WEBVTT - Fed Should Remain Accommodative, Kocherlakota Says 0:00:00.080 --> 0:00:13.800 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom keene Jailey. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:35.360 Bloomberg dot Com, and of course on the Bloomberg. Joining 0:00:35.440 --> 0:00:38.159 us now to break things down is Ron's Temple Lazard, 0:00:38.200 --> 0:00:43.440 Asset Management, Managing Director and co head of Multi Assets Ron. 0:00:43.440 --> 0:00:45.159 It's great to catch up with you. What's on the 0:00:45.159 --> 0:00:49.240 agenda as you get back to work. It's Wednesday, January three. 0:00:49.320 --> 0:00:51.640 FED minutes were about to drop your waiting for earnings 0:00:51.640 --> 0:00:53.000 from some of the big corporate side of the next 0:00:53.040 --> 0:00:55.200 couple of weeks as well. What is at the top 0:00:55.240 --> 0:00:57.600 of the list I think today on the agenda. Obviously 0:00:57.600 --> 0:00:59.840 we're watching for the FMC minutes, as you've already mentioned. 0:01:00.080 --> 0:01:01.240 But the other thing I think a lot of us 0:01:01.240 --> 0:01:02.959 are working on right now is trying to figure out 0:01:03.000 --> 0:01:05.480 exactly how the tax reforms in the US will affect 0:01:05.520 --> 0:01:07.920 earnings for US companies. I mean, there's a lot of 0:01:07.959 --> 0:01:10.600 detail and the Tax Cutting Jobs Act the t c 0:01:10.760 --> 0:01:14.399 j A, and so we've had companies gradually trickling out 0:01:14.440 --> 0:01:16.520 a bit of information about how they might pay out 0:01:16.520 --> 0:01:18.840 a small bonus to employees. You know, a number of 0:01:18.920 --> 0:01:20.240 the banks have come out and said they'll give a 0:01:20.280 --> 0:01:22.640 thousand dollar bonus to each of their employees who make 0:01:22.680 --> 0:01:25.240 under a certain income level. But what we really need 0:01:25.280 --> 0:01:28.240 to see is the very specifics of how that tax 0:01:28.240 --> 0:01:30.959 plan will affect net income. And it's not that easy 0:01:31.000 --> 0:01:33.039 to assess from outside of a company because a lot 0:01:33.040 --> 0:01:35.640 of it depends on cross border flows in terms of 0:01:35.640 --> 0:01:39.319 between multinational entities, and you know, understanding how I think 0:01:39.319 --> 0:01:42.240 the provision was called BEAT, which is basically the the 0:01:42.319 --> 0:01:47.040 Enhancement and Avoidance of tax element, so base enhanced, baseline enhancement. 0:01:47.120 --> 0:01:48.840 So we're trying to watch a lot of this waiting 0:01:48.840 --> 0:01:50.920 for companies to give us more granularity. I think we'll 0:01:50.920 --> 0:01:53.040 start getting that late next week, whenever we start getting 0:01:53.080 --> 0:01:55.360 the bank earnings. How mechanical would it be run? Because 0:01:55.360 --> 0:01:57.880 from the outside looking in from thirty five, fast and fate, 0:01:57.920 --> 0:01:59.640 you could just sit there and say, Wow, they tighten 0:01:59.640 --> 0:02:02.360 the new open tax. Right, they pluck that in, and 0:02:02.360 --> 0:02:04.120 then they give you some brand new guidance for the 0:02:04.200 --> 0:02:06.600 year ahead. Oh it's I wish it were that simple. 0:02:06.600 --> 0:02:07.960 And I think what you've seen from a number of 0:02:07.960 --> 0:02:10.960 the cell side strategists, which is still helpful, is taking 0:02:11.000 --> 0:02:13.080 a broad brush approach and saying, Okay, if your effective 0:02:13.120 --> 0:02:15.200 tax rate was x and the new tax rate is why, 0:02:15.280 --> 0:02:17.520 let's look at the difference. Now, machits go up. But 0:02:17.600 --> 0:02:20.680 it really does come down to which legal entities within 0:02:20.720 --> 0:02:25.000 a company have, which exposures across borders really drives for example, 0:02:25.280 --> 0:02:28.600 some of the interest the corporate interest deductibility provisions, and 0:02:28.680 --> 0:02:31.920 that is not disclosed in most ten ks or ten queues. 0:02:32.240 --> 0:02:34.360 So even if you do the most in depth fundamental 0:02:34.440 --> 0:02:37.480 research you can possibly do from outside a company, much 0:02:37.480 --> 0:02:39.680 of this is almost impossible to decipher. Do you have 0:02:39.720 --> 0:02:43.200 a big sector focus right now? Uh? With in terms 0:02:43.240 --> 0:02:45.400 of holdings, No. I think one area where we have 0:02:45.440 --> 0:02:48.560 seen opportunity over the last year, and say the latter 0:02:48.639 --> 0:02:51.440 part of last year, was increasing disposure to the energy sector. 0:02:51.840 --> 0:02:53.280 Um it is one of the few areas of the 0:02:53.320 --> 0:02:55.680 market where actually you've seen the PE ratio go down 0:02:55.720 --> 0:02:59.120 materially last year, we've seen energy prices basically move up, 0:02:59.320 --> 0:03:01.800 which could bode well for some of these companies. And 0:03:01.840 --> 0:03:05.040 also our long term analysis of the demand trajectory for 0:03:05.120 --> 0:03:08.640 fossil fuels still actually looks reasonably positive for these companies. 0:03:08.720 --> 0:03:12.040 You mentioned fossil Fuels catch us right to a headline 0:03:12.840 --> 0:03:15.440 which is run from our ute when you and I 0:03:15.520 --> 0:03:19.280 were younger doing level one, level two, level three, and 0:03:19.360 --> 0:03:22.080 it would be the offshoot of the Virginia Railway and 0:03:22.160 --> 0:03:26.280 Power Company, And of course that is Dominion D and 0:03:26.480 --> 0:03:30.079 you know the ultimate yield stock of years ago, Dominion 0:03:30.120 --> 0:03:34.359 to buy Scanner. I hate these modern names run s, C, A, 0:03:34.680 --> 0:03:37.120 N A. I have no idea what Scanning is. I 0:03:37.120 --> 0:03:40.240 think they serve hot dogs at the Atlanta Brave Stadium. 0:03:40.760 --> 0:03:45.160 South Carolina Electric and Gas Company is the adult name 0:03:45.720 --> 0:03:48.840 for SCANNA, but it does speak to one of the 0:03:48.880 --> 0:03:52.600 trends here, which is mergers. Into this year Dominion to 0:03:52.680 --> 0:03:55.840 buy Scanna stock deel fifty five dollars thirty cents, A 0:03:55.880 --> 0:03:58.080 little buch more on that through the day, but there 0:03:58.080 --> 0:04:02.400 it is no nominal GDP. Tough revenue growth, we gotta merge. 0:04:03.360 --> 0:04:05.680 That's a theme, right. I think we'll continue to see that. 0:04:05.720 --> 0:04:07.760 I mean, I do think we will see better top 0:04:07.800 --> 0:04:10.040 line growth on the back of better wage growth in 0:04:10.080 --> 0:04:13.040 the US. I think the synchronized global recovery will lead 0:04:13.080 --> 0:04:16.479 to a better economic environment for companies to organically grow. 0:04:17.000 --> 0:04:19.360 But I also think if you think about what drives murders, 0:04:19.400 --> 0:04:24.159 mergers and acquisitions, it's CEO confidence, it's financing costs. You know, 0:04:24.200 --> 0:04:26.200 it's a number of these kind of factors in terms 0:04:26.279 --> 0:04:29.280 of the drive activity. And John and I have talked 0:04:29.279 --> 0:04:33.360 about this before. John, this is the Lemmings thing. Everybody 0:04:33.360 --> 0:04:36.920 for the door in the theater is rates rise, John Farroll, 0:04:37.000 --> 0:04:41.080 you wonder what CFOs tell the CEO, like, let's go, 0:04:41.960 --> 0:04:45.000 is maybe the big surprise for two thousand have they 0:04:45.080 --> 0:04:48.360 been planning that already run on the refinancing side of things, 0:04:48.400 --> 0:04:50.880 if they've been plugging in the low rights for longer, 0:04:51.000 --> 0:04:54.200 longer maturities, lower rights, that they've been making those moves 0:04:54.240 --> 0:04:57.360 before rates rise. I do think the corporates have largely 0:04:57.480 --> 0:05:00.440 termed out their debt and taken advantage of these incredibly rates, 0:05:00.440 --> 0:05:02.600 and they recognize that they're historically low. But by the way, 0:05:02.640 --> 0:05:05.000 let's be fair, they've recognized they were historically low for 0:05:05.040 --> 0:05:07.480 the last ten years, right, so every time you turn 0:05:07.560 --> 0:05:09.000 them out, you found you could turn it out even 0:05:09.040 --> 0:05:11.440 longer at a lower rate. But I do believe in 0:05:11.440 --> 0:05:13.520 two thousand and eighteen, that we are going to see 0:05:13.640 --> 0:05:15.760 higher interest rates the long end of the curve. I mean, 0:05:15.800 --> 0:05:18.760 if I look at the Eurozone, we're fifty percent roughly 0:05:18.800 --> 0:05:21.680 of Eurozone sovereign debt had a negative yield at the 0:05:21.720 --> 0:05:24.080 end of the year in nominal terms, and yet you've 0:05:24.080 --> 0:05:27.760 got an economic recovery that is four years into this process. 0:05:28.240 --> 0:05:30.520 I think you're going to see higher rates in the Eurozone. 0:05:30.760 --> 0:05:32.480 I mean easily. I think you could see ten year 0:05:32.520 --> 0:05:34.680 blewn yield's top one percent this year, and I think 0:05:34.720 --> 0:05:37.120 that will have a relative value effect on US treasuries. 0:05:37.200 --> 0:05:39.840 So so if I look at fixed income and interest rates, 0:05:40.120 --> 0:05:42.760 I do believe rates higher in twenty eighteen is a 0:05:42.839 --> 0:05:45.280 high probability call. And if I'm a company, I'm going 0:05:45.320 --> 0:05:47.120 to think about that in terms of my opportunity to 0:05:47.200 --> 0:05:49.200 lock and load in terms of these So that's the 0:05:49.200 --> 0:05:52.039 culporate response. I want to gudge what the investor response is, 0:05:52.080 --> 0:05:55.080 because investors will look at that situation. At some point, 0:05:55.600 --> 0:05:58.560 you stop using the SMP five hundred a t F 0:05:58.600 --> 0:06:02.160 as a money market fund and catching in whenever you 0:06:02.279 --> 0:06:04.400 like for a profit, and start looking at what's happening 0:06:04.440 --> 0:06:06.839 in treasuries and saying, you know what, there's some income 0:06:07.080 --> 0:06:09.240 in fixed income and I'd like to go to that. 0:06:10.120 --> 0:06:12.800 This is a multi factor question, right. I think part 0:06:12.839 --> 0:06:14.960 of it is the level of dividing yields. Part of 0:06:14.960 --> 0:06:16.640 it is the level of interest rates. The other factor 0:06:16.680 --> 0:06:19.520 to keep in mind is what's happening with corporate pension plans. 0:06:20.040 --> 0:06:23.000 With record levels on equity markets, many of the private 0:06:23.040 --> 0:06:25.120 pensions are now fully funded, and if they get the 0:06:25.160 --> 0:06:28.040 opportunity where you get a fifty basis point, you'll back up. 0:06:28.640 --> 0:06:32.320 The appeal of immunizing their pension risk and shifting out 0:06:32.400 --> 0:06:34.800 of equities into fixed income to match their assets and 0:06:34.800 --> 0:06:37.440 liabilities will be pretty compelling. So I do think that 0:06:37.480 --> 0:06:39.680 will be an interesting interplay. Run Thank you, Thank you, 0:06:39.680 --> 0:06:41.880 Thank a run Temple with us Lazar just a great 0:06:41.880 --> 0:06:44.799 way to kick off the year. He is with Lazard 0:06:44.880 --> 0:07:04.839 Asset Management out of Minneapolis. Narrianna Cucha Dakota one of 0:07:04.839 --> 0:07:08.080 our most esteemed economists. Thinking in a way of mathematics. 0:07:08.560 --> 0:07:11.800 He decided getting out the map in Minnesota to move 0:07:11.840 --> 0:07:15.000 to warmer climbs and joins us this morning for Rochester, 0:07:15.360 --> 0:07:18.440 New York. Let's cut to the chase. UH Professor Caucho 0:07:18.480 --> 0:07:21.600 Dakota at the University of Rochester. You can look out 0:07:21.640 --> 0:07:27.320 your window his the Genesee River frozen over. Uh you know, 0:07:27.440 --> 0:07:29.480 I I don't look on the river, but I'm sure 0:07:29.520 --> 0:07:32.680 it's frozen. It is. Well, it's quite quite cold. It's 0:07:32.720 --> 0:07:34.640 been called here for quite some time. You know. Hate 0:07:34.640 --> 0:07:38.040 the Jenny Creemel was worm as well. You have a 0:07:38.160 --> 0:07:41.720 terrific chart out for Bloomberg View today of the core 0:07:41.920 --> 0:07:46.680 conundrum the chairman Powell of faces Can people like you 0:07:47.040 --> 0:07:52.000 actually move inflation? We have disinflation, we're told we have 0:07:52.040 --> 0:07:55.960 a core pc South. Can people in suits and ties 0:07:56.320 --> 0:08:00.000 and expensive dresses like cher yelling war? Can you actually 0:08:00.360 --> 0:08:05.160 move the needle on inflation? You know, I think the 0:08:05.560 --> 0:08:08.000 key is really to think about it is that the 0:08:08.040 --> 0:08:11.320 FED can stop inflation from coming, and it can stop 0:08:11.360 --> 0:08:14.920 inflation from coming by by raising it's it's regulator tightening 0:08:14.960 --> 0:08:18.160 its regulat around the economy that is raising rates. Um. 0:08:18.240 --> 0:08:20.520 And what I worry about is that over the past 0:08:20.560 --> 0:08:25.840 few years, you know, since the initiation lift off in December. Uh, 0:08:25.920 --> 0:08:28.200 you the Fed's complaining, boy, inflation is too low. Well, 0:08:28.520 --> 0:08:30.360 if inflation is too low, why are you trying to 0:08:30.440 --> 0:08:33.880 choke off acond of activity by raising rates. Um. If 0:08:33.880 --> 0:08:36.400 the FED were to to take a much more gradual 0:08:36.520 --> 0:08:41.360 approach to raising rates, uh, standing back letting, letting the 0:08:41.400 --> 0:08:45.400 economy grow more rapidly, that's gonna it's going to have 0:08:45.520 --> 0:08:48.120 to lead to more demand for for workers. That's gonna 0:08:48.120 --> 0:08:50.400 push up on wages and costs for firms, and you're 0:08:50.440 --> 0:08:53.040 gonna get inflation within the model building that we do, 0:08:53.120 --> 0:08:56.920 within the Newtonian mechanics that you are expert at. And frankly, 0:08:56.960 --> 0:08:59.920 we go beyond the work of say Alfred Marshall and 0:09:00.080 --> 0:09:02.960 even Maynard Keynes and and John Hicks as we go 0:09:03.000 --> 0:09:08.760 to modern mathematics. Do we have the tools available given 0:09:08.800 --> 0:09:13.679 the behavioral and demographic realities of our economy? Can you 0:09:13.760 --> 0:09:18.280 dovetail your mathematical world with the d peopling of America, 0:09:18.360 --> 0:09:21.320 with a lack of population growth, with with all sorts 0:09:21.320 --> 0:09:26.240 of inequalities that are out there. Yeah, these are great questions, 0:09:26.280 --> 0:09:28.319 and there's a ton of work going on and all 0:09:28.360 --> 0:09:33.320 these issues, um, you know they uh. The major meetings 0:09:33.320 --> 0:09:34.959 for for economics are gonna be taking place over the 0:09:35.000 --> 0:09:37.000 weekend and there'll be a lot of conversation about exactly 0:09:37.040 --> 0:09:40.800 these kinds of questions. But with all that said, monetary 0:09:40.840 --> 0:09:44.880 policy doesn't really isn't really at the cutting edge of 0:09:44.920 --> 0:09:48.360 all these kinds of issues. It if you see inflation 0:09:48.400 --> 0:09:50.440 too low, it's pretty simple what you have to do, 0:09:50.840 --> 0:09:54.240 keep policy and and and right now what we're seeing 0:09:54.240 --> 0:09:57.280 is the opposite you are, I'll suggest, I mean, and 0:09:57.440 --> 0:09:59.240 this goes to the legacy of Gary Stern in the 0:09:59.240 --> 0:10:03.880 Minneapolis You were wonderfully agnostic in the political debate. There 0:10:03.960 --> 0:10:06.240 is a common ground. I'm just gonna pick on two 0:10:06.280 --> 0:10:10.480 folks between Rick Michigan of Colombia and Charles Plasser out 0:10:10.480 --> 0:10:13.520 of the Carnegie Rochester Freshwater School. They have a lot 0:10:13.559 --> 0:10:18.520 of common ground, and yet they aggressively disagree on whether 0:10:18.600 --> 0:10:21.640 a central bank can get out in front of the 0:10:21.720 --> 0:10:26.480 trend or if by definition they act after the fact. 0:10:26.960 --> 0:10:30.360 What's your experience here is a central bank by definition 0:10:30.679 --> 0:10:38.240 ex post? I think that the it's it's very difficult 0:10:38.280 --> 0:10:41.439 to predict where bad times are going to come from. Always, 0:10:41.520 --> 0:10:45.360 I think the the the job of central banks is 0:10:45.400 --> 0:10:48.600 to be as aggressive as possible in terms of the 0:10:48.600 --> 0:10:52.960 clean up after after bad shocks have taken place. Well, 0:10:53.000 --> 0:10:54.719 I agree that I guess we saw that but it's 0:10:54.800 --> 0:10:58.280 not two thousand and eight, two thousand ten, the intellectual 0:10:58.320 --> 0:11:01.319 courage of Ben Bernanki and other as we came out 0:11:01.360 --> 0:11:04.520 of this crisis, we're now a decade on. So now 0:11:04.559 --> 0:11:10.080 what should be the policy? Uh? Look, I think that um, 0:11:10.520 --> 0:11:12.400 the post you are kind enough are referred to, made 0:11:12.720 --> 0:11:15.360 the point that actually we still see the economy very 0:11:15.400 --> 0:11:18.600 subdued relative where we were ten years ago, and even 0:11:18.640 --> 0:11:21.120 even relatively we were eighteen years ago at the beginning 0:11:21.120 --> 0:11:25.120 of the two thousands, um, And so I think that 0:11:25.160 --> 0:11:29.439 behooves the FED to remain very accommodated with monetary policy. Look, 0:11:29.480 --> 0:11:32.440 it's not a question of trying to make things happen, 0:11:32.800 --> 0:11:35.520 it's a question of not getting in the way of 0:11:35.559 --> 0:11:38.720 things that are happening. So you see this great tax 0:11:38.760 --> 0:11:41.840 bill that Congress passed, and I say great in terms 0:11:41.880 --> 0:11:45.000 of actually trying to improve the growth outcomes for for 0:11:45.040 --> 0:11:47.800 the US, both on the demand side and on the 0:11:47.800 --> 0:11:52.439 supply side. If um, uh that those growth outcomes can 0:11:52.520 --> 0:11:54.959 only materialize if the FED doesn't get in the way 0:11:55.000 --> 0:11:57.160 of them happening by raising rates to rapidly. How do 0:11:57.240 --> 0:12:01.760 you respond to the cocktail of potent chual GDP, that 0:12:02.000 --> 0:12:07.319 is subpar based on new productivity and population realities. If 0:12:07.360 --> 0:12:11.080 Michael Faroli at JP Morgan out of Boost Chicago, if 0:12:11.080 --> 0:12:15.440 Michael Faroli can say it's sub two percent, do you 0:12:15.559 --> 0:12:18.960 adjust your calculus now at the FED or do you 0:12:18.960 --> 0:12:21.319 have to wait until you see the whites of subpar? 0:12:21.440 --> 0:12:25.440 G d p iyes. I think that you know, the 0:12:25.480 --> 0:12:28.280 FED has been adjusting it's it's vision and potentially agree 0:12:28.360 --> 0:12:30.880 with the last over the last eight or nine years. 0:12:30.880 --> 0:12:34.600 And and um, you you'll see in the forecast from 0:12:34.640 --> 0:12:38.000 CEE participants that they they've adjusted their their vision downward. 0:12:38.520 --> 0:12:41.640 But the question is how much downward should you go? 0:12:41.840 --> 0:12:43.960 And how much gap has left? And I I I 0:12:44.000 --> 0:12:46.160 think there's still more room for improvement that can be 0:12:46.200 --> 0:12:50.880 facilitated by monetary policy. Um. The one piece I'll mate 0:12:50.920 --> 0:12:53.760 point on makeoff potential is that that some of the 0:12:54.240 --> 0:12:56.440 things that are in the tax bill and also the 0:12:56.640 --> 0:13:01.440 deregulatory UH initiatives coming out of White House are actually 0:13:01.440 --> 0:13:04.160 aimed at boosting potential output. Okay, but that's something that 0:13:04.160 --> 0:13:06.240 that the fantastic no account This is critical and I 0:13:06.240 --> 0:13:09.760 don't want you know it's a media question. I apologize, professor, 0:13:09.800 --> 0:13:12.680 but I'm gonna go there right now? How do you 0:13:12.720 --> 0:13:15.640 respond when the President United States suggests three percent real 0:13:15.679 --> 0:13:18.760 GDP and some of his supporters get out to four 0:13:18.800 --> 0:13:21.840 percent real GDP? Can we get there given the potential 0:13:21.880 --> 0:13:25.959 calculus we've got right now? So I think it's a 0:13:26.040 --> 0:13:29.480 question of what people mean when they throw those numbers around. 0:13:29.480 --> 0:13:33.680 If they need uh they think that uh potential? Can 0:13:33.720 --> 0:13:36.880 growth can be permanently or even over a decade at 0:13:36.920 --> 0:13:42.040 four percent per year? I'm extremely skeptical, Um, can we 0:13:42.080 --> 0:13:45.360 get there without? Can we get four percent growth for 0:13:45.760 --> 0:13:50.400 a year or even two years without causing undue inflation? Possibly? 0:13:50.720 --> 0:13:53.480 I mean that's a possible issue. And then that becomes 0:13:53.800 --> 0:13:55.240 you know, if you're in the White House, I can 0:13:55.280 --> 0:13:56.640 see why you might want to push on that as 0:13:56.720 --> 0:13:59.200 much as you can. Professor Cutchy Cola, let me ask 0:13:59.200 --> 0:14:02.880 you one final question by requirement, do we need a 0:14:02.960 --> 0:14:08.120 culture lacoda like vice chairman of the Fed? Everybody says 0:14:08.200 --> 0:14:12.400 Chairman Powell has certain constructive attributes, but does he need 0:14:12.520 --> 0:14:15.800 someone that understands Clarida and Gurtler's d s g E. 0:14:16.200 --> 0:14:19.080 Does he need somebody sitting in that vice chairman chair 0:14:19.120 --> 0:14:24.160 that can get through your pH D thesis. Uh. You know, 0:14:24.240 --> 0:14:27.920 I I think that I worked closely with Jay when 0:14:27.960 --> 0:14:32.640 I j Paul when I was on the scene. I 0:14:32.680 --> 0:14:34.920 think that he's a very smart guy. He's able to 0:14:34.960 --> 0:14:38.800 analyze a bunch of the frame I think he understands 0:14:38.840 --> 0:14:41.440 the frameworks well. I think he understands how they come 0:14:41.480 --> 0:14:42.960 to the data. Is is he going to do cutting 0:14:43.000 --> 0:14:46.360 edge research and economics? Now? Do you need a vice 0:14:46.440 --> 0:14:49.120 chair like that? Please? I don't. I don't really think so. 0:14:49.280 --> 0:14:52.320 I think that it's you want someone who the chair. 0:14:52.480 --> 0:14:54.520 The main thing you're gonna want in that position is 0:14:55.000 --> 0:14:57.200 um someone who's gonna be very supportive to the chairs. 0:14:57.360 --> 0:15:00.440 The chair feels comfortable with the chair, feel ols is 0:15:01.000 --> 0:15:04.760 going to be helpful to to him in uh, in 0:15:04.840 --> 0:15:07.680 making their decisions. That might well be somebody who has 0:15:07.720 --> 0:15:12.000 a lot of mathematical firepower, but it might well not be. 0:15:12.120 --> 0:15:14.680 I think it really depends on what on the chair, 0:15:14.800 --> 0:15:17.920 what what what? What? In this case he wants professor, 0:15:17.960 --> 0:15:19.880 thank you so much for joining us today from the 0:15:19.960 --> 0:15:23.600 University of Rochester and Arianna Cultural Dakota. Of course, with 0:15:23.760 --> 0:15:26.520 the mini applos fed a good tour of duty there 0:15:26.560 --> 0:15:30.960 between Gary Stern and Neil Cush Curry a bit ago. 0:15:43.360 --> 0:15:46.360 Why don't you bring in Christian Mamandy, Alright, you don't. 0:15:46.360 --> 0:15:47.880 I don't even know why he showed up for work 0:15:47.920 --> 0:15:52.480 in two thousand and eighteen after Hour International performed last year. 0:15:52.680 --> 0:15:55.360 All right, well, Christian MoManI, thanks very much for being 0:15:55.600 --> 0:15:59.800 with us. Of course, from Oppenheimer Funds, the chief investment officer, 0:16:00.120 --> 0:16:02.920 Happy new year to you. You've written in the past 0:16:03.000 --> 0:16:05.320 or set in the past that the tax overhaul bill 0:16:05.400 --> 0:16:07.320 is going to give us a one time pop. What 0:16:07.440 --> 0:16:12.360 happens after that? So for the markets to get to 0:16:12.440 --> 0:16:16.480 a different level altogether, economic growth has to pick up 0:16:16.480 --> 0:16:20.800 in a meaningful way through increased investments. If this tax 0:16:20.840 --> 0:16:24.480 bill is going to deliver superior growth, in our view, 0:16:24.920 --> 0:16:27.640 that is less likely. What is going to happen is 0:16:27.840 --> 0:16:32.360 you basically have a trillion dollar deficit. That's basically provide 0:16:32.560 --> 0:16:35.600 a fiscal stimulus, and as a result, in the short 0:16:35.720 --> 0:16:40.680 term you'll get a pop in terms of growth. In addition, 0:16:40.840 --> 0:16:44.160 companies would be making more money because they're paying less taxes, 0:16:44.560 --> 0:16:46.720 and as a result, earnings are going to go up. 0:16:47.080 --> 0:16:49.560 Once all of that kind of flushes through the system, 0:16:49.640 --> 0:16:53.240 we're back to the same trend upward trajectory as we 0:16:53.320 --> 0:16:57.360 had before. When you say upward trajectory, upward trajectory of 0:16:57.360 --> 0:17:02.760 what asset prices like stocks? Oh, yes, upward trajectory. Both. 0:17:03.840 --> 0:17:06.520 Growth is going to be at a constant in our 0:17:06.600 --> 0:17:10.040 view around let's say two and change. In that context, 0:17:10.119 --> 0:17:14.920 as the economy grows, profitability grows, asset prices will probably 0:17:14.960 --> 0:17:18.160 continue to trend up. In our view, this is still 0:17:18.600 --> 0:17:21.480 going to be the longest business cycle that any of 0:17:21.600 --> 0:17:24.800 us has ever experienced. We don't expect a recession in 0:17:24.840 --> 0:17:27.840 two thousand and eighteen or two thousand nineteen for that matter. 0:17:28.160 --> 0:17:30.000 Is this really a business cycle or is it a 0:17:30.000 --> 0:17:35.199 credit cycle? Really good? I think that's a that's a 0:17:35.680 --> 0:17:38.679 that's a really good question. I think the business cycle 0:17:38.840 --> 0:17:43.360 and credit cycle at this point are correlated. And because 0:17:43.480 --> 0:17:47.640 this cycle really has been so muted. If the if 0:17:47.680 --> 0:17:52.520 the credit cycle UH has difficulty in some way, that 0:17:52.680 --> 0:17:56.920 is we in a situation where we have problems in 0:17:56.920 --> 0:17:59.480 in credit creation, I think the growth is going to 0:17:59.520 --> 0:18:03.360 slow down. Okay more so than before PIM was old enough. 0:18:03.400 --> 0:18:05.360 We were too young Christian to do this. But if 0:18:05.400 --> 0:18:08.240 we were at Oxford with Johnny Hicks a few years ago, 0:18:08.320 --> 0:18:11.600 and you look at the classic I S l M model. 0:18:12.119 --> 0:18:14.879 What Pim's great question is, are we on the I 0:18:15.119 --> 0:18:17.280 S curve and is that the dynamics we should watch 0:18:17.320 --> 0:18:19.760 the real economy? Or are we on the l M 0:18:19.880 --> 0:18:23.879 curve that strange financial system and money base that we 0:18:23.960 --> 0:18:28.200 work within. What has your attention here that real economy 0:18:28.320 --> 0:18:31.800 or is it the financial dynamics that that reigns supreme 0:18:31.840 --> 0:18:35.720 in two thousand eighteen. So, I think this has been 0:18:36.320 --> 0:18:40.280 a topic of discussion for quite some time, people asserting 0:18:40.359 --> 0:18:44.000 that it's really all funny money, that is, it's because 0:18:44.040 --> 0:18:47.679 of monetary jerrymandering that we are getting the markets to 0:18:47.760 --> 0:18:50.400 a different level. We don't think that is the case. 0:18:50.440 --> 0:18:52.760 That is, if you look at the growth and earnings, 0:18:52.800 --> 0:18:55.879 if you look at the fundamentals of the economy, things 0:18:55.960 --> 0:18:59.720 have improved meaningfully and they continue to improve. In two 0:19:00.119 --> 0:19:02.200 was an eighteen. We think growth is going to be 0:19:02.200 --> 0:19:05.360 better in the US and on a global basis, Earnings 0:19:05.359 --> 0:19:07.960 are going to be better in the US and on 0:19:08.040 --> 0:19:11.160 a global basis, and therefore markets are going to be had. 0:19:11.359 --> 0:19:14.520 A lot of that is already anticipated and therefore price thing. 0:19:14.640 --> 0:19:19.720 So we don't have superlative expectations with respect to the market. 0:19:19.760 --> 0:19:23.680 But I think this is more fundamental driven rather than 0:19:23.800 --> 0:19:26.240 just the LM part that you were talking about. So 0:19:26.280 --> 0:19:30.640 where do you focus your attention in growth stocks? Well, yes, 0:19:30.960 --> 0:19:36.080 we continue to favor growth stocks. We some expectations in 0:19:36.119 --> 0:19:38.960 the market is that we'll get back to the value 0:19:39.760 --> 0:19:42.640 band wagon soon. I I don't think that is the case. 0:19:42.640 --> 0:19:46.280 For that to happen, rates have to move up meaningfully higher, 0:19:46.320 --> 0:19:49.600 inflation expectations have to go up meaningfully higher. We don't 0:19:49.600 --> 0:19:53.000 think that happens. Uh. You know, the things to watch 0:19:53.000 --> 0:19:56.600 in that regard would be if the investment cycle picked 0:19:56.680 --> 0:19:59.879 up in a meaningful way. Again, we don't think that 0:20:00.080 --> 0:20:02.000 is going to be the case. So we are still 0:20:02.040 --> 0:20:06.959 focused on growth stocks, and we are from a geographic standpoint, 0:20:07.240 --> 0:20:11.000 we have far more folks in international and emerging markets 0:20:11.000 --> 0:20:14.400 than in the US. Christian. If I go to Davos, 0:20:14.400 --> 0:20:16.000 which I am here in a number of weeks, there 0:20:16.000 --> 0:20:19.200 are gonna be buses plastered with there's gonna be an 0:20:19.200 --> 0:20:23.680 infrastructure boom and pick kazakhstand This morning, Jonathan Mahler in 0:20:23.760 --> 0:20:27.040 New York Magazine writes a definitive article Excuse me, New 0:20:27.080 --> 0:20:30.639 York Times Magazine, The definitive article on the case for 0:20:30.680 --> 0:20:33.600 the subway. I'm building the subway, and you know all 0:20:33.680 --> 0:20:38.479 that I mean is infrastructure part of the investment cycle 0:20:38.560 --> 0:20:45.160 that I could be in domestically and international. So internationally, 0:20:45.560 --> 0:20:50.199 investments are actually slowing rather than accelerating, primarily because of 0:20:50.560 --> 0:20:54.359 slowdown in investments in the places like China, which have 0:20:54.480 --> 0:20:57.280 been booming for quite some time. They are moving to 0:20:57.359 --> 0:21:00.919 a consumer driven economy. What you're talking about is really 0:21:01.040 --> 0:21:05.760 an infrastructure boom. Uh. In the US, I wish that 0:21:05.920 --> 0:21:09.520 was the case. I wish the billion or the trillion 0:21:09.560 --> 0:21:13.199 dollars that we spent on tax cuts was spent actually 0:21:13.240 --> 0:21:16.080 in infrastructure, because that would have revived the U s 0:21:16.119 --> 0:21:19.520 economy and potentially gotten us to a different level from 0:21:19.520 --> 0:21:22.320 a growth perspective. We're thrilled to have with his Christian 0:21:22.359 --> 0:21:26.240 Mormoney it Oppenheimer Funds. Full disclosure, folks, Oppenheimer Funds has 0:21:26.240 --> 0:21:29.080 been more than supportive of all we do, your Bloomberg 0:21:29.160 --> 0:21:34.000 Radio and Bloomberg surveillance. Uh, Christian, we've had a bang 0:21:34.080 --> 0:21:38.040 up year. As we mentioned earlier. How do you find companies? 0:21:38.080 --> 0:21:41.879 I mean, do you make sector bets on Indonesia? Do 0:21:42.000 --> 0:21:45.000 you go long Indonesia like the game of risk from 0:21:45.000 --> 0:21:48.160 our childhood or does somebody out there, some thirty two 0:21:48.240 --> 0:21:52.080 year old young Turk at Oppenheimer Funds, do they find 0:21:52.200 --> 0:21:55.840 a mom and pop business forwarded miles from Jakarta and 0:21:55.880 --> 0:21:58.280 say this looks good, how do you actually do it? 0:21:59.600 --> 0:22:05.000 So for investing in emerging markets, for that matter, investing anywhere, 0:22:05.040 --> 0:22:09.600 we are more companies specific rather than geography. So the 0:22:09.640 --> 0:22:12.640 best example of that is probably China. If you want 0:22:12.720 --> 0:22:15.040 to invest in China, you don't want to invest in 0:22:15.040 --> 0:22:18.280 a Chinese steel company, despite the fact that Chinese steel 0:22:18.280 --> 0:22:21.600 companies probably the largest part of the Chinese economy. You 0:22:21.640 --> 0:22:25.360 really want to invest in Chinese consumers, the internet companies 0:22:25.359 --> 0:22:29.320 who are doing fantastic things in terms of creating new 0:22:29.400 --> 0:22:33.199 businesses and opportunities. So for us, it's all about companies, 0:22:33.240 --> 0:22:36.600 and then we aggregated up to a level that that 0:22:36.640 --> 0:22:40.160 we look at, but it's really about companies rather than geography. Okay, 0:22:40.200 --> 0:22:42.360 So in the time of Method two, in this historic 0:22:42.440 --> 0:22:46.080 day for Global Wall Street, it's based on by side 0:22:46.280 --> 0:22:51.879 like Oppenheimer Funds or sell side traditional sell side research. 0:22:52.119 --> 0:22:55.720