Latest / Bloomberg Intelligence / France's Economy Is Recovering in Slow Motion, Sbaihi Says

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France's Economy Is Recovering in Slow Motion, Sbaihi Says · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.
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  Speaker 1: Along with my co host Lisa Bramowitz. Each day we
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• 0:32
  Speaker 1: The long awaited French election is over and Emmanuel Matt
• 0:36
  Speaker 1: Crown has emerged as the victor, the President elect of
• 0:40
  Speaker 1: the Republic of France. And to break down what this means,
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  Speaker 1: I want to bring a Maxim Savaji, Euro Area economist
• 0:47
  Speaker 1: for Bloomberg Intelligence coming to us from London and Maxim,
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  Speaker 1: the first part has been one, which is the presidency.
• 0:54
  Speaker 1: But there is a long road ahead for President elect
• 0:58
  Speaker 1: Matt Crown and perhaps this is reflected in part by
• 1:01
  Speaker 1: the action in the markets that we're seeing today, with
• 1:03
  Speaker 1: some of the enthusiasm apparently being tempered. I mean you
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  Speaker 1: could see that the euro is coming off a little
• 1:08
  Speaker 1: bit and declined versus the dollar just to touch. So, Maxium,
• 1:11
  Speaker 1: what are the biggest challenges that President Electmacraw faces going forward? Well,
• 1:16
  Speaker 1: the first Hello from London the first big challenges actually
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  Speaker 1: to unify a country that is has been very dissunified
• 1:23
  Speaker 1: by this campaign. Um. The first hurdle that he is
• 1:26
  Speaker 1: facing is actually the next election. This is not a
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  Speaker 1: two round election, it's a full round election. The next
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  Speaker 1: one is the parliamentary election in June eleven and eighteen,
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  Speaker 1: and there's nothing much a French president can do without
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  Speaker 1: the parliament, without the National Assembly. So well, it will
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  Speaker 1: have to secure parliamentary support first in order to implement
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  Speaker 1: and to deliver on his campaign promises. One, if you
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  Speaker 1: could just speak a little bit about the current state
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  Speaker 1: of the French economy, I'll give you the numbers. Mainland
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  Speaker 1: unemployment is nine point seven percent, total unemployment ten percent.
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  Speaker 1: You have prices that are increasing. I think the latest
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  Speaker 1: producer price uh index was up two point nine percent,
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  Speaker 1: and you also have an economic picture where you have
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  Speaker 1: a contracting economy. What can be done to forestall these
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  Speaker 1: problems in the French economy. So, just to me dis
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  Speaker 1: go the econdo, the French economy is not contracting. It
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  Speaker 1: is actually growing. Um. It has slowed down a little
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  Speaker 1: bit in the first quarter, but the growth rate remains positive.
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  Speaker 1: So it is an economy that is doing better, but
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  Speaker 1: that is far from being good. As you mentioned, unemployment
• 2:34
  Speaker 1: remains high by some measures, the Albo ten percent. The
• 2:39
  Speaker 1: economy is actually growing at at the two slow pace
• 2:41
  Speaker 1: to bring down unemployment. And that's the challenge for mccon.
• 2:44
  Speaker 1: He needs to kick start the economy. He needs to
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  Speaker 1: make sure that the domestic factors get actually stronger. I'm
• 2:51
  Speaker 1: thinking about the investment for example, to make sure that
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  Speaker 1: the economy is growing at a fast that is a
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  Speaker 1: pace that is quick enough to finally bring out unemployment.
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  Speaker 1: That's his first challenge, and he actually promised to bring
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  Speaker 1: an employment down from ten percent actually to seven percent
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  Speaker 1: at the end of his mandate in two thousand twenty two.
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  Speaker 1: I would just look just to mention I just looking,
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  Speaker 1: I was using the GDP deflator quarter of a quarter
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  Speaker 1: down zero point one percent. Nominal GDP uh zero point
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  Speaker 1: six percent, so just to give that context. Yeah, and
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  Speaker 1: the real GDP obviously by zero point three percent over
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  Speaker 1: the first quarter, which is a bit slower than than
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  Speaker 1: the last quarter which was at zero point five percent.
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  Speaker 1: But it's still an economy that is again growing. It's
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  Speaker 1: not just because of domestic photos. If you look at
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  Speaker 1: the euros on economy, it's actually doing pretty well. It
• 3:39
  Speaker 1: actually grew at a stronger pace in one queue than
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  Speaker 1: in the US. So France is benefiting from the outside environment,
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  Speaker 1: from a good regional momentum. But again what is missing
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  Speaker 1: is the domestic factors, and it is the fact that
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  Speaker 1: the recovery is playing in slow motion so far. Well,
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  Speaker 1: when people were talking about the front elections, they talked
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  Speaker 1: increasingly about the populist risk to the Euro Area's existence.
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  Speaker 1: And while some are possibly saying that that risk has
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  Speaker 1: been reduced somewhat by this recent election, how much of
• 4:12
  Speaker 1: people shifted their concern now to Italy and what is
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  Speaker 1: going on there and the and the possibility of sort
• 4:17
  Speaker 1: of a repeat of some of the concerns that we've
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  Speaker 1: seen over the past few weeks. So you're right in saying, actually,
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  Speaker 1: if you look at the top four economy in the
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  Speaker 1: in the Eurozone, Italy is probably the weakest link. Italy
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  Speaker 1: is is the country where the economic outlook is the
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  Speaker 1: weakest and also where euro skepticism is at his highest.
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  Speaker 1: More than half of the population of Italy, if you
• 4:39
  Speaker 1: look at the polls, I think that next it from
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  Speaker 1: the Eurozone is a good idea, and the growth is
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  Speaker 1: much much lower than in France. UM and employment is higher,
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  Speaker 1: debt to GDP ratio is much higher. So if you
• 4:51
  Speaker 1: compare France to Italy, actually France looks pretty pretty good. Um.
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  Speaker 1: The political situation Italy is much more shaky than in France.
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  Speaker 1: We don't know where the next elections is going to
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  Speaker 1: take place, probably at the end of the year or
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  Speaker 1: maybe next year. Um. And again with your skepticism so high,
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  Speaker 1: combined with very high unemployment, you get actually a political terrorist.
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  Speaker 1: That is that is more important in my opinion than
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  Speaker 1: in France, especially now that Macon won the election. The
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  Speaker 1: French industrial sector obviously competing globally, but as you mentioned,
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  Speaker 1: within the euro Zone, what about the French competition with Germany.
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  Speaker 1: Is this going to be a factor for Macro. While
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  Speaker 1: he hasn't really campaigned on on playing on this, on
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  Speaker 1: the competition with Germany, obviously, Germany is a country that
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  Speaker 1: a lot of French politicians are looking at because you
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  Speaker 1: have this economy that shares the same currency and that
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  Speaker 1: is yet doing so well compared to France. So we
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  Speaker 1: know that he's going to travel to Berlin over the
• 5:50
  Speaker 1: next days, that he's going to talk to the Chancellor
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  Speaker 1: mercle that Chancellor Merkel was very happy with with the
• 5:56
  Speaker 1: election of Emmanuel mccorn. Now what's at stake is to
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  Speaker 1: restart the Franco German relationship, what we call the model
• 6:04
  Speaker 1: of Europe, which has been been left aside over the
• 6:07
  Speaker 1: last year's with under the alarm mandate. So what really
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  Speaker 1: matters here is how can France and Germany finally come
• 6:13
  Speaker 1: together and make Europe work again. I would say, make
• 6:18
  Speaker 1: your great again. I would there to say Maxine, that
• 6:21
  Speaker 1: was good, make make your upgrade again. I'm wondering how
• 6:24
  Speaker 1: much the election of Emmanuel Macron has taken the pressure
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  Speaker 1: off the e c B, the European Central Bank, and
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  Speaker 1: sort of allowed them to consider potentially reducing stimulus in
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  Speaker 1: the near term in a way that they might not
• 6:36
  Speaker 1: have should there have been some kind of political upheaval. Yeah.
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  Speaker 1: Well they suld be surely relieved today to see that
• 6:43
  Speaker 1: that Emmanuel Macron won the presidency. That's one tail risk
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  Speaker 1: less for them. So that means the economic outlook, which
• 6:51
  Speaker 1: is improving again in the Euros and if you look
• 6:53
  Speaker 1: at the surveys that the soft data is looking very good.
• 6:56
  Speaker 1: They can now focus on the economic outlook on the
• 6:58
  Speaker 1: short term without this big tical risk. What they're just
• 7:01
  Speaker 1: looking at is core inflation, and core inflation is not
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  Speaker 1: picking up. It's still stable week and until it picks up,
• 7:08
  Speaker 1: they aren't likely to move. We are expecting at the
• 7:12
  Speaker 1: next meeting in June to them to say that the
• 7:14
  Speaker 1: balance of risk on the economic outlook and now balance
• 7:17
  Speaker 1: so not anymore tilted on the downside. But they will
• 7:20
  Speaker 1: probably have to wait for September or December to start
• 7:24
  Speaker 1: signaling a tappering in the quee purchases, and the quie
• 7:28
  Speaker 1: is likely to end mid next year at the latest.
• 7:31
  Speaker 1: Just give us a look of you can on the
• 7:34
  Speaker 1: health of the corporate sector in terms of earning profits
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  Speaker 1: and taxes in France, because that was always a big
• 7:40
  Speaker 1: issue of increasing taxes on corporations. Will that change on
• 7:43
  Speaker 1: the macron Well, yeah, he has promised actually to bring
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  Speaker 1: it down from thirty three percent to over the next
• 7:50
  Speaker 1: five years. So that's also why this, uh, his agenda
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  Speaker 1: has always been a label as pro market, pro business.
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  Speaker 1: Is that because he has some very big plans on
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  Speaker 1: corporate tax in France. All right, I want to thank
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  Speaker 1: you very much, Maxine spat He he is our Euro
• 8:06
  Speaker 1: Area economist for Bloomberg Intelligence. He u is speaking also
• 8:11
  Speaker 1: speaking with a Lisa Abramowitz, who is enjoying some son
• 8:15
  Speaker 1: in Amelia Island at the well, what is it the
• 8:18
  Speaker 1: twenty two annual Financial Markets Conference Managing Global financial Risks
• 8:24
  Speaker 1: and shifting sands and shock Waves. I wonder if you've
• 8:27
  Speaker 1: got shifting sands, does that mean that you're going to
• 8:29
  Speaker 1: stand on the beach when you exactly it means taking
• 8:32
  Speaker 1: long walks in the beach and contemplating a world policies.
• 8:35
  Speaker 1: Well you can do that with all the officials from
• 8:37
  Speaker 1: the Federals or Bank of Atlanta, Thanks very much. A
• 8:51
  Speaker 1: lot of takeovers and as a result, I want to
• 8:53
  Speaker 1: get some expert thoughts on this from Bloomberg gad Fly
• 8:56
  Speaker 1: columnst Shelley Banjo shall be speaking about Coach buying Kate's.
• 9:00
  Speaker 1: That's a two point four billion dollar deal. But I
• 9:02
  Speaker 1: want to begin with Bloomberg gad Fly columns Tara la
• 9:04
  Speaker 1: Chappelle on this Straight Path bidding war that seems to
• 9:08
  Speaker 1: have erupted. Tara tell us about what is so particularly
• 9:12
  Speaker 1: special about Straight Path that the stock is of thirty
• 9:15
  Speaker 1: two today and we've got bidders whose name we don't
• 9:18
  Speaker 1: officially know yet, right. So straight Path is a company
• 9:21
  Speaker 1: that very few people really knew about before April. Um.
• 9:25
  Speaker 1: They are one of the largest owners of five of
• 9:27
  Speaker 1: Spectrum that's approved for five G use so five G
• 9:31
  Speaker 1: is of course going to be the next network that
• 9:33
  Speaker 1: all the wireless providers are going to want to have.
• 9:35
  Speaker 1: So Verizon and A T and T both really need
• 9:38
  Speaker 1: this now. A T and T struck a deal with
• 9:40
  Speaker 1: straight Path for I believe one point six billion back
• 9:43
  Speaker 1: in April. Fast forward a month later and you have
• 9:45
  Speaker 1: this unnamed multinational telecom company which is said to be
• 9:49
  Speaker 1: Verizon and makes a lot of sense of it as
• 9:51
  Speaker 1: Verizon UM that topped their bid by quite a substantial amount.
• 9:55
  Speaker 1: They brought the bidding to two point three billion, and
• 9:58
  Speaker 1: then today the same bitter bit against them selves and
• 10:00
  Speaker 1: now the price is three point one billion. So clearly
• 10:03
  Speaker 1: a lot of scarcity value in this company that very
• 10:06
  Speaker 1: few people saw coming. But turned did you say that
• 10:09
  Speaker 1: it bid against itself essentially, so strip PA authority hasn't
• 10:13
  Speaker 1: agreed upon deal with A T and T, and they
• 10:15
  Speaker 1: have to decide whether they drop this deal and go
• 10:18
  Speaker 1: at this other bidder, says other bidders trying to make
• 10:20
  Speaker 1: it so compelling that they have to do that, and
• 10:22
  Speaker 1: the A, T and T won't be able to come
• 10:23
  Speaker 1: back and top it. Although if you look at the
• 10:25
  Speaker 1: trading today, I believe Straight Path is trading through the
• 10:28
  Speaker 1: implied offer price, so traders think this is going to
• 10:31
  Speaker 1: keep going on. Well, yeah, I was just gonna say,
• 10:33
  Speaker 1: the shares of straight Pet they're up fifty two dollars
• 10:36
  Speaker 1: is shared of two and fourteen. That's a gain of
• 10:39
  Speaker 1: you know, I have to say, you've got to if
• 10:41
  Speaker 1: you're talking about price action, you have to look at
• 10:42
  Speaker 1: Coach and Kate's Bade. Co Chairs up almost six percent
• 10:46
  Speaker 1: and Kate Spade also up uh more than eight percent.
• 10:50
  Speaker 1: And this is on the heels of talks that Coaches
• 10:52
  Speaker 1: buying Kate Spade. So Shelly Banjo is also in our
• 10:56
  Speaker 1: Bloomberg eleven three oh studios and Shelly, how do you
• 10:59
  Speaker 1: how do you make sense of why the market is
• 11:01
  Speaker 1: cheering just so much about this deal? Well, the shares
• 11:05
  Speaker 1: have gone on quite a roller coaster ride over the
• 11:07
  Speaker 1: past couple of years. It was trading at around forty
• 11:09
  Speaker 1: dollars at one point forty five dollars at it's all
• 11:12
  Speaker 1: time high, went all the way back down during m
• 11:15
  Speaker 1: nay months of speculation. December, went all the way up
• 11:18
  Speaker 1: to dollars as people were saying, are almost up to
• 11:21
  Speaker 1: twenty five dollars as people were saying it could fetch
• 11:23
  Speaker 1: around even thirty dollars a share for a deal price,
• 11:27
  Speaker 1: and then tumbled back down after earning after a poor
• 11:30
  Speaker 1: earnings show from Kate in the end um as actually
• 11:33
  Speaker 1: Tara pointed out to me this morning, it ended up
• 11:36
  Speaker 1: it's selling for its two hundred day moving average, So
• 11:39
  Speaker 1: go figure on that one. Um, But you know this
• 11:42
  Speaker 1: is a good thing for Coach. They didn't overpay Kate
• 11:45
  Speaker 1: Spade can still kind of save its but um with
• 11:48
  Speaker 1: its own shareholders saying it represents the technical term, by
• 11:51
  Speaker 1: the way, exactly, representing seven uh five premium from where
• 11:57
  Speaker 1: it was training before media specular lation in December. So
• 12:01
  Speaker 1: I guess both sides are happy for that one. You
• 12:04
  Speaker 1: know what, shall I just want to follow up? Why
• 12:06
  Speaker 1: would coach by Kate Spade? Doesn't Coach already make handbags?
• 12:12
  Speaker 1: And aren't they just working on a big turnaround? Yeah,
• 12:15
  Speaker 1: and so that's the thing they're not buying Kate to
• 12:18
  Speaker 1: like any kind of other merger where you'd sweep these
• 12:20
  Speaker 1: assets under your under your company umbrella and kind of,
• 12:24
  Speaker 1: you know, actually merge these companies. Coaches on a totally
• 12:28
  Speaker 1: different trajectory right now, trying to create a kind of
• 12:31
  Speaker 1: mini conglomerate what I like to call minil l v
• 12:34
  Speaker 1: mh UM, trying to trying to create this kind of
• 12:37
  Speaker 1: house of brands where they're going to buy up lots
• 12:40
  Speaker 1: of different companies and managed to manage them all. Um.
• 12:44
  Speaker 1: We would be remiss if we didn't mention another big
• 12:46
  Speaker 1: deal that across the wire this morning. Sinclair is buying
• 12:50
  Speaker 1: Tribune Media for three point nine billion dollars UM. Get
• 12:54
  Speaker 1: more consolidation in the broadcasting space, terra. Uh. This was
• 12:59
  Speaker 1: a long a way to deal made possible by the
• 13:02
  Speaker 1: u S FCC voting less months to ease a limit
• 13:04
  Speaker 1: on uh some of this consolidation. What do you expect
• 13:07
  Speaker 1: the consequence is going to be? And is this a
• 13:09
  Speaker 1: good thing for the companies? It's a good thing for
• 13:11
  Speaker 1: the TV station owners. It's not such a great thing
• 13:14
  Speaker 1: if your Fox or CBS or any of the companies
• 13:17
  Speaker 1: whose brands are behind these affiliate stations that it's going
• 13:19
  Speaker 1: to make it a lot harder to negotiate the carriage deals. Um,
• 13:23
  Speaker 1: but it's great for Sinclair, and I think it's just
• 13:25
  Speaker 1: the first of many of these deals. We could see.
• 13:27
  Speaker 1: You still have next Star out there, which had looked
• 13:30
  Speaker 1: at Tribune stations. Um. I think they could still do
• 13:33
  Speaker 1: a deal. I think there's going to be a few
• 13:35
  Speaker 1: more of these that follow this FCC decision. For sure,
• 13:39
  Speaker 1: speak like Kenna about why you believe this is going
• 13:41
  Speaker 1: to be a struggle for the actual network operators, not
• 13:45
  Speaker 1: the owners of the station, but the providers of content. Right. So,
• 13:48
  Speaker 1: for instance, foxy eight percent of their stations so I
• 13:52
  Speaker 1: think it's fourteen of them in total, are actually owned
• 13:55
  Speaker 1: by Tribune. So what happens is they have to work
• 13:59
  Speaker 1: out deals with True Bune regularly about what the cost
• 14:02
  Speaker 1: of carrying their content on these local stations is going
• 14:05
  Speaker 1: to be. And so Fox obviously has a ton of
• 14:08
  Speaker 1: negotiating power, all these big content companies do. But when
• 14:11
  Speaker 1: these TV stations start to get bigger, obviously the pendulum
• 14:14
  Speaker 1: swings again. So I think you know, Fox had supposedly
• 14:18
  Speaker 1: looked at this deal too, um, in conjunction with Blackstone,
• 14:21
  Speaker 1: And it's interesting that they let Sinclair sort of top them,
• 14:24
  Speaker 1: because you would think that black Stone and Fox could
• 14:26
  Speaker 1: knock out of it if they wanted to. Um, so yeah,
• 14:28
  Speaker 1: I mean, I guess they looked at the risk reward
• 14:30
  Speaker 1: of letting Sinclair get these stations, and at the very
• 14:33
  Speaker 1: least they forced Sinclair to pay up. Thank you so much.
• 14:36
  Speaker 1: This is a definitely helpful to get a sense of
• 14:39
  Speaker 1: all of these deals and kind of putting them into perspective.
• 14:41
  Speaker 1: It's Bloomberg gad Fly columnist Shelley Banjo as well as
• 14:45
  Speaker 1: bloombergad Fly columnists Tara lash of Hell talking about all
• 14:48
  Speaker 1: of the deals that we are seeing today, and we
• 14:51
  Speaker 1: are seeing quite a bit of price action in these
• 14:53
  Speaker 1: shares as a result. We want to take a moment
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  Speaker 1: at Bloomberg dot com slash lens Well, I'm honored to
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  Speaker 1: be here with Politicac. She's a vice president and senior
• 15:46
  Speaker 1: economist at the Federal Reserve Bank of Atlanta, and her job,
• 15:50
  Speaker 1: in a way is to go out and try to
• 15:53
  Speaker 1: come up with the worst case scenario that could potentially
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  Speaker 1: derail markets and then translate that for all of the
• 15:58
  Speaker 1: people at the Fed Reserve and Paula, as you are designing,
• 16:03
  Speaker 1: are helping to design this particular financial markets conference, the
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  Speaker 1: Managing Global Financial Risks, Shifting Sands and Shockwaves. What did
• 16:09
  Speaker 1: you home in on as the biggest potential risk or
• 16:13
  Speaker 1: some of the things that you're hearing from people in
• 16:15
  Speaker 1: the market, to the financial system and at the present
• 16:19
  Speaker 1: well at least, so let me first say that it's
• 16:21
  Speaker 1: probably UH requires an army to do what you suggested,
• 16:25
  Speaker 1: which is which is to think of all of the
• 16:28
  Speaker 1: things that that might be risks to the global financial
• 16:30
  Speaker 1: system or to the U. S economy or or our system.
• 16:33
  Speaker 1: UH in Atlanta, the research staff and I financial economists
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  Speaker 1: UM try to design this conference every year to think
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  Speaker 1: about topics that are current but also in some way
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  Speaker 1: different or understudy. So we're trying to bring some things
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  Speaker 1: to the surface that we think are relevant to market
• 16:51
  Speaker 1: participants but may not be talked about in ways that
• 16:54
  Speaker 1: combine both a regulatory and a policy making perspective with
• 16:57
  Speaker 1: a market perspective. So, as we thought about the topic
• 17:01
  Speaker 1: for this year, UM, we've been following, like everyone else
• 17:05
  Speaker 1: around the world, all of the events of the last year,
• 17:08
  Speaker 1: and many of them are geopolitical, and there were always
• 17:11
  Speaker 1: questions around what ramifications those geopolitical events might have in
• 17:15
  Speaker 1: terms of UM Brexit, US fiscal policy, tax reform, French elections,
• 17:23
  Speaker 1: and so as we started planning the conference last year,
• 17:26
  Speaker 1: these events were looming large, and we were starting to
• 17:28
  Speaker 1: think about ways to bring UM some different perspectives to
• 17:32
  Speaker 1: bear on the issues related to global interconnections in the
• 17:36
  Speaker 1: financial system. We all know that the global financial system
• 17:39
  Speaker 1: is in fact global, but oftentimes UM I think it
• 17:44
  Speaker 1: can seem as though that only comes through a large
• 17:46
  Speaker 1: multinational financial institutions. And really, what I think we learned
• 17:49
  Speaker 1: from the crisis is it's really much richer than that.
• 17:51
  Speaker 1: And so part of what we wanted to do with
• 17:53
  Speaker 1: this conference was hit on sort of four main topics
• 17:57
  Speaker 1: that we thought were um important to again sort of
• 18:01
  Speaker 1: rise up to the circles and give people some new
• 18:04
  Speaker 1: perspectives on including the issues of international financial coordination, so
• 18:08
  Speaker 1: not just where regulation is, but a more meta look
• 18:13
  Speaker 1: at the degree of coordination or lack thereof, and what
• 18:16
  Speaker 1: kinds of challenges that because this is really important at
• 18:19
  Speaker 1: a time when it seems like it's unclear whether the
• 18:23
  Speaker 1: FED as full independence to have international coordination. And I'm
• 18:28
  Speaker 1: not going to comment any of that, alright, My my
• 18:31
  Speaker 1: co host Pim Fox in New York. Pim, Well, I
• 18:33
  Speaker 1: just wanted to ask Paula, You're going to be speaking
• 18:35
  Speaker 1: about China's model of managing the financial system, and for
• 18:39
  Speaker 1: those that are not going to be able to attend
• 18:40
  Speaker 1: the morning, if you could just offer some details and
• 18:43
  Speaker 1: what some of the takeaways would be. Okay, So I'm
• 18:46
  Speaker 1: I'm actually moderating a session tomorrow. It's it's one of
• 18:49
  Speaker 1: our research paper sessions, uh, and that session is going
• 18:52
  Speaker 1: to include the presentation of a paper that's going to
• 18:55
  Speaker 1: talk about a way to theoretically model um how government
• 19:00
  Speaker 1: might intervene when it's concerned about market volatility, and again
• 19:04
  Speaker 1: the paper motivates itself the authors of the paper motivated
• 19:07
  Speaker 1: as um UM potentially applying to China. We think it's
• 19:11
  Speaker 1: a more broad issue in terms of thinking about the
• 19:14
  Speaker 1: role that a policy maker or policymaking institution or a
• 19:17
  Speaker 1: government might have, UH in sort of understanding the responses
• 19:21
  Speaker 1: to any policies that they might put out and any
• 19:24
  Speaker 1: potentially activist interventions, and how that might feedback through financial systems,
• 19:28
  Speaker 1: and try to get a better understanding of whether UM
• 19:31
  Speaker 1: a policymaking objective would actually be successful once we consider
• 19:36
  Speaker 1: feedback effects. So I'm not going to speak about the
• 19:39
  Speaker 1: paper in particular, but the session UM the both the
• 19:42
  Speaker 1: presenter and the discuss it will talk about some issues
• 19:45
  Speaker 1: related to how governments might intervene and then again how
• 19:48
  Speaker 1: they might sort of um try to understand whether those
• 19:50
  Speaker 1: interventions are successful in reducing volatility or in promoting growth.
• 19:54
  Speaker 1: When you talk to people in the market, and just
• 19:57
  Speaker 1: to be clear, there are people here across the board,
• 19:59
  Speaker 1: big money managers, pension fund managers, insurance company managers. I mean,
• 20:03
  Speaker 1: this is uh definitely a diverse crowd of of people
• 20:08
  Speaker 1: from different parts of the market. When you talk to them.
• 20:10
  Speaker 1: Are they more concerned than ever about China and about
• 20:14
  Speaker 1: potential unseen risks coming from overseas. I can't speak to
• 20:20
  Speaker 1: whether they're more concerned than ever, but certainly I among
• 20:24
  Speaker 1: my colleagues, I think we're hearing a lot of concern
• 20:28
  Speaker 1: and a lot of UM uncertainty. I suppose UM related
• 20:32
  Speaker 1: to UM, what role UM the China sort of plays
• 20:39
  Speaker 1: in the US, in the world financial system UH, and
• 20:42
  Speaker 1: sort of trying to get better perspectives on how to
• 20:45
  Speaker 1: again think about any policy making that would come out
• 20:48
  Speaker 1: of the Chinese government and what ramifications it might have.
• 20:51
  Speaker 1: And so part of what we want to do with
• 20:52
  Speaker 1: this conference was bring in things that that financial economists
• 20:56
  Speaker 1: oftentimes don't think about in an academic setting or sometimes
• 20:59
  Speaker 1: even the policy making something, and that's geo political events
• 21:01
  Speaker 1: and political objectives and motivations and actions. Those are not
• 21:05
  Speaker 1: our specialty, and so partly what we wanted to do
• 21:07
  Speaker 1: was get people here who could speak to those issues
• 21:10
  Speaker 1: and bring it into the world of financial markets and
• 21:12
  Speaker 1: financial stability, so that we might have a better understanding
• 21:15
  Speaker 1: of whether or not um UM the risks that you
• 21:18
  Speaker 1: hear people float all the time are are substantive, are
• 21:22
  Speaker 1: they things that you could hedge. Are they things that
• 21:24
  Speaker 1: you should think about whether you're a market participant or
• 21:27
  Speaker 1: potentially a policymaker, because it's it is important for us
• 21:30
  Speaker 1: UM at the staff level in terms of trying to
• 21:32
  Speaker 1: understand of the US economy and the financial system, to
• 21:35
  Speaker 1: understand how market participants think, as it is to think
• 21:37
  Speaker 1: about UM the conceptual underpinnings of any sort of policy
• 21:42
  Speaker 1: that we might be discussing politicos. Thank you so much
• 21:46
  Speaker 1: for joining us. Truly a pleasure, and this is really
• 21:49
  Speaker 1: quite an incredible event, so thank you again. Pauliticoc is
• 21:52
  Speaker 1: a vice president and senior economist at their Federal Zero
• 21:55
  Speaker 1: Bank of Atlanta here at Amelia Island. Well over the weekend,
• 22:11
  Speaker 1: the Capitalist LoveFest was taking place in Omaha, Nebraska, and
• 22:17
  Speaker 1: Bloomberg's own Noah bu Hire was there. This is the
• 22:20
  Speaker 1: annual meeting of Berkshire Hathaway and in attendance, of course,
• 22:24
  Speaker 1: Warren Buffett and Charlie Munger. And this is what he
• 22:26
  Speaker 1: had to say about the investment world. Charlie Munger said,
• 22:30
  Speaker 1: the investing world is just a morass of wrong incentives,
• 22:33
  Speaker 1: crazy reporting, and I'd say a fair amount of delusion Noah,
• 22:38
  Speaker 1: was that kind of the theme for the for the day. Well,
• 22:42
  Speaker 1: Charlie certainly does have a way with words. I mean,
• 22:44
  Speaker 1: he's uh, he's known for his blunt assessments. It was
• 22:48
  Speaker 1: it was one of the teams, I mean, that's that's uh.
• 22:51
  Speaker 1: That was in response to um a question or there
• 22:54
  Speaker 1: was a whole section of the meeting that was talking
• 22:56
  Speaker 1: about the seas that active managers charge. And you know,
• 23:03
  Speaker 1: Buffett has been talking about this a lot. Um it's
• 23:07
  Speaker 1: been he's been doing it for years. But his annual
• 23:10
  Speaker 1: letter was had a five page passage on how active
• 23:14
  Speaker 1: managers as a whole really aren't delivering any value. And
• 23:18
  Speaker 1: um Monger sort of backed him up at the meeting
• 23:22
  Speaker 1: and that that that quote was was uh, sort of
• 23:26
  Speaker 1: his appraisal of of what the investment management businesses, you know,
• 23:31
  Speaker 1: some of the problems they have. You know, it's interesting.
• 23:33
  Speaker 1: So Warren Buffett and Charlie Munger have been beating on
• 23:36
  Speaker 1: this theme for a while. As you talked about that
• 23:39
  Speaker 1: a lot of the asset managers, particularly hedge funds, active
• 23:42
  Speaker 1: managers are overpaid um. And they even had Jack Bogle
• 23:46
  Speaker 1: there right, who is the founder of Indexing as the
• 23:50
  Speaker 1: former head of Vantage and he got understanding. He got
• 23:53
  Speaker 1: a standing applis Yeah, he got standing applause, right, And
• 23:55
  Speaker 1: he gave some comments and I thought that they were
• 23:57
  Speaker 1: fascinating because he said, theoretically, if everybody indexed, it would
• 24:02
  Speaker 1: be chaos. Can chuckle. Yeah, Well, I think that's a
• 24:06
  Speaker 1: that's a great question. Um, if my recollection is right,
• 24:11
  Speaker 1: I think I think we'd have to get to a
• 24:14
  Speaker 1: greater level of indexing before we'd see that. And he
• 24:17
  Speaker 1: said there was zero percent chance of it, so, like
• 24:19
  Speaker 1: to be clear. At the same time, the sort of
• 24:21
  Speaker 1: implicit understanding is that, uh, you need some level of
• 24:26
  Speaker 1: active management in order to make indexing work right, And
• 24:30
  Speaker 1: I think even even Bogel said that he felt that
• 24:33
  Speaker 1: in particular in some areas, including municipal bonds for example,
• 24:37
  Speaker 1: you need an active management so you know that the
• 24:39
  Speaker 1: ball has moved forward, sort of creating more of a
• 24:41
  Speaker 1: nuance to look at active versus passive. Yeah, And I
• 24:45
  Speaker 1: think Buffett, in fairness has has a nuance perspective on
• 24:48
  Speaker 1: this too. I mean a lot of people say, well,
• 24:50
  Speaker 1: wait a second, this is a guy who himself is
• 24:52
  Speaker 1: an active manager. I mean he's got a stock portfolio
• 24:56
  Speaker 1: where he is making decisions on individual security and a
• 25:00
  Speaker 1: lot of his track record over over time has been
• 25:03
  Speaker 1: because he is an active manager. Um the argument that
• 25:06
  Speaker 1: buffets making is a more global one, and he's saying that, yes,
• 25:11
  Speaker 1: obviously it's possible for active managers to outperform, but as
• 25:15
  Speaker 1: a whole, it really is a zero sum game. And
• 25:19
  Speaker 1: as an industry, Uh, investment professionals are not adding any value. Um,
• 25:25
  Speaker 1: though it is possible to go find a money manager
• 25:28
  Speaker 1: who's gonna do right for you and um deliver more
• 25:32
  Speaker 1: value than than their fee. Well. He also gave the comparison,
• 25:36
  Speaker 1: I believe of how much the two top stock pickers
• 25:39
  Speaker 1: at Berkshire, Ted Wesler and and Todd Combs make. They
• 25:43
  Speaker 1: manage about twenty billion dollars between them. They get a
• 25:45
  Speaker 1: million dollars a year in salary plus bonuses based on
• 25:49
  Speaker 1: whether they beat the SMP five hundred. And he gave
• 25:51
  Speaker 1: the example that said, if you have a billion dollar fund,
• 25:54
  Speaker 1: you get two percent even for terrible performance, you're gonna
• 25:57
  Speaker 1: get twenty million dollars. He said, in any other field
• 25:59
  Speaker 1: that which blow your mind, right, right, Yeah, I mean, look,
• 26:03
  Speaker 1: Berkshire does things in a different way, and uh, you know,
• 26:07
  Speaker 1: one of the one of the things that uh, Wessler
• 26:11
  Speaker 1: and Combs get to enjoy by working in Berkshire as
• 26:13
  Speaker 1: they you know, they don't have to deal with the
• 26:16
  Speaker 1: limited partners. They have a stable source of capital that
• 26:21
  Speaker 1: they get to invest and you know they're doing what
• 26:24
  Speaker 1: they love to do, which is analyzed securities within the
• 26:27
  Speaker 1: context of Berkshire Hathaway. So, Um, there there's a trade
• 26:31
  Speaker 1: off there. Even though they're getting paid less uh then
• 26:34
  Speaker 1: they could make if they were still running hedge funds,
• 26:36
  Speaker 1: they do get a lot of benefits. No, I want
• 26:39
  Speaker 1: to talk a little bit about Warren Buffett's comments about
• 26:43
  Speaker 1: United as well as well as far Ago. I mean,
• 26:45
  Speaker 1: he had some pretty harsh words for both companies, uh,
• 26:48
  Speaker 1: saying that for example, United made a quote terrible mistake
• 26:51
  Speaker 1: with the clash with the passenger that was videotaped. Um.
• 26:55
  Speaker 1: Have you ever heard in recent memory Warren Buffett kind
• 26:59
  Speaker 1: of give me couplas like this or talk about the
• 27:01
  Speaker 1: shares that he held in the company's with such harsh criticism. Yeah,
• 27:06
  Speaker 1: he does it from time to time. I don't I
• 27:08
  Speaker 1: don't think he's he's trying to um defend managements when
• 27:14
  Speaker 1: when he thinks they mess up. Uh. There's a difference, though, um,
• 27:20
  Speaker 1: between saying something and changing his appraisal of the economics
• 27:25
  Speaker 1: of a business. I think what we saw over this
• 27:28
  Speaker 1: last week because he actually came out and said he
• 27:31
  Speaker 1: thinks uh differently about ibm s business model and and
• 27:35
  Speaker 1: therefore he actually sold some shares, whereas with with Wells
• 27:39
  Speaker 1: UM and with United. Uh, there's really no indication that
• 27:43
  Speaker 1: he's like trying to get out of those positions that
• 27:46
  Speaker 1: he's He's fundamentally changed his view about the economics of
• 27:50
  Speaker 1: of of those businesses. And I think that's an important distinction. Now,
• 27:55
  Speaker 1: what were some of the other topics or even in
• 27:58
  Speaker 1: your conversations with people attending this annual meeting, was a
• 28:02
  Speaker 1: forty people at least? Uh? Yeah, let's there are a
• 28:06
  Speaker 1: lot of people there. There are a lot of people.
• 28:07
  Speaker 1: Are there just a shop? They don't necessarily make it
• 28:10
  Speaker 1: into the arena to listen to Buffet and Monger. But
• 28:14
  Speaker 1: one of the other huge themes was the sort of
• 28:18
  Speaker 1: maya holpa that Buffett issued about not getting in on
• 28:22
  Speaker 1: on tech earlier, which I think is just hugely important.
• 28:26
  Speaker 1: If you look at the biggest companies in the world
• 28:28
  Speaker 1: by market value. Actually the five that are only five
• 28:31
  Speaker 1: that are bigger than Berkshire. They're all tech companies. And
• 28:35
  Speaker 1: I think there was a there was a lot of
• 28:37
  Speaker 1: conversation over the weekend about what that meant, whether and
• 28:41
  Speaker 1: and and and Buffett talked a lot about how, uh
• 28:46
  Speaker 1: you know, he had had to change his thinkings, and
• 28:49
  Speaker 1: he actually apologized to shareholders. He said he was capable,
• 28:53
  Speaker 1: He had the ability to understand Google a lot earlier, um,
• 28:57
  Speaker 1: for a variety of reasons, and he just didn't. And um,
• 29:01
  Speaker 1: you know, at this point, Buffet's got to find investments.
• 29:05
  Speaker 1: He's got to either buy companies or find the companies
• 29:08
  Speaker 1: that are going to get really big tomorrow and put
• 29:11
  Speaker 1: Berkshire's dollars to work in them. And he really did
• 29:14
  Speaker 1: miss the boat on tech. Noah Boire, thank you so
• 29:17
  Speaker 1: much for joining us. No Noah is our Warren Buffett
• 29:21
  Speaker 1: reporter as well as generally the insurance industry. Uh Noah
• 29:26
  Speaker 1: comes to us from Seattle, and he is a reporter
• 29:28
  Speaker 1: for Bloomberg. Thanks for listening to the Bloomberg P and
• 29:34
  Speaker 1: L podcast. You can subscribe and listen to interviews at
• 29:37
  Speaker 1: Apple Podcasts, SoundCloud, or whatever podcast platform you prefer I'm
• 29:41
  Speaker 1: pim Fox. I'm on Twitter at pim Fox. I'm on
• 29:45
  Speaker 1: Twitter at Lisa Abramowits one before the podcast. You can
• 29:48
  Speaker 1: always catch us worldwide on Bloomberg Radio