Latest / Bloomberg Intelligence / We Are Being Choked by Regulatory Environment, Stefanski Says

Transcript

We Are Being Choked by Regulatory Environment, Stefanski Says · Bloomberg Intelligence

• 0:00
  Speaker 1: P and L is brought to you by proper Cloth,
• 0:02
  Speaker 1: a leader in men's custom shirts with proprietary smart sized
• 0:05
  Speaker 1: technology and top rated customer service. Ordering a custom shirt
• 0:08
  Speaker 1: has never been easier. Visit proper cloth dot com to
• 0:11
  Speaker 1: order your first custom shirt today. Welcome to the Bloomberg
• 0:20
  Speaker 1: P and L Podcast. I'm Pim Fox. Along with my
• 0:22
  Speaker 1: co host Lisa Abramowitz. Each day we bring you the
• 0:25
  Speaker 1: most important, noteworthy, and useful interviews for you and your money,
• 0:29
  Speaker 1: whether you at the grocery store or the trading floor.
• 0:32
  Speaker 1: Find the Bloomberg P and L Podcast on iTunes, SoundCloud
• 0:35
  Speaker 1: and at Bloomberg dot com. A rising rate environment, what's
• 0:45
  Speaker 1: that going to do to the real estate business to homeowners?
• 0:48
  Speaker 1: Let's find out from Mark Stefanski. He's the chief executive
• 0:52
  Speaker 1: of Third Federal Savings and Loan. Mark, thank you very
• 0:55
  Speaker 1: much for being with us. Just start us off by
• 0:57
  Speaker 1: telling people a little bit about a Third Federal Savings
• 1:00
  Speaker 1: and Loan. Okay, yeah, good morning, Thank you for having
• 1:04
  Speaker 1: me on the show. Uh yeah, My parents started Third
• 1:09
  Speaker 1: Federal back in n My dad frantically invented the home
• 1:12
  Speaker 1: mortgage business, and so I'm second generation. We do business
• 1:17
  Speaker 1: in twenty three states. Now we have stores in Ohio
• 1:20
  Speaker 1: and Florida. Uh. Yet we we do business in twenty
• 1:24
  Speaker 1: three states via the Internet and direct mail, and we
• 1:26
  Speaker 1: make more home mortgages than anyone else in the state
• 1:29
  Speaker 1: of Ohio. We mark. We were talking earlier with our
• 1:33
  Speaker 1: Bloomberg News colleague about some concerns among some congressmen that
• 1:38
  Speaker 1: there are insufficient opportunities to provide credit for small and
• 1:43
  Speaker 1: mid sized businesses. I'm wondering from your vantage point, you
• 1:46
  Speaker 1: have a really good view into Middle America, do you
• 1:50
  Speaker 1: feel that this is the case. Well, I do think
• 1:54
  Speaker 1: that the regulatory environment is hampering uh those kinds of
• 1:59
  Speaker 1: loans and that kind of expansion in the economy. Uh Uh, well,
• 2:06
  Speaker 1: it's just DoD frank in itself requires Uh let's say,
• 2:10
  Speaker 1: for a homeowner, if you own your own business, Uh,
• 2:13
  Speaker 1: the ability to repay is a huge, huge issue because
• 2:16
  Speaker 1: you have to show that you have uh W two's
• 2:21
  Speaker 1: and you have to have tax returns to show your
• 2:24
  Speaker 1: income to prove that you can pay for for the mortgages.
• 2:27
  Speaker 1: And that's ten percent of our business. And it's really
• 2:30
  Speaker 1: hard to get those people qualified because not everything is
• 2:33
  Speaker 1: always shown on in a W twoe form or on
• 2:38
  Speaker 1: their tax returns, and people who or their own businesses
• 2:42
  Speaker 1: are very very uh stuck right now and trying to
• 2:46
  Speaker 1: get home owns. And that's the middle class that's in
• 2:48
  Speaker 1: Middle America that everyone's been saying, well, it has to grow,
• 2:50
  Speaker 1: it has to grow, but specifically that Styman's the growth
• 2:54
  Speaker 1: in in that particular area. Have you been able to
• 2:59
  Speaker 1: I mean you're based in Ohio, as you said, I mean,
• 3:02
  Speaker 1: have you been able to make your concerns and these
• 3:05
  Speaker 1: challenges known to the officials that maybe could could affect
• 3:11
  Speaker 1: some kind of change. Well, uh, right now, No, it
• 3:18
  Speaker 1: doesn't matter because all those concerns fallen deaf ears. Uh yeah,
• 3:25
  Speaker 1: because that Frank has has taken over the industry. And
• 3:29
  Speaker 1: uh well, I think right now, I think everyone in
• 3:32
  Speaker 1: the industry, and I think the general public is more
• 3:34
  Speaker 1: optimistic given given the new president and the the push
• 3:40
  Speaker 1: for a more of a are less emphasis on regulation.
• 3:44
  Speaker 1: I think that that's going to be very helpful. But
• 3:47
  Speaker 1: but to to try to appeal to the regulatory body,
• 3:50
  Speaker 1: or to Congress, or to anybody, it's it's falls on
• 3:52
  Speaker 1: deaf or has fallen on deaf ears, especially in the
• 3:55
  Speaker 1: last eight years. Mark can you just sort of square
• 3:58
  Speaker 1: something for me, because there I just want to contrast
• 4:01
  Speaker 1: what you're talking about as far as credit conditions being
• 4:04
  Speaker 1: too tight with a lot of fears of excessive froth
• 4:08
  Speaker 1: in other parts of the credit market. You've seen that
• 4:11
  Speaker 1: in corporate credit and uh, just this week the Federal
• 4:14
  Speaker 1: Reserve eyeballed commercial real estate as a potential new area
• 4:18
  Speaker 1: of froth. Do you think that that this is an
• 4:21
  Speaker 1: accurate description of the sort of bigger credit markets or
• 4:25
  Speaker 1: do you think that these are just completely bifurcated markets
• 4:28
  Speaker 1: at this point? Well, I think that regulators, regulators, um,
• 4:33
  Speaker 1: they don't know what they don't know, so they're always
• 4:36
  Speaker 1: looking for the next next big thing to hit. And
• 4:39
  Speaker 1: and I can't honestly say that one the regulatory environment
• 4:43
  Speaker 1: has guessed, they've guessed right. It's usually they do a
• 4:46
  Speaker 1: very good job of cleaning up the mess after something's happened.
• 4:50
  Speaker 1: And uh, that's that's you know, that's what's happening with
• 4:53
  Speaker 1: Don Frank. Yet there's unintended consequences where you know, big
• 4:57
  Speaker 1: banks are basically the targets, but it's trickled down into
• 5:01
  Speaker 1: all the banking and all the mid science banks, all
• 5:04
  Speaker 1: the small banks. They're being choked. We are being choked
• 5:07
  Speaker 1: by the regulatory environment. Uh. And it's to the detriment
• 5:10
  Speaker 1: of the economy and detriment of people that once qualified
• 5:15
  Speaker 1: at the third Federal for example, in qualify because we
• 5:19
  Speaker 1: had a change our criteria based on the demand that
• 5:23
  Speaker 1: you're seeing. Is the economy operating at a two g
• 5:29
  Speaker 1: d p or is it operating at slower than current expectations.
• 5:35
  Speaker 1: I think it's a little slower um. However, I think
• 5:39
  Speaker 1: it is better. We were very very stagnant there for
• 5:43
  Speaker 1: a long time. I think there's optimism in the air.
• 5:46
  Speaker 1: I think the when the Fed moves on an interest rate,
• 5:50
  Speaker 1: whether it be up or down, that gets people excited.
• 5:53
  Speaker 1: And I think the anticipation of the Fed would like
• 5:56
  Speaker 1: to see the Reserve raised interest rates three times this year.
• 6:01
  Speaker 1: You know they could, and I don't think it's going
• 6:03
  Speaker 1: to have a dramatic effect then on the on the
• 6:08
  Speaker 1: market consumer. Really why is that? Well? I just think
• 6:12
  Speaker 1: that psychologically people right now are in a real good place.
• 6:15
  Speaker 1: People are very optimistic. So when when the raises rates
• 6:19
  Speaker 1: a little bit against people more excited that they might
• 6:21
  Speaker 1: go up further. So you get more volume coming in
• 6:24
  Speaker 1: but frankly, I don't see how those those changes in
• 6:28
  Speaker 1: interest rates going dramatically, you know, affected the consumer demand
• 6:32
  Speaker 1: for for homes. I just don't think that it's going
• 6:35
  Speaker 1: to move enough to put people that much out of
• 6:38
  Speaker 1: the market. And think about it, when most of us
• 6:41
  Speaker 1: were growing up, interest rates of seven eight nine percent
• 6:44
  Speaker 1: were norm and I've been around long enough, I saw
• 6:47
  Speaker 1: fifteen percent um that was horrific, and and now down
• 6:52
  Speaker 1: to four percent. People are complaining that the right so
• 6:54
  Speaker 1: might go up to four and a half or something
• 6:56
  Speaker 1: for a thirty or fixth rate mortgage. That's not so bad.
• 6:59
  Speaker 1: Although you know, some people have said that in the
• 7:02
  Speaker 1: in the wake of these incredibly low interest rates that
• 7:05
  Speaker 1: we've had since two thousand and eight, uh, that housing
• 7:09
  Speaker 1: prices and commercial real estate prices have gotten away from themselves,
• 7:13
  Speaker 1: and that as people, as the FED raises rates and
• 7:16
  Speaker 1: as borrowing costs rise, we're going to see a sort
• 7:18
  Speaker 1: of deflation of these bubbles. From your experience so far,
• 7:22
  Speaker 1: do you observe a slowdown in demand or anything that
• 7:25
  Speaker 1: suggests that there is a weakening in the housing market now?
• 7:29
  Speaker 1: In fact, I think it's quite the opposite, because I
• 7:31
  Speaker 1: think a lot of it, whether it be UM in
• 7:34
  Speaker 1: any sector of the economy tends to feel to be
• 7:37
  Speaker 1: feeled by UM UH perception UH and and consumer confidence.
• 7:42
  Speaker 1: So I think the consumer confidence right now is pretty
• 7:45
  Speaker 1: darn good, as good as it's been in the last
• 7:47
  Speaker 1: eight to ten years. And I think that's going to
• 7:50
  Speaker 1: go a long way. And of course we'll find out
• 7:52
  Speaker 1: in the next four years how good that optimism will
• 7:56
  Speaker 1: will hold. I want to thank you very much for
• 7:59
  Speaker 1: spending time with us. Mark Stefanski is the chief executive
• 8:02
  Speaker 1: of Third Federal Savings and Loan and you know, Lisa
• 8:07
  Speaker 1: that his parents, Ben and Jerome they started fifth third
• 8:15
  Speaker 1: Federal Savings alone. They started in nineteen thirty eight with
• 8:20
  Speaker 1: just fifty dollars in initial capital. We've heard a lot
• 8:36
  Speaker 1: of news overnight about President Trump's conversations with the Australian
• 8:41
  Speaker 1: and Mexican UH leaders, and some of the language has been,
• 8:46
  Speaker 1: uh sort of sort of incendiary, uh, to say the least.
• 8:50
  Speaker 1: I want to bring in Marty Shanker, who heads the
• 8:53
  Speaker 1: Washington bureau for Bloomberg News, and Marty, I want to
• 8:56
  Speaker 1: start with, UH, what your take is on what we've
• 9:00
  Speaker 1: heard overnight, is the US removing itself from its longest
• 9:05
  Speaker 1: standing allies or is this just bluster? Well it would
• 9:08
  Speaker 1: appear so. Um, but Donald Trump tweeted just a little
• 9:12
  Speaker 1: while ago, you know, not to be concerned about his
• 9:15
  Speaker 1: tough talks with our closest allies, and you know, uh,
• 9:20
  Speaker 1: And Tim O'Brien has an interesting viewpiece today in which,
• 9:23
  Speaker 1: you know, this notion of Trump having this grand plan
• 9:27
  Speaker 1: and all of us in journalism trying to figure out
• 9:30
  Speaker 1: just where everything fits. And he says, that's a fool's
• 9:33
  Speaker 1: Errand this is coming from his gut. It's spontaneous. He
• 9:38
  Speaker 1: feels he's doing the things he said he would do
• 9:41
  Speaker 1: once he got elected. And he feels the US has
• 9:45
  Speaker 1: been just too nice to the rest of the world,
• 9:47
  Speaker 1: friends and foe alike. So he's going to do things
• 9:50
  Speaker 1: his way. Hey, Marty of fair disclosure? How long have we?
• 9:55
  Speaker 1: I mean, I I gotta say everything I learned. I
• 9:57
  Speaker 1: think I learned that your knee at the Wall Street
• 9:58
  Speaker 1: Journal I'm not not and I was just twelve years old, right, Yeah,
• 10:02
  Speaker 1: well we were both in short pants. You know. It's
• 10:05
  Speaker 1: been a long trip, Yes, it has, um what in
• 10:10
  Speaker 1: your bones and your gut? All right? You talked about
• 10:12
  Speaker 1: the president's gut. You're a journalist through and through in
• 10:16
  Speaker 1: your gut, what what is going on and what needs
• 10:20
  Speaker 1: I mean, you can't do this on a regular basis
• 10:23
  Speaker 1: in twy not well, that's my question. In other words,
• 10:26
  Speaker 1: something's got to give. Well, look there there, it's been
• 10:30
  Speaker 1: like two weeks he's been president. He does he had
• 10:33
  Speaker 1: very few members of his cabinet in place. That's being
• 10:37
  Speaker 1: you know, we just saw Rex Tillerson at the State Department,
• 10:41
  Speaker 1: and you know he was he's basically keeping the council
• 10:45
  Speaker 1: of his closest adviser Steve Vannon, uh and others. Um.
• 10:50
  Speaker 1: And he hasn't had the benefit of, you know, real
• 10:52
  Speaker 1: time communication with people, with experienced people who are respected
• 10:57
  Speaker 1: in their fields. And I think he has not been
• 11:00
  Speaker 1: able to And he's always said he likes to hear
• 11:04
  Speaker 1: dissident opinions, and by all accounts he's a great listener
• 11:09
  Speaker 1: in private. And so I think that things can very
• 11:14
  Speaker 1: easily be more moderate nature going forward. But I do
• 11:19
  Speaker 1: think his impulsiveness will never go away. And um, for
• 11:24
  Speaker 1: those of us who say to ourselves, this is going
• 11:28
  Speaker 1: to slow down eventually, I think he got to guard
• 11:30
  Speaker 1: against that. I think that he that he has decided
• 11:34
  Speaker 1: this is the way he wants to communicate, and in fact,
• 11:36
  Speaker 1: this is the way he wants to express policy, and
• 11:39
  Speaker 1: he's going to continue to do that. What's the color
• 11:42
  Speaker 1: that you're hearing from the Republican establishment in Congress and beyond, Well,
• 11:46
  Speaker 1: they are steadfastly behind him. Uh, you know, I don't know.
• 11:52
  Speaker 1: I have stated privately that I think that his support
• 11:55
  Speaker 1: among the Republicans is razor thin um, and that he
• 12:01
  Speaker 1: it's a tenuous relationship, but it is a solid one
• 12:05
  Speaker 1: um for for now. I think the immigration uh proposals
• 12:10
  Speaker 1: that he had tested that relationship and the Republicans lined
• 12:13
  Speaker 1: up pretty solidly in favor of perhaps not the messaging
• 12:19
  Speaker 1: but the policy itself. So and and the majority of
• 12:23
  Speaker 1: Americans support it too. So I think the Republicans are
• 12:27
  Speaker 1: going to stand by their president until such time as
• 12:30
  Speaker 1: they themselves are threatened in terms of re election issues. Marty,
• 12:36
  Speaker 1: can you just give us a reality check? Some people
• 12:39
  Speaker 1: here the rhetoric of President Trump saying he's going to
• 12:42
  Speaker 1: invade uh Mexico in a conversation that the White House
• 12:46
  Speaker 1: now says was just a tough talk and a joke. Um,
• 12:51
  Speaker 1: at what point, just taking this to its extreme. At
• 12:53
  Speaker 1: what point does this lead to a real military altercation? Well,
• 12:57
  Speaker 1: I think we're pretty far away from that. And I
• 13:00
  Speaker 1: think Donald Trump got a stark example of what military
• 13:05
  Speaker 1: confrontation means with the first death under his watch. And uh,
• 13:10
  Speaker 1: you know, by all accounts, that is a very sobering
• 13:13
  Speaker 1: moment for anyone, and especially a president who ultimately is
• 13:17
  Speaker 1: responsible for all military activity. So I do think that
• 13:21
  Speaker 1: a lot of these conversations, when they're put in print
• 13:24
  Speaker 1: for in text, look a lot more vitriolic and our
• 13:29
  Speaker 1: cast without context, without the nuance of actual conversation, and
• 13:34
  Speaker 1: I think people tend to overreact to that. Let's turn
• 13:38
  Speaker 1: to our allies for just a second. Phone calls with
• 13:42
  Speaker 1: Prime Minister Turnbull in Australia. What's been your any details
• 13:49
  Speaker 1: you can shed anything you can No, I mean, we
• 13:53
  Speaker 1: have not been able to stand up that communication. You know,
• 13:55
  Speaker 1: that was broken by the Washington Post in great detail.
• 13:58
  Speaker 1: And you've got to assume someone who was privity to
• 14:01
  Speaker 1: those conversations decided to leak it because they were concerned
• 14:03
  Speaker 1: about it. Um. Just to be clear, it was a
• 14:06
  Speaker 1: conversation where President Trump allegedly said, uh that it was
• 14:12
  Speaker 1: the worst conversation that he had all day and basically
• 14:14
  Speaker 1: threatened him with the refugee agreement that they had, that
• 14:17
  Speaker 1: that the US previously came to with Australia, right and
• 14:19
  Speaker 1: and and the Australian leader Turnbull later said, look, you
• 14:23
  Speaker 1: know he was dismayed about the league and that the
• 14:26
  Speaker 1: actually be the ending of that conversation was courteous, but
• 14:31
  Speaker 1: be that as it may. Donald Trump came out and said,
• 14:34
  Speaker 1: you know, don't worry about my tough talk. He has
• 14:38
  Speaker 1: decided that he is keeping his promise. America comes first.
• 14:42
  Speaker 1: He was very upset about this immigration deal and he
• 14:46
  Speaker 1: was going to let turn Bill know, and he did.
• 14:51
  Speaker 1: Got to affect businesses, yes, right, I mean you know
• 14:54
  Speaker 1: you kind of I know, you stopped there on the
• 14:56
  Speaker 1: political side, but then you gotta turn your attention and say, okay,
• 14:58
  Speaker 1: so what are the effects here? Because you may be
• 15:01
  Speaker 1: able to run a government as you just described it,
• 15:04
  Speaker 1: but it's very hard to run a business. No, it's
• 15:06
  Speaker 1: totally skill. And that's why this meeting with CEOs tomorrow
• 15:10
  Speaker 1: is kind of in my task about it critically important. Well,
• 15:14
  Speaker 1: this is his business council. These the people he asked
• 15:17
  Speaker 1: to advise him. On policy and everybody from Jamie Diamond
• 15:21
  Speaker 1: to Jane Metti, and it's very it's going to be
• 15:25
  Speaker 1: very interesting. The tenor of what that meeting is going
• 15:29
  Speaker 1: to be. Will they come in and say, Mr President,
• 15:32
  Speaker 1: you're wrong on immigration, you're wrong on trade, you're wrong
• 15:36
  Speaker 1: on taxes, or are they going to sit with hands
• 15:40
  Speaker 1: folded and listen to Donald Trump say this is the
• 15:42
  Speaker 1: way it's going to be. Um And you know they're
• 15:46
  Speaker 1: from all parts of industry and banking and finance, so
• 15:49
  Speaker 1: it's going to be interesting if they even have a
• 15:51
  Speaker 1: unified message to give him. Well if if they do,
• 15:55
  Speaker 1: or even if they don't, we're gonna be covering it.
• 15:56
  Speaker 1: Marty Schanker, thank you very much, Senior Executive editor, Global
• 16:00
  Speaker 1: Economics and Government for Bloomberg News. P and L is
• 16:12
  Speaker 1: brought to you by proper Cloth, a leader in men's
• 16:15
  Speaker 1: custom shirts. At proper cloth dot com, ordering custom shirts
• 16:18
  Speaker 1: has never been easier. Create your custom shirt size by
• 16:21
  Speaker 1: answering ten easy questions, select from over five fabrics to
• 16:25
  Speaker 1: suit your personal taste. Shirts start from eighty five dollars
• 16:29
  Speaker 1: and are delivered in just two weeks with proper Cloths
• 16:31
  Speaker 1: perfect fit guarantee. Remakes are completely free and expert staff
• 16:35
  Speaker 1: are standing by to help. For premium quality, perfect fitting shirts,
• 16:40
  Speaker 1: visit proper cloth dot com custom shirts made Smarter. I
• 16:50
  Speaker 1: want a story of innovation of how to look at
• 16:53
  Speaker 1: the world today, makes sense of it, and then find
• 16:55
  Speaker 1: an investment uh that is somewhat reliable. I want to
• 16:59
  Speaker 1: bring in Paul more League, Global head of Market Economics
• 17:02
  Speaker 1: and Chief Economist for North America at BNP. Pariba, Paul,
• 17:08
  Speaker 1: where do you begin when you start with assessing your
• 17:11
  Speaker 1: economic outlook? Beginning with the facts has a pretty good
• 17:16
  Speaker 1: place to start. Where we've been and look at, you know,
• 17:20
  Speaker 1: basically where the surveys are telling us we might go next,
• 17:23
  Speaker 1: and what the settings of policy are. So you know
• 17:26
  Speaker 1: the surveys currently look for the US look pretty perky. Well,
• 17:30
  Speaker 1: let's look can we just like piece of the part
• 17:31
  Speaker 1: just because I know tomorrow we're going to get the
• 17:33
  Speaker 1: big payroll report number that will help people at least
• 17:36
  Speaker 1: the confirm or deny their trajectory projections. You know, compare
• 17:40
  Speaker 1: all that, but as an economist, just run through it.
• 17:43
  Speaker 1: For US, GDP is running at at what we got
• 17:45
  Speaker 1: a print at one point nine the last quarter on
• 17:48
  Speaker 1: what are we running at now well, you know the
• 17:50
  Speaker 1: Atlanta Fed he's saying for Q one day lateist GDP
• 17:53
  Speaker 1: now forecast he's three point four. Okay, so we're three okay,
• 17:57
  Speaker 1: So let's just say that Atlantage Fed GDP forecast three
• 18:00
  Speaker 1: point four for Q one for unemployment four points where
• 18:06
  Speaker 1: four point seven, and you know, we're pretty flat, maybe
• 18:08
  Speaker 1: a bit of a downward trajectory for the unemployment rate
• 18:11
  Speaker 1: going forward. Um, you know, labor participation rate moves or
• 18:16
  Speaker 1: just I think I think it's going to be pretty
• 18:18
  Speaker 1: flat more or less. But you know that if even
• 18:21
  Speaker 1: if you've got growth of just two, that's above potential
• 18:24
  Speaker 1: because the leather force is increasing by say half a
• 18:27
  Speaker 1: point per year, productivity in the year to Q four
• 18:30
  Speaker 1: was only one percent, so maybe productive potential is one
• 18:33
  Speaker 1: and a half. So if we're running at two or above,
• 18:36
  Speaker 1: unemployment should keep drifting down. Not very quickly because there
• 18:40
  Speaker 1: are far fewer people out there than they used to be,
• 18:42
  Speaker 1: but it should be drifting down, all right, and for
• 18:44
  Speaker 1: and for at least I know, you want to know
• 18:46
  Speaker 1: about inflation, because inflation is all about bonds. Yeah, I mean, well,
• 18:50
  Speaker 1: I was just coming cost here. Well, yeah, I mean
• 18:54
  Speaker 1: beyond that. I mean, but I'm trying to look into
• 18:57
  Speaker 1: the crystal ball. Nobody can predict the future. I'm wondering,
• 19:01
  Speaker 1: do you feel like you're less confident than you've ever
• 19:05
  Speaker 1: been before with your predictions or do you think that
• 19:07
  Speaker 1: people are overreacting to some of the macroeconomic and the
• 19:11
  Speaker 1: political backdrop and that there is a very clear road ahead.
• 19:15
  Speaker 1: I think people, you know, I think we've seen a
• 19:18
  Speaker 1: tendency for the markets just after the November elections to
• 19:21
  Speaker 1: one run off in one direction, and recently people are
• 19:25
  Speaker 1: kind of extrapolating things in the other direction, because I
• 19:29
  Speaker 1: think the technical term is they're walking back their estimates
• 19:33
  Speaker 1: right here, driving with the rear view mirror. Maybe, but
• 19:36
  Speaker 1: you know, it's difficult to come out with very firm
• 19:38
  Speaker 1: expectations about where we're going to go on trade and
• 19:41
  Speaker 1: physical and all these sort of things. So little spots
• 19:44
  Speaker 1: of information that you get a very valuable because it's
• 19:47
  Speaker 1: all you've got, but there's a tendency to extrapolate them.
• 19:50
  Speaker 1: I think. So. Do you think that people have over
• 19:52
  Speaker 1: inflated their expection expectations for inflation to your point, Pim, No,
• 19:56
  Speaker 1: I don't think so. I think, you know, if you
• 19:58
  Speaker 1: look globally where we're going on a inflation inflation is
• 20:01
  Speaker 1: going up, and you see that in the producer price
• 20:03
  Speaker 1: index in China, for example, You've seen it in Europe,
• 20:07
  Speaker 1: you see it here. We've got a unique labor costs
• 20:09
  Speaker 1: print just today of one point nine for the business sector,
• 20:14
  Speaker 1: and the core measure of inflation that the FED likes
• 20:17
  Speaker 1: is one point seven. So it's very likely to go up.
• 20:20
  Speaker 1: And you know, one thing I would say about the
• 20:21
  Speaker 1: Fed statement yesterday was that previously they said we believe
• 20:25
  Speaker 1: inflation will rise, yesterday they said inflation will rise. So
• 20:31
  Speaker 1: they sound more confident about their prediction of inflation. So
• 20:35
  Speaker 1: what does that What does that mean for investors? Does
• 20:36
  Speaker 1: that mean their bonds are are a bad better? Three
• 20:39
  Speaker 1: rate hikes one rate, one rate hike a quarter. Well,
• 20:43
  Speaker 1: I think you know, many people at the FED have
• 20:45
  Speaker 1: said two or three rate hikes this year, and I
• 20:47
  Speaker 1: think that's reasonable. The market is pricing about chance of march.
• 20:51
  Speaker 1: I think that's probably too low, but I think the
• 20:54
  Speaker 1: market will probably pricing a bigger chance, particularly we get
• 20:57
  Speaker 1: strong pay rolls tomorrow, that probability he will go up.
• 21:01
  Speaker 1: But I think the fade ideally would like to see
• 21:04
  Speaker 1: what exactly are the fiscal plans, what exactly will growth be,
• 21:08
  Speaker 1: And it won't get that to the second quarter. And
• 21:10
  Speaker 1: that's why I'm a bit skeptical about March. Given this backdrop,
• 21:13
  Speaker 1: what do you think is the one single best asset
• 21:16
  Speaker 1: class for this year. I'm not an asset allocator. I'm
• 21:21
  Speaker 1: just a humble economist. And so what's your biggest contrarian bet? Well,
• 21:26
  Speaker 1: I think you know, the biggest contrarian bet is that
• 21:28
  Speaker 1: we're going to see more more growth in the global
• 21:32
  Speaker 1: economy and probably more growth in the US economy over
• 21:35
  Speaker 1: the next two years than people expect. And I think
• 21:38
  Speaker 1: that's partly becost the momentum coming into this year is
• 21:42
  Speaker 1: pretty strong globally, and you know, US manufacturing looks very
• 21:47
  Speaker 1: good despite the strong dollar, and we yet to see
• 21:50
  Speaker 1: fiscal stimulus. Thank you very much for joining us. Poor
• 21:53
  Speaker 1: mortem rely look forward to having you in the future.
• 21:56
  Speaker 1: He is the head of Market Economics and the chief
• 21:58
  Speaker 1: economists for Baten Pete Party Bop. Matt Levine Bloomberg View columnist.
• 22:15
  Speaker 1: He wrote a really terrific column talking about how, first
• 22:19
  Speaker 1: of all, a lot of people dismissed President Trump's rhetoric
• 22:23
  Speaker 1: pre his election as simply talk and that he wouldn't
• 22:27
  Speaker 1: actually come through on that, and that now people are realizing, well,
• 22:31
  Speaker 1: perhaps they were mistaken. Um, first, can you just talk
• 22:34
  Speaker 1: about what you've observed about how the reaction has been
• 22:39
  Speaker 1: shockingly surprising when he's come through on a lot of
• 22:42
  Speaker 1: what he said. Yeah, there's like, there's two things going
• 22:44
  Speaker 1: on here right. One is that people listen to what
• 22:47
  Speaker 1: he said and thought he didn't mean it. And so
• 22:49
  Speaker 1: Trump talked about cracking down on trading immigration throughout the campaign.
• 22:53
  Speaker 1: Those were his focuses, and people sort of assumed he
• 22:57
  Speaker 1: would turn out to be a conventional Republican president and
• 23:00
  Speaker 1: interested in economic growth and tax cuts and deregulation and
• 23:03
  Speaker 1: things like that. And since the inauguration, it's been pretty
• 23:06
  Speaker 1: clear where his focus is, and it's exactly where he
• 23:08
  Speaker 1: said it was. So I think some of the business
• 23:10
  Speaker 1: leaders who were expecting a very conventional, uh presidency are
• 23:15
  Speaker 1: getting this very unconventional, anti trade, anti immigration presidency. Well,
• 23:19
  Speaker 1: but why wouldn't potentially this end up being just as
• 23:22
  Speaker 1: good for them as they thought if he does go
• 23:25
  Speaker 1: ahead and follows through with cutting regulations and cutting taxes.
• 23:28
  Speaker 1: I mean, why wouldn't this be a benefit. Well, one
• 23:31
  Speaker 1: thing is that a lot of business groups were not
• 23:33
  Speaker 1: um so happy about the trade stuff. You know that
• 23:37
  Speaker 1: we live in a global economy and a lot of
• 23:39
  Speaker 1: American businesses are multi national companies, and so they're going
• 23:42
  Speaker 1: to lose that by the correctown and trade. But the
• 23:44
  Speaker 1: other thing that's happening is that, you know, even if
• 23:46
  Speaker 1: eventually we come through on the deregulation and tax cuts
• 23:49
  Speaker 1: that businesses want, I think that they underestimated the risks
• 23:52
  Speaker 1: of just sort of the instability of the Trump presidency.
• 23:56
  Speaker 1: And you saw that with the executive order last weekend.
• 24:00
  Speaker 1: It's one thing to say we're gonna cut back on
• 24:02
  Speaker 1: or or even eliminate refugee programs, but what happened is
• 24:05
  Speaker 1: that they eliminated them while people with valid visas were
• 24:08
  Speaker 1: in the air. They told Green card holders that they
• 24:11
  Speaker 1: couldn't come back to the country, and then after a
• 24:13
  Speaker 1: sort of weekend of controversy, some of that was was
• 24:15
  Speaker 1: walked back. And so what you have is this totally
• 24:19
  Speaker 1: um sort of whimsical policy making process where real people
• 24:22
  Speaker 1: are getting caught up in these decision making, in these
• 24:25
  Speaker 1: decisions that don't really have much um UH process or
• 24:29
  Speaker 1: thought behind them. And I think what companies are realizing
• 24:33
  Speaker 1: is that that affects them to write like the rule
• 24:35
  Speaker 1: of law is pretty central to running a big multinational
• 24:38
  Speaker 1: company or running a big company in America, and you
• 24:40
  Speaker 1: need to have some predictability instability, And what they're seeing
• 24:43
  Speaker 1: here is an administration that is not really interested in
• 24:46
  Speaker 1: those norms and is willing to create a lot of instability. Well, Matt,
• 24:51
  Speaker 1: let me just push back a little bit here, because
• 24:53
  Speaker 1: if you read speeches that at the time candidate at
• 24:57
  Speaker 1: Trump was crossing the country, I believe, in fact, there
• 25:00
  Speaker 1: was one in Gettysburg, Pennsylvania where he laid out very
• 25:05
  Speaker 1: specifically what he planned to do if elected president. And
• 25:10
  Speaker 1: I would imagine, I mean, I want to know who
• 25:12
  Speaker 1: are these people that are so surprised? First of all,
• 25:15
  Speaker 1: because if you've I mean, he's not. It's not as
• 25:18
  Speaker 1: if he's deviated during the campaign from you know, the
• 25:21
  Speaker 1: set program of whether it is trade policy, whether it
• 25:26
  Speaker 1: is UH financial regulation, or you know variety of things. Um,
• 25:32
  Speaker 1: how do you respond to that? Well, first of all,
• 25:35
  Speaker 1: I would disagree that he laid anything out specifically or clearly, right,
• 25:38
  Speaker 1: I mean, you have every policy position he took He
• 25:40
  Speaker 1: still he took out every policy position at some point
• 25:43
  Speaker 1: during the campaign. You know, right now there's pushback from
• 25:45
  Speaker 1: the White House saying that the immigration order is not
• 25:47
  Speaker 1: a Muslim ban. But of course during the campaign he
• 25:50
  Speaker 1: put out a press what he's saying, we'll have a
• 25:51
  Speaker 1: Muslim ban. So it's not really clear what he said.
• 25:55
  Speaker 1: We're not in a court of law here. I mean,
• 25:56
  Speaker 1: this is not not you're not not parsing each things.
• 25:59
  Speaker 1: I'm just saying that he's set out pretty clearly what
• 26:02
  Speaker 1: his policies were going to look. I agree with that.
• 26:05
  Speaker 1: I think I think there is a constituency. And you know,
• 26:07
  Speaker 1: like the sort of leading light is Anthony Scaramucci, who's
• 26:10
  Speaker 1: a Trump advisor, who sort of gave interview saying he's
• 26:13
  Speaker 1: going to make smart trade deals and and not have
• 26:15
  Speaker 1: a Muslim ban, and and and do all these things
• 26:17
  Speaker 1: that that are more conventional Republican policies. And I think
• 26:20
  Speaker 1: that some of the people in that sort of New
• 26:22
  Speaker 1: York financial circle heard that. But the other thing that
• 26:24
  Speaker 1: I'm saying is that even even leaving like policy disagreements aside,
• 26:27
  Speaker 1: what I think people are surprised by is the just
• 26:30
  Speaker 1: sort of haphazard, uh nature of the Trump administration where
• 26:34
  Speaker 1: there's not a lot of respect for process or for
• 26:36
  Speaker 1: the rule of law, and that is what I think
• 26:38
  Speaker 1: is going to become more concerning. You know, you have
• 26:40
  Speaker 1: companies that say, look, you know, trade is trade policy
• 26:43
  Speaker 1: is one thing we can disagree substantively. But having a
• 26:46
  Speaker 1: president who is going to attack companies that disagree with
• 26:51
  Speaker 1: him politically, either by tweets or by uh, you know,
• 26:54
  Speaker 1: suggesting that the Justice Department hold up mergers of of
• 26:56
  Speaker 1: media companies he doesn't like, which is something he said
• 26:58
  Speaker 1: that a little history well, right, right, I mean then
• 27:01
  Speaker 1: you've got to be a little bit informed that this
• 27:03
  Speaker 1: is something that there are many images of of even
• 27:07
  Speaker 1: executives tangling with the US government. Right, well, but this
• 27:12
  Speaker 1: is but I think that that Matt, you raise a
• 27:13
  Speaker 1: point that cass Sunstine of Harvard made as well, which
• 27:17
  Speaker 1: is sort of there has to be the sense that
• 27:19
  Speaker 1: the rule of law is a consistent and reliable way
• 27:22
  Speaker 1: of an application of law, and if it's sort of
• 27:24
  Speaker 1: arbitrarily crafted or targeted to target specific companies or specific issues,
• 27:28
  Speaker 1: it doesn't work. Yeah, I mean, you you what you
• 27:32
  Speaker 1: what you want is a sort of predictable, uh environment
• 27:36
  Speaker 1: in which to operate, where you can kind of know
• 27:38
  Speaker 1: that your investments will be respected and paid off. And
• 27:41
  Speaker 1: I think that's what people are worried about right now.
• 27:42
  Speaker 1: Great point and great column. Thank you very much, Matt Levine.
• 27:46
  Speaker 1: Look forward to having you more in the future. He
• 27:48
  Speaker 1: is a columnist for Bloomberg View. You can follow him
• 27:51
  Speaker 1: on Twitter at Matt underscore Levine. His columns stability is
• 27:56
  Speaker 1: good for business. Trump's whims threaten it. Thanks for listening
• 28:05
  Speaker 1: to the Bloomberg P and L podcast. You can subscribe
• 28:08
  Speaker 1: and listen to interviews at iTunes, SoundCloud, or whatever podcast
• 28:13
  Speaker 1: platform you prefer. I'm Pim Fox. I'm out there on
• 28:16
  Speaker 1: Twitter at pim Fox. I'm out there on Twitter at
• 28:19
  Speaker 1: Lisa Abramo. It's one before the podcast. You can always
• 28:22
  Speaker 1: catch us worldwide on Bloomberg Radio. P and L is
• 28:33
  Speaker 1: brought to you by proper Cloth, a leader in men's
• 28:35
  Speaker 1: custom shirts, with proprietary smart sized technology and top rated
• 28:39
  Speaker 1: customer service. Ordering a custom shirt has never been easier.
• 28:43
  Speaker 1: Visit proper cloth dot com to order your first custom
• 28:45
  Speaker 1: shirt today.