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P&L: How Did The Polls Get it So Wrong? · Bloomberg Intelligence

0:04
Speaker 1: Welcome to the Bloomberg pim L Podcast. I'm pim Fox
0:08
Speaker 1: along with my co host Lisa Abramowitz. Each day we
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Speaker 1: bring you the most important, noteworthy, and useful interviews for
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Speaker 1: you and your money, whether at the grocery store or
0:16
Speaker 1: the trading floor. Find the Bloomberg p L Podcast on iTunes,
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Speaker 1: SoundCloud and at Bloomberg dot com. I want to bring
0:32
Speaker 1: in Mark Niquette are fearless Bloomberg politics reporter who has
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Speaker 1: been covering this uh tick by tick every minute. You've
0:39
Speaker 1: probably been up all night. Uh So he's so popular,
0:43
Speaker 1: he's still in fact, he's more popular today than he
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Speaker 1: was yesterday. Um, we're here waiting for Hillary Clinton to speak.
0:50
Speaker 1: She's expected to uh head to a hotel, the New
0:54
Speaker 1: Yorker in Midtown Manhattan to give a concession speech. We're
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Speaker 1: also finding out that President Barack Obama is scheduled to
1:02
Speaker 1: speak from the White House at twelve fifteen. Mark, what's
1:05
Speaker 1: the most important thing to be watching as far as uh,
1:09
Speaker 1: the tenor of these speeches or the substance. Well, I
1:13
Speaker 1: think a lot of it's just going to be the tenor.
1:15
Speaker 1: I mean, how does she present this defeat? And you know,
1:20
Speaker 1: the ability of the country to move forward now. I mean,
1:22
Speaker 1: obviously she has you know, um an army of supporters
1:26
Speaker 1: who are incredibly stunned and disappointed today and you know,
1:30
Speaker 1: just can't believe they're waking up in a in a
1:32
Speaker 1: world where Donald Trump is going to be their president.
1:35
Speaker 1: And you know, she has a sort of a duty
1:38
Speaker 1: now to sort of now that she's lost, you know,
1:41
Speaker 1: bring bring the country together, at least get the people
1:43
Speaker 1: who are behind her to look to her a greater
1:46
Speaker 1: you know good here, and that is, you know, moving
1:49
Speaker 1: the country forward, even though you know it's just going
1:51
Speaker 1: to be incredibly difficult for you know, a lot of
1:54
Speaker 1: her supporters and in the country to accept this result. Marco,
1:58
Speaker 1: I wonder if we could go through some of the
1:59
Speaker 1: policy areas that might not necessarily be at the forefront
2:03
Speaker 1: of everyone's minds. But obviously investors need to pay attention
2:07
Speaker 1: to these things. We've been talking about healthcare stocks. During
2:10
Speaker 1: the opening of the market today, you see big move
2:14
Speaker 1: higher in healthcare. This have to do with drug pricing
2:17
Speaker 1: or is there something else going on? Well, it's probably
2:19
Speaker 1: all wrapped up into the broader you know fight over
2:22
Speaker 1: Obama Affordable Care Act. Yeah, I mean it seems pretty
2:25
Speaker 1: clear that there will be some effort to repeal and
2:28
Speaker 1: you know, replace the sticky wicked of this all. What
2:31
Speaker 1: are the what are the politics of that? Given that
2:34
Speaker 1: you've got to control Republican control in the Senate plus
2:37
Speaker 1: Republican control in the House. Well, now they have the
2:40
Speaker 1: ability to do it. I mean what I was gonna
2:42
Speaker 1: say is the you know, the hang up here all
2:44
Speaker 1: along is what is the replace? I mean, repeal is
2:47
Speaker 1: easy and and Trump has talked about health savings accounts,
2:50
Speaker 1: you know, but we're gonna need a broader plan to emerge.
2:53
Speaker 1: And I think that the markets can really understand that
2:56
Speaker 1: what would be the replacement to you know, obamacareff. In fact,
3:00
Speaker 1: we're gonna you know, trash and start over. So I
3:03
Speaker 1: imagine you've been speaking with political strategists and people pretty
3:06
Speaker 1: close to the Clinton camp. What has the mood been,
3:09
Speaker 1: What has the color band that you've gotten? Mostly just
3:12
Speaker 1: they're stunned. I mean they they really went in thinking that,
3:16
Speaker 1: you know, the odds were in their favor, that sure
3:19
Speaker 1: there was the possibility that Donald Trump could win, but
3:22
Speaker 1: you know, all the dominoes had to fall the right
3:24
Speaker 1: way for that to happen. And that's exactly what did happen.
3:27
Speaker 1: I mean, he won Florida, North Carolina, Ohio, Iowa, all
3:32
Speaker 1: the battleground states. He had to win all that. She
3:34
Speaker 1: all she had to do was win one of those
3:36
Speaker 1: and protect this the Democratic States, and she didn't. She
3:38
Speaker 1: didn't do any of it. And you know, I think,
3:40
Speaker 1: like I said, just stunt that has all happened. And
3:43
Speaker 1: you know, after you know, three years essentially of of
3:46
Speaker 1: running and getting ready to run, you know, it comes
3:49
Speaker 1: to this. Well, and then how about on the Republican side,
3:51
Speaker 1: I mean, I imagine you've also been touched with operatives
3:55
Speaker 1: on the Republican side, both within the Trump camp as
3:57
Speaker 1: well as outside of the camp. I mean, there's still
4:00
Speaker 1: a pretty big bridge to cross here. I mean, how
4:03
Speaker 1: Speaker Ryan in particular, who's going to be speaking in
4:06
Speaker 1: a little bit, certainly has had his issues with Trump.
4:08
Speaker 1: I mean, what's the tenor more broadly among Republicans. I
4:11
Speaker 1: think uncertainty about how it's all going to come together.
4:14
Speaker 1: Because now Republicans, as you said, have power, they have
4:16
Speaker 1: control over everything. But you know, there's a significant gap
4:20
Speaker 1: in the Republican Party led by Paul Ryan, Speaker of
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Speaker 1: the House on think about issues like trade, immigration, where
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Speaker 1: you know, Trump was very far from where the party was,
4:30
Speaker 1: particularly on trade. And you know what's gonna have to
4:33
Speaker 1: happen now is how does sort of the governing class
4:36
Speaker 1: of the Republican Party led by Paul Ryan reconcile with
4:40
Speaker 1: sort of the outsider, you know, different brand of Republicanism
4:45
Speaker 1: that you know Trump now represents is going to bring
4:47
Speaker 1: to the White House. Um, it's just gonna be fascinating
4:50
Speaker 1: to watch, actually, and you know, you see, you know,
4:53
Speaker 1: establishment Republican figures like like Paul Ryan, I think trying
4:56
Speaker 1: to like reconcile this because he never really did get
4:59
Speaker 1: behind Trump in the camp pain and now he has
5:01
Speaker 1: to govern with him. Mark, as we await Mrs Clinton
5:04
Speaker 1: schedule to speak at the New Yorker Hotel, is there
5:09
Speaker 1: a future leader of the Democratic Party that you say,
5:13
Speaker 1: what happens next? Is it Elizabeth Warren? Is that Bernie Sanders?
5:16
Speaker 1: What what happens to the Democrats? Now? That's a great question.
5:19
Speaker 1: That's gonna be one that I think is gonna be
5:22
Speaker 1: a dominant one in the next few days within the
5:24
Speaker 1: within the party because you know, you hear all the
5:27
Speaker 1: handring has already started about while, you know, couldn't we
5:30
Speaker 1: have somebody better than Hillary Clinton as our standard bear
5:33
Speaker 1: in this in this cycle. But you know, the people
5:35
Speaker 1: you think about are like Joe Biden or like you say, Elizabeth,
5:38
Speaker 1: you know, Warren, and it's it's unclear whether they would
5:41
Speaker 1: have had any better, you know, running against um um
5:44
Speaker 1: Donald Trump. And the big question now is what is
5:47
Speaker 1: the Democratic bench? Who are going to be the Democratic money?
5:51
Speaker 1: Well that's the other question exactly. I mean, it's it's
5:55
Speaker 1: there's gonna have to be a fundamental sort of soul
5:57
Speaker 1: searching within the Democratic Party and possibly a realignment because
6:01
Speaker 1: the other thing that was going on in this cycle,
6:03
Speaker 1: you know, the same thing on the Republican side, you
6:05
Speaker 1: saw a push from the left against Hillary Clinton. You know,
6:08
Speaker 1: That's how we saw in Bloomberg Business Week throughout the
6:12
Speaker 1: entire cycle is just as you're just just just as
6:16
Speaker 1: you're describing it. One thing that I thought was really
6:19
Speaker 1: compelling as I watched the results coming in was, uh,
6:22
Speaker 1: the stark divide between rural and urban areas. And I
6:26
Speaker 1: wonder from a political perspective, whether, how, how how abnormal
6:31
Speaker 1: is this from a historical perspective in the United States,
6:33
Speaker 1: of America that there is such a market divide between
6:36
Speaker 1: rural and urban communities. It's not unusual in the sense
6:39
Speaker 1: of of party id or or ideology, where you know,
6:43
Speaker 1: ural America had tended, you know, for a while now
6:45
Speaker 1: to be more conservative, more republican. Um. But you know,
6:50
Speaker 1: one of the things we're going to be looking at
6:52
Speaker 1: today just sort of analyzing that, you know, that stark difference,
6:56
Speaker 1: because if you know, just starting to scratch the surface,
6:58
Speaker 1: you can tell that Donald Trump had much much better
7:01
Speaker 1: and a lot of these rural areas than say Mitt
7:03
Speaker 1: Romney did. So again, are we looking at sort of
7:05
Speaker 1: a fundamental realignment of where um, you know, America is
7:10
Speaker 1: on you know, these issues like you know, trade and
7:13
Speaker 1: immigration and things that you know, we really hadn't thought
7:16
Speaker 1: of a sort of mainstream Republican even if these folks
7:18
Speaker 1: were voting Republican. But there's clearly something going on now
7:21
Speaker 1: that you know, we're going to have to get behind
7:22
Speaker 1: and understand, because you're right, there's just a stark divide
7:25
Speaker 1: in this country between you know, the rural areas and
7:29
Speaker 1: even suburban areas that we thought were going to be
7:31
Speaker 1: a little more divided and and even more favorable for
7:34
Speaker 1: Hillary Clinton. That just we're all in for Donald Trump.
7:37
Speaker 1: Mark a very close uh popular vote as well. Correct. Well,
7:42
Speaker 1: could be that Hillary Clinton ends up winning the popular
7:44
Speaker 1: vote nationwide. So in that case that context tell us
7:47
Speaker 1: about third party candidates? Is that a factor at all
7:50
Speaker 1: in what transpired last night? Well, we're gonna have to
7:52
Speaker 1: see within these individual states that mattered whether the third
7:56
Speaker 1: party would have been enough to change the outcome. Um
8:00
Speaker 1: My initial senses, it probably didn't. That this was really
8:03
Speaker 1: much more an election about Donald Trump and Hillary Clinton,
8:06
Speaker 1: And to the extent that people were voting for third party,
8:08
Speaker 1: it wasn't necessarily diverting votes from one or the other.
8:11
Speaker 1: What is this election going to do for the whole
8:13
Speaker 1: polling industry? There was a story out in the Bloomberg
8:15
Speaker 1: uh this morning talking about how polls just completely blew
8:18
Speaker 1: it that most of the dominant ones, including hours I,
8:21
Speaker 1: had put Hillary Clinton at a steady uh advantage for
8:26
Speaker 1: a lot of the kimp Unlike that Los Angeles Times
8:28
Speaker 1: poll that we spoke about, Well, that wasn't There was
8:31
Speaker 1: an l A Times poll that everybody kind of treated
8:33
Speaker 1: as an outlier. How did they get it so wrong? Well,
8:37
Speaker 1: and again, that's gonna be another thing that has to
8:39
Speaker 1: be reassessed, and I think people are going to be,
8:41
Speaker 1: you know, really looking at hard you know what happened here.
8:44
Speaker 1: I mean, you know, there was a lot of talk
8:46
Speaker 1: after the Brexit vote about how did the polls get so,
8:48
Speaker 1: you know, we're the polls so wrong? You know, there
8:50
Speaker 1: were theories going into this election that the polls might
8:52
Speaker 1: not be trustworthy, that Trump supporters maybe weren't answering the
8:56
Speaker 1: phone when posters called, or they weren't being honest about
8:58
Speaker 1: who they support, where they were really expressing their views
9:01
Speaker 1: on social media and Facebook and Twitter rather than going
9:06
Speaker 1: to more conventional places for their information. But also to
9:09
Speaker 1: be as you just described, call by posters. Hold, I
9:14
Speaker 1: just want to say that the latest difference right now
9:16
Speaker 1: for the national popular vote is for Hillary Clinton to
9:20
Speaker 1: have almost two more votes in the popular vote, So
9:25
Speaker 1: see your point, Mark, But yeah, and the pulling side
9:27
Speaker 1: of it, you know, I think there's gonna have to
9:29
Speaker 1: be a reassessment in that industry too. I mean, you know,
9:31
Speaker 1: a lot of a lot of the success of success
9:34
Speaker 1: of a poll is based on what kind of sample
9:35
Speaker 1: you have, who do you decide to pull cover you've
9:38
Speaker 1: been called on, You've been covering this forever, right, Um,
9:42
Speaker 1: was there a moment last night where something clicked and
9:45
Speaker 1: you thought, boy, that's the game changer, that's the thing
9:49
Speaker 1: we didn't see. I don't think there was. I mean,
9:51
Speaker 1: there was just sort of a running sense during the
9:53
Speaker 1: night that you know this was going to happen, because again,
9:57
Speaker 1: going in, you knew it could happen, but it had
9:59
Speaker 1: to be pick your metaphor the inside straight running the table,
10:03
Speaker 1: and you could see it. You could, Yeah, you could
10:06
Speaker 1: tell that, particularly after Donald Trump won Florida and North Carolina,
10:12
Speaker 1: and then it became this question of, well, if Hillary
10:15
Speaker 1: Clinton was going to win this race, she would have
10:17
Speaker 1: to hold Pennsylvania, Michigan, and Wisconsin. And you could tell
10:21
Speaker 1: just the way those votes were breaking down that it
10:23
Speaker 1: was entirely possible she was not going to hold all
10:25
Speaker 1: three and likely that she probably the big was it
10:27
Speaker 1: was it also the big win for Donald Trump in Ohio.
10:32
Speaker 1: I think Ohio was factored in. I think the feeling
10:34
Speaker 1: going into the race that Donald Trump was probably gonna
10:36
Speaker 1: win Ohio, he was probably gonna win Iowa, but that
10:39
Speaker 1: big and that Ohio, yeah, maybe not that big. I mean,
10:42
Speaker 1: it was it was thought to be a Trump state,
10:44
Speaker 1: but when you look at even the breakdown in Ohio,
10:46
Speaker 1: he won all but seven counties, and he won these
10:48
Speaker 1: huge democratic areas these and it's sort of the classic,
10:51
Speaker 1: you know, narrative that we've thought about for this race,
10:54
Speaker 1: Like in Ohio, he won counties where you have unemployed
10:57
Speaker 1: steel workers and areas that lost all kinds of manufacturing
10:59
Speaker 1: jobs where this appeal to working class voters really resonated. Um.
11:04
Speaker 1: But you know, during the night, it was just you know,
11:06
Speaker 1: you could you could see that, you know, if if
11:09
Speaker 1: she was going to be president, she would have to
11:11
Speaker 1: hold areas that Republicans have no business winning and in
11:14
Speaker 1: some cases have not one since nine you know, I'm
11:17
Speaker 1: talking Pennsylvania and Michigan for example, and you know it happened.
11:34
Speaker 1: I don't want to bring into the conversation Marca Grant.
11:36
Speaker 1: He is the chief fixed income strategist at Hilltop Securities,
11:40
Speaker 1: and Marca, we wanted to follow up on our conversation
11:43
Speaker 1: that we had with you yesterday. Uh, you called the election,
11:48
Speaker 1: what happens next and maybe just give us your reaction
11:51
Speaker 1: to the news. Well, I think that the country was
11:55
Speaker 1: stunned in Europe was stunned. I think a lot of
11:58
Speaker 1: the sell off. Lisa just made a comment about it.
12:02
Speaker 1: I speak with a lot of very large money managers
12:05
Speaker 1: all over the world. There's been a big sell off
12:09
Speaker 1: in Europe, and um, I think that's what is causing
12:15
Speaker 1: to a great extent attends in the thirty year treasuries.
12:19
Speaker 1: Backing up here, I don't think the FAT is going
12:22
Speaker 1: to do anything in December. Wait, wait, holds, I get
12:24
Speaker 1: marked back up. Can you walk us through why a
12:27
Speaker 1: sell off in Europe would make yields in the US
12:31
Speaker 1: go up? Sure, A lot of European institutions have been
12:35
Speaker 1: buying US treasuries and agencies and corporates because our yields
12:39
Speaker 1: are so much higher than European yields. And this Mr
12:44
Speaker 1: Trump's election I nerved a lot of those people and
12:47
Speaker 1: they began to sell and earnest um the US securities.
12:54
Speaker 1: And I think that's having a big impact upon our
12:58
Speaker 1: yields this morning. And we're an investor is counting on
13:00
Speaker 1: an interest rate increase in December? Yes, they were, and
13:03
Speaker 1: I don't think we're going to get one now. I
13:05
Speaker 1: think that I said would be incredibly arrogant, given the
13:09
Speaker 1: volatility and interest rates, and given Mr Trump's election to
13:16
Speaker 1: try to impose that upon the markets. And also a course,
13:21
Speaker 1: with interest rates up like this, borrowing is becoming more
13:26
Speaker 1: expensive and that will certainly also have an impact on
13:30
Speaker 1: the markets. Are you're buying banks right now? I'm looking
13:33
Speaker 1: at JP Morgan shares UH substantially on the I was
13:37
Speaker 1: going to ask David about that, because you've seen bank
13:39
Speaker 1: stocks move higher. For example, Wells Fargo is up by
13:42
Speaker 1: nearly three percent. JP more can chase up more than
13:45
Speaker 1: three Why would bank stocks go higher if there isn't
13:49
Speaker 1: going to be an increase in interest rates? I thought
13:51
Speaker 1: that was holding back their profitability. Well, but again we
13:54
Speaker 1: are seeing bond yields up, so that's a plus for
13:57
Speaker 1: them in terms of their ability to earn money on
13:58
Speaker 1: their whole days. And then you have to consider what
14:01
Speaker 1: happens to the restrictions on their business. You know, the
14:04
Speaker 1: Frank Act. You know, do you see changes there under
14:08
Speaker 1: a Republican president of Republican Congress. Certainly anticipation that, you know,
14:13
Speaker 1: the the regulatory environment will become more favorable for the banks,
14:17
Speaker 1: mark you know, to what extent? You know you were
14:18
Speaker 1: talking about how there's been a lot of selling from
14:20
Speaker 1: European investors. To what extent are we seeing selling from
14:24
Speaker 1: European investors and buying from US investors? I think a
14:28
Speaker 1: lot of US investors are standing back. A number of
14:32
Speaker 1: very large US institutions don't want to do anything for
14:36
Speaker 1: the moment, until the death settles. So I think you're
14:39
Speaker 1: seeing this selling foreign selling and US investors kind of
14:46
Speaker 1: standing pad until they can see what happens. And the
14:49
Speaker 1: comment that was just made on regulations for the banks,
14:52
Speaker 1: I think that's what's driving the bank stocks hire is
14:56
Speaker 1: the thought that there will be far fewer regulations. And
15:00
Speaker 1: Mr Trump and Mr Obama were certainly in the MS.
15:03
Speaker 1: Clinton and people are taking a more positive approach to
15:07
Speaker 1: financials right now. Mark Grant that you've previously spoken about
15:11
Speaker 1: the natural gas and energy industry, and I'm wondering if
15:14
Speaker 1: that is still an area that is going to be
15:18
Speaker 1: affected in your mind by this by Donald Trump's victory.
15:22
Speaker 1: I think that the natural gas oil US fracking firms,
15:29
Speaker 1: we'll get a very positive impact from Donald Trump being president. UH.
15:34
Speaker 1: He uh has made it very clear and his policies
15:38
Speaker 1: that he wants to encourage that as opposed to buying
15:42
Speaker 1: oil from foreign countries that have a decidedly a different
15:48
Speaker 1: take on moral standards and values, and we do, and
15:52
Speaker 1: I must say that is something support. You know. I'm
15:56
Speaker 1: looking at the thirty year yield up to two points
15:59
Speaker 1: almost two eight percent now from two point six yesterday.
16:04
Speaker 1: Will this stick? I mean at year end, are we
16:06
Speaker 1: gonna be looking at at three year yields are even
16:08
Speaker 1: higher than this or will they come back down? I
16:10
Speaker 1: think they're going to come back down as people adjust
16:14
Speaker 1: to the fact that Donald Trump is going to be
16:17
Speaker 1: the president, and I think there'll be some more stability
16:21
Speaker 1: in the market. I think, as I said, we're seeing
16:23
Speaker 1: a lot of foreign selling which is causing this backup,
16:28
Speaker 1: and the U S institutions aren't picking up the slacks.
16:32
Speaker 1: So I'm kind of a waiting the things stabilized, and
16:35
Speaker 1: then I think it will be a very good opportunity
16:37
Speaker 1: to be a buyer. Well, I want to thank you
16:39
Speaker 1: very much a Mark Grant joining us as the chief
16:42
Speaker 1: fixed income strategist for Hilltop Securities. He was on the
16:45
Speaker 1: program yesterday and he said that he believed Donald Trump
16:49
Speaker 1: was going to become the next president at the United States.
16:51
Speaker 1: He said that was his biggest contrarian call, and he
16:54
Speaker 1: got it right, and he did get it right, and
16:55
Speaker 1: thank you for beating with us. What better way than
17:09
Speaker 1: to sort of take that and introduce Carl rick O.
17:12
Speaker 1: Donna are expert when it comes to the economy, He's
17:15
Speaker 1: the chief expert when it comes to james Ville, Wisconsin.
17:18
Speaker 1: Well in a way, he's been he's been there, and
17:21
Speaker 1: and there's a reason for this is because, okay, Carl
17:24
Speaker 1: um as the chief US economist for Bloomberg Intelligence. Sometimes
17:27
Speaker 1: the you know, economist actually hits the ground and you
17:30
Speaker 1: go and see why is Jamesville, Wisconsin interesting in this election? Uh?
17:36
Speaker 1: Post election debate? Boy, it is really the key stone
17:39
Speaker 1: of what happened overnight. So Jamesville, Wisconsin was the site
17:44
Speaker 1: of pickup manufacturing for General Motors. The factory was closed down.
17:49
Speaker 1: And so these are the December two exactly. These are
17:54
Speaker 1: the older white males who tend to have high school
18:00
Speaker 1: education or some college who went overwhelmingly in favor of
18:05
Speaker 1: Donald Trump. Uh. Now, this message right as we as
18:09
Speaker 1: we look at the exit polls and the wound licking
18:11
Speaker 1: and the reassessment all occurs, what we really have to
18:15
Speaker 1: do is look where the surprises occurred, and the surprises
18:19
Speaker 1: occurred across the rust belt. Ohio and Indiana were leaning
18:23
Speaker 1: towards Trump. But when we look to states like Pennsylvania,
18:26
Speaker 1: which was supposed to be in the blue column, UH,
18:29
Speaker 1: that went for Trump. UH, Michigan same story. UH, Minnesota
18:33
Speaker 1: still too close to call. UH in Wisconsin was the
18:37
Speaker 1: game changer. Now Hillary supposedly UH did not visit Wisconsin
18:42
Speaker 1: since the primaries here, so this is UH. We have
18:46
Speaker 1: to just give Carl the recognition that he deserves because truly, Carl,
18:50
Speaker 1: I know, off Mike and off camera, for the last
18:54
Speaker 1: really eight to ten months, twelve months, you have been
18:57
Speaker 1: steadfast in your analysis of the election saying that you
19:00
Speaker 1: really thought that Donald Trump was going to prevail, especially
19:04
Speaker 1: that he would carry rust belt states. The free trade
19:08
Speaker 1: message does not ring well in those states because those
19:11
Speaker 1: are the states, places like Jamesville, Wisconsin, where workers have
19:16
Speaker 1: really felt the blunt edge of free trade agreements. So
19:20
Speaker 1: let's break that down. Let's talk about what specifically, UH,
19:24
Speaker 1: they objected to some of the people who wanted some
19:27
Speaker 1: change and UH discard and to discard the trade trade agreements,
19:32
Speaker 1: and what are the implications the economic complications. Well, I
19:34
Speaker 1: think one of the key statistics here is look at
19:37
Speaker 1: the dramatic support from unions for Hillary Clinton. However, exit
19:44
Speaker 1: polls show she only carried about fifty one percent of
19:47
Speaker 1: union votes. That means there were a lot of reruns
19:52
Speaker 1: of the Reagan Democrats that are now Trump Democrats, and
19:56
Speaker 1: I think they are very focused on issues like free
19:59
Speaker 1: trade because every time a trade deal comes down the pike, Uh,
20:02
Speaker 1: they don't necessarily feel the cheaper prices that they're getting
20:07
Speaker 1: at Walmart, but they are seeing jobs fleeing across the
20:10
Speaker 1: border into Mexico or elsewhere in the global economy, and
20:13
Speaker 1: they don't see other jobs replacing those. So they feel
20:17
Speaker 1: like free trade has been a losing bet for them.
20:21
Speaker 1: So what happens now? What happens now? I think that uh,
20:25
Speaker 1: you know, Trump has to build his coalition, and uh,
20:29
Speaker 1: you know, the first thing you do when you arrive
20:31
Speaker 1: at the White House is figure out how you're going
20:33
Speaker 1: to uh win your second term. And if he wants
20:36
Speaker 1: to win a second term, he has to hang on
20:38
Speaker 1: to that coalition of rust belt states, which means he
20:41
Speaker 1: has to do something to help them. So there's gonna
20:44
Speaker 1: be a real test for free trade policy. And questioning
20:49
Speaker 1: the merits of free trade, especially in these rust belt states. Uh,
20:53
Speaker 1: and uh, you know that's going to be critical to
20:55
Speaker 1: whether he has a successful term. Now that being said,
20:58
Speaker 1: it's very unused usual for the White House and both
21:02
Speaker 1: the Houses of Congress to all fall under one party control,
21:06
Speaker 1: especially to fall under Republican control. So we've seen that
21:10
Speaker 1: three times in the post World War two period, once
21:14
Speaker 1: in nineteen fifty two with President Eisenhower and then in
21:17
Speaker 1: two thousand and two thousand and four with President Bush.
21:21
Speaker 1: Hang on, Carl, because we want to just bring into
21:23
Speaker 1: the conversation Matt Maylee, equity strategist at Miller tay Back.
21:27
Speaker 1: And Matt, thanks for being with us. Your reaction to
21:31
Speaker 1: the election results, and then what you have been hearing
21:35
Speaker 1: from your customers and clients. Well, number one, the reaction, Uh,
21:39
Speaker 1: you know, it was funny because last night, of course,
21:41
Speaker 1: this down hundred points on the SMP was way overdone.
21:44
Speaker 1: To be perfectly honest with you, I think that, uh,
21:47
Speaker 1: this is a little bit overdone. Back to the bounces,
21:49
Speaker 1: been a little overdone. There's still gonna beat. Markets don't
21:52
Speaker 1: like uncertainty, and uh, there's still gonna be a lot
21:55
Speaker 1: of uncertainty out there, and we also have you know,
21:58
Speaker 1: yield back up getting close to two on the tenure
22:01
Speaker 1: on the tenure yield. Uh, So I think that, uh,
22:05
Speaker 1: if people want to buy, I think they'll be able
22:06
Speaker 1: to buy at lower levels as we move forward. As
22:09
Speaker 1: for our customers, UM, they're you know, cautiously optimistic. They're
22:12
Speaker 1: trying to you know, put trying to put a good
22:15
Speaker 1: light on it. But more than anything else, they're trying
22:17
Speaker 1: to figure out what groups do they need to buy,
22:19
Speaker 1: what groups will do best in a Trump presidency. And uh,
22:23
Speaker 1: that's really what they're working on right now, and they're
22:24
Speaker 1: asking a lot of questions on that on that front.
22:26
Speaker 1: So so, Matt, if you think that prices will go
22:29
Speaker 1: lower here and evaluations will will deteriorate further, are you
22:32
Speaker 1: suggesting that people sort of hold back and sort of
22:34
Speaker 1: keep their cash until there's a more attractive entry point. Yes, exactly.
22:39
Speaker 1: You know, before this all happened, I had been saying,
22:42
Speaker 1: you know, if if pull the rabbit out of a hat,
22:45
Speaker 1: which which he did, Uh, this would not be the
22:48
Speaker 1: end of the world. We don't have to sell everything.
22:50
Speaker 1: So I'm certainly not saying that this bounce is something
22:52
Speaker 1: we have to sell aggressively. But I do think with
22:54
Speaker 1: people who have money on the sidelines, they should be
22:57
Speaker 1: able to get it get back in at lower levels.
23:01
Speaker 1: Just again, because it was the uncertainty out there, and
23:03
Speaker 1: and also with the way the yields are looking at
23:05
Speaker 1: that that's gonna be a problem at some point, you know, Carl,
23:07
Speaker 1: So that was saying that that Trump pulled a money
23:10
Speaker 1: out of a hat, but you were saying, you know,
23:11
Speaker 1: this is sort of actually the expected outcome at least
23:14
Speaker 1: when you were looking at the picture. Is there anything
23:18
Speaker 1: that you can say concretely about what Donald Trump's economic
23:22
Speaker 1: proposals will look like and how it will affect markets? Well?
23:26
Speaker 1: First of all, uh, you know, looking back through past
23:29
Speaker 1: presidential elections, the move on the morning after tends to
23:33
Speaker 1: be negative on average, slightly better than the one percent
23:38
Speaker 1: decline about point seven on the spire. Uh that whatever
23:43
Speaker 1: that move is on the morning after tends to be
23:45
Speaker 1: sustained for the next week and month, But it doesn't
23:47
Speaker 1: tell us very much about market performance one year down
23:51
Speaker 1: the road. I just want to let everyone know that
23:53
Speaker 1: we are of course awaiting Hillary Clinton. She will is
23:56
Speaker 1: scheduled to speak in just about two and a half minutes,
23:59
Speaker 1: and we don't know whether it's going to be on time,
24:01
Speaker 1: but we will of course bring that to you in
24:02
Speaker 1: its entirety. She has scheduled to speak at the New
24:05
Speaker 1: Yorker Hotel in Midtown, Manhattan, Y. Yes, So to jump
24:10
Speaker 1: into actually answer Lisa's question about what policy would look like,
24:15
Speaker 1: I think in some regards, right, we're mourning m O
24:19
Speaker 1: you R N I N G in New York at least,
24:23
Speaker 1: you know, collectively, given the difference between the the outcome
24:27
Speaker 1: in New York versus national outcomes. But but this looks
24:34
Speaker 1: a little bit like mourning in America back in nineteen
24:37
Speaker 1: eighty under President Reagan. Here because we're embarking on uh,
24:41
Speaker 1: you know, the next four years probably having a significant
24:45
Speaker 1: deficit financed government spending, whether it's infrastructure or defense or
24:50
Speaker 1: what not. UH, tax reform and most likely tax cuts
24:54
Speaker 1: that hang on. Let Matt Malee, even hearing what Carl
24:59
Speaker 1: has been described having, do you concur with him? Well,
25:02
Speaker 1: the one of the things that yes and no, which
25:05
Speaker 1: is not the probably the answer you really wanted. But
25:07
Speaker 1: on the one hand, and the you know, this was
25:09
Speaker 1: supposed to be a election of change and nobody thought
25:13
Speaker 1: we were going to get it. Well, sure enough we did,
25:15
Speaker 1: and that's going to be positive. Uh just just just
25:18
Speaker 1: the way people say, let's give him a shot, let's
25:19
Speaker 1: let me we We were so sick and tired of
25:21
Speaker 1: what's been going on in Washington and nothing has been
25:23
Speaker 1: gotten done. But they're gonna have to get fall through
25:25
Speaker 1: and get some things done. My concern is, though, is
25:28
Speaker 1: that we have because of you know, what's happened over
25:31
Speaker 1: the last eight years with what the FETE has done,
25:33
Speaker 1: has caused all these corporations, uh to spend you know,
25:37
Speaker 1: add more depth. There's more total debt in in the
25:39
Speaker 1: in the U S and there was in two thousand seven.
25:41
Speaker 1: More importantly, the depth that's been put on is not debt.
25:44
Speaker 1: That that that's helped service that debt is stuff to
25:46
Speaker 1: buy back shares. They have not had any kind of
25:49
Speaker 1: investment in their own businesses. That do not does not
25:52
Speaker 1: provide the kind of foundation that we need that we
25:54
Speaker 1: usually get for a nice, big recovery. And we're already
25:56
Speaker 1: eight years in the recovery. So I wouldn't be surprised
25:59
Speaker 1: that we saw a little will pull back. Can we
26:00
Speaker 1: just do okay, okay? Can we just do December interest rates.
26:06
Speaker 1: Are we still on for that basis point increase? I
26:09
Speaker 1: believe a lot of people are saying, now it's off
26:12
Speaker 1: the table. I don't think so. I think that uh,
26:14
Speaker 1: first of all, Number one, the FED is more market
26:16
Speaker 1: dependent than most people realize. There's certainly not totally marked dependent.
26:20
Speaker 1: But if the market can hold in there, uh, you know,
26:23
Speaker 1: even if it pulls back a little bit, but if
26:24
Speaker 1: we you know, I think the Fed, you know, they
26:27
Speaker 1: don't want to be They're already losing a lot of
26:29
Speaker 1: credibility anyway that you know, the royal pride, wolf, etcetera.
26:32
Speaker 1: If they can do it, if the markets are steady
26:34
Speaker 1: and we don't see any real crazy things coming out
26:36
Speaker 1: of Trump or with the economy, I think they'll go
26:39
Speaker 1: ahead and go a lot of people saying it completely
26:42
Speaker 1: takes it off the table. And that's what we're seeing,
26:43
Speaker 1: of course, with the with the the short term rates
26:46
Speaker 1: staying low and the long term rates moving up, which
26:48
Speaker 1: is positive for the banks, but we want to break
26:50
Speaker 1: in there. I mean with the longer term yields rising.
26:53
Speaker 1: I want to talk about inflation. When you're talking about
26:55
Speaker 1: how companies haven't been necessarily reinvesting in sort of development
26:58
Speaker 1: and pro growth type of activities. Do you buy what
27:03
Speaker 1: the bond market is telling us today, which is the
27:06
Speaker 1: inflation will pick up under Donald Trump as president. Lisa,
27:10
Speaker 1: I think that it's telling us more inflation, but it's
27:14
Speaker 1: telling us more inflation as a result of faster economic growth.
27:17
Speaker 1: So there's two major trends we really have to keep
27:20
Speaker 1: our eye on here. One is the fact that the
27:22
Speaker 1: economy has gone through full employment. So we may be
27:24
Speaker 1: worried about market disruptions and whatnot, but taking the unemployment
27:28
Speaker 1: rate from ten percent down to five percent means about
27:31
Speaker 1: fifteen million workers got a job. That makes the economy
27:35
Speaker 1: much more resilient and able to withstand any uncertainty or
27:39
Speaker 1: shocks here. So UH one factor is we've were very
27:43
Speaker 1: close to full employment or we've gone through it, which
27:45
Speaker 1: means more wage pressures next year, which will provide a
27:48
Speaker 1: significant tail wind to consumer spending. The other half of
27:51
Speaker 1: the story is government spending. So there's been this gridlock
27:54
Speaker 1: between the administration and Congress over expanding fiscal stimulus. H
27:59
Speaker 1: that is likely to go by the wayside given the
28:02
Speaker 1: Republican UH sweep across the halls of Washington, d C.
28:08
Speaker 1: And so if we're looking at more government spending, UH,
28:11
Speaker 1: tax cuts UH, and wider deficits that the Loane tells
28:15
Speaker 1: you you should be looking at the higher interest rates.
28:17
Speaker 1: Can I just put this on the table and Matt
28:19
Speaker 1: you come in on this as well. But Carl, I
28:22
Speaker 1: want to kind of continue that thread from Chainsville, Wisconsin
28:25
Speaker 1: and the production of automobiles or the non production. Looking
28:28
Speaker 1: at the shares Afford Motor they are down nearly three percent. Uh,
28:32
Speaker 1: you see steel stocks moving higher. But once you could
28:37
Speaker 1: tell us a little bit about t P T t P,
28:40
Speaker 1: the trade agreement and what you believe will happen. God,
28:44
Speaker 1: Lisa's l I just I really wanted to get Matt
28:47
Speaker 1: real quick your take on inflation. Do you think it's
28:49
Speaker 1: going to pick up? Well? One of the things that
28:51
Speaker 1: I worry about is, uh, this whole increases ciscal spending. Yes,
28:56
Speaker 1: it's it's coming, but when is it coming? I Mean
28:58
Speaker 1: there's a reason that that that there's a presidential election cycle,
29:01
Speaker 1: and the reason for that is that when they anytime
29:04
Speaker 1: a new president comes in, especially if they have a majority,
29:08
Speaker 1: they want to put things in that will help them
29:11
Speaker 1: get re elected down the road. They make the tough
29:14
Speaker 1: decisions in the first year that they may they pass
29:17
Speaker 1: things in the first year in the fiscal side, but
29:20
Speaker 1: those things tend to kick in in the third and
29:22
Speaker 1: fourth year, so it helps them get re elected. That's
29:24
Speaker 1: why the presidential election cycle is not just doesn't just
29:27
Speaker 1: happened by by chance. That's why it happens that way.
29:29
Speaker 1: So I'm worried that some of these things that that
29:31
Speaker 1: that we're talking about here on the fiscal side will
29:34
Speaker 1: not really help the economy uh immediately, And that's why
29:38
Speaker 1: I'm a little bit more concerned about two thousand seventeen.
29:40
Speaker 1: It might be very helpful down the road, but nearer term,
29:43
Speaker 1: when I'm talking about near term, over the next year,
29:45
Speaker 1: it may not be as positive as some people are thinking.
29:48
Speaker 1: Right now. Fiscal spending is positive for the economy, but
29:51
Speaker 1: it usually gets pushed out because of the way that
29:55
Speaker 1: just the way politics works. They like to make sure
29:58
Speaker 1: that those programs kick in and third and fourth year
30:01
Speaker 1: of an administration, so it helps them get reelected down
30:03
Speaker 1: the road. I I agree with the general shape of
30:06
Speaker 1: the profile that those policies maybe things that blossom a
30:09
Speaker 1: little later in the term. Uh. That being said, I
30:12
Speaker 1: do think that tax reform, both corporate tax reform UH
30:15
Speaker 1: and UH individual income tax have returned, will be high priorities. Uh.
30:20
Speaker 1: They were already high priorities for candidate Trump. But I
30:23
Speaker 1: think that Paul Ryan in the House of Representatives is
30:27
Speaker 1: really going to want to strike while the iron's hot,
30:29
Speaker 1: uh and make some significant progress on that front. And
30:32
Speaker 1: there also could be foreign earnings repatriation has been one
30:36
Speaker 1: of the priorities of the House Republicans Carbadna, can can
30:39
Speaker 1: we do a little on trade and what this means
30:41
Speaker 1: for companies that depend on trade? Absolutely? So I think
30:44
Speaker 1: that you know, uh, you know, looking at that things
30:48
Speaker 1: like the t p P UH. You know, initially President
30:51
Speaker 1: Obama UH suggested that maybe he was optimistic he could
30:55
Speaker 1: push it through before the end of his term, basically
30:58
Speaker 1: ramming it through a lay dut Congress UH. And I'm
31:01
Speaker 1: not you know, if you look at those rust belt states,
31:04
Speaker 1: they are very anti t p P on anti trade agreements,
31:08
Speaker 1: and so what possibly his last ditch efforts to push
31:13
Speaker 1: that through. Uh. And also uncertainty that was created through
31:18
Speaker 1: the primaries with Bernie Sanders UH that that Hillary really
31:22
Speaker 1: was not against the t p P or would be
31:24
Speaker 1: happy with some very cosmetic changes to it before she
31:28
Speaker 1: would jump on board. Tim Caine also a big pro
31:32
Speaker 1: what trade, uh politician. Uh, that uncertainty was maybe just
31:38
Speaker 1: enough to push Donald Trump over the edge in Minnesota, Wisconsin, Michigan, Ohio,
31:44
Speaker 1: Pennsylvania and throughout the rust belt. Matt I imagined that
31:48
Speaker 1: right now you're looking through all the different possible proposals
31:52
Speaker 1: and doing research on companies that could benefit from it.
31:56
Speaker 1: What are some of the stocks that you're looking at, uh,
31:59
Speaker 1: that you're waiting to get cheap enough to jump on. Well,
32:02
Speaker 1: it's interesting the couple of things that that we we want.
32:06
Speaker 1: I mean, obviously, the steeper yel curve is very positive
32:09
Speaker 1: for the bank stocks, and they they have all uh
32:11
Speaker 1: they've already had a nice run and they're moving much
32:14
Speaker 1: higher today. Uh. But I'd like to Again, maybe it's
32:17
Speaker 1: more wishful thinking, but I do think the mark will
32:19
Speaker 1: pull back, and these are the things I'll be looking at.
32:21
Speaker 1: The other areas that I don't think a lot of
32:22
Speaker 1: people are talking about. Obviously, people are talking about healthcare
32:25
Speaker 1: right now again that that may be a little bit
32:27
Speaker 1: of a short covering rally. We may get another opportunity
32:29
Speaker 1: to buy them a little bit cheaper levels. But the
32:31
Speaker 1: one area that I don't think people are looking at
32:33
Speaker 1: it's quite as much as they should be, isn't the
32:35
Speaker 1: defense stocks. So some of these stocks, again they've had
32:37
Speaker 1: a nice bounce, But the situation in Syria, I don't
32:41
Speaker 1: think people I'm not an expert on on on international relations,
32:45
Speaker 1: but I do believe that the situation in Syria is
32:48
Speaker 1: much more uh involved than than some people think. And uh,
32:52
Speaker 1: it's very very important to the Russians. They've moved in
32:54
Speaker 1: there very very carefully, a very very in a major way.
32:57
Speaker 1: And uh, that may be a bigger flat point that
33:01
Speaker 1: It's funny because we all worry about a black swan.
33:02
Speaker 1: It's something that comes out of the blue. Well sometimes
33:05
Speaker 1: a black swan. Sometimes we get a big event after
33:07
Speaker 1: something of something we already know about, but we just
33:09
Speaker 1: don't realize as big as it is. I was just
33:11
Speaker 1: gonna tell you a Lockheed Martin shares are up four
33:14
Speaker 1: and three quarters of a percent right now, and and
33:18
Speaker 1: I think that these are ones that could go a
33:19
Speaker 1: lot higher. I mean again, I expect the market to
33:21
Speaker 1: pull back a little bit. Nothing moves on a straight line.
33:24
Speaker 1: I think it would be positive. How but hang on
33:26
Speaker 1: a second, man, I just want to understand something, because
33:29
Speaker 1: prior to the results of the election, you had many
33:32
Speaker 1: equity strategists explain why a Clinton victory would be better
33:37
Speaker 1: for the stock market than a Trump victory. And yet
33:41
Speaker 1: today what we see is a rally and you just
33:44
Speaker 1: nailed it, right, Lockheed Martin. The shares are up four
33:47
Speaker 1: and a half, Raytheon is up six, General Dynamics is
33:50
Speaker 1: up four. I mean, I could go on and on.
33:53
Speaker 1: So I'm just wondering, how is it that the thinking,
33:56
Speaker 1: the perspective can change so radically when just the the
34:00
Speaker 1: day everyone was saying Clinton that would be good for
34:02
Speaker 1: the stock market. Trump would be bad for the stock market.
34:05
Speaker 1: Make any sense? Well, I think the biggest difference are
34:08
Speaker 1: the biggest surprise, and and what people were not expecting
34:13
Speaker 1: was for either side, but especially the GOP to win
34:16
Speaker 1: the whole the whole combang and so uh. In other words,
34:19
Speaker 1: everybody's been saying, hey, divided government is really good, and
34:23
Speaker 1: that has absolutely been the case historically, but this time around,
34:26
Speaker 1: people are like, wait a minute, we are sick and
34:28
Speaker 1: tired of of nothing getting done. So I think that
34:32
Speaker 1: people are are something that's going. Okay, something's going to change.
34:35
Speaker 1: You know, he may not get as much as if
34:37
Speaker 1: we don't want him to get us, maybe as much
34:38
Speaker 1: as everything that he's talked about and not letting anybody
34:41
Speaker 1: in the country and all sorts of other things. But
34:44
Speaker 1: they do feel that we need change, and if it's
34:47
Speaker 1: going to happen, the only way it's going to happen
34:49
Speaker 1: is if we have the president and both houses on
34:51
Speaker 1: the same side. This gives us more of a chance
34:54
Speaker 1: to see some of the changes, get something through, something passed. Uh.
34:58
Speaker 1: And let's say that a lot of these people didn't
34:59
Speaker 1: like Trump's so much, but it's like, let's give him
35:01
Speaker 1: a trial. Let's be we've been doing the same thing
35:03
Speaker 1: for how many decades. It hasn't worked in the last
35:05
Speaker 1: two decades. Let's try something else. So I think that's
35:08
Speaker 1: the change here. I know that sounds very good, uh backward,
35:11
Speaker 1: but I mean, let's we we people want change. And
35:14
Speaker 1: I have been saying for the last couple of weeks
35:16
Speaker 1: that a divided government would actually be negative from the
35:18
Speaker 1: market because people are so sick of it. And now
35:20
Speaker 1: that we're not getting it, that's the surprise that people
35:23
Speaker 1: uh uh not so much. The Clinton loss is that
35:26
Speaker 1: we have a one uh, you know, the Republicans having
35:29
Speaker 1: control control of the government. Uh. And then finally some
35:32
Speaker 1: some real things are gonna pass, some real things are
35:33
Speaker 1: gonna change, and hopefully those are good things. If they
35:36
Speaker 1: turn out to be bad things, not so good. But
35:38
Speaker 1: sometimes people are like change is good. Well, we certainly
35:42
Speaker 1: got a lot of it today, Matt Maylee, thanks very much,
35:44
Speaker 1: equity strategist at Miller tay Back. Carbra Kadonna, Chief US
35:48
Speaker 1: economist Boomberg Intelligence, You want to just give you a
35:51
Speaker 1: final word. Sure, parting thought the sequester is dead, long lived,
35:55
Speaker 1: the sequester h And what you're seeing in the market
35:57
Speaker 1: trends today, I think is, you know, higher interest rate,
36:00
Speaker 1: so obviously that should be favorable for banks. But you
36:03
Speaker 1: see more defense spending, more infrastructure spending uh, and potential
36:07
Speaker 1: barriers to trade being elevated. Those are going to dominate
36:10
Speaker 1: the market reaction in the near term until we get
36:12
Speaker 1: more detail. Carl Kadonna, Bloomberg Intelligence, thank you so much.
36:22
Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
36:24
Speaker 1: You can subscribe and listen to interviews at iTunes, SoundCloud,
36:28
Speaker 1: or whatever podcast platform you prefer I'm pim Fox. I'm
36:33
Speaker 1: out there on Twitter at pim Fox. I'm out there
36:36
Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast.
36:39
Speaker 1: You can always catch us worldwide on Bloomberg Radio