1 00:00:00,080 --> 00:00:13,800 Speaker 1: Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jaily. 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 --> 00:00:23,480 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:32,960 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Hard 5 00:00:32,960 --> 00:00:34,800 Speaker 1: Bottles with us and I want to rip up the script, 6 00:00:34,840 --> 00:00:36,840 Speaker 1: harm and I really want to go back to first 7 00:00:36,960 --> 00:00:41,080 Speaker 1: first FED principles here with Richard Clarida, a wonderful supporter 8 00:00:41,159 --> 00:00:44,000 Speaker 1: of my work over the years, I've done panels with 9 00:00:44,159 --> 00:00:47,120 Speaker 1: Dr Clarida around the world, and of course he's been 10 00:00:47,159 --> 00:00:51,839 Speaker 1: a timeless guest with US, with Columbia University and with PIMCO. 11 00:00:52,240 --> 00:00:55,200 Speaker 1: And he is a newly minted Vice chairman of the FED. 12 00:00:55,480 --> 00:00:58,680 Speaker 1: Let's begin with these taking stand Fisher spot from where 13 00:00:58,720 --> 00:01:02,920 Speaker 1: you set. What's the difference between stand Fisher economics and 14 00:01:03,120 --> 00:01:08,440 Speaker 1: Richard Clarida economics. Well, first of all, Stan Fisher is 15 00:01:08,480 --> 00:01:11,640 Speaker 1: hard to replace, just as a personality and giving his 16 00:01:11,840 --> 00:01:15,800 Speaker 1: vast experience that he has. That's said, I mean we 17 00:01:16,400 --> 00:01:19,160 Speaker 1: I think most observers in the markets and in academia 18 00:01:19,200 --> 00:01:22,520 Speaker 1: agree that rich Clarida is a great candidate to um 19 00:01:22,720 --> 00:01:25,440 Speaker 1: to become the fat chairum vice chair at the fat 20 00:01:26,120 --> 00:01:29,920 Speaker 1: Um in terms of policies and particularly implications for the market. 21 00:01:30,240 --> 00:01:32,960 Speaker 1: As boring as it sounds, I think there is really 22 00:01:33,520 --> 00:01:37,520 Speaker 1: not much of a difference in terms of the the 23 00:01:37,520 --> 00:01:40,400 Speaker 1: the outlook for the next several months and quarter. Okay, 24 00:01:40,440 --> 00:01:43,959 Speaker 1: but I'm going to bring into the word the age word. 25 00:01:43,959 --> 00:01:45,520 Speaker 1: There could be a number of age words, but right 26 00:01:45,560 --> 00:01:49,400 Speaker 1: now it's going to be humility. Because Richard Clarida is 27 00:01:49,400 --> 00:01:55,240 Speaker 1: a monetary monetary policy ACTS is associated with dynamics, doctastic 28 00:01:55,600 --> 00:01:59,480 Speaker 1: general equilibrium theory DSG, and with Girdler, and he's he's 29 00:02:00,120 --> 00:02:03,920 Speaker 1: someone who has constructed a lot of mathematical models in 30 00:02:04,000 --> 00:02:08,840 Speaker 1: my right harm that really really didn't work out. Um. 31 00:02:08,880 --> 00:02:10,679 Speaker 1: I think that is something that most of us have 32 00:02:10,760 --> 00:02:14,239 Speaker 1: learned that made the steps from academia. I mean most 33 00:02:14,480 --> 00:02:16,440 Speaker 1: none of us as great as the names that you 34 00:02:16,560 --> 00:02:18,640 Speaker 1: just mentioned, But in general, if you come from academia 35 00:02:18,680 --> 00:02:21,000 Speaker 1: where you deal with lots of these fancy models, and 36 00:02:21,040 --> 00:02:24,600 Speaker 1: then you move over to the more sounds reality to 37 00:02:24,680 --> 00:02:26,480 Speaker 1: the real world if you want, I mean, you say 38 00:02:26,600 --> 00:02:29,120 Speaker 1: goodbye to many of these models, and you discount the 39 00:02:29,120 --> 00:02:30,919 Speaker 1: message of many of them, you still use them to 40 00:02:31,000 --> 00:02:34,920 Speaker 1: form an educated guests. Maybe the baseline, but you, as 41 00:02:34,960 --> 00:02:37,360 Speaker 1: I said, you discounted and you blended more with what's 42 00:02:37,600 --> 00:02:39,640 Speaker 1: going on in the real world. So therefore I wouldn't. 43 00:02:40,000 --> 00:02:42,240 Speaker 1: I think it's great that he's familiar with all those models. 44 00:02:42,240 --> 00:02:44,680 Speaker 1: I think that he uses them still. But I also 45 00:02:44,840 --> 00:02:49,080 Speaker 1: think I'm convinced he knows that you shouldn't take him 46 00:02:49,080 --> 00:02:52,120 Speaker 1: at face value. But part of it is a three 47 00:02:52,200 --> 00:02:55,120 Speaker 1: or four standard deviation. Now we're all living fat happy. 48 00:02:55,200 --> 00:02:57,760 Speaker 1: It was a living fat and happy Jackson Hall. Things 49 00:02:57,760 --> 00:03:00,639 Speaker 1: are great, the economy is great. But the reason or 50 00:03:00,760 --> 00:03:04,560 Speaker 1: Richard Claridas around his vice chairman, whomever the chair is 51 00:03:04,639 --> 00:03:09,519 Speaker 1: or chairman, the reason they're around is an exogenous shock crisis, right. 52 00:03:09,560 --> 00:03:12,000 Speaker 1: I mean that's they're like an airline pilot. They're paid 53 00:03:12,320 --> 00:03:14,200 Speaker 1: once a year to be sure the beast gets down 54 00:03:14,280 --> 00:03:16,120 Speaker 1: on the ground. Yeah, I mean that has been one 55 00:03:16,120 --> 00:03:20,320 Speaker 1: of the the the ex anti comments on on on J. 56 00:03:20,480 --> 00:03:22,480 Speaker 1: Powell becoming the FETE chairs saying that he's not a 57 00:03:22,520 --> 00:03:25,080 Speaker 1: trained economist, you know, and giving all the departures that 58 00:03:25,120 --> 00:03:26,799 Speaker 1: we have seen in the board and in some regional 59 00:03:26,840 --> 00:03:29,040 Speaker 1: fat banks, people are worried that there's just a lack 60 00:03:29,160 --> 00:03:33,760 Speaker 1: of experience, academic knowledge and all this in this set. 61 00:03:33,880 --> 00:03:37,120 Speaker 1: And I think that void a good I mean, putting 62 00:03:37,200 --> 00:03:41,320 Speaker 1: clarida there um is really helping to address this. And yes, 63 00:03:41,360 --> 00:03:45,440 Speaker 1: it's j to have a non trained economist there. It's 64 00:03:45,480 --> 00:03:47,800 Speaker 1: not an issue as long as you correctly said, as 65 00:03:47,840 --> 00:03:50,440 Speaker 1: we are on cruising speed and cruising altitude. I mean 66 00:03:50,480 --> 00:03:52,280 Speaker 1: you basically don't have to do anything. Okay, you don't 67 00:03:52,280 --> 00:03:54,320 Speaker 1: have to do anything. But we got a September lift. 68 00:03:54,360 --> 00:03:57,640 Speaker 1: We all get that December mystery. And I would suggest, 69 00:03:57,880 --> 00:04:01,360 Speaker 1: and folks, this is a cf A term a ginormous 70 00:04:01,440 --> 00:04:06,080 Speaker 1: mystery about two thousand nineteen. How ginormous is the mystery 71 00:04:06,080 --> 00:04:07,840 Speaker 1: of what the Fed is gonna do next year? I 72 00:04:07,880 --> 00:04:11,720 Speaker 1: would say at least greater than the perception that's that is. 73 00:04:12,040 --> 00:04:15,520 Speaker 1: I think I agree. There are two big unknowns, right, 74 00:04:15,600 --> 00:04:18,160 Speaker 1: One is how strong will the economy be throughout the year, 75 00:04:18,200 --> 00:04:21,120 Speaker 1: particularly second half of the year. And the other big 76 00:04:21,200 --> 00:04:23,320 Speaker 1: unknown is where is the natural interest rate? Right, the 77 00:04:23,360 --> 00:04:26,240 Speaker 1: equilibrium rate. So the point is, even if the economy 78 00:04:26,360 --> 00:04:30,479 Speaker 1: keeps growing at a decent pace, the FAT may conclude 79 00:04:30,480 --> 00:04:32,680 Speaker 1: that they should stop at the equilibrium at the long 80 00:04:32,800 --> 00:04:35,000 Speaker 1: term neutral rate, which we don't know where it is, right. 81 00:04:35,120 --> 00:04:37,960 Speaker 1: Everybody has a has a guess. It's somewhere around three pc. 82 00:04:38,160 --> 00:04:39,840 Speaker 1: But some people say it's be lower, some people it's 83 00:04:39,839 --> 00:04:42,720 Speaker 1: a bit higher. So that these two factors, if you 84 00:04:42,800 --> 00:04:45,400 Speaker 1: head them up, that means there is probably more uncertainty 85 00:04:45,480 --> 00:04:47,720 Speaker 1: right now than than people believe. I want to stay 86 00:04:47,760 --> 00:04:49,720 Speaker 1: in theory here in our next section, where Mr bond 87 00:04:49,760 --> 00:04:51,160 Speaker 1: As will get to the nuts and bolts of the 88 00:04:51,200 --> 00:04:56,120 Speaker 1: American economy. Rich Miller, one of our giants of economic 89 00:04:56,200 --> 00:04:59,640 Speaker 1: writing wherever we're honored that he's at Bloomberg, has a 90 00:04:59,680 --> 00:05:05,599 Speaker 1: two to force today on this silliness over stars. We've 91 00:05:05,640 --> 00:05:08,960 Speaker 1: got our star out of San Francisco. Let you explain it. 92 00:05:09,440 --> 00:05:11,440 Speaker 1: And now we're going through the math nous. I mean 93 00:05:11,440 --> 00:05:14,360 Speaker 1: to come on, it's a physics envy reducts. We've got 94 00:05:14,360 --> 00:05:17,839 Speaker 1: pie start folks. Pie, you know, like like the Who's 95 00:05:17,839 --> 00:05:21,200 Speaker 1: the Reeves? You know the movie Pie. You know, it's 96 00:05:21,200 --> 00:05:24,320 Speaker 1: like a Greek syl Yeah, three point one fourth thing 97 00:05:24,520 --> 00:05:28,479 Speaker 1: you're nail on that geometry shot. But anyways, within the 98 00:05:28,520 --> 00:05:31,600 Speaker 1: tailor rule, the inflation symbol is a letter pie. So 99 00:05:31,760 --> 00:05:34,479 Speaker 1: we got our start, we got pie Star, we got 100 00:05:34,480 --> 00:05:40,320 Speaker 1: some fictional thing faster. Isn't this just mathematical mathematical regurgitation again, No, 101 00:05:40,480 --> 00:05:44,720 Speaker 1: I think the there's a strong theoretical reason for having 102 00:05:44,760 --> 00:05:49,680 Speaker 1: these stars, these equilibrium numbers um because that helps you 103 00:05:49,760 --> 00:05:55,240 Speaker 1: to um to determine where your policy rate should be, 104 00:05:55,320 --> 00:05:57,919 Speaker 1: what the economy is doing to relative to what it 105 00:05:58,040 --> 00:06:01,240 Speaker 1: can do long term. The problem with all this is, 106 00:06:01,680 --> 00:06:04,240 Speaker 1: as I mentioned earlier, and that that's that's a big 107 00:06:04,279 --> 00:06:05,960 Speaker 1: part of the issue, and I think that's why we 108 00:06:06,440 --> 00:06:09,000 Speaker 1: argue about it, is that we can't measure it right, 109 00:06:09,120 --> 00:06:10,880 Speaker 1: and there's so much uncertainty around it. And then the 110 00:06:11,640 --> 00:06:14,600 Speaker 1: counter rograment of using it is why do you do 111 00:06:14,640 --> 00:06:17,640 Speaker 1: you base all your forecasts and and and and the 112 00:06:17,640 --> 00:06:20,640 Speaker 1: policy outlook on variables that you can see that you 113 00:06:20,680 --> 00:06:24,000 Speaker 1: can't measure very well and and when so much uncertainly. 114 00:06:25,000 --> 00:06:26,800 Speaker 1: The tailor rule, folks, you can get it on a 115 00:06:26,800 --> 00:06:28,920 Speaker 1: Bloomberg for those of you with the terminal in your car. 116 00:06:29,160 --> 00:06:33,360 Speaker 1: Good morning, Mike T A y L is a brilliant 117 00:06:33,680 --> 00:06:36,679 Speaker 1: exposition on the tailor rule, and harm to your point, 118 00:06:36,839 --> 00:06:41,600 Speaker 1: it has six data plug ins on the advanced Tailor rule. 119 00:06:41,760 --> 00:06:44,600 Speaker 1: As someone say, there's only two plug ins, but there's 120 00:06:44,640 --> 00:06:48,000 Speaker 1: six plugins and all this star envy that we've got going, 121 00:06:48,040 --> 00:06:51,640 Speaker 1: this physics envy is about plug ins that we don't know. 122 00:06:51,720 --> 00:06:54,440 Speaker 1: We don't know what the final result is or the 123 00:06:54,560 --> 00:06:58,080 Speaker 1: potential GDP or do the plug ins doing. Yeah, but 124 00:06:58,839 --> 00:07:01,520 Speaker 1: the reason that is probably one reason why some central 125 00:07:01,560 --> 00:07:04,720 Speaker 1: banks just look at realized inflation rates, right, I mean, 126 00:07:04,760 --> 00:07:06,680 Speaker 1: that's what what the Europeans, for example, do they all. 127 00:07:06,839 --> 00:07:09,600 Speaker 1: I mean, the difference between the what the bonus banks, 128 00:07:09,640 --> 00:07:13,280 Speaker 1: the ECB um Buonus Bank back then, e c B 129 00:07:13,440 --> 00:07:15,560 Speaker 1: now and the FET are doing is not as big 130 00:07:15,600 --> 00:07:17,280 Speaker 1: as you would think if you just look at you know, 131 00:07:17,320 --> 00:07:19,800 Speaker 1: easy B following price level stability and the FET is 132 00:07:19,840 --> 00:07:23,120 Speaker 1: looking at this head is dual mandate because the ECB 133 00:07:23,280 --> 00:07:26,080 Speaker 1: also looks at this transmission channel through the real economy 134 00:07:26,120 --> 00:07:30,600 Speaker 1: and how it ultimately affects inflation, you know, and the 135 00:07:29,720 --> 00:07:33,480 Speaker 1: the the black box in between is like a U 136 00:07:33,560 --> 00:07:36,520 Speaker 1: star which we haven't mentioned, the equilibrium unemployment rate the 137 00:07:36,560 --> 00:07:40,240 Speaker 1: nairou um and and how the economy is doing relatively 138 00:07:40,280 --> 00:07:44,320 Speaker 1: to this. And there is a rich the rich Truman, 139 00:07:44,400 --> 00:07:47,920 Speaker 1: the Truman Truman was the movie. The movie was Truman 140 00:07:48,000 --> 00:07:52,560 Speaker 1: with the Mass Jim Carrey, Jim Carrey, the funniest scene 141 00:07:52,560 --> 00:07:55,120 Speaker 1: in the movie when it's like the Truman Show and 142 00:07:55,160 --> 00:07:57,440 Speaker 1: they're in like they're like in the in the middle 143 00:07:57,440 --> 00:08:01,080 Speaker 1: of the movie and the like stream of can't the 144 00:08:01,160 --> 00:08:05,480 Speaker 1: light canister that was serious falls from the sky and 145 00:08:05,640 --> 00:08:08,680 Speaker 1: on the on the edge of the canisters masking tape 146 00:08:08,920 --> 00:08:13,280 Speaker 1: that says serious, Okay, serious is to the southwest of 147 00:08:13,320 --> 00:08:31,440 Speaker 1: a riot. Here's your astronomy for today. This is Bloomberg's Troy, 148 00:08:31,520 --> 00:08:34,839 Speaker 1: I ask you with us with a lot of talk 149 00:08:34,960 --> 00:08:37,880 Speaker 1: on investment, and we like that it's important. But Pim, 150 00:08:37,920 --> 00:08:40,840 Speaker 1: I'm going to rip up the August script here because 151 00:08:40,880 --> 00:08:43,920 Speaker 1: you know, we talked about great investment managers, John Templeton 152 00:08:44,040 --> 00:08:46,800 Speaker 1: and others. And I've had the honor of of speaking 153 00:08:46,800 --> 00:08:50,800 Speaker 1: at times to Chuck Royce, who got so angry about 154 00:08:50,800 --> 00:08:56,320 Speaker 1: a small village in Rhode Island that he actually did 155 00:08:56,400 --> 00:09:00,240 Speaker 1: what rich people are supposed to do. He's saved did 156 00:09:00,320 --> 00:09:05,280 Speaker 1: almost like John Rockefeller and would stock Vermont. Chuck Royce 157 00:09:05,360 --> 00:09:07,679 Speaker 1: went out folks and was appalled that they were going 158 00:09:07,720 --> 00:09:12,040 Speaker 1: to make mc manchon's on where Troy Gayowsky goes and 159 00:09:12,080 --> 00:09:15,120 Speaker 1: where he just got back from. Explained the miracle that 160 00:09:15,240 --> 00:09:18,559 Speaker 1: Chuck Royce did to Watch Hill, Rhode Island. Well, I'm 161 00:09:18,600 --> 00:09:20,920 Speaker 1: sure other people deserve credit as well, but you know, 162 00:09:21,040 --> 00:09:24,440 Speaker 1: from our understanding, Chuck Royce was instrumental in rebuilding the 163 00:09:24,440 --> 00:09:28,040 Speaker 1: Ocean House, taking it from a somewhat rundown complex into 164 00:09:28,160 --> 00:09:30,760 Speaker 1: one of the most magnificent spots on the Eastern Seaboard. 165 00:09:31,200 --> 00:09:34,120 Speaker 1: And the whole town has benefited westerly, you know, obviously 166 00:09:34,160 --> 00:09:36,480 Speaker 1: the town of watch Hill. There's been spill over to 167 00:09:36,520 --> 00:09:39,720 Speaker 1: Mssquamack it so it's been remarkable to see what's transpired 168 00:09:39,720 --> 00:09:41,959 Speaker 1: there the last ten to fifteen years. Global audience and 169 00:09:42,000 --> 00:09:44,640 Speaker 1: PIM jumping here because I know you spent time up there, folks. 170 00:09:44,679 --> 00:09:47,080 Speaker 1: All you need to know Taylor Swift, this is where 171 00:09:47,120 --> 00:09:51,360 Speaker 1: she goes. And the answer, Pim. It's equidistant from Boston 172 00:09:51,400 --> 00:09:53,680 Speaker 1: and New York. On a clear day, you could see 173 00:09:53,679 --> 00:09:57,160 Speaker 1: Block Island, Block Island, can see watch Hill, and it 174 00:09:57,559 --> 00:10:03,240 Speaker 1: literally goes back to the Revolutionary War for importance of gorgiosity, right, gorgiosity, well, 175 00:10:03,760 --> 00:10:10,880 Speaker 1: revolutionary gorgiosity. Ye all right, Well, but come on, while 176 00:10:10,880 --> 00:10:13,240 Speaker 1: we've got Troy here, can we ask him about money? 177 00:10:13,320 --> 00:10:16,680 Speaker 1: Because I want to talk Hill. It's pretty cool to 178 00:10:16,720 --> 00:10:19,600 Speaker 1: talk about it. You know, I realized it is, but 179 00:10:19,640 --> 00:10:23,080 Speaker 1: you do actually have to well, let me mr. He 180 00:10:23,120 --> 00:10:25,480 Speaker 1: had to pay the bills, he had to turn the 181 00:10:25,559 --> 00:10:30,000 Speaker 1: ocean house into its glamorousosity. Is Tom described, how do 182 00:10:30,080 --> 00:10:33,400 Speaker 1: we get there? Let's let's say, uh, you're in Watch Hill. 183 00:10:33,440 --> 00:10:35,600 Speaker 1: Now you're waking up. You're kind of thinking, all right, 184 00:10:35,679 --> 00:10:39,360 Speaker 1: it is August. I might have a bond or two 185 00:10:39,559 --> 00:10:43,920 Speaker 1: coming do and I'm going to have some cash. And 186 00:10:43,960 --> 00:10:46,320 Speaker 1: they call Troy and they say, you know, what, what 187 00:10:46,360 --> 00:10:48,000 Speaker 1: do you think we ought to do with this? With 188 00:10:48,040 --> 00:10:50,400 Speaker 1: this money? We should we hold onto it a little bit, 189 00:10:50,440 --> 00:10:52,800 Speaker 1: should we put it back into the market, should we 190 00:10:52,840 --> 00:10:55,240 Speaker 1: buy some stocks? What are you kind of doing? Well? 191 00:10:55,440 --> 00:10:58,240 Speaker 1: You know, our main focus today is on us economically 192 00:10:58,240 --> 00:11:00,760 Speaker 1: sensitive assets that are tied to you, a consumer in 193 00:11:00,800 --> 00:11:03,920 Speaker 1: the housing market. And the whole philosophy behind that is, Look, 194 00:11:03,920 --> 00:11:06,240 Speaker 1: we're trying to pride diversification for clients, but at the 195 00:11:06,280 --> 00:11:08,520 Speaker 1: same time we're trying to make them money. So it's 196 00:11:08,600 --> 00:11:11,240 Speaker 1: very hard to make any positive return above mid single 197 00:11:11,280 --> 00:11:14,319 Speaker 1: digits without taking some economic risk, which you also want 198 00:11:14,320 --> 00:11:17,040 Speaker 1: to provide some diversification clients because most of their risk 199 00:11:17,160 --> 00:11:20,640 Speaker 1: is tied to corporate America and international equities and HIE 200 00:11:20,720 --> 00:11:23,480 Speaker 1: bonds and so when you look at this cycle reminds 201 00:11:23,559 --> 00:11:25,920 Speaker 1: us of the late nineties and many ways, and the U. 202 00:11:26,000 --> 00:11:28,600 Speaker 1: S consumer is in really good shape right now. So 203 00:11:28,640 --> 00:11:31,960 Speaker 1: we think being tied to us economically sense of assets 204 00:11:32,000 --> 00:11:34,880 Speaker 1: focused on the U. S consumer that can also benefit 205 00:11:35,280 --> 00:11:37,920 Speaker 1: from federate hikes because they're floating rate, is a great 206 00:11:37,960 --> 00:11:41,080 Speaker 1: strategy to make high single digit returns with much less 207 00:11:41,200 --> 00:11:43,840 Speaker 1: risk if the economy suffers a surprise or so, what 208 00:11:43,880 --> 00:11:49,800 Speaker 1: are you talking about? Things like special situations bank loans 209 00:11:49,960 --> 00:11:52,400 Speaker 1: or if someone asks you to help fund a start 210 00:11:52,440 --> 00:11:56,080 Speaker 1: up restaurant that's serving vegan food and watch all, yeah, 211 00:11:56,160 --> 00:11:58,000 Speaker 1: go ahead and pull the trigger. That's not our cup 212 00:11:58,040 --> 00:11:59,959 Speaker 1: of tea. You know, we tend to focus on things 213 00:12:00,040 --> 00:12:04,000 Speaker 1: is actually trade right that you can actually get? Yeah, well, liquidity. 214 00:12:04,120 --> 00:12:07,280 Speaker 1: People always underestimate how important liquidity is because changing your 215 00:12:07,280 --> 00:12:10,160 Speaker 1: mind is very crucial to be a successful investor over time. 216 00:12:10,520 --> 00:12:12,240 Speaker 1: But if you look right now, many of our risks 217 00:12:12,240 --> 00:12:14,640 Speaker 1: are tied to residential housing market where you're not going 218 00:12:14,679 --> 00:12:16,839 Speaker 1: to make a fortune. You're not gonna make twelve percent, 219 00:12:16,920 --> 00:12:19,360 Speaker 1: but you can make six eight percent with very little downside. 220 00:12:19,679 --> 00:12:23,120 Speaker 1: They're also tied to multifamily commercial real estate, which despite 221 00:12:23,160 --> 00:12:26,080 Speaker 1: some overbuilding from a debt debt or perspective, there's very 222 00:12:26,080 --> 00:12:28,960 Speaker 1: little risk of loss. And then additionally we're tied to 223 00:12:28,960 --> 00:12:33,120 Speaker 1: the regional community banking system where you've had major regulatory reform, 224 00:12:33,240 --> 00:12:36,400 Speaker 1: benefits from tax reform, and also better net interest margin 225 00:12:36,440 --> 00:12:39,120 Speaker 1: the broader banking system. We've seen a number of hedge 226 00:12:39,120 --> 00:12:42,719 Speaker 1: funds crater for any wide set of reasons. How does 227 00:12:42,760 --> 00:12:47,040 Speaker 1: a successful hedge fund get out after year three, year one? 228 00:12:47,080 --> 00:12:49,400 Speaker 1: It's all, you know, maybe they do well, maybe they 229 00:12:49,400 --> 00:12:52,480 Speaker 1: do don't. Your to my mathematics is somewhere in the 230 00:12:52,559 --> 00:12:55,960 Speaker 1: vicinity of year three to year four. Just by the numbers, 231 00:12:56,000 --> 00:12:59,240 Speaker 1: hedge funds run into trouble. Well, you know, part of 232 00:12:59,240 --> 00:13:03,280 Speaker 1: that's just tied to any investment strategy that's thoughtful and 233 00:13:03,280 --> 00:13:05,880 Speaker 1: has a chance to make money will take risk, and 234 00:13:06,360 --> 00:13:08,640 Speaker 1: part of that risk is marked to market, and over 235 00:13:08,679 --> 00:13:11,440 Speaker 1: a three or four year period, hedge funds often suffer 236 00:13:11,559 --> 00:13:14,920 Speaker 1: some type of draw down. So if you haven't generated 237 00:13:15,160 --> 00:13:18,800 Speaker 1: attract enough returns to prove that you have an alpha proposition, 238 00:13:19,240 --> 00:13:22,160 Speaker 1: when you experience that inevitable mark to market draw down, 239 00:13:22,600 --> 00:13:25,840 Speaker 1: clients tend to to turn their backs on you and redeem, 240 00:13:25,840 --> 00:13:27,800 Speaker 1: and so that's why people forget. But hedge funds are 241 00:13:27,840 --> 00:13:32,800 Speaker 1: small businesses. All small businesses go through tough times, many 242 00:13:32,880 --> 00:13:37,679 Speaker 1: financial service industries businesses fail, and so there should be 243 00:13:37,720 --> 00:13:40,120 Speaker 1: no surprise that their substantial turnal. Is there a new 244 00:13:40,160 --> 00:13:43,400 Speaker 1: surprise now because we're getting double digit SMP gains down 245 00:13:43,440 --> 00:13:48,959 Speaker 1: twenty six pims all fired up about SMP three? Maybe? Yeah, Well, look, 246 00:13:49,000 --> 00:13:51,880 Speaker 1: I think the biggest challenge for all active managers since 247 00:13:51,880 --> 00:13:54,400 Speaker 1: the crisis has been how well US equities have done 248 00:13:54,760 --> 00:13:57,320 Speaker 1: and how strong this bull market has been. And you 249 00:13:57,320 --> 00:13:59,839 Speaker 1: know you've been riding the bull market. We've been trying 250 00:13:59,840 --> 00:14:02,680 Speaker 1: to much as you wish you had the kindsights always 251 00:14:02,679 --> 00:14:05,720 Speaker 1: twenty um. If you're if you're mandated, I'm taking that 252 00:14:05,760 --> 00:14:09,040 Speaker 1: as as a kind of not as much as we wish. Well, 253 00:14:09,480 --> 00:14:12,040 Speaker 1: I think if your mandates to generate non corely to returns, 254 00:14:12,080 --> 00:14:14,439 Speaker 1: you can only have so much beta. So the key 255 00:14:14,520 --> 00:14:16,120 Speaker 1: is how do you generate the best return you can 256 00:14:16,160 --> 00:14:19,400 Speaker 1: without having too much sensitivity to equities. So in hindsight, 257 00:14:19,440 --> 00:14:20,720 Speaker 1: we should have all just put our money in the 258 00:14:20,800 --> 00:14:24,440 Speaker 1: nasdack and hope for the best, you know, eight years ago. Um, 259 00:14:24,480 --> 00:14:28,080 Speaker 1: But we think we have been benefiting from strong economic growth, 260 00:14:28,120 --> 00:14:30,840 Speaker 1: albeit with low returns than the equity market. Okay, I 261 00:14:30,920 --> 00:14:34,280 Speaker 1: get critical. This is critical, that was well said. This 262 00:14:34,520 --> 00:14:36,680 Speaker 1: is very c f A of you, This is this 263 00:14:36,760 --> 00:14:43,760 Speaker 1: is no Greek terms beta. But what is so important 264 00:14:43,800 --> 00:14:46,480 Speaker 1: here is we've been doing this since two thousand and 265 00:14:46,560 --> 00:14:50,440 Speaker 1: seven eight nine. I've given speeches with everybody's saying it's 266 00:14:50,440 --> 00:14:54,160 Speaker 1: a single digit world, and everybody's managing for a single 267 00:14:54,200 --> 00:14:59,000 Speaker 1: digit world. Him, you're investing in, You've been great at this. 268 00:14:59,320 --> 00:15:02,160 Speaker 1: It's not a single digit world, is it? Well, not 269 00:15:02,200 --> 00:15:04,600 Speaker 1: for US equities, right. We look when when nequity is 270 00:15:04,600 --> 00:15:06,760 Speaker 1: corrected earlier this year, we were very confident that we 271 00:15:06,760 --> 00:15:09,320 Speaker 1: would see higher highs and the equities would have high 272 00:15:09,320 --> 00:15:11,680 Speaker 1: single digit to low teams returns. That looks to be 273 00:15:11,800 --> 00:15:14,560 Speaker 1: the case. Now the question is can you produce similar 274 00:15:14,600 --> 00:15:17,680 Speaker 1: returns from a different format that does not have as 275 00:15:17,760 --> 00:15:20,280 Speaker 1: much downside of things turned south? And we think we 276 00:15:20,360 --> 00:15:22,800 Speaker 1: have a chance to do that, albeit in mid to 277 00:15:22,920 --> 00:15:26,200 Speaker 1: high single digits. Okay, but I mean if you were sitting, uh, 278 00:15:26,360 --> 00:15:29,000 Speaker 1: maybe you know the family is going to watch hill 279 00:15:29,800 --> 00:15:32,240 Speaker 1: and the children decide that even though it's a beautiful day, 280 00:15:32,240 --> 00:15:34,240 Speaker 1: they're going to stay home and they're gonna play on 281 00:15:34,280 --> 00:15:37,520 Speaker 1: their mobile phones, and they're gonna watch Netflix, and they're 282 00:15:37,520 --> 00:15:40,280 Speaker 1: gonna listen to We're going to order stuff from Amazon. 283 00:15:40,920 --> 00:15:44,040 Speaker 1: If you had invested in two of those stocks, you 284 00:15:44,040 --> 00:15:48,240 Speaker 1: would have beaten just about every manager there is. Okay, 285 00:15:49,480 --> 00:15:52,600 Speaker 1: you you are an expert at event driven an arbitrage, 286 00:15:52,800 --> 00:15:55,720 Speaker 1: right is, can you give us one example of an 287 00:15:55,720 --> 00:15:58,560 Speaker 1: investment right now that you're looking at, or that you've 288 00:15:58,560 --> 00:16:01,160 Speaker 1: already invested in, or some think specific that you can 289 00:16:01,240 --> 00:16:04,040 Speaker 1: just use. Yeah. Sure, so, so, look, we we own 290 00:16:04,760 --> 00:16:07,360 Speaker 1: the junior debt securities of legacy Trump c d O 291 00:16:07,480 --> 00:16:09,560 Speaker 1: s or c d os of the trust preferred securities 292 00:16:09,600 --> 00:16:12,680 Speaker 1: of regional community banks these have you say, cuney banks, 293 00:16:13,360 --> 00:16:18,000 Speaker 1: opologunity community banks. Yeah. So basically if you think of yeah, 294 00:16:18,520 --> 00:16:20,720 Speaker 1: if you think of this investment thesis, it's based on 295 00:16:20,760 --> 00:16:23,320 Speaker 1: the fact that regional community banks have the best credit 296 00:16:23,400 --> 00:16:26,680 Speaker 1: quality of hading over generation. There's been massive deleveraging. On 297 00:16:26,760 --> 00:16:28,560 Speaker 1: top of that, you have a tail end of regulatory 298 00:16:28,600 --> 00:16:31,560 Speaker 1: relief and tax reform. On top of that, they're floating 299 00:16:31,640 --> 00:16:33,920 Speaker 1: rate security. So every time the Fed hikes you're doing 300 00:16:33,960 --> 00:16:36,880 Speaker 1: a high five. And when you combine low dollar prices 301 00:16:36,920 --> 00:16:40,280 Speaker 1: with improving cash flows and stronger fundamentals, you tend to 302 00:16:40,320 --> 00:16:42,880 Speaker 1: have a positive outcome. That being said him, where the 303 00:16:42,920 --> 00:16:46,480 Speaker 1: first admit that the fank stocks could certainly outperform, That's okay, 304 00:16:46,520 --> 00:16:48,040 Speaker 1: but I mean it's a completely different thing, and I 305 00:16:48,120 --> 00:16:50,960 Speaker 1: get it. No non correlated and is it also because 306 00:16:51,040 --> 00:16:55,880 Speaker 1: the banks basically have been prohibited from issuing preferred securities, 307 00:16:55,880 --> 00:16:58,200 Speaker 1: which is what they used to be able to access 308 00:16:58,240 --> 00:17:00,520 Speaker 1: in order to get this kind of funding. Worm they 309 00:17:00,520 --> 00:17:03,720 Speaker 1: haven't been prohibited. It's just it doesn't work. Yeah, it 310 00:17:03,720 --> 00:17:06,280 Speaker 1: doesn't work anymore. So that market trunk over time, and 311 00:17:06,320 --> 00:17:09,159 Speaker 1: there's a supply demand dynamic that helps benefit you as 312 00:17:09,160 --> 00:17:12,879 Speaker 1: an investor. So junior, right, junior junior, Yes, junior junior 313 00:17:12,920 --> 00:17:18,360 Speaker 1: debt securities security. This is very mezanine. It is very mezzanine. 314 00:17:18,440 --> 00:17:21,199 Speaker 1: It's very messaning. Well, what what I gotta say here? 315 00:17:21,200 --> 00:17:22,520 Speaker 1: I mean, this has been a lot of really good 316 00:17:22,560 --> 00:17:24,600 Speaker 1: theory and Troy, it was great with harm bondles this 317 00:17:24,640 --> 00:17:27,840 Speaker 1: morning celebrating the CFA. Thing. I'm gonna go to the 318 00:17:27,840 --> 00:17:31,800 Speaker 1: basic hedge fund theory, which is really really important is 319 00:17:31,840 --> 00:17:34,200 Speaker 1: because we know within the game of investments. The player 320 00:17:34,240 --> 00:17:37,120 Speaker 1: is gonna play, play, play play, and the haters they're 321 00:17:37,119 --> 00:17:40,480 Speaker 1: gonna hate eight hate, And all we know is Troy. 322 00:17:40,520 --> 00:17:43,840 Speaker 1: He's gonna go baby, I'm gonna shake, shake, shake and 323 00:17:43,880 --> 00:17:46,679 Speaker 1: shake it off, shake it off, which is you know, 324 00:17:46,760 --> 00:17:49,200 Speaker 1: the the theory. What do you looking at me like that? 325 00:17:49,240 --> 00:17:56,080 Speaker 1: Pimp's actually very well done? Yeah, that with you know, 326 00:17:56,119 --> 00:17:59,879 Speaker 1: with Taylor and you're out bonding with her. It's a 327 00:18:00,000 --> 00:18:03,760 Speaker 1: small abode she has, it's quite tiny. Yeah. Is she 328 00:18:03,880 --> 00:18:07,880 Speaker 1: ever on the the wheel the carousel? That we've never 329 00:18:07,920 --> 00:18:09,960 Speaker 1: seen her? But I know when she has a huge 330 00:18:09,960 --> 00:18:25,880 Speaker 1: security detail. One of the joys of one d Gartman 331 00:18:26,520 --> 00:18:31,640 Speaker 1: is it unlike of the trading public. If you turn 332 00:18:31,760 --> 00:18:35,080 Speaker 1: over to the page. The last page of his lengthy 333 00:18:35,200 --> 00:18:39,320 Speaker 1: tone written and when I am every morning is recommendations. 334 00:18:39,760 --> 00:18:44,040 Speaker 1: We here beginneth Dennis. You are long commodities and you 335 00:18:44,080 --> 00:18:48,639 Speaker 1: are short us equities. So when the market's going up, 336 00:18:48,680 --> 00:18:51,320 Speaker 1: everybody's gonna say Gartman is an idiot. But it's more 337 00:18:51,359 --> 00:18:55,040 Speaker 1: sophisticated than that. And to be long of commodities and 338 00:18:55,160 --> 00:19:00,360 Speaker 1: short of equities leads to an original outcome. Discuss Well, 339 00:19:00,400 --> 00:19:03,119 Speaker 1: first of all, I have had that idea on for 340 00:19:03,600 --> 00:19:06,600 Speaker 1: almost eight months, and it has moved. Get this, a 341 00:19:06,680 --> 00:19:10,080 Speaker 1: grand total of one tenth of one percent against me. 342 00:19:10,200 --> 00:19:14,280 Speaker 1: Stocks have outperformed commodities by one tenth of one percent 343 00:19:14,400 --> 00:19:17,000 Speaker 1: over the course of the last eight months. Um. Some 344 00:19:17,160 --> 00:19:19,200 Speaker 1: may argue and say that's a big move. I think 345 00:19:19,200 --> 00:19:22,000 Speaker 1: that one tent of one percent is relatively inconsequential under 346 00:19:22,000 --> 00:19:25,600 Speaker 1: most circumstances. But I do think, I do think from 347 00:19:25,640 --> 00:19:30,160 Speaker 1: a historical perspective that commodities, having been in a protracted 348 00:19:30,160 --> 00:19:33,119 Speaker 1: bear market for a number of years, are indeed inordinately 349 00:19:33,320 --> 00:19:36,560 Speaker 1: cheap relative to equities. I think equities, having been in 350 00:19:36,560 --> 00:19:40,879 Speaker 1: a protracted bull market for nine years, are inordinately expensive 351 00:19:41,480 --> 00:19:44,920 Speaker 1: relative to commodities. I am the I'm the chairman of 352 00:19:44,920 --> 00:19:47,240 Speaker 1: the University of Akrons and Dowment Committee, and we've actually 353 00:19:47,280 --> 00:19:50,600 Speaker 1: begun to move some of our stock positions into commodity 354 00:19:50,640 --> 00:19:54,639 Speaker 1: positions into real assets, and you know, for for several months. 355 00:19:54,680 --> 00:19:58,520 Speaker 1: I am incorrect. But commodities are slightly stronger, stocks are 356 00:19:58,600 --> 00:20:01,080 Speaker 1: slightly stronger, and the trade has not done much either 357 00:20:01,119 --> 00:20:02,680 Speaker 1: way over the course of the last eight months. To 358 00:20:02,680 --> 00:20:06,240 Speaker 1: be quite honest, what what kind of commodities? Dennis, Well, 359 00:20:06,280 --> 00:20:09,480 Speaker 1: if you make me buy any one single commodity, And 360 00:20:09,520 --> 00:20:11,840 Speaker 1: I'd rather think of commodities in a in a broad 361 00:20:11,880 --> 00:20:14,879 Speaker 1: catholic term rather than an individual commodity in a in 362 00:20:14,920 --> 00:20:17,359 Speaker 1: a in a in a focused parochial term. But if 363 00:20:17,359 --> 00:20:20,160 Speaker 1: you're gonna make me be parochial, I'd rather own wheat 364 00:20:20,160 --> 00:20:22,240 Speaker 1: than probably anything else. The crop size here in the 365 00:20:22,320 --> 00:20:25,560 Speaker 1: United States is small. The prospective plantings coming for the 366 00:20:25,600 --> 00:20:27,520 Speaker 1: next winter wheat crop, and it's hard to believe here 367 00:20:27,560 --> 00:20:29,320 Speaker 1: we are in the middle of summer, but we have 368 00:20:29,359 --> 00:20:31,040 Speaker 1: to think about what's going to go into the ground 369 00:20:31,040 --> 00:20:33,159 Speaker 1: for the winter wheat crop is only going to be 370 00:20:33,200 --> 00:20:36,120 Speaker 1: about an increase of one per cent. But what's really 371 00:20:36,119 --> 00:20:39,800 Speaker 1: happening is that the crops in Australia are being decimated 372 00:20:39,840 --> 00:20:42,920 Speaker 1: by weather. The crops in in Russia and Ukraine and 373 00:20:43,400 --> 00:20:47,520 Speaker 1: Romania have been decimated by weather, and demand continues to 374 00:20:47,520 --> 00:20:49,840 Speaker 1: be relatively strong. So if I if I could only 375 00:20:49,920 --> 00:20:51,720 Speaker 1: buy one, if you're going to force me to be 376 00:20:51,760 --> 00:20:54,840 Speaker 1: that parochial, let me buy wheat. Alright, So five fifteen 377 00:20:54,920 --> 00:20:57,400 Speaker 1: a bushel for wheat, You like that as opposed to corn, 378 00:20:57,480 --> 00:21:01,280 Speaker 1: for example, Yes, yes, actually I think the corn wheat 379 00:21:01,359 --> 00:21:04,280 Speaker 1: ratio wheat is very cheap, and I think that the 380 00:21:04,400 --> 00:21:07,480 Speaker 1: fundamentals are on the stronger side for the wheat market 381 00:21:07,520 --> 00:21:10,600 Speaker 1: relatives of the corn market. Is concerning corn and soybeans, 382 00:21:11,040 --> 00:21:14,160 Speaker 1: It's been an incredible growing season here in North America. 383 00:21:14,560 --> 00:21:17,760 Speaker 1: Mother nature has been extraordinary. The rains have been abundant, 384 00:21:17,840 --> 00:21:21,800 Speaker 1: the temperatures have been moderate. And let's let's congratulate the local, 385 00:21:21,880 --> 00:21:25,600 Speaker 1: the the state, the Land, Grand University's Monsanto, and mother 386 00:21:25,680 --> 00:21:28,400 Speaker 1: Nature for continuing to have a long and protracted bull 387 00:21:28,480 --> 00:21:32,480 Speaker 1: marketing yields. Does this fold into North Carolina State football 388 00:21:32,560 --> 00:21:34,440 Speaker 1: when we start talking to land grad schools? Is that 389 00:21:34,520 --> 00:21:36,760 Speaker 1: work well? And I was I was hoping you might 390 00:21:36,800 --> 00:21:39,520 Speaker 1: pick that up, but we are well. College football begins 391 00:21:39,560 --> 00:21:42,080 Speaker 1: this weekend, thank goodness. Well, I would like to congratulate 392 00:21:42,119 --> 00:21:46,040 Speaker 1: North Carolina State for not doing this starting in August foolishness. 393 00:21:46,119 --> 00:21:51,000 Speaker 1: It's it's American that they start September one against James Madison, 394 00:21:51,040 --> 00:21:56,520 Speaker 1: which is a good just because I'm I'm I'm nervous 395 00:21:56,520 --> 00:21:59,040 Speaker 1: about playing James Madison on the first game of the year. 396 00:21:59,080 --> 00:22:00,959 Speaker 1: A d m U has been a very very good 397 00:22:01,000 --> 00:22:05,480 Speaker 1: football team for college Division two. Yeah, uh, Dennis, because 398 00:22:05,520 --> 00:22:07,840 Speaker 1: we'reund commodities let's go to golden. I wanted to gold later. 399 00:22:07,920 --> 00:22:10,639 Speaker 1: Let's do gold right now. What a mystery is gold? 400 00:22:10,760 --> 00:22:13,720 Speaker 1: Does it move the same as it used to move? No, 401 00:22:13,880 --> 00:22:16,840 Speaker 1: it really doesn't, Tom it it doesn't seem to have 402 00:22:16,920 --> 00:22:21,680 Speaker 1: the same movement require incumbent in in major geopolitical circumstances. 403 00:22:22,160 --> 00:22:25,200 Speaker 1: You see some sort of untoward circumstances in India, you 404 00:22:25,320 --> 00:22:28,560 Speaker 1: think gold would get a bit. It doesn't. What happens 405 00:22:28,600 --> 00:22:30,840 Speaker 1: I think, or what is happening, is that we have 406 00:22:30,960 --> 00:22:34,280 Speaker 1: to protracted sellers. I think the Central Bank of Turkey, 407 00:22:34,280 --> 00:22:37,119 Speaker 1: in in the Central Bank of Venezuela have been selling 408 00:22:37,160 --> 00:22:40,720 Speaker 1: their what what reserves of gold they have had. The 409 00:22:40,760 --> 00:22:44,160 Speaker 1: buyers have quietly been Russia and China, but those those 410 00:22:44,160 --> 00:22:48,119 Speaker 1: sellers have have been rather aggressive and four sellers the 411 00:22:48,520 --> 00:22:52,120 Speaker 1: Turks to support their currency in Venezuela, to to support 412 00:22:52,160 --> 00:22:54,879 Speaker 1: what it can before it falls into utter and complete 413 00:22:54,880 --> 00:22:58,560 Speaker 1: and total chaos. Can I ask Dennis Scarpment about currencies please? 414 00:22:58,920 --> 00:23:01,240 Speaker 1: I want to know. I want to know dollar euro 415 00:23:02,119 --> 00:23:04,800 Speaker 1: Is Tom going to you know, continental Europe or are 416 00:23:04,800 --> 00:23:06,720 Speaker 1: we going to send him to the UK where it's 417 00:23:07,960 --> 00:23:12,200 Speaker 1: pounds sterling? I think that the euro is extremely expensive 418 00:23:12,200 --> 00:23:14,280 Speaker 1: at these points, at these levels, I think that the 419 00:23:14,760 --> 00:23:17,280 Speaker 1: we are focusing upon the wrong circumstances. We should be 420 00:23:17,280 --> 00:23:20,520 Speaker 1: focusing upon what's happening in Italy. You have a government 421 00:23:20,560 --> 00:23:23,679 Speaker 1: comprised of the Five Star Movement and the League of 422 00:23:23,720 --> 00:23:26,959 Speaker 1: the formerly the League Nord, both of whom are anti 423 00:23:27,000 --> 00:23:31,240 Speaker 1: Brussels and Orientation, anti Frankfort and Orientation. And I really 424 00:23:31,280 --> 00:23:34,359 Speaker 1: do think that the that the bridge collapse two weeks 425 00:23:34,359 --> 00:23:37,440 Speaker 1: ago in general was, as I wrote in today's newsletter, 426 00:23:37,880 --> 00:23:40,640 Speaker 1: the nine eleven for Italy. From from that point on 427 00:23:40,720 --> 00:23:43,879 Speaker 1: things have changed. Italy has no choice but to spending 428 00:23:43,960 --> 00:23:47,400 Speaker 1: enormous amounts of money on infrastructure. Brussels and Frankfort will 429 00:23:47,400 --> 00:23:49,639 Speaker 1: not allow it. I'm sure you'll have this to our Dennis, 430 00:23:49,640 --> 00:23:51,480 Speaker 1: if not, give me credit. And that is a lug 431 00:23:51,600 --> 00:23:55,680 Speaker 1: chart of the JP Morgan emerging market for an exchange index. 432 00:23:56,040 --> 00:24:01,320 Speaker 1: And we are lug lug quadratic, accelerating to a weaker level. 433 00:24:01,680 --> 00:24:05,800 Speaker 1: And we're almost through the August thirteen weakness. I mean, 434 00:24:05,920 --> 00:24:08,560 Speaker 1: I m. Currencies can't get out of their way, can they? 435 00:24:09,000 --> 00:24:11,120 Speaker 1: I don't think they can and nor should they. I mean, 436 00:24:12,480 --> 00:24:15,119 Speaker 1: Venezuela has dragged the whole world down. Turkey has dragged 437 00:24:15,119 --> 00:24:19,600 Speaker 1: the whole world down. But the ring is weak and weakening. 438 00:24:19,640 --> 00:24:22,399 Speaker 1: It's not just a circumstance of Turkey in Italy or 439 00:24:22,480 --> 00:24:25,600 Speaker 1: Turkey in Venezuela. This is this is broad, this is 440 00:24:25,640 --> 00:24:28,639 Speaker 1: Catholic in terms. Well, and we've seen that this morning, folks, 441 00:24:28,640 --> 00:24:30,960 Speaker 1: as we talked about at the very beginning of surveillance. 442 00:24:30,960 --> 00:24:33,200 Speaker 1: Dennis Garment will continue us. We're gonna do an all 443 00:24:33,359 --> 00:24:36,560 Speaker 1: us equity discussion with Mr Gartman, maybe touch on the 444 00:24:36,600 --> 00:24:39,640 Speaker 1: politics of the moment as well. He has the Gartment letter. 445 00:24:39,680 --> 00:24:41,959 Speaker 1: We protect the copyright of all our guests. You can 446 00:24:42,000 --> 00:24:45,800 Speaker 1: get the Gartment letter through his vast complex as well. Well, 447 00:24:45,840 --> 00:25:03,840 Speaker 1: he's out, pim. Why don't you bring in the ambassador. 448 00:25:03,960 --> 00:25:07,600 Speaker 1: But simply, folks, there's lots of people that talk, and 449 00:25:07,640 --> 00:25:12,119 Speaker 1: there's others that do, yes, and untrade few do and 450 00:25:12,160 --> 00:25:15,360 Speaker 1: they talk differently than the pundits. Well, yes they do. 451 00:25:15,520 --> 00:25:20,119 Speaker 1: And Miriam Sapiro is a currently a nonresident Senior Fellow 452 00:25:20,119 --> 00:25:25,440 Speaker 1: at the Brookings Institution. Previously served as Deputy Trade Representative 453 00:25:25,520 --> 00:25:30,520 Speaker 1: and became the acting Trade Representative. This is in and 454 00:25:30,720 --> 00:25:32,919 Speaker 1: she joins us. Now, Miriam, thank you very much for 455 00:25:33,000 --> 00:25:36,879 Speaker 1: being with us. Ambassador, What exactly does the US Trade 456 00:25:36,960 --> 00:25:42,600 Speaker 1: Representative do in those meetings? Well, the mission of the office, 457 00:25:42,640 --> 00:25:44,320 Speaker 1: and it's great to be here with both of you 458 00:25:44,400 --> 00:25:47,960 Speaker 1: this morning. The mission of the office is to negotiate 459 00:25:48,400 --> 00:25:53,240 Speaker 1: and enforced trade and investment agreements with partners around the 460 00:25:53,240 --> 00:25:56,760 Speaker 1: world in order to be able to boost US exports 461 00:25:56,800 --> 00:26:00,040 Speaker 1: of goods and services. Okay, but having said that, what 462 00:26:00,400 --> 00:26:02,320 Speaker 1: goes on in the meeting? I mean, do you come 463 00:26:02,640 --> 00:26:05,640 Speaker 1: with a list of things that you want to negotiate. 464 00:26:05,920 --> 00:26:08,840 Speaker 1: Do you have a personal relationship on one level with 465 00:26:09,320 --> 00:26:13,840 Speaker 1: your counterpart? How does that dynamic actually work? You bring 466 00:26:13,840 --> 00:26:16,199 Speaker 1: in lots of other people into the meeting, experts on 467 00:26:16,280 --> 00:26:21,480 Speaker 1: specific topics. How does that back and forth happen? Yes, yes, 468 00:26:21,640 --> 00:26:28,160 Speaker 1: and yes. So you developed essentially a whole of government approach, 469 00:26:28,359 --> 00:26:32,119 Speaker 1: working not just with the team at U s tr 470 00:26:32,760 --> 00:26:36,200 Speaker 1: uh many of the most dedicated civil servants who have 471 00:26:36,240 --> 00:26:39,360 Speaker 1: been here for years working on these issues because as 472 00:26:39,400 --> 00:26:42,320 Speaker 1: you know, they're they're often quite complex. Um, but you 473 00:26:42,320 --> 00:26:44,399 Speaker 1: have a very strong team at U s tr And 474 00:26:44,440 --> 00:26:48,080 Speaker 1: then you work closely with other US government agencies like 475 00:26:48,119 --> 00:26:51,879 Speaker 1: the State departments, the Commerce Department, the Treasury Department, and 476 00:26:51,960 --> 00:26:56,960 Speaker 1: others to determine what are the most important US objectives 477 00:26:56,960 --> 00:26:59,560 Speaker 1: here and how are we going to try to achieve them? 478 00:27:00,040 --> 00:27:02,479 Speaker 1: If if and I have this phrase, ambassador, you can 479 00:27:02,480 --> 00:27:04,560 Speaker 1: steal it from me if you want. The royalty stream 480 00:27:04,880 --> 00:27:08,760 Speaker 1: is valuable, which is Trump lateral. Trump Lateral is my 481 00:27:08,840 --> 00:27:11,560 Speaker 1: way or the highway. And all of the good people 482 00:27:11,640 --> 00:27:14,879 Speaker 1: like you within the administration have to deal with my 483 00:27:15,000 --> 00:27:18,880 Speaker 1: way or the highway that doesn't buttress up against complexity 484 00:27:19,440 --> 00:27:21,800 Speaker 1: very well. How are they going to sell Canadian and 485 00:27:21,880 --> 00:27:27,480 Speaker 1: Mexican complexity to President Trump? Well, that's that's the challenge. 486 00:27:27,600 --> 00:27:30,480 Speaker 1: And that's why it was good news this week that 487 00:27:30,640 --> 00:27:34,600 Speaker 1: we saw an agreement in principle with Mexico on a 488 00:27:34,640 --> 00:27:38,720 Speaker 1: new NaSTA because it showed that the administration can make 489 00:27:38,800 --> 00:27:42,640 Speaker 1: compromises when it wants to reach an agreement. So their 490 00:27:42,640 --> 00:27:47,040 Speaker 1: implications beyond Mexico UM, since we're conducting both preliminary and 491 00:27:47,080 --> 00:27:51,760 Speaker 1: actual negotiations on different kinds of agreements with many partners 492 00:27:51,800 --> 00:27:57,399 Speaker 1: from the EU to Japan and now kenya UM. But 493 00:27:58,760 --> 00:28:02,359 Speaker 1: the channel and with this agreement is that NaSTA, as 494 00:28:02,440 --> 00:28:06,560 Speaker 1: you know, is a triladder agreement three way between the US, 495 00:28:06,680 --> 00:28:11,240 Speaker 1: Mexico and Canada and Canada had not been part of 496 00:28:11,240 --> 00:28:14,040 Speaker 1: the talks for the last few weeks. There's nothing wrong 497 00:28:14,080 --> 00:28:16,480 Speaker 1: with that in principle, because there were issues that the 498 00:28:16,560 --> 00:28:20,840 Speaker 1: United States and Mexico needed to work out. Um, but 499 00:28:21,040 --> 00:28:26,920 Speaker 1: bringing in Canada now under a very tight UH time constraint, 500 00:28:27,000 --> 00:28:32,720 Speaker 1: essentially sixty hours are left in the clock. And we 501 00:28:32,720 --> 00:28:36,840 Speaker 1: can talk more about why that is that the administration's 502 00:28:36,840 --> 00:28:38,800 Speaker 1: teems to have moved back to my way or the 503 00:28:38,840 --> 00:28:43,520 Speaker 1: highway approach with Canada. That approach did not work with 504 00:28:43,680 --> 00:28:46,720 Speaker 1: when both countries were part of the negotiations. I don't 505 00:28:46,720 --> 00:28:49,520 Speaker 1: think it worked with Mexico. It's got to be a 506 00:28:49,560 --> 00:28:52,760 Speaker 1: real given take to try to reach some kind of 507 00:28:52,840 --> 00:28:56,040 Speaker 1: solution that all of the countries involved can then go 508 00:28:56,160 --> 00:29:02,960 Speaker 1: back home and sell. In these the ghost basic principle 509 00:29:03,880 --> 00:29:07,120 Speaker 1: of diplomacy one oh one. Do you want to get 510 00:29:07,120 --> 00:29:11,840 Speaker 1: an agreement, it's got to have something in it for everyone, 511 00:29:13,000 --> 00:29:17,240 Speaker 1: all right? In that In that sort of scenario, is 512 00:29:17,280 --> 00:29:23,600 Speaker 1: it likely that the US Trade representative will use and 513 00:29:23,800 --> 00:29:29,400 Speaker 1: reference whatever has been agreed to with Mexico while they 514 00:29:29,480 --> 00:29:32,719 Speaker 1: negotiate directly with Canada. I mean, will they talk about 515 00:29:32,760 --> 00:29:36,200 Speaker 1: the Mexican trade agreement and say, well, you know we 516 00:29:36,200 --> 00:29:38,600 Speaker 1: were able to do this with Mexico. We want to 517 00:29:38,640 --> 00:29:40,880 Speaker 1: be able to do this with Canada. Is it is it? 518 00:29:41,240 --> 00:29:45,280 Speaker 1: Do you use those agreements back and forth? Well? Absolutely, 519 00:29:45,320 --> 00:29:48,040 Speaker 1: because here the goal is and is this still the 520 00:29:48,040 --> 00:29:51,560 Speaker 1: administration's goal at the moment, to have it be a 521 00:29:51,680 --> 00:29:54,800 Speaker 1: trilateral agreement. NAPHTA is a three way agreement. Do you 522 00:29:54,800 --> 00:29:57,240 Speaker 1: want to replace NAPTA. You need a three way agreement, 523 00:29:57,320 --> 00:30:00,440 Speaker 1: not one to agreement or even two to A agreements. 524 00:30:00,440 --> 00:30:03,480 Speaker 1: You need a true a agreement because at the moment, 525 00:30:04,120 --> 00:30:07,040 Speaker 1: and it's been this way for some time, our three 526 00:30:07,120 --> 00:30:12,720 Speaker 1: economies are so inter dependent, and you know, CEOs that 527 00:30:12,880 --> 00:30:16,320 Speaker 1: I've spoken with are craving more certainty and more stability 528 00:30:16,320 --> 00:30:19,840 Speaker 1: on the trade front. And it includes either NASA continuing 529 00:30:19,840 --> 00:30:23,080 Speaker 1: the way it is or being improved. But NAPA means 530 00:30:23,480 --> 00:30:27,040 Speaker 1: Canada and Mexico, not just Mexico, because whether you're talking 531 00:30:27,080 --> 00:30:31,680 Speaker 1: about cars or cattle or other products, they crossed the 532 00:30:31,760 --> 00:30:36,480 Speaker 1: borders multiple times before their sold to consumers. Does President 533 00:30:36,520 --> 00:30:41,400 Speaker 1: Trump know that separting the Newson knows that it was. 534 00:30:41,480 --> 00:30:44,160 Speaker 1: I was very happy to see him quoted, uh I 535 00:30:44,240 --> 00:30:47,920 Speaker 1: think of it in the New York Times. Um acknowledging 536 00:30:48,080 --> 00:30:51,280 Speaker 1: that the three economies are so intertwined. That's so a 537 00:30:51,320 --> 00:30:53,400 Speaker 1: word that many of us use because it describes so 538 00:30:53,520 --> 00:30:56,680 Speaker 1: well the situation. So I have no doubt that there 539 00:30:56,720 --> 00:30:59,640 Speaker 1: are people and I think invested or Lightheiser, who is 540 00:30:59,680 --> 00:31:03,600 Speaker 1: now the US Trade Representative, understands that and I am 541 00:31:03,640 --> 00:31:05,520 Speaker 1: I am confident at that point has been made to 542 00:31:05,560 --> 00:31:09,680 Speaker 1: the President and hopefully, you know, we will see Canada 543 00:31:09,880 --> 00:31:15,040 Speaker 1: brought into the negotiations um before the end of this week. UM, 544 00:31:15,120 --> 00:31:19,720 Speaker 1: and uh, you know that doesn't prove possible. I think 545 00:31:19,720 --> 00:31:23,440 Speaker 1: there'll be a lot of pressure on the administration to 546 00:31:23,480 --> 00:31:27,240 Speaker 1: try and do something uh with them, And you know, 547 00:31:27,360 --> 00:31:29,560 Speaker 1: coming week or so, there might be a little bit 548 00:31:29,560 --> 00:31:33,200 Speaker 1: of wiggle room with respect to the congressional calendar. Not 549 00:31:33,240 --> 00:31:34,719 Speaker 1: a whole up, but there might be a little bit 550 00:31:34,760 --> 00:31:38,400 Speaker 1: of wiggle rout because the signed agreement doesn't actually have 551 00:31:38,520 --> 00:31:43,280 Speaker 1: to be presented to Congress for another thirty days. Ambassador 552 00:31:43,560 --> 00:31:48,640 Speaker 1: to the political views or positions of the trade representatives 553 00:31:48,760 --> 00:31:55,320 Speaker 1: matter well. The trade representative is a political appointee in 554 00:31:55,520 --> 00:31:57,640 Speaker 1: cabinet of the president, so it's important that it be 555 00:31:57,720 --> 00:32:01,440 Speaker 1: someone who is close to the president and UM has 556 00:32:01,600 --> 00:32:05,720 Speaker 1: his or her trust can speak Athar tabely Um. You 557 00:32:05,720 --> 00:32:07,640 Speaker 1: know it is the most important role in terms of 558 00:32:07,680 --> 00:32:12,120 Speaker 1: trying to shape these agreements. And Um. Then once once 559 00:32:12,160 --> 00:32:16,440 Speaker 1: an agreement has reached developed, the necessary supporting Congress to 560 00:32:16,560 --> 00:32:20,560 Speaker 1: see is past. I've got time for one more question. 561 00:32:20,680 --> 00:32:23,880 Speaker 1: We'd love to have you on again, ambassador, Ambassador Suppiro. 562 00:32:24,560 --> 00:32:28,160 Speaker 1: We avoided TPP. Both candidates Clinton and Trump said no, 563 00:32:28,240 --> 00:32:30,120 Speaker 1: we're not going to do t p P. Do you 564 00:32:30,160 --> 00:32:35,440 Speaker 1: and visualize America bolting onto what Japan has wrought or 565 00:32:35,440 --> 00:32:37,320 Speaker 1: do we need to wait for a whole new round 566 00:32:37,360 --> 00:32:42,120 Speaker 1: of multilateral discussions on the Pacific rim? Well, I would 567 00:32:42,120 --> 00:32:44,880 Speaker 1: say let's let's take this one agreement at a time. 568 00:32:44,960 --> 00:32:47,960 Speaker 1: So again, it's good news that the US and Mexico 569 00:32:48,000 --> 00:32:50,640 Speaker 1: were able to reach an agreement in principle earlier this week. 570 00:32:51,360 --> 00:32:56,560 Speaker 1: Let's hope that the administration can adopt a similarly creative 571 00:32:56,600 --> 00:32:59,600 Speaker 1: approach and try to bring Canada on, not the take 572 00:32:59,640 --> 00:33:01,680 Speaker 1: it rear lead, but really talk to Canada and see 573 00:33:02,120 --> 00:33:04,800 Speaker 1: where they can have a meeting in the minds. And 574 00:33:04,840 --> 00:33:07,160 Speaker 1: then I think that will build from positive momentum and 575 00:33:07,160 --> 00:33:09,600 Speaker 1: maybe we'll be able to look at GTT again. Because 576 00:33:09,600 --> 00:33:12,400 Speaker 1: as you probably know, pulling out of that agreement was 577 00:33:12,440 --> 00:33:15,000 Speaker 1: a gift to one country in that country is China, 578 00:33:15,200 --> 00:33:19,160 Speaker 1: not to US. So uh, there should have been an effort, 579 00:33:19,160 --> 00:33:21,800 Speaker 1: in my view, to at least try to explore with 580 00:33:21,840 --> 00:33:26,280 Speaker 1: other countries what uh what aspics of PTT might have 581 00:33:26,320 --> 00:33:28,920 Speaker 1: been improved, but that did not happen. Ambassador, Thank you 582 00:33:29,000 --> 00:33:33,320 Speaker 1: so much for former US Deputy Trade Representative Miriam Sapira. 583 00:33:40,080 --> 00:33:44,280 Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and 584 00:33:44,320 --> 00:33:49,640 Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast 585 00:33:49,680 --> 00:33:53,920 Speaker 1: platform you prefer. I'm on Twitter at Tom Keane before 586 00:33:53,960 --> 00:33:57,800 Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg 587 00:33:57,880 --> 00:34:04,640 Speaker 1: Radio a