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UBS, China, Markets, and the Fed · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
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Speaker 1: my co host Matt Miller. Every business day, we bring
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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
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Speaker 1: at Bloomberg dot com slash podcast. Alison Williams joins us.
0:22
Speaker 1: She's a senior banks analyst at Bloomberg Intelligence and Bloomberg
0:25
Speaker 1: Opinion Calms. Paul Davies also joining us here for a
0:27
Speaker 1: little roundtable here. Paul, what's the feeling here about bringing
0:32
Speaker 1: back mister Emodi to UBS. I guess the market likes it.
0:37
Speaker 1: It's kind of seen as a good thing. What do
0:38
Speaker 1: you think, Yeah, no, I think it's it seems it's
0:40
Speaker 1: definitely a good thing. I mean, you know, UBS now
0:42
Speaker 1: presents a very different leadership challenge than it did. You
0:46
Speaker 1: know three weeks ago. Three weeks ago, it was still
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Speaker 1: a very well run, self contained wealth manager with some
0:52
Speaker 1: good sort of growth prospects, you know, churning out good
0:55
Speaker 1: profits and buying backstock, and lots of people quite liked it.
0:59
Speaker 1: Then it was you know, sort of shoehorned into this
1:03
Speaker 1: incredibly large and complicated takeover deal to sort of rescue
1:06
Speaker 1: its long time you know, crosstown rival credit Swiss, and
1:11
Speaker 1: there is a very difficult you know, cultural and financial
1:15
Speaker 1: integration to do. And there's also Swiss taxpayer money, you know,
1:19
Speaker 1: on the line here if things don't go well. So
1:23
Speaker 1: I think for shareholders, for the Swiss government, for the
1:26
Speaker 1: Swiss people who don't necessarily like this deal either. You know,
1:29
Speaker 1: they need somebody with the experience and the background of
1:32
Speaker 1: Sergio or Matty and someone who has his kind of
1:35
Speaker 1: you know, statesmanlike presence as well, and they need someone
1:38
Speaker 1: who has his kind of citizenship as well. It's a
1:42
Speaker 1: kind of a dirty little secret. Nobody likes to talk
1:45
Speaker 1: about this, but I remember when Joseph Ackermanz, who is Swiss,
1:49
Speaker 1: was put in charge of Deutsche Bank, which is German,
1:52
Speaker 1: and guess what, it did not go down well with
1:54
Speaker 1: the German I know, I know, I'm not saying that
1:56
Speaker 1: there's xenophobic, but the Swiss do not like when foreigners
2:01
Speaker 1: come in and run their big institutions. That that's an
2:04
Speaker 1: issue with a lot of countries, right, Paul, how much
2:08
Speaker 1: of this is about ermodi not being Dutch, Ralph Hammers.
2:11
Speaker 1: I mean, eighty percent of the people in that country
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Speaker 1: in a recent poll were against this force takeover. Is
2:20
Speaker 1: this a little bit of a throwing them a bone?
2:22
Speaker 1: You know, here's a Swiss guy. Don't worry, the old
2:24
Speaker 1: dude that you know and love is coming back, and
2:27
Speaker 1: he's from our own country. So how much is that?
2:29
Speaker 1: How much of that is playing into this? I mean,
2:31
Speaker 1: I think, you know, the swissness sort of helps in
2:35
Speaker 1: the sense of, you know, you've got to win the
2:37
Speaker 1: trust of the people of Switzerland and like I say,
2:40
Speaker 1: the politicians and regulators whose own careers and reputations are
2:45
Speaker 1: on the line as well after this, after this kind
2:47
Speaker 1: of shotgun marriage. So I mean, it definitely helps. And
2:50
Speaker 1: there is you know, everybody kind of you know, says
2:53
Speaker 1: there's this unwritten rule that at least one of the
2:55
Speaker 1: two top top jobs sorry chairman or CEO, needs to
2:58
Speaker 1: be held by a Swiss person, right, you know, it
3:00
Speaker 1: hasn't always been true, um, and I don't think Switzerland
3:04
Speaker 1: is you know, quite as um, you know, blinkered in
3:07
Speaker 1: that way as as as you might as some people
3:09
Speaker 1: might think. But I mean it's it is a conservative
3:11
Speaker 1: country and right now they need a leader who can
3:14
Speaker 1: sell this deal to the Swiss people exactly. So, Alison,
3:18
Speaker 1: from your perspective as a research channels looking at the
3:21
Speaker 1: fundamentals to financials here, what are mister Emodi's kind of
3:24
Speaker 1: top two or three tasks do you believe to ensure
3:27
Speaker 1: that this is a success? Wow? Top two or three?
3:31
Speaker 1: So um so, First, you know, they have to right
3:36
Speaker 1: size the units in terms of um, you know, deciding
3:41
Speaker 1: what they're what they're going to keep and what they're
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Speaker 1: going to leave behind. I think you know, in particular
3:47
Speaker 1: hell guide Chard do you have the investment bank, but
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Speaker 1: hopefully there are people with expertise evaluating those assets and
3:54
Speaker 1: client risks and you know, making sure that there's no
3:57
Speaker 1: doubling down on risks they don't want. Um you know,
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Speaker 1: I think that that the second so so first is
4:05
Speaker 1: sort of making those decisions which we've seen broad strokes,
4:09
Speaker 1: but I think Urmanti has to sort of confirm those
4:12
Speaker 1: and implement that. Second, I would say is culture and
4:19
Speaker 1: so maybe this is actually the this is even more
4:22
Speaker 1: important than picking the businesses, right, So think about the
4:26
Speaker 1: culture of ubs in terms of especially under the range
4:30
Speaker 1: of Armani pulling back of risk and really strong controls
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Speaker 1: of the business. One of the charts we like to
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Speaker 1: show is, you know, if you look at overall trading
4:41
Speaker 1: and revenue for the global trading and investment banking business, uh,
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Speaker 1: you know, UBS is at the lower end of variability
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Speaker 1: on that scale, and Credit SUITEZES is at the high end.
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Speaker 1: And so taking on those businesses and instill in culture,
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Speaker 1: I think it's probably the most important task and the
4:59
Speaker 1: most difficult tasks. And then you know, finally, um, the
5:04
Speaker 1: restructuring cost cutting program is going to be significant. Managing
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Speaker 1: the risk, especially within the Command Swiss unit where they
5:13
Speaker 1: have a significant share, a share that I think would
5:17
Speaker 1: have prevented it a deal if not for the troubles
5:20
Speaker 1: that the government was trying to avoid. Um. You know,
5:23
Speaker 1: that's a key challenge. And so Armadi obviously brings the
5:27
Speaker 1: Swiss expertise. As you said, he's also undergone a significant
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Speaker 1: de risking and restructuring program under his reign in prior years. Hey, Paul,
5:35
Speaker 1: you know I've seen reporting that the this deal, this
5:38
Speaker 1: combination is extremely unpopular with the Swiss people. Why is that?
5:46
Speaker 1: I mean, I think there's there's a couple of things.
5:48
Speaker 1: I mean, there was some of the some of the
5:50
Speaker 1: surveys I saw were about the credibility of the regulator
5:56
Speaker 1: FINNMA and the government. Do they have credibility? Well, I
6:00
Speaker 1: don't know that the overseeing Credit Swiss, which has like
6:04
Speaker 1: a global scandal every six months. I mean, there are
6:07
Speaker 1: plenty of people who thinks that, who think that Finnmer,
6:10
Speaker 1: the financial regulator, could have and should have intervened in
6:14
Speaker 1: stronger ways, you know, much sooner. I think there's you
6:17
Speaker 1: know that you could even find people at Credit Suis
6:19
Speaker 1: who who would have hoped that the regulator might have
6:21
Speaker 1: rescued them from themselves much quicker. Um. But but then
6:26
Speaker 1: the other, I mean, the other key thing about the
6:27
Speaker 1: unpopularity of this deal is just you know, the dominant
6:31
Speaker 1: bank at home that it will create. And again that's
6:34
Speaker 1: a kind of I think that's another reason why the
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Speaker 1: presentation of this and the effort that you know, Sergio
6:40
Speaker 1: Mutty will have to make to win over people and
6:43
Speaker 1: win over win back trust is going to be so important.
6:46
Speaker 1: You know, they waived competition rules to let this deal happen.
6:50
Speaker 1: Colin Keller her the chairman, you know, when they were
6:53
Speaker 1: announcing this deal the other week said you know, we
6:55
Speaker 1: were going to do everything we can to kind of
6:56
Speaker 1: hold onto this enlarged Swiss Bank. You know, we've not
7:00
Speaker 1: heard the last of this at all. So I think,
7:03
Speaker 1: you know, there's a real public public relations charm offensive,
7:07
Speaker 1: whatever you want to call it, effort to be made
7:10
Speaker 1: to try and keep this together, you know, on the
7:13
Speaker 1: part of UBS. I mean, they had to do something right.
7:16
Speaker 1: Credit Swiss had they were spying on their employees, remember
7:20
Speaker 1: that they had bet big on Green Silly. They were
7:26
Speaker 1: willing to give as much credit to Archagos as he
7:29
Speaker 1: wanted exactly, you know, I mean the reality is, I mean,
7:31
Speaker 1: this has been going on for now, getting tax issues.
7:35
Speaker 1: I mean, is there anything they didn't do wrong? What
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Speaker 1: would the Swiss people have preferred? You know, I mean
7:41
Speaker 1: I don't know, Alison, what just from the investment banking perspective,
7:45
Speaker 1: do you put one and one together and get two plus?
7:48
Speaker 1: How do you think they're going to play the investment
7:50
Speaker 1: banking business? So unfortunately, we think it's actually the opposite.
7:55
Speaker 1: You put one and one together and the combined edity
7:58
Speaker 1: is probably going to come in below. You know, sort
8:01
Speaker 1: of what would be ProForma estimates at least for the
8:04
Speaker 1: near term. For for two key reasons. One is, you know,
8:08
Speaker 1: as I mentioned, they're going to want to mitigate combined
8:11
Speaker 1: risk to clients in terms of UM exposures to clients
8:14
Speaker 1: and what they're providing them. They're not going to double
8:18
Speaker 1: down from the client side. They're also not going to
8:20
Speaker 1: want to double down as well clients like two UM,
8:23
Speaker 1: you know, sort of diversify the people that they're working
8:26
Speaker 1: with in their exposures. And then secondly, you know, when
8:30
Speaker 1: you look at UM, you know, in particular the fixed
8:33
Speaker 1: income trading business of credit swees, a lot of this
8:37
Speaker 1: are types of businesses that UBS has shied away from
8:40
Speaker 1: and moved away from a long time ago. UBS is
8:43
Speaker 1: fixed income trading unit is very currencies rates focused. UM
8:47
Speaker 1: so really focused on flow based businesses if you will,
8:50
Speaker 1: that don't use the balance sheet as much. UM. Credit
8:53
Speaker 1: sweet was the opposite. We know that they've already been
8:56
Speaker 1: moving away and reducing that and we think that well
9:00
Speaker 1: UBS has said they're going to do it, and we
9:03
Speaker 1: expect that that happens on an accelerated time from that
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Speaker 1: they cut those assets more. All right, guys, great having
9:08
Speaker 1: you both together on this. It's a big, big day
9:11
Speaker 1: for UBS as it tries to navigate its acquisition of
9:15
Speaker 1: Credit Swiss really over. It's going to be a multi
9:18
Speaker 1: year issue, is kind of how it appears at this point.
9:20
Speaker 1: We had Paul Davies, Bloomberg Opinion columnists joining us from London,
9:23
Speaker 1: and Alison William's, senior Global Banks annalyst fro Bloomberg Intelligence,
9:26
Speaker 1: joining us from the phone from Princeton, New Jersey, kind
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Speaker 1: of rounding it all out. Yeah, I just think it's
9:33
Speaker 1: not the end. We're gonna hear more. I think your
9:35
Speaker 1: story exactly right. There's probably a lot of issues that
9:39
Speaker 1: UBS is gonna find over the coming weeks, months, and
9:42
Speaker 1: maybe years. This is Bloomberg. You're listening to the Team
9:47
Speaker 1: Cancer Live program, Bloomberg Markets weekdays at ten am, easting
9:51
Speaker 1: on Bloomberg dot Com, the I Heard Radio app, and
9:54
Speaker 1: the Bloomberg Business App. We're listening on demand wherever you
9:57
Speaker 1: get your podcast. David Bonson, cio of the Bonson Group.
10:03
Speaker 1: Before that, you spend a bunch of time at Morgan
10:05
Speaker 1: Stanley and then at UBS running money here so under
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Speaker 1: Sergio Armudi exactly now. Interesting, mister Monti's back. David, thanks
10:14
Speaker 1: so much for joining us. Here. What are you telling
10:17
Speaker 1: your clients these days? You know it just January was great,
10:21
Speaker 1: February not so much, March just kind of hanging out here.
10:24
Speaker 1: And now we've started quarter two. What are you telling
10:26
Speaker 1: your clients? Well, essentially, I'm telling them exactly what markets
10:31
Speaker 1: are telling us, which is that there's a lot of
10:32
Speaker 1: uncertainty in the equity market and that volatility is likely
10:36
Speaker 1: to continue. I'm struck by Bullard's comment about the equity
10:40
Speaker 1: volatility can mean certain things at different times for financial conditions,
10:44
Speaker 1: and it's just not really their job to look at it,
10:47
Speaker 1: because I very much agree with them. It is not
10:49
Speaker 1: their job to look at that. Financial conditions are going
10:53
Speaker 1: to move for any number of different reasons, and their
10:56
Speaker 1: job is to not to be taking their signals that way. Rather,
11:01
Speaker 1: it is quite evident that the disinflation is upon us.
11:05
Speaker 1: They have overtightened, and they seem hell bent on exacerbating
11:11
Speaker 1: the mistakes they make on both ends, staying too low
11:14
Speaker 1: too long and then staying too tight too long. Well
11:16
Speaker 1: don't they. I mean, it seems what they really want
11:18
Speaker 1: to do is avoid the fate of Arthur Burns. They
11:22
Speaker 1: don't want to uh, you know, shoot before they see
11:26
Speaker 1: the whites of the eyes of I guess disinflation, right, Well,
11:32
Speaker 1: I would love to believe that they cared about that.
11:35
Speaker 1: I don't. I definitely understand rhetorically the pal has talked
11:38
Speaker 1: much more that way, more volkerlike than Burns like. But
11:42
Speaker 1: Arthur Burns never had the luxury of dealing with M
11:44
Speaker 1: two dropping three percent in one quarter and the CPI
11:49
Speaker 1: lag essentially representing over half the shelter lag, rather in
11:54
Speaker 1: CPI representing over half of what we see in CPI.
11:59
Speaker 1: Burns was not coming off of a shutdown of the
12:01
Speaker 1: economy that then led to a supply side really a
12:05
Speaker 1: debacle in the production of goods and services, labor shortages,
12:09
Speaker 1: other things like that. And so there were a lot
12:11
Speaker 1: of differences in the inflation of the seventies and the
12:14
Speaker 1: inflation we've had in the last eighteen months. But what
12:17
Speaker 1: do you what do you think then, David? It's been
12:20
Speaker 1: suggested to us by I think daniel D. Martineau Booth
12:23
Speaker 1: that part of what Powell wants to do is just
12:26
Speaker 1: break the FED put for now and forever. What do
12:29
Speaker 1: you think his endgame is? Yeah? And I love Danielle
12:34
Speaker 1: and I think that Danielle's an assessment of what Pale
12:36
Speaker 1: did back in eighteen and nineteen was some of the
12:38
Speaker 1: best out there, But I don't agree with her that
12:41
Speaker 1: that is the case. I don't think any said chair
12:45
Speaker 1: can break the FED put. I think that it is
12:47
Speaker 1: not merely a matter that Wall Street or Main Street
12:50
Speaker 1: has gotten dependent on it, both of which is true,
12:53
Speaker 1: but the US economy has gotten dependent on it. The
12:56
Speaker 1: pension funds, the unfunded liabilities of pensioners all around the
13:02
Speaker 1: country to totally break the put. If we really thought
13:06
Speaker 1: that was happening, credit spreads would be five hundred basis
13:09
Speaker 1: points wider than they are. We had a year last
13:12
Speaker 1: year where everyone was talking about recession and yet duration
13:16
Speaker 1: underperformed credit. I mean it was It's surreal that we're
13:19
Speaker 1: having a banking moment right now and there isn't a
13:22
Speaker 1: single lick of credit impairment. It's entirely interest great risk.
13:26
Speaker 1: So I don't think that the FED put is going anywhere.
13:29
Speaker 1: But again, even if Daniel's right, we wouldn't know it
13:32
Speaker 1: until they really get tested. I mean, the SMPS down
13:35
Speaker 1: twenty the NAVSDAC was from last year. The NAVSDAC had
13:39
Speaker 1: already gone up fifty before it came down thirty. Credit
13:43
Speaker 1: spreads are still really really tame. Nothing has broken yet.
13:48
Speaker 1: Now we have the banking system, you know, I certainly
13:51
Speaker 1: think the FED can control housing price, inflation of the
13:54
Speaker 1: interest rate, and that bubble was out of control. So
13:57
Speaker 1: that's one element where I believe they can control inflation.
14:00
Speaker 1: And I just don't believe they have any control with
14:02
Speaker 1: the sad funds rate over normal goods and services. All right, Dave,
14:05
Speaker 1: let's get to brass tax here. Where do we go
14:08
Speaker 1: with our money? A lot of folks are telling me
14:10
Speaker 1: to go to quality. I'm not really sure what that means,
14:13
Speaker 1: but it feels like I should be buying companies that
14:15
Speaker 1: sell toothpaste and I mean cash shampoo and have high dividends.
14:19
Speaker 1: I mean, how do you think about quality in today's market?
14:23
Speaker 1: What does that mean to you? Yeah, so I can
14:26
Speaker 1: only assume that you're seeing me up accidentally. I certainly
14:29
Speaker 1: am talking to my book here, but the differences. I'm
14:31
Speaker 1: not making a tactical call for quality. It's all we do,
14:34
Speaker 1: it's all we ever believe in. We never want to
14:36
Speaker 1: be buying high priced, high multiple What do you mean, David,
14:40
Speaker 1: when you say quality? We mean balance sheet strength and
14:43
Speaker 1: free cash flow, and that's all anyone should mean. I mean,
14:46
Speaker 1: I would add to that, although I think it's sort
14:49
Speaker 1: of implied a business model that is sensible and defensible
14:52
Speaker 1: and so forth. But out of that business model that
14:56
Speaker 1: is not quite so cyclical and not quite so speculative.
14:59
Speaker 1: Quality is a financial condition. It refers to balance sheet strength,
15:02
Speaker 1: lower debt ratios, and more predictable and growing free cash flow.
15:07
Speaker 1: And how do we know if a company has dependable
15:10
Speaker 1: dividend growth? It's from the free cash flow growth. You
15:13
Speaker 1: can't pay a dividend from money that doesn't exist. And so,
15:16
Speaker 1: as dividend growth managers, a little over two and a
15:19
Speaker 1: half a billion of the over four billion that I
15:22
Speaker 1: manage is in dividend growth equity and it is doing
15:25
Speaker 1: extremely well right now, and we believe it's the right
15:28
Speaker 1: place to be going forward. But again, we believe that
15:31
Speaker 1: even when Fang is rallying. But hey, while you're talking
15:34
Speaker 1: your book, you want to give us some names. Yeah,
15:37
Speaker 1: by the way, I think the name I Blackstone and Apollo.
15:39
Speaker 1: If you're a couple of asset managers, they get lumped
15:42
Speaker 1: in with financials. And we know the banks of at
15:44
Speaker 1: a hard time. But these are just unbelievable dividend growers
15:47
Speaker 1: that simply don't have a bank business model at all.
15:50
Speaker 1: They don't take balance sheet risk. They're using investor money
15:54
Speaker 1: from which they get really good fees, really good promotes,
15:57
Speaker 1: and they are mostly a non traditional asset class is
16:00
Speaker 1: private equity, hedge funds, real estate, credit and their asset
16:04
Speaker 1: gathering machines. And so Blackstone and Apollo are two robust
16:08
Speaker 1: dividend growing names. Blackstone we've owned for a decade and
16:12
Speaker 1: believe that they will continue growing the dividend in high
16:16
Speaker 1: single digits per year. You're going to get about a
16:18
Speaker 1: five percent dividend annualized, and you're going to get we
16:22
Speaker 1: think that much or more in price grows. How about energy,
16:27
Speaker 1: I'm thinking, David, I might have missed that whole train there,
16:30
Speaker 1: that whole boat. What happened with energies or anything left there? Yeah,
16:35
Speaker 1: there certainly is, although we are a little bit more
16:37
Speaker 1: bullish than now a midstream than upstream. But you know,
16:39
Speaker 1: when you say missed the boat, if you mean the
16:42
Speaker 1: forty five percent move and in the sixty percent move
16:46
Speaker 1: last year, but you know what, it's trading at nine
16:49
Speaker 1: point two times earnings. Okay, it's trading at half of
16:52
Speaker 1: its annualized evaluation. Meanwhile, Tech, which was pummelo last year,
16:57
Speaker 1: is still trading at twenty four times versus in eighteen
17:00
Speaker 1: times historical. So I would still argue that energy is
17:04
Speaker 1: undervalued relative and tech is overvalued relative. But a better
17:08
Speaker 1: place to be from a quality standpoint is midstream. Really
17:12
Speaker 1: robust free cash flow growth, heavy dividend coverage, and they
17:15
Speaker 1: really delevered. What is midstream is that refineries. No refineries
17:22
Speaker 1: would be more downstream, and midstream would be the pipelines
17:24
Speaker 1: and storage transportation. It's a very environmentally friendly play as well.
17:29
Speaker 1: You don't want oil and gas being transported by truck
17:32
Speaker 1: and by rail, and so we like the pipeline space.
17:35
Speaker 1: And then of course the LNG exports story is a
17:38
Speaker 1: midstream story too, and we think there's huge growth potential there.
17:42
Speaker 1: If I wanted to build a new pipeline today, I
17:44
Speaker 1: couldn't get it done, could not in this administration. Why
17:46
Speaker 1: did we all hate that big pipeline down from Canada.
17:50
Speaker 1: I don't know, something the ELK migration or something, so,
17:53
Speaker 1: but I mean, I mean, that's also kind of a
17:55
Speaker 1: bullish part of the midstream called they're not going to
17:57
Speaker 1: be adding more pipelines. Yeah. I do hope that that
18:01
Speaker 1: will change. I believe it is without getting overly political
18:05
Speaker 1: and incredibly foolish decision by the current administration. But the
18:08
Speaker 1: fact that matter is you're right. It boosts up the
18:11
Speaker 1: value of incumbent assets when you artificially constrain new supply.
18:15
Speaker 1: All right, we'll have to see how that place out.
18:17
Speaker 1: David Bonson always a pleasure to chat with, get some
18:20
Speaker 1: good ideas. David Bonson, CIO of the Bonson Group. He's
18:23
Speaker 1: been managing private wealth money for a long Time's got
18:26
Speaker 1: a lot of perspective. He's out there in the West Coast,
18:28
Speaker 1: to which we late out there in Newport Beach, California.
18:31
Speaker 1: That's got to be tough going to tennis every day.
18:33
Speaker 1: You're listening to the tape kens Are Live program Bloomberg
18:37
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18:44
Speaker 1: You can also listen live on Amazon Alexa from our
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Speaker 1: flagship New York station, Just Say Alexa, play Bloomberg eleven thirty.
18:53
Speaker 1: The news coming out of China, I guess most recently
18:56
Speaker 1: is company specific. Ali Baba one of the leading conglomerate telecom,
19:00
Speaker 1: cloud companies, e commerce companies. One of the real success
19:03
Speaker 1: stories of China is going to be breaking itself up
19:06
Speaker 1: into six smaller pieces. And I don't want to necessarily
19:08
Speaker 1: talk about that per se, but what does it mean
19:10
Speaker 1: for the economy, for the tech sector, for just the
19:13
Speaker 1: government's involvement in the economy of China. And to do
19:17
Speaker 1: that we check in with Bloomberg Economics chief economists Tom Orlick. Tom,
19:22
Speaker 1: you lived and worked in China and Beijing for many,
19:25
Speaker 1: many years. You've got a fantastic perspective here. You see
19:29
Speaker 1: the Ali Baba news And is this entirely in response
19:34
Speaker 1: or primarily in response to the government saying you guys
19:36
Speaker 1: got too big? I mean, we want to see you
19:38
Speaker 1: get smaller. So I think what Ali Baba has done here, Paul,
19:43
Speaker 1: is potentially rather ingenious. They've got a plan which could
19:49
Speaker 1: satisfy their two key constituencies. On the one hand, you've
19:54
Speaker 1: got investors who are frustrated that they see Ali Baba,
19:58
Speaker 1: the big company, not being valued as it should be
20:02
Speaker 1: and see potential for much higher valuations if some of
20:06
Speaker 1: the fast growing components of the business, from e commerce
20:11
Speaker 1: to cloud to logistics, can be split off. And on
20:15
Speaker 1: the other hand, you've got Beijing Jijinping, who were worried
20:19
Speaker 1: about the power of tech monopolies, worried perhaps that very
20:24
Speaker 1: powerful entrepreneurs could one day pose a challenge to Communist
20:27
Speaker 1: party rule. And so this plan to split the company
20:31
Speaker 1: up into six different smaller companies potentially satisfies both groups.
20:38
Speaker 1: All right, So you hit on something there that I
20:42
Speaker 1: was wondering about. Since these Ali Baba headlines came out, really,
20:46
Speaker 1: since the photos of Jack Mass surfaced reportedly back in China,
20:53
Speaker 1: how much does Ali Baba really get to decide for itself?
20:56
Speaker 1: I mean, when we say Ali Baba made a genius decision,
20:59
Speaker 1: isn't it? Aren't they just kind of told what to do?
21:04
Speaker 1: You know? I mean, that is a really good question.
21:06
Speaker 1: And I do not have a crystal ball into the
21:09
Speaker 1: Ali Baba boardroom. Certainly, China's Common Prosperity Agenda, which has
21:15
Speaker 1: included a sweeping crackdown on the big tech company's Ali Baba,
21:21
Speaker 1: ten Cent, ma Chuan and others, will have exerted a
21:26
Speaker 1: bunch of pressure on company leadership at the same time,
21:32
Speaker 1: are the regulators kind of in the weeds of this
21:35
Speaker 1: kind of calling the shots on what happens. I don't
21:39
Speaker 1: know the answer to that, but my suspicion is that
21:42
Speaker 1: China's government aren't that silly. They know what they want,
21:47
Speaker 1: They want to clamp down on monopolistic power, but they
21:50
Speaker 1: also know the limits of their own understanding, and they
21:54
Speaker 1: know that at its heart, Ali Baba is a very competitive,
21:58
Speaker 1: very dynamic, aentual, the world beating company, and they don't
22:02
Speaker 1: want to stop that. They don't want to they don't
22:04
Speaker 1: want to kill it. But the direction comes from the government,
22:07
Speaker 1: but the decisions come from the corporate board. Let me
22:10
Speaker 1: ask you a question that I started thinking about when
22:16
Speaker 1: I guess fifteen years ago when Yukos goot Um find
22:19
Speaker 1: like twenty billion from Russia and then um, you know,
22:23
Speaker 1: their their boss ended up in a Siberian gulag China.
22:27
Speaker 1: I wonder the same thing about do they do they
22:32
Speaker 1: risk driving away international investors who are scared about the
22:36
Speaker 1: lack of a you know, real justice system, the lack
22:41
Speaker 1: of the rule of law, when they start disappearing leaders
22:44
Speaker 1: and investment bankers, do they do they care about that?
22:48
Speaker 1: So I mean, firstly, whilst there are obviously some commonalities
22:52
Speaker 1: between Russia and China, um, I think that what happens
22:57
Speaker 1: to the Russian entrepreneurs following Putin assuming power and what's
23:04
Speaker 1: happened to Chinese entrepreneurs over the last couple of years
23:07
Speaker 1: are really two different things. Right, China's entrepreneurs have been
23:12
Speaker 1: hit with fines. Rushes entrepreneurs, Well, if they've just been
23:16
Speaker 1: hit with fines, they'd be doing a lot better than
23:19
Speaker 1: they are actually doing now. But Jack Mah disappeared for
23:24
Speaker 1: a couple of years, right. There was an investment banker
23:26
Speaker 1: about a month ago who hasn't been heard from since.
23:29
Speaker 1: They throw reporters in some place that they don't tell
23:32
Speaker 1: us about and we don't hear from them. I mean,
23:35
Speaker 1: these people just get taken off the streets and they're gone. Yeah,
23:38
Speaker 1: And I think to your point, this is clearly something
23:41
Speaker 1: which is very concerning for international investors. So markets have
23:47
Speaker 1: cheered this plan for an Ali Baba restructuring. There's been
23:51
Speaker 1: I think a sixteen percent pop in the Ali Baba
23:53
Speaker 1: share price in the last day. But if you look
23:56
Speaker 1: at what's happened to Ali Baba's share price and the
23:59
Speaker 1: share price of ten Cent and the other big tech
24:01
Speaker 1: companies over the last two or three years, it's fallen
24:04
Speaker 1: a lot, right, It's fallen a lot, and a big
24:07
Speaker 1: reason for that is precisely because investors and I worried, well,
24:12
Speaker 1: am I investing in a company which can make his
24:14
Speaker 1: own decisions? Or am I investing in a company which
24:18
Speaker 1: is always going to be at the mercy of the
24:20
Speaker 1: kind of capricious policy choices of the Communist Party. You're
24:25
Speaker 1: you're you're the chief economist at Bloomberg Economics. So this
24:28
Speaker 1: is a completely unfair question. Do we have any idea
24:32
Speaker 1: where jackma is what he's doing because his mat was
24:35
Speaker 1: saying he's been hasn't been seenially for a couple of years. Um,
24:38
Speaker 1: you know that is completely unfair question. So, um so
24:43
Speaker 1: I'm not going to speculate on it, but I will
24:45
Speaker 1: tell you that entrepreneurs in China have a more difficult
24:51
Speaker 1: job in general than entrepreneurs in the West, and entrepreneurs
24:56
Speaker 1: in China for the last couple of years have had
24:59
Speaker 1: an even more or difficult job than normal. So if
25:03
Speaker 1: they're keeping a low profile and messaging alignments with communist
25:08
Speaker 1: policy priorities, that's really not a huge surprise. All right, Tom,
25:12
Speaker 1: I will I'll apologize for both of us, Tom for
25:15
Speaker 1: putting in an uncomfortable position on a number. You're one
25:17
Speaker 1: of the smartest economists out there, and we're so happy
25:20
Speaker 1: to have you with us that we don't want to
25:24
Speaker 1: I want to get you fired for saying the wrong thing.
25:26
Speaker 1: Throw you under the bus. All right, Tom, thanks so
25:28
Speaker 1: much for joining us. Tom or like he's a chief
25:29
Speaker 1: economist for Bloomberg Economics. You're listening to the team Cancer
25:34
Speaker 1: a live program Bloomberg Markets weekdays at ten. AMI's Daring
25:37
Speaker 1: on Bloomberg dot Com, the I Heart Radio app, and
25:40
Speaker 1: the Bloomberg Business app. We're listening on demand wherever you
25:43
Speaker 1: get your podcast. Barry Roodholts, founder Riholts Wealth Management, he's
25:49
Speaker 1: gonna help us guide us through the next segment or two,
25:52
Speaker 1: and we'll let him get it. I got so many
25:54
Speaker 1: questions that I gotta ask Barry. I know, but let's
25:56
Speaker 1: get to wear next guests. Let's get the Anaka Tree
25:57
Speaker 1: on Chief Economists International four, then long Shot Kemp and Anica.
26:02
Speaker 1: We've got a US Federal Reserve here that most market
26:04
Speaker 1: participants here feel like. All right, maybe one more twenty
26:07
Speaker 1: five basis point rate increase, and maybe that's kind of
26:10
Speaker 1: going to be it, but boy, Christine Leguard a couple
26:13
Speaker 1: of weeks ago, it is pretty adamant that along with
26:15
Speaker 1: that fifty basis point increase, there's likely more to come.
26:18
Speaker 1: What's the feeling in Europe about how the European Central
26:21
Speaker 1: Banking and the Bank of Eglim for that matter, is
26:23
Speaker 1: going to proceed over the next several months in quarters? Hi,
26:27
Speaker 1: good morning. Well, there's certainly a difference, and I think
26:30
Speaker 1: it's classic Europe being a lagger versus the US, and
26:34
Speaker 1: we see it again. So obviously, you know, all central
26:37
Speaker 1: banks started off with this transitory dialogue. The US as
26:40
Speaker 1: the first to kind of realize, well, let's move away
26:43
Speaker 1: from that and let's actually start taking action, and the
26:46
Speaker 1: ECB followed suit, but took longer and acted later. And
26:50
Speaker 1: therefore it's no surprise that they have to be persistently
26:53
Speaker 1: more hawkish than the SAID in order to solve the
26:57
Speaker 1: inflationary problem. So what does that mean, Anica? I mean,
27:01
Speaker 1: first of all, everyone's been watching the euro gain strength
27:05
Speaker 1: against the dollar, right, is that is that part of this?
27:09
Speaker 1: I think so absolutely? And I mean, let's just be
27:12
Speaker 1: very tangible. You know, the market is talking about the
27:14
Speaker 1: twenty five basis points for the FED and a fifty
27:17
Speaker 1: basis points for the for the ECB, and it's simply
27:20
Speaker 1: this mechanism working through. Sorry, we got it. Barry has
27:26
Speaker 1: a question, but we get to have as Mike turned on,
27:28
Speaker 1: there we go, there we go. Hey, Anica. So here
27:31
Speaker 1: in the States, it looks like goods based inflation peaked
27:35
Speaker 1: sometime last year around June, but we still have very
27:39
Speaker 1: persistent services based inflation, primarily wages, a shortage of workers,
27:45
Speaker 1: and apartment rentals where there's just not enough housing. How
27:49
Speaker 1: does that goods versus services dynamic look in Europe? Yeah,
27:54
Speaker 1: so we're seeing exactly the same phenomena, and it's also
27:57
Speaker 1: visible in the p M. I's right. If you look
27:58
Speaker 1: at the plies services, it's still it's still very strong,
28:02
Speaker 1: whereas pmies and manufacturing obviously getting much much weaker. And
28:06
Speaker 1: in Europe it's exactly the same as what you see
28:08
Speaker 1: in the US. And obviously it's no surprise that the
28:11
Speaker 1: reopening it's still playing its hand in the fact that
28:15
Speaker 1: the services side is strong, and like the US, the
28:19
Speaker 1: labor market is extremely strong, extremely tight, and don't forget
28:24
Speaker 1: what we have more in Europe than you have in
28:25
Speaker 1: the US for these labor unions, which also tend to
28:29
Speaker 1: increase the stickiness around the wage inflation Arnica. We know
28:34
Speaker 1: in Europe there's so many of those big European industrial
28:36
Speaker 1: companies that do a lot of business with China. Give
28:40
Speaker 1: us a sense of how the China reopening is factoring
28:43
Speaker 1: into your economic outlook. Yeah, so, I mean we're all
28:47
Speaker 1: very excited about, you know, one of the world's largest
28:50
Speaker 1: demand drivers finally being able to participate into the economy
28:54
Speaker 1: and actually, you know, help global growth. I think the
28:57
Speaker 1: issue is obviously, like we saw in the other opening stories,
29:01
Speaker 1: it tends to be more services driven. It tends to
29:03
Speaker 1: be it's probably likely to be more domestic driven at
29:06
Speaker 1: least in the beginning, and obviously all sorts of protectionist
29:09
Speaker 1: political policies going on over there means it's less straightforward
29:12
Speaker 1: then Hey, China is back in the game. So I
29:15
Speaker 1: don't think on one hand, it's on one hand, we
29:17
Speaker 1: were all sort of excited about, Hey, the reopening in
29:20
Speaker 1: China is finally happening and actually faster than we expected.
29:24
Speaker 1: On the other hand, there are these factors to sort
29:27
Speaker 1: of work through. So it's not that straightforward, right. We
29:30
Speaker 1: look at the past three decades, clearly China was an
29:33
Speaker 1: exporter of deflation. Now, after spending all this time locked down,
29:39
Speaker 1: how big of an inflation exporter might they be over
29:43
Speaker 1: the next year. Yeah. I mean, I think what you're
29:46
Speaker 1: seeing in general and it's a little bit more fundamental
29:49
Speaker 1: in terms of what's two parts. I think one is
29:52
Speaker 1: more fundamental, fundamental and longer term, which is like a
29:55
Speaker 1: rewiring of global supply chains. And obviously, you know a
29:59
Speaker 1: lot of companies in Europe. Everybody talks about Europe, but
30:01
Speaker 1: actually are these European companies or are they just companies
30:04
Speaker 1: that happen to be listed in Europe? And a lot
30:06
Speaker 1: of the industrial ones are in that camp, right, And
30:09
Speaker 1: that's why people sometimes look at European equities, especially now
30:13
Speaker 1: versus the US, and say, Wow, what's an opportunity to
30:16
Speaker 1: buy these great industrial businesses cheap because that happened to
30:19
Speaker 1: be listed in Europe. There's that part of it. But
30:21
Speaker 1: I think what you're seeing is a lot of international
30:24
Speaker 1: industrial companies listed in Europe are forced to kind of
30:28
Speaker 1: reassure look for alternatives supply sources outside of China, for example,
30:35
Speaker 1: which is actually naturally quite inflationary because obviously they were
30:40
Speaker 1: enjoying a much lower cost by using China as a
30:44
Speaker 1: key part in the supply chain. All right, I want
30:47
Speaker 1: to get to the banks conversation. So I'm just gonna
30:49
Speaker 1: don't I don't have any kind of We're just gonna
30:52
Speaker 1: go straight there, because Anaka, I noticed you've been watching
30:56
Speaker 1: I think you've been watching the hearings. What is this
31:01
Speaker 1: bailout of SVB and signature bank depositors? And that's really
31:06
Speaker 1: what it is, right, a depositor bailout. What does that
31:08
Speaker 1: mean for you know? Moral hazard? Yeah, it's a major one. Right,
31:16
Speaker 1: So I think there's two points that we have to
31:18
Speaker 1: talk about here. I think one point is the fact
31:20
Speaker 1: that it's schizophrenic behavior. So on one hand, central banks say, okay, guys,
31:26
Speaker 1: stop talking about the FED puts, stop saying. You know,
31:28
Speaker 1: we're always going to put a flaw under everything. We're
31:32
Speaker 1: going to tackle inflation. Don't count on us anymore. We're
31:34
Speaker 1: restricting money supplied, blah blah blah. However, if a bank fails,
31:39
Speaker 1: suddenly our hands appear again, and we're putting a flaw
31:42
Speaker 1: under the marketplace. And that's exactly what guaranteeing all deposits
31:45
Speaker 1: is signaling to the markets. So it's a bit schizophrenic.
31:48
Speaker 1: Schizophrenic and a bit confusing. The moral hazard points if
31:52
Speaker 1: again a bit more of a philosophical conversation, which is
31:55
Speaker 1: what is the role that banks play in society? We
31:57
Speaker 1: obviously know that it's crucial because that's how the whole
32:00
Speaker 1: credit cycle works, et cetera, amplification, economic growth, et cetera.
32:05
Speaker 1: And is the role of a bank more of a utility,
32:07
Speaker 1: in which case it is a kind of more hazard situation,
32:10
Speaker 1: but it should be run differently knowing that governments are
32:13
Speaker 1: always there to bail out for Puss. I mean, this
32:16
Speaker 1: is what this is the point I'm getting to. Yeah,
32:18
Speaker 1: because Paul is normally the most conservative guy in the room,
32:21
Speaker 1: and ever since he realized that the FED, the FDIC,
32:25
Speaker 1: and the US governor there to bail us out no
32:27
Speaker 1: matter what happens, he's wanted to take on more risks.
32:30
Speaker 1: So so let me push back a little bit. I'm
32:33
Speaker 1: going to push back a little bit, and I'm literally
32:37
Speaker 1: talking my book, which Bailout Nation came out No. Nine,
32:41
Speaker 1: but Nation, I think we really need to make a
32:45
Speaker 1: distinction between rescuing people from the folly of their own
32:50
Speaker 1: behavior and making them whole, like all of the Wall
32:53
Speaker 1: Street banks that bought subprime junk and depositors that have
32:59
Speaker 1: half in in cash. A small business operating that's using
33:03
Speaker 1: a local bank. I don't think there's anything reckless or
33:08
Speaker 1: requiring a bailout when someone says, oh, I'm going to
33:10
Speaker 1: go to this top twenty bank and run my business
33:14
Speaker 1: out of it. The alternative is we're only going to
33:16
Speaker 1: put our money in the four largest banks. And so
33:19
Speaker 1: there's a difference between rescuing equity holders were made whole
33:24
Speaker 1: or bondholders who really were made whole, and people who
33:27
Speaker 1: are just collateral damages like depositors, to say nothing of
33:32
Speaker 1: trying to arrest the contagion and allowing it to spiral
33:36
Speaker 1: out of control. All right, Monica, let's go closer to
33:39
Speaker 1: home for you credit Swiss ubs. How important is that
33:42
Speaker 1: for European economies? You know, we sense it over here
33:46
Speaker 1: in the States, but I'm guessing it's just much more
33:49
Speaker 1: profound for not only just the Swiss, but European investors
33:52
Speaker 1: in general. Well, I think that you know, credit suis
33:57
Speaker 1: is old news, so you know, We've read for months
34:00
Speaker 1: and months and months around all the issues of Credit Sweets,
34:02
Speaker 1: and that's why I don't think it was as much
34:04
Speaker 1: of a blow to sort of domestic European readers as
34:07
Speaker 1: it might be across the continent, simply because they're so
34:10
Speaker 1: used to the issues over there. So I think that's
34:13
Speaker 1: not such a big thing. I think the bigger thing
34:15
Speaker 1: is that and I think that's also the point that
34:17
Speaker 1: you're making earlier. It's very confident now I'm talking. You
34:20
Speaker 1: can talk about depositors, and you can talk about investors
34:22
Speaker 1: in market participants, but let's talk about real people, because
34:25
Speaker 1: it's all about fear and real people and they influence
34:27
Speaker 1: the markets. Obviously. The point is, as a depositor, how
34:31
Speaker 1: on earth are you supposed to gauge whether depositing your
34:35
Speaker 1: money at a certain bank, also a household name bank,
34:37
Speaker 1: by the way, is safe based on the balance sheet
34:40
Speaker 1: situation of the bank. If even Credit Sweets, which was
34:44
Speaker 1: so well under certain anticipated ended up surprised by having
34:48
Speaker 1: gone through what it went through. What I'm trying to
34:50
Speaker 1: say is if you analyze a lot of the banks,
34:52
Speaker 1: and I mean if you're just a regular depositor and
34:54
Speaker 1: you see even if you're a larger one, even if
34:56
Speaker 1: you're a corporate that's depositing serious sums of at all.
35:00
Speaker 1: If you just reads the balet sheet at stays value,
35:03
Speaker 1: you might think, oh, that's totally fine, and then you've
35:04
Speaker 1: got unrealized losses, et cetera. And it's just the accident
35:09
Speaker 1: sort of victims of the accident from raising weights too fast. Yep. Interesting. Yeah,
35:15
Speaker 1: it's a very difficult issue that most investors are trying
35:18
Speaker 1: to get their handles handle around, and we got regulators
35:20
Speaker 1: in Washington in DC trying to do the same. Anakatreon,
35:23
Speaker 1: Chief Economist International van Launchot Kevin joining us. We appreciate
35:27
Speaker 1: her time. You're listening to the tape cancer our live program,
35:30
Speaker 1: Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio,
35:34
Speaker 1: the tune in app, Bloomberg dot Com, and the Bloomberg
35:37
Speaker 1: Business App. You can also listen live on Amazon Alexa
35:40
Speaker 1: from our flagship New York station, Just say Alexa, play
35:44
Speaker 1: Bloomberg eleven thirty, Matt Miller and Lee in the Bloomberg
35:49
Speaker 1: Interactive Broker Studios. Barry Ridholtz, head of Ridholts Wealth Management,
35:52
Speaker 1: He's got a podcast out there he writes books, he
35:55
Speaker 1: does all that stuff. But we grabbed him for a
35:57
Speaker 1: few minutes and he's gonna stick around with us. We
35:59
Speaker 1: will talk fixing. And when you want to talk fixed
36:01
Speaker 1: and you need to go to some serious people, and
36:03
Speaker 1: that includes good folks at TCW. Brian Well and Cocio
36:08
Speaker 1: and General's portfolio manager joins us at TCW with throughout
36:11
Speaker 1: in LA. That sounds cool, but it's really not. Folks.
36:14
Speaker 1: They got to get into the office like four or
36:16
Speaker 1: five in the morning. It's a disaster. They say, Oh,
36:18
Speaker 1: but we get out early, we can go play golf.
36:20
Speaker 1: I'd never buy that argument. But Brian, thanks so much
36:23
Speaker 1: for joining us here. I want to start by talking,
36:26
Speaker 1: you know, volatility in the treasury market. I don't remember
36:29
Speaker 1: seeing one hundred basis points moves in the two year
36:32
Speaker 1: in the tread treasury and the ten ten year kind
36:35
Speaker 1: of on a daily basis, it seems, what are you
36:37
Speaker 1: guys doing out there? What's going on? Where's the liquidity? Yeah? Incredible.
36:41
Speaker 1: Not only have to get up early, but it's raining today,
36:43
Speaker 1: so everybody's playing today, Paul, unbelievable. Right, it was just
36:48
Speaker 1: a few weeks ago, you know, we saw I think
36:50
Speaker 1: we hit about five h seven on the two year,
36:52
Speaker 1: then you blink your eyes and you're trading at three
36:54
Speaker 1: eighty on the two year. We've kind of seemed to
36:56
Speaker 1: settle into a range right around here, about around four percent. So, um,
37:00
Speaker 1: you know, we came into this, uh you know, this
37:02
Speaker 1: period long duration long a steepener, meaning we had a
37:06
Speaker 1: lot of our duration in the front of the curve,
37:08
Speaker 1: expecting things to normalize, and things have moved in that direction,
37:11
Speaker 1: although we still got you know, quite an inverted curve
37:13
Speaker 1: about minus fifty basis points on two's ten. So we
37:16
Speaker 1: kind of we kind of liked being long duration here
37:18
Speaker 1: and in the meantime, we're gonna trade this range. We're
37:20
Speaker 1: gonna trade the volatility and hopefully can as a malpha
37:23
Speaker 1: for our clients as we kind of move up and
37:25
Speaker 1: down twenty five fifty basis points. So we looked at
37:28
Speaker 1: the ten year a couple of months ago, almost as
37:31
Speaker 1: high as the two year was the and yup of fours,
37:34
Speaker 1: and here we are back around three and a half percent.
37:37
Speaker 1: Are we going to see a four handle on the
37:39
Speaker 1: tenure or anytime soon? I don't think so. I'm fat well,
37:45
Speaker 1: I doubt it. I'd say, actually have more conviction saying
37:47
Speaker 1: we won't see five again on the two year. I
37:49
Speaker 1: think we've seen the on the two year. I think
37:51
Speaker 1: we've seen the red line, you know, with regards to
37:53
Speaker 1: what the what the financial markets can handle. We got
37:56
Speaker 1: up toward about you know, two percent on excuse me,
37:58
Speaker 1: five percent on twos, and you know, things started to
38:01
Speaker 1: break and you know, we've got this kind of a
38:03
Speaker 1: little bit of a in illusion up stability, you know,
38:05
Speaker 1: for the last couple of days, just because we haven't
38:06
Speaker 1: seen a regional bank going too receivership you know for
38:09
Speaker 1: about what seventy two hours plus or minus weekends coming up,
38:13
Speaker 1: you know, we're not buying it. What's that the weekend's
38:15
Speaker 1: coming up, that's when we find out which bank doesn't
38:18
Speaker 1: didn't make it till Monday. Yeah, that's right, that's right.
38:22
Speaker 1: And it's not just banks too. I mean, like you
38:23
Speaker 1: know that that's grabbed the headlines for the last couple weeks,
38:25
Speaker 1: and that's primarily with the you know, behind this this
38:28
Speaker 1: rate rally and this rate volatility. But you know, there's
38:31
Speaker 1: other shoes to drop. You know, we saw we saw
38:33
Speaker 1: LBI in the UK back in the fall. Now we've
38:36
Speaker 1: had our little you know, our regional situation, and we've
38:38
Speaker 1: actually had ADJIECI you know, get merged you know, ubs
38:41
Speaker 1: and credit Swiss. But you know, just look at look
38:43
Speaker 1: at read stocks, Look at read stocks, look at re
38:45
Speaker 1: read bonds, both in Europe as well in the US
38:48
Speaker 1: under a tremendous amount of pressure. Um So, like I said,
38:52
Speaker 1: we've seen the red line, there were gonna be other
38:54
Speaker 1: things to to you know, to go to go bang. Uh,
38:56
Speaker 1: it's just gonna be a matter of time. You know,
38:58
Speaker 1: it doesn't all happen, you know, and can decad of days. Brian,
39:01
Speaker 1: do you watch the flows of money in terms of
39:05
Speaker 1: like out of bank deposits and into broker dealer into
39:09
Speaker 1: fixed income assets, because it seems like, yeah, there are
39:12
Speaker 1: a lot more uninsured deposits out there than I would
39:15
Speaker 1: have thought previously. That's institutional money plus a lot of
39:20
Speaker 1: retail money. Um. You know, mom and pop are asking
39:23
Speaker 1: the questions, should I take my money out of the
39:25
Speaker 1: bank and instead put it into a you know, short
39:28
Speaker 1: duration treasuries fund or buy an ETF or something like that. Yeah.
39:33
Speaker 1: I think Look, I think a lot of people, not
39:34
Speaker 1: just people, I think companies have let their guard down
39:37
Speaker 1: you know, with regards to how much uninsured money they
39:40
Speaker 1: kept at a lot of these smaller and regional banks.
39:42
Speaker 1: I don't think we've seen the end of this flow.
39:44
Speaker 1: I think, you know, people are catching their breath. I
39:46
Speaker 1: think they now have the opportunity to move their money.
39:49
Speaker 1: But I don't think it's over. And yeah, we see
39:50
Speaker 1: it directly. In fact, the way we see it, you know,
39:53
Speaker 1: in the fixed income market. We see it with regards
39:55
Speaker 1: to short end you know bills, treasury bills, you know,
39:57
Speaker 1: one month, two month, three months bills. They're trading in
40:00
Speaker 1: bably rich. Why are they trading rich meaning very expensive?
40:03
Speaker 1: Because money float out of deposited banks, they went into
40:06
Speaker 1: money market funds, and those money market funds had to
40:08
Speaker 1: buy something, you know, and right now, this all this volatility,
40:11
Speaker 1: those fund managers are not sure how long that money
40:14
Speaker 1: is going to stick around for, so they just buy
40:16
Speaker 1: the shortest instrument. And we're seeing that right now. We
40:18
Speaker 1: have not seen the you know, this this richness of
40:21
Speaker 1: these high prices and short te bills alleviate at all
40:23
Speaker 1: in the last few days. What do you make of
40:26
Speaker 1: these regional banks offering CDs FDIC insured up to a
40:31
Speaker 1: quarter million dollars around the five percent yield level. Is
40:34
Speaker 1: this just to attract some depositors that seems like a
40:38
Speaker 1: pretty decent return over the course of twelve months. It's
40:43
Speaker 1: an excellent return, im It's what they have to do.
40:45
Speaker 1: I mean, right now, you've got to you've got to
40:48
Speaker 1: hold on to his money of your deposits as you can.
40:50
Speaker 1: You know, if you're some of these small regional banks
40:52
Speaker 1: and you're trying to basically instill confidence because banking is
40:55
Speaker 1: a confidence game, and so they're going to have to
40:58
Speaker 1: do and sometimes maybe even you lose a little bit money,
41:01
Speaker 1: but there that's the most important thing, to keep that liquidity, uh,
41:04
Speaker 1: and to be able to kind of live on, you
41:06
Speaker 1: know through it's probably gonna be, you know, pretty eventful
41:08
Speaker 1: a few months here, Brian. I don't know if you
41:10
Speaker 1: look at WORP or how often you look at the
41:12
Speaker 1: world instant Probably do I do so just thinking you can.
41:15
Speaker 1: You can find the nerds at a party if you
41:16
Speaker 1: yell at work and people look at you, you know
41:19
Speaker 1: where the bond geeks are. Yeah, exactly, Um, we'll listen.
41:23
Speaker 1: Maybe I'm not as much of a nerd because I
41:24
Speaker 1: don't really get it. Is this really the market pricing
41:30
Speaker 1: in cuts. I mean, is that really what this means
41:33
Speaker 1: when I look at this screen? Um? Or is it
41:36
Speaker 1: like hedging? Going on? What question? What did it? Because
41:40
Speaker 1: you know, Powell has come out and said over and
41:43
Speaker 1: over again, guys, I'm not gonna cut rates this year,
41:46
Speaker 1: and if he does, it would be terrifying, right because
41:49
Speaker 1: I feel like something huge would have to break. So
41:51
Speaker 1: what does WORP really mean? So, so for for for
41:54
Speaker 1: for my mom who might be listening, WORP is the
41:57
Speaker 1: market's projection of the FED funds rate. So where's it
41:59
Speaker 1: going to go over the next twelve months? And what
42:01
Speaker 1: WORP is saying right now is that there's a coin
42:04
Speaker 1: flip that the Fed's gonna hike next month, and then
42:08
Speaker 1: by the end of the year, it's saying the Fed's
42:10
Speaker 1: gonna cut about three times, so about seventy five basis points.
42:12
Speaker 1: Because the way I would encourage everyone to think about
42:15
Speaker 1: that is, you know, we we think about it like
42:17
Speaker 1: to talk about it as a single number. Think about
42:20
Speaker 1: it more is maybe maybe a fifty fifty kind of
42:23
Speaker 1: probability of two scenarios, the first one meaning the FED hikes,
42:27
Speaker 1: and we get to about you know, five and a
42:29
Speaker 1: quarter on the upper part of the band of the
42:31
Speaker 1: FED funds rate, and it stays there for the end
42:33
Speaker 1: of the year, and that's where we end. There's a
42:35
Speaker 1: fifty percent shot of that. However, there's a fifty percent
42:38
Speaker 1: shot they got to cut one hundred and fifty basis points,
42:40
Speaker 1: meaning that something even more nasty than we've seen breaks
42:44
Speaker 1: in the financial markets. There's you know, that's kind of
42:47
Speaker 1: systemic type of risk, and you know, financial conditions tighten
42:51
Speaker 1: so much that the Fed has to get incredibly aggressive
42:54
Speaker 1: really soon to kind of alleviate that pressure on the
42:57
Speaker 1: on the economy and on the market. So it's you know,
42:59
Speaker 1: it's it's a it's a very um extreme two scenarios.
43:03
Speaker 1: That's the way I would encourage people think about it. Hey,
43:06
Speaker 1: Brian thinks so much good to gets good to get
43:07
Speaker 1: a little insight there. I know people talk about it
43:09
Speaker 1: as if it's actually mister market saying this is likely
43:13
Speaker 1: to happen, you know, and it doesn't. It doesn't convince me,
43:16
Speaker 1: all right. Brian Well and co cio and general's PM
43:19
Speaker 1: at TCW Fixed Income. Before that, he started his career
43:22
Speaker 1: at Donaldson, Loupkin and Yield. Jarette and Your Kids can
43:25
Speaker 1: go out and look that up. Fantastic firm until me
43:27
Speaker 1: and my friends a credit Swiss came along and acquired them,
43:30
Speaker 1: and then most of the talent walked out like fifteen
43:32
Speaker 1: minutes after the closing. So that's how that works. But
43:35
Speaker 1: the Brian landed just fine at the Trust Company of
43:38
Speaker 1: the West Run and the Gobs of Casher, so we
43:40
Speaker 1: appreciate getting a few minutes of this time. This is
43:42
Speaker 1: where you're listening to the tape cancer our live program
43:47
Speaker 1: Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio,
43:51
Speaker 1: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
43:55
Speaker 1: You can also listen live on Amazon Alexa from our
43:57
Speaker 1: flagship New York station. Just say, let's play Bloomberg eleven,
44:01
Speaker 1: Dirty Mandy Seeing Senior Technology. Anels Perflummer Intelligence joins us
44:07
Speaker 1: here in the studio and Poonam. Let's beginning with you
44:09
Speaker 1: with we've been talking about Lulu Lemon, but love to
44:11
Speaker 1: broaden it out a little bit more. What's your call
44:13
Speaker 1: here on the consumer on retail? Are they just buying
44:16
Speaker 1: stretchy pants or are they buying other stuff too? I
44:19
Speaker 1: think shoppers are buying what they want to buy. So
44:21
Speaker 1: it's one of those things where if you have the
44:22
Speaker 1: right product, you're getting the shopper to come in. There's
44:25
Speaker 1: been mixed reviews, and you know, the consumer spending and
44:28
Speaker 1: where the consumer is slowing boot Paul, you know when
44:30
Speaker 1: I look at it, if you're traveling and you're spending money, right,
44:34
Speaker 1: you just have to find what you want and lu
44:37
Speaker 1: Lemon is a place where people find what they want.
44:39
Speaker 1: And that's why you continue to see strengths. They're despite
44:43
Speaker 1: macro indicators that would say, you know, inflation is high rates,
44:47
Speaker 1: they're going up, unemployment is kicking up, a little, saving
44:51
Speaker 1: they're dropping. But the consumer are spending because the consumer
44:54
Speaker 1: is spending where they want to spend. So we were
44:56
Speaker 1: talking about this earlier. I noticed the retail world seems
45:02
Speaker 1: to have lost its middle. There's there's the budget value
45:06
Speaker 1: minded brands and the luxury brands. Am I miss reading this?
45:10
Speaker 1: Is this just my bias perspective? Or have we hollowed
45:13
Speaker 1: out what used to be the JC Penny's, Macy's, Lord
45:19
Speaker 1: and tailor sort of middle end of the retail market.
45:23
Speaker 1: So there's clearly a bifurcation between the low and the
45:26
Speaker 1: high end that exist the middle was losing ground, so
45:30
Speaker 1: they're starting to evolve. So when you talk about these
45:32
Speaker 1: department stores, you know they've been around forever, but the
45:35
Speaker 1: customer kind of went away from them because they were
45:37
Speaker 1: too vague, too overathorted. And what we're seeing happening with
45:40
Speaker 1: the middle, they're starting to become more catering to clients
45:44
Speaker 1: that they want. So they're evolving. They're shrinking their store sides,
45:48
Speaker 1: they are developing brands that will resonate more of a shoppers.
45:51
Speaker 1: They're changing the experience and the stores and and that's
45:55
Speaker 1: where the middle is shifting right now. A man deep,
45:57
Speaker 1: let's switch from retail a little bit. Micron semiconductor company.
46:01
Speaker 1: That's some pretty good numbers, but I think people like
46:04
Speaker 1: the guidance a little bit. Talks just real briefly about
46:06
Speaker 1: what you learn from Micron and what it means for
46:09
Speaker 1: the Yeah, the glut, the glut. I don't know if
46:13
Speaker 1: their numbers were good because they had negative thirty one
46:17
Speaker 1: percent gross margins. So when how do you do that?
46:20
Speaker 1: You do that when you've got a lot of inventory
46:22
Speaker 1: that you have to write off. And look, these businesses
46:25
Speaker 1: require a lot of capex because they're running their own
46:28
Speaker 1: fabs and they're running at a much lower utilization right
46:32
Speaker 1: now because the end market demand isn't there on the
46:35
Speaker 1: PC and smartphone side. That's when you see negative gross margins.
46:38
Speaker 1: The last time it happened wasn't two thousand and eight
46:41
Speaker 1: oh nine, and we know that lasted about eight quarters.
46:44
Speaker 1: So everyone right now is thinking this is a four
46:47
Speaker 1: to five quarter decline and next year it's going to be,
46:50
Speaker 1: you know, back to fifty percent growth. Now. Look, I
46:54
Speaker 1: think there are certain end markets and semis that are
46:57
Speaker 1: strong autos data centers. We know that. But in the
47:00
Speaker 1: case of Micron, over half of their revenue comes from
47:03
Speaker 1: PCs and smartphones, and which is why they had to
47:05
Speaker 1: write down a lot of the inventory. Who's buying PCs? Now?
47:08
Speaker 1: Does anybody buy PCs anymore? Well? Yeah, still so, I mean,
47:14
Speaker 1: I guess for work right for the office laptops, but
47:17
Speaker 1: it's still a saturated market. So when you think about,
47:20
Speaker 1: you know, the demand drivers and how these end markets
47:23
Speaker 1: are growing, they're not growing north of you know, low
47:26
Speaker 1: single digit and that's where a refresh cycle really matters.
47:29
Speaker 1: So what happened during the COVID phases we probably pulled
47:33
Speaker 1: forward a lot of the refreshes, and right now we're
47:35
Speaker 1: going through that lave where there is nobody who is
47:38
Speaker 1: actually interested in refreshing their PC and we have to
47:41
Speaker 1: wait a couple of years. Same thing with smartphones. And look,
47:45
Speaker 1: Micron doesn't supply directly to customer. It's a B to
47:49
Speaker 1: B business. So the companies that buy from Micron, they
47:52
Speaker 1: probably had an over capacity to begin with because we
47:55
Speaker 1: are coming from a shortage phase. We're talking about supply
47:59
Speaker 1: chain shortages for the last few years, and so Micron
48:02
Speaker 1: actually expanded their capacity over the last three years. So
48:06
Speaker 1: now that extra capacity is hurting them. So let me
48:09
Speaker 1: ask you the question before Matt does. When do we
48:13
Speaker 1: start to see sufficient semiconductor production to allow new cars
48:18
Speaker 1: to be produced at levels that will meet demand and
48:21
Speaker 1: perhaps get rid of some of these UH dealer search
48:26
Speaker 1: charge adms right, additional dealer markup Berry And I don't
48:30
Speaker 1: care about the PCs, but I ordered my Challenger a
48:33
Speaker 1: couple months ago and I'm willing for it. Right because
48:38
Speaker 1: autos is still you know, ten to fifteen percent of
48:41
Speaker 1: their overall revenue, whereas PCs and smartphones are much bigger.
48:45
Speaker 1: So even though you may think it's because of you know,
48:49
Speaker 1: bottlenecks and chip supply. But that's not how these companies
48:53
Speaker 1: make money. If what you're supplying to the autos is
48:56
Speaker 1: a small sp chip, whereas when it comes to PCs
48:59
Speaker 1: and data centers, it's much bigger sps for these companies ever,
49:03
Speaker 1: so they're just not a priority to the manufacturers that's
49:05
Speaker 1: satisfying their bigger clients. Wow, that's see. I mean almost
49:09
Speaker 1: the last time GM and Ford weren't like a major client.
49:11
Speaker 1: All right, put let's go back to you because I
49:13
Speaker 1: mean the inventory issue that we're talking about in Semis,
49:16
Speaker 1: it's the similar type thing in your retail space of
49:18
Speaker 1: yoga pants. Inventory to sales ratio has the industry kind
49:23
Speaker 1: of gottenance inventory situation in shape. I think they're working
49:28
Speaker 1: towards it, so it's definitely better than where it was
49:30
Speaker 1: mid last year and even through the holidays, but it's
49:33
Speaker 1: still a work in progress. There's still more inventory that
49:36
Speaker 1: needs to be cut, and they really need to realign
49:39
Speaker 1: their inventories with demand because if the consumer does flow
49:42
Speaker 1: in the back half, then inventories could once again pile
49:46
Speaker 1: up very quickly if they don't begin to put a
49:49
Speaker 1: model in where they can chase inventory rather than half
49:51
Speaker 1: too much. I mean many have just real quick thirty seconds.
49:56
Speaker 1: Are we on the other side of this ups and
49:58
Speaker 1: downs with chips? Are we? Are we not? Kind of
50:00
Speaker 1: on an upswing. We're gonna it'll be a good business again,
50:03
Speaker 1: probably viewing that late inventory correction phase for PCs and smartphones. Okay, well,
50:09
Speaker 1: we haven't seen us slowdown on the autos and data
50:11
Speaker 1: center side, so we can't even talk about a trough
50:13
Speaker 1: because there hasn't been any deceleration. So end market exposure
50:17
Speaker 1: really matters right now, all right, end market exposure really matters.
50:20
Speaker 1: All right? Good stuff, And that's Matt and Barried buying
50:22
Speaker 1: all these silly cars that they do, all right, so
50:24
Speaker 1: we got put them, Goyle, thank you so much for
50:25
Speaker 1: joining us. Put them covers all the motorcycle because Ducati
50:29
Speaker 1: has more chips in the multi Strata V four than
50:32
Speaker 1: they've ever had. Now you've got a motorcycle that can
50:34
Speaker 1: do adaptive cruise control, that has blind spot detection. But
50:37
Speaker 1: the problem with that is, I order one last year
50:40
Speaker 1: in twenty twenty two, I'm not going to get until
50:42
Speaker 1: next year ordering things left and run he is I
50:44
Speaker 1: mean left and right recession? Exactly what recession. All right,
50:47
Speaker 1: mendep seen covering all of the tech stuff here for
50:50
Speaker 1: Bloomberg Intelligence. A nice round table there bringing retail and
50:53
Speaker 1: tech together. Who else can do with the Bloomberg Intelligence
50:56
Speaker 1: More coming up? You're listening to the table cancer our
51:00
Speaker 1: live program Bloomberg Markets weekdays at ten am Eastern on
51:04
Speaker 1: Bloomberg Radio, tune in app, Bloomberg dot Com, and the
51:07
Speaker 1: Bloomberg Business App. You can also listen live on Amazon
51:11
Speaker 1: Alexa from our flagship New York station. Just say Alexa
51:14
Speaker 1: play Bloomberg eleven thirty. We focus on earnings. We focus
51:19
Speaker 1: on big macro issues, like what's going on in the
51:22
Speaker 1: banking system. But boy, at the end of the day,
51:24
Speaker 1: it seems like these markets continue to be driven by
51:26
Speaker 1: this federal reserve. We need to get a sense kind
51:29
Speaker 1: of where we are. Hugh Henry, he's a founding partner
51:31
Speaker 1: of Eclectica Asset Management. I founded that back in two
51:36
Speaker 1: and two. Hugh, thanks so much for joining us here.
51:40
Speaker 1: How is this FED performing here? Is this FED still
51:43
Speaker 1: behind the curve? Are they just nowhere near the curve
51:46
Speaker 1: or are they finally gotten back on board there? What's
51:49
Speaker 1: your call of this FED here? As we wait some
51:50
Speaker 1: more inflation data later this week. Oh, he is, I
51:54
Speaker 1: feared you would gona. I don't know if it's because
51:57
Speaker 1: it's raining and I find myself in Los Angeles and
52:00
Speaker 1: it's raining. You go all the way to LA and
52:02
Speaker 1: it's raining. I know, and I don't want to. I
52:04
Speaker 1: don't I am the rain. I'm full of the state,
52:08
Speaker 1: the Fed's notions, their potions. Whereas the game might might
52:13
Speaker 1: I think the best retort to your question is it
52:15
Speaker 1: a retort, but is tell me when the FED tell
52:19
Speaker 1: me when we last gave them like five stars, Tell
52:22
Speaker 1: me when they actually order it, when they actually they
52:25
Speaker 1: brought something to the table which actually empowered and made
52:28
Speaker 1: our lives better. And I don't one eighty two when
52:33
Speaker 1: when when finally rates peaked. Now, let's let's look at
52:38
Speaker 1: that rates peaked to FED rates peaked to twenty percent. Yeah,
52:42
Speaker 1: and that seems an extraordinary level. But let's put a
52:45
Speaker 1: filter on that because debt and I'm going to round
52:49
Speaker 1: these debts to GDP ratios, you know, the quantum of
52:52
Speaker 1: debt versus the income of the American economy. I'm going
52:54
Speaker 1: to We're not going to do decimal points. I'm going
52:57
Speaker 1: to tell you that in the semicies we had dle average.
53:00
Speaker 1: We finally completed the deal leverage from the travesty, you know,
53:04
Speaker 1: the bank crisis so many decades before in the nineteen
53:07
Speaker 1: thirty s, which is to say, DEAD was one times
53:10
Speaker 1: the size of the American economy. And if you fast
53:13
Speaker 1: forward forty fifty years from that point, of course, we releveraged.
53:19
Speaker 1: We became very boulish on ourselves, and I think, and
53:23
Speaker 1: I fear the process, we created a lot of fictitious
53:26
Speaker 1: wealth in the asset markets. But dead is now four
53:29
Speaker 1: times national income. And so what I want to say
53:32
Speaker 1: if you had twenty and you compare the twenty percent
53:35
Speaker 1: FED funds to the dead of one times GDP, well
53:39
Speaker 1: you know, twenty times one is twenty. And then fast
53:42
Speaker 1: forward to today and we're at five pretty much, and
53:46
Speaker 1: we've got four of four x of debt. So I
53:48
Speaker 1: want to say to you that today feels a lot
53:50
Speaker 1: like nineteen eighty two, that we're kind of at twenty
53:54
Speaker 1: percent reds. And when you're at those levels, things break,
53:57
Speaker 1: and you don't need me to tell you they've been breaking.
54:01
Speaker 1: So here's the question I think a lot of people
54:04
Speaker 1: are wrestling with, because when you look at rates objectively. Today,
54:10
Speaker 1: when you look at them in absolute terms, they're historically low.
54:14
Speaker 1: So is it the level of rates or how rapidly
54:18
Speaker 1: they rose over the past twelve months. It so the rates,
54:25
Speaker 1: to use the vernacular of the financial markets, it's the carry,
54:28
Speaker 1: you know, it's the servicing of the debt. So, yes,
54:31
Speaker 1: you're correct, I mean comparing five to twenty then of
54:35
Speaker 1: course an absolute terms, one is way below the other.
54:39
Speaker 1: But again, when the debt is four times greater, then
54:44
Speaker 1: you equalize. So don't fall into that trap. Five percent
54:47
Speaker 1: rates are very potently destructive to our economy today, I think,
54:54
Speaker 1: So I want to keep me I suggest to you
54:57
Speaker 1: that we almost have the worst of all wor roads,
55:01
Speaker 1: and let me try and explain why. Because the real economy,
55:06
Speaker 1: you know, for the real folk out there going to
55:08
Speaker 1: work and trying to make a dollar, they're under the
55:11
Speaker 1: heel of this very profound and sharp tightening of money
55:17
Speaker 1: try conditions, and then we have asset prices, and asset
55:21
Speaker 1: prices are really prone to inflation, and it's an inflation
55:26
Speaker 1: coming from kind of the system of trade that we
55:30
Speaker 1: have with the rest of the world that you know,
55:31
Speaker 1: as we know America consumes and the rest of the
55:35
Speaker 1: world produces almost so one is a deficit nation and
55:39
Speaker 1: one is a surplus nation. Now, economics, it was conceived
55:44
Speaker 1: that that could happen from time to time, but actually
55:47
Speaker 1: it's become the norm. I mean, all of my adult life,
55:51
Speaker 1: America has been the deficit nation. And we've had we
55:54
Speaker 1: call them mercantileus, but we've had trade orientated economies like
55:58
Speaker 1: Germany and these oil producers and of course over in Asia,
56:03
Speaker 1: and they create surpluses. And the great problem that the
56:07
Speaker 1: real folk have is that these suplus nations around the world,
56:11
Speaker 1: they don't want to buy physical goods or services from
56:16
Speaker 1: the real folk. They want to buy they want to
56:19
Speaker 1: buy financial asses from the wall street folk. And so
56:24
Speaker 1: again we've got this kind of division where one part
56:27
Speaker 1: of the community, very small part of the community, is
56:30
Speaker 1: wearing sunglasses because the future seems so bright, and the
56:33
Speaker 1: other part of the community has the disdain of the rain,
56:36
Speaker 1: the deflationary rain. But how does that work out you?
56:40
Speaker 1: I mean, this all sounds very kind of sky is
56:43
Speaker 1: falling Thomas Woods. We heard this after the Great Financial Crisis.
56:48
Speaker 1: It reminds me of that you know rap video that
56:51
Speaker 1: was what was that it was Cane's versus High right, right,
56:57
Speaker 1: and but that you how terrible reckoning never came to pass.
57:03
Speaker 1: Maybe we put it off for a decade and a half.
57:05
Speaker 1: But how does this all work out? Because that sounds
57:08
Speaker 1: like a really bad setup. No, okay, Okay, propaganda, my friend,
57:16
Speaker 1: you've been swallowing the propaganda from Wall Street. Let's let's
57:20
Speaker 1: let's unveil a few things. Okay. If you look at
57:25
Speaker 1: the per capita GDP expansion, what does that mean? It
57:28
Speaker 1: means the average income from for the average Joe in
57:31
Speaker 1: this country, okay, And letting you base it to one hundred,
57:35
Speaker 1: and you compare the plight of the average real person, okay,
57:40
Speaker 1: since two thousand and nine, since the last financial great
57:43
Speaker 1: financial crisis. Okay, And as a reference point, let's take
57:48
Speaker 1: nineteen thirty okay. And so let's consider two communities of
57:52
Speaker 1: the real four, one starting in nineteen thirteen going fifteen
57:56
Speaker 1: years out. One starting in two thousand and nine and
57:59
Speaker 1: going fifteen years is slightly less. Yeah, the folk back
58:03
Speaker 1: in the in the Great Depression, their income has gone
58:06
Speaker 1: from one hundred to one hundred and eighty. Okay. So
58:09
Speaker 1: there's our reference point, okay, where where is the corresponding
58:13
Speaker 1: expansion and income for the When we start that that
58:16
Speaker 1: journey at two thousand and nine, you find that the
58:19
Speaker 1: average per capital US GDP statistic has gone from one
58:24
Speaker 1: hundred to just shy of one hundred and twenty. Actually,
58:27
Speaker 1: for the real folk, we've been living in a depression
58:32
Speaker 1: where the financial press are unwilling for some reason to
58:35
Speaker 1: call it that. And why is it a depression? Because
58:37
Speaker 1: of the last the last fourteen years or so, the
58:40
Speaker 1: Federal Reserve and indeed financial markets on at least three
58:44
Speaker 1: occasions have sought to tighten monetary policy, and that that's
58:50
Speaker 1: proven itself to be futile damaging. That's really interesting. You
58:56
Speaker 1: You raise some some fascinating points, one of which is
59:01
Speaker 1: looking at both wealth inequality and what's been taking place
59:06
Speaker 1: in terms of the US deficits. What you're really saying
59:09
Speaker 1: is that if the United States cut less taxes on
59:14
Speaker 1: corporations and the wealthy, the average working stiff would have
59:18
Speaker 1: more cash and we'd have less deficits. Am I hearing
59:22
Speaker 1: you correctly? I would like to take it a step forward.
59:27
Speaker 1: I'd like to say that actually the US has been
59:30
Speaker 1: and this will kind of cause people to shark, but
59:32
Speaker 1: has been a benevolent hegemone that has actually been willing
59:37
Speaker 1: to run them. Going on in the modern financial world,
59:41
Speaker 1: which is that all of the suckplus savings from all
59:45
Speaker 1: over the world are being channeled and funneled into the
59:48
Speaker 1: United States economy. Why is that funny? It's funny because
59:52
Speaker 1: the US economy has no need for those savings. Sure,
59:56
Speaker 1: there's a need for investment in the US economy, but
1:00:00
Speaker 1: neat is more than met by domestic sources of savings. Okay,
1:00:05
Speaker 1: so and and and the orthodoxy of economics is the
1:00:08
Speaker 1: savings should be going to the other nations, which you know,
1:00:11
Speaker 1: which need financing, which which had lots of investment demands.
1:00:15
Speaker 1: That's not happening. And so again, what happens the surplus
1:00:19
Speaker 1: capital flows, They flow into US prices and then they
1:00:23
Speaker 1: make they make it very uncomfortable for the real foot
1:00:25
Speaker 1: because your house is just too expensive, like young professional
1:00:28
Speaker 1: kids can't live in major cities. And because that's a
1:00:32
Speaker 1: great point, I had a boss, an X boss now,
1:00:36
Speaker 1: who said he couldn't believe the audacity of the new
1:00:39
Speaker 1: hires that felt they should be able to live near
1:00:42
Speaker 1: the office, to afford to live in the city where
1:00:45
Speaker 1: they work, all right, because Hugh, I hope we get
1:00:47
Speaker 1: to have you on for for a lot longer next time,
1:00:49
Speaker 1: for like a half hour instead of just ten minutes,
1:00:51
Speaker 1: because it's really fascinating stuff, all right, Hugh Henry, founding
1:00:54
Speaker 1: Pardoner of Eclectic Asset Management. Thanks for listening to the
1:00:56
Speaker 1: Bloomberg Markets podcast. You can subscribe and into the interviews
1:01:00
Speaker 1: of Apple Podcasts or whatever podcast platform you prefer. I'm
1:01:04
Speaker 1: Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three.
1:01:09
Speaker 1: And I'm fall Sweeney. I'm on Twitter at pt Sweeney.
1:01:11
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1:01:14
Speaker 1: Bloomberg Radio