WEBVTT - Alan Blinder Says the Fed Isn't Dysfunctional 0:00:00.120 --> 0:00:02.920 Brought you by Bank of America Mary Lynch. Investing in 0:00:03.000 --> 0:00:07.840 local communities, economies and a sustainable future. That's the power 0:00:08.080 --> 0:00:12.360 of global connections, Mary Lynch, Pierce Fenner and Smith Incorporated 0:00:12.760 --> 0:00:27.400 member s I p C. Welcome to the Bloomberg Surveillance Podcast. 0:00:27.800 --> 0:00:31.520 I'm Tom Keene with David Gura. Daily we bring you 0:00:31.560 --> 0:00:36.600 insight from the best in economics, finance, investment, and international relations. 0:00:37.000 --> 0:00:41.600 Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and 0:00:41.680 --> 0:00:48.840 of course on the Bloomberg I'm show to day two 0:00:48.880 --> 0:00:51.159 former vice chairs at the Federal Reserve, Alice Rivlin and 0:00:51.159 --> 0:00:53.520 Alan Blinder, will join us and we'll get market insight 0:00:53.560 --> 0:00:55.640 from Brian Jacobson of Wells Fargo. But first we welcome 0:00:55.720 --> 0:00:58.200 James Sweeney, chief economist and co head of Global Economics 0:00:58.200 --> 0:01:00.440 and Credits, with here in the studio with us, New York. 0:01:00.480 --> 0:01:02.960 Great to see you. Thank you. Let's start with your 0:01:03.000 --> 0:01:05.240 your outlook and a phrase that stood out to me 0:01:05.280 --> 0:01:07.119 that is that we're looking at a new narrative here, 0:01:07.160 --> 0:01:09.400 not a new normal. Give us a sense of what 0:01:09.440 --> 0:01:11.440 you're looking forward to here in the new year. Well, 0:01:11.480 --> 0:01:14.399 it was really trying to think through what will the 0:01:14.440 --> 0:01:17.119 market be focusing on. And I think this era of 0:01:17.120 --> 0:01:21.720 of low interest rates, deflation, fear, central bank obsession, that's 0:01:21.760 --> 0:01:26.160 giving way to talk of protectionism, higher inflation, full employment, 0:01:26.280 --> 0:01:30.880 fiscal policy, tax reform. It's a long list of new things. 0:01:30.920 --> 0:01:34.520 So the narratives are in there, the specifics are not 0:01:34.640 --> 0:01:37.120 exactly filled in for the moment but um. But in 0:01:37.120 --> 0:01:39.840 our view, you know, growth is okay for the for 0:01:39.920 --> 0:01:44.959 the moment um. We are monitoring the political situation for 0:01:44.959 --> 0:01:47.960 for what comes next. We're not fearing high inflation um. 0:01:48.000 --> 0:01:50.320 But I think the market will have an inflation scare 0:01:50.360 --> 0:01:52.160 this year. I think it'll have a growth scared this year. 0:01:52.200 --> 0:01:54.600 I think we'll have a protection scare. This year, might 0:01:54.640 --> 0:01:57.640 have a geopolitical scare. You know, there there's a there's 0:01:57.680 --> 0:02:01.320 a house, there's a decent list. Our. Our outlook this 0:02:01.400 --> 0:02:03.880 year was it was a series of essays rather than 0:02:03.960 --> 0:02:07.040 the usual kind of data focused here, here's what's happening 0:02:07.040 --> 0:02:09.000 in the world. And I think that's by necessity. You 0:02:09.040 --> 0:02:11.720 mentioned protection is um and there was so much conversation 0:02:11.760 --> 0:02:15.400 during the campaign, during the transition about the prospect for tariffs. 0:02:16.040 --> 0:02:18.200 Now it seems the conversation has shifted to this border 0:02:18.200 --> 0:02:20.520 adjustment tax. Are they one and the same as one 0:02:20.880 --> 0:02:24.480 provoke more nervousness for apprehension than the other. Well, I 0:02:24.520 --> 0:02:28.120 think the border adjustment tax in the in the context 0:02:28.280 --> 0:02:33.239 of this destination based cash flow tax with border adjustment 0:02:33.919 --> 0:02:37.639 is really a totally different thing from from a tariff 0:02:37.880 --> 0:02:41.520 or or just a border tariff, a punitive border tariff 0:02:41.560 --> 0:02:44.800 on on firms or on companies. So it would be 0:02:44.840 --> 0:02:50.120 helpful if if people just started separating them altogether. Um. 0:02:50.240 --> 0:02:53.960 The um. I think the border adjusted tax in that 0:02:54.600 --> 0:02:59.200 corporate tax reform context is actually fake protectionism. It's not 0:02:59.280 --> 0:03:02.000 real protection him. Um. I think if you had that 0:03:02.120 --> 0:03:04.079 kind of policy, you know, it's going to give be 0:03:04.120 --> 0:03:05.720 a big move in the dollar, it's gonna give you 0:03:05.720 --> 0:03:08.640 a lot of chaos in the market. Um. But it's 0:03:08.680 --> 0:03:12.600 it's not necessarily protectionist. It may even give cover to 0:03:12.639 --> 0:03:15.040 not do some of the other things, because a more 0:03:15.080 --> 0:03:19.640 idiosyncratic protectionism through actual tariffs, I think is a much 0:03:19.760 --> 0:03:22.200 much bigger problem and more likely lead to tip for 0:03:22.280 --> 0:03:26.160 tat type you know conflicts. You're right, an optimistic sheet. 0:03:26.240 --> 0:03:29.320 What is GDP for the United States? What? What is 0:03:29.440 --> 0:03:32.200 what are you framing? If you will for Mr Trump 0:03:32.240 --> 0:03:35.040 as we move forward. Yeah, we see GDP running in 0:03:35.080 --> 0:03:36.440 the sort of two and a quarter to two and 0:03:36.440 --> 0:03:39.200 a half range right now, that's not three percent. How 0:03:39.240 --> 0:03:41.760 does he get at the three percent? I mean, I 0:03:41.800 --> 0:03:44.000 think you could get it to three percent for a minute, 0:03:44.080 --> 0:03:47.920 with with with with a surgeon investment at some point. Um, 0:03:47.960 --> 0:03:50.600 a pent up surgeon investment appears to be due. But 0:03:51.080 --> 0:03:53.760 dollar strength at the moment is getting in the way. Um. 0:03:53.800 --> 0:03:56.200 You know, some of the energy bust for a few 0:03:56.280 --> 0:03:59.920 years ago could could reverse. Um, getting persistent real GDP 0:04:00.160 --> 0:04:02.520 of three would be really difficult with the with the 0:04:02.560 --> 0:04:05.840 demographics of of the US. And that, David, is what 0:04:06.040 --> 0:04:08.640 is missing in a lot of the media frenzy is 0:04:08.680 --> 0:04:14.280 the time function of growth popping it for what a quarter? James, Yeah, 0:04:14.520 --> 0:04:17.320 but not for a year or two years to get 0:04:17.320 --> 0:04:21.400 to the mid term elections. Is the conversation over about 0:04:21.440 --> 0:04:23.640 whether or not we're going to get an infrastructure package 0:04:23.800 --> 0:04:26.440 or fiscal stimulus. Are we going to have a conversation 0:04:26.480 --> 0:04:31.320 about the economic grounding for for a plan like that? Well, Um, 0:04:32.600 --> 0:04:34.640 so much as there is economic grounding, I suppose, But 0:04:35.040 --> 0:04:37.960 I mean I I think there is some economic grounding 0:04:38.040 --> 0:04:42.359 for for both ideas. UM, well really all three ideas 0:04:42.400 --> 0:04:45.559 if you separate the personal income and corporate income tax 0:04:45.600 --> 0:04:48.200 because they're really very different things but probably need to 0:04:48.200 --> 0:04:51.280 be done together. UM. I think really, and now it's 0:04:51.279 --> 0:04:54.560 just the politics, it's just the horse trading in Washington. 0:04:54.720 --> 0:04:57.560 Can you get to these um reforms? I mean, we 0:04:57.640 --> 0:05:02.039 know there's a fair amount of democratic support for infrastructure there, 0:05:02.080 --> 0:05:07.320 there's some Democrat support for corporate tax reform. UM. Corporate 0:05:07.320 --> 0:05:09.880 tax reform might not even be stimulative, it might not 0:05:10.000 --> 0:05:14.200 even reduce revenues tax revenues from the corporate sector. Personal 0:05:14.240 --> 0:05:16.080 income tax reform I think is a little more of 0:05:16.120 --> 0:05:20.360 a partisan issue UM with less Democrats support, And I 0:05:20.400 --> 0:05:23.920 think the economics of stimulus from that are are a 0:05:23.960 --> 0:05:26.520 little more of an open and there are a different question. 0:05:26.600 --> 0:05:29.599 But basically, you know, I think take off all three 0:05:29.600 --> 0:05:31.840 of these things separately and have the long discussion. I'm 0:05:31.839 --> 0:05:34.080 happy to have it, but but I think it's it's 0:05:34.120 --> 0:05:39.200 difficult to encapsulate the three together into into a short summary. Really, 0:05:39.240 --> 0:05:41.680 each of them is complicated. If you'll indulge me, I'll 0:05:41.720 --> 0:05:44.000 quote once more from your your outlook. Another great line here. 0:05:44.000 --> 0:05:48.320 Markets overreact to political rumors and underreact to political facts, 0:05:48.320 --> 0:05:51.320 which thinks a bit of enthusiasm here during during earning season. 0:05:51.400 --> 0:05:53.200 But do you think that the market is now beginning 0:05:53.240 --> 0:05:55.839 to reckon with some of the facts the political fact, Well, 0:05:55.880 --> 0:05:58.320 I mean what I meant by that is is um, 0:05:58.360 --> 0:06:01.839 you know, forget Donald Trump himself and exactly who's running 0:06:01.880 --> 0:06:04.880 the administration and all that. If you just told someone 0:06:04.920 --> 0:06:09.680 a few years ago that in late January two thousand seventeen, 0:06:10.320 --> 0:06:14.720 the focus would be on US disengagement from the world 0:06:14.800 --> 0:06:20.040 and a significant increase in protectionism pushed by the US UM, 0:06:20.080 --> 0:06:23.520 I think people would say, wow, markets, you know, equity 0:06:23.560 --> 0:06:26.920 markets will be much lower. Um. You know, they would 0:06:26.960 --> 0:06:29.200 think this would be a time of great risk aversion. 0:06:29.360 --> 0:06:31.440 And you look at the markets and it's it's not 0:06:32.120 --> 0:06:36.000 the UM. I think the fact of of US policy 0:06:36.000 --> 0:06:42.200 intentions has changed. UM. The markets haven't really reacted to it, 0:06:42.800 --> 0:06:45.599 UM in the expected way, or at least maybe the 0:06:45.640 --> 0:06:50.000 market is reacting to the expectations of lower regulations and 0:06:50.360 --> 0:06:53.000 stimulus and and so you know, we've had we've had 0:06:53.040 --> 0:06:56.640 that short term rush of of positive and and and 0:06:56.680 --> 0:06:58.680 we're sort of waiting to see maybe there's people are 0:06:58.720 --> 0:07:03.800 not really believing that genuine toothy protection is m is coming. 0:07:03.920 --> 0:07:06.400 When you look at the intersections of politics, economics in 0:07:06.440 --> 0:07:10.600 the markets, are are there historical analogs that jump out 0:07:10.600 --> 0:07:12.800 at you or or we had an unprecedented time here, 0:07:12.880 --> 0:07:15.400 or have we seen things like this before? I mean, 0:07:15.480 --> 0:07:18.400 I think there are periods in history that offer interesting 0:07:18.960 --> 0:07:21.920 UM parallels, and I don't see anything that's perfect. I 0:07:21.960 --> 0:07:25.640 think the mid eighties, the time of um of of 0:07:25.640 --> 0:07:29.320 of rising interest rates, of a strong dollar, of real 0:07:29.440 --> 0:07:33.000 angst in the US manufacturing sector is interesting. You know, 0:07:33.040 --> 0:07:37.160 there was a point in the Reagan administration where basically 0:07:37.240 --> 0:07:40.000 the Treasury Secretary and the chief of staff switched jobs, 0:07:40.520 --> 0:07:43.080 and you you ended up with UM. You ended up 0:07:43.120 --> 0:07:46.760 with a concerted effort to weaken the dollar and to 0:07:47.120 --> 0:07:51.960 UH and to really go after UH. Some Japanese protection 0:07:52.080 --> 0:07:55.440 is um um through some some tariffs of our own. 0:07:55.600 --> 0:07:57.800 That was a big shift. And the last time the 0:07:57.840 --> 0:08:00.680 US had kind of broad tower is actually in the 0:08:00.720 --> 0:08:04.960 early seventies when when we left the the gold standard UM. 0:08:05.480 --> 0:08:08.800 I read that the the equity market actually rallied on 0:08:08.960 --> 0:08:13.480 shore on on that initial policy change in foreign stocks 0:08:13.640 --> 0:08:16.600 sold off. So sometimes protectionism could be good for the 0:08:16.600 --> 0:08:19.480 local companies who are being protected. Um, and then others 0:08:19.520 --> 0:08:21.600 are going all the way back to Smooth Holly and 0:08:21.800 --> 0:08:23.559 talking about, you know, it is just going to cause 0:08:23.560 --> 0:08:26.160 the Great Depression Part two and which gets a little 0:08:26.160 --> 0:08:27.920 over the top. I mean, the evidence is not that 0:08:27.920 --> 0:08:29.840 clear that Smoot Holly was a major driver of the 0:08:30.080 --> 0:08:32.960 depression in the first place. But um, but history helps, 0:08:33.000 --> 0:08:36.440 but history doesn't offer a clear, clear precedent. Let's continue 0:08:36.480 --> 0:08:38.400 with James Sweeney loves to talk about maybe we can 0:08:38.440 --> 0:08:42.000 look at his arch theme of well, there's a deflation 0:08:42.040 --> 0:08:46.200 scare and it's going to be a inflation scared. Would 0:08:46.200 --> 0:08:50.160 you help us, James Sweeney with trade between the United 0:08:50.240 --> 0:08:54.200 Kingdom and the United States. Prime Minister May gave a 0:08:54.240 --> 0:08:58.080 speech in Davos polar opposite of what I'm hearing from 0:08:58.080 --> 0:09:01.440 President Trump. So they meet on Friday, what will you 0:09:01.480 --> 0:09:06.400 listen for? Well, I think, I mean, I think, in 0:09:06.559 --> 0:09:11.520 from a geopolitical perspective, the tone remember the shoulder to 0:09:11.600 --> 0:09:16.600 shoulder comment by Tony Blair year years ago. Um, can 0:09:16.640 --> 0:09:19.880 you maintain that that tone of of of a special 0:09:19.920 --> 0:09:23.280 relationship in the first place under the current conditions. That's 0:09:23.960 --> 0:09:28.120 I think interesting. But I think in terms of economics. Um, 0:09:28.200 --> 0:09:32.480 you know, if if brexit, if this is a hard brexit, Um, 0:09:32.600 --> 0:09:35.800 does the does the UK want a special bilateral trade 0:09:35.800 --> 0:09:39.040 deal with the US? And then if the US is 0:09:39.120 --> 0:09:42.320 willing to to expedite a process leading to such a 0:09:42.360 --> 0:09:45.840 trade deal? Um is that you know? Is that going 0:09:45.880 --> 0:09:49.760 to be done on generous terms or is that going 0:09:49.840 --> 0:09:53.080 to be done in a in a kind of confrontation 0:09:53.080 --> 0:09:57.160 to It can't be done until she straightens out all 0:09:57.160 --> 0:10:00.680 her EU activities. I mean, I mean your Trump can't 0:10:00.679 --> 0:10:02.920 say let's wrap up a trade deal by Christmas. Well 0:10:02.920 --> 0:10:05.280 with so many of these things. When we say it 0:10:05.360 --> 0:10:07.720 can't be done, what is the it? You know? What 0:10:07.960 --> 0:10:13.640 is the protectionism? What is the deal? A deal? And investigation? Um? 0:10:13.679 --> 0:10:15.240 You know, I I I think a lot of this 0:10:15.280 --> 0:10:18.079 stuff is very fuzzy. It seems to live in a 0:10:18.160 --> 0:10:24.120 publicity space rather than on a on a page with 0:10:24.120 --> 0:10:26.800 with with details. And this is not this is not 0:10:26.960 --> 0:10:30.480 especially clear what what kind of document will learne from this? 0:10:31.679 --> 0:10:33.760 Let me let me pick up off of that. Your 0:10:33.760 --> 0:10:36.000 forecast and the outlook is for the dollars that continue 0:10:36.040 --> 0:10:37.680 to be strong in two thousand and seventeen. The outlook 0:10:37.640 --> 0:10:40.320 written before Donald Trump tweeted about the strength of the dollar, 0:10:40.440 --> 0:10:42.679 his his his wish or his concern here that it's 0:10:42.760 --> 0:10:46.680 it's not weak enough. That's kind of unprecedented and of itself. Um, 0:10:46.760 --> 0:10:48.640 does that change your your sense of where the dollar 0:10:48.679 --> 0:10:50.880 will go? Are we seeing the end of the strong 0:10:50.920 --> 0:10:52.480 dollar policy? Do we have a better sense of what 0:10:52.520 --> 0:10:54.800 the dollar policy is going to be here this president? 0:10:54.840 --> 0:10:58.319 I could tell you somewhere in our lengthy outlook was 0:10:58.320 --> 0:11:01.200 was a comment about dollar twe it or policy. Um, 0:11:01.240 --> 0:11:04.960 So that was actually part of our expectation, was that 0:11:05.000 --> 0:11:08.080 we would get some comments. Um. You know, I I, 0:11:08.880 --> 0:11:11.000 as I said earlier, I think the dollar. I think 0:11:11.000 --> 0:11:12.920 the level of the dollar and its move over the 0:11:12.960 --> 0:11:16.040 last couple of years is an issue. Um. It is 0:11:16.080 --> 0:11:19.800 an issue for manufacturing investment. And we have sluggish exports, 0:11:19.800 --> 0:11:23.880 and we have sluggish investment, uh in manufacturing. And even 0:11:24.000 --> 0:11:26.320 I'm talking about the last two years, I'm not talking 0:11:26.360 --> 0:11:29.840 about the longer term terms. Even compared to the last fifteen, 0:11:29.920 --> 0:11:31.800 you can see that the dollar is having a little 0:11:31.800 --> 0:11:34.679 bit of an effect. Um. You know, there's a lot 0:11:34.720 --> 0:11:39.040 of narratives looking back favoring the dollar, growth differentials, interest 0:11:39.120 --> 0:11:42.560 rate differential, stimulus from the US, maybe there's a shortage 0:11:42.559 --> 0:11:45.240 of dollars overseas, there's a great demand for dollars rather 0:11:45.280 --> 0:11:47.960 than R and B in in Asia. Um. All these 0:11:48.000 --> 0:11:51.600 stories have have helped the dollar to rally. But now 0:11:51.679 --> 0:11:54.680 when you're talking protectionism, when you're talking change in the 0:11:54.800 --> 0:11:57.720 US role in the world, some people are talking about 0:11:57.840 --> 0:12:03.200 you could you see reserve managers you know, consider lowering um, 0:12:03.200 --> 0:12:06.080 their their dollar holdings older over time in response to 0:12:06.120 --> 0:12:08.079 some of this. You know, there's there's a lot of 0:12:08.120 --> 0:12:10.280 two way risk on the dollar. But to me, the 0:12:11.160 --> 0:12:13.680 bringing it home to kind of markets and and really 0:12:13.800 --> 0:12:18.160 relevant fact based stuff. Um. The the issue is basically, 0:12:18.160 --> 0:12:21.640 if the dollar continues to strengthen this year, UM, it's 0:12:21.640 --> 0:12:26.320 gonna get in the way of President Trump's objectives in 0:12:26.640 --> 0:12:29.480 uh in improving the short term outlook for manufacturing. And 0:12:29.480 --> 0:12:33.400 I wonder could that be part of the calculus in 0:12:33.480 --> 0:12:37.000 choosing the new James Sweet thank you so much with 0:12:37.080 --> 0:12:41.480 credit sweets, David gurn Tom Kane Worldwide, Coast to coast, 0:12:41.640 --> 0:12:57.040 This is Bloomberg. Brian Jacobson with us right now from 0:12:57.280 --> 0:13:00.319 Wells Fargo. It's almost a relief to talk to Brian 0:13:00.400 --> 0:13:03.239 Jacobsen because I'm not going to ask you any politics 0:13:03.640 --> 0:13:07.240 other than to say, Brian, do I change what I'm 0:13:07.280 --> 0:13:10.440 doing with a little bit of wealth I have because 0:13:10.440 --> 0:13:14.080 of all of this noise going on around us. Well, 0:13:14.200 --> 0:13:16.560 it's a good question. I appreciate not having to talk 0:13:16.559 --> 0:13:18.680 too much about politics. I think we've gotten a little 0:13:18.720 --> 0:13:21.920 weary about that. I did to our client event yesterday, 0:13:21.960 --> 0:13:23.400 which was a lot of fun, but as you can 0:13:23.400 --> 0:13:28.040 probably imagine, it was discussing the political environment, and I 0:13:28.080 --> 0:13:30.040 think it is on the tops of a lot of 0:13:30.040 --> 0:13:33.920 people's minds. My encouragement to everybody is to just not 0:13:34.000 --> 0:13:36.880 let politics affect your portfolio. Try to focus on your 0:13:36.920 --> 0:13:40.640 goals and make sure that your allocations are in line 0:13:40.760 --> 0:13:43.000 with those goals. It's too easy to get caught up 0:13:43.040 --> 0:13:47.000 in the latest tweets or the latest report and panic. Uh. 0:13:47.040 --> 0:13:49.800 And as many people have oftentimes said, many people smarter 0:13:49.880 --> 0:13:52.240 than I am, is that we are oftentimes our own 0:13:52.280 --> 0:13:55.600 worst enemies when it comes to investing, and that overreaction 0:13:56.080 --> 0:13:57.960 can be very detrimental when it comes to trying to 0:13:58.000 --> 0:14:01.240 achieve those goals. Bearing that in mind that there are 0:14:01.240 --> 0:14:03.480 the tweets, there is the short termism. I wonder though 0:14:04.240 --> 0:14:06.240 here I here. I tried into politics a little bit 0:14:06.240 --> 0:14:10.800 if if you if you are able to extrapolate, you know, 0:14:11.840 --> 0:14:14.079 I recall after the election, people were getting into utilities. 0:14:14.080 --> 0:14:15.679 They thought that there was going to be big infrastructure 0:14:15.679 --> 0:14:18.840 spending for this. There are macro themes here. Ignore those 0:14:18.880 --> 0:14:21.200 as well as you ignore the tweets. You know, I 0:14:21.240 --> 0:14:23.600 would look at the macro themes, and it's always it's 0:14:23.680 --> 0:14:27.040 difficult to sort of susce out the difference between what's 0:14:27.040 --> 0:14:29.920 an economic trend and what's sort of a political development 0:14:29.920 --> 0:14:32.720 that you should react to, because politics clearly do affect 0:14:32.760 --> 0:14:35.000 the economy. But the economy itself, even though it's not 0:14:35.040 --> 0:14:37.800 a machine, and I really hate using like physics analogies, 0:14:37.880 --> 0:14:41.720 but uh, the economy develops its own type of momentum. 0:14:41.920 --> 0:14:43.800 And right now I think that really what you saw 0:14:43.880 --> 0:14:46.680 back in July was the economic momentum beginning to shift 0:14:46.720 --> 0:14:50.440 a little bit towards a slightly higher pace of economic activity. 0:14:50.480 --> 0:14:53.040 You know, the labor market is continuing to improve, wages 0:14:53.040 --> 0:14:56.400 are picking up, purchasing manager and disease are looking pretty healthy, 0:14:56.720 --> 0:14:59.200 not just in the United States but even globally. Now 0:14:59.320 --> 0:15:03.440 policy can affect that, but oftentimes policy has very long 0:15:03.560 --> 0:15:06.520 and variable legs. So if they do some sort of 0:15:06.520 --> 0:15:09.120 like let's say infrastructure plan yesterday it was floated, then 0:15:09.160 --> 0:15:12.520 there might be a one trillion dollar infrastructure by the Democrats. 0:15:12.640 --> 0:15:15.480 Well that works out that's one billion dollars per year, right, 0:15:15.520 --> 0:15:17.280 so you have to take that and divided by ten 0:15:17.480 --> 0:15:19.160 because of the way that they do their math, and 0:15:19.160 --> 0:15:20.960 they don't believe in the time value of money, so 0:15:21.000 --> 0:15:23.560 they think that billion dollars event ten years from now 0:15:23.640 --> 0:15:25.680 is the same as a hundred billion dollars today. So 0:15:26.000 --> 0:15:28.800 you know that this stuff takes time to build. David 0:15:28.840 --> 0:15:31.400 be could you explain to Brian that we adore physics 0:15:31.440 --> 0:15:35.160 references just you don't care, you know. I'm sorry. We're 0:15:35.160 --> 0:15:37.720 all Newtonian. There you go, We're all Newtonians. Think that 0:15:37.760 --> 0:15:41.200 the surveillance bumpary sticker. You if you are weary of politics, 0:15:41.240 --> 0:15:43.640 as many are, Brian, you want to look overseas. Are 0:15:43.720 --> 0:15:46.760 there markets right now where it is less of a player, 0:15:46.840 --> 0:15:49.960 less casting, less of a shadow. Uh for those who 0:15:50.000 --> 0:15:51.880 don't want to have to weigh or or think about 0:15:51.960 --> 0:15:54.640 or try to figure out the latest political moctinations. Well, 0:15:54.640 --> 0:15:56.240 one of my favorite areas to look right now are 0:15:56.240 --> 0:15:58.960 some of those where I think from a longer term 0:15:59.040 --> 0:16:03.160 value perspective, there's some decent opportunity and I see that 0:16:03.200 --> 0:16:05.240 in a lot of emerging markets. But the problem is this, 0:16:05.560 --> 0:16:09.320 you know, politics is casting quite a dark shadow across 0:16:09.360 --> 0:16:11.960 a lot of the emerging markets, the uncertainty about what's 0:16:12.000 --> 0:16:14.080 going to happen as far as on the trade front, 0:16:14.280 --> 0:16:16.800 what's going to happen with commodity prices, what's going to 0:16:16.880 --> 0:16:20.200 happen with you know, China's growth slow down. So there 0:16:20.200 --> 0:16:22.440 are a lot of dark clouds. But that is actually 0:16:22.480 --> 0:16:26.040 where I think there's some good opportunities because, uh, you know, valuations, 0:16:26.040 --> 0:16:28.000 when I look back at some charts that you know, 0:16:28.040 --> 0:16:31.720 based on price two expected cash flows, emerging markets are 0:16:31.760 --> 0:16:34.840 trading at a rather significant discount relative to their developed 0:16:34.840 --> 0:16:36.880 market peers. So, you know, I think you can look 0:16:36.920 --> 0:16:41.120 at emerging markets for longer term value opportunities. Keeping in 0:16:41.200 --> 0:16:44.760 mind that emerging markets it's a plural not a singular noun, 0:16:45.240 --> 0:16:47.760 that there are you know, all sorts of differences between say, 0:16:47.760 --> 0:16:50.280 what's going on in Turkey versus what's going on in India, 0:16:50.320 --> 0:16:53.360 with both of which are emerging markets. And you know what, 0:16:53.440 --> 0:16:56.000 we love to have you on because you are truly 0:16:56.040 --> 0:16:59.440 in the trenches of standing in a room with ten 0:16:59.560 --> 0:17:03.320 or one hundred people or more frankly with their hands 0:17:03.360 --> 0:17:05.640 up in the air saying excuse me, sir. I mean, 0:17:05.800 --> 0:17:07.840 you know, some of the real concerns that are out there. 0:17:08.440 --> 0:17:11.119 If we make the statement this is the most unloved 0:17:11.119 --> 0:17:15.680 bull market, ever, how does this moment of January two 0:17:15.680 --> 0:17:19.399 thousand and seventeen change that idea? Do we go to 0:17:19.520 --> 0:17:23.480 effervescence or are we even less loved than we've been 0:17:23.840 --> 0:17:26.840 since early two thousand nine. I think some people are 0:17:26.880 --> 0:17:29.480 loving the wrong parts, you know. As as far as 0:17:29.760 --> 0:17:32.800 looking at expecting that we're going to see continually rising 0:17:32.920 --> 0:17:36.399 interest rates, I did anticipate that will probably see you know, 0:17:36.440 --> 0:17:39.159 the tenure Treasury and the year at around you know, 0:17:39.200 --> 0:17:41.719 two point nine to three something like that. But then 0:17:41.760 --> 0:17:43.720 how much higher are we going to go? Maybe three 0:17:43.800 --> 0:17:45.880 and a half percent. So a lot of people are 0:17:45.920 --> 0:17:48.680 hating on fixed income, a lot of people are hating 0:17:48.720 --> 0:17:50.879 on the emerging markets, and I think that's where to 0:17:50.920 --> 0:17:53.600 represents the best opportunities. So there are pockets where people 0:17:53.680 --> 0:17:55.679 love it. Look coming out of the election, you know, 0:17:55.720 --> 0:17:58.480 small cap stocks did well. I think justifiably, so they 0:17:58.480 --> 0:18:01.000 tend to be more it can deal with the regulations 0:18:01.040 --> 0:18:03.880 quite as well. They also tend to be higher taxed 0:18:03.920 --> 0:18:06.240 than what the large cap stocks are, so and some 0:18:06.320 --> 0:18:09.480 of that increase in price I think was justified. But 0:18:09.920 --> 0:18:13.080 some of the sector uh that people were focusing on, 0:18:13.119 --> 0:18:15.320 as far as what say, the infrastructure build out, I 0:18:15.320 --> 0:18:17.399 think that any infrastructure plan that we get is going 0:18:17.440 --> 0:18:19.000 to have to be paid for to get it through 0:18:19.000 --> 0:18:21.600 a Republican controlled House and Senate. They don't want to 0:18:21.600 --> 0:18:24.080 blow up the deficits. So um. You know, maybe some 0:18:24.240 --> 0:18:26.840 of the run up that we saw in some parts 0:18:26.840 --> 0:18:30.640 of the industrial material space was a little bit overdone. 0:18:30.680 --> 0:18:32.280 So you know, if people I think we're kind of 0:18:32.640 --> 0:18:35.240 you've you've got this mix of euphoria and a mix 0:18:35.240 --> 0:18:38.159 of pessimism, and it makes for a very interesting market 0:18:38.200 --> 0:18:41.080 to causes all sorts of sector rotation. And that's I 0:18:41.080 --> 0:18:42.520 think going to be one of the big themes for 0:18:42.560 --> 0:18:45.120 two thousand seventeen is you'll see periods of time where 0:18:45.119 --> 0:18:48.000 one sector is sort of you know, charging ahead for 0:18:48.400 --> 0:18:50.119 you know, a month at a time, but then suddenly 0:18:50.160 --> 0:18:53.120 it's stumbled. And that's why it's so important to just 0:18:53.280 --> 0:18:56.040 keep it diversified. Don't try to get over your skis 0:18:56.080 --> 0:18:59.199 with any particular one sector. Bet Bryan Jackson, take us 0:18:59.200 --> 0:19:03.439 into that small world. Uh, what's attractive in it to 0:19:03.480 --> 0:19:05.880 you right now? Well, I think that in the small 0:19:05.920 --> 0:19:08.960 cap stocks, you know, it's it's just like the emerging markets. 0:19:09.000 --> 0:19:11.719 It's a it's a it's a very diverse set of 0:19:12.119 --> 0:19:15.200 entities that exist in there. And one of the areas 0:19:15.240 --> 0:19:17.840 that I think people really honed in on after President 0:19:18.160 --> 0:19:20.240 Trump or at that point it was, uh, you know 0:19:20.400 --> 0:19:22.800 candidate Trump became president to lec Trump and now he's 0:19:22.840 --> 0:19:25.520 President Trump, was that a lot of small cap stocks. 0:19:25.560 --> 0:19:27.840 They tend to be more domestically focused as far as 0:19:27.880 --> 0:19:30.000 with their revenues. They also tend to have a higher 0:19:30.040 --> 0:19:32.720 media and effective tax right. But one of the problems 0:19:32.760 --> 0:19:35.919 with just looking at okay, well they're more heavily taxed 0:19:35.960 --> 0:19:39.040 and therefore they'll benefit more from corporate tax cuts is 0:19:39.320 --> 0:19:41.760 not all of those small cap stocks are profitable. As 0:19:41.760 --> 0:19:44.280 of the third quarter two thousand sixteen, for the smallest 0:19:44.280 --> 0:19:48.360 two thousand stocks, only about of them were actually had 0:19:48.400 --> 0:19:52.320 taxable profits. So actually kind of like more MidCap stocks 0:19:52.359 --> 0:19:55.080 in this environment. As far as who might benefit from 0:19:55.440 --> 0:19:59.040 corporate tax reform. Seventy eight percent of MidCap stocks were 0:19:59.040 --> 0:20:02.440 profitable and the at quarter two sixteen effective tax rates 0:20:02.440 --> 0:20:07.320 of around twenty nine, so they could be decent beneficiaries. 0:20:07.640 --> 0:20:09.240 So I would actually kind of shift I think more 0:20:09.280 --> 0:20:12.320 from small cap into mid camp, but even within as 0:20:12.400 --> 0:20:15.399 a looking at mid and small relative to too large. 0:20:16.040 --> 0:20:17.919 A lot of that people are expecting to, say a 0:20:17.960 --> 0:20:22.800 repatriation tax holiday or repatriation changed to the tax code 0:20:22.800 --> 0:20:25.639 in general, and if that money does indeed come back, 0:20:25.800 --> 0:20:29.960 where businesses invest in property equipment, that's probably small and 0:20:30.000 --> 0:20:31.840 mid cap stocks are likely going to be the ones 0:20:31.880 --> 0:20:34.600 who build out that type of property, plant, and equipment. 0:20:34.840 --> 0:20:38.000 We're going to continue this discussion. One quick question Brian Jacobson, 0:20:38.560 --> 0:20:45.119 if I could, do you buy international through US multinationals 0:20:45.240 --> 0:20:47.800 or do you now have to go abroad? Well, I 0:20:48.080 --> 0:20:50.560 think going abroad might be a better way to go. 0:20:50.600 --> 0:20:53.760 It's just a wider opportunity set. If you do it 0:20:53.800 --> 0:20:56.080 through the US, you tend to get a lot of 0:20:56.119 --> 0:21:00.760 geographic concentration. Uh. You know, our biggest trading partners Canada, 0:21:00.840 --> 0:21:03.640 Mexico and Europe. So you know, if you really want 0:21:03.680 --> 0:21:06.480 to have a globally diversified portfolio. I don't think using 0:21:06.680 --> 0:21:09.360 US multinationals as a proxy is really the best way 0:21:09.400 --> 0:21:19.920 to go. Brought you by Bank of America, Mary Lynch. 0:21:20.040 --> 0:21:24.280 Dedicated to bringing our clients insights and solutions to meet 0:21:24.320 --> 0:21:27.800 the challenges of a transforming world. That's the power of 0:21:27.840 --> 0:21:33.639 global connections. Mary Lynch, Pierce Federin Smith Incorporated, Member s 0:21:33.720 --> 0:21:40.960 I p C. Here is the interview of the day. 0:21:42.040 --> 0:21:44.680 I guess you could go back to well President Clinton, 0:21:45.280 --> 0:21:47.280 where she was a vice chair. I think back then 0:21:47.400 --> 0:21:50.119