Latest / Bloomberg Intelligence / EU Could Assist Scotland's Wish to Stay in Single Market, Brown Says

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EU Could Assist Scotland's Wish to Stay in Single Market, Brown Says · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim
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• 0:32
  Speaker 1: This is Bloomberg Markets. I'm Lisa brom Witz along with
• 0:35
  Speaker 1: Pim Fox, and we are going to delve deeper into
• 0:39
  Speaker 1: the Brexit negotiations. We're gonna talk about Scotland in particular,
• 0:44
  Speaker 1: which was not for Brexit but ended up getting included
• 0:48
  Speaker 1: in the whole thing anyway, Uh, sort of by accident
• 0:52
  Speaker 1: to give the fact that they're part of the United Kingdom. Um.
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  Speaker 1: And you know, for example that's spending in some areas
• 0:58
  Speaker 1: in Scotland for key government programs could fall by about
• 1:03
  Speaker 1: twenty percent. Who was a new report that talked about
• 1:06
  Speaker 1: the aging of the population and also the rising healthcare
• 1:09
  Speaker 1: costs and that means that they're going to need new money,
• 1:12
  Speaker 1: more money for the National health service. Uh. This is
• 1:16
  Speaker 1: a study from the Fraser of Alander Institute, and it
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  Speaker 1: calls for real debate about the sustainability of Scotland's budget,
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  Speaker 1: and it says that the status quo is not an option. Yeah. Well,
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  Speaker 1: and also not only that, but Scotland has also been
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  Speaker 1: reaching out itself to other countries to try to cultivate
• 1:35
  Speaker 1: relationships and get new trade agreements once Brexit is completed.
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  Speaker 1: Here to talk a little bit more about that. As
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  Speaker 1: Keith Brown, Cabinet Secretary for the Economy, Jobs and Fair
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  Speaker 1: Work UH for the Scottish Parliament, comes to us from Edinburgh, Edinburgh,
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  Speaker 1: but is here in our Bloomberg eleven three studios in
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  Speaker 1: New York. Uh, Captain Secretary, I would love to get
• 1:56
  Speaker 1: your take on what you think the consequences will be
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  Speaker 1: to Scotland as these negotiations with respect to Brexit go on. Well,
• 2:04
  Speaker 1: I don't hear all of the introduction, but I heard
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  Speaker 1: the phraser of Andern should be mentioned in the estimate
• 2:08
  Speaker 1: around an eight billion pounds loss and up to eighty
• 2:11
  Speaker 1: thousand jobs being lost. But that kind of estimate is
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  Speaker 1: murdered by other economists across the piece. So a very
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  Speaker 1: fundamental effect on the Scottish economy. So what we're trying
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  Speaker 1: to do is see what we can do to minimize that,
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  Speaker 1: and as you've said, making sure that we have bilateral
• 2:24
  Speaker 1: relationships which are improved within the EU, within Canada which
• 2:27
  Speaker 1: have been too hel one this week and here in
• 2:29
  Speaker 1: the u S as well. Minister One, if you could
• 2:32
  Speaker 1: just speak a little bit about healthcare in the National
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  Speaker 1: Health Service, because as the name implies, it is a
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  Speaker 1: national scheme. How would that fair under any kind of
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  Speaker 1: changes that may happen as a result of Brexit. For
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  Speaker 1: for the Scottish people, Well, of course there's lots of
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  Speaker 1: bilateral relationships within the NHS in terms of medical standards
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  Speaker 1: and so on as well, and that could be affected.
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  Speaker 1: But Scotland has its own NHS, the National Health Services
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  Speaker 1: a Scottish an CHS within UM and separate from the
• 3:02
  Speaker 1: rest of the UK. But you're right to see the
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  Speaker 1: agreements on approvals from Edicine's UM, the agreements for medical practices,
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  Speaker 1: BILA relationships, they could all be affected by Brexit, and
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  Speaker 1: also crucially the staff, the people from the EU that
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  Speaker 1: currently work in the NHS. We have an issue in
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  Speaker 1: getting enough people in his nurses and doctors. We don't
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  Speaker 1: want to cut off that supply from some of the
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  Speaker 1: most valuable people in our any chess. So taking a
• 3:26
  Speaker 1: step back, can you give us a sense of what
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  Speaker 1: proportion of the Scottish population voted in favor for Brexit
• 3:34
  Speaker 1: versus against and kind of how this development has affected
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  Speaker 1: Scotland's relationship with Britain. Well, of course we voted differently,
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  Speaker 1: so in Scotland it was voted to remain with the EU.
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  Speaker 1: The polls as recently is this week's show that's increased
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  Speaker 1: to sixty seven in terms of support for the EU.
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  Speaker 1: We weren't unique in the UK, so London voted to remain,
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  Speaker 1: Northern Ireland voted to remain um and it's interesting that
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  Speaker 1: London and Scotland are both now very cosmopolitan, diverse economies,
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  Speaker 1: with lots of people coming from around the world to
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  Speaker 1: stay in those locations, and we have, i think realized
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  Speaker 1: in Scotland some of the real benefits that we have
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  Speaker 1: from being part of the EU. So we we are
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  Speaker 1: very keen first of all to have stayed in the EU,
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  Speaker 1: but now that that seems to be off the table,
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  Speaker 1: we want to stay in the Single Market. You'd like
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  Speaker 1: the UK government to stay in the Single Market as well,
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  Speaker 1: because there's nothing that's implicit in the vote that we
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  Speaker 1: had that said you have to lead the single market.
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  Speaker 1: The EU yes, but not the single market. But if
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  Speaker 1: they don't want to do that, then Scotland wants to
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  Speaker 1: stay in the single market. And we've got a trading
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  Speaker 1: relationship going back hundreds of years in the Handsatic League
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  Speaker 1: and others. So it's very important to a sus stay
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  Speaker 1: in the single market. Can you stay in the single
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  Speaker 1: market if say England leads, well, there are different methods
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  Speaker 1: by which you can do that. So you have a
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  Speaker 1: process or an organization called after the European Free Trade Association.
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  Speaker 1: They have relationship in the Single Market with the other
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  Speaker 1: European countries and it's always a case that the EU
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  Speaker 1: can find pragmatic solutions. If the EU wants to do that,
• 5:00
  Speaker 1: they need to have a building partner in the UK
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  Speaker 1: to have that as well, and of course be very
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  Speaker 1: attractive Scotland. If it was an English speaking country within
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  Speaker 1: the Single market, it would have a real advantage in
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  Speaker 1: terms of investment and so and so. Yes, it is
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  Speaker 1: possible to do, but it requires political will. Minister banking, investment, insurance, assets, servicing.
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  Speaker 1: These are all key industries for Scotland. If there is
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  Speaker 1: no agreement between the United Kingdom and the European Union
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  Speaker 1: on reciprocity or domicile negotiations having to do with assets
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  Speaker 1: and rules and regulations. Will will Scotland do its own version?
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  Speaker 1: It will do as much as we can. So, for example,
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  Speaker 1: the First Ministers announced that the Scottish Government will pay
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  Speaker 1: for the costs of EU nationals who are forced to
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  Speaker 1: go through a process of reapplying to have status within
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  Speaker 1: the EU. So we are trying to find our way
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  Speaker 1: around a different process. We've already made the offer to
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  Speaker 1: the UK Government that we would take a different approach
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  Speaker 1: to immigran ration. We are very keen. What's their reaction?
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  Speaker 1: I been pretty much no um and there's been no
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  Speaker 1: flexibility showing so far. But we're continuing that process and
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  Speaker 1: it's are you surprised by that? I mean, you're surprised
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  Speaker 1: that that that the conversation or even the relationship that
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  Speaker 1: they seem to because you're still going to be there,
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  Speaker 1: right I mean, whether you're you know, negotiate something separately
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  Speaker 1: with the European Union or carve out something within the
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  Speaker 1: United Kingdom, you're still going to be there and you're
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  Speaker 1: still going to be an important factor in the overall economy. Well,
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  Speaker 1: that's right, Scotland is not going to have a new neighbor.
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  Speaker 1: Our neighbor is England and the rest of the UK,
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  Speaker 1: and that's going to remain the case, and we want
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  Speaker 1: to keep good relations there. But in relation to the
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  Speaker 1: point of immigration, that's been the real strength of the
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  Speaker 1: UK economy. Population growth has been where that strength has
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  Speaker 1: come from. And the people that we've come had coming
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  Speaker 1: in from the EU tend to be younger, younger, productive skilled,
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  Speaker 1: So it's very important that we keep that and it
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  Speaker 1: is possible to have a different system. You had it
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  Speaker 1: before under initiative called the Fresh Talent Initiative. So I
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  Speaker 1: don't understand why the UK come we just put the
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  Speaker 1: shutters on. Captain Secretary. I imagine that you are here,
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  Speaker 1: You're in New York as part of your outreach to
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  Speaker 1: try to cultivate some of these relationships. Can you give
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  Speaker 1: us a sense of who you're meeting with and how
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  Speaker 1: you can go about negotiating when you don't have a
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  Speaker 1: sense of the moving parts, and given the acrimony right
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  Speaker 1: now in England, well, it's my experience that business will
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  Speaker 1: find a way. So, for example, we meet with a
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  Speaker 1: food distributor in New Jersey yesterday very keen to take
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  Speaker 1: on products from Scotland. Cheese was primary amongst those. But
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  Speaker 1: in Canada we've just seen the reintroduction of haggis to
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  Speaker 1: Canada for the first time in forty six years. UM.
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  Speaker 1: So we've had meetings to discuss that with retailers and distributors,
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  Speaker 1: had meetings with government to make sure that people understand
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  Speaker 1: the message that, as you've mentioned, Scotland voted to remain
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  Speaker 1: where an outward looking internationalist country. We want to keep
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  Speaker 1: and improve business links. So the meetings we've had so far,
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  Speaker 1: I've been with businesses, sometimes some of the banks today
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  Speaker 1: here in Manhattan, and also with the food retailers. A
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  Speaker 1: huge each part of our recent success has been food
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  Speaker 1: and drink. Scotch is still a massive you know, selling
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  Speaker 1: a thing for us. It's one of the biggest products
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  Speaker 1: that we have, So that's the nature of the businesses.
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  Speaker 1: It's been with businesses and sometimes with government in Canada
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  Speaker 1: and in the US. Now, as a former Royal Marine,
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  Speaker 1: what are your thoughts about military cooperation between Scotland and
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  Speaker 1: the United Kingdom that is outside the European Union. You
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  Speaker 1: won't even be integrated perhaps in the military structure within
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  Speaker 1: the Europe the euro Zone. Well, it's a very integrated
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  Speaker 1: system within the EU. The Western Europe European countries in
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  Speaker 1: particularly do integrate and they work very well together. I
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  Speaker 1: think our biggest issue with the UK defense is the
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  Speaker 1: in ordinary expenditure two and fifty billion pounds are thereabouts
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  Speaker 1: on nuclear submarines, which they don't even really control in
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  Speaker 1: any events, So and that has meant there's been a
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  Speaker 1: real downward pressure on spending within the military. There's been
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  Speaker 1: a huge number of cuts, especially and disproportionately in Scotland,
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  Speaker 1: and of course so European allies linked to that that
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  Speaker 1: the UK has a leadership position in terms of defense
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  Speaker 1: in in the EU and Germany in particular are very
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  Speaker 1: concerned of it lack of that influence. But you can't
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  Speaker 1: increase that influence by pulling away from working with others
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  Speaker 1: and certain up by diminishing the armed forces. Thank you
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  Speaker 1: so much for joining us. It's truly a pleasure to
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  Speaker 1: hear what you have to say. Keith Brown, Cabinet Secretary
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  Speaker 1: for the Economy, Jobs and Fair Work for the Scottish Parliament,
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  Speaker 1: coming to us from Edinburgh, Scotland. Here in our eleven
• 9:28
  Speaker 1: three oh studios. President Trump is picking a nominee to
• 9:46
  Speaker 1: helm the Federal Reserve as soon as later today. It
• 9:49
  Speaker 1: could come next week, anytime within the next few days.
• 9:52
  Speaker 1: How much does this transition of leadership top the world's
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  Speaker 1: biggest and most important central bank? How important is this?
• 10:01
  Speaker 1: I want to bring in Matthew Freund. He's co chief
• 10:03
  Speaker 1: investment officer and a head of fixed income strategies at
• 10:06
  Speaker 1: Calamos Investments, which oversees about eighteen billion dollars of assets
• 10:10
  Speaker 1: and is based in Naperville, Illinois. Matt thank you so
• 10:14
  Speaker 1: much for joining us. How much are you paying attention
• 10:16
  Speaker 1: to this race to be the next FED chair? Well,
• 10:19
  Speaker 1: we're paying a lot of attention to the race, but
• 10:22
  Speaker 1: we're not changing our strategies depending on who's a head
• 10:27
  Speaker 1: on any given day. I think when you think about
• 10:30
  Speaker 1: the FED chair and the transition that's going on there,
• 10:33
  Speaker 1: it really is wide open, even even today. I mean
• 10:37
  Speaker 1: the President his um, I mean really proven that he
• 10:42
  Speaker 1: is not bound by tradition or consensus. And uh, I've
• 10:46
  Speaker 1: seen the reports that it seems to be a two
• 10:50
  Speaker 1: man race now between Powell and John Taylor. Uh, but
• 10:54
  Speaker 1: I really do. I think it's wide open and we're
• 10:56
  Speaker 1: not going to be changing our strategies because of it. Well,
• 11:01
  Speaker 1: that's why I wanted to go Matt Is. You know,
• 11:03
  Speaker 1: as the member of the Investment Committee, I'm wondering if
• 11:06
  Speaker 1: you could give us some insight into the thinking of
• 11:08
  Speaker 1: you and the other members about how important this selection
• 11:13
  Speaker 1: is and whether you are looking at something else in
• 11:16
  Speaker 1: order to guide your investment decisions. Yeah, well you know
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  Speaker 1: we we are, so it is important. Let's again, the
• 11:26
  Speaker 1: FED did the absolute loot right thing um post the crisis.
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  Speaker 1: So you go back to two thousand eight. Um, we
• 11:34
  Speaker 1: had this massive contraction and leverage and we were all
• 11:38
  Speaker 1: dying for liquidity. So the FED came in and flooded
• 11:41
  Speaker 1: the think of a swimming pool. The FED came in
• 11:43
  Speaker 1: and overfilled the pool. Uh. Now the FED has said, well,
• 11:47
  Speaker 1: we're gonna stop filling. They did that a year or
• 11:50
  Speaker 1: two ago. Uh, and now they said, look, we're going
• 11:52
  Speaker 1: to be very slowly start taking out a cup at
• 11:56
  Speaker 1: a time, but the levels are still really high. The
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  Speaker 1: most important thing, in our view is what's going on globally,
• 12:02
  Speaker 1: because while the FED is slowly draining liquidity. Uh, you've
• 12:06
  Speaker 1: got central banks around the world that are coming in
• 12:09
  Speaker 1: and with gallons and dwarfing their actions. So when you
• 12:12
  Speaker 1: look at financial conditions, financial conditions are still easing despite
• 12:18
  Speaker 1: FED tightening. That's very unusual. Well, I want to just
• 12:21
  Speaker 1: get your sense. Given the fact that there is this
• 12:23
  Speaker 1: sort of flood of cash coming into markets from central
• 12:27
  Speaker 1: banks all over the world, everything looks pretty expensive right now.
• 12:31
  Speaker 1: There have been concerns raised about lofty valuations in the
• 12:35
  Speaker 1: stock market and certainly in high debt markets. Where are
• 12:39
  Speaker 1: you finding opportunity in this kind of highly valued market?
• 12:44
  Speaker 1: You know, that's a great question. So valuations are the
• 12:48
  Speaker 1: most important factor when determining long term investment returns. I mean,
• 12:53
  Speaker 1: we can't find a better one. So if you're that
• 12:55
  Speaker 1: tenant or twelve year investor, valuations matter in the short run,
• 13:00
  Speaker 1: and they're almost irrelevant in the short run. The markets
• 13:03
  Speaker 1: are really intrit more trading on momentum, and momentum trades
• 13:08
  Speaker 1: on narratives and how those narratives change. Silica today. Today,
• 13:12
  Speaker 1: we had a budget deal. We rally, we have tax cuts.
• 13:16
  Speaker 1: We're gonna rally. If we have a dovish ted chair,
• 13:19
  Speaker 1: We're gonna rally. Synchronize global growth, We rally, So what
• 13:22
  Speaker 1: are we doing today? We were thinking about the markets
• 13:25
  Speaker 1: in three ways, your core, your hedges, and your insurance.
• 13:29
  Speaker 1: From the core perspective, we think that non US markets,
• 13:33
  Speaker 1: again this is kind of consensus, but sometimes the consensus
• 13:36
  Speaker 1: is right. We think there's better opportunities overseas, emerging markets,
• 13:40
  Speaker 1: and international. Within credit, we do we do still like
• 13:44
  Speaker 1: high yield and spread product, not because we think it's
• 13:46
  Speaker 1: gonna tighten, but because we think that the carry can
• 13:49
  Speaker 1: go on for a while. UH. In terms of your hedges,
• 13:52
  Speaker 1: we do think it makes sense to have some high
• 13:54
  Speaker 1: quality duration things that go up when the rest of
• 13:58
  Speaker 1: your portfolio goes down. And then, lastly, insurance so when
• 14:02
  Speaker 1: you when you're buying insurance, you don't hope you're going
• 14:05
  Speaker 1: to get a car wreck or your house burns down.
• 14:07
  Speaker 1: In the same way, we think having small allocations to
• 14:11
  Speaker 1: things like commodities, precious metals, minors, things that will do
• 14:15
  Speaker 1: really well UH in a very extreme environment makes sense,
• 14:19
  Speaker 1: but only in very small size. Can you tell us, Matt,
• 14:22
  Speaker 1: what you've been taking profits on, what you've been getting
• 14:24
  Speaker 1: out of because you feel that the valuations have gotten
• 14:27
  Speaker 1: too high and you're not waiting for someone else to
• 14:31
  Speaker 1: take them away from you at an even higher price. Yeah,
• 14:35
  Speaker 1: you know, so that's really hard because we have cash
• 14:37
  Speaker 1: coming in every day, and by selling, we're adding to
• 14:41
  Speaker 1: the the cash problem that that we talked about before.
• 14:45
  Speaker 1: I think that's the quandary of the market. So when
• 14:48
  Speaker 1: we look at sectors that we think are ahead of themselves,
• 14:51
  Speaker 1: they're really things tied to the bond surrogate trade. So
• 14:55
  Speaker 1: I think things like utilities UH reads, those sectors have
• 14:59
  Speaker 1: gotten very far ahead of themselves. I think that when
• 15:02
  Speaker 1: you look at the markets, there are some pockets of
• 15:05
  Speaker 1: the markets that are just trading. The credit markets now
• 15:07
  Speaker 1: I'm sorry, that are trading tight, especially things UH in
• 15:11
  Speaker 1: the front end of the curve credit with UH two
• 15:14
  Speaker 1: or three years to go. UH, it's really assuming that
• 15:17
  Speaker 1: nothing bad can happen in the meantime, and we're we're
• 15:21
  Speaker 1: swapping out there, going into UH names that we're we're
• 15:25
  Speaker 1: the upside and the downside are a little bit more balanced.
• 15:29
  Speaker 1: And then I guess the last thing that we would
• 15:30
  Speaker 1: say is that we are always focusing on risk. So
• 15:34
  Speaker 1: the nature of risk has changed here. UH. If you
• 15:38
  Speaker 1: look at over the last five years, anytime you bring
• 15:40
  Speaker 1: up risk. People get mad at you because it just
• 15:42
  Speaker 1: means foregone profits. But we don't think that that's going
• 15:46
  Speaker 1: to continue indefinitely. In fact, it never does. So we're
• 15:50
  Speaker 1: looking at them, are at at areas where we're just
• 15:53
  Speaker 1: not being paid for the risks we're taking, and we're
• 15:55
  Speaker 1: lightening up in those areas. So we do think risk
• 15:58
  Speaker 1: matters real, real quick. What is a plausible event or
• 16:03
  Speaker 1: development that could cause this current bull market and risk
• 16:07
  Speaker 1: assets to unravel? Uh? So I'm going to give you
• 16:13
  Speaker 1: a very unsatisfactory answer. UM. I don't know, um, but
• 16:17
  Speaker 1: I guarantee you that after the fact, we're all going
• 16:20
  Speaker 1: to say it's obvious. I mean, we've seen this pattern
• 16:23
  Speaker 1: time and time again. When you have periods of very
• 16:27
  Speaker 1: low volatility, very of tranquility, if you will, investors bad behaviors,
• 16:33
  Speaker 1: so the seeds of their own de minds. And I
• 16:35
  Speaker 1: think that's going to happen again. It could be it
• 16:38
  Speaker 1: could be, uh, that there are no external events that
• 16:43
  Speaker 1: we have a market correction. I actually suspect it's in
• 16:46
  Speaker 1: the volatility trade part of the market, but I can't
• 16:51
  Speaker 1: prove it. But I think that there's enough unusual things
• 16:55
  Speaker 1: going on there that when we have a normal correction,
• 16:59
  Speaker 1: uh normal correct of five or ten, you're going to
• 17:02
  Speaker 1: find out that people are investors are going to realize
• 17:04
  Speaker 1: they have much more leverage in their portfolio than they thought.
• 17:07
  Speaker 1: They're going to take react, They're going to take actions
• 17:10
  Speaker 1: that are dependent on liquidity, and it's not going to
• 17:12
  Speaker 1: be there for Thanks very much for being here for us.
• 17:15
  Speaker 1: Matt Freud, head of fixed income Strategies and a member
• 17:18
  Speaker 1: of the Investment committee at a Calamos well. As John
• 17:34
  Speaker 1: was talking about the market is rising today on the
• 17:36
  Speaker 1: narrative that Congress is closer to getting a tax overhaul done.
• 17:42
  Speaker 1: Here to talk about that as Nathan dean government analyst
• 17:45
  Speaker 1: and an analyst and financial services for Bloomberg Intelligence. He
• 17:48
  Speaker 1: comes to us from our Bloomberg studios in Washington, d C. Nathan,
• 17:53
  Speaker 1: thank you so much for joining us. Can you just
• 17:55
  Speaker 1: start by explaining what exactly happened to give such optimism
• 17:59
  Speaker 1: to markets? So last night the budget approved I'm sorry,
• 18:02
  Speaker 1: the Senate approved their budget resolution. So they did their
• 18:05
  Speaker 1: part to kick off what's called the reconciliation process. They
• 18:09
  Speaker 1: passed this on a fifty one forty nine vote. Senator
• 18:11
  Speaker 1: Ran Paul disagreed. It was a soft disagree. He actually
• 18:14
  Speaker 1: could have blocked the legislation, he didn't let it go forward.
• 18:17
  Speaker 1: So what we have now is the Senate has passed
• 18:20
  Speaker 1: their resolution, the House has already passed the resolution. Now
• 18:23
  Speaker 1: the House is going to try and actually move the
• 18:26
  Speaker 1: process quicker by adopting the Senate one uh next week,
• 18:30
  Speaker 1: so we are going to then see uh, the tax
• 18:33
  Speaker 1: reform process kickoff. This is step one, uh, step two
• 18:37
  Speaker 1: maybe of a fifty ft fifty step process. So there's
• 18:40
  Speaker 1: still a lot of moving pieces that have to happen
• 18:42
  Speaker 1: before we actually see tax reform. Well, Bethan, maybe it
• 18:45
  Speaker 1: can help me here because I understand that the Senate
• 18:48
  Speaker 1: budget allows for tax cuts. Also they're cutting you know,
• 18:52
  Speaker 1: it would cut revenue and the deficit I believe would
• 18:55
  Speaker 1: increase to what one would include increase by one and
• 18:58
  Speaker 1: a half trillion dollars over over the next decade. The House,
• 19:03
  Speaker 1: but the House version is revenue neutral, so they've got
• 19:06
  Speaker 1: to resolve these two things. Well, so I think what
• 19:09
  Speaker 1: this is is this is kicking the cans so they
• 19:11
  Speaker 1: can debate another day. You know that this is not
• 19:13
  Speaker 1: the final bills. So what the House here is trying
• 19:16
  Speaker 1: to do. Is they're trying to act quickly. You know,
• 19:19
  Speaker 1: every policymaker on the Republican side, from Steven Minutition to
• 19:21
  Speaker 1: Gary Cohen, they're saying, we need to get this done
• 19:23
  Speaker 1: by the end of the year. So by having the
• 19:26
  Speaker 1: House adopt the Senate plan next week, they're gonna shave
• 19:29
  Speaker 1: off probably about three weeks of debate times, so they
• 19:31
  Speaker 1: can just speed up the process. But hang on, hang on,
• 19:34
  Speaker 1: is that so, for example, is is Kevin Brady the
• 19:37
  Speaker 1: representative from the congressman from Texas, the Republican from Texas?
• 19:41
  Speaker 1: Is he on board with this? So from a process standpoint,
• 19:46
  Speaker 1: But to your original point, you know, there are a
• 19:49
  Speaker 1: sizeable amount of Republicans in the House that will not
• 19:52
  Speaker 1: you know, that are not comfortable with raising the deficit.
• 19:55
  Speaker 1: And so this is literally just a plan to the
• 19:57
  Speaker 1: weekend debate. And the thing here is is that, you
• 20:00
  Speaker 1: know a lot of people are very optimistic about tax reform,
• 20:02
  Speaker 1: and the Republicans have agreed on a plan. They have
• 20:05
  Speaker 1: a nine page plan. The tax code is seventy thousand pages.
• 20:08
  Speaker 1: We haven't seen legislation yet, you know, the House and
• 20:11
  Speaker 1: the Senate, the House and Ways and Means Committee and
• 20:13
  Speaker 1: the Senate Finance Committee. Both of them have said that
• 20:16
  Speaker 1: we would like to put out legislation, draft legislation by
• 20:19
  Speaker 1: early November. The House could put something out here that says, right,
• 20:22
  Speaker 1: we're not going to increase the deficit. The Senate could
• 20:24
  Speaker 1: put out and say we're going to increase the deficit
• 20:26
  Speaker 1: by one point five trillion. You know, that is where
• 20:28
  Speaker 1: the fight is going to happen. And the challenge with
• 20:31
  Speaker 1: you know what the Republicans are facing is you know,
• 20:34
  Speaker 1: you know, in the Obamacare fight, it was mostly in
• 20:36
  Speaker 1: the Senate. The House passed their resolution and went to
• 20:38
  Speaker 1: the Senate. That's where the fight was. In tax reform,
• 20:41
  Speaker 1: you're gonna have a fight in the Senate. You're gonna
• 20:42
  Speaker 1: have a fight in the House. Uh, and you're gonna
• 20:44
  Speaker 1: have to deal with all these moving parts. And that's
• 20:47
  Speaker 1: part of the reason why we don't think in our
• 20:49
  Speaker 1: analysis that tax reform is going to happen this year. Nathan,
• 20:52
  Speaker 1: is this completely being driven by the GOP or are
• 20:56
  Speaker 1: there some Democrats that are also on board? So you
• 20:59
  Speaker 1: see a little bit of Democratic support from senators and
• 21:03
  Speaker 1: red states. You know, there were was during what's called
• 21:06
  Speaker 1: the voter rama. There were several amendments yesterday where uh
• 21:09
  Speaker 1: a few senators jumped over and joined the Republican Party.
• 21:12
  Speaker 1: But this is pretty much a Republican only effort. We
• 21:14
  Speaker 1: don't see uh, really a bipartisan process playing out here.
• 21:18
  Speaker 1: Uh partly just because it's it's extremely tricky. You know,
• 21:22
  Speaker 1: the Democratic senators would have to go up against uh
• 21:25
  Speaker 1: uh senate, their own Senate leadership, and so I think
• 21:29
  Speaker 1: I think it's just gonna be a gop uh play
• 21:31
  Speaker 1: for now. What about congressmen from and women from states
• 21:36
  Speaker 1: that would be affected by the removal of the state deduction?
• 21:40
  Speaker 1: Are they expected to put up a fight, even if
• 21:42
  Speaker 1: they are Republicans? You know, I think they're gonna have to.
• 21:45
  Speaker 1: The answer is yes, if they think that the middle
• 21:48
  Speaker 1: class is going to be harmed. You know, this goes
• 21:50
  Speaker 1: back to this. You know, they have a nine page framework,
• 21:53
  Speaker 1: they have three buckets, and Speaker Paul Ryan is saying
• 21:56
  Speaker 1: that they're going to add a fourth bucket for the
• 21:58
  Speaker 1: highest earners, you know, by doing away with the salts deductions.
• 22:02
  Speaker 1: You know, are they going to be harmed? Are they
• 22:04
  Speaker 1: going to be helped? And I think right now policymakers
• 22:07
  Speaker 1: just don't understand, don't understand what's about to happen, or
• 22:09
  Speaker 1: at least they just don't understand the plan because no
• 22:11
  Speaker 1: plan exists yet. So when the legislation comes out, that's
• 22:15
  Speaker 1: when you're gonna see policymakers actually begin to deep, you know,
• 22:18
  Speaker 1: dive into the details, see what's gonna happen to their constituents.
• 22:22
  Speaker 1: And if they think their constituents are gonna be harmed,
• 22:24
  Speaker 1: especially in the middle and lower class, they are going
• 22:26
  Speaker 1: to rebel. Is twenty two a magic number for House
• 22:29
  Speaker 1: Speaker Paul Ryan, I mean, because how many Republicans can
• 22:32
  Speaker 1: he actually lose as this goes to the House floor.
• 22:35
  Speaker 1: It's about that. I mean, it's and you know, I
• 22:39
  Speaker 1: don't think I think the challenge will be on the
• 22:41
  Speaker 1: Senate side. Uh, I don't think the challenge will be
• 22:43
  Speaker 1: on the House side per se um, you know, because
• 22:47
  Speaker 1: what our take is is that, you know, tax reform
• 22:50
  Speaker 1: is just something that's very complex. It's probably not gonna happen.
• 22:53
  Speaker 1: Attacks cut, on the other hand, is more likely. And
• 22:57
  Speaker 1: so as we go through this process and we get
• 22:59
  Speaker 1: to the end of the year or and if something,
• 23:00
  Speaker 1: if nothing happens, we're gonna start getting into the two
• 23:02
  Speaker 1: thousand eighteen election campaign seasons, and that is when the
• 23:05
  Speaker 1: Republicans want to say, especially the April fifteen because you
• 23:08
  Speaker 1: can imagine if we get the tax day and nothing
• 23:11
  Speaker 1: has happened, there's gonna be a lot of bad press
• 23:13
  Speaker 1: about that. So as we get closer into the one
• 23:15
  Speaker 1: queue of next year, I think you're gonna see ambitions
• 23:19
  Speaker 1: scaled down. They're gonna start talking about, right, we just
• 23:21
  Speaker 1: need to pass something. Maybe it's a corporate tax cut,
• 23:24
  Speaker 1: you know, something like that. Let's get that through, get
• 23:26
  Speaker 1: a good message as we go into the two thou
• 23:28
  Speaker 1: eighteen election cycle, and then you know see where we
• 23:31
  Speaker 1: go from there. Thanks very much. Nathan Dean is our
• 23:33
  Speaker 1: government analyst for Bloomberg Intelligence. He's going to be busy
• 23:37
  Speaker 1: for a long time covering tax cuts and perhaps tax reform. Well,
• 23:52
  Speaker 1: we have been talking a lot this week about automation
• 23:56
  Speaker 1: on Wall Street and how a lot of big banks
• 23:58
  Speaker 1: are looking to frankly use computers for as much of
• 24:02
  Speaker 1: their businesses as possible. And uh, there's one area that
• 24:06
  Speaker 1: might be a little bit more complicated when it comes
• 24:08
  Speaker 1: to doing that, and it is trading. Here to talk
• 24:10
  Speaker 1: about that is Sagel Kishan She's a hedge fund reporter
• 24:13
  Speaker 1: for Bloomberg News and joins us here in our Bloomberg
• 24:16
  Speaker 1: eleven three oh studios. You wrote an article today. It
• 24:19
  Speaker 1: was a fabulous piece, one in a three part series
• 24:21
  Speaker 1: about automation on Wall Street. UM, can you just talk
• 24:24
  Speaker 1: about what some of the biggest challenges are when it
• 24:27
  Speaker 1: comes to replicating a trader in a computer. There are
• 24:33
  Speaker 1: many challenges. UM. The worst thing, I guess all the
• 24:36
  Speaker 1: big the big issues that a lot of a lot
• 24:39
  Speaker 1: of Wall Street is still using old mainframe computers, very
• 24:42
  Speaker 1: dated technology. UM. And so sort of like trying to
• 24:47
  Speaker 1: like UM, sort of introduce new machine learning technologies on
• 24:52
  Speaker 1: these old mainframe computers is huge challenge. UM. And then
• 24:56
  Speaker 1: you've got a lot of banks and hedge funds they're
• 24:59
  Speaker 1: still using that Excel spreadsheets, so many different trading platforms UM,
• 25:04
  Speaker 1: and data that served on different servers that are not
• 25:07
  Speaker 1: talking to each other. And for AI to work, you
• 25:10
  Speaker 1: need the data in one place so that you can
• 25:13
  Speaker 1: then go through and find patterns and relationships. I want
• 25:16
  Speaker 1: to ask about this side that maybe this idea that
• 25:18
  Speaker 1: you can automate tasks, but it is more challenging to
• 25:21
  Speaker 1: automate decision making. And perhaps you can sort of use
• 25:25
  Speaker 1: the story of Paul Tudor Jones that you have in
• 25:28
  Speaker 1: your story just to kind of give us an anecdote
• 25:31
  Speaker 1: that explains technology is great, but it can't do everything. Yeah, no,
• 25:35
  Speaker 1: that's true. Um, you know, you can program a computer
• 25:39
  Speaker 1: to buy or sell gold if you know there's a
• 25:43
  Speaker 1: fat announcement, or stocks are at a certain level, or
• 25:47
  Speaker 1: there's like political strife somewhere, but you can't really program,
• 25:50
  Speaker 1: at least not at the moment, things like gut instinct
• 25:53
  Speaker 1: and having that sort of trade conviction, like you if
• 25:57
  Speaker 1: you're bullish, there's bullish and then being really really bullish,
• 26:00
  Speaker 1: like shooting, going in for the kill. And that's something
• 26:03
  Speaker 1: that it's a little bit harder to to introduce. But
• 26:05
  Speaker 1: hold on a second, because I when I talk to people,
• 26:09
  Speaker 1: they seem to say that about credit or less liquid assets,
• 26:12
  Speaker 1: things that aren't traded as frequently, that aren't as computerized.
• 26:16
  Speaker 1: Yet when it comes to stucks, how much of that
• 26:18
  Speaker 1: instinct is really left? I mean, are we just dealing
• 26:21
  Speaker 1: with a whole bunch of algos out there. Well, I
• 26:24
  Speaker 1: think it's something like equity trading is pretty much done electronically,
• 26:29
  Speaker 1: now so, Um, and I think there's that famous stat
• 26:32
  Speaker 1: about Goldman Sacks is equity trading business, Like I think
• 26:36
  Speaker 1: they only have like thirty people something like that. Um,
• 26:39
  Speaker 1: you know Dan from hundreds back in the day. Um.
• 26:42
  Speaker 1: But yeah, as you mentioned and as you used to
• 26:44
  Speaker 1: cover yourself, the credit markets are are the ones that
• 26:47
  Speaker 1: are going to be challenging to to automate. I've compelled though,
• 26:51
  Speaker 1: by the idea that a lot of the programming might
• 26:55
  Speaker 1: even be there. But the big banks don't have the
• 26:58
  Speaker 1: actual hardware. They don't have the computers that are capable
• 27:01
  Speaker 1: of doing this. Aren't they spending billions upon billions of
• 27:05
  Speaker 1: dollars every year on technology? And how much more would
• 27:08
  Speaker 1: they have to spend in order to like, you know,
• 27:10
  Speaker 1: get all new equipment that would be equipped to do this.
• 27:13
  Speaker 1: You No, absolutely, they are spending, as you rightly said,
• 27:16
  Speaker 1: billions on technology, but you also have to get the
• 27:19
  Speaker 1: right technolog tech. E's the code is the engineers and scientists.
• 27:24
  Speaker 1: And at the moment, they all want to go to
• 27:26
  Speaker 1: Silicon Valley. I mean, that's where they're like the stars there.
• 27:30
  Speaker 1: You know, they want to work for Facebook and Netflix
• 27:32
  Speaker 1: and what. But so here's here's the sort of ironic thing.
• 27:35
  Speaker 1: Back in maybe ten twenty years ago, when you went
• 27:39
  Speaker 1: to a great school, everybody wanted to go work for
• 27:41
  Speaker 1: Wall Street because they got paid the most. Now they
• 27:43
  Speaker 1: all want to go work in Silicon Valley because they're
• 27:45
  Speaker 1: going to get paid the most. Can't banks just have
• 27:47
  Speaker 1: fewer of them and pay them incredible salaries? Do they
• 27:49
  Speaker 1: pay them huge amounts or are they trying to sort
• 27:52
  Speaker 1: of treat them as back off, as textile? Well that's
• 27:55
  Speaker 1: why that that that that's the issue. I mean, you know,
• 27:58
  Speaker 1: you can be at Facebook and you're like, you know,
• 28:00
  Speaker 1: the front office star, so to speak, but going to
• 28:03
  Speaker 1: UM to to Wall Street, you're still sort of like
• 28:06
  Speaker 1: considers the tech support guy, as you quite rightly said.
• 28:09
  Speaker 1: But also like being in a in a in a
• 28:11
  Speaker 1: tech firm, you've got that sort of coleasial camaraderie sort
• 28:16
  Speaker 1: of everyone's like thinking and talking in your language and
• 28:19
  Speaker 1: going to all street people if you speak talk to
• 28:21
  Speaker 1: talk about you know, um, statistical inference or any like
• 28:25
  Speaker 1: deep learning, strategy management. I just gonna look quite blankly
• 28:28
  Speaker 1: at you, maybe not at common sex with multi shallows,
• 28:31
  Speaker 1: but what about using all of this technology inside the firm,
• 28:35
  Speaker 1: not necessarily to make money as trading and so on,
• 28:38
  Speaker 1: but just to automate or to try to use artificial
• 28:43
  Speaker 1: intelligence for things like fraud detection or you know, breaking
• 28:48
  Speaker 1: the international banking rules. Is that something that the banks
• 28:52
  Speaker 1: are and the people that you've spoken to feel is
• 28:54
  Speaker 1: going to be sort of pervasive. Yeah. I mean, and
• 28:57
  Speaker 1: in fact, you know they call that red tech. That's
• 29:01
  Speaker 1: the the equivalent of fintech. Um. Yeah, no, My colleague
• 29:05
  Speaker 1: Huson wrote a couple of months ago about how JP
• 29:07
  Speaker 1: Morgan they have automated some of the legal work that
• 29:12
  Speaker 1: that is done at the bank, and that would have
• 29:15
  Speaker 1: take teams of lawyers hundreds of hours months to do,
• 29:19
  Speaker 1: and they're doing it now in seconds. With the traders
• 29:22
  Speaker 1: that you spoke to, were they nervous about job security? Yeah?
• 29:25
  Speaker 1: I mean, it's it's funny there's this, Um, all the
• 29:28
  Speaker 1: stories that we've done all year, you know, investing in
• 29:32
  Speaker 1: the finance team, it's really hitting a nerve amongst our
• 29:36
  Speaker 1: readers and subscribers and listeners. Um, it's an exidential crisis
• 29:42
  Speaker 1: because we're so used to talking about blue collar workers,
• 29:46
  Speaker 1: like factory workers, coal miners, like being laid off and
• 29:50
  Speaker 1: and you know, people I guess on the on the coast,
• 29:53
  Speaker 1: so like, well you just retall retrain, but now it's
• 29:56
  Speaker 1: like climbing up sort of the pecking order, and it's
• 29:59
  Speaker 1: affecting them. Now, well, we're gonna see how many of
• 30:02
  Speaker 1: them survived this there is it gonna be a battle
• 30:04
  Speaker 1: between the machines and the human beings at least to
• 30:06
  Speaker 1: keep those jobs. Cyber battle, cyborg battle. Alright, doctor who scary?
• 30:13
  Speaker 1: Al right? Well done. Thank you very much for being
• 30:15
  Speaker 1: with us, say Jell. Much appreciated. Sajo kishan hedge fund
• 30:19
  Speaker 1: reporter for Bloomberg. Thanks for listening to the Bloomberg P
• 30:25
  Speaker 1: and L podcast. You can subscribe and listen to interviews
• 30:28
  Speaker 1: at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.
• 30:32
  Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm
• 30:36
  Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast.
• 30:39
  Speaker 1: You can always catch us worldwide on Bloomberg Radio.