WEBVTT - Surveillance: U.S.-China, A New Cold War, Buiter Says 0:00:02.600 --> 0:00:12.960 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm term Keene 0:00:13.480 --> 0:00:17.560 jay Leye. 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 --> 0:00:32.360 Bloomberg dot Com, and of course, on the Bloomberg the film. 0:00:32.400 --> 0:00:35.040 Let's see if you've been one over, so to speak. 0:00:35.159 --> 0:00:36.920 Over the last week, we have had a ton of 0:00:36.920 --> 0:00:39.559 happy talk around the potential for a trade deal. We 0:00:39.600 --> 0:00:42.040 now understand from the President that the March first deadline 0:00:42.080 --> 0:00:44.560 is something that he would be inclined to let slide 0:00:44.720 --> 0:00:47.760 if they are close to a deal. Do you assume 0:00:47.760 --> 0:00:50.360 we have made some progress on the trade front over 0:00:50.440 --> 0:00:55.840 the last month. Undoubtedly, yes. I think the more positive 0:00:55.960 --> 0:01:00.800 noises have some foundation. In reality. Trump wouldn't be saying 0:01:01.640 --> 0:01:06.440 what you're saying if he didn't believe that he he 0:01:06.560 --> 0:01:10.320 could indeed push out the March one deadline, and that 0:01:10.520 --> 0:01:13.720 is has to be good news. The problem isn't solved yet, right. 0:01:13.920 --> 0:01:17.080 There are really quite intractable issues having to do with STECH, 0:01:17.200 --> 0:01:21.080 having to do with the Chinese changing the economic model right, 0:01:21.319 --> 0:01:26.880 which is something that is really not going to clients 0:01:26.880 --> 0:01:28.320 at the moment. Villam Do you just tell them to 0:01:28.360 --> 0:01:30.560 assume that this is going to continue for decades, that 0:01:30.640 --> 0:01:32.760 this isn't going to stop. Yes, this is my view, 0:01:33.440 --> 0:01:38.839 um that the relationship, the trade relationship between the US 0:01:38.840 --> 0:01:45.720 and China is part of a wider strategic global new 0:01:45.840 --> 0:01:48.960 Cold War. Yes, well, you were brilliant enough to bringing 0:01:49.120 --> 0:01:53.200 Catherine Mann, who owns the concept of dysfunction and the 0:01:53.400 --> 0:01:57.640 code dependency of these two trading giants. She has the 0:01:57.720 --> 0:02:00.840 high ground and that concept that what you see or 0:02:00.880 --> 0:02:04.360 do you agree with your colleague Catherine Man is a 0:02:04.440 --> 0:02:08.840 co dependency of international trade very much. So, Yes, the 0:02:09.000 --> 0:02:13.120 two elephants in two and a half elephants if you 0:02:13.240 --> 0:02:18.840 count the your area as to half in international trade, 0:02:19.240 --> 0:02:25.120 and they are China and the US do have opposite 0:02:25.160 --> 0:02:30.280 ambitions for a regional and so then don't the Chinese 0:02:30.400 --> 0:02:35.280 outweigh this president that's there? Isn't that there their greatest 0:02:35.320 --> 0:02:40.359 probabilistic outcome and simply to outweigh outweigh Donald Trump. Yes, 0:02:40.400 --> 0:02:44.640 but that may be another six years, right, So I 0:02:44.680 --> 0:02:49.480 wouldn't think that this is really their strategy. They want 0:02:49.760 --> 0:02:52.440 this issue to be settled. They don't want another two 0:02:52.520 --> 0:02:56.880 years even of open trade warfare, which has really been 0:02:56.919 --> 0:03:01.280 damaging the Chinese business confidence. Matty. As you know, in leadership, 0:03:01.400 --> 0:03:03.320 one of the toughest decisions you have is not who 0:03:03.360 --> 0:03:06.080 to please, but who to disappoint. And I just wonder 0:03:06.120 --> 0:03:07.600 at the end of this week, it was really interesting 0:03:07.639 --> 0:03:10.120 listening to the President at one of the recent rallies 0:03:10.120 --> 0:03:13.480 this week when he mentioned a deal with China, the 0:03:13.520 --> 0:03:17.120 crowd went silent. There was no cheering about cutting a 0:03:17.160 --> 0:03:21.200 deal with China. I imagine Ambassador Leightheiser, if he doesn't 0:03:21.200 --> 0:03:23.320 get the kind of deal that he really wants, he's 0:03:23.360 --> 0:03:25.680 going to be disappointed. If you listen to some of 0:03:25.680 --> 0:03:28.480 the hosts of some particular news shows who in the 0:03:28.560 --> 0:03:31.200 United States, they don't seem impressed at the prospect of 0:03:31.200 --> 0:03:33.000 a deal on board of security either at least not 0:03:33.000 --> 0:03:34.840 the board the deal on the table, Marty, how many 0:03:34.840 --> 0:03:36.640 people are going to be upset in the next couple 0:03:36.680 --> 0:03:38.880 of weeks and who is going to be upset? Well? 0:03:38.920 --> 0:03:44.840 I actually I think the commentary around trump'space on the 0:03:44.880 --> 0:03:49.120 conservative media side is mixed. Russia Limball last night gave 0:03:49.160 --> 0:03:54.200 a kind of uh tacit approval for this strategy of 0:03:54.240 --> 0:03:57.920 declaring an emergency action and signing this bill. So I 0:03:58.320 --> 0:04:00.800 actually think that Donald Trump can do no wrong to 0:04:00.920 --> 0:04:04.560 his right, Marty, I'm glad you bring this up. So 0:04:04.600 --> 0:04:07.360 the basic theme right now for the Conservatives is there 0:04:07.360 --> 0:04:10.560 gonna get one to two billion dollars of funding. He's 0:04:10.600 --> 0:04:13.920 going to do a national emergency and overlay on top 0:04:13.960 --> 0:04:16.680 of that. Does your team in Washington have a working 0:04:16.800 --> 0:04:19.920 number of what that overlay is? No, And in fact 0:04:20.040 --> 0:04:22.919 we're trying to figure it out in terms of what 0:04:23.240 --> 0:04:26.760 exactly what kind of money he's moving around. Their members 0:04:26.760 --> 0:04:30.760 of Congress has have warned him against using military funds. Uh, 0:04:30.839 --> 0:04:34.080 that we're you're marked for other things. But they're they're 0:04:34.360 --> 0:04:39.200 various ideas dick more about where they can get those 0:04:39.240 --> 0:04:43.400 funds and would not represent some sort of dangerous president. 0:04:43.560 --> 0:04:46.520 Did you see the Senate a cruze proposal? Oh I miss, 0:04:46.600 --> 0:04:49.839 this is fantastic. Um when you see the fourteen billion 0:04:49.880 --> 0:04:53.600 dollars from Al Chapo Um, it's convicted. It was also 0:04:53.760 --> 0:04:55.680 you can then use the money for boarding security. It 0:04:55.760 --> 0:04:58.520 was an interesting idea of being floated around that critics 0:04:58.600 --> 0:05:02.680 with still owads of fine. Uh. And so it would 0:05:02.680 --> 0:05:05.800 be the switch the French who would be building the 0:05:05.839 --> 0:05:09.400 wall right, we'll just keep this up. Okay, Well, look 0:05:09.400 --> 0:05:11.240 forward to having your back, Philim about her with us, 0:05:11.240 --> 0:05:13.120 and we got lots to talk about, and certainly this 0:05:13.160 --> 0:05:17.200 new theme in America of some form of socialism coming 0:05:17.200 --> 0:05:19.240 into the debate as well, at least according to the 0:05:19.279 --> 0:05:37.320 critics of the liberals. George Ken Gollus with you. What 0:05:37.360 --> 0:05:39.719 you need to know is Mr gun Colvas writes it 0:05:39.800 --> 0:05:42.680 up at Nomura had a full faith in credit us 0:05:42.760 --> 0:05:45.760 strategy for Numura. And what's really important about gun Colvas 0:05:46.160 --> 0:05:51.400 is his research synthesizes in all of Numura fixed income 0:05:51.480 --> 0:05:54.280 research worldwide. George, I'm gonna give you an open question 0:05:54.320 --> 0:05:58.080 before John jumps on. You give us your observation on 0:05:58.160 --> 0:06:03.120 the new disinflation would you write about this morning? Look, 0:06:03.120 --> 0:06:05.600 we we've been struggling with it for for many years. 0:06:05.640 --> 0:06:08.320 A good morning, guys, and uh, I think there was 0:06:08.320 --> 0:06:10.520 a period of time where you know, there's hope, you know, 0:06:10.560 --> 0:06:13.559 sprung internal all throughout the last really colst fifteen months 0:06:14.360 --> 0:06:18.240 post the the tax deal and all throughout eighteen and 0:06:18.400 --> 0:06:21.400 they're really hopes of inflation coming and it wags. Inflations 0:06:21.440 --> 0:06:23.440 have slightly improved, but you know, really having a hard 0:06:23.480 --> 0:06:27.080 time working its way to the broader economy, and we're 0:06:27.120 --> 0:06:29.560 I think markets are really struggling with We're gonna go 0:06:29.600 --> 0:06:32.280 back to the secular stagnation world that we were desperately 0:06:32.320 --> 0:06:34.120 trying to break free from in the last year year 0:06:34.120 --> 0:06:39.000 and a half. And we look, that's really the multi 0:06:39.000 --> 0:06:41.760 trillion dollar question considering the sort of deficits that we're running, 0:06:42.080 --> 0:06:43.760 because it needs given you know, given a sort of 0:06:44.120 --> 0:06:46.520 you know, uh number of numbers being printed out of 0:06:46.640 --> 0:06:49.880 the DC, at some point you would think inflation would 0:06:49.880 --> 0:06:52.760 would actually kick in. But you know, we're also running 0:06:52.760 --> 0:06:54.720 a huge detload as well, and I think that eventually 0:06:54.720 --> 0:06:57.920 becomes counterproductive growth. So, George, what I'm interested in right 0:06:57.960 --> 0:07:01.240 now is the divergence potentially the could evolve and materialize 0:07:01.240 --> 0:07:03.560 in the coming months between Europe and the United States 0:07:04.080 --> 0:07:07.320 very slowly, that spread between the German and US ten 0:07:07.440 --> 0:07:11.600 years starting to grind out wider two and fifty six 0:07:11.680 --> 0:07:15.080 basis points the US over ten year buns. Are you 0:07:15.120 --> 0:07:18.560 anticipating that to drift tigre in the coming months as 0:07:18.600 --> 0:07:20.760 we start to appreciate a little bit more that Europe 0:07:20.760 --> 0:07:23.360 really isn't looking good and the policy response is incredible. 0:07:24.800 --> 0:07:26.920 Look I think there's scope for us to kind of 0:07:26.920 --> 0:07:29.440 go do wider, maybe even break what we saw, But 0:07:29.920 --> 0:07:34.240 to make something sustainable really requires the US too to 0:07:34.320 --> 0:07:37.200 find a new area of growth. And considering that we 0:07:36.960 --> 0:07:40.120 we we two are also slightly decelerating the feed is 0:07:40.160 --> 0:07:43.520 also trying to desperately achieve a soft landing with the 0:07:43.600 --> 0:07:45.760 US economy at a time where the rest of the 0:07:45.800 --> 0:07:49.080 world's slowly I really think that you know, the highs 0:07:49.120 --> 0:07:52.000 and rates probably took place last year, George. Something that 0:07:52.080 --> 0:07:54.320 keeps coming up again and again on the soft landing 0:07:54.640 --> 0:07:57.440 question is this period of time in the mid nineties. 0:07:57.960 --> 0:08:00.480 How useful is it to take a framework, a period 0:08:00.520 --> 0:08:03.400 of time for history gone by and apply it to 0:08:03.440 --> 0:08:07.680 where we're at right now. It's convenient, and we all 0:08:07.720 --> 0:08:09.800 do it, and let's be honest, and I think what 0:08:09.920 --> 0:08:12.760 we would we'd like to draw parallels to the past 0:08:12.760 --> 0:08:14.960 because it gives us comfort into into what may lie 0:08:14.960 --> 0:08:16.600 in the future. But the future is uncertain, and I 0:08:16.680 --> 0:08:19.520 think it is dangerous to kind of make parallels, especially 0:08:19.560 --> 0:08:24.360 to the got a huge productivity boom. Distinislation are from 0:08:24.400 --> 0:08:26.160 the good side, but it lets a super you know, 0:08:26.200 --> 0:08:28.760 super strong growth And I'm just not sure we're gonna 0:08:28.760 --> 0:08:30.960 get the same thing. You know. Obviously there's the I 0:08:31.080 --> 0:08:33.320 was taking taking a bigger piece of it and they 0:08:33.320 --> 0:08:35.240 don't have a space force. But other than that, I 0:08:35.280 --> 0:08:36.880 really have a hard time scene where it's coming from. 0:08:37.040 --> 0:08:39.680 George Cofas we've walked away from the spread market, two 0:08:39.679 --> 0:08:41.800 is ten spread as a vanilla spread difference in Yale 0:08:41.800 --> 0:08:43.920 between the ten yere and the two year because it's 0:08:43.920 --> 0:08:46.880 been boring, but it's never boring. What part of the 0:08:46.960 --> 0:08:50.600 spread market do you get the most information from right now? 0:08:51.640 --> 0:08:56.000 I think the bigger get to really spread your horizons. 0:08:56.320 --> 0:09:00.520 How about that that voice for radio too. We gotta 0:09:00.559 --> 0:09:02.439 go for two thirties. You get to go as far 0:09:02.480 --> 0:09:05.040 as you can to get the full kind of perspective 0:09:05.120 --> 0:09:08.280 of what's happening with long term rates, because although we 0:09:08.320 --> 0:09:12.080 haven't seen the the natural form of term premium coming 0:09:12.080 --> 0:09:15.360 in the current has stayed deep throughout this period. Meanwhile, 0:09:15.400 --> 0:09:17.400 the dollar is strengthened it and and it's giving you 0:09:17.480 --> 0:09:20.280 somewhat comflicting messages that the bond market is nervous about 0:09:20.280 --> 0:09:22.880 a downturn, but the thirty year bond market, the thirty 0:09:22.920 --> 0:09:26.040 year rate is not participating but the dollar is and 0:09:26.480 --> 0:09:28.360 we have short term rates higher, and it's creating this 0:09:28.480 --> 0:09:31.439 weird you know, skis them down the middle of what 0:09:31.520 --> 0:09:33.480 really is there? How does that on wine? This is 0:09:33.520 --> 0:09:37.320 really important, folks, is non correlation of longer term ten years, 0:09:37.360 --> 0:09:41.000 thirty year yields into dollar dynamics. What happens? Does the 0:09:41.000 --> 0:09:43.840 bond market catch up with the ascendant dollar? Does it 0:09:43.880 --> 0:09:46.480 go the other way? Well, I mean, look, we're in 0:09:46.480 --> 0:09:48.000 a holding pattern with the set. I mean, the set 0:09:48.040 --> 0:09:51.480 obviously now has opened the door to potentially cutting rates 0:09:51.520 --> 0:09:53.959 as well, if you know, to go back to the 0:09:54.080 --> 0:09:55.920 n Again, we're not supposed to do those sort of 0:09:55.920 --> 0:09:58.800 parallel analysis, but the set has finished the hiking and 0:09:58.880 --> 0:10:02.160 hiking cycle ninety four five and then and the easy 0:10:02.400 --> 0:10:04.319 and then staying at a higher plateau. And so it 0:10:04.360 --> 0:10:06.520 could very well be that you get a few cuts 0:10:06.520 --> 0:10:08.200 which you get in the market is actually actually now 0:10:08.240 --> 0:10:11.040 pricing too and at the short rate actually moves more 0:10:11.080 --> 0:10:13.400 than the thirty year rate. So you're looking for bull 0:10:13.440 --> 0:10:16.400 statement inc Is that essentially what you're saying, George, I mean, 0:10:16.440 --> 0:10:19.319 there's there's going to be potential for ball steepening, uh 0:10:19.360 --> 0:10:22.600 and it and it could be something engineered to kind 0:10:22.600 --> 0:10:24.760 of elong and get this business cycle what the done 0:10:24.840 --> 0:10:27.640 is by time, and if we were to CDUs still 0:10:27.679 --> 0:10:30.240 down more than what's projected and kind of linked up 0:10:30.280 --> 0:10:32.960 with what Europe is going through, I think they would 0:10:32.960 --> 0:10:34.560 have to do that. So, George a question that some 0:10:34.600 --> 0:10:36.800 people might ask, and I'll ask it on their behalf. 0:10:37.360 --> 0:10:40.040 To really get some kind of aggressive bull statement, it 0:10:40.080 --> 0:10:42.080 will be difficult because of the issue once that is 0:10:42.080 --> 0:10:43.680 sitting on the front end of the curve, just in 0:10:43.760 --> 0:10:45.880 terms of supply and it comes from the treasury, how 0:10:45.880 --> 0:10:49.079 important is the supply dynamic to get that statements that 0:10:49.240 --> 0:10:52.200 you think we might be able to have. I think 0:10:52.200 --> 0:10:54.520 it's it's it's it's it's easily attainable if the set 0:10:54.640 --> 0:10:57.480 changes its portfolio composition, and this is really the key 0:10:57.520 --> 0:11:00.160 thing they brought up. The portfolios now in play the 0:11:00.200 --> 0:11:03.079 balance sheet, and if they were to redirect their proceeds 0:11:03.080 --> 0:11:05.280 for let's say mortgages at the short term treasuries, they 0:11:05.320 --> 0:11:07.080 can help you really finance a lot of that short 0:11:07.120 --> 0:11:09.560 term paper. So all these things have solutions that they 0:11:09.600 --> 0:11:13.960 really changed their their direction. But isn't the ultimate solution 0:11:14.080 --> 0:11:18.160 what Secretary Geitner mentioned long ago and far away, which 0:11:18.200 --> 0:11:22.760 is just let time march on. Doesn't time heal all 0:11:22.800 --> 0:11:27.000 of this balance sheet dynamic, I mean, and it has 0:11:27.080 --> 0:11:28.480 in the US is in much better shape if you 0:11:28.600 --> 0:11:31.080 if you're if you're referring to the commercial banking system. 0:11:31.120 --> 0:11:33.360 But it's more that there's always so much balance sheet 0:11:33.400 --> 0:11:35.880 to take down, as much paper as being produced in 0:11:35.920 --> 0:11:39.000 the government, bond marketing, meltism, the credit market and deltics, mortgages. 0:11:39.000 --> 0:11:41.240 There's only so much space in the system. And when 0:11:41.240 --> 0:11:44.360 it happens quick, you have dislocations. Are you able to 0:11:44.400 --> 0:11:47.160 make a tenure call right now, I mean, not twelve months? 0:11:47.240 --> 0:11:49.160 Or is it just so noisy out there you can't 0:11:49.200 --> 0:11:52.800 do it? I can? I can? I think we all do. 0:11:53.000 --> 0:11:56.520 And that's part of our job, especial and I think, yeah, 0:11:56.559 --> 0:11:59.440 what the key is what's our confidence level? And um, 0:11:59.600 --> 0:12:01.400 we obviously have a precast. Do you think we're gonna 0:12:01.400 --> 0:12:04.439 be you know, hugging current levels into we have a 0:12:04.520 --> 0:12:07.080 potential scope to grind higher into the summer, because it's 0:12:07.200 --> 0:12:08.880 a lot of this negativity should kind of go away 0:12:08.880 --> 0:12:11.240 in a short run markets markets up right to the 0:12:11.240 --> 0:12:13.760 short run, but in the long run, without inflation, with 0:12:13.800 --> 0:12:15.840 the rest of the world slowing, We're gonna be, you know, 0:12:15.840 --> 0:12:18.560 stuck in the range and heading back down. Fascinating, George, 0:12:18.559 --> 0:12:20.480 thanks for the briefing. George Kann called us at number 0:12:20.559 --> 0:12:23.960 I just greatly appreciate that special topic. In his latest note, 0:12:24.080 --> 0:12:28.960 QT caps Tapers, scenarios, a smart note on a balance 0:12:29.040 --> 0:12:47.840 sheet as well, expert on the most important thing to 0:12:47.880 --> 0:12:52.800 our listeners in the world, not the shutdown, not Brexit. Laura, 0:12:53.240 --> 0:12:56.760 State and local text deduction. This is a huge deal, 0:12:57.000 --> 0:13:00.400 isn't it. This is incredibly huge and pepe As they 0:13:00.400 --> 0:13:02.360 are filling out their tax returns and sending them out 0:13:02.600 --> 0:13:05.359 c I R s this week, this month, are realizing 0:13:05.480 --> 0:13:07.440 just how bad it is. You know, he was hearing 0:13:07.440 --> 0:13:10.760 from real let there, but seeing they're getting a much 0:13:10.800 --> 0:13:13.200 smaller refund or they're they're minding that they're paying a 0:13:13.200 --> 0:13:16.640 lot more in taxes. No, no, no, no, no no, no, 0:13:16.720 --> 0:13:18.960 it's not you're not I'm not getting a refund at 0:13:19.000 --> 0:13:22.160 all and paying for the first time of years. Yes, 0:13:22.480 --> 0:13:25.400 that's what it's because the Biscuits deduction, Laura continue on 0:13:25.280 --> 0:13:28.320 the the upward over this. Are they going to change 0:13:28.320 --> 0:13:31.080 the rule, That's what everybody wants to know. Well, so 0:13:31.200 --> 0:13:34.320 last week President Trump said he was open to changing it. 0:13:34.400 --> 0:13:36.840 And this was really a shock to to most people 0:13:37.240 --> 0:13:39.480 because it was sort of settled back when they did 0:13:39.480 --> 0:13:42.080 the tax overhaul a couple of years ago. Um and 0:13:42.080 --> 0:13:44.920 and and be clear that that right after Trump said that, 0:13:45.800 --> 0:13:48.160 Senate Republicans sent out a statement saying, nope, we're not 0:13:48.200 --> 0:13:50.840 reopening this issue. We're not relitigating it. So the chance 0:13:50.880 --> 0:13:54.120 of there being some congressional change real soon is is 0:13:54.200 --> 0:13:57.680 not not looking likely. However, Uh, New York Governor Andrew 0:13:57.720 --> 0:14:00.560 Cuomo went down met with the President yesterday. He made 0:14:00.600 --> 0:14:04.800 his case. Afterwards, Trump said, you know, I listened to him. Look, 0:14:04.840 --> 0:14:06.840 how you know, this is a nice told of my partnersanship. 0:14:06.920 --> 0:14:10.240 But thanks for coming. Translate this from the Senate majority 0:14:10.320 --> 0:14:14.040 leaders Kentucky over to those evil leftist commies up in 0:14:14.120 --> 0:14:16.840 New York. I mean, that's really all this is about 0:14:16.840 --> 0:14:21.080 his politics and geography, isn't it. It's it's true because 0:14:21.160 --> 0:14:23.520 but whether you're Republican or Democrat, if you are in 0:14:23.600 --> 0:14:26.920 New York, New Jersey, Uh, there's no Republicans in Connecticut 0:14:26.960 --> 0:14:29.360 at least at the national level, or you know, in California, 0:14:29.920 --> 0:14:32.000 you really care about this issue? But you see a 0:14:32.000 --> 0:14:34.800 lot of the Republicans who cared about this lost their 0:14:34.840 --> 0:14:36.920 seats last November, so they're no longer in Congress. So 0:14:36.920 --> 0:14:39.960 there's not as many Republicans whispering in the Trump's you're saying, hey, 0:14:39.960 --> 0:14:42.600 we need to fix this. It's really just Democrats in 0:14:42.640 --> 0:14:45.000 the northeast. You want to jump in on this, I 0:14:45.000 --> 0:14:47.920 would love to please jump in and ask a question. Please, 0:14:47.960 --> 0:14:49.520 thank you. I remember when I moved over here and 0:14:49.560 --> 0:14:52.840 I called the accountant and I thought, well, it's America, 0:14:52.960 --> 0:14:54.600 so this is going to be a low tax situation. 0:14:56.080 --> 0:15:00.240 I'm looking forward to leaving Europe. And then I got told, well, 0:15:00.240 --> 0:15:05.440 I gave you yours a city tax tax. Then there's 0:15:05.480 --> 0:15:10.000 another tax, so you don't pay property taxes. Thank goodness, 0:15:10.200 --> 0:15:13.800 Thank goodness. Combine that with the state income No idea, 0:15:13.840 --> 0:15:17.040 how many tax you didn't? Why did you ask miss 0:15:17.080 --> 0:15:19.960 Davison question, Laura? I want to ask about buy backs actually, 0:15:20.040 --> 0:15:23.520 because there are some senators that are talking about how 0:15:23.520 --> 0:15:25.600 they can curb buy backs low to them on the 0:15:25.640 --> 0:15:28.680 Democrats side. Then we heard from Senator Rubio, who essentially 0:15:28.760 --> 0:15:31.400 is looking to end the tax incentives with buy backs. 0:15:31.520 --> 0:15:34.080 What's on the table here, and what's likely to happen. 0:15:35.160 --> 0:15:37.360 So what Rubio has laid out is a very very 0:15:37.440 --> 0:15:40.920 loose proposal that would basically equalize the treatment for companies 0:15:40.920 --> 0:15:43.440 whether they you know, issue dividends or buy back stock. 0:15:43.480 --> 0:15:47.640 We saw after the tax rate drops the precipitously that 0:15:47.920 --> 0:15:52.440 corporations very much preferred buying back their shares versus m 0:15:52.600 --> 0:15:55.480 issuing dividends or um. In particular, what what Rubio was 0:15:55.480 --> 0:15:59.000 hoping to see more of capital investment that has really faltered. Um. 0:15:59.040 --> 0:16:00.640 You know, we have about a year of data since 0:16:00.880 --> 0:16:03.480 since the law passed, and that has not been the 0:16:03.600 --> 0:16:07.240 driver of economic growth that Republicans we're hoping. So Rubyo saying, look, 0:16:07.560 --> 0:16:10.480 let's uh, you know, make it less advantageous for companies 0:16:10.520 --> 0:16:12.680 to to buy back their stock instead put that money 0:16:13.000 --> 0:16:17.040 into growing their business, whether that be research, research, research costs, 0:16:17.280 --> 0:16:20.680 or um some sort of equipment, machinery, buildings that would 0:16:20.680 --> 0:16:24.000 be uh that that driver for for economic growth. And 0:16:24.040 --> 0:16:25.920 they're not that it's likely to come. Is this is 0:16:25.960 --> 0:16:28.880 really a just sort of one idea out there and 0:16:29.000 --> 0:16:30.360 rull be a sort of a loan on his party 0:16:30.400 --> 0:16:33.040 on this. Floord Davidson, thank you for the update. I'm 0:16:33.080 --> 0:16:35.760 sure we'll inflict more pain as we go to April. 0:16:50.760 --> 0:16:54.920 If you have an investment account and with the repair 0:16:55.000 --> 0:16:57.200 that you've had, and you can benchmark it back to 0:16:57.560 --> 0:17:01.040 two thousand nine or August of two thousand seven, or 0:17:01.080 --> 0:17:03.920 maybe you can go back farther than that. This is 0:17:03.960 --> 0:17:05.560 not only the interview of the day, but it's the 0:17:05.600 --> 0:17:08.920 interview of the week, month and forever, Lizzie, and Saunders 0:17:09.040 --> 0:17:12.680 joins us, she needs no introduction with Schwab Lisianne, what 0:17:12.760 --> 0:17:17.080 were you doing December twenty four, twelve noon? What were 0:17:17.119 --> 0:17:21.480 you writing? What were you thinking? For Swab? Well, we 0:17:21.480 --> 0:17:25.840 we did do a daily report during that era. At 0:17:25.880 --> 0:17:29.560 any time that we see the market down uh more 0:17:29.600 --> 0:17:32.120 than about two percent, we we put out a report 0:17:32.760 --> 0:17:36.719 uh that day. There were a lot of aspects to it, 0:17:36.920 --> 0:17:40.320 uh technically, sentiment wise, it suggested we were in some 0:17:40.400 --> 0:17:43.480 sort of panic selling mode, kind of a crescendo um, 0:17:43.520 --> 0:17:45.159 and that we were likely to see at least a 0:17:45.200 --> 0:17:47.800 technical lift. Let think the jury still out as to 0:17:47.840 --> 0:17:49.960 whether that was truly the bottom, And I think the 0:17:50.000 --> 0:17:52.439 answer to that question will be the length of runway 0:17:52.480 --> 0:17:54.919 between now and the next recession. I think of our 0:17:54.960 --> 0:17:57.879 session is pushed out that low probably holds for a while. 0:17:58.359 --> 0:18:00.520 If not, if it's sooner than than I think what 0:18:00.600 --> 0:18:03.520 consensus believes, then it's more likely we read test those 0:18:03.680 --> 0:18:07.040 But in the modern day, can you speak to schwab 0:18:07.320 --> 0:18:11.159 people the same way you did five, eight, ten, or 0:18:11.400 --> 0:18:16.040 x number of years ago in the hyperkinetic media of today, 0:18:16.560 --> 0:18:19.240 how do you handle that versus what you used to do. 0:18:20.160 --> 0:18:22.359 I think it's a tougher environment right now. You know, Tom, 0:18:22.359 --> 0:18:24.120 you and I have known each other for a long time, 0:18:24.160 --> 0:18:26.800 and I think we we generally were on the right 0:18:26.800 --> 0:18:28.920 side of the story in later oh seven, and same 0:18:28.960 --> 0:18:30.919 thing in early two thousand and nine. And I'm not 0:18:31.240 --> 0:18:34.359 and not that either of those environments were easy, but 0:18:34.640 --> 0:18:37.840 I think at those times, certainly with the benefit of hindsight, 0:18:37.880 --> 0:18:40.639 but fortunately for us, at that time, I think the 0:18:41.000 --> 0:18:43.119 so called call, which I don't tend to use that 0:18:43.160 --> 0:18:45.639 word very much, was a little easier than it is 0:18:45.720 --> 0:18:48.879 right now. I think the waters are a little bit murkier. Uh. 0:18:48.960 --> 0:18:52.320 We we sort of at least temporarily solved one of 0:18:52.320 --> 0:18:55.240 the problems that plague markets last year with tighter monetary 0:18:55.280 --> 0:18:59.119 policy and tighter financial conditions. But I even there, I 0:18:59.160 --> 0:19:01.200 think the jury is still out as to whether the 0:19:01.240 --> 0:19:03.960 FED truly is done. I think there's some chance we could, 0:19:03.960 --> 0:19:06.040 at least in the short term, get a little bit 0:19:06.560 --> 0:19:08.840 of an inflation pick up, given things like n f 0:19:08.840 --> 0:19:12.080 I D selling prices, that may put the FED back 0:19:12.119 --> 0:19:16.200 in a position to have to throw another hike at us. UH. Conversely, 0:19:16.480 --> 0:19:18.399 UH FED is sort of a little bit in a box. 0:19:18.440 --> 0:19:21.600 We may look back and say, boy, the December hike 0:19:21.680 --> 0:19:24.479 might have been seen as a mistake, because indeed we 0:19:24.480 --> 0:19:28.080 were slowing sufficiently enough to move into a recession. I 0:19:28.080 --> 0:19:30.639 think the big wrinkled, probably the big needle mover to 0:19:30.720 --> 0:19:32.520 define the length of around way between now and extra 0:19:32.560 --> 0:19:35.120 session will be trade. I don't have any greater ability 0:19:35.200 --> 0:19:36.960 to sort of define what's going to happen there than 0:19:37.000 --> 0:19:39.840 anybody else does. Well. Well, listen, and you said, with 0:19:39.880 --> 0:19:42.439 the FED on this sidelines, investors are focusing more on 0:19:42.520 --> 0:19:45.679 fundamentals and what you know, perhaps the next recession. What 0:19:45.760 --> 0:19:47.480 are you seeing in the earnings here at this quarter? 0:19:47.560 --> 0:19:51.240 And more importantly, you know nineteen we've seen we've heard 0:19:51.280 --> 0:19:55.320 some CEOs fairly conservative in their outlook across the various sectors. 0:19:55.320 --> 0:19:57.760 What's your thoughts about earnings and how earnings can support 0:19:57.800 --> 0:20:01.240 this market in so the fourth quarter, obviously it has 0:20:01.240 --> 0:20:03.000 been a decent earning season. The beat rate is only 0:20:03.040 --> 0:20:05.760 about seventy, which is below what it has been recently, 0:20:05.880 --> 0:20:09.720 but decent numbers about six growth or so. That's obviously 0:20:09.800 --> 0:20:13.359 down from the peak growth to prior quarter. But we 0:20:13.359 --> 0:20:16.560 we never expected to maintain anything resembling that heading into 0:20:16.600 --> 0:20:19.879 ten simply because of the math of comps on a 0:20:19.960 --> 0:20:22.639 on a tax cut basis. Right now, you've got refinitive 0:20:22.680 --> 0:20:26.879 consensus estimates down into slight negative territory for the first quarter, 0:20:27.040 --> 0:20:29.399 and every day they continue to be ratcheted down. So 0:20:29.440 --> 0:20:32.360 I'm not sure the rerating down of twenty nineteen estimates 0:20:32.760 --> 0:20:37.560 encompassing not only trade related risks, but uh the lagged 0:20:37.560 --> 0:20:40.840 effect of tighter monetary policy, the lagged effect of the 0:20:40.960 --> 0:20:43.320 strong dollar last year, and of course the collapse in 0:20:43.400 --> 0:20:45.879 all prices, So I'm not sure we've rerated it. The question, 0:20:46.280 --> 0:20:49.280 and the important one, is do analysts ultimately set the 0:20:49.280 --> 0:20:51.679 bar low enough that when we get into reporting season 0:20:52.000 --> 0:20:54.840 they're sufficiently low to allow companies to hurdle it. I 0:20:54.880 --> 0:20:57.119 do think that there's a even if it's not a 0:20:57.160 --> 0:20:59.360 high risk of an earnings recession. There's a greater risk 0:20:59.400 --> 0:21:01.200 of an earnings recession in the first half of the 0:21:01.280 --> 0:21:04.720 year than there is an economic recession starting well. It's 0:21:04.760 --> 0:21:07.320 weird about this year is unlike last year when the 0:21:07.440 --> 0:21:10.320 E was accelerating dramatically and the PE was coming down 0:21:10.320 --> 0:21:12.800 because we were under multiple compression, the opposite has been 0:21:12.840 --> 0:21:15.720 happening this year. So the E is under pressure, but 0:21:15.760 --> 0:21:17.920 we've seen a lift in multiples because some of those 0:21:18.000 --> 0:21:21.320 easing UH issues from from last year and at least 0:21:21.320 --> 0:21:25.000 being financial conditions. So Lisianna, again, investors are focusing more 0:21:25.040 --> 0:21:27.879 on the fundamentals here. Do you think analysts estimates for 0:21:28.040 --> 0:21:32.040 SMP earnings accurately reflect a lot of the geopolitical issues 0:21:32.080 --> 0:21:35.200 out there, whether it's you know, the China slowing trade talks, 0:21:35.680 --> 0:21:38.800 European Union slowing Brexit, those types of things. Are you 0:21:38.800 --> 0:21:43.040 think they're adequately captured? Probably not yet. And it was 0:21:43.119 --> 0:21:46.280