no, 724 00:40:37,200 --> 00:40:38,839 Speaker 1: I know that, but I just meant like, why this, 725 00:40:39,239 --> 00:40:41,880 Speaker 1: you know, why the CEO left or why the CEO 726 00:40:42,080 --> 00:40:45,680 Speaker 1: of Tiffany, Because it's all about the people. It is 727 00:40:45,719 --> 00:40:49,719 Speaker 1: about the people, and there's different philosophies on the management 728 00:40:50,280 --> 00:40:55,120 Speaker 1: execution in terms of stars versus process versus heritage. So 729 00:40:55,760 --> 00:40:58,160 Speaker 1: we're in a time of stress with pressure, and I 730 00:40:58,200 --> 00:41:02,680 Speaker 1: think creative direction um can be quite controversial as brands 731 00:41:02,719 --> 00:41:05,600 Speaker 1: need to reinvent themselves. The biggest issue is speed and 732 00:41:05,640 --> 00:41:07,680 Speaker 1: supply chain. So a lot of these companies have to 733 00:41:07,760 --> 00:41:12,240 Speaker 1: be totally transformed in terms of really rethinking how quickly 734 00:41:12,280 --> 00:41:14,000 Speaker 1: they get products to market. And what you do is 735 00:41:14,080 --> 00:41:15,719 Speaker 1: you look great today, by the way, you got the 736 00:41:15,760 --> 00:41:18,279 Speaker 1: whole He's got the whole New York Fashion Week. Look going, folks. 737 00:41:18,360 --> 00:41:20,560 Speaker 1: It's not made for TV. You can only take it 738 00:41:20,600 --> 00:41:23,600 Speaker 1: in on radio. But but Oliver, when when I look 739 00:41:23,640 --> 00:41:28,080 Speaker 1: at the state of fashion, it's still about Meryl Street, 740 00:41:28,120 --> 00:41:33,560 Speaker 1: the double Wares, product aspiration or have our aspirations changed? 741 00:41:34,239 --> 00:41:36,759 Speaker 1: And everybody that may put's clothes on is has to 742 00:41:36,800 --> 00:41:39,839 Speaker 1: adapt to them. They have changed because the consumer has 743 00:41:39,880 --> 00:41:42,480 Speaker 1: more power. Now you think about Instagram, you think about 744 00:41:42,480 --> 00:41:45,840 Speaker 1: social media, trends come from the bottom, not the top. 745 00:41:46,000 --> 00:41:50,160 Speaker 1: Now it's basically there's more power. There's more democratization of 746 00:41:50,239 --> 00:41:52,720 Speaker 1: fashion as well. I mean, you give an idea Javan, 747 00:41:52,840 --> 00:41:56,880 Speaker 1: She's guy is gone, He's at Versace you mentioned Tiffany's gone, 748 00:41:57,160 --> 00:42:00,320 Speaker 1: Ralph Lauren gone. I mean it was just Oliver quickly 749 00:42:00,360 --> 00:42:03,600 Speaker 1: here and we'll come back just more of this. Probably 750 00:42:04,280 --> 00:42:06,960 Speaker 1: given the rise of Amazon, given the problems of stores, 751 00:42:07,440 --> 00:42:10,759 Speaker 1: given profits under pressure, there's a lot of pressure to 752 00:42:10,840 --> 00:42:14,640 Speaker 1: change in demand and reinvent. So it retails about reinvention, 753 00:42:14,719 --> 00:42:17,279 Speaker 1: surprise and delight. Out with the old and with the new. 754 00:42:17,520 --> 00:42:20,400 Speaker 1: Everybody's trying out retail now. There's a lot of common themes, 755 00:42:20,400 --> 00:42:23,160 Speaker 1: the death of them all, etcetera, etcetera. Are you so 756 00:42:23,320 --> 00:42:28,399 Speaker 1: underweight your world that essentially it's a cash investment or 757 00:42:28,480 --> 00:42:31,760 Speaker 1: can there be opportunity? We do think there's some great 758 00:42:31,840 --> 00:42:35,160 Speaker 1: long term opportunities such as Costco. We like Walmart as well. 759 00:42:35,719 --> 00:42:37,600 Speaker 1: We do like the off price sex or t j 760 00:42:37,840 --> 00:42:40,520 Speaker 1: X and rob and luxury goods, luxury goods at the 761 00:42:40,600 --> 00:42:43,600 Speaker 1: high end. Think about Southebys and Tiffany. We think they're 762 00:42:43,680 --> 00:42:48,719 Speaker 1: long term defensible and Tiffany are financially how can they 763 00:42:48,760 --> 00:42:50,759 Speaker 1: be good? Is there? I mean can they even do 764 00:42:51,840 --> 00:42:54,799 Speaker 1: but can they do even new level revenue growth? That 765 00:42:55,000 --> 00:42:58,280 Speaker 1: is an opportunity. So we see an inflection happening over time. 766 00:42:58,440 --> 00:43:00,600 Speaker 1: What they really need to think about is or traffic. 767 00:43:00,680 --> 00:43:05,000 Speaker 1: Also continued product assortment and innovation, So they need to 768 00:43:05,000 --> 00:43:08,320 Speaker 1: bring people back in the store, not just you buying 769 00:43:08,360 --> 00:43:11,120 Speaker 1: a gift. They need to bring the woman really desiring 770 00:43:11,200 --> 00:43:14,680 Speaker 1: product there. So as they balanced the two in terms 771 00:43:14,760 --> 00:43:17,759 Speaker 1: of self purchasing and gifting, that's an opportunity. The first 772 00:43:17,840 --> 00:43:21,080 Speaker 1: lady help, she was carrying the light Blue Box. I mean, 773 00:43:21,120 --> 00:43:24,920 Speaker 1: it's an iconic brand, The Blue Box matters. Well, I 774 00:43:25,040 --> 00:43:28,440 Speaker 1: just let me just give you the most recent background, right, 775 00:43:28,480 --> 00:43:33,080 Speaker 1: which is that the CEO basically got fired. Right, Michael 776 00:43:33,760 --> 00:43:37,720 Speaker 1: Kowalski has taken over as the UH. The interim chief 777 00:43:37,760 --> 00:43:41,760 Speaker 1: executive Frederick Kuminal had been there I think since April 778 00:43:41,760 --> 00:43:46,760 Speaker 1: of and UH sales declines in Europe. They also talked 779 00:43:46,760 --> 00:43:49,760 Speaker 1: about the sales declines in the United States, but also 780 00:43:49,880 --> 00:43:52,799 Speaker 1: stepped up security for their very you know, for their 781 00:43:53,040 --> 00:43:57,359 Speaker 1: flagship store. But they mentioned very specifically that Tiffany has 782 00:43:57,360 --> 00:44:00,600 Speaker 1: been cutting costs, rolling out new products, and increasing it's marketing, 783 00:44:00,600 --> 00:44:04,400 Speaker 1: but that the company needs to move faster. So what 784 00:44:04,400 --> 00:44:06,920 Speaker 1: what do they need to do faster? They need to 785 00:44:06,960 --> 00:44:09,560 Speaker 1: move faster in line with what consumers really want. So 786 00:44:09,680 --> 00:44:13,160 Speaker 1: consumers are shopping in all places for jewelry and the 787 00:44:13,520 --> 00:44:17,280 Speaker 1: younger customer, the middle customer really needs to desire products, 788 00:44:17,320 --> 00:44:21,239 Speaker 1: so it's product, it's marketing, its stores moving faster. A 789 00:44:21,239 --> 00:44:23,920 Speaker 1: lot of the stores look like they did at Breakfast 790 00:44:23,960 --> 00:44:27,480 Speaker 1: and Tiffany's the movie, so you really think about wonderful 791 00:44:27,560 --> 00:44:31,040 Speaker 1: store experience that's not just cabinets. It doesn't need to 792 00:44:31,080 --> 00:44:33,240 Speaker 1: look like a bank, but it needs to look sexy, 793 00:44:35,000 --> 00:44:39,640 Speaker 1: a more modern store. Uh footprint, it's part of the formula. 794 00:44:39,719 --> 00:44:42,200 Speaker 1: But customers are about I want what I want when 795 00:44:42,239 --> 00:44:44,880 Speaker 1: I want it, So think about online, think about gift thing, 796 00:44:44,960 --> 00:44:47,239 Speaker 1: think about buy online, pickup in store, think about ship 797 00:44:47,280 --> 00:44:50,239 Speaker 1: from store, and then the renovation of the assortments. So 798 00:44:50,320 --> 00:44:53,920 Speaker 1: Tiffany t Tiffany Atlas returned to Tiffany. They really need 799 00:44:53,960 --> 00:44:56,840 Speaker 1: to be sexy, so it's got to be about desire. 800 00:44:56,960 --> 00:45:00,359 Speaker 1: But Tiffany sells plenty of bridal jewelry so people will 801 00:45:00,360 --> 00:45:03,400 Speaker 1: always get married. They own a polishing facility in Botswana. 802 00:45:03,719 --> 00:45:06,399 Speaker 1: They have off Tick Diamond agreement. So as you think 803 00:45:06,440 --> 00:45:09,719 Speaker 1: about the world of investing, you want to own stocks 804 00:45:09,760 --> 00:45:12,920 Speaker 1: that have this kind of base safety as well. And 805 00:45:12,960 --> 00:45:14,560 Speaker 1: there's not a lot of combs that are well known 806 00:45:14,640 --> 00:45:16,120 Speaker 1: that was The reason I brought that up is the 807 00:45:16,160 --> 00:45:19,839 Speaker 1: stock got hit because the CEO left. Turn I want 808 00:45:19,840 --> 00:45:22,920 Speaker 1: to go the other direction. Sally Beauty dent in Texas. 809 00:45:22,960 --> 00:45:27,880 Speaker 1: What's happening? Are issues happening Sally Beauty? Her hair is 810 00:45:27,880 --> 00:45:31,040 Speaker 1: not so beautiful right now? I think what's happening There 811 00:45:31,280 --> 00:45:34,160 Speaker 1: is a lot of increased competition. Tell Tom about the 812 00:45:34,480 --> 00:45:37,560 Speaker 1: company for Sally Beauty, It's not exactly the tech Relief. 813 00:45:37,680 --> 00:45:41,280 Speaker 1: It's a lot different. It's it's a lot of employees. 814 00:45:41,320 --> 00:45:43,600 Speaker 1: They do and they have leading market share and hair 815 00:45:43,680 --> 00:45:47,080 Speaker 1: care um. It's it's a great destination if you need 816 00:45:47,120 --> 00:45:50,920 Speaker 1: to enhance your hair, and it's also had very loyal customers. 817 00:45:50,920 --> 00:45:53,719 Speaker 1: Off of all just to go local here, Good morning, Bloomberg, 818 00:45:54,040 --> 00:45:57,239 Speaker 1: eleventh three in New York. What's your prescription to resurrect 819 00:45:57,800 --> 00:46:01,680 Speaker 1: New York Fashion Week? New York Fashion Week will continue 820 00:46:01,680 --> 00:46:04,839 Speaker 1: to evolve, So I think it's, you know, fashion has 821 00:46:04,880 --> 00:46:07,880 Speaker 1: to continue to get fun. It's very somber, but a 822 00:46:07,920 --> 00:46:12,040 Speaker 1: lot of the designers are really speaking to the reality 823 00:46:12,040 --> 00:46:15,120 Speaker 1: of culture and what we're seeing now. But but you know, 824 00:46:15,120 --> 00:46:18,600 Speaker 1: it's you know, I don't. I think it's it's great 825 00:46:18,640 --> 00:46:20,719 Speaker 1: that it exists and there's a lot of excitement, but 826 00:46:20,760 --> 00:46:22,960 Speaker 1: it will continue to evolve. You know, New York as 827 00:46:23,000 --> 00:46:26,600 Speaker 1: a as a cultural destination at you know, you think 828 00:46:26,640 --> 00:46:30,879 Speaker 1: about Europe, there's a lot more sutorial heritage. However, men 829 00:46:30,960 --> 00:46:33,360 Speaker 1: are the new women. We've been wearing. We've been wearing 830 00:46:33,400 --> 00:46:36,279 Speaker 1: clothes for a long time. Yeah, I don't know. I 831 00:46:36,480 --> 00:46:40,200 Speaker 1: you know, my basic tickets. Rebecca Minkoff went to Los Angeles, right, 832 00:46:40,960 --> 00:46:46,160 Speaker 1: I mean the l a lifestyle. Help me, Rebecca Minkoff. 833 00:46:46,320 --> 00:46:49,200 Speaker 1: Simon's is showing here in New York. That's a big show, right, 834 00:46:49,239 --> 00:46:54,040 Speaker 1: Kelvin Klan is a big show. Yeah. I've lapped myself. 835 00:46:55,640 --> 00:46:58,799 Speaker 1: I've laughed myself. That's exactly what Mr Simmons has to do, 836 00:46:59,280 --> 00:47:03,359 Speaker 1: is right, exactly. We got to talk about track suits 837 00:47:03,400 --> 00:47:05,480 Speaker 1: because track suits are really end now as well as 838 00:47:05,480 --> 00:47:08,600 Speaker 1: bomber jackets. There's a lot of flowiness we should be. 839 00:47:09,360 --> 00:47:11,400 Speaker 1: This is the Oliver chenn we know in thet folks. 840 00:47:11,800 --> 00:47:14,240 Speaker 1: Tomorrow I'll be wearing a track suit with David Girl. 841 00:47:14,239 --> 00:47:18,000 Speaker 1: Oliver chen Thank you so much with cowed greatly greatly 842 00:47:18,040 --> 00:47:29,160 Speaker 1: appreciate it. Thanks for listening to the Bloomberg Surveillance Podcast. 843 00:47:29,520 --> 00:47:34,640 Speaker 1: Subscribe and listen to interviews on iTunes, SoundCloud, or whichever 844 00:47:34,760 --> 00:47:39,200 Speaker 1: podcast platform you prefer. I'm out on Twitter at Tom Keene. 845 00:47:39,280 --> 00:47:43,080 Speaker 1: David Gura is at David Gura. Before the podcast, you 846 00:47:43,120 --> 00:47:59,400 Speaker 1: can always catch us worldwide. I'm Bloomberg Radio, brought you 847 00:47:59,440 --> 00:48:03,120 Speaker 1: by Bank of America Mary Lynch. Dedicated to bringing our 848 00:48:03,160 --> 00:48:06,759 Speaker 1: clients insights and solutions to meet the challenges of a 849 00:48:06,760 --> 00:48:11,680 Speaker 1: transforming world. That's the power of global connections. Mary Lynch, Pierce, 850 00:48:11,760 --> 00:48:15,600 Speaker 1: Fenner and Smith Incorporated, Member s I p C.