1 00:00:09,880 --> 00:00:13,840 Speaker 1: Welcome to the Bloomberg Surveillance podcast home, Tom Keene, Jay Leie. 2 00:00:13,960 --> 00:00:17,560 Speaker 1: We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:27,480 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Big 5 00:00:27,480 --> 00:00:29,440 Speaker 1: Week Ahead for you. We could get a Phase one 6 00:00:29,480 --> 00:00:32,159 Speaker 1: trade deal signed, expecting that to happen this coming Wednesday. 7 00:00:32,240 --> 00:00:35,519 Speaker 1: Also Bank Karnis this week, JP Morgan City coming up tomorrow, 8 00:00:35,520 --> 00:00:38,800 Speaker 1: Bank America Goldman coming up Wednesday, more than Stanley coming 9 00:00:38,880 --> 00:00:41,240 Speaker 1: up Thursday. We have a limited time with our guest 10 00:00:41,280 --> 00:00:42,960 Speaker 1: in the studio here in New York, so let's not 11 00:00:43,000 --> 00:00:45,840 Speaker 1: waste any more of it. Richard Hass Council on Foreign 12 00:00:45,840 --> 00:00:48,000 Speaker 1: Relations President, joined us now and that's had a great 13 00:00:48,000 --> 00:00:50,080 Speaker 1: to see you. Good morning, Richard. Let's talk about what's 14 00:00:50,080 --> 00:00:52,560 Speaker 1: happening in t Run on the streets at the moment. Protests. 15 00:00:52,960 --> 00:00:55,560 Speaker 1: We've seen a series of protests in Tehran over the 16 00:00:55,640 --> 00:00:58,440 Speaker 1: last six months. They're all different. The background to the 17 00:00:58,480 --> 00:01:00,600 Speaker 1: people on the streets are different, and we're trying to 18 00:01:00,640 --> 00:01:03,360 Speaker 1: put one story together the paints of picterest to why 19 00:01:03,520 --> 00:01:06,400 Speaker 1: each and every every protest is happening. Can you do 20 00:01:06,440 --> 00:01:07,920 Speaker 1: that in a place like Iran, at a place like 21 00:01:08,000 --> 00:01:11,640 Speaker 1: Tran because it's too big and too diverse of of 22 00:01:11,680 --> 00:01:13,880 Speaker 1: a country. So you've had different proaches. You had the 23 00:01:13,920 --> 00:01:16,880 Speaker 1: gasoline prices. Now you have this, which is a government 24 00:01:16,920 --> 00:01:20,720 Speaker 1: that's seen as not telling the truth as remote. People 25 00:01:20,760 --> 00:01:23,040 Speaker 1: are taking advantage of it to some extent, coming out 26 00:01:23,040 --> 00:01:25,880 Speaker 1: in the streets. I think the real question for outsiders 27 00:01:25,920 --> 00:01:28,479 Speaker 1: is how seriously to take it. And my own view 28 00:01:28,640 --> 00:01:31,640 Speaker 1: is that one level of me says, you never know, 29 00:01:31,720 --> 00:01:34,560 Speaker 1: but two, you can't count that somehow that the regime 30 00:01:34,640 --> 00:01:37,400 Speaker 1: is somehow in in trouble. And I don't think it 31 00:01:37,520 --> 00:01:40,640 Speaker 1: makes sense for anybody to base US or Western policy 32 00:01:40,920 --> 00:01:43,960 Speaker 1: on the idea that the regime is somehow vulnerable. Although 33 00:01:43,959 --> 00:01:46,360 Speaker 1: can we say that some of the damage that was 34 00:01:46,400 --> 00:01:49,760 Speaker 1: reversed of the image of the United States following the 35 00:01:49,840 --> 00:01:53,120 Speaker 1: death of Sulimani, that that that's been reversed, In other words, 36 00:01:53,160 --> 00:01:56,240 Speaker 1: that there has been a mood shift in the populace 37 00:01:56,560 --> 00:01:59,400 Speaker 1: back toward the United States away from the Iranian government 38 00:01:59,600 --> 00:02:02,680 Speaker 1: in lie of how they handled this particular incident. I 39 00:02:02,760 --> 00:02:05,160 Speaker 1: probably put a little bit differently over the last couple 40 00:02:05,200 --> 00:02:07,320 Speaker 1: of decades, Iran has actually been one of the most 41 00:02:07,320 --> 00:02:11,760 Speaker 1: pro American countries in the populace, not the government exactly, 42 00:02:11,880 --> 00:02:14,680 Speaker 1: So it's exactly right the popular So I think this 43 00:02:14,880 --> 00:02:19,120 Speaker 1: this is consistent with with that the Sulimani thing, and 44 00:02:19,160 --> 00:02:21,600 Speaker 1: he was a cult figure in Iran. He was important 45 00:02:21,600 --> 00:02:23,400 Speaker 1: not just to the government but the big chunks of 46 00:02:23,440 --> 00:02:26,679 Speaker 1: the people. He had real street credit, as you say, 47 00:02:26,760 --> 00:02:29,480 Speaker 1: because of his service in particularly during the Irana Rock War. 48 00:02:29,840 --> 00:02:31,639 Speaker 1: But I do think what this shows is that for 49 00:02:31,840 --> 00:02:36,160 Speaker 1: a chunk of the say roughly half of the Iranian population, 50 00:02:36,480 --> 00:02:38,800 Speaker 1: this is the desire to be integrated in the world, 51 00:02:38,880 --> 00:02:41,519 Speaker 1: to deal with countries like the United States is powerful. 52 00:02:41,919 --> 00:02:44,200 Speaker 1: The problem is there's still, at least I would guess 53 00:02:44,200 --> 00:02:46,840 Speaker 1: half or more of the Iranian population that that is 54 00:02:46,880 --> 00:02:49,360 Speaker 1: not a priority for them. Richard, Let's talk about forming 55 00:02:49,400 --> 00:02:52,160 Speaker 1: a policy response down in Washington, d C. How do 56 00:02:52,240 --> 00:02:54,760 Speaker 1: we form some kind of policy response that puts pressure 57 00:02:54,800 --> 00:02:58,120 Speaker 1: on the regime but supports the population, the citizens of 58 00:02:58,160 --> 00:03:00,000 Speaker 1: that country, because right now the approach seems to be 59 00:03:00,040 --> 00:03:02,040 Speaker 1: quite contradictory, not just from the United States but from 60 00:03:02,040 --> 00:03:05,520 Speaker 1: El Sweat suite. You're exactly right to use the word contradictory. 61 00:03:05,520 --> 00:03:07,680 Speaker 1: It is. What I would do is go public with 62 00:03:07,720 --> 00:03:10,640 Speaker 1: an offer to the Iranians and basically be explicit about 63 00:03:10,639 --> 00:03:12,680 Speaker 1: what it is we want from them and the nuclear realm, 64 00:03:12,760 --> 00:03:15,119 Speaker 1: the missile realm in terms of their regional behavior, and say, 65 00:03:15,120 --> 00:03:17,560 Speaker 1: here's the benefits that would accrue to you, here's the 66 00:03:17,560 --> 00:03:19,840 Speaker 1: sanctions relief that would come your way if you were 67 00:03:19,880 --> 00:03:22,360 Speaker 1: to do certain things or stop doing other things, And 68 00:03:22,360 --> 00:03:25,080 Speaker 1: I would make this public. I would basically then force 69 00:03:25,160 --> 00:03:27,840 Speaker 1: the regime, force the government to explain to the Iranian 70 00:03:27,840 --> 00:03:31,640 Speaker 1: people why it's not worth their while to accept a 71 00:03:31,720 --> 00:03:34,240 Speaker 1: degree of greater restraint that because what I want to 72 00:03:34,240 --> 00:03:37,040 Speaker 1: do is force the regime to take ownership of the 73 00:03:37,080 --> 00:03:39,200 Speaker 1: economic problems in this country. And I think if we 74 00:03:39,240 --> 00:03:42,119 Speaker 1: offer them a fair and reasonable deal, then it makes 75 00:03:42,120 --> 00:03:44,240 Speaker 1: it much harder for them to to deal with the 76 00:03:44,280 --> 00:03:46,440 Speaker 1: crowds in the street. The feeling in markets right now 77 00:03:46,600 --> 00:03:49,000 Speaker 1: is that the incident is over between Iran and the 78 00:03:49,080 --> 00:03:51,560 Speaker 1: US for the most part, de escalation has occurred. We're 79 00:03:51,560 --> 00:03:54,920 Speaker 1: seeing oil prices basically flat. Where should we be looking 80 00:03:55,280 --> 00:03:57,760 Speaker 1: for the next flare up here? I think the markets 81 00:03:57,800 --> 00:03:59,680 Speaker 1: are getting ahead of themselves, even you know, the president, 82 00:03:59,760 --> 00:04:01,600 Speaker 1: the other a day and a statement said that Iran 83 00:04:01,640 --> 00:04:04,400 Speaker 1: has stood down. No, they haven't. What they what Iran 84 00:04:04,480 --> 00:04:07,400 Speaker 1: wants to do is avoid direct exchanges where they can 85 00:04:07,440 --> 00:04:11,640 Speaker 1: be fingered for attacking American installations or American people, causing 86 00:04:11,720 --> 00:04:15,360 Speaker 1: deaths of American soldiers or diplomats. Iran has not backed 87 00:04:15,400 --> 00:04:18,120 Speaker 1: away as best I can tell from using indirect means, 88 00:04:18,120 --> 00:04:21,000 Speaker 1: whether it's cyber, whether it's the militias, this is the 89 00:04:21,200 --> 00:04:24,280 Speaker 1: this is Iran standard operating procedure. So the idea that 90 00:04:24,360 --> 00:04:27,080 Speaker 1: everyone's relaxed, no, tomorrow you could have a problem with 91 00:04:27,160 --> 00:04:30,799 Speaker 1: cyber or with a physical attack on our Saudi oil installations. 92 00:04:30,839 --> 00:04:32,760 Speaker 1: So the markets are getting ahead of themselves. Richard, I 93 00:04:32,839 --> 00:04:34,839 Speaker 1: want to wrap things up with an important question, the 94 00:04:34,839 --> 00:04:38,320 Speaker 1: comparisons that we keep hearing between North Korea and Iran. 95 00:04:38,720 --> 00:04:41,400 Speaker 1: In the World of Disarray, your book, you talked about 96 00:04:41,400 --> 00:04:43,599 Speaker 1: how in the early nineties you canceled those in power 97 00:04:43,800 --> 00:04:47,000 Speaker 1: to strike North Korea before they had nuclear weapons. How 98 00:04:47,040 --> 00:04:50,560 Speaker 1: problematic is the comparison between the North career of the 99 00:04:50,680 --> 00:04:56,039 Speaker 1: nineteen nineties and Irun. Well, the North Korean situation in 100 00:04:56,040 --> 00:04:58,120 Speaker 1: the early then is they had one physical target at 101 00:04:58,160 --> 00:04:59,840 Speaker 1: that time, there was one place where they had your 102 00:05:00,120 --> 00:05:02,160 Speaker 1: It was on the surface, we could we could get 103 00:05:02,200 --> 00:05:04,680 Speaker 1: do it now. Even then it was problematic, which is 104 00:05:04,680 --> 00:05:06,400 Speaker 1: why we didn't do it. People were worried about the 105 00:05:06,480 --> 00:05:10,200 Speaker 1: North Korean conventional military invasion of the South Iran. Right now, 106 00:05:10,200 --> 00:05:12,480 Speaker 1: you're talking about dozens and dozens of sites. We don't 107 00:05:12,520 --> 00:05:14,800 Speaker 1: We don't necessarily know all of them. Many of them 108 00:05:14,839 --> 00:05:17,040 Speaker 1: are hard to reach, and if we were to do it, 109 00:05:17,200 --> 00:05:19,760 Speaker 1: not only would you have Iran retaliation around the region, 110 00:05:19,960 --> 00:05:23,560 Speaker 1: you would probably have an Iranian reconstitution of their nuclear program. 111 00:05:23,839 --> 00:05:26,800 Speaker 1: So with North Korea, I counseled the and then that 112 00:05:26,839 --> 00:05:28,640 Speaker 1: we ought to do something. I thought that was our 113 00:05:28,680 --> 00:05:31,520 Speaker 1: one moment, risky, but our one moment. That moment has 114 00:05:31,560 --> 00:05:35,039 Speaker 1: passed decidedly with North Korea. My senses has passed. Also 115 00:05:35,080 --> 00:05:37,200 Speaker 1: with Iran. Investador has Thank you so much, John. I 116 00:05:37,200 --> 00:05:39,320 Speaker 1: should point out that Richard has has a new book 117 00:05:39,360 --> 00:05:43,440 Speaker 1: coming out in four months. It's called Leaving the Television 118 00:05:43,520 --> 00:05:46,799 Speaker 1: set When the forty niners or twenty four points behind. 119 00:05:47,160 --> 00:05:49,400 Speaker 1: I just want to point out that his face there 120 00:05:49,440 --> 00:05:51,160 Speaker 1: was this moment of fear as he started to say 121 00:05:51,200 --> 00:05:56,080 Speaker 1: that he had a new book coming out in four months. 122 00:05:58,200 --> 00:06:00,160 Speaker 1: The rest of America. I didn't get in the are 123 00:06:00,240 --> 00:06:02,480 Speaker 1: I said it was okay that the game was over, 124 00:06:03,600 --> 00:06:05,479 Speaker 1: and I had to listen to it on the radio, 125 00:06:05,560 --> 00:06:08,920 Speaker 1: which is not even close. Richard, thank you, thank you. 126 00:06:09,160 --> 00:06:13,360 Speaker 1: You've got a little bit of company today as well. 127 00:06:13,440 --> 00:06:16,400 Speaker 1: Joan Richard House the Council on Foreign Relations. President Now 128 00:06:29,240 --> 00:06:32,240 Speaker 1: and bring a Priam Israeli Securities head of Global Race 129 00:06:32,279 --> 00:06:34,880 Speaker 1: Strategy in New York. Prayer. It's interesting the Monday after 130 00:06:34,920 --> 00:06:37,240 Speaker 1: payrolls and we haven't talked about payrolls yet, but there's 131 00:06:37,240 --> 00:06:39,320 Speaker 1: a real debate as to what is happening beneath the 132 00:06:39,400 --> 00:06:42,640 Speaker 1: labor market report. This is the take from Minneapolis Fed 133 00:06:42,640 --> 00:06:47,200 Speaker 1: President Neil cash Gari speaking to Reuters following the report. Quote, 134 00:06:47,400 --> 00:06:49,520 Speaker 1: the fact that job growth appears to be more muted 135 00:06:49,560 --> 00:06:51,599 Speaker 1: and wage growth is slowing doesn't tell me we are 136 00:06:51,680 --> 00:06:55,039 Speaker 1: running out of workers. It tells me the underlying economy 137 00:06:55,720 --> 00:06:58,599 Speaker 1: is slowing. Prayer. That's a real debate signed a full 138 00:06:58,600 --> 00:07:01,520 Speaker 1: employment or signs of slowing economy. What do you say, 139 00:07:01,560 --> 00:07:06,159 Speaker 1: per So, I think I'm more in the Kashar camp. 140 00:07:06,160 --> 00:07:08,640 Speaker 1: I think you know there is a slowing in the economy. 141 00:07:09,200 --> 00:07:12,480 Speaker 1: Um now to some extent that slowing was expected. I mean, 142 00:07:12,520 --> 00:07:15,160 Speaker 1: we shouldn't be growing above trend for for too long 143 00:07:15,200 --> 00:07:17,920 Speaker 1: a period. The Freed did raise rates, uh, you know, 144 00:07:18,080 --> 00:07:20,440 Speaker 1: in so it is slowing. I think the question is 145 00:07:20,440 --> 00:07:22,800 Speaker 1: are we slowing below trend or are we just slowing 146 00:07:22,800 --> 00:07:25,280 Speaker 1: to trend. I think the Freed is really hoping that 147 00:07:25,800 --> 00:07:27,920 Speaker 1: all we're doing is is slowing to trend growth, so 148 00:07:27,960 --> 00:07:30,160 Speaker 1: they don't need to they don't need to cut rates. 149 00:07:30,600 --> 00:07:33,120 Speaker 1: I think it is interesting that FED rhetoric of late 150 00:07:33,200 --> 00:07:35,480 Speaker 1: is suggesting that they don't need to take back these 151 00:07:35,520 --> 00:07:38,120 Speaker 1: insurance cuts that they put in place last year. So 152 00:07:38,240 --> 00:07:40,679 Speaker 1: I think they're assuming that we get to trend and 153 00:07:40,680 --> 00:07:44,120 Speaker 1: and rates are actually pretty fair. Our view is that 154 00:07:44,160 --> 00:07:47,120 Speaker 1: we may be actually slowing below trend and and we're 155 00:07:47,120 --> 00:07:50,360 Speaker 1: going to get signs of this through the course of 156 00:07:50,360 --> 00:07:52,320 Speaker 1: the year. I think the labor market does tend to 157 00:07:52,320 --> 00:07:54,640 Speaker 1: be a pretty lagging indicator, so it's not the first 158 00:07:54,640 --> 00:07:57,080 Speaker 1: place you'll see it. I think the ms are suggesting 159 00:07:57,160 --> 00:08:00,160 Speaker 1: some slowing, but really that's the big debate in the 160 00:08:00,160 --> 00:08:03,239 Speaker 1: macro community. Are we going below in which case rates 161 00:08:03,280 --> 00:08:05,200 Speaker 1: have a lot more room to decline, in which case 162 00:08:05,200 --> 00:08:07,400 Speaker 1: the FRED will need to come back and start to 163 00:08:07,440 --> 00:08:09,840 Speaker 1: add accommodation, and you think the fat does come back 164 00:08:09,880 --> 00:08:13,440 Speaker 1: in prayer when we do think um so closer to 165 00:08:13,480 --> 00:08:15,600 Speaker 1: the second half. And the reason for that is that 166 00:08:15,640 --> 00:08:17,560 Speaker 1: the FED has actually put a lot of stimulus in 167 00:08:17,600 --> 00:08:19,880 Speaker 1: the system through the report market. Now, I think they're 168 00:08:19,920 --> 00:08:23,720 Speaker 1: absolutely succeeded in keeping that plumbing going, but the market 169 00:08:23,760 --> 00:08:26,560 Speaker 1: does still see this a bit like quei, which is 170 00:08:26,560 --> 00:08:30,040 Speaker 1: why financial conditions have eased significantly over the last six months. 171 00:08:30,320 --> 00:08:32,520 Speaker 1: And so if this easing continues and our views of 172 00:08:32,600 --> 00:08:35,320 Speaker 1: the repos support will actually remain in place all through 173 00:08:35,360 --> 00:08:37,840 Speaker 1: the first half, then it's hard to see where that 174 00:08:37,960 --> 00:08:41,400 Speaker 1: tightening in conditions comes in. What I'm getting nervous about 175 00:08:41,520 --> 00:08:43,320 Speaker 1: is when the FET starts to pull back from the 176 00:08:43,360 --> 00:08:45,440 Speaker 1: report support, which they have to the When once they 177 00:08:45,440 --> 00:08:48,199 Speaker 1: add enough reserves, does the market see this as well? 178 00:08:48,360 --> 00:08:50,720 Speaker 1: Quei is ending. When do you get a tightening in 179 00:08:50,720 --> 00:08:53,960 Speaker 1: financial conditions coupled with the slowing in the economy. That's 180 00:08:53,960 --> 00:08:55,440 Speaker 1: when the freed will need to come in and add 181 00:08:55,480 --> 00:08:59,319 Speaker 1: more accommodation, not necessarily through repot, but I think that's 182 00:08:59,320 --> 00:09:01,800 Speaker 1: when they'll have to she start to cut rates. Yeah, 183 00:09:01,840 --> 00:09:04,280 Speaker 1: I'm wondering a lot of people agree that the FED 184 00:09:04,440 --> 00:09:06,199 Speaker 1: was right to do the insurance cuts and that the 185 00:09:06,400 --> 00:09:08,280 Speaker 1: right keep rates so low given the fact that they're 186 00:09:08,320 --> 00:09:11,840 Speaker 1: not seeing inflation. When does the conversation shift back to 187 00:09:11,880 --> 00:09:14,560 Speaker 1: act bubbles? When is it shift back to how much 188 00:09:14,880 --> 00:09:18,360 Speaker 1: uh the FED stimulus and support is propping up valuations 189 00:09:18,600 --> 00:09:23,440 Speaker 1: without necessarily adding to any kind of economic benefit here. Yeah, 190 00:09:23,480 --> 00:09:25,680 Speaker 1: I think that's a fair point. I think we've sort 191 00:09:25,720 --> 00:09:28,520 Speaker 1: of we've gone past that debate. I think the FED 192 00:09:28,559 --> 00:09:31,080 Speaker 1: has been saying that they're going to use macroprudential tools 193 00:09:31,120 --> 00:09:33,800 Speaker 1: to try and offset these or or to prevent the 194 00:09:33,840 --> 00:09:38,319 Speaker 1: acid bubbles. But the shift in the FED language from 195 00:09:38,520 --> 00:09:41,600 Speaker 1: let's help growth or or or let's help boost growth 196 00:09:41,600 --> 00:09:44,920 Speaker 1: to let's let's help sustain expansions. Well, if the FED 197 00:09:45,000 --> 00:09:48,240 Speaker 1: is telling us they want to sustain expansions, that's inconsistent 198 00:09:48,360 --> 00:09:51,680 Speaker 1: with getting some tightening in financial conditions. So I actually 199 00:09:51,679 --> 00:09:55,319 Speaker 1: think they've they've gotten past that hurdle. Now it's all 200 00:09:55,360 --> 00:09:58,199 Speaker 1: about inflation, and this is where this Inflation Framework review 201 00:09:58,200 --> 00:10:01,040 Speaker 1: also becomes important. They're going to tell sometime middle of 202 00:10:01,040 --> 00:10:04,040 Speaker 1: this year they want to let inflation overshoot, in which 203 00:10:04,120 --> 00:10:06,199 Speaker 1: case you have to let the economy run a little 204 00:10:06,200 --> 00:10:10,199 Speaker 1: hot and not worry about acid bubble. Premier JP Morgan 205 00:10:10,280 --> 00:10:13,120 Speaker 1: trotted out the correlation of a ten year yield the 206 00:10:13,200 --> 00:10:16,240 Speaker 1: US full faith and credit ten yere yield to the 207 00:10:16,320 --> 00:10:20,160 Speaker 1: inverse of all that negative yielding debt out there. It 208 00:10:20,360 --> 00:10:25,680 Speaker 1: is shockingly tight. Does negative yielding debt pulled down yields 209 00:10:25,679 --> 00:10:30,480 Speaker 1: in the United States? And if so, how much it does? 210 00:10:30,679 --> 00:10:33,760 Speaker 1: In our view by a pretty substantial amount. But you know, 211 00:10:33,840 --> 00:10:36,440 Speaker 1: I have to say, I put the Fed, um, you know, 212 00:10:36,520 --> 00:10:38,880 Speaker 1: also front and center in this. I think if the 213 00:10:38,920 --> 00:10:42,560 Speaker 1: FED was hiking rates here, there's a limit to how 214 00:10:42,679 --> 00:10:47,360 Speaker 1: much the lower yielding debt overseas can actually impact US rates. 215 00:10:47,559 --> 00:10:49,280 Speaker 1: I think what we have is the perfect storm of 216 00:10:49,320 --> 00:10:51,600 Speaker 1: the FED telling us that they've really taken the hiking 217 00:10:51,640 --> 00:10:54,880 Speaker 1: side of the distribution out of the picture. Plus we've 218 00:10:54,880 --> 00:10:59,240 Speaker 1: got this negative yielding debt globally, plus the net supply 219 00:10:59,320 --> 00:11:02,480 Speaker 1: of treasuries US here, you know, despite a very high deficit, 220 00:11:02,720 --> 00:11:08,000 Speaker 1: net supply of treasury lower in our projections compared to 221 00:11:08,960 --> 00:11:11,400 Speaker 1: So you've got this perfect storm, which is why, you know, 222 00:11:11,440 --> 00:11:13,520 Speaker 1: give if you think that the economy is strong and 223 00:11:13,640 --> 00:11:16,840 Speaker 1: stalks are fair here and credits pread that tight, the 224 00:11:16,840 --> 00:11:19,760 Speaker 1: biggest question I'm hearing from clients are why aren't interest 225 00:11:19,800 --> 00:11:23,480 Speaker 1: rates high? Why isn't the tenure above Well, you've got 226 00:11:23,520 --> 00:11:28,480 Speaker 1: this confluence of various events, but absolutely the negative building 227 00:11:28,520 --> 00:11:30,360 Speaker 1: that is part of it. I don't think it's the 228 00:11:30,559 --> 00:11:32,840 Speaker 1: d percent of the story, though, Pa, thank you so much. 229 00:11:33,160 --> 00:11:48,120 Speaker 1: As ten security, let's get to our without question. Global 230 00:11:48,160 --> 00:11:52,280 Speaker 1: Wall Street Conversation of the Day. Betsy Grace uh made 231 00:11:52,280 --> 00:11:57,360 Speaker 1: a claim following Japanese banks back when that mattered, it 232 00:11:57,480 --> 00:12:01,040 Speaker 1: was a really serious business. She writes, more than anyone 233 00:12:01,080 --> 00:12:03,240 Speaker 1: I know in the street with an acuity. How about 234 00:12:03,240 --> 00:12:05,840 Speaker 1: this based on no additional rate cuts in a tenure? 235 00:12:05,920 --> 00:12:08,360 Speaker 1: Ye little about one point nine percent per year. We 236 00:12:08,440 --> 00:12:12,240 Speaker 1: expect media nim down three beeps from two point Q 237 00:12:12,440 --> 00:12:15,040 Speaker 1: three nineteen, on and on and on. John, it's all numbers. 238 00:12:15,080 --> 00:12:19,319 Speaker 1: It's acuity like nobody else. Stanley, let's bring him Bessie 239 00:12:19,360 --> 00:12:22,160 Speaker 1: Shall JP, Morgan Wels Focco City Tomorrow, Betsy, Bank of 240 00:12:22,200 --> 00:12:25,840 Speaker 1: America Goleman Wednesday, Morgan Stanley on Thursday. What's the focus 241 00:12:25,840 --> 00:12:27,440 Speaker 1: for you in the team? What are you looking forward to? 242 00:12:27,720 --> 00:12:29,839 Speaker 1: So a couple of things. Number one, we do get 243 00:12:29,880 --> 00:12:33,000 Speaker 1: four Q earnings, but just as importantly we get the outlook. 244 00:12:33,360 --> 00:12:36,599 Speaker 1: So there's a tale of two messages here four Q. 245 00:12:37,440 --> 00:12:39,480 Speaker 1: There's some parts that are gonna miss, all right, and 246 00:12:39,520 --> 00:12:42,800 Speaker 1: that's because Nim, as you know we've just discussed, it's 247 00:12:42,800 --> 00:12:44,360 Speaker 1: going to be under a little bit, you know, under 248 00:12:44,400 --> 00:12:47,959 Speaker 1: a little bit of pressure in four Q. However, as 249 00:12:48,000 --> 00:12:51,880 Speaker 1: we look out, the curve has steepened since September, all right, 250 00:12:52,040 --> 00:12:55,280 Speaker 1: and that is going to mean that, you know, the 251 00:12:55,480 --> 00:12:57,680 Speaker 1: numbers have to come up the streets behind. Frankly, we 252 00:12:57,760 --> 00:13:00,840 Speaker 1: are to put it in a nutshell the street on 253 00:13:00,920 --> 00:13:04,720 Speaker 1: four Q nineteen, but we're above the street. Dude, to NIM, 254 00:13:04,720 --> 00:13:07,640 Speaker 1: what's going to be the hottest area of potential growth 255 00:13:07,760 --> 00:13:09,840 Speaker 1: for a while, it was investment banking, which has been 256 00:13:09,840 --> 00:13:12,960 Speaker 1: a stalwart for a long time. Trading kind of has 257 00:13:13,000 --> 00:13:15,400 Speaker 1: faded a bit as the net interest margins just or 258 00:13:15,480 --> 00:13:18,160 Speaker 1: that this sort of margins just in general have shrunk. 259 00:13:18,679 --> 00:13:21,520 Speaker 1: Consumers taking the helm. What's it going to be heading into? 260 00:13:22,720 --> 00:13:26,440 Speaker 1: So multi layered answer, I'll try to be quick. Number 261 00:13:26,440 --> 00:13:29,120 Speaker 1: one for the quarter trading is actually, I think it 262 00:13:29,120 --> 00:13:31,120 Speaker 1: gonna be pretty good. I mean, we did have Jeffrey's 263 00:13:31,120 --> 00:13:32,640 Speaker 1: report last week and it was a bit of a 264 00:13:32,640 --> 00:13:35,040 Speaker 1: blowout on the trading side, and we all know that 265 00:13:35,120 --> 00:13:38,000 Speaker 1: last year December was a was a wash. So the 266 00:13:38,080 --> 00:13:41,000 Speaker 1: headline number for four cues gonna be pretty good. And 267 00:13:41,040 --> 00:13:43,439 Speaker 1: then we get into the debate of hey, to answer 268 00:13:43,480 --> 00:13:46,480 Speaker 1: your question, how do you beat that? All right, So 269 00:13:46,520 --> 00:13:48,079 Speaker 1: when you ask the question how do you how do 270 00:13:48,120 --> 00:13:51,240 Speaker 1: you actually try to grow earnings in You're gonna be 271 00:13:51,280 --> 00:13:53,720 Speaker 1: focused a lot on the consumer. And yes, these are 272 00:13:53,760 --> 00:13:57,160 Speaker 1: trading businesses, but big pieces of these companies are consumer 273 00:13:57,200 --> 00:14:00,640 Speaker 1: consumer lending, and the consumer is doing well. But see 274 00:14:00,640 --> 00:14:02,920 Speaker 1: this is the apporter conversation for market participants. As you say, 275 00:14:03,040 --> 00:14:06,520 Speaker 1: Q four eighteen terrible. Q four nineteen got to be better. 276 00:14:06,720 --> 00:14:09,199 Speaker 1: That's what's known. It's what's not known. The big debate, 277 00:14:09,200 --> 00:14:11,240 Speaker 1: where am I going to get that additional move in 278 00:14:11,280 --> 00:14:13,320 Speaker 1: the stock price of some of these big names after 279 00:14:13,320 --> 00:14:16,120 Speaker 1: a massive nineteen what's going to drive it through twenty? 280 00:14:16,160 --> 00:14:18,760 Speaker 1: What are the big drivers? Okay, so now on stocks, 281 00:14:18,840 --> 00:14:21,200 Speaker 1: we're going to go from earnings to stock prices. On 282 00:14:21,240 --> 00:14:25,920 Speaker 1: the stock side, you know, again the consumer should be good. Um, 283 00:14:26,040 --> 00:14:28,200 Speaker 1: the question is the multiple and how are you going 284 00:14:28,240 --> 00:14:31,360 Speaker 1: to get that return on equity up? Because effectively these 285 00:14:31,400 --> 00:14:34,200 Speaker 1: stocks are a function of what the return on equity 286 00:14:34,240 --> 00:14:37,240 Speaker 1: outlook is. So now you bring it to operating leverage, 287 00:14:37,480 --> 00:14:41,040 Speaker 1: managements have to control expenses and they have to grow 288 00:14:41,040 --> 00:14:43,560 Speaker 1: their expenses less than revenues. Which was going to bring 289 00:14:43,560 --> 00:14:45,200 Speaker 1: me to my next point. How many more job cuts 290 00:14:45,240 --> 00:14:53,040 Speaker 1: are we expected to see announced? Wow? That was I 291 00:14:53,040 --> 00:14:57,520 Speaker 1: mean really within the banking sector. Okay, So when I 292 00:14:57,640 --> 00:14:59,720 Speaker 1: when I'm I'm looking at the banks, I think there's 293 00:14:59,760 --> 00:15:05,760 Speaker 1: going to be a shift in over time employment from 294 00:15:05,800 --> 00:15:09,720 Speaker 1: you know, kind of more processing to front office. Right now. 295 00:15:09,720 --> 00:15:12,800 Speaker 1: This is something that has been in play for many, many, 296 00:15:12,840 --> 00:15:14,960 Speaker 1: many years. Right look at Bank of America. You know 297 00:15:15,040 --> 00:15:18,120 Speaker 1: you've had Brian, you've talked to him before, where you've 298 00:15:18,200 --> 00:15:22,080 Speaker 1: gotten the message that we are moving from the processing side, 299 00:15:22,360 --> 00:15:25,960 Speaker 1: where you've had historically much higher head count, to the 300 00:15:26,000 --> 00:15:28,520 Speaker 1: front office, and that's been driving the positive operating So 301 00:15:28,520 --> 00:15:32,000 Speaker 1: I think the composition of the workforce is shifting um 302 00:15:32,160 --> 00:15:36,600 Speaker 1: more tech obviously in terms of total head count numbers. 303 00:15:36,640 --> 00:15:38,720 Speaker 1: I mean, total headcount numbers have been shrinking for a while. 304 00:15:38,760 --> 00:15:41,080 Speaker 1: But are we done with that? I don't think you're 305 00:15:41,120 --> 00:15:45,840 Speaker 1: you can ever say you're done when the stocks the 306 00:15:45,880 --> 00:15:49,840 Speaker 1: most important driver of positive alpha in the bank stocks. 307 00:15:50,200 --> 00:15:56,040 Speaker 1: Is operating leverage so you're done, is a function of 308 00:15:56,120 --> 00:15:59,320 Speaker 1: what's your revenue outlook and if your rates are coming 309 00:15:59,400 --> 00:16:01,640 Speaker 1: down you were kind of alluding to it's not in 310 00:16:01,680 --> 00:16:03,680 Speaker 1: our models to have rates decline, but if rates are 311 00:16:03,680 --> 00:16:07,680 Speaker 1: coming down, then you know that's another layer of expense management. 312 00:16:07,800 --> 00:16:10,360 Speaker 1: Is there to prove to you? Is there evidence to you? 313 00:16:10,400 --> 00:16:12,760 Speaker 1: And again I go back, Betsy Gracing to your your 314 00:16:13,320 --> 00:16:19,080 Speaker 1: wonderful acuity paragraph to paragraph with math, technology means lesser 315 00:16:19,240 --> 00:16:23,120 Speaker 1: jobs or do you just shift the jobs from traditional 316 00:16:23,160 --> 00:16:26,360 Speaker 1: banking over to computer programmers. I think you end up 317 00:16:26,360 --> 00:16:30,480 Speaker 1: with a higher operating leverage as you're doing this right, 318 00:16:30,560 --> 00:16:34,800 Speaker 1: because computers plus people is more productive than just people. Okay, 319 00:16:34,920 --> 00:16:36,840 Speaker 1: I'm sure, I'm sure gonna get beat up by a 320 00:16:36,920 --> 00:16:40,640 Speaker 1: number of folks for saying that, but um, you know, 321 00:16:40,960 --> 00:16:44,520 Speaker 1: over time you can do more with less. How many 322 00:16:44,560 --> 00:16:46,480 Speaker 1: beeps do you pick up in leverage? How many beeps 323 00:16:46,480 --> 00:16:53,400 Speaker 1: of operator? This is? I can't answer questions. It depends 324 00:16:53,440 --> 00:16:57,080 Speaker 1: on how you are, It depends in cheap questions, it 325 00:16:57,080 --> 00:17:03,000 Speaker 1: depends put in a penalty box. Fourth quarter trading leading. 326 00:17:03,080 --> 00:17:05,160 Speaker 1: I'm wondering does that mean that Morgan, Stanley and Goldman 327 00:17:05,200 --> 00:17:08,320 Speaker 1: sacks are gonna outperform. So when we talk about trading, 328 00:17:08,800 --> 00:17:10,800 Speaker 1: what we can say and looking at Jefferies, is that 329 00:17:10,880 --> 00:17:13,120 Speaker 1: fixed income did really well. So you know you're fixed 330 00:17:13,160 --> 00:17:17,240 Speaker 1: income oriented shops, are you know what's gonna do? Um? 331 00:17:17,440 --> 00:17:19,760 Speaker 1: You know, should do better. You would think, now, what's 332 00:17:19,840 --> 00:17:22,840 Speaker 1: driving fixed income? A lot of different pieces credit, credit 333 00:17:22,840 --> 00:17:27,000 Speaker 1: spreads tightening fantastic, you know, and rates have done pretty well, 334 00:17:27,160 --> 00:17:30,560 Speaker 1: it seems to me. So those are the institutions that 335 00:17:30,640 --> 00:17:32,439 Speaker 1: I would think the ones that are more skewed to 336 00:17:32,480 --> 00:17:36,080 Speaker 1: fixed income capital returns in an election year, to the 337 00:17:36,080 --> 00:17:38,560 Speaker 1: political pressure on somebody's big banks to scale things back, 338 00:17:38,640 --> 00:17:41,600 Speaker 1: rain things in. Oh on the ask, well, this is 339 00:17:41,640 --> 00:17:44,040 Speaker 1: all about the c car stress test cycle, and you know, 340 00:17:44,119 --> 00:17:46,119 Speaker 1: we're waiting for the FED to give us the rules 341 00:17:46,160 --> 00:17:48,480 Speaker 1: on that, and I think the banks will take those 342 00:17:48,560 --> 00:17:51,440 Speaker 1: rule sets and will apply them. So it's a little 343 00:17:51,440 --> 00:17:53,800 Speaker 1: premature for me to answer that question without knowing what 344 00:17:53,840 --> 00:17:56,480 Speaker 1: the rules are. But you know, more, you know, high level, 345 00:17:56,520 --> 00:17:59,560 Speaker 1: I would say, I think that bank balance sheets are 346 00:18:00,000 --> 00:18:04,560 Speaker 1: all positioned um, and I don't think the political environment 347 00:18:04,640 --> 00:18:08,800 Speaker 1: would would really influence your requests every time asked. There 348 00:18:08,800 --> 00:18:11,199 Speaker 1: was just an interesting interview with moynahan and Barons over 349 00:18:11,200 --> 00:18:12,679 Speaker 1: the week, and I'm sure many of our listeners might 350 00:18:12,680 --> 00:18:14,840 Speaker 1: have read that. And the c of Bank of America 351 00:18:14,920 --> 00:18:17,760 Speaker 1: was asked basically the question about the capital return program, 352 00:18:17,960 --> 00:18:19,800 Speaker 1: and his response essentially was that what else are we 353 00:18:19,840 --> 00:18:21,119 Speaker 1: going to do with the money apart from give it 354 00:18:21,119 --> 00:18:23,520 Speaker 1: back to investors Because some of us in the on 355 00:18:23,560 --> 00:18:25,680 Speaker 1: wall streets, some of the big names don't have the 356 00:18:25,720 --> 00:18:28,760 Speaker 1: option of going, say an acquisition, already investing a lot 357 00:18:28,800 --> 00:18:30,399 Speaker 1: back in the business. I'm just wondering what are the 358 00:18:30,400 --> 00:18:32,600 Speaker 1: options left for some of these big banks as they 359 00:18:32,640 --> 00:18:35,040 Speaker 1: look at some of the money that they have. Well, 360 00:18:35,080 --> 00:18:37,160 Speaker 1: I think you need to try to optimize your balance 361 00:18:37,160 --> 00:18:39,639 Speaker 1: you as much as possible, but realized that, you know, 362 00:18:39,680 --> 00:18:42,440 Speaker 1: given the rules and regulations that are in place today, 363 00:18:42,480 --> 00:18:45,760 Speaker 1: there is access in the system, and you know, there's 364 00:18:46,320 --> 00:18:48,439 Speaker 1: there's only so much you can do with that with 365 00:18:48,520 --> 00:18:50,679 Speaker 1: you know, you don't have that much degrees of freedomsose 366 00:18:50,760 --> 00:18:53,040 Speaker 1: is your point. I kind of want to push back 367 00:18:53,080 --> 00:18:58,800 Speaker 1: on that because we conversation, there are number of stories. 368 00:18:59,160 --> 00:19:00,840 Speaker 1: There are a number of stories is out there about 369 00:19:00,880 --> 00:19:03,200 Speaker 1: how anequated some of the technology is some of these 370 00:19:03,200 --> 00:19:06,119 Speaker 1: big banks relative to where it could be and should be. 371 00:19:06,160 --> 00:19:08,120 Speaker 1: I mean, why aren't we getting more investment on that front? 372 00:19:08,160 --> 00:19:09,600 Speaker 1: You know what I mean? There are places that they 373 00:19:09,600 --> 00:19:13,560 Speaker 1: could invest the potentially uh streamline their systems going forward. 374 00:19:13,720 --> 00:19:17,640 Speaker 1: I guess no, I mean there there's technology. Is the 375 00:19:17,680 --> 00:19:20,640 Speaker 1: gift that keeps on giving for your investment, you know, spending. 376 00:19:20,760 --> 00:19:23,960 Speaker 1: I guess that. The point is that I would add 377 00:19:24,000 --> 00:19:27,960 Speaker 1: to that is that your cap your excess capital you 378 00:19:28,000 --> 00:19:32,399 Speaker 1: have is in the billions of dollars and you really 379 00:19:32,440 --> 00:19:37,240 Speaker 1: can't throw that much incremental new i T budget spend 380 00:19:37,840 --> 00:19:43,160 Speaker 1: on your organization because well because because it's not just 381 00:19:43,480 --> 00:19:45,520 Speaker 1: throw the money and wave your magic wand and get 382 00:19:45,560 --> 00:19:48,320 Speaker 1: a new system, right. You have to integrate with your 383 00:19:48,359 --> 00:19:51,320 Speaker 1: back You have to integrate. You have to do uh 384 00:19:51,480 --> 00:19:56,480 Speaker 1: your systems enhancements in a way that protect the money flow, 385 00:19:56,880 --> 00:20:00,480 Speaker 1: not you know, challenge the money flow. So I guess 386 00:20:00,520 --> 00:20:02,240 Speaker 1: my basic point is I don't think you can throw 387 00:20:02,280 --> 00:20:04,400 Speaker 1: that much i T investments men in one year. It's 388 00:20:04,400 --> 00:20:07,280 Speaker 1: one quick question. These guys go to Camp Dabos. What's 389 00:20:07,440 --> 00:20:09,560 Speaker 1: are they going as happy campers? What's the mood of 390 00:20:09,600 --> 00:20:14,240 Speaker 1: the CEOs? Go up happy valley this year? Well versus 391 00:20:14,359 --> 00:20:17,879 Speaker 1: last year? Much you know brighter. But but I but 392 00:20:17,960 --> 00:20:22,640 Speaker 1: I would cautiously optimistic. John, We're under pressure. I'm gonna 393 00:20:22,640 --> 00:20:24,960 Speaker 1: be taking train up and back to Davos this year 394 00:20:24,960 --> 00:20:27,120 Speaker 1: because I'm green. Can you see Jamie Diamond on the train. 395 00:20:27,200 --> 00:20:29,000 Speaker 1: You know what that means? You know that actually means. 396 00:20:29,000 --> 00:20:32,639 Speaker 1: Don't you have to guide Tom through the trains and 397 00:20:32,680 --> 00:20:35,000 Speaker 1: the two stops you need to do to get from 398 00:20:35,040 --> 00:20:40,360 Speaker 1: Zorn Express. It's like, you know, going from them. Give 399 00:20:40,400 --> 00:20:43,080 Speaker 1: you a hand. We've got to recall it. This, we 400 00:20:43,960 --> 00:20:46,560 Speaker 1: got to recall it this strike. Thank you so much 401 00:20:46,600 --> 00:20:48,440 Speaker 1: for coming in today. Thank you very much. Good to 402 00:20:48,440 --> 00:21:06,360 Speaker 1: see Douglas houltacn is with the American Action. For him, 403 00:21:06,440 --> 00:21:09,520 Speaker 1: he has all sorts of good academics, including sitting in 404 00:21:09,560 --> 00:21:12,400 Speaker 1: the class raising his hand respectively to a gentleman named 405 00:21:12,400 --> 00:21:16,640 Speaker 1: Bernankey long agoing far away in the steam school. But 406 00:21:16,680 --> 00:21:19,960 Speaker 1: what he's really good at is putting together a website 407 00:21:20,359 --> 00:21:23,760 Speaker 1: of the CBO, the Congressional Budget Office, with important questions 408 00:21:23,840 --> 00:21:29,240 Speaker 1: like the cost of replacing today's naval aviation fleet, or 409 00:21:29,840 --> 00:21:33,280 Speaker 1: use of the post nine eleven g I bill, or 410 00:21:33,320 --> 00:21:37,720 Speaker 1: the accuracy of the CBOs baseline estimates, etcetera, etcetera, etcetera. 411 00:21:37,760 --> 00:21:41,080 Speaker 1: It is one of our great jewels, the Congressional Budget Office, 412 00:21:41,119 --> 00:21:43,040 Speaker 1: and we're thrilled that Dr Holz he can could join 413 00:21:43,119 --> 00:21:46,920 Speaker 1: us this morning. What is the CBO doing right now 414 00:21:47,680 --> 00:21:51,480 Speaker 1: about a trillion dollar deficits, Doug that you want to study? 415 00:21:51,640 --> 00:21:54,720 Speaker 1: What what are the smartest people they have doing where 416 00:21:54,720 --> 00:21:59,560 Speaker 1: you're saying this is important? Well, c was doing two things. 417 00:22:00,080 --> 00:22:02,639 Speaker 1: Number One, they are trying to raise awareness of the 418 00:22:02,720 --> 00:22:05,240 Speaker 1: size of this problem, uh, the fact that it was 419 00:22:05,280 --> 00:22:07,320 Speaker 1: on as far as they can see, and then it 420 00:22:07,400 --> 00:22:11,560 Speaker 1: will have deep economic complications. And I think while you're aware, 421 00:22:11,640 --> 00:22:15,159 Speaker 1: I'm aware, uh, the vast majority of Americans simply do 422 00:22:15,240 --> 00:22:18,560 Speaker 1: not understand the size of this problem. Second thing they're 423 00:22:18,560 --> 00:22:21,480 Speaker 1: doing is they're trying to figure out the endgame right 424 00:22:21,560 --> 00:22:25,399 Speaker 1: when when Congress finally comes to grip grips with this problem. 425 00:22:25,400 --> 00:22:27,840 Speaker 1: What are they going to do? Raise taxes? Which programs 426 00:22:27,840 --> 00:22:30,320 Speaker 1: are they going to have to change? Cut spending? How 427 00:22:30,359 --> 00:22:32,600 Speaker 1: can they do all this in a program fashion? They 428 00:22:32,640 --> 00:22:35,159 Speaker 1: want to have a whole menu of options available for 429 00:22:35,200 --> 00:22:39,040 Speaker 1: the Congress that they under the CBO understand and can't 430 00:22:39,040 --> 00:22:41,680 Speaker 1: explain to their their bosses up there in the hill. 431 00:22:42,119 --> 00:22:44,720 Speaker 1: What is the g d P plug in forward. I 432 00:22:44,720 --> 00:22:48,200 Speaker 1: mean this has always been you know, hugely unpredictable, sort 433 00:22:48,240 --> 00:22:51,719 Speaker 1: of like the red Sox meddle relief. But but but 434 00:22:51,760 --> 00:22:55,720 Speaker 1: you know what if g d P is now one 435 00:22:55,840 --> 00:22:59,440 Speaker 1: eight ish two wish to two wish whatever the number is, 436 00:22:59,440 --> 00:23:04,000 Speaker 1: isn't there plug in a lot bigger than that. Uh, 437 00:23:04,040 --> 00:23:08,080 Speaker 1: They've stuck with a forecast that sort of is built 438 00:23:08,160 --> 00:23:10,760 Speaker 1: up in a very systemic fashion. They start with the demographics. 439 00:23:10,880 --> 00:23:14,359 Speaker 1: You know that the population is aging. They take the 440 00:23:14,400 --> 00:23:17,280 Speaker 1: trends in total factor productivity to layer on top of that, 441 00:23:17,680 --> 00:23:19,480 Speaker 1: and that gives you a potential growth rate in GP. 442 00:23:19,600 --> 00:23:23,920 Speaker 1: That number is in the ballpark. I didn't know very much. Um, 443 00:23:24,040 --> 00:23:27,639 Speaker 1: so you know, uh, and eventually, as you and I know, 444 00:23:27,760 --> 00:23:30,800 Speaker 1: the economy will come back to that potential. It's and 445 00:23:30,880 --> 00:23:34,600 Speaker 1: so that limits the capacity to grow our way out 446 00:23:34,600 --> 00:23:36,719 Speaker 1: of this budget problem. For example, we simply won't. We're 447 00:23:36,720 --> 00:23:38,720 Speaker 1: gonna have to come to griss with it. So what 448 00:23:38,800 --> 00:23:41,720 Speaker 1: do you think the catalyst is dug for the political 449 00:23:41,760 --> 00:23:46,840 Speaker 1: class to folks within the Beltway to recognize this scope 450 00:23:46,840 --> 00:23:49,919 Speaker 1: of the problem here. Well, first of all, I can 451 00:23:49,920 --> 00:23:52,040 Speaker 1: tell you why they don't want to recognize it, because 452 00:23:52,240 --> 00:23:54,359 Speaker 1: in the end, I don't think there's any way to 453 00:23:54,359 --> 00:23:55,720 Speaker 1: get around the fact that we're going to have to 454 00:23:55,720 --> 00:23:57,920 Speaker 1: grow as fast as possible, but that won't be enough. 455 00:23:58,040 --> 00:24:00,399 Speaker 1: We're going to have to get more revenue, but that 456 00:24:00,440 --> 00:24:03,280 Speaker 1: won't be enough. We're gonna have to also control the 457 00:24:03,280 --> 00:24:06,000 Speaker 1: growth of the entitlement spending programs. And so uh, two 458 00:24:06,040 --> 00:24:08,159 Speaker 1: of those three things are bad in this politically raising taxes, 459 00:24:08,200 --> 00:24:11,160 Speaker 1: cutting spending programs, and so they're dodging that for as 460 00:24:11,200 --> 00:24:14,040 Speaker 1: long as they can. UM. I think there are two 461 00:24:14,040 --> 00:24:18,280 Speaker 1: potential catalysts. Uh. One catalyst would be, uh, some sort 462 00:24:18,320 --> 00:24:21,680 Speaker 1: of economic event, uh, you know, not not even in 463 00:24:21,680 --> 00:24:23,919 Speaker 1: the extreme form of a sovereign debt crisis, but but 464 00:24:24,000 --> 00:24:26,359 Speaker 1: something that makes it look like that the deficit is 465 00:24:26,600 --> 00:24:29,120 Speaker 1: in and of itself causing problems with financial markets or 466 00:24:29,400 --> 00:24:33,440 Speaker 1: the main street economy, or an uprising by their constituents. 467 00:24:33,560 --> 00:24:36,000 Speaker 1: And and you know, it's easy to see that because 468 00:24:37,040 --> 00:24:39,760 Speaker 1: we're gonna represent a democracy. But there isn't anything that 469 00:24:39,800 --> 00:24:43,000 Speaker 1: a new young roder, a twenty five year old can 470 00:24:43,080 --> 00:24:46,320 Speaker 1: probably get through Congress because the money is all spoken for. 471 00:24:46,520 --> 00:24:49,679 Speaker 1: And then something, So it's not crazy to believe that 472 00:24:49,760 --> 00:24:52,640 Speaker 1: some Americans might want for example, a parental leave program 473 00:24:52,880 --> 00:24:55,800 Speaker 1: paid parental leave, there's no money for it. At some point, 474 00:24:55,840 --> 00:24:57,119 Speaker 1: people are gonna get sick of the fact that their 475 00:24:57,119 --> 00:25:00,000 Speaker 1: government can't do anything they want, and that comes to catalysts. 476 00:25:00,080 --> 00:25:02,160 Speaker 1: I mean, doug this is so important. I was explaining 477 00:25:02,200 --> 00:25:04,760 Speaker 1: to someone that the VAT tax is big in Europe, 478 00:25:04,800 --> 00:25:06,520 Speaker 1: but it's not big here, and they said why and 479 00:25:06,600 --> 00:25:09,200 Speaker 1: is it? Well, there's a small election with Canada where 480 00:25:09,240 --> 00:25:11,359 Speaker 1: they threw the guy out for doing a VAT tax, 481 00:25:11,680 --> 00:25:14,560 Speaker 1: and now we've got Mr McCrow and France trying to 482 00:25:14,640 --> 00:25:18,320 Speaker 1: raise a retirement age and it's been so protesting that 483 00:25:18,600 --> 00:25:21,040 Speaker 1: he had to backtrack on that over the weekend. I mean, 484 00:25:21,359 --> 00:25:22,879 Speaker 1: you know, we can talk all we want about the 485 00:25:22,920 --> 00:25:25,560 Speaker 1: Douglas whole seeking, but the bottom line is, you know, 486 00:25:25,680 --> 00:25:28,479 Speaker 1: you know, politicians may try to be adults in the 487 00:25:28,480 --> 00:25:32,000 Speaker 1: fiscal room and then people go, no, we don't like that. 488 00:25:34,160 --> 00:25:37,280 Speaker 1: This is in the end uh And they showed retail politics. 489 00:25:37,280 --> 00:25:40,760 Speaker 1: And this is why I'm so concerned about the lack 490 00:25:40,800 --> 00:25:44,320 Speaker 1: of awareness of this problem. Broadly speaking, right, if you 491 00:25:44,400 --> 00:25:47,119 Speaker 1: think about it, for eight years, President Obama said to 492 00:25:47,119 --> 00:25:49,040 Speaker 1: the Mexican people, there's nothing wrong with the federal budget. 493 00:25:49,080 --> 00:25:51,320 Speaker 1: They can't be fixed by taxing rich people, and for 494 00:25:51,359 --> 00:25:54,640 Speaker 1: three years Donald Trump has said nothing. They have no idea. 495 00:25:55,200 --> 00:25:58,359 Speaker 1: There's a real problem because their leaders, literally the people 496 00:25:58,440 --> 00:26:01,320 Speaker 1: that everyone elected to sit in the Bobal office, have 497 00:26:01,480 --> 00:26:04,119 Speaker 1: not leveled with them about what's going on. And in 498 00:26:04,160 --> 00:26:06,680 Speaker 1: those circumstances, if conversations to fix it, they will throw 499 00:26:06,720 --> 00:26:10,080 Speaker 1: them out. It'll look like it's it's pernicious, it's done 500 00:26:10,080 --> 00:26:13,720 Speaker 1: out of some political agenda, not because there's a real 501 00:26:13,720 --> 00:26:16,280 Speaker 1: problem that needs to be addressed. And I think the 502 00:26:16,320 --> 00:26:18,520 Speaker 1: first thing to do is get better public education on 503 00:26:18,520 --> 00:26:22,680 Speaker 1: this issue. Are you surprised that the Republicans who controlled 504 00:26:22,800 --> 00:26:26,439 Speaker 1: the Senate haven't taken a stronger view here as it 505 00:26:26,440 --> 00:26:32,320 Speaker 1: relates to, you know, the fiscal issues. Um No, Honestly, 506 00:26:32,520 --> 00:26:34,560 Speaker 1: I hate to say that, hate to admit it out loud. No, 507 00:26:35,160 --> 00:26:42,920 Speaker 1: I get I'm uh, you know it. There's not much 508 00:26:43,080 --> 00:26:46,800 Speaker 1: that uh, the Senate can do by itself, and so 509 00:26:46,960 --> 00:26:51,200 Speaker 1: they're sort of resigned to, uh, really just killing things 510 00:26:51,200 --> 00:26:53,679 Speaker 1: instead of doing things. And there's nothing coming on from 511 00:26:53,720 --> 00:26:56,600 Speaker 1: the House that's worth that kind of a fight. And 512 00:26:56,880 --> 00:26:59,640 Speaker 1: I don't believe they think the President will back them. 513 00:26:59,680 --> 00:27:04,480 Speaker 1: I mean, I remember when President Trump announced his candidacy 514 00:27:04,680 --> 00:27:08,159 Speaker 1: him down that escalator Trump Tower there that I'm not 515 00:27:08,200 --> 00:27:10,080 Speaker 1: going to touch so security, medicare, I'm just gonna go 516 00:27:10,160 --> 00:27:12,200 Speaker 1: get the money. I still don't know what that means. 517 00:27:12,560 --> 00:27:14,000 Speaker 1: But he made it very clear he was going to 518 00:27:14,080 --> 00:27:16,600 Speaker 1: deal with the fiscal promustulls he can wear the season 519 00:27:16,600 --> 00:27:20,040 Speaker 1: with the American action for him are on a debt 520 00:27:20,080 --> 00:27:22,679 Speaker 1: and deficit. And now Paul we trapes where I get 521 00:27:22,760 --> 00:27:25,720 Speaker 1: to hear anyone say they're for it? Douglas Holls ecan 522 00:27:25,880 --> 00:27:31,240 Speaker 1: what is a wealth tax? Wealth tax has been proposed 523 00:27:31,240 --> 00:27:34,640 Speaker 1: by UH both Elizabeth Warren and Bernie Sanders. It would 524 00:27:34,640 --> 00:27:37,560 Speaker 1: be an annual tax based on the value of your wealth. 525 00:27:37,800 --> 00:27:43,520 Speaker 1: That's called a dividend text that's on the return to wealth, 526 00:27:43,560 --> 00:27:46,919 Speaker 1: not the stock of wealth. And these would be unique 527 00:27:46,920 --> 00:27:48,680 Speaker 1: because they're on the stock of wealth. So if you're 528 00:27:48,680 --> 00:27:52,000 Speaker 1: worth five billion dollars, that five billion dollars is the 529 00:27:52,040 --> 00:27:57,840 Speaker 1: tax base, and the rates on these are the progressive 530 00:27:58,119 --> 00:28:00,560 Speaker 1: marginal rates in these. Top rate for Sanders is a percent, 531 00:28:00,680 --> 00:28:04,000 Speaker 1: top rate for Warrnt is six percent. So viewed from 532 00:28:04,040 --> 00:28:08,320 Speaker 1: the traditional perspective of taxing the return to capital investments, 533 00:28:08,359 --> 00:28:10,720 Speaker 1: these can be quite recording intact, they could be larger 534 00:28:10,760 --> 00:28:13,159 Speaker 1: than the actual assumption. They could be larger than the 535 00:28:13,160 --> 00:28:17,240 Speaker 1: actual assumption on any kind of tangible or intangible asset. 536 00:28:17,320 --> 00:28:19,879 Speaker 1: I mean, Paul Sweeney is affected by this, folks, I'm not, 537 00:28:20,040 --> 00:28:24,520 Speaker 1: but I mean these are This is a here's the thing, Tom, 538 00:28:24,800 --> 00:28:27,760 Speaker 1: still think about this. Everyone is affected because you would 539 00:28:27,760 --> 00:28:33,639 Speaker 1: have to file to prove you're not that wealthy. Yeah, 540 00:28:31,080 --> 00:28:37,440 Speaker 1: I've been Seriously, is any other nation effect at a 541 00:28:37,520 --> 00:28:43,680 Speaker 1: constructive wealth tax? No? Um, And many nations have um 542 00:28:43,800 --> 00:28:46,840 Speaker 1: instituted ineffective wealth taxes and then done a you turn 543 00:28:46,880 --> 00:28:49,600 Speaker 1: and gotten rid of them, particularly in Europe. They've they've 544 00:28:49,600 --> 00:28:54,040 Speaker 1: been tried. Um. You know, I think the problem here, 545 00:28:54,440 --> 00:28:56,000 Speaker 1: you know, we did some research on this which we 546 00:28:56,000 --> 00:28:59,320 Speaker 1: put out last Friday. The problem here is that people 547 00:28:59,320 --> 00:29:02,600 Speaker 1: are misunderstan eating the economics and a deep way. Number One, 548 00:29:03,280 --> 00:29:06,960 Speaker 1: the relatively few affluent household holds that we're chosen to 549 00:29:07,000 --> 00:29:09,320 Speaker 1: be the target of the tax were chosen because they 550 00:29:09,360 --> 00:29:14,600 Speaker 1: hold disproportionate fraction of the nation's investible wealth. And that's 551 00:29:14,600 --> 00:29:17,280 Speaker 1: what you're taxing, the wealth, not the households. And that's 552 00:29:17,280 --> 00:29:20,240 Speaker 1: a big economic tax, not not a targeted one. The 553 00:29:20,280 --> 00:29:22,800 Speaker 1: second is, as you mentioned, the rates are extremely high 554 00:29:22,800 --> 00:29:26,120 Speaker 1: from annual prospective or more that's going to have negative 555 00:29:26,120 --> 00:29:29,720 Speaker 1: ecomic consequences. And in our research, uh, you know, we 556 00:29:30,040 --> 00:29:31,720 Speaker 1: just trace it through and what you find out is 557 00:29:31,720 --> 00:29:34,720 Speaker 1: that if you don't invest and you don't innovate, you 558 00:29:34,760 --> 00:29:37,440 Speaker 1: lower productivity and railways growth and workers end up being 559 00:29:37,440 --> 00:29:40,520 Speaker 1: worse off. And so sixty three cents of every dollar 560 00:29:40,520 --> 00:29:43,200 Speaker 1: wealth tax you paid by labor. This has been a 561 00:29:43,240 --> 00:29:46,280 Speaker 1: wonderful visit, Douglas Helsey can thank you, thank you so much, 562 00:29:46,280 --> 00:29:49,760 Speaker 1: greatly appreciate it, and this morning on our debt in 563 00:29:49,800 --> 00:29:52,760 Speaker 1: our deficits as well. Thanks for listening to the Bloomberg 564 00:29:52,760 --> 00:29:58,720 Speaker 1: Saveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, 565 00:29:59,120 --> 00:30:03,320 Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at 566 00:30:03,360 --> 00:30:07,560 Speaker 1: Tom Keane before the podcast. You can always catch us worldwide. 567 00:30:08,080 --> 00:30:09,160 Speaker 1: I'm Bloomberg Radio