WEBVTT - Surveillance: No End in Sight for Slowdown, Zingales Says 0:00:00.080 --> 0:00:13.040 Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Lee. 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 --> 0:00:27.639 Bloomberg dot Com, and of course on the Bloomberg So 0:00:27.760 --> 0:00:31.160 more science emerging that the global manufacturing recession has arrived 0:00:31.200 --> 0:00:34.280 in America. One question, maybe two? Does it become more 0:00:34.440 --> 0:00:37.080 entrenched and does it spread? I'm pleased to say that 0:00:37.120 --> 0:00:39.120 joining us here in New York City is Luigi San 0:00:39.159 --> 0:00:42.840 Gala's University of Chicago Booth School Finance professor. Good morning 0:00:42.840 --> 0:00:45.720 to professor, good morning. Help me answer that question or 0:00:45.760 --> 0:00:48.479 those questions. Does it become more entrenched and does it 0:00:48.560 --> 0:00:52.400 spread beyond manufacturing? I think that the good news is 0:00:52.479 --> 0:00:55.520 that the west of the economy seems to be pretty strong, 0:00:55.960 --> 0:01:00.160 and so I don't think it will spread as as 0:01:00.200 --> 0:01:02.800 of today. But I think it's important to keep an 0:01:02.840 --> 0:01:05.880 eye on what's happening on the trade front, because if 0:01:05.880 --> 0:01:09.080 the things were to deteriorate there, then I think that 0:01:09.120 --> 0:01:11.600 would be more of a problem for the U. S economy. 0:01:11.600 --> 0:01:13.880 At the epicenter of all of this was a week 0:01:13.959 --> 0:01:16.240 I sam an Ugly I sand beneath the surface as well. 0:01:16.319 --> 0:01:19.080 The weakest we've seen in around about ten years. And 0:01:19.080 --> 0:01:21.200 when you look at the complaints from sector to sector, 0:01:21.520 --> 0:01:24.120 it's not about the cost of capital, it is about trade. 0:01:24.640 --> 0:01:26.640 With that in mind, what can the federal reserve? What 0:01:26.680 --> 0:01:30.200 can central banks actually do to insulate these economies from 0:01:30.240 --> 0:01:33.880 the trade headwinds. So there's not a lot of the 0:01:33.880 --> 0:01:39.480 FAT can do, but clearly by making a very reducing 0:01:39.600 --> 0:01:42.640 rates might make the dollar less strong and in a 0:01:42.680 --> 0:01:47.120 sense can expand export. That's certainly what the president would like. 0:01:47.200 --> 0:01:50.600 I don't know whether this was j. Powell do, but 0:01:50.680 --> 0:01:53.600 I think that's the only channel the FAT as. I 0:01:53.640 --> 0:01:57.240 think that this problem should be solved at the political level, 0:01:57.360 --> 0:02:00.240 not at the monetary level. We've had multiple growth as 0:02:00.440 --> 0:02:02.560 in the last ten years through the cycle, we've had 0:02:02.600 --> 0:02:08.840 to which trying to understand where the twenty eight nineteen 0:02:08.880 --> 0:02:13.040 going into it is different? Professor? Is it different compared 0:02:13.040 --> 0:02:16.320 to what we have seen in this cycle already? I 0:02:16.360 --> 0:02:19.640 think it's a bit different because it is more global 0:02:19.880 --> 0:02:24.480 and we see that Germany has lowed down significantly and 0:02:24.720 --> 0:02:26.760 uh and that my twigger has low down in the 0:02:26.919 --> 0:02:30.280 entire Europe. I think that the Germany is low slowdown 0:02:30.520 --> 0:02:35.200 is a direct repercussion of slowdown in China. In fact, 0:02:35.240 --> 0:02:38.600 I believe that the German numbers are much more reliable 0:02:38.639 --> 0:02:42.080 than the Chinese numbers, so this is an indication that 0:02:42.160 --> 0:02:44.799 in China there is a slowdown. So this is more 0:02:44.840 --> 0:02:48.640 at the global level, and I don't see a lot 0:02:48.720 --> 0:02:51.760 of space for maneuver. This is who has the space 0:02:51.840 --> 0:02:56.080 to maneuver is the German government, but it doesn't seem 0:02:56.080 --> 0:02:58.440 to be willing to do it. So I think we 0:02:58.520 --> 0:03:03.440 need more physical expansion at the ward level. The United 0:03:03.480 --> 0:03:06.200 States has done a lot in the past, even when 0:03:06.240 --> 0:03:10.320 maybe it was not needed to physically expand. So we're 0:03:10.400 --> 0:03:14.840 left with you ap taking its uh responsibility. And I 0:03:14.840 --> 0:03:17.959 don't see this coming within all your books, and particularly 0:03:17.960 --> 0:03:21.079 your book on American Capitalism, which was so illuminating as 0:03:21.080 --> 0:03:24.080 a foreigner talking about, you know, how we do things 0:03:24.080 --> 0:03:26.880 in America. So much like what John Farrell was just 0:03:26.960 --> 0:03:30.280 asking about, is where the gains go to. If we 0:03:30.320 --> 0:03:35.120 have a manufacturing slowdown that is a certain effect on people. 0:03:35.560 --> 0:03:38.600 If we have a service sector in financial expansion from 0:03:38.640 --> 0:03:41.400 all this, are those gains all going to the elite? 0:03:42.920 --> 0:03:46.920 Unfold the left to say yes. I think that so 0:03:46.960 --> 0:03:51.800 far trade has benefited mostly as more elite and as 0:03:52.200 --> 0:03:57.000 pedalized Midwest America. And we have seen the reaction of 0:03:57.080 --> 0:04:00.280 this in the last election. And I don't think that 0:04:00.720 --> 0:04:03.480 anything major has been done to to fix this problem. 0:04:03.840 --> 0:04:06.640 And I don't think it's unique of the United States. 0:04:06.680 --> 0:04:10.560 Look at the United Kingdom. You have the same problem there. 0:04:10.640 --> 0:04:14.360 You have a London that is very much poor. You 0:04:14.520 --> 0:04:17.880 open in favor of trade and benefiting from the trade, 0:04:18.440 --> 0:04:20.479 and the rest of England or the rest of the 0:04:20.600 --> 0:04:25.000 UK that don't benefit as well. This is the populist backlash. 0:04:25.080 --> 0:04:27.000 Let's talk about the economy right in front of us 0:04:27.080 --> 0:04:30.480 at the moment. The European economy has been weak now 0:04:30.640 --> 0:04:33.200 for I would say eighteen months. Likewise, for China, this 0:04:33.320 --> 0:04:36.560 started in spring eighteen. In fact, some of this weakness 0:04:36.640 --> 0:04:40.880 predates the tariffs going on, It predates the ramping up 0:04:41.160 --> 0:04:43.840 of the trade war. With that in mind, it's not 0:04:43.880 --> 0:04:46.680 the United States leading the downturn here. The United States 0:04:46.800 --> 0:04:49.400 is lagging behind the rest of the world. So if 0:04:49.400 --> 0:04:51.159 we're going to look for a recovery, we need to 0:04:51.160 --> 0:04:52.720 see the rest of the world lead us out of 0:04:52.839 --> 0:04:54.479 that it's not the US that's going to lead us 0:04:54.480 --> 0:04:56.839 out of this. The US is langgic. Do you see 0:04:56.880 --> 0:04:59.880 any leading indicators in the global economy right now? XU 0:05:00.040 --> 0:05:05.800 ways that suggests that this story has started to bottom out. Um, 0:05:05.839 --> 0:05:10.000 not really, I think unfortunately. I wish I could give 0:05:10.040 --> 0:05:14.159 you some hope, but no, I think that there's low 0:05:14.200 --> 0:05:17.440 down in in China is probably going to continue, and 0:05:17.520 --> 0:05:21.240 this will every percussion in Europe. And I don't see 0:05:21.279 --> 0:05:27.120 you up uh we're starting because the natural way will 0:05:27.160 --> 0:05:31.760 we start would be some major fiscal package originating in Germany. 0:05:31.839 --> 0:05:33.880 And I don't see the political will of that. You 0:05:33.960 --> 0:05:37.599 laugh When I say major phiscal package in originating from Germany, 0:05:37.640 --> 0:05:40.919 you laugh, And that's an indication of how unlikely this 0:05:41.040 --> 0:05:43.560 is anytime soon. Eventually they am I going to do it? 0:05:43.600 --> 0:05:47.600 But eventually when there's a major recession in Germany. This 0:05:47.720 --> 0:05:49.799 laugh is not just reserved for you, Luigi. I should 0:05:49.800 --> 0:05:52.359 express myself quite clearly that I laugh for everyone that 0:05:52.360 --> 0:05:55.240 brings out the possibility of fiscal stimulus in Germany, because 0:05:55.279 --> 0:05:58.520 I'm through still trying to understand what the bite point 0:05:58.680 --> 0:06:01.359 is for the German government to change Christmas. You know 0:06:01.440 --> 0:06:04.080 how this works in Europe better than anyone. You have chaos, 0:06:04.120 --> 0:06:06.560 you have a crisis, then you finally have some kind 0:06:06.560 --> 0:06:10.440 of suboptimal solution. In Germany, quite clearly a recession amount 0:06:10.480 --> 0:06:14.000 recession is not enough to deliver fiscal stimulus. What is 0:06:15.200 --> 0:06:20.040 I think that when the recession will buy Germany serusually 0:06:20.400 --> 0:06:25.360 and this will create a political demand for intervention, Eventually 0:06:26.320 --> 0:06:31.279 they will intervene. But so far Germany has benefited from 0:06:31.320 --> 0:06:36.640 this austerity policy because they have exported their way out 0:06:37.279 --> 0:06:42.200 of all the cycles, and the cost of adjustment has 0:06:42.240 --> 0:06:45.640 been imposed on the rest of Europe. And and so 0:06:46.080 --> 0:06:50.400 I think that is as if in uh in the 0:06:50.480 --> 0:06:54.680 United States you only look at Massachusetts. Massachusetts is benefiting 0:06:54.960 --> 0:06:58.919 from a more steady package because the cast are born 0:06:59.279 --> 0:07:02.320 in Texas and in in Lenai and Ilenoia and Texas 0:07:02.400 --> 0:07:06.080 don voud in Massachusetts. I think that's what united is about. 0:07:06.520 --> 0:07:08.360 I mean, the headlines in the last two hours out 0:07:08.360 --> 0:07:10.680 of Germany are just stunning. As you point out, John, 0:07:10.920 --> 0:07:16.440 there's no framework within those headlines of any fiscal adjustment. 0:07:16.480 --> 0:07:18.760 It's the weakest link. I wonder how the God reads 0:07:18.760 --> 0:07:20.800 those headlines. I have no idea. I just think it's 0:07:20.800 --> 0:07:23.760 the weakest link in Europe right now, Luigi, Never mind, Legard, 0:07:23.800 --> 0:07:26.880 let's talk about Chancellor Merkell. So many people sung the 0:07:26.880 --> 0:07:29.720 praises of Chancellor Merkel for so long, and I don't 0:07:29.720 --> 0:07:31.880 think economic historians are going to be too kind to her. 0:07:32.240 --> 0:07:35.000 In ten twenty thirty years time, there was a once 0:07:35.040 --> 0:07:39.000 in a lifetime opportunity to restructure the German economy, to 0:07:39.080 --> 0:07:42.760 take advantage of record low borrowing raids, to change the 0:07:42.840 --> 0:07:46.080 export driven model that is the German economy. They haven't 0:07:46.080 --> 0:07:50.200 taken that opportunity. They haven't taken that opportunity at all. No, 0:07:50.400 --> 0:07:52.560 that they have not in fact, and then kind of 0:07:52.600 --> 0:07:56.480 the opposite, and I think that to understand the German spirit, 0:07:56.640 --> 0:08:00.520 you have to realize that the first Kensian in history 0:08:00.920 --> 0:08:06.400 was actually Hitler, because Hitler used massively fiscal expansion to 0:08:07.040 --> 0:08:11.240 start Germany, and so in Germany the idea of using 0:08:11.240 --> 0:08:17.760 the fiscal stimulus is anathema because of this historical president. Um, 0:08:17.840 --> 0:08:19.440 we're just we're out of time and we would do 0:08:19.480 --> 0:08:21.360 this later, but I've got to bring it up right now. 0:08:22.040 --> 0:08:24.880 Is Barcelona going to do a Tottenham? I mean, is 0:08:24.880 --> 0:08:26.880 that where we're enjoy that game? Yes? So that was 0:08:26.920 --> 0:08:29.480 just fabulous seven to what happened to you? I don't know, 0:08:29.520 --> 0:08:33.120 but today's Barcelona Inter Malon against Inter But Luigi supports 0:08:33.160 --> 0:08:35.320 my c Milan, I know, but it's come on as 0:08:35.360 --> 0:08:40.200 Milan as Milan. On one side is blue and black, 0:08:40.320 --> 0:08:43.720 the other side is red and black. In the studio, 0:08:44.040 --> 0:08:46.880 the red and black half of Milan. Yeah, well, the 0:08:47.000 --> 0:08:49.760 losing side, but we're very committed to lose it. It's 0:08:49.800 --> 0:08:52.560 like the Chicago cab they always lose, but you love them. 0:08:52.679 --> 0:08:56.000 This is the Sylvia Balasconi side of Milan. Ce Milan 0:08:56.200 --> 0:08:59.880 actually to support that way before it was going to 0:09:00.200 --> 0:09:03.520 the unforely dates me, but I supported Milan a c 0:09:04.440 --> 0:09:06.800 back in the time where it was a great team 0:09:06.880 --> 0:09:09.720 before before Belisky took over in the mid eighties. Do 0:09:09.840 --> 0:09:14.559 they have a derby? A derby? Derby is derby. We 0:09:14.880 --> 0:09:17.680 played stadium and it took place a couple of weekends. 0:09:17.720 --> 0:09:20.920 Have you been to the but I have been to 0:09:21.000 --> 0:09:23.560 Juventus Milan and it was a great game and we 0:09:23.640 --> 0:09:26.400 also lost. Can you buy the team with your next 0:09:26.440 --> 0:09:29.120 book royalties? I mean Milan. I think we can probably 0:09:29.160 --> 0:09:31.280 put some money together around this table. Although I have 0:09:31.640 --> 0:09:34.679 heard that the French billion misr ar know might be 0:09:34.720 --> 0:09:38.360 interested in a slice, will have the best jersey of 0:09:38.400 --> 0:09:41.520 all the teams. We gotta go Luigians and Gallas thank 0:09:41.559 --> 0:10:00.520 you right now. Buffeted against all of this mark market 0:10:00.559 --> 0:10:05.880 angst are the distractions of politics. Rosalind Matheson is with 0:10:05.960 --> 0:10:08.880 us right now and the problem with her title, John, 0:10:08.880 --> 0:10:13.559 And she's International Government Executive Editor, which means she is 0:10:13.600 --> 0:10:17.559 focused with her team on China, focused on impeachment and 0:10:17.720 --> 0:10:21.520 all that's going on in Washington, many other issues as well, John, 0:10:21.520 --> 0:10:24.800 Why don't you bring in Rosalind on the Prime Minister 0:10:25.240 --> 0:10:28.480 speaking to the North. Is the speech different John, if 0:10:28.520 --> 0:10:31.600 it's given in Manchester the London, Now it shouldn't be. 0:10:32.040 --> 0:10:34.319 It shouldn't make a difference. Let's bring in Roslyn, shall we? 0:10:34.400 --> 0:10:36.559 Good morning to Roslyn. Let's just start with the Prime Minister. 0:10:36.600 --> 0:10:38.240 The rule book for how this usually works is that 0:10:38.280 --> 0:10:41.200 they come up with the proposal, starting rallies. Then the 0:10:41.240 --> 0:10:44.120 Irish throw a cold glass of water over the proposal. 0:10:44.400 --> 0:10:46.559 Then Stirling sounds off again. Walk me through what the 0:10:46.559 --> 0:10:49.400 proposal is this time and where ultimately the EU and 0:10:49.440 --> 0:10:52.280 the Irish stand on it. Well, yeah, so he's just 0:10:52.320 --> 0:10:55.040 actually finishing his speech. We can see him on television 0:10:55.040 --> 0:10:58.880 now to rapturous scenes in Manchester to the party faithful 0:10:59.040 --> 0:11:02.080 um where he talked about brexfit Brexit, but mostly about 0:11:02.120 --> 0:11:06.320 everything else. His proposal is really quite different from what 0:11:06.360 --> 0:11:09.640 the Europeans have been putting forward. He's saying that he 0:11:09.679 --> 0:11:12.560 wants to keep Northern Ireland, which is the key question 0:11:12.640 --> 0:11:15.280 here and all of the Brexit negotiations in a customs 0:11:15.360 --> 0:11:19.880 union with the UK, therefore creating a border with here, 0:11:19.920 --> 0:11:23.160 a through through which goods would have to move. European 0:11:23.160 --> 0:11:26.960 objective is obviously to prevent hard border on Ireland and 0:11:27.040 --> 0:11:30.280 preserve a single market for things to move through easily. 0:11:30.400 --> 0:11:34.120 So his proposal is quite different. The Europeans are saying 0:11:34.120 --> 0:11:36.680 they're going to look at it objectively. He's going to 0:11:36.720 --> 0:11:40.120 speak with the European Commission President tonight on the phone. 0:11:40.160 --> 0:11:42.160 Has already been hitting the phones to the leaders around 0:11:42.240 --> 0:11:44.880 Europe trying to sell this thing to them. The Irish 0:11:44.880 --> 0:11:47.040 have come out very quickly as you can imagine, and 0:11:47.080 --> 0:11:49.920 said they're extremely concerned about it. So he's going to 0:11:49.960 --> 0:11:51.400 have a hard job ahead of him trying to get 0:11:51.400 --> 0:11:54.559 any traction on this one. What a relations like between 0:11:54.559 --> 0:11:57.240 the Irish and the UK government right now. There were 0:11:57.280 --> 0:12:00.280 reports that the British government actually briefed the Irish today. 0:12:00.320 --> 0:12:02.680 In fact, the Irish were the only EU nation that 0:12:02.720 --> 0:12:05.000 were briefed on the proposal from the Prime Minister before 0:12:05.040 --> 0:12:07.800 today's address, and that the Irish leaked it. That's the 0:12:07.840 --> 0:12:11.520 accusation from some quarters in Britain right now. What do 0:12:11.559 --> 0:12:12.680 you make of that and what does it mean for 0:12:12.720 --> 0:12:16.480 relations between the two countries. Well, at least there's certainly 0:12:16.520 --> 0:12:20.079 been an appetite for dialogue between the Irish and between 0:12:20.120 --> 0:12:22.680 the British government. We've seen Boris Johnson go to meetings 0:12:22.720 --> 0:12:25.839 there repeatedly, stand up together on podiums and have press 0:12:25.880 --> 0:12:29.800 conferences afterward, where the rhetoric has been quite warm. The 0:12:29.800 --> 0:12:31.839 problem is that neither side will want to move on this, 0:12:32.240 --> 0:12:34.839 and Boris Johnson is animate. But if he doesn't get 0:12:34.840 --> 0:12:36.720 the deal, if he doesn't get the deal he wants 0:12:37.240 --> 0:12:40.080 in nine days from now October eleven, and he's going 0:12:40.120 --> 0:12:42.480 to move forward and crash out. And he's just said 0:12:42.520 --> 0:12:44.560 that he's not going to budge on that. So what 0:12:44.600 --> 0:12:48.560 we've got is too polite but sort of immovable forces 0:12:48.600 --> 0:12:50.880 staring at each other right now. And no one willing 0:12:50.880 --> 0:12:52.880 to give in the ground, Rosalind, Can I ask the 0:12:52.960 --> 0:12:56.439 dumb foreign question, does he want this to fail on purpose? 0:12:58.120 --> 0:13:01.800 There's certainly a narrative around those lines. What he's doing 0:13:01.880 --> 0:13:04.000 is he's saying this is it or nothing. He's hoping 0:13:04.040 --> 0:13:07.719 perhaps that his strong approach and they're running down of 0:13:07.760 --> 0:13:10.280 the clock will just force a deal to happen. There's 0:13:10.280 --> 0:13:12.360 also a school of thought that what he really wants 0:13:12.400 --> 0:13:13.920 to be able to go out to the British people 0:13:13.920 --> 0:13:16.840 and say, look, I tried everything to give you brexit. 0:13:16.920 --> 0:13:19.320 Parliament got my way, the Europeans got my way, the 0:13:19.360 --> 0:13:21.880 Irish got my way. Therefore I need to have an election. 0:13:21.960 --> 0:13:23.880 The need to give me a big, big mandate so 0:13:23.920 --> 0:13:25.720 I can come back and deliver for you. So the 0:13:25.760 --> 0:13:28.040 mandate that the narrative would be that I tried everything, 0:13:28.080 --> 0:13:31.120 but I was stopped at every turn. Can baby Charley vote? 0:13:31.520 --> 0:13:34.160 Can baby Charley? Baby Charlie's gotta wait until he's a 0:13:34.160 --> 0:13:37.720 little bit older. We gotta wait for that. Were with 0:13:37.840 --> 0:13:40.200 Uncle John here in New York, continued Rosslyn. Just to 0:13:40.200 --> 0:13:42.280 wrap things up with you, how is this planing go 0:13:42.280 --> 0:13:44.640 out in the court of public opinion? With the electorate 0:13:44.920 --> 0:13:47.119 at the moment. This has quite clearly been a strategy 0:13:47.480 --> 0:13:50.600 of Mr Cummings and Prime Minister Johnson to make out 0:13:50.640 --> 0:13:54.480 that everyone else is the reason that Brexit isn't going 0:13:54.520 --> 0:13:58.480 through the institutions, the Court, Parliament, the EU, the Irish. 0:13:58.720 --> 0:14:04.080 How successful are they pushing that agenda. Well, certainly we've 0:14:04.120 --> 0:14:08.679 just seen very rapturous scenes in Manchester, loud applause, backslapping, 0:14:08.720 --> 0:14:10.640 all that kind of stuff. That is the party faithful. 0:14:11.000 --> 0:14:12.840 The thing for us is to not to presume to 0:14:12.840 --> 0:14:16.720 know how people outside London, for example, feeling there's a 0:14:16.760 --> 0:14:20.040 strong basis support in rural areas for Boris Johnson, a 0:14:20.080 --> 0:14:22.880 strong basis support for making the Tories great again. There, 0:14:22.920 --> 0:14:25.560 I say, that's the manager he's been pushing and people 0:14:25.600 --> 0:14:27.840 out there who really want to see Brexit done. Um. 0:14:27.920 --> 0:14:30.920 So it's quite possible that his tactics here have quite 0:14:30.920 --> 0:14:33.160 a lot of support. UM. And we'd be careful not 0:14:33.200 --> 0:14:36.000 to presume to know how an election might play out. 0:14:36.560 --> 0:14:39.120 UM in London, Rose and we got to leave it 0:14:39.120 --> 0:14:41.800 there to you in our government team worldwide. Thank you 0:14:41.880 --> 0:14:44.240 so much, thank you for reporting there's a little bit 0:14:44.280 --> 0:15:02.440 going on, John Stolphus with us without this is an 0:15:02.440 --> 0:15:05.480 important update because we've been John and I've really been 0:15:05.520 --> 0:15:08.200 focused on the bond market and the dynamics there, and 0:15:08.240 --> 0:15:11.760 it's good to talk to John Stolphus about equities. For John, 0:15:12.000 --> 0:15:15.520 let's begin with your decades of experience with the absolute 0:15:15.640 --> 0:15:20.360 mystery of October revenue and earning seasons. Do you have 0:15:20.440 --> 0:15:24.080 a clue what we're gonna see? Well, we'd have to 0:15:24.200 --> 0:15:26.479 We'd have to think we're going to get a repetition 0:15:26.760 --> 0:15:30.320 of what we have seen in the last few quarters, 0:15:30.440 --> 0:15:34.080 and that we think that estimates are low enough at 0:15:34.120 --> 0:15:37.360 this point, have been brought down enough, and there's been 0:15:37.480 --> 0:15:42.040 enough guidance from corporate chieftains that things are are are 0:15:42.160 --> 0:15:46.720 decidedly challenged in many uh ways by the trade war 0:15:47.400 --> 0:15:52.080 that expectations are likely to be beat once again. How 0:15:52.120 --> 0:15:55.000 long this can land second year of the trade war 0:15:55.120 --> 0:15:58.200 with the potential for acceleration. If we've seen a re 0:15:58.320 --> 0:16:01.000 rating in the last twenty four hours towards rate cut 0:16:01.000 --> 0:16:03.320 and the way this curve is deepening and all that, 0:16:03.840 --> 0:16:06.640 how much weight do you put in the flip reciprocal 0:16:07.160 --> 0:16:11.560 of the yield market out to higher equity valuations? Do 0:16:11.880 --> 0:16:13.680 is there any weight to that? Or do you ignore 0:16:13.720 --> 0:16:17.160 that right now, we've we've we've got to think that 0:16:17.200 --> 0:16:21.239 you know where interest grates are today from a historical perspective, 0:16:21.360 --> 0:16:25.680 would indicate that equities are not overpriced. The The other 0:16:25.760 --> 0:16:29.280 thing is the demand for equities is just likely to 0:16:29.440 --> 0:16:34.120 increase as the baby boomer generation begins to actually retire 0:16:34.320 --> 0:16:38.160 and recognize that they they need vehicles that offer more 0:16:38.200 --> 0:16:41.520 than a very slight coupon and need to at least 0:16:41.520 --> 0:16:43.640 have if they can if they when when they can 0:16:43.680 --> 0:16:47.600 find good companies, the potential for capital appreciation, the total 0:16:47.640 --> 0:16:51.480 return dividend growth story might make sense. Equities have support 0:16:51.560 --> 0:16:53.960 moving forward. From what we can tell, John, I want 0:16:53.960 --> 0:16:56.640 to stay out there in and work through the growth 0:16:56.640 --> 0:17:01.160 scares of the past with you. Twelve back into the 0:17:01.240 --> 0:17:04.040 year after a growth scare has been pretty good, pretty 0:17:04.080 --> 0:17:07.399 kind to invest us in this cycle. So after the 0:17:07.400 --> 0:17:12.880 eleven twelve growth scare, stocks up almost after the fifteen 0:17:12.920 --> 0:17:17.399 sixteen growth scare, stocks up in more than nine percent. 0:17:17.760 --> 0:17:20.800 We're working our way through this eighteen nineteen growth scare. 0:17:20.880 --> 0:17:23.560 Every year, of course, is different, John. We had our 0:17:23.600 --> 0:17:26.920 moments in seventeen which were largely about anticipating in a 0:17:27.000 --> 0:17:29.919 rate cut, but looking out to twenty. How much harder 0:17:29.960 --> 0:17:32.919 is it to make the call buy stocks off the 0:17:32.920 --> 0:17:36.000 back of the growth scare when we're already up nineteen 0:17:36.040 --> 0:17:39.840 percent this year. Well, I've got to say this. I 0:17:40.359 --> 0:17:42.879 think what we're the wonderful thing is that we really 0:17:42.920 --> 0:17:47.359 are only up zero point three from the high that 0:17:47.400 --> 0:17:50.879 we've reached on September twentieth of last year. So so 0:17:50.960 --> 0:17:56.399 far this year. It doesn't take into account if you 0:17:56.480 --> 0:17:58.680 just look at where the year to day is. The 0:17:58.720 --> 0:18:01.920 devastation that are in the fourth quarter, which we thought 0:18:02.040 --> 0:18:04.679 was fairly unreasonable. It was like a muggy there there was. 0:18:05.119 --> 0:18:08.480 It was an overreaction and negative projection that we saw. 0:18:08.520 --> 0:18:10.520 They brought the markets down as sharp music in the 0:18:10.560 --> 0:18:14.160 fourth quarter last year. That haven't been realized yet. Yeah, John, 0:18:14.200 --> 0:18:16.040 one of your charms at up COD as you can 0:18:16.080 --> 0:18:18.600 really talk easily about the big banks because you're not 0:18:18.720 --> 0:18:21.399 with a big bank. Give us your thoughts about the 0:18:21.440 --> 0:18:24.679 big banks. John Ferrell's noted their movement this year. Is 0:18:24.680 --> 0:18:29.399 it done? We wouldn't think so. We think that the 0:18:29.400 --> 0:18:31.320 big banks, and we think the big banks are in 0:18:31.440 --> 0:18:35.399 alpha call. So it's it's on an individual stock picking 0:18:35.440 --> 0:18:38.359 basis rather than on a on a beta or a 0:18:38.920 --> 0:18:42.000 or you know an index called a sector index, call 0:18:42.119 --> 0:18:44.840 for that. But within the big banks, the reality is 0:18:44.920 --> 0:18:48.359 these guys don't pay. They pay next to nothing on deposits. 0:18:48.920 --> 0:18:52.800 They have credit cards. Uh, interest rates that that looked 0:18:52.840 --> 0:18:55.920 like it's the late seventies or early eighties when they 0:18:56.040 --> 0:19:00.879 charge on on on on balances. So we have to 0:19:00.880 --> 0:19:04.280 say and and and evidences from earnings that or they 0:19:04.320 --> 0:19:08.520 may not get it from trading. Uh. The the lending 0:19:08.720 --> 0:19:12.520 business is in good shape. The wages are still rising, 0:19:12.960 --> 0:19:15.200 so we'd have to think we like that. It's our 0:19:15.240 --> 0:19:18.680 contrarian pick among the cyclical sectors that we like, john 0:19:18.800 --> 0:19:21.120 Why is it so disliked still? Even though we've had 0:19:21.160 --> 0:19:24.080 some pretty solid performance from that sector this year, just 0:19:24.080 --> 0:19:26.040 looking at some of the big names, the likes of City, 0:19:26.080 --> 0:19:29.600 they've delivered some really strong gains through nineteen and yet 0:19:29.600 --> 0:19:32.480 when you ask people about financials, they pull a face 0:19:32.520 --> 0:19:34.960 as if they have performed terribly over the last six 0:19:35.000 --> 0:19:38.560 to nine months. You know, Jonathan, It's it's just it 0:19:38.600 --> 0:19:41.199 really shows human nature, I think in many ways. And 0:19:41.240 --> 0:19:44.040 it's just it's one of those sectors we would think 0:19:44.440 --> 0:19:47.440 that is you you buy when they're not popular so 0:19:47.600 --> 0:19:50.000 that you don't have to chase them later when finally 0:19:50.240 --> 0:19:54.320 the realization comes in that these things are what makes 0:19:54.440 --> 0:19:57.639 everything move. Everything floats on credit. As long as the 0:19:57.680 --> 0:20:01.160 bond market is in real trouble, these these are are 0:20:01.240 --> 0:20:05.960 likely to essentially fund the system. Yeah, the real bug 0:20:05.960 --> 0:20:08.480 of who here is the trade war. That's that's the 0:20:08.520 --> 0:20:13.560 problems the tariffs. Otherwise we were in economic recovery globally 0:20:13.720 --> 0:20:17.360 before March of John, very quick clear, this came up yesterday. 0:20:17.359 --> 0:20:21.520 If the trade war is cleared, who benefits emerging market, 0:20:21.560 --> 0:20:26.359 international stocks or US large caps? We think all do 0:20:26.560 --> 0:20:29.080 because we think with if we've got to deal with 0:20:29.080 --> 0:20:33.159 with China, the dollar moves, lower, currencies outside of the 0:20:33.280 --> 0:20:37.160 US rise on expectations and increased growth of negative over 0:20:37.560 --> 0:20:40.560 the trade war removed. We think it's emerging, we think 0:20:40.560 --> 0:20:44.640 it's developed international, and the US would would would participate 0:20:44.680 --> 0:20:47.480 in that. Very good, John Stolphine, thank you so much. 0:20:47.480 --> 0:21:03.480 With OpCo, there's some enthusiasm on the equity Marcus. Right now, 0:21:04.119 --> 0:21:06.640 Andrew Holland Hohorst with this US A City group. These 0:21:06.640 --> 0:21:10.080 are chief US economists. What is the distinctive feature for 0:21:10.119 --> 0:21:13.400 you right now? In the classic US equation. Why will 0:21:13.400 --> 0:21:16.640 see plus I plus G plus n X. What matters 0:21:16.680 --> 0:21:20.000 to Andrew holland Horst, Well, I think they all matter, Tom. 0:21:20.040 --> 0:21:22.960 But what we have been looking at in terms of 0:21:22.960 --> 0:21:25.720 the strength of this economy is see, we've seen consumption 0:21:25.760 --> 0:21:28.919 that's really held up very very well, um, despite the 0:21:28.960 --> 0:21:31.320 weakness that we're seeing in manufacturing, the weakness that we're 0:21:31.320 --> 0:21:33.879 seeing in investment. So I think that's what we're watching 0:21:33.880 --> 0:21:37.440 tables for. Does the strong labor market continue to drive 0:21:37.600 --> 0:21:40.480 that consumption that that can't be permanent? I mean, if 0:21:40.560 --> 0:21:43.960 you know consumption six eight or sixty nine, once in 0:21:43.960 --> 0:21:47.040 a while, it's seventy of the American economy. You know 0:21:47.160 --> 0:21:51.840 there's dynamics here, folks. Is there a permanence to consumption alone? 0:21:53.160 --> 0:21:55.600 So I think you have to put in the bottom 0:21:55.640 --> 0:21:57.959 on some of the weakness that we've seen in the 0:21:57.960 --> 0:22:01.480 industrial sector. Um, when you see I S M manufacturing 0:22:01.520 --> 0:22:04.959 at forty seven point eight, that's a concerning number, and 0:22:05.000 --> 0:22:07.520 that confirms you about is this going to spill over 0:22:07.520 --> 0:22:09.720 into the broader economy? Is this going to cause consumptions 0:22:09.720 --> 0:22:11.800 to slow as well? Um? If this can kind of 0:22:11.840 --> 0:22:16.320 stabilize here, thenteen can look like twenty sixteen, we got 0:22:16.320 --> 0:22:20.240 down to on the manufacturing index, and then we kind 0:22:20.240 --> 0:22:22.840 of bottomed out and turned back around and we continued 0:22:22.880 --> 0:22:25.400 with this story of strong consumptions. I think that can 0:22:25.440 --> 0:22:28.119 happen again, but I would agree that we need to 0:22:28.119 --> 0:22:30.520 see at least some bottom here in terms of what's 0:22:30.520 --> 0:22:32.320 going on in the industrial side. It's the theme and 0:22:32.440 --> 0:22:34.280 two that's come up again and again and again on 0:22:34.280 --> 0:22:36.400 this program over the last couple of weeks. The three 0:22:36.400 --> 0:22:38.760 growth scares that we've had, the current one, the fifteen 0:22:38.840 --> 0:22:42.280 sixteen one, and the one back in twelve. And do 0:22:42.400 --> 0:22:44.680 every growth scare is different. All three have been led 0:22:44.680 --> 0:22:48.600 by manufacturing. Just how different is this one? Though? I 0:22:48.640 --> 0:22:52.080 think this one is different? Um in some ways it's 0:22:52.160 --> 0:22:55.960 harder to attribute. This is something that's transitory. Sixteen. I 0:22:55.960 --> 0:22:58.280 think you could see what had happened with oil prices. 0:22:58.320 --> 0:23:02.000 You've seen a US economy that was very oriented towards 0:23:02.000 --> 0:23:05.359