Speaker 1: Runt You by Bank of America Mary Lynch. With virtual reality,
Speaker 1: virtually everything will change. Discover opportunities in a transforming world
Speaker 1: VI of a mL dot Com slash VR, Mary Lynch,
Speaker 1: Pierced Fenner and Smith Incorporated. Ye. Welcome to the Bloomberg
Speaker 1: Surveillance Podcast. I'm Tom Keene with David Gura. Daily we
Speaker 1: bring you insight from the best of economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Let's
Speaker 1: kick things off with Brian Levitt, senior investment strategist at
Speaker 1: Oppenhammer Funds. He joins us here in our Bloomberg eleven
Speaker 1: three oh studios. Great to have you, Thank you. Good
Speaker 1: Martin with us so much here that we could we
Speaker 1: could talk about Le's see where it t Let's start
Speaker 1: with job stay tomorrow. Fascinating interview with James Gorman and
Speaker 1: Morgan Stanley yesterday on Bloomberg Television. Our colleague Tom McKenzie
Speaker 1: and in beating speaking with with him, and he said, quote,
Speaker 1: the dirty little secret here is the US economy is
Speaker 1: doing just fine. From where you sit when you look
Speaker 1: at the U S economy. Is it just fine? It
Speaker 1: is just fine, and it's been just fine for a
Speaker 1: long period of time. Now I think by now investors
Speaker 1: would have hoped for better than just fine. And I
Speaker 1: think you know, the U. S. Election, when we heard
Speaker 1: candidate Trump speak on the campaign trail, he would talk
Speaker 1: of three four or five percent GDP growth, and you know,
Speaker 1: in the aftermath of the election, there was hopes for
Speaker 1: tax cuts, fiscal stimulus and the like, and you know, again,
Speaker 1: three four or five percent GDP growth. The reality is
Speaker 1: in the first quarter the US grew at something like
Speaker 1: one point two percent on an annualized basis. And in
Speaker 1: general we've been saying it's a two percent economy. And
Speaker 1: you know, a two percent economy has been quite good
Speaker 1: for equities, but for workers, Um, most people that want
Speaker 1: jobs generally confined them are there? Are there wages going up?
Speaker 1: Not significantly? So just find David, I think is right.
Speaker 1: You're right that the FED is an a predicament. It's
Speaker 1: an interesting predicament here going into the next MCY meeting
Speaker 1: in June. What are policy makers wrestling with and how
Speaker 1: do you think that's gonna come out? So there's the
Speaker 1: there's a psyche. There was a psyche of zero percent,
Speaker 1: there's sort of now there's like the psyche of one percent.
Speaker 1: The reality is, at some point in the future the
Speaker 1: United States is going to have an economic cycle again,
Speaker 1: and so the Fed would like to have room to
Speaker 1: reduce rates for the next recession, next economic cycle. Here's
Speaker 1: the rub. The problem is the FEDS looking at this
Speaker 1: and saying an unemployment rate below five percent, wages growing
Speaker 1: to two and a half percent, credit spreads are tight,
Speaker 1: the dollars weaker. You know, we're not seeing big capital
Speaker 1: outflows from the emerging market, so why not now? When
Speaker 1: else can we do it? The problem is that the
Speaker 1: long term bond market is not latching on to any
Speaker 1: type of reflation trade. So two point two percent on
Speaker 1: a ten year treasury is consistent with a two percent
Speaker 1: real GDP economy, and there's not that many times you
Speaker 1: can raise rates further without further flattening the yeld curve
Speaker 1: or maybe god forbid, inverting the yield curve, which would
Speaker 1: be a harbinger of worse things to come. So that's
Speaker 1: the rub. As you listen to the course of committee
Speaker 1: members Robert Kaplan talking to Tom yesterday, the counseling for
Speaker 1: Relations level. Brandard speaking earlier this week, the most de
Speaker 1: wish of the doves UH is their consensus forming here
Speaker 1: do you do you think you have a good sense
Speaker 1: from what they've been saying of what the Fed is
Speaker 1: going to do when it comes to the balance sheeter
Speaker 1: when it comes to the next rate increase, Well, I
Speaker 1: don't think we see consensus. If you look at the
Speaker 1: FED dot plot for mid eighteen, it's it's a huge
Speaker 1: band and the medians probably around two percent. So unless
Speaker 1: you get the long term bond yields up with either
Speaker 1: some stimulus or heightened inflation expectations, it's gonna be hard
Speaker 1: to get FED funds to two percent, especially when you're
Speaker 1: trying to scale down a four trillion dollar balance sheet. Now,
Speaker 1: I don't think that the four You know, in early
Speaker 1: on it was what's gonna happen when they have to
Speaker 1: sell all these mortgages and treasuries into the market, and
Speaker 1: that's going to be massively disruptive. That's not going to happen,
Speaker 1: not at you know, two percent inflation or one and
Speaker 1: a half percent inflation. What's going to happen is those
Speaker 1: securities are going to mature, and the Fed's not going
Speaker 1: to reinvest principle. We've never really done that before. The
Speaker 1: history books didn't teach this, so it's it's on precedented.
Speaker 1: So I think the Fed is going to be cautious
Speaker 1: on FED funds more deblish than expected as they scale
Speaker 1: back the balance sheet. Brian love it with this with
Speaker 1: the Uppenheimer. You know, I've been you and I've had
Speaker 1: fun this morning talking about to see if the exam.
Speaker 1: Good morning to all of you taking the the what
Speaker 1: is it like four million people take the exam? Kidding anyways,
Speaker 1: you know we'll talk a lot about this is We're
Speaker 1: gonna job to day tomorrow to see if exams on
Speaker 1: Saturday is well. One of the great fundamentals here of
Speaker 1: those exams is linking equity markets to bond markets. The
Speaker 1: fact is, as you mentioned, it's not in the textbooks.
Speaker 1: You can't do that now because you don't know where
Speaker 1: the risk free rate is. So what are your portfolio
Speaker 1: managers do? Well? I think it's I think simplistically, we
Speaker 1: can still look at the earnings yield of the broad
Speaker 1: market and compare it to a ten year treasury rate. Now,
Speaker 1: you know, people like to look at price over earnings.
Speaker 1: You flip that over earnings over price. I don't have
Speaker 1: the exact numbers, but say the SMP five hundreds at
Speaker 1: two hundred earnings are around a hundred and ten. We
Speaker 1: call that a five percent earnings yield, give or take.
Speaker 1: For those that can do the math in their heads,
Speaker 1: I like that more than two point two percent on
Speaker 1: a treasury yield. So it's unlikely that a bull market
Speaker 1: in equities is going to end with stocks being this
Speaker 1: cheap to bond. Stocks historically are a better asset class
Speaker 1: than bonds. I think over any five year period, stocks
Speaker 1: outperformed bonds about eighty five percent of the time. So
Speaker 1: I think we can still look at that. You know,
Speaker 1: the short of having a risk free rate you can consider.
Speaker 1: Some might say the ten year rate is too low. Um,
Speaker 1: it's been overbought. I would say compare it to the
Speaker 1: nominal growth rate of the economy. Even at two percent
Speaker 1: real yield, Even if you can get one and a
Speaker 1: half two percent of two percent real growth, even if
Speaker 1: you can get one and a half two percent inflation,
Speaker 1: stocks are still cheap to nominal growth. In this country.
Speaker 1: You see catalysts on the horizon, things that could kick
Speaker 1: start econmy change the curved to something different. I mean,
Speaker 1: how how pasimistic are you about seeing a catalyst in
Speaker 1: the near term. I think it's increasingly unlikely. I think
Speaker 1: it's you know, tax reform is difficult, even in the
Speaker 1: best political environments. Um, even when Reagan got tax reform
Speaker 1: two years after his historic electoral College landslide, there were
Speaker 1: an awful number There are a large number of Democrats
Speaker 1: that were involved in that tax reform, including people like
Speaker 1: Bill Bradley. So you know, these things are difficult, They're
Speaker 1: hard to do, and we're dealing with the reality ease
Speaker 1: of governing right now, and those realities never go away
Speaker 1: even with single party where all do you deal with
Speaker 1: the realities of just figuring out what's going on or
Speaker 1: not going on In Washington, d C. We're talking with
Speaker 1: a Stan Collinder, who is an expert on the federal
Speaker 1: budget yesterday and he was up in here in New
Speaker 1: York being with clients, and he said he's just astanded
Speaker 1: by the disconnect between New York and Washington, and uh,
Speaker 1: you know how there has been so much optimism that
Speaker 1: things are going to happen in Washington when he's pessimistic
Speaker 1: that they that anything's gonna happen. How do you deal
Speaker 1: with that? How do you keep apprized of what's going on?
Speaker 1: How do you how do you develop the calculus to
Speaker 1: understand what's going on. Well, the first thing I said,
Speaker 1: and I think I've said this on this program before,
Speaker 1: is that hating the government is not an investment strategy.
Speaker 1: So I said that during the Obama administration. I'm now
Speaker 1: saying that during the Trump administration. The reality is, if
Speaker 1: you go back to the Kennedy administration, markets actually do
Speaker 1: better when the president's approval rating is below fifty. So
Speaker 1: we don't have the I did not know that we
Speaker 1: don't have to like the president for the markets to
Speaker 1: go up. Did you take that from CF level? It's
Speaker 1: really I did not know that. That's amazing. It is
Speaker 1: on the test and my colleague on the other side
Speaker 1: of the glasses studying right now, So so are you
Speaker 1: really studying in there? We have a bulletproof glass between us,
Speaker 1: say sometimes fire Artis and ken Felli will get the
Speaker 1: get the sub machine. Can we drop his name, Tom please?
Speaker 1: Drew Thornton on the other side of the glass, he
Speaker 1: is studying for the Level four derivatives how about forward
Speaker 1: market forge? Okay, so you know, I think for investors,
Speaker 1: for investors that have a broad, long term, consistent investment plan,
Speaker 1: they should not get caught up too much in the
Speaker 1: political theater taking place in DC investors trying to figure
Speaker 1: out it. From an earnings perspective, we should be looking
Speaker 1: from the bottom up. We should not be expecting broad
Speaker 1: stimulus of the fiscal kind that we haven't seen probably
Speaker 1: since two thousand nine to be the driver of earnings
Speaker 1: going forward. Just turn to the FED here quickly and
Speaker 1: the balance sheet as they wind that down. Do you
Speaker 1: think it's gonna happen fairly, stamelessly? Do you think that
Speaker 1: they are going to communicate adequately about what's going what's
Speaker 1: your what's your what are your expectations about how it's
Speaker 1: going to happen? Well, again, it's unprecedented, but my instinct
Speaker 1: is that they are going to be able to manage this,
Speaker 1: that it is going to be a very prolonged, drawn
Speaker 1: out process, gradual slow of allowing security. Critically, I couldn't
Speaker 1: get an answer from Robert Kaplan on this the how
Speaker 1: long part? I wasn't looking for, like, you know, the
Speaker 1: third week of August here we're looking at decades. I'm
Speaker 1: with you, I mean law, I don't think the market
Speaker 1: and the zeitgeist understands. This isn't about two or three years.
Speaker 1: This is not about two or three years. We've got it.
Speaker 1: This is a law there is and he made clear
Speaker 1: this is I love his phrase, Brian managing the choreography,
Speaker 1: original kaplan idea exactly. I love it exactly. But you're seriously,
Speaker 1: you're at decades. I'm at decades. You think of the
Speaker 1: maturity of the securities on the on the balance. Brian Levin,
Speaker 1: thank you so much, and congratulations on your support of
Speaker 1: New Jersey Institute of Technology. You know you're on some
Speaker 1: board up there. They're one of our great sponsors, and
Speaker 1: they've really really helped us along the way with our
Speaker 1: STEM report. So I can make a joke folks about
Speaker 1: getting wonky, which we're going to do year, but it's
Speaker 1: unfortunately no joke because everyone listening is part of the
Speaker 1: game of thrones, like religion of dividend growth, Brian Levitt
Speaker 1: with us with Oppenheimer fun, dividend growth is the bet
Speaker 1: and the future dividend overwhelming yield issues and overwhelming valuation issues.
Speaker 1: How far out are we buying that growth? Are we
Speaker 1: out one year? Are we out two years? When I
Speaker 1: buy a quality stock like something in an Appendheimer Funds
Speaker 1: portfolio International or not? Are we so desperate that we're
Speaker 1: buying year five dividend? I think I think we are, UM,
Speaker 1: and I think that you know, investors continue to search,
Speaker 1: work for yield wherever they could find it, and they
Speaker 1: found a little bit of a come up. And with
Speaker 1: that when interest rates rose last summer and we're climbing
Speaker 1: um all the way through the end of the year. Now,
Speaker 1: of course this year we've seen rates come down and
Speaker 1: dividend strategies have done quite fine. My my view on
Speaker 1: dividend strategies, on low volatility strategies that if we're in
Speaker 1: this slow economic environment, um, those types of strategies can
Speaker 1: do fine. My concern is if investors don't right size
Speaker 1: that position accordingly, they should have some caution. Um, you know,
Speaker 1: the downside could be worse at some point than the
Speaker 1: upside is. From here, look at Europe just a little bit. Here,
Speaker 1: we're focusing a lot on the trans atlantic relationship, American
Speaker 1: leadership in the world in light of what we expect
Speaker 1: to hear today from the President of the Rose Garden
Speaker 1: on the Paris Agreement. What's your attitude generally towards investing
Speaker 1: in Europe at this point? What's attractive to you in Europe?
Speaker 1: It's actually a great part of the economic cycle in
Speaker 1: Europe in which to invest Investors have been asking me
Speaker 1: for years. Is Europe two years behind the United States?
Speaker 1: And and presumably that meant with regards to the financial markets.
Speaker 1: If you look at it from a credit cycle perspective,
Speaker 1: given all the austerity forced on the peripheral country's rate
Speaker 1: hikes in twleven, Europe is probably more like six seven
Speaker 1: eight years behind the United States with regards to their
Speaker 1: credit cycle. We're only first seeing credit growth in twenty
Speaker 1: six seventeen, So that's good news, David. The This was
Speaker 1: supposed to be the make or break year for the
Speaker 1: European Union, the common currency, and one by one the
Speaker 1: elections have gone in favor of the pro europe candidate,
Speaker 1: and we've seen that in Austria and the Netherlands, um
Speaker 1: in France, and less in favor of the euroskeptics. So
Speaker 1: for those investors that didn't want to be positioned because
Speaker 1: of the politics, they've missed out on what's been a
Speaker 1: good economic recovery in Europe. In fact, European growth in
Speaker 1: the first quarter better than US growth. And this is
Speaker 1: a typical Offenhimer Funds question and broader, bigger view of management.
Speaker 1: Are they becoming more Anglo American? They they are, And
Speaker 1: I mean there's a lot of great companies in Europe
Speaker 1: um doing a lot of great things, involved in a
Speaker 1: lot of industries where they maybe the one or two
Speaker 1: largest players within that industry. So, you know, for investors
Speaker 1: that didn't want to be there because of politics, because
Speaker 1: of the strong dollar, that has now all abated. And
Speaker 1: you know, we we aspire as consumers to a lot
Speaker 1: of the products that the Europeans provide U, but as
Speaker 1: investors we tend to shun it. And I don't think
Speaker 1: that that's an appropriate investment strategy. That home bias is
Speaker 1: probably too persistent in the US. Are the politics entirely
Speaker 1: peripheral now in Europe? Are you able to look at
Speaker 1: valuations in a vacuum or or are you still concerned
Speaker 1: about what might happen to Italy, say, or what might
Speaker 1: happen in two weeks, two weeks, not even two weeks
Speaker 1: a weeks time in the UK Well, I, I like
Speaker 1: political uncertainty from the sense that markets like to climb
Speaker 1: a wall of worry. When when we get to UH
Speaker 1: absolute clarity on politics and policy, that's probably when we
Speaker 1: should be concerned about markets. Now, the UK is a
Speaker 1: little bit of a different story than the continent. If
Speaker 1: if we were to stick to the continent valuations, if
Speaker 1: you were to look at it um on a on
Speaker 1: a trailing twelve month earning basis or it is not,
Speaker 1: you wouldn't say this is screaming attractive. But what you
Speaker 1: have to realize is that that denominator has not improved
Speaker 1: in a large in a number of years broadly, and
Speaker 1: we're seeing that now cyclically in Europe. Brian Levit, thank
Speaker 1: you so much with Oppenheimer Funds joining us at Europe.
Speaker 1: Andrew balls right now with Pimco UH an important and
Speaker 1: timely conversation. Andrew I, I we should note that your
Speaker 1: brother has been involved in the United Kingdom politics. I
Speaker 1: don't want to step on family territory. What is your
Speaker 1: reaction to what we've seen in this abrupt change in
Speaker 1: the election in the United Kingdom? Could you give us
Speaker 1: an observation on that? Yes? Great, Thanks for having me today.
Speaker 1: So UM, So you you started up with a very
Speaker 1: um big lead for the Conservatives, it's um, it's it's
Speaker 1: shrunk a lot. I think that's why you would have
Speaker 1: expected UM, and the UK polsters have have done a
Speaker 1: pretty poor job at the time. So I think the
Speaker 1: baseline is um is that we're going to have a
Speaker 1: conservative government and that racer may will increase the majority,
Speaker 1: which is what we expect to going into this. But
Speaker 1: that said, there's an uncertainty in the polls, and you know,
Speaker 1: the campaign is not gone, gone very well. They had
Speaker 1: a major commitment in their manifesto, they reversed it a
Speaker 1: week later and I think that's ever happened before. So
Speaker 1: I think in spite of it, what's not been a
Speaker 1: great campaign. You know, expectation would be conservative government, increased majority.
Speaker 1: But there's a lot of uncertainty. But you weren't right
Speaker 1: where I knew you'd go, which is and you can't
Speaker 1: help us with this. You've got the ability on this.
Speaker 1: How do you poll in a parliamentary system. I mean,
Speaker 1: it's not like polling in the United States is no,
Speaker 1: and the the other thing in the UK is um. Traditionally,
Speaker 1: conservative voters don't want to say they vote conservative in
Speaker 1: a pent of the cases, so the posters have to
Speaker 1: make adjustments for what they call shy um the Conservatives.
Speaker 1: There was an effort by one of the pollsters published
Speaker 1: this week where they went constituency constituency, huge areas around it.
Speaker 1: But what they do is they look at what happened
Speaker 1: last time and they are just based upon the national
Speaker 1: polls for each seat. But they did they did a
Speaker 1: lousy job last time around. So from our perspective, we
Speaker 1: don't have a lot of risk riding on this. But
Speaker 1: from our perspective, the most likely thing is um um
Speaker 1: Conservative majority, um and um. That's what we are assuming.
Speaker 1: But it would be interesting if you had a hung parliament.
Speaker 1: There's the Brexit recommend the Brexit negotiations ready to start.
Speaker 1: Ending up with a hung parliament trouble forming a government
Speaker 1: would be a pretty awful way to start these Brexit negotiations.
Speaker 1: Andrew Brows, thank you for doing at the General Council
Speaker 1: of PIMCO. Just aged David Grew jump in here and
Speaker 1: get Mr Balls on it. Yeah, you're out with your
Speaker 1: global secular outlet. Let me just ask you, how is
Speaker 1: an investor you're watching what's unfolding in the UK. And
Speaker 1: we were talking earlier about the degree to which politics
Speaker 1: is perhaps after skating the health of the European kindly
Speaker 1: just give us your your outlook on on where you're
Speaker 1: ups headed here in the next six to twelve months,
Speaker 1: So the UK, So start with the UK. The it
Speaker 1: looks okay. We slowed a little bit, but overall since
Speaker 1: the Brexit referendum a year ago, it looks it looks
Speaker 1: pretty good. You've got you've got a lot of uncertainty
Speaker 1: m in the in the outlook, um we you know,
Speaker 1: the level of interest rates looks too low here compared
Speaker 1: with the US um um. So I think over time
Speaker 1: we should see higher rates in the UK. You know,
Speaker 1: I want to get paid more to own UK interest
Speaker 1: rate risk than I do in the US. But we haven't.
Speaker 1: We haven't seen Brexit before obviously, and so these negotiations
Speaker 1: they could have a big impact on confidence. But so
Speaker 1: far it's been okay. On the European side, you know,
Speaker 1: by European very low standards, things are going quite well.
Speaker 1: Um um. The the year Zone has been growing above
Speaker 1: above its potential for a couple of years. We expect
Speaker 1: that to um continue um that there. They've been a
Speaker 1: long way behind the US and this recovery. So this
Speaker 1: is what should be happening. But you know, my former
Speaker 1: Cully pot Colleie Paul McCully used to say, you know,
Speaker 1: Europe there's kind of nashing at teeth one percent to
Speaker 1: Nirvana at two percent. We're a bit closer to two
Speaker 1: percent at the moment. It is good fortunately of Andrew
Speaker 1: balls with us of course with Pacific Investment Management Company
Speaker 1: PIMCO and their chief investment officer Global Fixed Income. Let
Speaker 1: me ask you the basic question, Uh, Andrews, you will
Speaker 1: give last rights to see if a test takers at
Speaker 1: PIMCOT here in the coming two days. Where's the risk
Speaker 1: free rate? Right now? Do you have a clue where
Speaker 1: is the risk free rates? So the risk free rate
Speaker 1: is in the US, you know, i'd look at US
Speaker 1: real rates or US nominal rates, and we've just had
Speaker 1: our our annual secular Forum, and in that regard, we
Speaker 1: we think even you know, just above two percent, US
Speaker 1: US rates look look broadly anchored for the next few
Speaker 1: years based on our new neutral view on the FED
Speaker 1: that the FED is you know, maybe gets to two
Speaker 1: percent or a little bit higher, but it's not gonna
Speaker 1: be going much further than that in the next cycle.
Speaker 1: So low level of yields, but pretty well anchored given
Speaker 1: the growth outlook and the FED outlook. I was struck
Speaker 1: by the probability you placed on the likelihood of a
Speaker 1: recession here in the next five years around seventy percent.
Speaker 1: Walk us through your your thinking pimcost thinking on that.
Speaker 1: So if you have you know, something like a twenty
Speaker 1: percent chance of recession every year in the US, given
Speaker 1: the the kind of the frequency of post war recessions,
Speaker 1: then you can get to that kind of number. Now
Speaker 1: you need to be careful because we could always be
Speaker 1: negative based upon expectations of over three to five years
Speaker 1: of recession. But in this case, you know, this is
Speaker 1: a long expansion we've had in the US. It has
Speaker 1: been quite stable the last few years. You don't see
Speaker 1: a lot of imbalances UM, and the FED is not
Speaker 1: going to be trying to kill this um recession by
Speaker 1: very aggressive monetary policy. But over three to five years UM,
Speaker 1: that kind of longer term time frame, then there's a
Speaker 1: good chance we get a slowdown and recession in the US.
Speaker 1: And it's easier to get there when you start at
Speaker 1: two percent growth rather than the uh, you know, the
Speaker 1: three or four percent growth that the Trump administration has
Speaker 1: has has talked about. So you have this this secular
Speaker 1: form you meet around the table Larry Summers is Therey
Speaker 1: Jean claud Trichet Emory slout of the rest. You moved
Speaker 1: from that to investment strategy, and I wonder sort of
Speaker 1: what conclusions you came to in the second half of
Speaker 1: that meeting. Is the focus still going to be here
Speaker 1: on capital preservation? It is, yes, so so a three
Speaker 1: to five year out look, so it doesn't change every year. Um,
Speaker 1: it pivots from time to time, but similar view, so
Speaker 1: that we see an outlook which is pretty stable, but
Speaker 1: we see it as as insecure. There's a lot of
Speaker 1: challengers in the US, in China, in the rest of
Speaker 1: the world. Um. And then the big thing which has
Speaker 1: changed over the last year is risk assets have all
Speaker 1: done UM so well so so credit it looks fair,
Speaker 1: but you don't have any excess risk premium there for that.
Speaker 1: Recession risk or other challenges are the other reasons why
Speaker 1: we might see higher volatility. So preserving capital is always important,
Speaker 1: but this is an environment when preserving capital, we think
Speaker 1: is a good idea and then grind out the alpha,
Speaker 1: the relative value positions, the boring stuff which which helps
Speaker 1: us to outperform. What's the danger of high real yields
Speaker 1: in Asia? You know, cue the Twilight Zone music. You
Speaker 1: must have young bugs of pimcore. You have to say,
Speaker 1: be careful out there. High rail rates in Asia. You
Speaker 1: want to go buy paper in Asia where you get
Speaker 1: a nice coupon, but what's the risk. Well, so when
Speaker 1: you go to the government markets in Asia, the coupons
Speaker 1: the heels aren't that high. When you go to the
Speaker 1: credit markets, if you're going to go to high yield,
Speaker 1: then you can find some some good opportunities there. But
Speaker 1: it comes with a health warning, which is you don't
Speaker 1: have the transparency in terms of the reporting, the regulatory
Speaker 1: environments that you have in the in the US. So
Speaker 1: you need to be able to do that that deep
Speaker 1: credit work. So it's an area, well, we'll find opportunities
Speaker 1: were actually investing in that area, adding people in that area.
Speaker 1: But you you know, if you're investing in Indonesia, you
Speaker 1: need to know how that works. The shareholders in the company.
Speaker 1: Less transparent markets clearly than you have in the US.
Speaker 1: Quickly here, let me just ask you about trade. We're
Speaker 1: talking with Gary huff Baron just a moment ago. How
Speaker 1: real is that risk here in the last three seconds
Speaker 1: we have with you trade risks, I think a real
Speaker 1: when so stable but insecure is the the outlook. And
Speaker 1: one reason for insecurity is, you know, a less predictable
Speaker 1: US administration the potential to launch aggressive trade actions versus
Speaker 1: China or versus other places in the world. So this
Speaker 1: is one of these pivot points, one of these things
Speaker 1: that we need to guard against. The other big one,
Speaker 1: of course, tightening central bank policy over the coming years.
Speaker 1: Andrew bar is great to speak with you. Thank you
Speaker 1: very much. Andrew Boster, Global Fixed Income Chief Investment Officer
Speaker 1: at PIMCO, joining US set from London where he is based.
Speaker 1: Valuable perspective there on pimcoes new global secular outlook. I'll
Speaker 1: tell you it's an interesting time June one. Where where
Speaker 1: did it go? Believe it? Yeah? I gotta start like
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Speaker 1: market data from Bloomberg. In addition, see all the bios
Speaker 1: of the key people mentioned in the story. It's called Lens,
Speaker 1: and it is just that, a lens into the people
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Speaker 1: Download or io s app or search for the Bloomberg
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Speaker 1: more at bloomberg dot com, slash lands Okay, joining us
Speaker 1: now the former Governor New Jersey and force at a
Speaker 1: different e p A from a different time. What a
Speaker 1: perfect time to talk to Governor Whitman of New Jersey. Governor,
Speaker 1: good morning, I assume you're not going to be at
Speaker 1: the Rose Garden today. Frame frame What all of this
Speaker 1: means for Republicans who are to be polite pre Trump? Uh? Well,
Speaker 1: I think it makes their position actually a lot more
Speaker 1: tenable because if you look at every poll, even within
Speaker 1: the Republican Party, better than Republicans believe that climate change
Speaker 1: is a real issue, that humans have a role to play,
Speaker 1: and that we should be doing something about it. So
Speaker 1: this kind I don't know, we don't know what his
Speaker 1: final action is going to be, but clearly he is
Speaker 1: considering he doesn't consider climate change to be a major issue.
Speaker 1: My approach here is, look, timate change is caused by
Speaker 1: what we're putting into the air, which is not good stuff.
Speaker 1: And we have some two hundred thousand people in this
Speaker 1: country a year who die from dirty airborne related causes.
Speaker 1: So if we just clean the air, a will be
Speaker 1: doing something for climate change, would be we'll be protecting
Speaker 1: human health. What really worries me about what the President
Speaker 1: is talking about is it undercuts our position in the world.
Speaker 1: We are seeding leadership in this Others are going to
Speaker 1: step up and fill the vacuum, and we're going to
Speaker 1: see many of our company's trade wars work both ways.
Speaker 1: And while many companies have already adopted very strong UM
Speaker 1: guidelines to reduce their carbon emissions, uh, they're still from
Speaker 1: the if they're headquartered in the United States, they could
Speaker 1: be subject to retaliatory trade worth. It's just unnecessary and
Speaker 1: it's too bad to fly in the face of something
Speaker 1: that people have worked so hard on accomplishing. And you
Speaker 1: have almost two hund countries that have signed it. In fact,
Speaker 1: we would join only North Korea and Nicaragua and being
Speaker 1: non signers, would you learn when you would? Washington d C.
Speaker 1: About long term is um the difficult of planning for
Speaker 1: and crafting policy that takes a long term perspective. It
Speaker 1: strikes me with climate change policy in particular, you're getting
Speaker 1: people to buy into something that is going to take
Speaker 1: place maybe not a year from now, two years from now.
Speaker 1: Yes it's happening, but it's it's a naggregate that we
Speaker 1: care about, and it seems like that's that's something difficult
Speaker 1: that's still to sell them any Americans it is. You're
Speaker 1: absolutely right it we don't think in long term. We
Speaker 1: think in short spurts. But that's why if you go
Speaker 1: back to annual lives lost from dirty air, you can
Speaker 1: perhaps make a more compelling case for people to understand this.
Speaker 1: But I would say that frankly, the weather um is
Speaker 1: something that's already impacting people, and they're getting it that
Speaker 1: things are changing. They don't necessarily know why, and we
Speaker 1: can't say that humans cause all of it, or that
Speaker 1: it's all due to climate change. And certainly the climate
Speaker 1: has been changing since the Earth was formed. But they're
Speaker 1: seeing these storms become more frequent, more severe, and not
Speaker 1: impacts them directly. So there there are these short term
Speaker 1: implications that are beginning to pop up, which is why
Speaker 1: I think you see so many people say this is
Speaker 1: real and we should be thinking about how we're going
Speaker 1: to cope. And there was a piece set by one
Speaker 1: of our colleagues at Bloomer BNA a couple of days
Speaker 1: ago about the Committee on Energy, the Committee on Environment
Speaker 1: and Public Works US Senate Committee Environment Public Works, John Barrasso,
Speaker 1: the Senator now in charge of that, and it seems
Speaker 1: like the focus squarely is on public works and not
Speaker 1: on the environment. I know that's something that you butted
Speaker 1: up against when you were heading the e p A
Speaker 1: a few years back. Do you think that politicians are
Speaker 1: paying enough attention to environmental issues generally now in Washington,
Speaker 1: D C. No, it's kind of sad. I mean the
Speaker 1: first piece of environmental legislation since the Clean Air Acts
Speaker 1: were one that we got through in the very beginning
Speaker 1: of the Bush administration on reducing the pollution from non
Speaker 1: road diesel engines. Since then, there's only been one other,
Speaker 1: and that's been on toxic chemicals. And actually this administration
Speaker 1: is looking for ways to try to roll back some
Speaker 1: of those, um, some of those safeguards that were put in.
Speaker 1: So we're really not paying the kind of attention we
Speaker 1: need to understand that we can have of good, strong
Speaker 1: economic growth. We've proved that over and over again, UM,
Speaker 1: and still have a clean and green environment. Let's come
Speaker 1: back and to talk further very quickly, her Governor, what
Speaker 1: do oil refiners in New Jersey want? Well, what they'd
Speaker 1: like to do is they want to do some offshore drilling.
Speaker 1: That's something that they'd like to see. Also, there are
Speaker 1: a number of the utilities, don't forget, that have nuclear reactors,
Speaker 1: and they'd like to see nuclear put on the same
Speaker 1: par as the other green energy sources so they could
Speaker 1: keep them going. Let me ask you about the role
Speaker 1: of business uh in forestalling climate change. When there were
Speaker 1: whisperings that the President might withdraw from this agreement, we
Speaker 1: had a statement from from a number of business leaders,
Speaker 1: a number of executives urging him not to do that.
Speaker 1: What if we learned about the role, the leadership role
Speaker 1: that businesses can play, well, they certainly are just that
Speaker 1: they're playing a leadership role. What kind of impact they're
Speaker 1: going to have on the president? I don't know. You
Speaker 1: have the Secretary of State Rex Tillerson, a former CEO
Speaker 1: of a major company, going in to say, you've got
Speaker 1: to stick with this because they believe it, they see it.
Speaker 1: Many of them, as I mentioned before, have already set
Speaker 1: aggressive targets. I'm on the board of United Technologies and
Speaker 1: they've had aggressive targets for a number of years now
Speaker 1: to reduce their their greenhouse gas emissions and water usage.
Speaker 1: It's good business. They're saving money, they're more competitive, they're
Speaker 1: able to use it as something that stance sets them
Speaker 1: aside from competitors. It's it's been good for them. And
Speaker 1: you have a whole number of businesses that are willing
Speaker 1: and able and are already doing that. So we'll see
Speaker 1: what kind of an influence they have. They certainly have
Speaker 1: an influence on They can have an influence on Congress
Speaker 1: if they will put their money where their where their
Speaker 1: efforts are, I mean, where their thoughts are, but they're
Speaker 1: going to do it anyway, and that's the good news
Speaker 1: for the environment. You've got businesses, you've got utilities, almost
Speaker 1: every utility. While they may still have coal and they
Speaker 1: may be investing more natural gas, they are also investing
Speaker 1: in renewables and as I mentioned before, number of them
Speaker 1: have nuclear reactors that they'd like to keep going, uh
Speaker 1: in the interim until you can get the renewables to
Speaker 1: a place where their base power. Um these states, there
Speaker 1: are state compacts that have come together. They're going to
Speaker 1: continue to reduce their greenhouse gas emissions and cities as well.
Speaker 1: So you know, the horse has really left the stable,
Speaker 1: it's left the barn, and this is going to happen.
Speaker 1: What really it troubles me is our position as a
Speaker 1: world leader and whether who steps into the vacuum. China
Speaker 1: clearly indicated it will and is looking for that, and
Speaker 1: Russia is always looking for an opportunity to make inroads.
Speaker 1: Let me ask you about the the introspection I assume
Speaker 1: you've done since the presidential election. In November, Tom was
Speaker 1: joking about the quantity of modern Republicans New England Republicans
Speaker 1: whatever you want to want to call them. There are
Speaker 1: fewer than there were. What are you thinking about when
Speaker 1: it comes to the future of the Republican Party. This
Speaker 1: party matter less to you now in light of what
Speaker 1: we saw in November. Well, party has always been um
Speaker 1: it's for my basis of where I how I look
Speaker 1: at issues of the Republican Party. But it is never
Speaker 1: superseded policy for me, and I don't believe it should
Speaker 1: and then hasn't in the past. It now is more
Speaker 1: and more it has been for the last maybe decade
Speaker 1: going that way. And that's what we see. I mean,
Speaker 1: the one thing the president needs to remember, once you're elected,
Speaker 1: you represent all of the people, not just those who
Speaker 1: elected you. And frankly, in his case, if you look
Speaker 1: at the numbers, the raw numbers of people who voted
Speaker 1: for him, he's a minority president. We've had these before,
Speaker 1: but he's clearly a minority president. This is something that's
Speaker 1: important to his base, and his base is quite small
Speaker 1: and the whole when you look at the whole thing,
Speaker 1: they're absolutely dead loyal. This is what they want. But
Speaker 1: he can't just satisfy his base, and something that has
Speaker 1: a huge implications for everyone else, for business, for people's health. Um,
Speaker 1: he's got a a lot and he's got to continue
Speaker 1: to learn and be willing to change where he needs to.
Speaker 1: Christine Todd Whitman, the former governor of New Jersey, you
Speaker 1: are fifty nine and holding, and we thank you for
Speaker 1: that as being a good example for those of us timeless.
Speaker 1: Greg Ville h. Governor Whitman, writes this morning on those
Speaker 1: ages and seventy which includes in two thousand twenty Bernie
Speaker 1: Sanders seventy nine, Senator Warren seventy one, Secretary Clintons seventy three,
Speaker 1: the President seventy four, and of course Joe Biden, thinking
Speaker 1: of running supposedly would be seventy eight. How did we
Speaker 1: get here? What did you call it? David? What was that?
Speaker 1: Fancy sep? Governor Whitman, And I wouldn't know that. How
Speaker 1: did we get to be like the Chinese where everybody's
Speaker 1: a fossil? Well, the problem is you see so many
Speaker 1: young people who well that particularly this millennium generation, something
Speaker 1: that's fascinated me. They really want to make a difference
Speaker 1: in the world. They really believe in making the world
Speaker 1: a better place. They want nothing to do with Yeah,
Speaker 1: nothing because it's gotten so rough, it's so expensive, so nasty. Um,
Speaker 1: it's hard to maintain a dignity when you've got the
Speaker 1: Internet the way it is, people can put off anything
Speaker 1: they want about you, and by the time you get
Speaker 1: around to seeing it or to swat it down, it's
Speaker 1: already gone viral. Um. It's a tough business, and they
Speaker 1: feel that there are other ways they can make a difference.
Speaker 1: The problem is that if you're really going to make
Speaker 1: a lasting difference, you have to get involved in government
Speaker 1: and policy, because that's the way you make the final,
Speaker 1: lasting difference very quickly. Here we've seen a lot of
Speaker 1: business executives going to the White House to bend the
Speaker 1: ear of the president. We've seen that happened at the
Speaker 1: G seven last week, world leaders trying to tell him
Speaker 1: what they think about about climate change. How about you,
Speaker 1: how about others like you who are traditional Republicans. Do
Speaker 1: you feel like you have a conduit to communicate with
Speaker 1: this White House through the press? That's the only way,
Speaker 1: through the press and tweets and that kind of thing. Um.
Speaker 1: He apparently looks at that a lot, cares about that
Speaker 1: a lot. But UM, I certainly don't have an on
Speaker 1: trade of the White House verse Governor, thank you so much,
Speaker 1: Christine Timman. She will not be at the Rose Garden.
Speaker 1: I don't I don't believe. Stephen Colan, he's the director
Speaker 1: of the Earth Institute at Columbia University and at the
Speaker 1: Interdisciplinary Center. That's going great to have you with us today.
Speaker 1: We've talked a lot about what this means for American
Speaker 1: leadership in the world. Let's talk about the deal in
Speaker 1: and of itself. So the difference that it stands to make.
Speaker 1: What could be that that the environmental consequence here if
Speaker 1: the US were to withdraw from it. Well, UH, First,
Speaker 1: the even if the US withdraws from Paris, the Supreme
Speaker 1: Court has already declared greenhouse gas as a dangerous air pollutant.
Speaker 1: And even if they withdraw the Clean Power Plan, EP
Speaker 1: still has to issue a regulation to reduce greenhouse gases. Uh.
Speaker 1: California and New York have already recommitted to meeting the
Speaker 1: Paris targets, probably exceeding them. And UH, I think that
Speaker 1: there will be reductions in greenhouse gases no matter what
Speaker 1: happens UH today or whenever with the President, if the
Speaker 1: if the Paris Accord is about communities and localities. Why
Speaker 1: is it so dominantly discussed by a federal official. How
Speaker 1: did we get to where federal officials are discussing what
Speaker 1: I'm told as a local accord because the federal from
Speaker 1: makes foreign policy, though cities don't do that in a
Speaker 1: global economy where cities in fact and states interact with
Speaker 1: cities and states all over the world. Uh, it's not
Speaker 1: quite the same way. It wasn't we when we developed
Speaker 1: the constitution. But we still only have one foreign policy
Speaker 1: in America, and that, you know, I think it is
Speaker 1: correct when when when you look at the dealing of
Speaker 1: itself again, I keep returning to that, what does it
Speaker 1: call for? What's what's the burden? So much as it
Speaker 1: is want to here on the US. Well there, it's
Speaker 1: actually there is nothing mandatory in the agreement. It's a
Speaker 1: set of targets. And what's mandatory is reporting where you
Speaker 1: are with your greenhouse gases. So there's no actions required.
Speaker 1: In fact, as I said, the Clean Air Act, which
Speaker 1: has which mandates that greenhouse gases be reduced under the
Speaker 1: Supreme Court decision during the George W. Bush administration, UH,
Speaker 1: is much more directive than the treaty is and so
Speaker 1: I think that we're going to see reductions in greenhouse
Speaker 1: gases irrespective of the paris does it does it change
Speaker 1: the Is there anything to incentivize a change to the
Speaker 1: energy makeup in in this in this country? Other way?
Speaker 1: Do you have these targets? Is that has that fundamentally
Speaker 1: changed how we approach energy in the US? Well, I
Speaker 1: think I think that you're beginning to see the changes
Speaker 1: in the marketplace anyway. Um, First, coal is uh, you know,
Speaker 1: it's it's hard to get out of the ground, even
Speaker 1: with the mountaintop removal it it uh, it's very destructive
Speaker 1: of the environment. Natural gas, even with fracking, is still
Speaker 1: has a lower environmental impact. So first stage that we're
Speaker 1: moving from heavily polluting coal to less polluting natural gas.
Speaker 1: But the other thing that's going to happen, and we're
Speaker 1: seeing this also is renewable energy is going to continue
Speaker 1: to get less and less expensive as the technology gets better.
Speaker 1: The source fuel is free, it's the sun. So it's
Speaker 1: going to act the same way Moore's law did with computing.
Speaker 1: You're going to see the price going down and down
Speaker 1: and down. Is already price competitive to a large tree
Speaker 1: with fossil fuels. As the infrastructure built up at the
Speaker 1: technology builds up, UH, fossil fuels will be driven from
Speaker 1: the market by renewables, and I think we're at the
Speaker 1: beginning of that right now. Thanks for listening to the
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