WEBVTT - German Elections and Markets 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.880 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business app. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.120 us live on YouTube. 0:00:27.280 --> 0:00:29.720 This is an honor actually with a service to the 0:00:29.760 --> 0:00:31.480 International Monetary Fund. 0:00:31.720 --> 0:00:33.320 And now at Berenberg Bank. 0:00:33.240 --> 0:00:37.800 Holger Schmieting, a truly expert on continental Europe, on the 0:00:37.840 --> 0:00:41.959 core of Germany, the Netherlands of France, all the challenges 0:00:42.000 --> 0:00:46.279 of Eastern Europe, over to Ireland, maybe a booming Ireland, 0:00:46.440 --> 0:00:50.080 the challenges of the United Kingdom and across the Atlantic. 0:00:50.159 --> 0:00:52.640 Doctor Schmiding, thank you so much for joining on this 0:00:52.720 --> 0:00:56.720 moment to stay for Germany. There is a point and 0:00:56.800 --> 0:01:00.400 I clearly remember this in my ute of an America 0:01:00.680 --> 0:01:05.120 after the war, in absolute awe of Conrad at no 0:01:05.160 --> 0:01:09.840 hour is the gentleman who dragged Germany out of the 0:01:09.880 --> 0:01:14.360 Marshall Plan and out of the rebuild into something approximating 0:01:14.400 --> 0:01:18.000 a modern parliamentary system with all the distraction of the 0:01:18.000 --> 0:01:21.800 Berlin Wall. Would Conrad add an hour and know the 0:01:21.880 --> 0:01:23.880 Germany of this Monday morning. 0:01:24.800 --> 0:01:27.959 Well, he would probably be quite disappointed because we now 0:01:28.160 --> 0:01:33.039 have right wing fringe parties and left wing fringe parties 0:01:33.800 --> 0:01:36.280 in the sense of being at the somewhat extreme ends 0:01:36.360 --> 0:01:39.440 of the political spectrum. We have these parties with more 0:01:39.480 --> 0:01:42.319 than one third of the seats in German Parliament. That 0:01:42.600 --> 0:01:46.319 was clearly clearly not the case under our law or 0:01:46.760 --> 0:01:52.680 anywhere over the last last decades. Germany is facing significant problems. 0:01:52.920 --> 0:01:56.640 The key is that the next government tackles the issues 0:01:56.720 --> 0:02:00.880 that people are worried about. This includes migration, this includes 0:02:00.960 --> 0:02:04.320 very much the lack of growth. If these issues are 0:02:04.360 --> 0:02:07.760 now not tackled forcefully, then the result of the next 0:02:07.800 --> 0:02:10.000 election in four years time could be even. 0:02:09.880 --> 0:02:13.760 Us The solution for Germany in this goes from a 0:02:13.840 --> 0:02:17.360 share of Germany of the forties and fifties to particularly 0:02:17.440 --> 0:02:20.760 the collapse of the wall and all the reunification of 0:02:20.800 --> 0:02:22.480 eighty nine ninety ninety one. 0:02:22.919 --> 0:02:23.760 Holger Schmiding. 0:02:24.040 --> 0:02:28.760 The speed of parliamentary process has always been slow motion 0:02:29.400 --> 0:02:32.360 by United Kingdom standards and of course by the fractious 0:02:32.400 --> 0:02:37.480 American standard. Can Germany speed up their parliamentary process? 0:02:37.919 --> 0:02:39.359 Given the challenges right. 0:02:39.240 --> 0:02:43.560 Now, well, given the challenges that we have to build 0:02:43.560 --> 0:02:47.200 a coalition first before mister Mattz, the leader of the 0:02:47.280 --> 0:02:49.239 center right, will be chancellor. 0:02:49.840 --> 0:02:52.000 This is not easy to speed it up. 0:02:52.440 --> 0:02:55.560 The chancellor to be Mister Matz aims to have the 0:02:55.600 --> 0:02:59.320 coalition talks over by Easter, which is about eight weeks 0:02:59.360 --> 0:03:02.640 from now. That by continental European standards for building a 0:03:02.680 --> 0:03:05.840 coalition would actually be fairly fast. But at a time 0:03:06.040 --> 0:03:09.760 when we get almost every day news from Donald Trump 0:03:09.800 --> 0:03:13.040 out of the US, that is of course a problem. 0:03:13.320 --> 0:03:15.640 We have a bid over well, vacuum is too much 0:03:15.720 --> 0:03:16.280 over world. 0:03:16.280 --> 0:03:18.840 But we have a bit of a period right now 0:03:19.080 --> 0:03:23.400 where Germany and Europe cannot really act fully and that 0:03:23.560 --> 0:03:25.799 is of course a quite unfortunate thing. 0:03:25.919 --> 0:03:28.840 At the moment Holgar, it's. 0:03:28.720 --> 0:03:31.760 Being reported that the far right alternative for Germany, the 0:03:31.800 --> 0:03:35.600 AfD party, doubled its support to become the second strongest 0:03:35.600 --> 0:03:37.440 party with twenty point eight percent of the vote. Is 0:03:37.480 --> 0:03:40.760 the expectation that that momentum in terms of growth for 0:03:40.800 --> 0:03:42.320 this party will continue going forward. 0:03:43.720 --> 0:03:46.280 Well. First of all, the AfD fortunately did not do 0:03:46.440 --> 0:03:50.680 significantly better than opinion polls had projected beforehand, and it 0:03:50.760 --> 0:03:53.560 will now depend on the new government by maths whether 0:03:53.680 --> 0:03:57.520 it can tackle the issues the AfD really feeds on discontent, 0:03:57.720 --> 0:04:03.320 especially discontent about controlled migration, where quite likely the new 0:04:03.360 --> 0:04:07.040 government will take a harsher approach, but it also needs 0:04:07.160 --> 0:04:10.640 the return to economic growth to dent the appeal of 0:04:10.800 --> 0:04:14.600 these parties at the left wing or the right wing 0:04:14.760 --> 0:04:17.760 part of the political spectrum. 0:04:17.960 --> 0:04:21.440 The economic challenges Holger talk to us about really kind 0:04:21.440 --> 0:04:24.719 of what they are and in reality what can be 0:04:24.800 --> 0:04:26.760 done to address them. 0:04:27.480 --> 0:04:31.040 The economic challenges are that the core of the German economy, 0:04:31.080 --> 0:04:35.080 the middle stand these small and medium sized companies which 0:04:35.160 --> 0:04:39.720 often have their dominant position in global markets in a 0:04:39.800 --> 0:04:45.080 tiny meach. That these companies are no longer investing as 0:04:45.160 --> 0:04:49.080 much at home as they should. They are unhappy about bureaucracy, 0:04:49.160 --> 0:04:52.760 They are unhappy about the political uncertainty that we had 0:04:52.800 --> 0:04:55.800 in the last fifteen months during the demise of the 0:04:55.839 --> 0:05:00.280 old government. They complained about regulations, excessive business type is 0:05:00.440 --> 0:05:02.799 excessive payroad taxes. 0:05:03.480 --> 0:05:05.560 So we need to do. 0:05:05.520 --> 0:05:09.520 Quite a bit in this country to strengthen our pare. 0:05:09.839 --> 0:05:12.919 It is less about physical space. Yes we need physical 0:05:12.920 --> 0:05:16.279 space for the military, but it's mostly about the more 0:05:16.400 --> 0:05:21.480 difficult outward supply side. Crow growth reforms, which include pruning 0:05:21.520 --> 0:05:24.200 of welfare benefits so that people seem more reason to 0:05:24.279 --> 0:05:27.760 work rather than on beyond welfare, which includes a few 0:05:27.800 --> 0:05:31.320 other things deregulation. If we get back to that, and 0:05:31.360 --> 0:05:33.000 there's a bit of a chance that we do get 0:05:33.040 --> 0:05:35.279 back to that under the new government, then the German 0:05:35.360 --> 0:05:38.240 economy can do well as long as Donald Trump, with 0:05:38.440 --> 0:05:41.440 trade war threats and is Ukraine policy does not get 0:05:41.520 --> 0:05:41.880 in the way. 0:05:42.120 --> 0:05:44.400 If it's just joining us around the world. 0:05:44.600 --> 0:05:47.720 Holger schmating a Behreenberg Bank with this was some very 0:05:48.160 --> 0:05:51.240 good answers, a learning process and the German elections. What 0:05:51.279 --> 0:05:54.000 it means for Europe, what it means of course for Germany, 0:05:54.040 --> 0:05:57.520 and a curse across Atlantic what it means for America 0:05:57.680 --> 0:06:00.359 again with Behrenberg Bank, Paul, I. 0:06:00.360 --> 0:06:02.880 Think I speak for a lot of Americans when I 0:06:02.920 --> 0:06:05.599 looked at the map of the voting in Germany and 0:06:05.640 --> 0:06:08.719 it really just surprised me the strength of the far 0:06:08.800 --> 0:06:12.320 right alternative for Germany in the eastern part of the country, 0:06:12.600 --> 0:06:18.440 the geographic differences in political support here. Can you give 0:06:18.440 --> 0:06:21.760 assist a little history there and how the various parties 0:06:21.800 --> 0:06:23.920 and a coalition might try to deal with that. 0:06:25.520 --> 0:06:28.000 Well, the map really looks stop if you look at 0:06:28.040 --> 0:06:30.039 it in a sort of first half the post which 0:06:30.080 --> 0:06:33.640 party came number one, Well, then we really have pretty 0:06:33.680 --> 0:06:36.040 much a clear East West divide. 0:06:36.279 --> 0:06:37.800 This says many reasons. 0:06:38.240 --> 0:06:42.680 Part is that in East Germany fear of economic transformation 0:06:43.160 --> 0:06:45.839 is more prevalent in the west. After all, the East 0:06:45.960 --> 0:06:49.400 had after the collapse of communism in nineteen ninety a 0:06:49.520 --> 0:06:52.960 very very painful transition. Part of that is also that 0:06:53.040 --> 0:06:56.320 in East Germany there is more of an inclination in 0:06:56.320 --> 0:06:58.719 the sense of let's rather do a deal with poutine 0:06:58.760 --> 0:07:01.920 with the Russians than give money to Ukraine. The East 0:07:02.000 --> 0:07:05.080 Germans have been occupied by the Soviet Union the Russians 0:07:05.120 --> 0:07:07.919 of course for a long long time, so that's a 0:07:07.920 --> 0:07:11.840 bit different. There is alls in East Germany there are 0:07:12.120 --> 0:07:14.200 a bit of a feeling of being left behind. 0:07:14.320 --> 0:07:16.760 As for demographic. 0:07:15.840 --> 0:07:20.320 Means, quite a few people from the more rural regions 0:07:20.640 --> 0:07:23.560 of East Germany have left for the cities, partly in 0:07:23.600 --> 0:07:26.480 the West, and so this left behind feeding is more 0:07:26.520 --> 0:07:30.480 prevalent over there. Again, the government needs to tagle deep 0:07:30.480 --> 0:07:35.239 seated fears about migration, uncontrolled migration, and get economy going 0:07:35.880 --> 0:07:37.160 in order to address that. 0:07:38.000 --> 0:07:40.800 Part of the work of Bloomberg surveillance over the years folks, 0:07:40.800 --> 0:07:44.280 and I think of American experts like Richard Clarita expert 0:07:44.320 --> 0:07:47.920 and Germany at Columbia University here Adam Posen at the 0:07:47.920 --> 0:07:50.160 Peterson Institute are delicate questions. 0:07:50.200 --> 0:07:54.200 We do that now with Holger speeding Holgar the Great Fear. 0:07:54.400 --> 0:07:57.000 Not so much in America, where I think it's distant. 0:07:57.640 --> 0:08:01.360 But what I see in the European press is is 0:08:01.520 --> 0:08:05.360 any sort of analogue not back to World War Two, 0:08:05.600 --> 0:08:09.080 but back to nineteen eighteen to nineteen twenty three and 0:08:09.120 --> 0:08:14.040 the invention of something called the National Socialist German Workers Party? 0:08:14.200 --> 0:08:16.760 Is it overdone? Is a media ploy? 0:08:17.400 --> 0:08:21.880 Give us a measurement, doctor Schmieting of the analogue back 0:08:21.960 --> 0:08:26.480 to another time of the far right in Germany. 0:08:26.720 --> 0:08:30.000 I think this is far overdone. The far right is 0:08:30.040 --> 0:08:31.320 not like that. 0:08:31.920 --> 0:08:33.720 We had a bit of a party, or we have 0:08:33.760 --> 0:08:36.280 a bit of a party called bs W which tried 0:08:36.440 --> 0:08:40.800 to combine a kind of national tinge art on migration 0:08:41.360 --> 0:08:45.520 with a social tinge a lot more welfare. And this 0:08:45.679 --> 0:08:49.400 bs W did not do that well. They only got 0:08:49.440 --> 0:08:53.200 just below five percent of the votes. It is much 0:08:53.240 --> 0:08:57.400 more a feeling of left behind. And what I said 0:08:58.000 --> 0:09:01.720 about the remembering the pains of transition that is behind 0:09:01.800 --> 0:09:02.480 the strength of. 0:09:02.440 --> 0:09:04.120 The AfD in the East. 0:09:04.640 --> 0:09:08.760 And the AfD is a nasty party and they do 0:09:08.840 --> 0:09:11.880 have some neo aasis, but it's an exaggeration to say 0:09:11.920 --> 0:09:14.480 we are back to day where we were in the 0:09:14.520 --> 0:09:17.880 early nineteen thirties. I think an analogy for the political 0:09:17.920 --> 0:09:22.840 situation in Europe is much more like the one before 0:09:22.960 --> 0:09:24.960 World War One, you could say, where we had a 0:09:25.000 --> 0:09:28.760 lot of nations competing with each other, rather than a 0:09:28.840 --> 0:09:31.800 European union. What we now see is a bit of 0:09:31.840 --> 0:09:35.760 a rise of return to nation rather than focusing on 0:09:35.880 --> 0:09:36.760 European issues. 0:09:36.920 --> 0:09:39.520 Doctor Schmiding, well, thank you for that. There was a 0:09:39.640 --> 0:09:44.359 very elegant answer to a very delicate question, doctor Schmiding. 0:09:44.559 --> 0:09:49.080 If we have an isolationist America is posited by the 0:09:49.120 --> 0:09:52.600 President of the United States, how does that affect all 0:09:52.640 --> 0:09:57.080 of continental Europe and particularly your Germany. 0:09:57.320 --> 0:09:58.719 It of course affects us a lot. 0:09:58.840 --> 0:10:01.880 First of all, we are relatively open to global trade. 0:10:01.920 --> 0:10:05.559 We depend on global trade, and isolationist America, the protectionist 0:10:05.640 --> 0:10:09.200 America is bad for American consumers with higher prices and 0:10:09.320 --> 0:10:11.400 bad for our companies which can. 0:10:11.280 --> 0:10:13.360 Deliver and do deliver great goods. 0:10:13.600 --> 0:10:18.360 Even more importantly, an isolationist America that does no longer 0:10:18.400 --> 0:10:22.480 have a protective umbrella over its European allies means, of 0:10:22.520 --> 0:10:25.480 course that we a have to do much more on 0:10:25.559 --> 0:10:29.359 our own to defend against Putin, and we really. 0:10:29.120 --> 0:10:33.000 Should do that. But it also by putting. 0:10:32.640 --> 0:10:37.240 Into doubt the basic premise of NATO we defend each 0:10:37.280 --> 0:10:42.520 other against any potential aggressor. That is an encouragement to 0:10:42.640 --> 0:10:46.280 potential aggressives, that is an encouragement to the nationalists, and 0:10:46.320 --> 0:10:49.280 that of course is something we would not like to 0:10:49.320 --> 0:10:52.480 see all in all. To some extent, the Trump policy 0:10:52.559 --> 0:10:56.400 seems to boil down to I don't like the European Union. 0:10:56.800 --> 0:10:59.920 I would rather have without the European Union, the ability 0:11:00.160 --> 0:11:03.680 to deal with all these middle or small states in Europe, 0:11:03.760 --> 0:11:08.600 or an individual basis, because then the American advantage would 0:11:08.679 --> 0:11:09.880 be big in each case. 0:11:10.360 --> 0:11:12.760 So getting rid of this kind. 0:11:12.640 --> 0:11:15.160 Of joint market f one hundred and fifty million consumers 0:11:15.200 --> 0:11:17.520 in Europe seems to be one of the things that's 0:11:17.679 --> 0:11:23.160 underpinning the Trump approach to Europe, which of course is 0:11:23.280 --> 0:11:26.760 a challenge to us, as the European Union, our common 0:11:26.840 --> 0:11:30.520 market is the basis of our prosperity and to some 0:11:30.640 --> 0:11:31.760 extent of our peace. 0:11:32.480 --> 0:11:37.440 Hobert on immigration here in the US. Here in the US, 0:11:37.440 --> 0:11:40.839 it's relatively straightforward dealing with immigration. We know who's coming 0:11:40.840 --> 0:11:42.840 into this country, we know where they're coming in. It's 0:11:42.880 --> 0:11:45.800 just a political will to limit that if we choose 0:11:45.840 --> 0:11:51.559 to do so. How is it in Germany. 0:11:52.000 --> 0:11:55.600 Well, we could close our borders much more than we 0:11:55.679 --> 0:11:59.079 have done. Of course, that would have repercussions on our 0:11:59.240 --> 0:12:03.320 immediate europe neighbors. Yeah, who might then be stuck with 0:12:03.520 --> 0:12:06.600 more of those migrants who actually want to get into 0:12:06.679 --> 0:12:11.320 the richer Germany. So there are European repercussions upon taking 0:12:11.320 --> 0:12:15.160 a halter approach at the German borders. The ultimate solution is, 0:12:15.200 --> 0:12:18.280 of course, a to be tougher on the German borders, 0:12:18.280 --> 0:12:20.840 to send the message to people far away, don't even 0:12:20.880 --> 0:12:23.360 try to come to us, because even if you make 0:12:23.400 --> 0:12:25.640 it to our neighboring countries, you may not make. 0:12:25.480 --> 0:12:26.120 It to Germany. 0:12:26.440 --> 0:12:31.040 And second, to better protect the common external borders of 0:12:31.120 --> 0:12:35.640 the European Union so that the uninvited migrants do not 0:12:35.840 --> 0:12:39.280 even get into any of the EU member states. It 0:12:39.320 --> 0:12:43.360 is a process that is on its way European migration 0:12:43.480 --> 0:12:47.040 policy is being toughened and the numbers are coming down, 0:12:47.480 --> 0:12:50.559 But of course it is this is Europe, a process 0:12:50.679 --> 0:12:55.120 that takes time, and the populace feed off on what 0:12:55.200 --> 0:12:58.480 they think were past mistakes rather than on what is 0:12:58.520 --> 0:13:00.000 the current Stars. 0:12:59.640 --> 0:13:03.160 Of Holger, thank you so much, greatly, greatly appreciate it 0:13:03.200 --> 0:13:06.920 this morning, Holger schmading delicate questions there in Germany. 0:13:06.960 --> 0:13:08.920 I hope that was informative. I learned a lot there. 0:13:14.960 --> 0:13:18.520 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:13:18.600 --> 0:13:21.760 weekday afternoons from seven to ten am Eastern. Listen on 0:13:21.840 --> 0:13:25.520 Applecarplay and Android Auto with the Bloomberg Business app, or 0:13:25.640 --> 0:13:27.160 watch us live on YouTube. 0:13:27.400 --> 0:13:29.120 Joining us now Michael Wilson. 0:13:29.120 --> 0:13:32.479 He's chief US equity strategist at Morgan Stanley and exceptionally 0:13:32.520 --> 0:13:36.200 well timed here with a really smart Sunday note A 0:13:36.240 --> 0:13:40.280 bit ago on alpha over beta. Explain the Greek letters, 0:13:40.320 --> 0:13:42.520 Mike Wilson to us, What is alpha? 0:13:42.640 --> 0:13:44.719 What is beta? And why does alpha win? 0:13:46.400 --> 0:13:46.520 Hey? 0:13:46.559 --> 0:13:47.240 Good morning, Tom. 0:13:47.320 --> 0:13:50.280 Yeah, I think most of your listeners understand this. Beta 0:13:50.400 --> 0:13:52.640 is sort of your market level risk, where you just 0:13:52.760 --> 0:13:55.920 own the index and an alpha would be your stock picking. 0:13:56.000 --> 0:13:56.760 It's that simple. 0:13:57.160 --> 0:13:59.280 And you know what's happened in the last three months 0:13:59.360 --> 0:14:02.120 is that the the index itself has gone sideways and 0:14:03.000 --> 0:14:05.319 and but there's been great opportunity under the surface. And 0:14:05.679 --> 0:14:09.040 that's really the job of most investors is to pick 0:14:09.080 --> 0:14:11.720 stocks and try to beat people. So it's it's a 0:14:11.720 --> 0:14:14.760 good it's a good outcome if it can sustain for 0:14:14.960 --> 0:14:15.960 active managers. 0:14:16.520 --> 0:14:18.400 And by the way, people say, oh. 0:14:18.400 --> 0:14:21.280 Stock picking market, it doesn't mean it's easy, but I 0:14:21.280 --> 0:14:23.160 mean it does feel like what we're dealing with. 0:14:23.520 --> 0:14:24.240 Kids kills me. 0:14:24.360 --> 0:14:27.520 He puts at the end of his notepall enjoy your Sunday. 0:14:27.600 --> 0:14:30.280 Come on, Mike, that's a Sunday, Mike. I'm looking at 0:14:30.280 --> 0:14:33.240 the Bloomberg launch pad and I got a one ninety 0:14:33.360 --> 0:14:38.400 nine on the ten year real yield. My idiot ambiguity 0:14:38.480 --> 0:14:41.720 meter is that's a slowing economy. When you look at 0:14:41.800 --> 0:14:46.000 Seth Carpenter and companies work, do you model in a 0:14:46.240 --> 0:14:51.000 slowing or level economy where we walk away from double 0:14:51.040 --> 0:14:52.320 digit earnings growth? 0:14:54.040 --> 0:14:54.240 Yeah? 0:14:54.280 --> 0:14:56.320 Well, I mean, remember the economy is not always the 0:14:56.360 --> 0:14:59.520 market or earnings. And what we've seen in the last 0:14:59.600 --> 0:15:02.600 I would say a really three years is an economy 0:15:02.640 --> 0:15:06.120 that looks fairly robust at the you know, at the 0:15:06.120 --> 0:15:08.760 aggregate level you can talk about at the consumer level 0:15:09.240 --> 0:15:11.560 or just in terms of GDP, but then when you 0:15:11.600 --> 0:15:13.760 look at earnings grow for the last several years, it's 0:15:13.760 --> 0:15:17.640 been pretty lousy for most companies until recently, recently we've 0:15:17.640 --> 0:15:18.360 seen a pickup. 0:15:19.360 --> 0:15:22.000 More companies are starting to grow again, and I. 0:15:21.920 --> 0:15:26.320 Attribute this to essentially the government being you know, crowding 0:15:26.360 --> 0:15:29.400 out if you will, much of the economy. That is 0:15:29.400 --> 0:15:31.640 the reason we have inflation. For the main the main 0:15:31.680 --> 0:15:35.000 reason we have inflation, too much government spending. Also it 0:15:35.000 --> 0:15:37.280 has it has kept interest rates higher than they would 0:15:37.320 --> 0:15:40.200 be normally. So real interest rates at two percent is 0:15:40.200 --> 0:15:42.440 actually quite high tom as you know, for in the 0:15:42.480 --> 0:15:46.400 last fifteen years, and we're such a financialized economy that 0:15:46.520 --> 0:15:48.880 you know, that has had a sort of a breaking 0:15:48.920 --> 0:15:52.880 effect on you know, businesses that don't have easy access 0:15:52.920 --> 0:15:55.520 to capital. So I think the FED right now is 0:15:55.520 --> 0:15:57.880 sort of in a you know, a tighter place than 0:15:58.280 --> 0:16:01.120 they probably want to be. They would like to cut rais, 0:16:01.120 --> 0:16:03.320 but they can't because inflation now is picking its head 0:16:03.360 --> 0:16:04.520 up again, so they're on hold. 0:16:04.800 --> 0:16:07.480 They're not going to raise rais in our view, but. 0:16:07.000 --> 0:16:09.800 We're trying to find that equilibrium now, like how big 0:16:09.840 --> 0:16:12.600 should the government be? How how can we liberate the 0:16:12.640 --> 0:16:15.200 private economy in a way where we have better velocity 0:16:15.720 --> 0:16:18.000 kind of in the in the real private economy than 0:16:18.240 --> 0:16:18.840 just government. 0:16:19.720 --> 0:16:21.960 Mike, I'm looking also your chart book where you guys 0:16:22.240 --> 0:16:25.400 track what companies are actually saying on their conference calls, 0:16:25.440 --> 0:16:28.400 what's top of mind for corporate America, And I guess, 0:16:28.520 --> 0:16:32.320 not surprisingly, one of those key issues is tariffs. How 0:16:32.360 --> 0:16:35.240 did teriffs kind of factor into kind of your view 0:16:35.280 --> 0:16:38.120 of inflation and maybe how the FED will proceed and 0:16:38.160 --> 0:16:39.760 how that might impact stocks. 0:16:41.000 --> 0:16:43.360 Yeah, well, I think the FED has told you, you know, 0:16:43.440 --> 0:16:47.520 pretty straightforward since December that the uncertainty around terrace is 0:16:47.520 --> 0:16:49.760 another reason why they're probably going to take a pause 0:16:49.840 --> 0:16:51.200 on the rate cutting campaign. 0:16:51.680 --> 0:16:53.400 Now, remember, they have another lever. 0:16:53.360 --> 0:16:55.800 They can use, which I think they will, which is 0:16:55.840 --> 0:16:59.160 to basically end QT finally, which is you know, a 0:16:59.200 --> 0:17:02.360 decent amount of repurchases then across the curve. They can 0:17:02.400 --> 0:17:05.400 probably start doing that in May or June. And that's 0:17:05.560 --> 0:17:07.920 another lever that they can sort of pull on. As 0:17:07.920 --> 0:17:10.879 far as companies go, I mean, companies are always you know, 0:17:11.440 --> 0:17:15.040 trying to incorporate these changes into their their business models 0:17:15.040 --> 0:17:18.000 and how they're running their own companies. And tariffs are 0:17:18.040 --> 0:17:21.159 front and center right now because not only is that 0:17:21.200 --> 0:17:24.000 a potential heament, but it's also uncertainty because you know, 0:17:24.720 --> 0:17:26.520 one day we have them, on the next day they're 0:17:26.520 --> 0:17:30.000 being delayed, and look, that's what companies have to manage 0:17:30.040 --> 0:17:32.560 that process. The good news is, I think in the 0:17:32.640 --> 0:17:35.000 last round of teriffs back in eighteen a lot of 0:17:35.040 --> 0:17:39.600 companies did relocate some manufacturing, some final assembly at the 0:17:39.640 --> 0:17:41.399 areas like Mexico. I think that may be one of 0:17:41.440 --> 0:17:44.160 the reasons why the President is going after Mexico because 0:17:44.200 --> 0:17:46.800 that was kind of backdoor way of avoiding pariffs on China. 0:17:47.240 --> 0:17:49.400 So it's just going to be, you know, six months 0:17:49.440 --> 0:17:53.399 of uncertainty, and that's why companies are mentioning it because 0:17:53.560 --> 0:17:55.679 you know, they don't want to get caught, you know, 0:17:56.160 --> 0:17:58.159 in a way where they're riding too high and then 0:17:58.240 --> 0:18:00.919 tariffs end up being a headwind for their growth expectations 0:18:01.000 --> 0:18:01.560 and equity. 0:18:01.560 --> 0:18:03.920 Marcus, we have Mike Wilson with us, with Morgan Stanley, 0:18:04.000 --> 0:18:05.280 Bob Doll to join later. 0:18:05.320 --> 0:18:07.440 We welcome all of you on your commute. 0:18:07.400 --> 0:18:12.160 Accrastination on all over different radio platforms and on Bloomberg podcasts. 0:18:12.160 --> 0:18:15.760 Subscribed to YouTube Working for us each and every day. 0:18:15.800 --> 0:18:18.399 Subscribe to Bloomberg Podcasts on YouTube. 0:18:18.480 --> 0:18:21.120 Paul Mike, We're gonna get We're gonna hear from Nvidia 0:18:21.480 --> 0:18:23.360 Wednesday after the close. That's one of the last big, 0:18:23.400 --> 0:18:26.399 big companies reporting earnings in this in this cycle. Here, 0:18:27.000 --> 0:18:30.720 what did you take away from this quarterly's earnings cycle? 0:18:30.800 --> 0:18:33.000 And you know, more importantly, maybe the guidance you've been 0:18:33.280 --> 0:18:34.040 paying attention to. 0:18:35.000 --> 0:18:37.679 Well, first of all, it shows that fourth quarter was 0:18:37.760 --> 0:18:38.720 boon times. Now. 0:18:38.760 --> 0:18:41.600 Some of that, once again was government fiscal deficit was 0:18:41.680 --> 0:18:44.280 up forty percent year every year. But also there was 0:18:44.320 --> 0:18:47.800 some excitement around you know, just a clean election, maybe 0:18:47.880 --> 0:18:51.840 have more pro growth, you know, administration, and so there 0:18:51.880 --> 0:18:54.119 was more activity in the fourth quarter. And so what 0:18:54.160 --> 0:18:56.280 we're seeing now is kind of just that holling off 0:18:56.320 --> 0:18:58.400 a bit. Then maybe we get a little ahead of ourselves. 0:18:58.480 --> 0:18:59.480 Higher rates and hire. 0:18:59.600 --> 0:19:02.560 A strong dollar was weighing on some of the guidance 0:19:02.560 --> 0:19:03.320 for twenty five. 0:19:04.040 --> 0:19:06.520 You know, companies tend to do that seasonally anyways, they 0:19:06.560 --> 0:19:08.520 want to lower the bar a bit at the beginning 0:19:08.560 --> 0:19:10.560 of the year. But then the other things that have 0:19:10.600 --> 0:19:13.480 been we've been focused on really in no particular order, 0:19:13.680 --> 0:19:17.520 terrorists as you already mentioned. Number two, we have immigration enforcement, 0:19:17.560 --> 0:19:19.879 which has been a huge fiscal boost and also a 0:19:19.960 --> 0:19:22.800 labor supply boost. And then we have dose, right, the 0:19:22.840 --> 0:19:25.879 Department Government efficiency. They they're off to an aggressive start. 0:19:26.520 --> 0:19:29.240 I'm optimistic that probably more optimistic than the most that 0:19:29.320 --> 0:19:31.479 they can make some headway there. But remember, the more 0:19:31.520 --> 0:19:34.160 successful they are in the short term, the more growth 0:19:34.240 --> 0:19:36.800 negative that is in the near term before you get 0:19:36.800 --> 0:19:38.720 to the good stuff. And then of course the positive 0:19:38.720 --> 0:19:44.040 effects of policy like deregulation, maybe extending the tax cuts, 0:19:44.480 --> 0:19:45.640 those come later in the year. 0:19:45.720 --> 0:19:49.399 Those those require congressional approval, and. 0:19:49.680 --> 0:19:51.240 So that's just not you know, that's going to take 0:19:51.240 --> 0:19:53.080 six to twelve months, and so the bad stuff first 0:19:53.119 --> 0:19:54.160 and good stuff comes later. 0:19:54.640 --> 0:19:56.800 Mike will So to get back to your idea that 0:19:56.840 --> 0:19:59.560 ELFA is the way this works, and let's just generalize 0:19:59.560 --> 0:20:03.840 that as individual stock selection. What is the Mike Wilson process? 0:20:03.920 --> 0:20:08.600 There is it securities research, Graham, Dot and coddlet bottom up. 0:20:09.119 --> 0:20:13.280 Is it a cell side concept of looking at what's 0:20:13.320 --> 0:20:16.080 going to win or is it more factor based where 0:20:16.119 --> 0:20:18.960 you're looking at different items and trying to figure out 0:20:19.080 --> 0:20:21.920 like say, well we'll momentum or something else win. 0:20:23.000 --> 0:20:25.560 That's a great question, Tom, and it has changed over 0:20:25.680 --> 0:20:29.240 over time. I think the main thing that's changed in 0:20:29.280 --> 0:20:33.800 the institutional world anyways is the time horizon. So you know, 0:20:34.040 --> 0:20:37.000 twenty years ago, you know, I would say institutional investors 0:20:37.040 --> 0:20:39.920 were kind of in the six to twelve month time horizon. 0:20:40.520 --> 0:20:43.720 It's now, you know, one to three months and in 0:20:43.720 --> 0:20:46.119 some cases one to three days. 0:20:45.840 --> 0:20:47.080 So that's what's. 0:20:46.960 --> 0:20:49.760 Changed, and that means you just got to be really 0:20:49.840 --> 0:20:52.600 laser focused on kind of news at the margin, whether 0:20:52.640 --> 0:20:55.479 it's fundamental news around a specific company, whether it's a 0:20:55.480 --> 0:20:59.560 macro changing event that can affect certain companies differently, so 0:20:59.640 --> 0:21:01.480 all the things we look at. I would say that 0:21:01.640 --> 0:21:05.600 quantitative analysis and factor analysis has probably picked up the 0:21:05.680 --> 0:21:09.920 most most institutional investors now putting ourselves as advising them 0:21:10.560 --> 0:21:13.200 use that tool, and it's quite helpful. As you mentioned, 0:21:13.240 --> 0:21:16.560 price momentum is probably the most important factor variably because 0:21:16.960 --> 0:21:19.600