Speaker 1: Yea. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane
Speaker 1: Jay Lee. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg Jim
Speaker 1: Glassman dropping by the studio here in New York. JP
Speaker 1: Morgan Chase, Commercial Banking head Economists, Good morning, teach him,
Speaker 1: Good morning. What are you expecting in about nineteen minutes time?
Speaker 1: Pretty decent job report and m This is interesting because
Speaker 1: we're still seeing above trend hiring, which is odd. When
Speaker 1: the underplom rate is this low, you tend to think
Speaker 1: you're gonna see things slow down. The number of people
Speaker 1: who are sixteen to seventy, the working age population, has
Speaker 1: slowed down dramatically. It's running about seventy thousand a month.
Speaker 1: So that tells you anything above that is an economy
Speaker 1: that's growing faster and it's training. And that's why the
Speaker 1: uneplumber rate has come down about a half a point
Speaker 1: this last year. When this print comes out, though, I
Speaker 1: just wonder if payrolls growth slows, are we gonna blame
Speaker 1: demand or lack of supply. What do you think the
Speaker 1: reaction function of the investor is right now, because I
Speaker 1: imagine they're going to blame demand. I think most people
Speaker 1: should be it will be thinking about supply because that's
Speaker 1: where the constraint is. And that's what all of our
Speaker 1: business clients are telling us. They having a hard time
Speaker 1: finding people. We've got a survey of folks business leaders
Speaker 1: that is pointing out this that folks are just that's
Speaker 1: the big challenge for for businesses. So one day you
Speaker 1: figure you're gonna start to see slower growth and hiring,
Speaker 1: and it's got to be because of the supply constraint.
Speaker 1: You think so. But I think given the perception of
Speaker 1: investors right now, looking at the dates around sweat, there
Speaker 1: is a real concern about demand him. You know, I
Speaker 1: think the issue in the market is really more about
Speaker 1: the possibility of recession in the next couple of years.
Speaker 1: Has been that idea has been percolating for most of
Speaker 1: the last year. So that's why people worry about the
Speaker 1: yell curve and what the FED is doing. And you
Speaker 1: might wonder why are people worried about the FED when
Speaker 1: the real FED funds rator is only zero and it's
Speaker 1: because the market has been thinking. As you look at
Speaker 1: our history, what people observe is that every time we
Speaker 1: get to full employment or low levels of unemployment, within
Speaker 1: a year or two, we trip up in a new recession.
Speaker 1: And I think, I think this what's going on the
Speaker 1: equity market. It's more about the possibility of a recession
Speaker 1: than it is about the economy itself today. Well, listen,
Speaker 1: look at the ice it has come out in the lasts.
Speaker 1: This is a market that ignored a really hot I
Speaker 1: d P print and was lately to focus on what
Speaker 1: happened with the I s M. I think there's a
Speaker 1: view amongst most investors and most market participants right now
Speaker 1: that the labor markets that lacking indicates on what is
Speaker 1: happening gaps whereas the reality it is. But you know,
Speaker 1: things like the I s M are more sentiment driven
Speaker 1: to and they've been out of line with some of
Speaker 1: the other measures. So I think, yes, of course the
Speaker 1: labor market is lagging, and it responds to how business
Speaker 1: to see things. But but the truth is, I think, uh,
Speaker 1: we we are still riding a wave of fiscal stimulus
Speaker 1: from last year, and I think the I really think
Speaker 1: that the big idea that's brewing in the market is
Speaker 1: more a worry about a new recession and could the
Speaker 1: FED be the cause of that by overtightening. What is
Speaker 1: your view on the American economy? I mean, I'm JP
Speaker 1: Morgan is a huge platform as a chasman, you know,
Speaker 1: economic operation. You're in commercial banking, which is a whole
Speaker 1: a different wing. But is it a view of two
Speaker 1: point whatever? Is CLARENI says a solid economy or is
Speaker 1: itself of that? You know in macro terms? I think
Speaker 1: it is a spectacular economy. We we've come out of
Speaker 1: an awful recession. We're back to levels of unemployment that
Speaker 1: I haven't seen since I was in college, and that
Speaker 1: wasn't yesterday. Um And but the big issue in the
Speaker 1: in the U. S. Economy is all the disruption caused
Speaker 1: by innovation. So you look at the labor market, it
Speaker 1: looks great. Unemployment is low, people are getting jobs, helping
Speaker 1: it signs all over the place. Our business leaders can't
Speaker 1: know they were having to work hard to have fired
Speaker 1: pep hired people. And yet when you look at the
Speaker 1: income distribution of the U. S. Economy, that kind of
Speaker 1: tells you why it is that there's so much age.
Speaker 1: I mean, do you agree with a guilded age? You
Speaker 1: mean Robert Gordon, your great mentor a Northwestern wrote about
Speaker 1: this a few years ago. Are we in a guilded
Speaker 1: age of Eisenhower unemployment rate? I think so. I think
Speaker 1: I think so, And come on, guys, is the same
Speaker 1: way not here to poopoo on the economy. I think
Speaker 1: the economy compared to the rest of the world is solid.
Speaker 1: I agree with that relatively speaking. What I struggle to
Speaker 1: agree with is, how do you reconcile the idea that
Speaker 1: the real Fed funds rate is at zero and could
Speaker 1: well be a neutral and yet the economy is spectacular?
Speaker 1: How do you reconcile those two things? Just the idea
Speaker 1: that a real Fed funds rate of zero is also neutral?
Speaker 1: Could economist? Some economists think maybe we've gone through neutral,
Speaker 1: though I don't think it is neutral. I don't think
Speaker 1: the Fed thinks it's neutral. If you look at the FEDE,
Speaker 1: someone at the Fed thinks it's neutral. Well, some do,
Speaker 1: but I have thought that for a while, and they've
Speaker 1: changed your mind a while ago. If you look at
Speaker 1: the bulk of the folks there, they tend to think
Speaker 1: that neutral is a real fit a fun straight about
Speaker 1: a percentage point over inflation. So I I don't I
Speaker 1: don't think if if Chairman Power we're here and not
Speaker 1: on air, I think he would. We tried to get him.
Speaker 1: He was unavailable today from Atlanta. He's busy with the
Speaker 1: chairman Banankee and you were shot out to Michael McKee's
Speaker 1: killing with Robert Kaplan in this power thing? Am I right? John,
Speaker 1: it's a panel to form a chairman chatwoman. We're gonna
Speaker 1: hear all of them to government, all of them together understands. Yeah,
Speaker 1: but security scenario. It's very very cool. But I just
Speaker 1: wonder whether this is the appropriate forum for the chairman
Speaker 1: to communicate a change all single a little bit of
Speaker 1: a change in communication. Jim, do you think it is?
Speaker 1: I don't think so, And I think I mean, Congress
Speaker 1: is the best place to do it, and in their
Speaker 1: official documents. But I think he's sort of he's I
Speaker 1: think he has changed the message. I think the messages
Speaker 1: we're we're closer to neutral than we were, and we're
Speaker 1: gonna be more cautious and we're gonna be given to
Speaker 1: guided by the data. It's not no longer automatic pilot.
Speaker 1: We have n f I B Survey, the Small Business Survey,
Speaker 1: and small business folks are a lot more employees, and
Speaker 1: you think, like, it's not like a hundred employees or twenty,
Speaker 1: it's like a thousand employees. But where's investment? When you're
Speaker 1: traveling all over the country. I get the idea that
Speaker 1: there's help. Why don't we can't get jobs? But is
Speaker 1: there really an appetite to invest in the two thousand
Speaker 1: to be more cautious, particularly in this environment, because what
Speaker 1: they what they think is going on, is that the
Speaker 1: markets are telling them you've got to be prepared for
Speaker 1: some possible recession in the future, so that automatically makes
Speaker 1: you more cautious. But at the end of the day,
Speaker 1: your investment decisions are going to be based on what
Speaker 1: you think the market opportunities are, and they're going to
Speaker 1: be guided by what they see on the ground, not
Speaker 1: what they hear in the airwaves. Do you have a
Speaker 1: train to catch? Right? Do go get a train? Thank
Speaker 1: you so much that we were thrilled they could join
Speaker 1: us here on job. Culling the reserve requirement ratio so
Speaker 1: effectively culling the amount of cash lenders must hold as
Speaker 1: reserves by one percentage point now will happen in two
Speaker 1: stages over the next month. Miranda Car joining us from
Speaker 1: High Tank International China macro Strategists. There, Miranda, great to
Speaker 1: have you with us on the program. Let's talk about this.
Speaker 1: Do I view this as easing or something seasonal? What
Speaker 1: is this? Well, there's two You always get a squeeze
Speaker 1: in China's markets ahead of the spring festivals. People take
Speaker 1: money out of the out of the banking system. But
Speaker 1: the fact that you've had UM such one percent across
Speaker 1: the board for all the banks, it's it's more than
Speaker 1: offsetting the both the liquidity squeeze and the thing about
Speaker 1: in our cart it's permanent. If they just wanted to
Speaker 1: provide short term liquidity, they could do to that through
Speaker 1: open market operations. So this is UM an economic boost,
Speaker 1: not just a liquidity injection. As a good point, and
Speaker 1: I do wonder whether what we've seen so far, because
Speaker 1: we have had a series of triple our cuts over
Speaker 1: the last couple of months, whether that's enough to support
Speaker 1: this economy, to support a turn in this economy, is it? Miranda, Well,
Speaker 1: they need to push more money into the students, to
Speaker 1: the banking system and support some of the infrastructure investment,
Speaker 1: which is one of the key things to offset the
Speaker 1: projected slow down going to this trade and sort of
Speaker 1: lower lower exports. I mean, because you're already seeing the
Speaker 1: slowdown coming through in the commodity prices which have been
Speaker 1: incredibly weak um as we come into as we come
Speaker 1: into January, UM, so there needs to be more shovel
Speaker 1: money shoveled out. This is also just to offset the
Speaker 1: shadow banking slow down. This is a really important nuanswer
Speaker 1: to mail. This is not about commodities, it's not about food,
Speaker 1: it's not about the people of China small business data,
Speaker 1: da dada. This is about the debt in the banking system,
Speaker 1: isn't it. Yeah. And the thing is they've tried to
Speaker 1: they're trying to drag the monetary system away from the
Speaker 1: you know, things like the trust lending and the shadow
Speaker 1: banking and the online financing and drag it back into
Speaker 1: the banking system, but also put into the cabin Don't
Speaker 1: they have to legislate that and not do it through
Speaker 1: a monetary intrusion, So they they I mean, they don't
Speaker 1: need to legislate that. I mean, a lot of the
Speaker 1: so a lot of the slowdown last year was all
Speaker 1: about regulation. Um, it wasn't you know in terms of
Speaker 1: it wasn't a monetary policy tightening. They they they regulated
Speaker 1: and so they're sort of the regulation really squeezed the
Speaker 1: sort of off the shadow banking system. Now, the fact
Speaker 1: that they've eased that, that's not going to give a
Speaker 1: huge amount of boost into that sector, but it is
Speaker 1: going to give more more system wide liquidity. You are
Speaker 1: experts on how they clear their systems. Is this really
Speaker 1: what it's about, is they won't let banks fail and
Speaker 1: that they just haven't cleared out the debris over side
Speaker 1: to in twenty years. And this is a price they
Speaker 1: pay right now, is they've got too much garbage businesses
Speaker 1: out there. Well, you the thing is they've cleaned out
Speaker 1: a lot Like a lot of the garbage was which
Speaker 1: everyone was focused on from the two thousand nine stimulus
Speaker 1: package was from the local government financing platforms. Now that's
Speaker 1: been that's been hived off into fiscal bed so therefore
Speaker 1: it's been dealt with. It's basically been um, you know,
Speaker 1: put on the government balance sheet. So that's that's that's
Speaker 1: been in effect cleared up. What we're getting now is
Speaker 1: the first wave of private sector defaults and it's a
Speaker 1: small and medium sized private companies which are really struggling
Speaker 1: at the moment. And now they've had when they had
Speaker 1: the shadow banking UM taps turned off last year, they
Speaker 1: were the ones that you saw the rising bankruptcies, really
Speaker 1: struggling and where the slowdown was. Now the question for
Speaker 1: China is how they get money into back into that
Speaker 1: sector so you don't see a huge wave of bankruptcy
Speaker 1: is coming through and much more pressure. And that's to
Speaker 1: be honest, the big big issue for UM. You know,
Speaker 1: did the domestic economy this year because they're trying to
Speaker 1: get money into that sector, but some of the it's
Speaker 1: a really difficulty, don't have the mechanisms to do it.
Speaker 1: Some miranda just to be clear, to summarize and conclude
Speaker 1: the deleveraging effort, and the Chinese authorities slightly capitulated on that. Yeah,
Speaker 1: I mean basically deleveraging is not seen as a it's
Speaker 1: it's the saying that we're not going to go into
Speaker 1: a big monetary boost. But obviously the deleveraging and the
Speaker 1: really squeeze that we had last year, it's it's basically
Speaker 1: that's come to an end and we're now into much
Speaker 1: more accommodative phase. Now, this has been brilliant round the car,
Speaker 1: Thank you so much. At the high time. Why don't
Speaker 1: you bring in professor Krueger years he looks at a
Speaker 1: make America Great Again employment report and what are your thoughts? Well,
Speaker 1: my thoughts are a little bit cloudy because at the
Speaker 1: BLS web page, I guess went to a said we're sorry, unavailable.
Speaker 1: But from the top line numbers, this is an excellent report,
Speaker 1: and I think it shows that the Fed has been
Speaker 1: pursuing a very prudent course. No, it shows that the
Speaker 1: BED have felt that the labor market continues to be strong,
Speaker 1: the real economy is moving along. Uh, we had stimulus
Speaker 1: at the wrong time. Um. But UM looks to me
Speaker 1: like this is a big win for the course has
Speaker 1: been on three seventy thousand, three twelve plus fifty eight.
Speaker 1: Even I can do the math three seventy thousand left.
Speaker 1: I mean this this really limits Chairman Powell's conversation this
Speaker 1: morning about stability or a rate cut. You just don't
Speaker 1: do that into a three seventy statistic, do you. Well,
Speaker 1: I think the Fed is going to be more data dependent.
Speaker 1: I think they're not on a pre set course, and
Speaker 1: we'll probably see a fewer rate increases. And the headwinds
Speaker 1: that we have been developing late in December earlier this
Speaker 1: year aren't reflected in this report. But it shows that
Speaker 1: the actions that the BED was taking through the end
Speaker 1: of last year, it seemed to me to be pretty
Speaker 1: well justified. Alan Krueger, Princeton, Thank you now joining us
Speaker 1: Michael Darta. As we spoke to David Rosenberg earlier. Mr
Speaker 1: Darta at m CAM Partners is decisive in writing economics
Speaker 1: and linking it in to market performance. Michael Darty, if
Speaker 1: you see a bang up jobs report, I saw one
Speaker 1: headline that called it a blowout, that's great. Can you
Speaker 1: link it over into equity market performance? I can sure try, Tom,
Speaker 1: Thanks for having me on. So we have a bit
Speaker 1: of a strange situation here. I mean, these numbers are
Speaker 1: white hot, very very very strong. Yet financial markets for
Speaker 1: some time have been basically telling us that growth is
Speaker 1: going to slow. You simply don't see it in these numbers,
Speaker 1: and that really puts the FED in a bit of
Speaker 1: a pickle. Um. They say they're data dependent, and that
Speaker 1: means if they are going to shift course, they need
Speaker 1: the data to tell them to do so. Unfortunately, data
Speaker 1: lags financial market indicators, and so you know, we basically
Speaker 1: have the situation where the FED is going to be
Speaker 1: incredibly reluctant to really shift policy in a dovish direction,
Speaker 1: despite the fact that you know, we've got parts of
Speaker 1: the yield curve that are inverted, significant stress and credit markets,
Speaker 1: slow down, in liquidity growth, all those things tell us
Speaker 1: the economy is going to soppen this year. You and
Speaker 1: I are looking at the same quick data we'll see
Speaker 1: much more earlier. I'm looking at leisure and hospitality up
Speaker 1: in very few negative numbers on the screen. But if
Speaker 1: you look at now and over the last number of months,
Speaker 1: what portion of the big job numbers that we're seeing
Speaker 1: our quality jobs or are they all people saying, you know,
Speaker 1: what would you like for dessert? Well, you know, we
Speaker 1: we you know, we do have some low end jobs.
Speaker 1: We also have higher quality jobs. The labor markets tight
Speaker 1: enough now to raise wages um so we are seeing
Speaker 1: workers wages move up just over three percent year over year.
Speaker 1: So you know, this is outside of the recovery range.
Speaker 1: For most of the expansion has been close to two
Speaker 1: So we are moving up now, and that's what matters.
Speaker 1: We also had a situation where nominal GDP growth last
Speaker 1: year was above five, very strong, basically the strongest of
Speaker 1: the recovery. The question is this year in a slowing
Speaker 1: nominal growth environment, um, how does the FED handle that?
Speaker 1: And how do you look forward? Because if it's just
Speaker 1: a matter of celebrating stale data or end up with
Speaker 1: a policy are if you're just joining us, Michael Darta,
Speaker 1: mcamp partners with us on this job to a future.
Speaker 1: As were oh, up thirty is up twenty seven right now,
Speaker 1: you don't see any equity markets with the bond market.
Speaker 1: Off the headline, we had a huge move tenure yield
Speaker 1: up seven even eight basis points. That get back a
Speaker 1: little bit right now. But two point on the tenure yield,
Speaker 1: real gyrations yen one six yen is a little bit weaker.
Speaker 1: Off the jobs report, I'll call that a fractional move
Speaker 1: as well, Michael Dart. And when I look at the numbers,
Speaker 1: and I'm just doing a quick eyeball here, folks, I
Speaker 1: see the Barbell economy. I see media and duration not
Speaker 1: doing much. I see you know, the marginally attached unemployment
Speaker 1: U five. I see the all in U six data
Speaker 1: really not improving all that much? Is it a tale
Speaker 1: of two America's Well, Tom, I I think it's just
Speaker 1: a matter of some of the standard employment metrics not
Speaker 1: really capturing the depth of depth of the of the
Speaker 1: downturn and the slowness of most of the economic expansion.
Speaker 1: My favorite metric is the employment the population ratio for
Speaker 1: prime age individual to fifty four. And you know, we're
Speaker 1: just now starting to get back to you know, to
Speaker 1: to more normal levels on that one, but it's taken
Speaker 1: quite a long time exactly by no means that you know,
Speaker 1: are we at levels consistent with record employment? You read
Speaker 1: my mind? Yeah, Michael, you read my mind on that.
Speaker 1: I did not that that's sharp, but something just like
Speaker 1: it of five to fifty four prime employment in America.
Speaker 1: This morning, I took it back to President Truman. And
Speaker 1: the answer is is all our listeners know, the vector
Speaker 1: has always gone up. That's the American way. We always
Speaker 1: create more jobs. And there's been a leveling from two
Speaker 1: thousand and employed twenty five to fifty four in this nation,
Speaker 1: even a decline at one point, but let's call it
Speaker 1: a leveling. For radio. Fine, there's been a leveling. Let's
Speaker 1: go back. Why did we level out in employed prime
Speaker 1: Americans beginning about two thousand. Well, I mean, so the
Speaker 1: starting point there literally was the tightest labor market since
Speaker 1: the since the nineteen sixties, and well it was just
Speaker 1: to some degree, you know, and then we had a
Speaker 1: you know, a very deep, very very long downturn in
Speaker 1: a quite slow recovery in that prime major ratio. Because
Speaker 1: you're looking at how many people are employed relative to
Speaker 1: their population, it's not distorted by dropouts into and less
Speaker 1: distorted by demographics. And so you know, to the extent
Speaker 1: that we have people that are on the sidelines due
Speaker 1: to opioid addiction or lots of skills. You know, your
Speaker 1: previous guest, Alan Krueger has done a lot of work
Speaker 1: on that. You know, it's really captured in that ratio.
Speaker 1: So we are recovering. You know, we've recently hit a
Speaker 1: cycle high on that ratio. I don't have the updated
Speaker 1: data on my Bloomberg screen at the moment, but recently
Speaker 1: we finally got back to the pre crisis media we're
Speaker 1: not at We're not at levels um that you would
Speaker 1: expect to see with the unemployment rates of FO We
Speaker 1: got so much to talk about very quickly, your Michael
Speaker 1: Darta Howard Chairman Powell fold this wonderful employment report, this
Speaker 1: blowout number into his comments this morning with Bernanke and
Speaker 1: yelling you know, I think you know, he's sort of
Speaker 1: walking a tight rope here. I think he's you know,
Speaker 1: certainly not going to want a jostle markets anymore. That
Speaker 1: reacted very poorly to his press conference after the last
Speaker 1: bad decision, So I think he's going to try to
Speaker 1: tippo to a bit. He's probably not going to weigh
Speaker 1: in directly on this number, and he'll try not to
Speaker 1: weigh in directly on, you know, on on recent market dynamics.
Speaker 1: But you know, he may be lad there, so we'll
Speaker 1: see how it unfolds. Michael Darter, thank you so much
Speaker 1: for your analysis away from your clients here on the job,
Speaker 1: say Michael Darted with m CAM Partners is well, here
Speaker 1: is administration. Now. I'm really pleased to say we joined
Speaker 1: now on Bloomberg Television and for our listeners across the
Speaker 1: world of Bloomberg Radio by Larry Cudlow, the National Economic
Speaker 1: Council Director, and he joins us now. Good day to Larry,
Speaker 1: Good day, Thank you, for having me. Always great to
Speaker 1: have your Larry. Let's just start with that blow out
Speaker 1: payrolls report. The consumer in the United States looks really
Speaker 1: strong right now. Do you see that still a sustainable Larry?
Speaker 1: Oh sure? I mean look at first of all, if
Speaker 1: you if you break out some of the key pieces
Speaker 1: in this report, as you know, now, do we get
Speaker 1: the three and twelve thousand jobs the prior two months
Speaker 1: were revised higher, so that put another fifty eight thousand
Speaker 1: jobs in. People are streaming into the workforce. So with
Speaker 1: where ages, you know, year on year average hourly earnings,
Speaker 1: what three point two percent hours worked are very significant
Speaker 1: two percent you put that together the income or a
Speaker 1: proxy for wage income as I've called it down through
Speaker 1: the years, that's five point two percent nominal and the
Speaker 1: inflation rate is only about I don't know, a bucket
Speaker 1: a quarter, maybe one point four percent. That's a lot
Speaker 1: of consumer firepower. I think you saw that during the
Speaker 1: holidays selling season. I think it's going to continue. I
Speaker 1: just want to say, you know, I appreciate your characterization
Speaker 1: a blowout. It was a blowout, but but look, I
Speaker 1: just want to editorialize. I know this has been a
Speaker 1: gloomy period. I know people are concerned about the stock market. Okay,
Speaker 1: corrections come and go, nobody particularly likes them. But there
Speaker 1: you have it. There's no recession in sight. If I may,
Speaker 1: this is so loose talk about recession with a lot
Speaker 1: of very I don't know, not hard day as surely
Speaker 1: there's just no recession. The American economy is growing three solid,
Speaker 1: job games are huge, and businesses are investing big time.
Speaker 1: So it's a much better, more optimistic picture than what
Speaker 1: we've been getting in the last month or two. So
Speaker 1: let's talk about that. Because you said back in July
Speaker 1: of last year that the boom would be sustainable for
Speaker 1: as far as the eye can see. Now we're often
Speaker 1: overtaken by events. And I just wonder whether we're being
Speaker 1: overtaken by events now, do you still see the boom
Speaker 1: is sustainable as far as the eye can see, or
Speaker 1: do we need to temper expectations a little bit? Well?
Speaker 1: I hold to that. Um. You know, if I if
Speaker 1: I get a cutload forecast right for a few months,
Speaker 1: I'm going to write it as long as I possibly can.
Speaker 1: They're not always right, as I think, you know, but
Speaker 1: I think look, we have a set of economic policies
Speaker 1: that are pro growth. I mean, this is President Trump's revolution.
Speaker 1: If you will lower business tax rates, roll back all
Speaker 1: manner of regulations. Uh, small business taxes coming down, individual
Speaker 1: taxes coming down. As I say, the regulatory rollback is huge,
Speaker 1: unlocking the energy sector. Now, I'm not gonna spend twenty
Speaker 1: minutes on this, but let me just say these are
Speaker 1: pro growth policies. And for those skeptics who say, well,
Speaker 1: it's a sugar high, it's not a sugar high. These
Speaker 1: policies are going to remain in place for years, for years. Okay.
Speaker 1: The business tax cuts I guess have to be extended
Speaker 1: in this is We've got a long ways to go.
Speaker 1: I mean, hopefully they'll be made permanent. But you see
Speaker 1: my point. The policies are intact. The president is you know,
Speaker 1: in no way would he tolerate efforts by the new
Speaker 1: Congress to raise taxes or raise regulations and so forth.
Speaker 1: So why can't I ask you, why can't the incentive
Speaker 1: effects they have given us the supply side boom without installation?
Speaker 1: Why can't that continue for as far as the eye
Speaker 1: can see? Well, this is the pushback, Larry, This will
Speaker 1: be the pushback. The downside surprises we've had elsewhere in
Speaker 1: the economy, housing and real estate, the industrial sector, retail
Speaker 1: and wholesale sector, services, and business cycle indicators. What is
Speaker 1: happening with the yield curve, the inversion we see at
Speaker 1: the front end, the slow down in China, the rollover
Speaker 1: and crewed which, as we know, is no longer the
Speaker 1: net net positive for the U. S. Economy that it
Speaker 1: used to be. All of those things A big head
Speaker 1: wins into the U. S economy at the moment. And
Speaker 1: I think the real debate happening with economists, quite honestly
Speaker 1: and genuinely and stripping out all of the politics, is
Speaker 1: about whether the U. S. Economy can decouple from the
Speaker 1: rest of the world. The rest of the world is
Speaker 1: not looking great, and the answer for many people is
Speaker 1: know why is the answer? Yes, Larry, Well, look, I
Speaker 1: agree with you. The rest of the world is not
Speaker 1: looking great. Maybe we'll talk about China and trade in
Speaker 1: a few moments. I agree with that, But look, my
Speaker 1: basic model has always been that the US leads. It's
Speaker 1: not that I want everybody else to do poorly. I don't.
Speaker 1: I want booming growth and prosperity worldwide. But unfortunately there's
Speaker 1: a lot of policies out there that aren't working all right.
Speaker 1: Second point, the United States, we are the locomotive. We
Speaker 1: are the ancient that leads when we get it right.
Speaker 1: I learned this from Reagan many years ago. When we
Speaker 1: get the story right, when we go free market, when
Speaker 1: we go incentives, when it pays more to invest or
Speaker 1: work the extra hour. You saw phenomenal wage increases today
Speaker 1: and along with the labor number. When these things go right,
Speaker 1: we will go right and then and then hopefully the
Speaker 1: rest of the world will follow if they don't take
Speaker 1: anti growth policies. So I agree with you globally, but
Speaker 1: I gotta say that the United States can go it alone.
Speaker 1: We can shoulder the burden of the world economy if
Speaker 1: we must. Yep, I'd rather these countries, you know, followers.
Speaker 1: So you see the point I'm making. If we are
Speaker 1: on the incentive track, if we're on the growth track,
Speaker 1: if we're on the prosperity track, will be just fine, okay,
Speaker 1: and hopefully our success will even help their success. There's
Speaker 1: too much gloom. There's too much gloom and doom. I
Speaker 1: prefer boom. I think everyone watched the watching this program.
Speaker 1: Larry with the exception of people with big shorts would
Speaker 1: love the boom and not the gloom at the moment, though,
Speaker 1: when you look at what's happening with Apple, Apple coming
Speaker 1: down and saying there's a big slow down in China,
Speaker 1: bigger than they anticipated. Also pointing towards the trade situation,
Speaker 1: and your own colleague, Kevin Hassett saying the following yesterday
Speaker 1: to CNN, there are a heck of a lot of
Speaker 1: US companies that have sales in China that are gonna
Speaker 1: be watching their earnings being downgrading next year until we
Speaker 1: get a deal with the Chinese. To me, that's tacit.
Speaker 1: Admit that the trade debate, the skirmish with China is
Speaker 1: impacting big US companies and it's feeding back into the
Speaker 1: U s economy. Larry, Well, look, let me just back out.
Speaker 1: You've got two issues here, both good questions. First of all,
Speaker 1: Kevin has it, my dear friend in colleague, We went
Speaker 1: back yesterday and took a look at the profit numbers
Speaker 1: on a worldwide basis. So if American companies operating in
Speaker 1: China had zero profits zero, that would only affect one
Speaker 1: point seven percent of total US profits, a very small
Speaker 1: fraction you follow me. Now, It's not gonna be zero,
Speaker 1: It's gonna be better than zero. So I think it's
Speaker 1: a little easy and inaccurate to just say all these
Speaker 1: American companies are gonna crash because China's economy is very weak.
Speaker 1: I grant you that, but I don't think that profits.
Speaker 1: I think Mr Tim Cook, who was a friend of mine,
Speaker 1: he's a brilliant businessman. I think Apple may have been overextended.
Speaker 1: I'm not here to get a second guess his business
Speaker 1: plan and so forth. I'm just saying Apple is not apocryphal.
Speaker 1: And the slowdown in China, which is quite significant, Uh,
Speaker 1: you know, they've lost their They're not doing market based
Speaker 1: reforms anymore. If they would listen to US and negotiate
Speaker 1: with us on trade, we would help them enormously with technology.
Speaker 1: I p tech transfers as well as free market approaches.
Speaker 1: They've gone off the track. That's the Chinese problem. And
Speaker 1: by the way, I just want to add, not only
Speaker 1: am I not worried about American profits and China's I
Speaker 1: note that President Trump has been rather optimistic with respect
Speaker 1: to the China trade talks. We are set sending a delegation,
Speaker 1: as you may know of deputy level people to China
Speaker 1: this weekend and next, and then the Chinese will reciprocate
Speaker 1: when they come here. President just talked to Sheet. So
Speaker 1: I don't want to get ahead of the curved, right,
Speaker 1: all these good ideas on no tariffs, no non tariff barriers,
Speaker 1: let's stop the technology stealing. I don't want to get
Speaker 1: ahead of that curve. Their enforcement issues, timing issues, et cetera.
Speaker 1: But but, but, but I think that President Trump is
Speaker 1: more optimistic, and I think China needs the kind of
Speaker 1: pro growth trade reforms that President Trump is suggesting. Their
Speaker 1: economy has been slumping for years. Take a look at
Speaker 1: the charts on investment in sales. What car sales fell
Speaker 1: absolutely twenty They have gotten off track. So we could
Speaker 1: help them if they let us. And I don't think
Speaker 1: there's a catastrophe in the making if they do let us.
Speaker 1: But I'm not going to get ahead of the curve.
Speaker 1: Let's see how it works. Well, you know what encourage
Speaker 1: you to get ahead of the cub Oh, he wants
Speaker 1: some insigns. And what we're looking to achieve next week.
Speaker 1: What is the minimum condition of success for the lower
Speaker 1: level talks to generate some high level talks in the
Speaker 1: coming months. Well, that's a good question, and it's a
Speaker 1: hard question. Um, you've got different buckets of issues. You've
Speaker 1: got your commodity buckets, agriculture, industrial supplies, capital goods. We
Speaker 1: are asking China to significantly reduce their tariff barriers and
Speaker 1: their non tariff barriers very very important. We'd like them
Speaker 1: to reduce their subsidies so they don't flood the market
Speaker 1: with excess goods and services. That's one very important area.
Speaker 1: Another important area that will be discussed and vetted in
Speaker 1: this Deputy's meeting, the whole issue of I P theft um.
Speaker 1: By the way, that may be part of the Apple issue. Uh.
Speaker 1: I don't want to surmise too much here, but Apple
Speaker 1: technology may have been picked up by China and now
Speaker 1: China is becoming very competitive with Apple. You've got to
Speaker 1: have a rule law. There's some indications from China that
Speaker 1: they're looking at that, but we don't know that yet.
Speaker 1: There's no enforcement, there's nothing concrete. Finally, among other things,
Speaker 1: the cyber hacking has got to stop, and and let's
Speaker 1: force face it, ownership has got to change. We are
Speaker 1: asking them to let American companies own their companies, so
Speaker 1: there's no forced transfer of sensitive technology that is hugely important.
Speaker 1: Now preliminary talks have been I would say a little
Speaker 1: more optimistic than usual, but there is nothing definitive. I
Speaker 1: think Ambassador Lighthouser would tell you that there's nothing definitive,
Speaker 1: and again, trust but verify. I learned that under Reagan,
Speaker 1: and we're gonna have to have it here with Chinese
Speaker 1: trade talks, so we can help their economy if they
Speaker 1: let us. But we don't know this yet. There are
Speaker 1: some big claims and some big goals for next week alone.
Speaker 1: Let's get to another potential meeting and not between the
Speaker 1: President of the United States and President She between the
Speaker 1: President of the United States and the Federal Reserve chairman.
Speaker 1: Are you working on making that meeting happen? Larry? Could
Speaker 1: that be happening anytime soon? I don't want to get
Speaker 1: too specific and too details on that um the details
Speaker 1: haven't been quite fixed yet, but I think both sides
Speaker 1: would like to have a meeting, and I personally think
Speaker 1: a meeting would be useful. It's just my personal opinion.
Speaker 1: I prefer to talk rather than than not to talk,
Speaker 1: so I'd like to see a meeting. I can't be
Speaker 1: more specific than that. I'm sorry, it's just that, Um,
Speaker 1: the details have not been worked through yet. Well, final question, Larry,
Speaker 1: what would that be beneficial to the Federal Reserve? I
Speaker 1: beg your part? Why would that meeting be beneficial for
Speaker 1: the Federal Reserve? Well? Look, um, in in diplomatic terms,
Speaker 1: what's the phrase of frank and candid exchange of views?
Speaker 1: I think it would be nice to have a frank
Speaker 1: and candid exchange of views? Shall we say up close
Speaker 1: and personal? Um? I think President Trump would benefit. I
Speaker 1: think j Pal would benefit. Can I just say one thing?
Speaker 1: I'm all right, you know, I don't want to predict
Speaker 1: anything here in a sense, I can't really predict a meeting,
Speaker 1: although I think what will happen. I just want to
Speaker 1: note that, you know we're in a boom. You had
Speaker 1: this blockbuster jobs number today. There is no inflation. There
Speaker 1: is no inflation. More growth, more people working does not
Speaker 1: cause inflation. These old Federal Reserve models are outdated and
Speaker 1: have proven to be incorrect. Right now, the inflation rate
Speaker 1: is probably less than one and a half percent, even
Speaker 1: while unemployment is low and jobs are staring and we're
Speaker 1: growing at three pc. Why do I say that because
Speaker 1: that is a point of view which the President holds,
Speaker 1: and I think the President is exactly right. Uh, this
Speaker 1: is supply side revolution. We're creating more goods and services.
Speaker 1: We're increasing the capital stock and business investment, and that's
Speaker 1: what creates incomes and jobs. Uh. I'm sure you remember
Speaker 1: Jean Baptiste say he wrote it in the early part
Speaker 1: of the nineteenth century. He was a French economic philosopher.
Speaker 1: I met him a while back. You perhaps did, also,
Speaker 1: says Law. Supply creates its own demand. This is not
Speaker 1: government spending from the demand side. This is lower tax
Speaker 1: rates from the supply side, and it is businesses that
Speaker 1: ultimately drive the economy. I would like j. Powell to
Speaker 1: hear that argument from President Trump, who knows the argument
Speaker 1: very well. Now, Jay, I think does too. He's a
Speaker 1: very smart guy. Okay, So I'm just saying they can
Speaker 1: benefit from an exchange of views. Let's understand that more
Speaker 1: people working and solid three percent growth is not is
Speaker 1: not causing higher inflation, and therefore FED policy should take
Speaker 1: that into account, says Law. We may have to go
Speaker 1: and commune with him to fully understand it. Hey, Larry,
Speaker 1: you and I could go on forever, but we both
Speaker 1: get in trouble, me with my producer and you with
Speaker 1: your pr Thank you very much for joining us. A
Speaker 1: happy New Year to you said, and thank you very
Speaker 1: much for giving us your time, as you always do.
Speaker 1: After every payrolls Friday m Thanks for listening to the
Speaker 1: Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at
Speaker 1: Tom Keene before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio