Latest / Bloomberg Intelligence / Market Surprise Will Be A Blowup From Europe: Ezrati

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Market Surprise Will Be A Blowup From Europe: Ezrati · Bloomberg Intelligence

0:02
Speaker 1: Welcome to the Bloomberg Penl podcast on Paul Swing You.
0:05
Speaker 1: Along with my co host Lisa Brahma Waits, each day
0:07
Speaker 1: we bring you the most noteworthy and useful interviews for
0:10
Speaker 1: you and your money, whether at the grocery store or
0:12
Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
0:15
Speaker 1: podcast or wherever you listen to podcasts, as well as
0:17
Speaker 1: at Bloomberg dot com. The u S shares have reversed
0:22
Speaker 1: earlier gains. They are going sharply lower. One speculation is,
0:25
Speaker 1: and of course everyone always tries to give a narrative
0:27
Speaker 1: and then everybody else puts it down. But one narrative
0:30
Speaker 1: is that we aren't getting any details on this possible
0:33
Speaker 1: agreement between President Trump and Chinese jusion paying over reducing
0:37
Speaker 1: tariffs or living them all together. Joining us now to
0:40
Speaker 1: talk about this and what else is going on in
0:42
Speaker 1: a global scale that could affect your investments. Milton as Ratti.
0:45
Speaker 1: He has independent economics and investment strategy consultant and chief
0:48
Speaker 1: economists for Vested. So Milton, thank you so much for
0:52
Speaker 1: being here. Do you agree that the market has mostly
0:55
Speaker 1: priced in some sort of trade deal and that the
0:58
Speaker 1: details actually very much at or in terms of whether
1:00
Speaker 1: the market will rally or not on the heels of it. Yeah.
1:03
Speaker 1: I agree. The fact of a trade deal is there.
1:06
Speaker 1: The market uh weeks ago decided we weren't going to
1:10
Speaker 1: have a trade war, and now they're looking for details.
1:13
Speaker 1: And I suspect that the details are because the Chinese
1:19
Speaker 1: are interested in trade and the United States is interested
1:22
Speaker 1: in protecting the integrity of its corporate structures and its
1:26
Speaker 1: technology and um. But Mr Trump of course has harped
1:30
Speaker 1: on trade, so he has to come out with some
1:33
Speaker 1: face saving and the Chinese have to come out with
1:35
Speaker 1: some face saving as well. All right, Well, it seems
1:37
Speaker 1: like we're moving along the path to some degree for
1:41
Speaker 1: you know, some trade negotiations in a trade pack with China.
1:44
Speaker 1: Let's go to the other side of the world where
1:46
Speaker 1: it's less clear, much less clear, which is Brexit. Uh.
1:49
Speaker 1: It appears that these the two sides, the EU and UK,
1:51
Speaker 1: continue to stumble towards some type of resolution. What do
1:55
Speaker 1: you think is going to happen there? Uh? Well, I
1:58
Speaker 1: think the significant thing that happen and it's not happening
2:01
Speaker 1: between Brussels and London, and it's the Labor Party has
2:04
Speaker 1: endorsed another referendum. Uh, you'll forgive my cynicism, but it
2:08
Speaker 1: looks like Britain is following the European model of you
2:11
Speaker 1: will vote and you will vote until you get it right.
2:15
Speaker 1: So you think there's gonna be another referendum. I think
2:18
Speaker 1: there will probably be another referendum. I don't know when
2:20
Speaker 1: it will be scheduled, but they get it right. Um
2:24
Speaker 1: right now. I think the British public, at least, if
2:26
Speaker 1: the polls are to be believed, would vote to remain,
2:30
Speaker 1: but not under these same terms that they existed prior
2:33
Speaker 1: to the vote. So may if she's still in an
2:37
Speaker 1: office at that time, we'll be able to go to
2:39
Speaker 1: Europe after this referendum to sort of qualified referendum to
2:43
Speaker 1: remain and say let's renegotiate the arrangements. And I think
2:48
Speaker 1: that that might be enough of a bone, uh for
2:51
Speaker 1: her to quiet the Brexit side of her party. So
2:54
Speaker 1: we've all talked herself blue in the face about Brexit
2:57
Speaker 1: with little resolution because things seem to get mess your
3:00
Speaker 1: mess here. But there's been increasing focus on the slowdown
3:04
Speaker 1: that we're seeing in the euroregion, in particular stemming from Germany, UH,
3:08
Speaker 1: the area's biggest economy. How worried should we be about that?
3:12
Speaker 1: I think that is the great worry. I'm not suggesting
3:15
Speaker 1: that that the probability suggests a blow up in Europe,
3:18
Speaker 1: but I am seeing this is where the surprise will
3:20
Speaker 1: come for US markets and for global markets. The Brexit
3:24
Speaker 1: deal is a mess. Even if they promise another referendum
3:28
Speaker 1: in the future, uh, it will remain a weight boat
3:32
Speaker 1: on the British economy and the European economy. It's significant
3:35
Speaker 1: Britain is a fifth of the combined EU economy. So
3:39
Speaker 1: this hiatus, if even if it's not an exit, is
3:43
Speaker 1: a wait for their position, and they're slowing down a
3:46
Speaker 1: great deal. In the meantime, you have the Italians, who
3:49
Speaker 1: are both both parts of the Car coalition, despise the
3:53
Speaker 1: EU and would like to follow Britain's example. Yeah, but
3:57
Speaker 1: what would you say that that there is the likelihood
3:59
Speaker 1: of a surprise is how much of a surprise could
4:01
Speaker 1: there be? We already have talked a lot about how
4:03
Speaker 1: much the economy is slowing down, in the populous trends
4:06
Speaker 1: in Italy and even Spain. Well, I think the problem
4:08
Speaker 1: here is that the Italians are the Italians are defying
4:12
Speaker 1: Brussels read Berlin. They're defying Berlin on on their budget
4:17
Speaker 1: and they have threatened to leave and they have run
4:20
Speaker 1: on a leaf platform. That doesn't mean Italy is going
4:23
Speaker 1: to leave, but it does suggest to me that, uh,
4:26
Speaker 1: there could be another round in this ongoing European financial crisis,
4:31
Speaker 1: this slow motion crisis where every few years there's a
4:36
Speaker 1: problem and that rocks global markets. It's uh, and that's
4:39
Speaker 1: where I think the surprise would be, not that Europe
4:42
Speaker 1: is going to grow fast or go into recession. I
4:44
Speaker 1: don't think either will happen um. And the problem on
4:48
Speaker 1: more fundamental level, Uh, Europe has to address the Euro.
4:52
Speaker 1: The Euro is Europe's problem, and even the Germans, who
4:55
Speaker 1: have benefited tremendously from the Euro, have have alluded to
4:58
Speaker 1: the fact that they need to make some adjustments. But
5:01
Speaker 1: with the slowdown, the Germans cannot make any concessions. What
5:05
Speaker 1: type of adjustments you think needs to be made to
5:07
Speaker 1: the Euro? Well, I think there's a realization in Europe
5:09
Speaker 1: that when the Euro was formed, currencies were out of
5:13
Speaker 1: whack with each other, That the deutsch Mark when the
5:16
Speaker 1: Germans entered, was cheap, the Lira, the pasada, all the currencies,
5:21
Speaker 1: particularly in the periphery with deer. That's set up a
5:24
Speaker 1: situation where the Germans exported to the periphery and the
5:27
Speaker 1: periphery consume which was unsustainable. So I think even the Germans,
5:31
Speaker 1: and certainly the Dutch and the Fins and people who
5:33
Speaker 1: are involved who have strong economies have suggested that the
5:37
Speaker 1: Germans have to make concessions. The Germans have alluded to
5:40
Speaker 1: the fact that they would, but the time is not right.
5:43
Speaker 1: They have political problems and their economy is slowing down.
5:46
Speaker 1: They're not going to make concessions now. That means that
5:48
Speaker 1: the pressure remains. All the reasons the Italians want out
5:52
Speaker 1: or a new deal remains. The British, who are not
5:55
Speaker 1: part of the euro it's not it's not their problem,
5:58
Speaker 1: but that comp ounds the situation for the Franco German alliance.
6:05
Speaker 1: Uh I think we could have I'm not. I don't
6:07
Speaker 1: think it's probable necessarily, but I think that would be
6:10
Speaker 1: the surprise another financial blow up in Europe, and with
6:13
Speaker 1: Italy it's a lot more significant than Greece. But you
6:16
Speaker 1: don't think necessarily that there's going to be a recession
6:19
Speaker 1: in the near term in the Eurozone. It sounds like
6:21
Speaker 1: you're fairly sanguine on China at least given the stimulus.
6:25
Speaker 1: What about the US? Do you foresee a near term
6:28
Speaker 1: recession here? Uh No, not near term. I think the
6:31
Speaker 1: economy has no excesses. I know that recently, no excess
6:36
Speaker 1: No except in Washington, and that's perennial. UM. But UM,
6:42
Speaker 1: I don't the business community has strong balance sheets. I
6:44
Speaker 1: know people have talked about debt. A lot of that
6:47
Speaker 1: debt was getting in while the yields were low, and
6:49
Speaker 1: they paid off of the debt. Uh. So statistic I
6:53
Speaker 1: I stick on there is that the debt growth has
6:56
Speaker 1: been about six point one percent a year. Their liabilities
6:59
Speaker 1: growth has been about two percent a year. Clearly, they're
7:01
Speaker 1: using the debt to pay down high expensive borrowing from
7:06
Speaker 1: the past, UM, and they have used it to buy
7:09
Speaker 1: back stock. It's true, UM, the consumer has a strong
7:12
Speaker 1: balance sheet to slowdown. That we're seeing now is part
7:15
Speaker 1: of a pattern where they have shown remarkable prudence for
7:18
Speaker 1: American consumers UM, where they if they're savings rate falls
7:22
Speaker 1: a little low, they pull in their horn and re
7:24
Speaker 1: establish a stronger savings right. And that's what they're doing.
7:28
Speaker 1: So I think later this year they will actually begin
7:30
Speaker 1: to pick up. I know that there's some constraints in
7:32
Speaker 1: the labor market, but um uh that that can be resolved.
7:38
Speaker 1: The consumers are powering this economy still, so they're as
7:43
Speaker 1: Milton has Roddy, thank you very much. Milton is the
7:45
Speaker 1: independent economics and Investment Strategy consultant, a Chief Economists or
7:49
Speaker 1: vested Joining us here, Paul, there is a big question
8:06
Speaker 1: in the era of big data and companies getting a
8:08
Speaker 1: lot of it, the digitization of everything, what are the
8:12
Speaker 1: potential implications from a regulatory standpoint for individual investors who
8:16
Speaker 1: log onto their app or connect to some kind of
8:19
Speaker 1: advisory firm that uses an app or uses some machine
8:22
Speaker 1: learning behind it to understand their client. What are the
8:25
Speaker 1: potential risks here? And joining us now, I'm very pleased
8:27
Speaker 1: to say. Somebody who's given a lot of thought to
8:29
Speaker 1: this Gregory LeBlanc. He has a lectured at Host School
8:31
Speaker 1: of Business at Berkeley Law School. He is uh here
8:35
Speaker 1: with us in Scottsdale, but University of California Berkeley is
8:38
Speaker 1: also I'm sure beautiful right now, So uh, as a professor,
8:41
Speaker 1: what's your sense of this? I mean, what is the
8:42
Speaker 1: potential risk here? Well, if you think about a financial
8:44
Speaker 1: advisor is someone that you know. Usually you want, you
8:46
Speaker 1: want to trust, right, They're not somebody that you want
8:49
Speaker 1: have an arm's length relationship. If you want them to
8:51
Speaker 1: provide you with high quality service, high quality advice, then they,
8:55
Speaker 1: like your doctor, like your lawyer, right, have to get
8:58
Speaker 1: your trust, and that means you're gonna give them a
9:01
Speaker 1: ton of information. I mean, right now, robo advisors ask
9:04
Speaker 1: you things like your age and uh, maybe your planned
9:07
Speaker 1: retirement date. Uh, and um, you know your tolerance for
9:10
Speaker 1: risk and sort of survey based Um, that's gonna change. Right,
9:14
Speaker 1: We're gonna have robo advisors that know you better than
9:18
Speaker 1: your mother, right, just like Facebook and Google now know
9:20
Speaker 1: you better than your mother based on information that they
9:22
Speaker 1: lean from other sources. Well, part of it's gonna be
9:24
Speaker 1: information that you provide. You're gonna probably opt into giving
9:27
Speaker 1: them lots of information. So for instance, UM, if we
9:29
Speaker 1: really want to know your appetite for risk, rather than
9:32
Speaker 1: asking you questions, we should observe your behavior. Do you
9:35
Speaker 1: go to casinos? Right? Do you bungee jump? Right? That
9:37
Speaker 1: sort of thing. That's that's a much more accurate way
9:40
Speaker 1: of of of understanding you. Um, and you know we
9:43
Speaker 1: want the financial advisor to protect us from our our
9:45
Speaker 1: worst h impulses, and so we want them to know
9:48
Speaker 1: about our our worst impulses. And so we're gonna we're
9:50
Speaker 1: gonna share this information. And so in order for them
9:53
Speaker 1: to provide us with high quality service, they need to
9:55
Speaker 1: know a lot about us. But as we've seen the
9:58
Speaker 1: casino companies also, I want to know a lot about us,
10:01
Speaker 1: and and and that they do they use the information
10:03
Speaker 1: that they get to uh, you know, make sure we
10:05
Speaker 1: leave the casino with less money, right rather than more money.
10:09
Speaker 1: So how how have individual investors have their expectations changed
10:13
Speaker 1: in terms of how they interact with I don't know
10:16
Speaker 1: the consumer finance, whether it's a broker or a banker
10:19
Speaker 1: there we how has that change? Well, if you think
10:21
Speaker 1: about a typical financial advisor, I mean, the typical financial
10:24
Speaker 1: advisor is usually over fifty and their clients are over fifty,
10:27
Speaker 1: and most younger people don't really want to deal with
10:29
Speaker 1: this this uh, their dad's financial advisor, and so they're
10:32
Speaker 1: beginning to put their trust into rob advisors. Right. You know,
10:35
Speaker 1: you you open up an app and and then you
10:37
Speaker 1: press a few buttons and you don't actually have to
10:39
Speaker 1: deal with the the backslapping human right and uh and
10:43
Speaker 1: so I think every financial services company realizes this and
10:47
Speaker 1: and they're starting to move in that direction. But it's
10:48
Speaker 1: not just a consumer facing app, but it's also the
10:51
Speaker 1: technology that lies behind it. So have there been any
10:55
Speaker 1: instances where a financial advisor that runs a robo advisory
10:59
Speaker 1: outlet that judges draw in these millennials? Has there been
11:02
Speaker 1: any cases of them using the information to the dutchriment
11:06
Speaker 1: of the investors saying, you know, we're going to sell
11:09
Speaker 1: them this much riskier thing that gives us bigger fees
11:12
Speaker 1: because we know that they bungee jump and they listened
11:15
Speaker 1: to Death Metal. Well, okay, that's right, We're not there yet.
11:18
Speaker 1: But I mean we all know about Wells Fargo and um,
11:21
Speaker 1: you know which a lot of friends who work there,
11:23
Speaker 1: and it's a perfectly fine financial institution. But you know,
11:26
Speaker 1: you know, any big financial institution is if it doesn't
11:29
Speaker 1: have proper controls. Uh, if it has incentives for people
11:32
Speaker 1: to generate revenue, then that they're going to use this data.
11:35
Speaker 1: So you know, Wells Fargo famously got in trouble because
11:38
Speaker 1: they used data for cross marketing purposes and uh, um,
11:42
Speaker 1: you know, aggressively, UM created accounts and and you know,
11:45
Speaker 1: pursued marketing campaigns for individuals based on what they knew
11:49
Speaker 1: about their propensities to buy these different products. Are uh
11:52
Speaker 1: not noticed that these products were being obtained for them? Right?
11:56
Speaker 1: So I guess one thing that I'm just wondering is
11:59
Speaker 1: like how much is this a regulatory issue? How much
12:02
Speaker 1: is this something that should be coming from the government,
12:04
Speaker 1: and how much is this just a cultural issue in
12:07
Speaker 1: each firm, because there's there's really a fuzzy line here.
12:10
Speaker 1: You're absolutely right. I mean, it's the same. Really, this
12:12
Speaker 1: discussions we're having right now about Facebook, we're gonna be
12:14
Speaker 1: having about all of our financial advisors. UM. You know,
12:17
Speaker 1: we have a very lazy fair attitude right now where
12:19
Speaker 1: people opt in. Uh. The problem with most Americans that
12:22
Speaker 1: they say, oh, I believe in privacy, but then if
12:24
Speaker 1: you offer a free slice of pizza in exchange for
12:26
Speaker 1: their DNA, they take it right. And and so you know,
12:32
Speaker 1: I think at some point that the law is going
12:33
Speaker 1: to catch up. I mean, I'm not sure whether we're
12:35
Speaker 1: gonna copy something like gdp R in Europe, but UM
12:39
Speaker 1: and like the big companies are probably going to benefit
12:42
Speaker 1: from those kinds of privacy protections. But that kind of
12:45
Speaker 1: brings my next question, which is which companies or which
12:48
Speaker 1: types of financial institutions are doing this. Well, yeah, well
12:52
Speaker 1: nobody yet. OK. So, um, the you know about betterment
12:56
Speaker 1: and uh personal capital and financial engines. These are robo
13:00
Speaker 1: advisors that have you know, made some headway, and then
13:02
Speaker 1: Schwab and Fidelity and some of the others have copied
13:05
Speaker 1: what they do. But we're at the very very primitive stage.
13:07
Speaker 1: I mean we're at the MySpace era of of you know,
13:14
Speaker 1: rob advising. I think, um, you know, there's just so
13:17
Speaker 1: much potential here that we're just beginning to scratch the surface.
13:20
Speaker 1: So I guess just lastly, in real quick here, do
13:23
Speaker 1: you think that there is an appropriate amount of information
13:27
Speaker 1: for these rob advisors to collect or do you think
13:29
Speaker 1: it's important for them to have all this information? It's
13:31
Speaker 1: just having some sort of control as far as how
13:34
Speaker 1: they use it. Yeah, I mean, the more information they have,
13:36
Speaker 1: the better the job that can do. If you think
13:39
Speaker 1: about Facebook, I mean pretty much every ad I get
13:41
Speaker 1: on Facebook is totally relevant. I mean I would never
13:43
Speaker 1: get rid of my what as soon as I land
13:47
Speaker 1: here in Phoenix, I start getting you know things, but oh,
13:49
Speaker 1: here are some fun things to do in Phoenix. I'm like, oh,
13:51
Speaker 1: this is great information, right because they know me well. Um,
13:54
Speaker 1: but you know you you darn well better trust them.
13:56
Speaker 1: And if they lose your trust, then they lose your business.
13:59
Speaker 1: And and so you know, the companies that have the
14:02
Speaker 1: name brands that they have to be very very careful
14:05
Speaker 1: that they don't lose the trust of their investors because
14:07
Speaker 1: one big scandal and uh, you know Facebook and monopoly,
14:10
Speaker 1: but but financial institutions that we have a lot of
14:13
Speaker 1: competing financial institutions, and so you know, you can't just
14:15
Speaker 1: you can you can't cancel your Facebook account, but hey,
14:17
Speaker 1: I can cancel my Morgan Stanley account and you know,
14:19
Speaker 1: and and and move it over to you know, Goldman
14:21
Speaker 1: Sacks with the click of a mouse. So so I
14:23
Speaker 1: think people have to do behave Gregory Leblan, thank you
14:26
Speaker 1: so much for joining us. Gregory is the lecturer at
14:28
Speaker 1: the Hot School of Business at Berkeley at the University
14:31
Speaker 1: of California. We are talking all things asset management, front office,
14:53
Speaker 1: back office, the whole thing. Joining us to kind of
14:55
Speaker 1: drill down deeper and some key issues is Steve Meyer.
14:59
Speaker 1: Steve is a global wealth management services at s c
15:03
Speaker 1: I SEI has over three billion dollars under management, spased
15:06
Speaker 1: in Oaks, p A. But Steve joins us here in
15:09
Speaker 1: Lovely Scottsdale. Steve, thanks for joining us, Thank you for
15:11
Speaker 1: having me. Boy your industry. It's just tremendous here about
15:16
Speaker 1: all the change that's going on, whether it's regulatory change,
15:19
Speaker 1: competitive change, you know, just investors changing how they're investing.
15:23
Speaker 1: What is the number one issue that you and your
15:26
Speaker 1: attendees here are trying to tackle today. Well, I don't
15:29
Speaker 1: think there's one number one. I think everything you listed
15:32
Speaker 1: is on the minds here. Um. You look, you look
15:34
Speaker 1: at asset management. There's a lot of feed compression and
15:37
Speaker 1: pressure on managers today. Regulatory changes, Um, you know, ironically
15:42
Speaker 1: we look at them as opportunities to help our clients,
15:44
Speaker 1: but they are challenges for our clients. Uh. And then
15:47
Speaker 1: really you look at all the new technology coming out
15:50
Speaker 1: that can support a manager from how they invest and
15:53
Speaker 1: pick stocks all the way through as we started to
15:55
Speaker 1: talk about, through their back office, middle office to front office.
15:58
Speaker 1: I think that all of that is on their minds
16:01
Speaker 1: as well as how is looking forward they differentiate themselves.
16:04
Speaker 1: So I think that's one of the key notes of
16:06
Speaker 1: this conference to get these clients together, a very diverse
16:09
Speaker 1: group of people and firms to start to look at
16:11
Speaker 1: the industry not just what's happened, but what's going on
16:13
Speaker 1: in the future and how they can kind of talk
16:15
Speaker 1: and collaborate and come up with some things that would
16:18
Speaker 1: help them in their strategy. So, Steve, let's dig into
16:21
Speaker 1: some of the changes that are happening, particularly in the
16:23
Speaker 1: processing side. It's not just settlements and and things like that.
16:27
Speaker 1: It's also requests for redemptions and deposits in hedge funds
16:31
Speaker 1: and other issues. What are some of the big developments
16:33
Speaker 1: recently from your end um, Well, I think all of them.
16:36
Speaker 1: You know, everything is being driven and there's an understore
16:39
Speaker 1: underscore of technology and much of this um when you
16:43
Speaker 1: look at the processing side, Uh, really, you have to
16:46
Speaker 1: scale and have a very efficient process. Uh So there's
16:50
Speaker 1: a ton of enabling technologies that many firms like US
16:53
Speaker 1: are looking to employ. But one just not from scaling
16:55
Speaker 1: efficiency standpoint, But if you think about it, the back
16:58
Speaker 1: office is where it all starts. Um. That's the core
17:01
Speaker 1: of the foundation. If you don't have a seamless, well
17:04
Speaker 1: processed back office, you're not going to have the best
17:07
Speaker 1: front office or investor and experience that you can have.
17:10
Speaker 1: The back office is obviously where a lot of the
17:12
Speaker 1: data resides too, and in these days you can't go
17:15
Speaker 1: too long without someone talking about UH. Folks are looking
17:18
Speaker 1: to get into more data analytics, predictive analytics. All of
17:21
Speaker 1: that's going to come out of the back office. That's
17:23
Speaker 1: where it starts. So that's what's pushing what some of
17:26
Speaker 1: the trends were starting to see right now. One of
17:28
Speaker 1: the themes obviously that we've heard in the yesset management
17:30
Speaker 1: business over the over many years, and I'm certainly here
17:32
Speaker 1: I've heard it here just at this conference is UH
17:35
Speaker 1: is the pressure on fees that asset managers are dealing with.
17:39
Speaker 1: How are so, how are they responding and what are
17:41
Speaker 1: some proper responses that you're seeing in the marketplace. Well,
17:44
Speaker 1: they a couple of things. I think they're looking at
17:45
Speaker 1: what their core strategies are UM. You know, most managers,
17:48
Speaker 1: especially multi strap managers are looking and saying, you know,
17:51
Speaker 1: where they want to really make their bets for the future,
17:53
Speaker 1: what their core investment pisis is UM and they're shuttering
17:57
Speaker 1: products that either aren't in favor or aren't really core
18:00
Speaker 1: for their strategy to uh So, I think they're trying
18:03
Speaker 1: not to be all things to everybody and think that's
18:06
Speaker 1: a very good strategy too. They're also focusing on what
18:08
Speaker 1: their core is, and their core is managing money and
18:11
Speaker 1: focusing on clients. So everything else from their technology infrastructure
18:14
Speaker 1: to their processing, if they're doing that in house, they're
18:17
Speaker 1: outsourcing it because they're going to firms like ours that
18:20
Speaker 1: that's our core, that we can give them a better
18:22
Speaker 1: experience and give them more scale in doing that. Do
18:24
Speaker 1: you have trouble hiring people to do what you need
18:26
Speaker 1: them to do? Now, we've been very blessed. We have
18:28
Speaker 1: a very good location our headquarters now Oaks, Pennsylvania. We
18:32
Speaker 1: also have a number of offices across the US and
18:34
Speaker 1: globally London and Dublin, and we have a really good
18:38
Speaker 1: talent base that we can draw from. The reason why
18:40
Speaker 1: I ask that is because a lot of people say,
18:42
Speaker 1: especially when they're trying to build out their tech specialist,
18:44
Speaker 1: because this is a different skill than say processing something
18:48
Speaker 1: by facts, especially if you're talking about data analytics. People
18:52
Speaker 1: talk about a shortage of eligible employees, but you have
18:55
Speaker 1: not found that. No, I mean we we look at
18:58
Speaker 1: we hire uh, certain subject matter experts, and you know,
19:02
Speaker 1: we bring them in from all others all over, so
19:05
Speaker 1: some of them might have to be relocated. But then
19:07
Speaker 1: we do do a very good job of training people.
19:09
Speaker 1: So we do a balance of hiring and getting locate
19:11
Speaker 1: that talent outside as well as putting together a pretty
19:14
Speaker 1: good training program to train up the personnel we need.
19:17
Speaker 1: How about just real quickly twenty seconds US versus let's
19:20
Speaker 1: say Europe. What how's the regulatory or just the competitive
19:22
Speaker 1: environment in your versus here? Well, I'd say the regulatory Uh,
19:26
Speaker 1: it's tough across the lobe, but especially outside the US
19:30
Speaker 1: and the European UH sector is very tough. Rules are changing,
19:35
Speaker 1: they seem to be changing daily. Uh. They seem to
19:37
Speaker 1: be getting tougher. Uh. There seems to be quite a
19:41
Speaker 1: large gate uh you know for asset managers there too
19:44
Speaker 1: to hurdle. And but again we look at this as
19:47
Speaker 1: an opportunity for us to help managers navigate that. Thank
19:50
Speaker 1: you so much for being with us and for having
19:52
Speaker 1: us here. Stiff, head of Global Wealth Management Services at SEI,
19:56
Speaker 1: which oversees more than three hundred billion dollars and also
19:59
Speaker 1: serves a variety of clients from hedge funds to big
20:01
Speaker 1: asset managers with the intricacies of making it work. One
20:21
Speaker 1: aspect that's driving markets a bit higher today is the
20:24
Speaker 1: fact that China is apparently giving more fiscal stimulus, particularly
20:28
Speaker 1: to its manufacturing sector. Joining us now Tom or Like,
20:31
Speaker 1: chief economist for Bloomberg Economics, to discuss kind of what
20:35
Speaker 1: this tax break is that they are giving particularly to manufacturers,
20:39
Speaker 1: and whether markets are accurately reflecting the boost. So Tom,
20:43
Speaker 1: what is this VAT tax that we're talking about here
20:45
Speaker 1: and what did China do? So we've got the National
20:49
Speaker 1: People's Congress coming up this week, Lisa. Tomorrow, we're going
20:52
Speaker 1: to get Premier Lika Chiang giving his annual work reports
20:56
Speaker 1: UM to the Chinese legislature. So the V eight T
21:00
Speaker 1: is going to be part of it. And we've got
21:02
Speaker 1: a Bloomberg News scoop suggesting a cut in the v
21:05
Speaker 1: A T rate which could be worth around nor point
21:09
Speaker 1: six percent of g D rate or what is this
21:12
Speaker 1: in practical terms? So this is the the value added tax.
21:17
Speaker 1: So it's a tax which businesses pay on the value
21:21
Speaker 1: added component of their manufacturing UM. The bigger picture, though, Lisa,
21:26
Speaker 1: is that um China's policymakers have recognized that they've pushed
21:31
Speaker 1: all the buttons that they can push in terms of
21:33
Speaker 1: monetary policy, and so when the economy needs more support,
21:37
Speaker 1: like it does in two thousand and nineteen, it has
21:39
Speaker 1: to come from fiscal channels. So part of it is
21:43
Speaker 1: probably going to be this v A T cut, But
21:45
Speaker 1: the bigger picture is that we're expecting a larger fiscal
21:48
Speaker 1: deficit target for two thousand and nineteen. We think if
21:52
Speaker 1: you add up the central government deficit some special bonds
21:55
Speaker 1: which they're going to ally the local governments to issue,
21:58
Speaker 1: we could be looking at a fiscal to sit target
22:00
Speaker 1: of about five pc of GDP for the year. That's
22:04
Speaker 1: including the v A T cut that we were suggesting.
22:06
Speaker 1: So China's policy makers lining up to give a pretty
22:09
Speaker 1: significant fiscal boost to growth in two thousand and nineteen.
22:13
Speaker 1: Maybe the Chinese economy this year is going to look
22:16
Speaker 1: a bit like the US economy last year with that
22:18
Speaker 1: big turbo charge from the Trump tax cut. And I
22:21
Speaker 1: think that's why we're seeing a bit of optimism creeping
22:23
Speaker 1: into the markets. So Tom, let me let me just
22:26
Speaker 1: start off here I mean you and I known each
22:28
Speaker 1: other for a while. How many years did you live
22:29
Speaker 1: in Beijing studying the Chinese economy? Um? I was there
22:32
Speaker 1: eleven years, Paul, Like, I got it just before my
22:35
Speaker 1: lungs gave in. All right, so you know what's going
22:38
Speaker 1: on there. So let me give you just get your
22:40
Speaker 1: opinion on these on again, off again trade talks. They
22:42
Speaker 1: seem to be back on again. My question to you is,
22:45
Speaker 1: will there be anything substantive in these trade talks number
22:49
Speaker 1: one and number two? Uh? Can we verify that China's
22:53
Speaker 1: actually will will actually you know, kind of uh do
22:56
Speaker 1: what they say they're gonna do. I think there's going
22:59
Speaker 1: to there's going to be a bunch of components to
23:01
Speaker 1: this pool, and as you suggest, verification is going to
23:04
Speaker 1: be absolutely key for the US side. Um, So, I
23:07
Speaker 1: think we're going to get some immediate results. There's going
23:11
Speaker 1: to be a dollar amount which China agrees to buy,
23:14
Speaker 1: whether it's soybeans or natural gas or corn or whatever.
23:18
Speaker 1: But there's going to be a dollar amount for a
23:20
Speaker 1: specific amount of purchases which China commits to make to
23:23
Speaker 1: reduce the trade deficit. And then there's going to be
23:25
Speaker 1: some immediate things right, So there'll be some immediate things
23:28
Speaker 1: around allowing businesses from the US to operate as wholly
23:33
Speaker 1: owned foreign ventures in China, not forcing them into joint ventures.
23:37
Speaker 1: The more difficult things though, can we protect intellectual property,
23:42
Speaker 1: Can we reduce subsidies to stay owned firms. Can we
23:45
Speaker 1: allow foreign firms to operate on a level playing field
23:47
Speaker 1: in China? These are clearly things which you can't do
23:50
Speaker 1: in a week or a month or even a year.
23:52
Speaker 1: So that's why there's going to be a need for
23:53
Speaker 1: an enforcement mechanism to go into place. So meanwhile, as
23:57
Speaker 1: these trade talks continue, the reason why people are so
24:00
Speaker 1: interested in the v A T tax or sort of
24:02
Speaker 1: some of these fiscal stimulus measures is there is a
24:05
Speaker 1: question of how much the Chinese economy is slowing down
24:08
Speaker 1: in the meantime and how much ammunition they have left
24:11
Speaker 1: frankly get it going again. I mean, it's still growing,
24:14
Speaker 1: but at that six percent target rate that they would
24:17
Speaker 1: like to see. So what's your view on that. Do
24:19
Speaker 1: you think that they have enough juice to kind of
24:21
Speaker 1: kind of get that going. Yeah, it's a slightly sort
24:24
Speaker 1: of complex and unsatisfactory answer, Lisa, But um, they've got
24:29
Speaker 1: less we're used to those they've got left. They've clearly
24:33
Speaker 1: got less firepower than they did. Um. If you look
24:36
Speaker 1: at the economy as a whole, debt is around two
24:39
Speaker 1: and fifty of g d P. That's a lot of debt.
24:42
Speaker 1: So they've got less firepower than they did have. Even so,
24:46
Speaker 1: government debt is still relatively under control. The banking system
24:50
Speaker 1: as well funded. So if they need to stimulate this year,
24:53
Speaker 1: next year, the year after, I didn't see a huge
24:56
Speaker 1: problem with that. I still think the structure are all
25:00
Speaker 1: drag on China. The kind of the point where they're
25:03
Speaker 1: out of ammunition. I think we're talking about in the
25:05
Speaker 1: mid twenty twenties, not the next two or three years. Hey, Tom,
25:09
Speaker 1: just real quickly, in the next twenty seconds. Um, you
25:11
Speaker 1: know the China. What have you believe that GDP is
25:13
Speaker 1: a six or six percent growth number for them? We've
25:16
Speaker 1: heard much lower potentially, what do you think that real
25:18
Speaker 1: number is? So the question I have for the datas
25:21
Speaker 1: on China's GDP data is you seem really happy to
25:25
Speaker 1: believe that credit growth is super fast. If credit grades
25:29
Speaker 1: super fast and that's going into some kind of meaningful activity,
25:33
Speaker 1: then there has to be some growth so we think
25:36
Speaker 1: there's smoothing in the GDP numbers, but we're skeptical that
25:39
Speaker 1: they're real numbers, very far below what the official data suggests. Interesting, okay,
25:44
Speaker 1: because we've heard numbers you know, significant or maybe exactly
25:49
Speaker 1: Tom more like, thank you very much. Tom again, eleven
25:51
Speaker 1: years in China studying the economy, so he is certainly
25:55
Speaker 1: the go to person here. Tom's chief economist for Bloombrick Economics.
25:58
Speaker 1: He joined us on the phone and from Washington, d C.
26:01
Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
26:03
Speaker 1: You can subscribe and listen to interviews at Apple Podcasts
26:06
Speaker 1: or whatever podcast platform you prefer. I'm Paul Sweeney. I'm
26:09
Speaker 1: on Twitter at pt Sweeney. I'm Lisa Abram Woyds. I'm
26:12
Speaker 1: on Twitter at Lisa A. Bram Woyds. One. Before the podcast,
26:15
Speaker 1: you can always catch us worldwide. I'm Bloomberg Radio