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P&L: Trump's Treasury Secretary Pick Is a Perfect Trump Villain · 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
0:11
Speaker 1: bring you the most important, noteworthy, and useful interviews for
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Speaker 1: you and your money, whether you at the grocery store
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Speaker 1: or the trading floor. Find the Bloomberg p L Podcast
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Speaker 1: on iTunes, SoundCloud and at Bloomberg dot com. Now we're
0:28
Speaker 1: going to take a deeper look at some of the
0:31
Speaker 1: latest appointments by President elect Donald Trump to his cabinet.
0:38
Speaker 1: I want to bring in Justin Sink, Bloomberg government reporter
0:41
Speaker 1: who's joins us from Trump Tower, as well as our
0:44
Speaker 1: own Max Abelson, a Bloomberg finance reporter here in Bloomberg
0:48
Speaker 1: eleven three oh studio. Um, Max, I want to start
0:52
Speaker 1: with you about just you wrote this fantastic profile of
0:55
Speaker 1: Steve Manuchin, former Goldman Sachs banker, who is present at
1:00
Speaker 1: an elect Trump selection to be Treasury secretary. Um, what
1:04
Speaker 1: based on his background does he bring to this post.
1:07
Speaker 1: You know, it's exactly his background that makes it so
1:11
Speaker 1: surprising that Trump has picked him to be Treasury Secretary.
1:13
Speaker 1: I mean to answer your question quickly. We don't really
1:15
Speaker 1: know much about what he wants policy. But what we
1:18
Speaker 1: do know on what Zach Meder and I learned when
1:20
Speaker 1: we wrote our profile of him for Business Week just
1:22
Speaker 1: just a couple of weeks ago in late August, is
1:24
Speaker 1: that this guy has like the kind of career it's
1:27
Speaker 1: almost like a satire of elite success. He was. He
1:31
Speaker 1: went to Yale, but unlike me, I was just a
1:34
Speaker 1: was just a reporter at the wide end, he was
1:36
Speaker 1: actually a publisher of it. He joined Skull and Bones.
1:38
Speaker 1: He became a Goldman Sachs partner just like his dad.
1:41
Speaker 1: Then he ran hedge fund money for George Soros, that
1:45
Speaker 1: Trump villain. He invested in Hollywood blockbusters, and he bought
1:48
Speaker 1: a bank with a bunch of other billionaires one West.
1:51
Speaker 1: You almost like couldn't make up a more perfect almost
1:54
Speaker 1: like Trump villain. And yet um, he's the man Trump
1:57
Speaker 1: has picked to be the next grusury sector the United State.
2:00
Speaker 1: Could you just had a little color and expand on
2:02
Speaker 1: the purchase of the bank in southern California? And what
2:05
Speaker 1: happened when he was in his office in in uh
2:09
Speaker 1: in New York watching TV he saw people lined up
2:12
Speaker 1: outside of Indiemac and he said, I've seen this game
2:15
Speaker 1: before this bank is going to fail. This goes back
2:17
Speaker 1: to the debacle. He said this bank is going to fail,
2:21
Speaker 1: We're gonna buy it. We're gonna make some money. And
2:23
Speaker 1: that is indeed what he did. He gathered a group, Um,
2:26
Speaker 1: he bought Indie mac he reranded it and as One West,
2:29
Speaker 1: and they sold One West to see I t for
2:32
Speaker 1: I think more than three billion dollars. And I think
2:35
Speaker 1: that's going to create some issues in the Senate for
2:36
Speaker 1: the confirmation hearing because One West, of course, Um, you
2:40
Speaker 1: know that they foreclosed on on a high amount. I
2:43
Speaker 1: think it was something like thirty thou foreclosures if I'm
2:45
Speaker 1: if I'm remembering properly, so people including Lizeth Warrener are
2:49
Speaker 1: definitely going to be honest case. I want to bring
2:51
Speaker 1: in Justin Sinc who joined us from Trump Tower. Another
2:55
Speaker 1: nomination today from President elect Trump was Wilbur Ross as
3:00
Speaker 1: Commerce Secretary. Justin What has the response has been like
3:03
Speaker 1: to that nomination. I think Wolver Ross faces some of
3:07
Speaker 1: the same sort of criticisms that we're talking about with
3:11
Speaker 1: Stevens Communition Um with a billionaire investment investor UM, he's
3:16
Speaker 1: known for buying and restructuring troubled companies. He has close
3:22
Speaker 1: personal tips Donald Trump. He helped him resurrect his casino company.
3:26
Speaker 1: But I'm sure we're gonna hear a lot from Democrats
3:29
Speaker 1: and critics about some of his work on industries like
3:34
Speaker 1: textiles where they have not seen a lot of jobs
3:36
Speaker 1: growth come back to the US. Uh Ross is a
3:40
Speaker 1: critic of free trade obviously, Um, that's something that's been
3:44
Speaker 1: pushed by President Obama. But is that kind of populous
3:47
Speaker 1: swing that that elevated both Donald Trump and Bernie Sanders
3:50
Speaker 1: in the Democratic primary, that that might be something where
3:53
Speaker 1: where he is seen as having an advocate to stam
3:57
Speaker 1: justin maybe just give us also some thoughts about Todd Rickett.
4:00
Speaker 1: So he is a co owner of the Chicago Hub
4:02
Speaker 1: Cubs and likely Deputy Commerce Secretary. Yeah, he's uh the
4:08
Speaker 1: son of the owner of the Cubs has had a
4:10
Speaker 1: role there and one kind of funny thing that we've
4:12
Speaker 1: heard he's also the son of the founder of td
4:15
Speaker 1: A Merit Trade. Yes exactly. But they've pointed to to
4:19
Speaker 1: the kind of Chicago clubs turnaround their historic win in
4:21
Speaker 1: the World Series this year is what they want to
4:24
Speaker 1: see Tom rick AT's do in uh In the Trump
4:28
Speaker 1: administration with the federal government. So I think that's a
4:30
Speaker 1: narrative that we'll hear a lot about going forward. Max,
4:33
Speaker 1: I want to talk a little bit more about Minution
4:36
Speaker 1: as the Treasury Secretary, specifically how it relates to banking regulations.
4:43
Speaker 1: Minution has vowed to strip back Dodd Frank, saying the
4:47
Speaker 1: vocal rule is too complicated and difficult to interpret. Do
4:50
Speaker 1: you expect that there should that there could be a
4:53
Speaker 1: wholesale rollback of some of the regulations that have been
4:57
Speaker 1: put in place since the last financial crisis. Well, bank
5:00
Speaker 1: investors certainly seemed to think so, because bank stocks are
5:03
Speaker 1: ripping right now. And look, what's so ironic for me
5:06
Speaker 1: is that Hillary Clinton's um long standing connections to Wall Street.
5:11
Speaker 1: You know, remember how much people talked about the hundreds
5:13
Speaker 1: of thousands of dollars she got from from bank speeches.
5:16
Speaker 1: It was such a source of adjita. I mean, it
5:18
Speaker 1: was really I think one of the reasons she ended
5:20
Speaker 1: up losing the election. People really distrusted her, They associated
5:23
Speaker 1: her with the financial elite. It was such a core
5:27
Speaker 1: part of the campaign. Donald Trump went around calling Wall
5:30
Speaker 1: Street sort of suggesting it was criminal. Remember, do you
5:32
Speaker 1: remember release of the closing ad of the campaign, Lloyd
5:35
Speaker 1: Blanktin's face on on Trump's ad, whereas Trump's voiceover sort
5:39
Speaker 1: of said, you know, there's a global ball trying to
5:41
Speaker 1: steal your money. It's just so incredible to me that
5:44
Speaker 1: he seems to be so unapologetically surrounding himself with people
5:47
Speaker 1: who want to deregulate the big banks. I mean, that's
5:49
Speaker 1: what that's what rolling back Dodd Frank would entail. And
5:53
Speaker 1: maybe they'll find a way of rolling back the laws
5:56
Speaker 1: um in a way that maybe frees up small banks.
5:58
Speaker 1: But I certainly doubt I think rolling back Don Frank
6:01
Speaker 1: is exactly what JP Morgan, what Wills Fargo, what Morgan Stanley,
6:04
Speaker 1: what Goldman Sachs would like to see. Well, just to
6:06
Speaker 1: put some numbers in that context, Max Abelson and JP
6:10
Speaker 1: Morgan shares of one and a half percent, Goldman Sachs,
6:14
Speaker 1: of which Mr Mnuton is an alumni, up more than
6:18
Speaker 1: three and a half percent, Morgan Stanley again and more
6:20
Speaker 1: than two percent. And I'm talking about these are gains today.
6:23
Speaker 1: Bank of America up three and a quarter percent. Justin
6:26
Speaker 1: I want to um go to you. I mean, there
6:29
Speaker 1: probably will be opposition from the Democrats. Uh, they are
6:33
Speaker 1: a minority at this point in Congress. What about from Republicans.
6:36
Speaker 1: Do you think that there will be any pushback from
6:39
Speaker 1: the public the Republican Uh, Congressman, you know, we we
6:43
Speaker 1: haven't seen a lot of that initially. I think actually
6:45
Speaker 1: a lot of Republicans are sort of encouraged that that
6:49
Speaker 1: Donald Trump has recruited a lot of establishment figures. In
6:53
Speaker 1: one person we haven't talked about, but both was named
6:55
Speaker 1: in the last couple of days as Oline Chow, who's
6:57
Speaker 1: married to Mr Connell, the majority leader in the Senate.
7:01
Speaker 1: Um she's going to be Transportation Secretary. And I think
7:05
Speaker 1: that was really olive branch to a lot of Republicans
7:09
Speaker 1: in the Senate. They want to help Donald Trump and
7:12
Speaker 1: seeing supportive especially at the beginning of his administration. And
7:15
Speaker 1: so I don't expect a lot of resistance because Democrats
7:18
Speaker 1: have rolled back rules, so you just need a basic
7:21
Speaker 1: majority to get a presidential appointment through the Senate. It
7:25
Speaker 1: should be fairly easy for Donald Trump to get all
7:27
Speaker 1: of these nominees pushed through. And I think it's also
7:30
Speaker 1: worth noting that Mr Ricketts, Todd Ricketts, who is being
7:35
Speaker 1: tapped for Deputary Deputy Secretary of Commerce. His brother is
7:40
Speaker 1: the Republican is the governor of Nebraska, Pete Ricketts. He's
7:44
Speaker 1: a Republican there. So you've had a lot of familiar
7:46
Speaker 1: ties in the cabinet, at least to serving legislators, and
7:50
Speaker 1: a lot of ties to Wall Street as well. Would
7:52
Speaker 1: be interesting to see just how much Wall Street benefits
7:55
Speaker 1: from some of these new members of his cabinet. Yes, Max,
7:59
Speaker 1: Abel's and thank you so much. Finance reporter Bloomberg News.
8:02
Speaker 1: Follow on Twitter at Max Abelson. Thanks to Justin Sink,
8:06
Speaker 1: Government reporter Bloomberg News. Follow him on Twitter at Justin Sinc.
8:23
Speaker 1: Pim Fox. Did you see the incredible surge in Fanny
8:27
Speaker 1: May shares after Steve mnuchen Uh, the pick for the
8:31
Speaker 1: next Treasury secretary post, said that he does not think
8:35
Speaker 1: that there should be government control of Fannie and Freddie
8:39
Speaker 1: Fannie Mae and Freddie mack Um. Yes, yes, I noted
8:44
Speaker 1: that the stock is up. The stocks are up about
8:47
Speaker 1: well right now, a little bit more than twenty nine percent.
8:50
Speaker 1: That's just since the comments were made early this morning.
8:53
Speaker 1: And I would guess that Bill Ackman of Pershing Square
8:56
Speaker 1: is very pleased about this, considering that he's one of
8:58
Speaker 1: the bigger shareholder in this has almost Fanny May. I
9:03
Speaker 1: want to bring in Joel Bloomberg news reporter covering this
9:06
Speaker 1: issue to talk about what the potential implications are for
9:10
Speaker 1: these agencies backed uh, these agencies mortgages, ensures essentially um
9:16
Speaker 1: and how unprecedented this is. Joe, Thanks for joining us now.
9:21
Speaker 1: It nice to be here. So just give us a
9:23
Speaker 1: little sense of why Steve Manuchin's comments this morning came
9:29
Speaker 1: as such a surprise and gave such a boost to
9:31
Speaker 1: Fanny May and Freddie mac shares. Sure, since the Fannie
9:35
Speaker 1: May and Freddie mac have basically been locked in government
9:38
Speaker 1: control since two thousand and eight, and right now the
9:41
Speaker 1: government's taking nearly all of their profits. You know, it's
9:44
Speaker 1: the kind of thing that's sort of been locked in
9:47
Speaker 1: place for many years. The Obama administration and said consistently
9:50
Speaker 1: that they want to wait on Congress to pass legislation
9:52
Speaker 1: to reform the housing finance system, and Republicans themselves, you know,
9:57
Speaker 1: have consistently said that they want to see Andy and
10:00
Speaker 1: Freddie wound down and and eliminated, so that the fact
10:04
Speaker 1: that milution is going out there and saying, you know,
10:08
Speaker 1: saying that that he wants to see this issue resolved quickly.
10:12
Speaker 1: So that's one thing is positive for shareholders, that he
10:15
Speaker 1: wants to see them get out of government ownership. You know,
10:17
Speaker 1: that's another thing that could be interpreted as positive, positive
10:22
Speaker 1: for shareholders. You know, it's giving is giving shareholders, you know,
10:26
Speaker 1: some hope that this could be resolved and resolved relatively quickly,
10:30
Speaker 1: where they really really had none for for the last
10:33
Speaker 1: last eight years. Martin, if you get off of the
10:35
Speaker 1: background about how Fanny and Freddie ended up in conservatorship
10:39
Speaker 1: and what they actually do, because there is no value
10:44
Speaker 1: in having a guarantee or even implicit guarantee if it
10:49
Speaker 1: doesn't come, let's say, from the US government, at least
10:51
Speaker 1: in this context. Sure so so so Fanny, Fanny and Freddie.
10:54
Speaker 1: I mean, they're basically the plumbing behind America's mortgage market.
10:58
Speaker 1: What they do is they buy, they buy mortgages from lenders.
11:01
Speaker 1: So let's say you go to Wales Fargo and get
11:03
Speaker 1: a mortgage. Um, they'll they'll buy that. Wells Fargo has
11:06
Speaker 1: the opportunity to sell that to Fannie or Freddy. Uh,
11:09
Speaker 1: Fannie and Freddie will take that mortgage. Um that you know,
11:11
Speaker 1: presumably meets its guidelines, wrap it into mortgage backed securities, UH,
11:16
Speaker 1: slap guarantee on there that investors who buy that mortgage
11:19
Speaker 1: backed security will see the payment of principle and interest
11:24
Speaker 1: um and uh and you know, and and by by
11:27
Speaker 1: doing that process, Wells Fargo you know again has money
11:31
Speaker 1: to go out and make another loan. And I mentioned Welles,
11:33
Speaker 1: but you knows any any any lender, Quicken, you know,
11:36
Speaker 1: small lenders, community banks. Uh. This is this is basically
11:39
Speaker 1: the foundation for UM for America's mortgage market. UM. So
11:43
Speaker 1: before two thou eight, investors you know, for the longest time,
11:48
Speaker 1: because because the companies are government chartered, assumed that these
11:52
Speaker 1: mortgage backed securities were as safe to invest in as
11:57
Speaker 1: basically U S U S treasuries so uh so as
12:03
Speaker 1: well well so so that investors assumed that guarantee was there,
12:07
Speaker 1: and that made mortgages very cheap for the lost time.
12:10
Speaker 1: And then once the once the mortgage market you know
12:13
Speaker 1: started started to teeter um and n and you know,
12:17
Speaker 1: people went into default. Fannie and Freddie started reporting losses. UM,
12:23
Speaker 1: there was some concern among mortgage backed securities investors, you know,
12:27
Speaker 1: especially and you know, like foreign governments. For example, you know,
12:29
Speaker 1: they're big investors in American mortgage backed securities. And once
12:34
Speaker 1: those guys started to doubt that the government would actually
12:37
Speaker 1: step in and um uh and and guarantee and guarantee
12:42
Speaker 1: these UH mortgage backed securities if Fanni Freddie went under,
12:46
Speaker 1: that's when the government stepped in, took over the companies,
12:49
Speaker 1: booked the guarantee from being implicit to explicit, and UH
12:54
Speaker 1: and basically took you know, total control of these companies.
12:57
Speaker 1: And as a result of that, as a result of
12:58
Speaker 1: the you know, this bailout, the government took warrants to
13:01
Speaker 1: acquire nearly eighty percent of the company's common stock. They
13:05
Speaker 1: took a new class of preferred shares that initially paid
13:08
Speaker 1: a ten percent dividend, and then later on the government
13:11
Speaker 1: started taking um, taking nearly all of the profits right
13:14
Speaker 1: taking taking the profits. And today there's certainly profits for
13:17
Speaker 1: investors as the shares of Fannie MAE and Freddie max
13:20
Speaker 1: or nearly thirty percent. Thanks very much, Joe Lte joining
13:24
Speaker 1: us from Washington, d C. For Bloomberg News. This is
13:28
Speaker 1: Bloomberry oil prices up more than eight percent, the biggest
13:45
Speaker 1: one day jump since February, OPEC has clinched a deal
13:50
Speaker 1: to curtail oil supply or OPEC will reduce output to
13:54
Speaker 1: thirty two point five million barrels a day. Uh. This
13:58
Speaker 1: really comes despite a lot of skepticism that these uh,
14:02
Speaker 1: that these ministers have come together and come to any agreement.
14:05
Speaker 1: I want to bring in Jason Jason Schenker, president of
14:08
Speaker 1: Prestige Economics, who is in Vienna, to talk a little
14:11
Speaker 1: bit about what the implications are from this deal. So
14:15
Speaker 1: how big of a victory is the fact that they
14:18
Speaker 1: actually did clinch some kind of agreement. Well, I think
14:22
Speaker 1: that you know, it's it's a big victory, and not
14:25
Speaker 1: just because there was a one point to million barrel
14:27
Speaker 1: per day cut from OPEC, but that non OPEC members
14:31
Speaker 1: also have pledged to reduce their supply and production by
14:35
Speaker 1: six hundred thousand barrels a day, with three hundred thousand
14:38
Speaker 1: of that coming from the Russians. So you know, you've
14:41
Speaker 1: got not only ahead of the meeting with their skepticism
14:44
Speaker 1: of a deal, you not only had a deal among
14:46
Speaker 1: the OPEC members, but you also have a deal between
14:49
Speaker 1: OPEC and non OPEC members. So that's a really that's
14:52
Speaker 1: really the most bullish of scenarios for what was expected
14:55
Speaker 1: going into this meeting, Jason, is that likely to continue?
14:59
Speaker 1: If you have a all are gaining strength against many
15:02
Speaker 1: other currencies, doesn't that end up negating any kind of
15:05
Speaker 1: cut in production and increased revenue for the countries that
15:10
Speaker 1: produce oil because they don't really have a lot of
15:12
Speaker 1: other exports to offer the world, do they. Well, you know,
15:17
Speaker 1: it's kind of a mixed bag, right because the countries
15:19
Speaker 1: that are producing oil are being paid in dollars, and
15:21
Speaker 1: a stronger dollar means they're able to buy more stuff
15:24
Speaker 1: in other currencies. A weeker dollar, um, you know, with
15:27
Speaker 1: a with a fifty dollar price means a lot less
15:29
Speaker 1: than a stronger dollar at a fifty dollar price because
15:32
Speaker 1: they are selling those in dollars. So, you know, I
15:35
Speaker 1: think it's actually going to be you know, quite positive
15:37
Speaker 1: for the producing nations. For the consuming nations, this is
15:41
Speaker 1: still a relatively low price, and there's a lot of
15:45
Speaker 1: secular trends that are going to drive consumption. And of course,
15:49
Speaker 1: if we want to know how emerging markets are doing,
15:51
Speaker 1: we should be looking at say the Chinese side Sheene
15:54
Speaker 1: Manufacturing p m I, which comes out tonight. You know,
15:57
Speaker 1: it had been um in the last one four months.
16:00
Speaker 1: In the last two years, it's only showed monthly expansions
16:04
Speaker 1: in four of the last twenty four months. And the
16:07
Speaker 1: good news is three of the last four months have
16:10
Speaker 1: been expansions. In other words, that Chinese manufacturing recession, which
16:15
Speaker 1: is a proxy for global growth, seems to potentially be over.
16:18
Speaker 1: It's one of the reasons if we look at saying copper,
16:21
Speaker 1: that that's been on such a tear despite a strong dollar,
16:24
Speaker 1: because it looks like the global economy seems to be
16:27
Speaker 1: improving and trying to seems to be improving despite that
16:30
Speaker 1: strong greenback. But you did Jason referred to this sort
16:34
Speaker 1: of secular shift there is sort of moved toward cleaner energies,
16:37
Speaker 1: electric cars. Uh. Some have speculated that the global demand
16:43
Speaker 1: for gasoline will peak within the next decade um. How
16:47
Speaker 1: much can just simply a reduction in output really put
16:52
Speaker 1: a floor under oil prices? And how high can oil
16:55
Speaker 1: prices we get from here? Yeah, So a couple of things.
16:58
Speaker 1: So the first thing is, you know, going into this
17:00
Speaker 1: being deal or no deal, the question was did OPEC
17:03
Speaker 1: members want to see a five handle or a three
17:05
Speaker 1: handle on the price of Brent you know today, and
17:08
Speaker 1: I think they came back in and it's clear they
17:11
Speaker 1: wanted to see it above fifty. And that's where we're at,
17:13
Speaker 1: you know, in terms of you know, the secular trend
17:16
Speaker 1: that's more important, I think is the emerging middle class
17:21
Speaker 1: in China and India and other Asia. That's where seventy
17:24
Speaker 1: one percent of oil demand growth is going to come
17:27
Speaker 1: from through for the next twenty five years based on
17:32
Speaker 1: opex on research. Right, that's that's probably a bigger trend
17:36
Speaker 1: than the zero emission vehicles electric cars and the like. Uh.
17:40
Speaker 1: Even the E I A S numbers showed that in
17:43
Speaker 1: a decade you're looking at only a million vehicles sold
17:46
Speaker 1: per month. That's still a relatively low number. Uh. You know,
17:51
Speaker 1: we're thinking about how many cars are going to be
17:53
Speaker 1: sold ten years or now. Jason, you know, we've had
17:57
Speaker 1: deals in the past from OPEC, and indeed OPEC changes
18:00
Speaker 1: its disposition. Indonesia, for example, wasn't able to vote in
18:04
Speaker 1: this because they are now an importer of oil. What
18:09
Speaker 1: what do you see for for the future. I mean,
18:12
Speaker 1: do you think they're going to make this deal stick?
18:14
Speaker 1: What makes it different than the last deal? So there's
18:17
Speaker 1: a couple of things. So once how do Arabia attends
18:19
Speaker 1: to stick to the deals that are made. So maybe
18:23
Speaker 1: not all these barrels will come out of the market.
18:25
Speaker 1: So maybe we don't get all one point two or
18:28
Speaker 1: one point eight if we add in the non OPEC production,
18:31
Speaker 1: but maybe we get a million at the one point
18:33
Speaker 1: eight or maybe we get eight hundred thousand. It's still
18:36
Speaker 1: a meaning production even if we don't get all of it.
18:40
Speaker 1: And I think if you know, what it's really doing
18:42
Speaker 1: here is supporting prices through the winter until you can
18:46
Speaker 1: get to that US driving season where the big demand
18:50
Speaker 1: comes in. Right, So the day that Opex really looking
18:53
Speaker 1: at is in the same way that that in the
18:55
Speaker 1: summer driving season ended on July. The summer driving season
18:59
Speaker 1: or two without seventeen really for refineries begins on one February,
19:05
Speaker 1: when that March w t I Nimex contract closes and
19:10
Speaker 1: the next contract traded as prompt is the April Nimex
19:13
Speaker 1: w t I. We got, we got to maintain, and
19:16
Speaker 1: we got to look at that. And also, well it's
19:18
Speaker 1: not even waiting for July to move higher. NIMEX crewed
19:21
Speaker 1: right now up more than eight and a half percent
19:24
Speaker 1: forty nine eight cents a barrel. Thank you very much.
19:28
Speaker 1: Jason Shanka, Prestige Economics President, joining us from Vienna. Gold
19:44
Speaker 1: down the most this month since with us. We are
19:49
Speaker 1: lucky to have axel Mark, President and Chief Investment Officer
19:53
Speaker 1: of Merk Investments here in reigning, New York from the
19:56
Speaker 1: beautiful San Francisco. I apologize for the weather here, accel Um.
20:00
Speaker 1: We appreciate you being here. I want to make sense
20:02
Speaker 1: of gold. Uh. Late last year you were talking about
20:06
Speaker 1: how gold could play an important role in somebody's portfolio
20:10
Speaker 1: due to all the uncertainty. Uh, with the economic and
20:15
Speaker 1: monetary policy backdrop. What's changed, Well, we had an election
20:20
Speaker 1: and that's the in the key driver, and and so
20:22
Speaker 1: the type of invest in gold is I believe shifting. Um.
20:26
Speaker 1: Gold has always been a diversifying our view correlation to
20:29
Speaker 1: activities near zerolthough of late it's been elevated to bonds.
20:32
Speaker 1: That's gonna fis loud again. Now. One key competitor d
20:36
Speaker 1: key competitive gold is cash. If you earn a real
20:39
Speaker 1: rate of return on cash, why should you own a
20:41
Speaker 1: brick that's just going to cost you to own money?
20:43
Speaker 1: And interest rates maybe inching up, but at the same time,
20:46
Speaker 1: the fet is like to be behind the curves, So
20:48
Speaker 1: that's not really a competitor. But what might be a
20:49
Speaker 1: competitor is if indeed barriers to investments go down, If
20:54
Speaker 1: the House GEOP tax plan um is coming to fruition
20:57
Speaker 1: where suddenly you can deduct investments the first year, that's
21:00
Speaker 1: going to shift the U S economy, mortals, an investment
21:03
Speaker 1: driven economy rather than a consumption driven economy. Those things
21:07
Speaker 1: are negative for gold. Now that said, this is all
21:09
Speaker 1: done on the backdrop of very high valuations, and so
21:12
Speaker 1: volatility is likely to come into the markets and now
21:14
Speaker 1: a view anyway, and so in that environment, gold should
21:16
Speaker 1: do very well. So it's going to be a different
21:18
Speaker 1: type of Investor's going to be more the diversifying investors
21:20
Speaker 1: going to buy a gold and some of the folks
21:22
Speaker 1: who are spooked about rising rates are getting out of gold.
21:25
Speaker 1: I wonder if you could speak a little bit about
21:27
Speaker 1: the US dollar and its relationship to interest rates. But
21:30
Speaker 1: in the context of a statement that was made at
21:33
Speaker 1: that believe it is that the Robin Hood Foundation UH
21:36
Speaker 1: CONFABT billionaire stand Stanley Druckin Miller says that he's bush
21:40
Speaker 1: on the US economy, and somebody says much stronger US
21:44
Speaker 1: dollar and higher bond yields. Well, that's the question, why
21:49
Speaker 1: are the bondials rising and so forth right? And is
21:51
Speaker 1: the glass half full or half empty? Our rates going
21:54
Speaker 1: up because inflation is creeping into a system, because we've
21:56
Speaker 1: got wage pressures, or because we're got to make America
21:59
Speaker 1: great again and we're gonna have all these investment opportunities. Um.
22:02
Speaker 1: Ultimately the real life is going to look more grayish. UM.
22:06
Speaker 1: The dollar historically benefits from the anticipation of higher rates.
22:10
Speaker 1: When actually higher rates come, they don't necessarily go up.
22:13
Speaker 1: And one one reason these these sort of theories come
22:16
Speaker 1: up is because we compare them to the early eighties
22:18
Speaker 1: when Reagan came in and had a lot of reforms.
22:21
Speaker 1: The key difference is that at the time inflation was
22:24
Speaker 1: high and unemployment was was high. Now inflation is very low,
22:28
Speaker 1: as surprises are very high as well, and so that
22:31
Speaker 1: creates very different dynamics. Um. The US Dollar index is
22:34
Speaker 1: already hugely about two standard deviations over it's it's moving
22:37
Speaker 1: average beating on the type of index are using, and
22:39
Speaker 1: so a lot of good news is priced into it.
22:41
Speaker 1: And one of the things that have shifted. The dollar
22:43
Speaker 1: is no longer the prime funding currency of choice. The
22:45
Speaker 1: Euro takes that role now. So if you think that
22:48
Speaker 1: we're gonna have turbulence in the markets, I wouldn't bet
22:50
Speaker 1: on the dollar necessarily doing the best. That's very controversial
22:52
Speaker 1: because historically dollar as of course. Well, but if indeed
22:55
Speaker 1: yields go up because we have such great grow growth perspects,
22:58
Speaker 1: by what means. But if at the same time the
23:00
Speaker 1: bonds are selling off because we're gonna get more inflation
23:02
Speaker 1: because it's easier to get the fiscal spending done than
23:04
Speaker 1: the structure reform, and then no, I don't think the
23:06
Speaker 1: dollars necess are going to be strong. I was I
23:09
Speaker 1: was talking with a number of investment managers. You said earlier, well,
23:12
Speaker 1: we had an election and that that changed a lot, right, Um,
23:15
Speaker 1: And I've been speaking with a lot of investment managers
23:18
Speaker 1: who are saying, you know, we really don't know now
23:20
Speaker 1: what our view for next year is, and we're very
23:22
Speaker 1: uh tentative with any of our calls. Do you have
23:26
Speaker 1: more conviction and what is your highest conviction call? Well,
23:29
Speaker 1: volatility is my highest conviction call. Um. The I'm clearly
23:33
Speaker 1: the market has made a choice here, right, and the
23:34
Speaker 1: glasses how full, And we're reducing barious regulatory barriers, and
23:40
Speaker 1: that means that the barrier to entry is reduced. That's
23:43
Speaker 1: good for small business. That makes big business less competitive,
23:47
Speaker 1: and those are very highly valued. And so, yes, a
23:49
Speaker 1: lot of change is happening. And my key conviction is
23:52
Speaker 1: that risk premium that have been compressed, if bond deals
23:54
Speaker 1: go up, those will rise and that's bad for risk assets.
23:58
Speaker 1: And so my general theme is negative carry ideas are
24:01
Speaker 1: going to prevail the problem of causes. If you sit
24:03
Speaker 1: on them for too long, you're gonna lose money. And gold,
24:05
Speaker 1: by the way, is one of the less expensive negative carries.
24:08
Speaker 1: Just to be more specific, when you see the risk
24:10
Speaker 1: ascids will suffer, you're talking junk bonds, emerging market bonds.
24:13
Speaker 1: Are you talking stocks as well? Everything? Yes, everything has
24:17
Speaker 1: been going up indiscriminately. That's been part of the problem.
24:20
Speaker 1: And we're going to see a greater risk dispersion, which
24:22
Speaker 1: also means that active management is going to come back,
24:25
Speaker 1: because in the past years, the best thing you could
24:28
Speaker 1: have done is not to think to just go with
24:30
Speaker 1: the market as we have uncertainty. And what I think
24:33
Speaker 1: is Trump is going to delegate a lot, and then
24:35
Speaker 1: he's going to start a Twitter war with this or
24:37
Speaker 1: that guy, and so that you have to look through
24:39
Speaker 1: that and then look at well, what are the big
24:41
Speaker 1: themes that are going to come in. But as part
24:42
Speaker 1: of the process, and certainty is going to go up.
24:45
Speaker 1: And when when the house to your peoplan for example,
24:48
Speaker 1: wants to make inputs no longer tax deductible, well the
24:51
Speaker 1: w t O is going to have a say in that.
24:53
Speaker 1: Lots of lobby is gonna have saying that that's going
24:55
Speaker 1: to be watered down. But there's gonna be a lot
24:56
Speaker 1: of big back and forth. Ultimately, it's very easy to
24:59
Speaker 1: spend money because you're going to allow somebody to build
25:02
Speaker 1: a bridge to no way if I can build my wall.
25:04
Speaker 1: But the structural reforms, the tax reforms are going to
25:07
Speaker 1: be far far more difficult, and and that's going to
25:09
Speaker 1: be plenty of food for for volatility, and volatility is
25:13
Speaker 1: bad when when perfectionist priced into the markets, well we're
25:17
Speaker 1: gonna have to wait and see what happens. I want
25:18
Speaker 1: to thank you very much. An alternative call a contrary
25:21
Speaker 1: call there. Axomerk much appreciated. Axomerk is the president and
25:26
Speaker 1: the chief executive of MRK Investments, giving us his thoughts
25:29
Speaker 1: on the dollar and gold and risk acid. Thanks for
25:37
Speaker 1: listening to the Bloomberg P and L podcast. You can
25:40
Speaker 1: subscribe and listen to interviews at iTunes, SoundCloud, or whatever
25:44
Speaker 1: podcast platform you prefer. I'm pim Fox. I'm out there
25:48
Speaker 1: on Twitter at pim Fox. I'm out there on Twitter
25:51
Speaker 1: at Lisa Abramo. It's one before the podcast. You can
25:54
Speaker 1: always at catch us worldwide on Bloomberg Radio. Deed the
26:01
Speaker 1: Lord