Traders Weigh CPI and Policy Eco Impact

Episode Transcript
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Speaker 1 (00:02):
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Listen on demand wherever you get your podcasts, or watch

(00:25):
us live on YouTube.

Speaker 2 (00:27):
Go to Lizzie Saunders. Now the inflation report here in
four minutes with John Tucker and then finished strong with
Lizen as we can full disclosure, folks, in honor of
the Los Angeles Angels, we're playing nickelback at the end
of the hour. We're giving Lizanna warnings down here, turn
it down and choose us listen, and I want to
go to the heart of the matter. And you have

(00:50):
had leadership on this in the industry, going back to
your days with lou Rukaiser. In the last ten years,
a given blended stock fund is up twelve percent per year.
In the last ten years, a given blended bond fund
is up two percent per year. Inflation is a friend

(01:11):
of stock investors right.

Speaker 3 (01:15):
In fact, a lot of people think of asset classes
like gold is sort of the ultimate inflation hedge, but
the over the very long term, the only asset class
that has consistently outperformed inflation is us equity. So you're
absolutely right, Tom, And.

Speaker 4 (01:30):
Where are we now in that continuum?

Speaker 2 (01:32):
I mean, in honor of pictures and catchers las in
you know, Ger has given us the innings metaphor, where
are we in the confidence to be in equities with
inflation and all.

Speaker 4 (01:42):
The other noise.

Speaker 3 (01:44):
Well, here's here's the tricky thing about inflation. When you're
in a more volatile inflation backdrop, like was the case
in the mid sixties to the mid nineteen nineties, that's
an era where we've been calling the temperamental era. That
was an era when bond yields and stock press were
inversely correlated. And that's because inflation was more voladyle you

(02:05):
had bigger swings in inflation, there was more heightened concern
about some of those swings in inflation, so as of
for instance, higher yields and that backdrop often meant inflation
was reigniting negative for equities. Fast forward to the period
from the mid nineties up until the first year or
two of the pandemic, the so called Great Moderation era,
that relationship was completely opposite, and bond yields and stock

(02:27):
prices moved consistent with one another, and that was because
we had very little inflation volatility, not a lot of
inflation risks, So higher yields was typically a sign of
stronger growth without the attendant problem of inflation. We're back
in that negative correlation territory right now, and I do
think it could mean we're in a different secular backdrop.

Speaker 4 (02:46):
David Girl squeeze one in the ear before CPI.

Speaker 5 (02:48):
Yeah, Lizanne.

Speaker 6 (02:49):
In these data, we're not going to get an indication
of what Donald Trump's policies might mean for inflation in
this country. But I wonder if we can go back
to twenty eighteen when we had the first kind of
round of a Trump trade war, what can we learn
sort of from that experience that might be applicable here.

Speaker 3 (03:01):
If anything, Well, we didn't see overall inflation pick up.
You didn't see it in PCE and PCE goods. But
if you pull out the tarift goods and track them
in twenty eighteen into twenty nineteen, a significant amount of
inflation in those tarifft goods. I think, by the way, guys,
I think the PPI report might be a better tell

(03:22):
in terms of terriflated stuff than the CPI report.

Speaker 5 (03:25):
I took tomorrow off time. I'm not going to be
here for PBI crushed.

Speaker 4 (03:28):
Lizianne and I are prose, We'll be here.

Speaker 2 (03:32):
Lizzie Ane Saunders with US was schwab two point one
three percent is a seven basis point move there to
a higher yield regime. Lizzie Sanders, it's unfair to go
into the minuti here because you know you're doing this
in real time, and you know I understand that. But
across the board, Allah what Anna Wang said, This is

(03:54):
not just one statistic month, critically month over month, which
is what Mike McKee really looks at.

Speaker 4 (04:00):
Year over year.

Speaker 2 (04:01):
Jason furmaning to give us an ecumenical study in about
an hour.

Speaker 4 (04:06):
All inflation boats rise here, don't they?

Speaker 5 (04:10):
They do?

Speaker 3 (04:11):
You're right, the core headline, the month over month, the
year over year, the overall headline all hotter than expected.
And it's in keeping with some of what we've seen
in inflation expectations. Now. The University of Michigan version of
inflation expectations had an extreme divide in terms of along

(04:32):
party lines, Democrats having a huge expectation for higher inflation
vice versa for Republicans, but given has gone from one
point nine percent or so last fall up to you
in the well end of the mid two. So you're
seeing it in other areas, and I think this it's
certainly supportive of what we heard from Powell yesterday, which

(04:53):
is there in no rush nice to move back to
easy pology.

Speaker 2 (04:57):
I said the vix would lag. We just had a
seventeen print in the VIX up a stick. A stick
is Lizanne Saunders talk for one big figure.

Speaker 4 (05:05):
I have to use that jargon.

Speaker 2 (05:06):
I appreciate that, Lizan here even a bitdog down fifteen
hundred bitdog now at ninety four thousand is well. David Gerden,
Tim Keen on YouTube, thank you so much for being
with us across the nation and your commute and your
living room and office.

Speaker 4 (05:20):
Honored dev liz Enne Saunders with this. Charles Schwab, David.

Speaker 6 (05:23):
Lizen, let's pull back a little bit here because we
see the immediate market reaction. It's something I wanted to
ask you about because we had the Michigan survey last
week and saw the reaction there. There has been a reaction,
dare I say, at times an overreaction to some of
these most recent data points. As you look at it
more holistically, how is the market processing sort of the
broader view that we're getting of the US economy.

Speaker 3 (05:44):
Yeah, one of the interesting things, and you're picking this
up in some surveys of institutional managers engaging what is
driving stocks? And I think we've actually moved a little
bit away from things like monetary policy and brawl macro
trends and more of the connectivity to what stocks are
doing are the specific fundamentals. But there is that policy

(06:08):
component too. I think the NFIB data out yesterday was
pretty compelling, engagingly small businesses reaction to the manner by
which we get these terror related announcements, and everybody is
now trying to dig in using the fine tooth comb
figuring out which industries, which companies are hurt or benefited

(06:30):
on the import side of things, on the export side
of things. And I think that's going to come into
play more and more at the individual stock level because
of that shift to fundamentals and things like earnings now
that we're an earning season driving stock prices more than
just broad monetary policy or just valuation expansion. So I

(06:50):
think that's an important shift relative to last year.

Speaker 6 (06:53):
I put out to worp Here on the Bloomberg toime.
I see traders shifting their next FED rate cut prediction
to December from September, so pushing it back even farther.

Speaker 7 (07:01):
Still.

Speaker 4 (07:02):
Yeah, and you know we're the economist, Lizanne Saunders.

Speaker 2 (07:05):
I mean, are we ready with it in stock market,
lizan for the shock of stability and rate cuts or
even the parlor game of rate increases. We're nowhere mentally
near ready for that, are we.

Speaker 3 (07:19):
I think we're mentally ready for a pause that lasts
throughout the course of the year. There's been you know,
even before the CPI report, you had only a little
more than one cut priced in. Now that's gotten pushed out.
I think that is the parlor game because a data
dependent FED, and added to that the policy uncertainty. To say, yeah,
we're confident that the Fed's going to cut in December,

(07:40):
that's just the fools errand to do that. I think
you're absolutely right, though I don't think the market is
prepared if the Fed feels they actually have to turn
back into tightening model.

Speaker 4 (07:50):
Right.

Speaker 2 (07:51):
I want to go to Nominal GDP Jason Furman's essay.
There's the new Foreign Affairs as lights out. Steven Levitsky
with a great article, David, and I will talk about
that in a bit, Firman, look take it a look
back twenty twenty Hindsight on the Biden administration and Liz
n He mentions nominal GDP. If I get a higher
or stable inflation component, do you model out ample real

(08:15):
GDP to keep the corporate animal spirits going well?

Speaker 3 (08:21):
I think nominal GDP is important. That feeds into revenue growth,
which is a little bit more correlated to things like
employment trends and also pricing power. So it's the I
think it's the volatility in the inflation component that matters
a little bit more than the level because of the
uncertainty factor that creeps in when you have when you're

(08:44):
in an era of volatility. In terms of that that deflator.

Speaker 2 (08:49):
Right now reporting on Twitter with a real job, see
Saunders has an entire team to do Twitter. She hasn't
done a tweet since I led Zeppelin announcers summer too.
Catherine Jones out on Twitter, wishwab oof CPI up over
up court up not what the market was hoping for.

(09:10):
That report. David Gura from Kathy Jones.

Speaker 6 (09:12):
Well, you've given me a great segue here, because I
know that Kathy and Lizen have a podcast together on
investing in Rich Clarita was on that most recent episode.
He won't return our calls, but he was on with them.
What did you take away, Lezann from what he had
to say about inflation? What was the headline from his
commentary on how he's seeing inflation today.

Speaker 3 (09:29):
There's a tremendous amount of uncertainty, and adding in the
policy uncertainty makes it a difficult exercise. There certainly is
a slight bias on the upside, and there's the stickiness
component of it. But you know he's no longer at
the FED. But don't I don't envy the folks there,
Powell coming out yesterday saying we don't take that into consideration,

(09:52):
but we know some FED members are taking that policy
uncertainty into consideration and trying to gauge their own outlooks.

Speaker 6 (10:00):
As we wrap up here, I go back to my
first question to you, that is just noting the fact
that this isn't reflective of what we've seen in this
new administration. We've talked this morning all week about the
kind of inherent inherently inflationary policies we could see put
in place here, chief among them the terrorist policy from
this administration. How do you think about that visa v
inflation going forward here and how that's going to color
this market in the months to come.

Speaker 3 (10:22):
Well, if we go to sort of the maximum end
of what's been proposed, and then for what that means
for inflation, you can look at data out of folks
like Peterson Institute. You're talking about a close to a
one percent jump in inflation, but that is really not
as a step up in prices more so than a

(10:42):
trigger for ongoing year over year or month over month
higher inflation rates. I think though, that's important because consumers
tend to think and level terms, specifically, what were prices
back in twenty nineteen pre pandemic, what are they now?
So it is important in the sense that the average
person thinks in level terms, whereas books like us get

(11:05):
into the weeds of month over month and year over
year and core course services x housing. So I think
the level step up is going to be felt, even
if it doesn't translate into an ongoing higher inflation rate.

Speaker 2 (11:17):
Lizanne, just you give us a pro tip here. Where
are you able to buy eggs?

Speaker 4 (11:21):
Right now? Where's Lezianne Saunders buying eggs?

Speaker 3 (11:24):
I really want to know at the supermarket? I just hey,
what I need to pay for eggs?

Speaker 4 (11:31):
That's it you need to be.

Speaker 3 (11:36):
I haven't gone out and bought my own chickens to.

Speaker 4 (11:40):
Range.

Speaker 2 (11:41):
Yeah, Luzianne Saunders, thank you so much to pick up
from where Luzanne was, Gina Martin Adams. If we get inflation,
is it a constructive inflation that can solidify revenue growth
across the Bloomberg Intelligence world.

Speaker 8 (11:57):
It does look like we're going to see revenue recovery
in the index. The pace of revenue recovery is probably
somewhat grim relative to expectations. I think that the really
big key to twenty twenty five is not that we
continue to recover. It's that we may not be able
to recover at the pace that is expected by the
equity market. There's this really interesting dichotomy in the equity

(12:17):
market right now as you're seeing it play out real time,
and that is we're expecting not only very strong revenue growth,
very strong earnings growth to emerge, but we're also expecting
the FED to cut and that environment is inconsistent, and
so that's why you see the market reacts so negatively
to CPI. But also when we look at the average

(12:38):
price reaction to earnings growth when stocks are reporting, even
when they're reporting beats, their price reaction has been fairly grim.
So I think we've got to work that dichotomy out.
We've got to work that friction out of the system.
The market's got to get more rational expectations and also
generally get in line with what the FED is doing,
and the FED is saying, we're on hold.

Speaker 5 (13:00):
Can you help me?

Speaker 6 (13:00):
This is a dumb question, but I note the dichotomy
and wonder why it's persisted as long as it has.
So Tom asking a very good question. Are we going
to hear anything different from the FED chairman today? We
heard him say yesterday a lot of what he said
the last press conference. He's been sort of reading from
the same hymnal over and over and over again. How
has this dichonomy persisted? What's going to be the catalyst
that gets the market to kind of move away from

(13:21):
what seems like a fool's expectation that there are going
to be cuts.

Speaker 5 (13:24):
In the near term.

Speaker 9 (13:25):
Right?

Speaker 8 (13:25):
I think it's a great question, and I think that
dichotomy can be explained by what's happening in the segments
inside the equity market. So the greatest expectations really are
centered around AI tech TMT industries, where we've seen the
greatest degree of earnings growth. These also tend to be
less inflation sensitive groups, right, They're more thematic. It's all
based on AI and our anticipation of AI really changing

(13:48):
the productivity outcomes for the world, and that is deeply
embedded in tech expectations. We're seeing those expectations reverse somewhat,
especially as a result of deep seak, but we've really
seen he expectations in a process of rationalizing since June
of last year when MAG seven peaked in terms of
their performance relative to the S and P five hundred.

(14:09):
But it's just slowly getting dismantled. People aren't really giving
up on that. At the same time, the rest of
the market has been very slow to recover, and the
rest of the market outside of TMT industries is really story.
Has really started to count on the FED getting their
back enabling that recovery, so that two of the two

(14:30):
story two speed market is still a big story into
twenty twenty five and.

Speaker 2 (14:34):
Gida Martin Adam's with us here off the inflation report
with a VICS out over six seventeen point zero five.
I want to emphasize folks out on Twitter the series
of charts from our guest Kathy Jones.

Speaker 4 (14:45):
We were just busting our chops.

Speaker 2 (14:47):
She does brilliant work at Schwab and she's got a
wonderful chart showing the inflation stasis since the kids went
back to school in September. Michael McDonough owns a high
ground on this. Everyone in the industry uses Michael McDonough's
colorful bar charts of the makeup and it's just as
simple as this. David Gurrol McDonagh goes right to the

(15:08):
Gurray Index. Super course, CPI month over month is a
spike up, but further than what many people expected.

Speaker 6 (15:19):
I'm noting here as I think about all of this,
and Tom, maybe you want to pick up on this.
As we were talking about sort of what fed chair
Drumpell might have to deal with. We've talked about the
tweet from the President this morning, and we've seen this
FED chair so expertly. Tom bat Away suggestions from reporters
outside analysts that it could kind of succumb to political pressure.
Safe to say, this makes this job much more difficult

(15:40):
that that tweet this morning, coupled with the inflation data today,
makes it harder still for this fed shair to weather
that kind of political The.

Speaker 2 (15:47):
Political absolutely, and the question is we know this president's
beliefs from his business career, and it was only a
matter of time till we got the kind of tweets
that we got today is as well, Jane, do businesses
can they adapt and adjust? My core theme is corporations
always adapt. Can they adapt given a leveling of inflation

(16:12):
and not a true disinflation?

Speaker 8 (16:15):
Yeah, I think it's a great question. And what we
tend to see is that really depends upon the degree
to which producer prices accelerate. This, I think is the
crux of the problem for corporations right now, is, at
least until this data point, producer prices we're accelerating at
a faster pace than consumer prices. Producer prices of course

(16:35):
are littered with energy products, but also industrial goods sort
of those core imports are a huge and input to
ultimate company costs. So it really is not just necessarily
about a acceleration or stabilization of inflation. But it's the
difference between the costs that they're paying for inputs and
what they can charge the consumer on the other end

(16:56):
that's been working against them now for two months. We'll
see the course of this week if it continues to
work against corporate margin outcomes. But it is a very
different climate than we've been in for the last two years. Admittedly,
we not only had disinflating inflation, but we also had
producer prices decelerating faster than consumer prices. That was the

(17:17):
idyllic environment for corporates. We're moving past that, and so
you should expect a period of give and take at
the very least to emerge. On top of that, you've
got a lot of business uncertainty right now.

Speaker 5 (17:28):
Even in small.

Speaker 8 (17:29):
Businesses, which vastly celebrated the election post November, have started
to pull back expectations because they don't know what the
rules of the road are, and so we need some
stabilization and policymaking to help enable growth.

Speaker 5 (17:41):
There got to run.

Speaker 4 (17:42):
Let's do this again. Let's get her in the studio again.

Speaker 2 (17:44):
Gina Martinatams Bloomberg Intelligence, Brilliant and double digit earnings growth
David Kelly's schedule to be with us here with JP Morgan,
but we're going to e squeeze this sit in right
now as best we can again. Futures in negative fifty
six off the CPI report, the vicx's of seventy level,
I'm gonna call it stasis, but a huge yield reset
out nine basis points and a ten yure yield four

(18:06):
point sixty two percent.

Speaker 4 (18:08):
I watched a ten year real.

Speaker 2 (18:09):
Yield as Christi Alcunian does at Blackrock.

Speaker 4 (18:14):
Two point one to three percent is well.

Speaker 2 (18:18):
Joining us now from Blackrock is Christie Acullian, head of
I Shares Investment Strategy. So you go home and blow
up the year view because a higher inflation? Are you
going like, why am I here? I got to go
back and rewrite forty pages.

Speaker 7 (18:34):
Well, I'm certainly wishing I was on twenty minutes ago,
but not right now. We all I'd say, you know,
I think that you know, we came into this year
pretty bullish. We've been overweight US equities, but I feel
really good and confident about the places that we've chosen
to allocate to within that as opposed to just broad based.
So we've been talking for a long time about the

(18:56):
need to stay up in quality. We've been staying away
from small caps. What you saw in the inflation data
today is that it's on a relative basis, at least,
it's those higher quality companies that we think can outperform.
Small caps are going to face the head winds of
higher exposure to those higher interest rates.

Speaker 2 (19:11):
What is you and guardy when you're a black rock,
they're on speaking terms when you're.

Speaker 4 (19:16):
A g I hope so boet.

Speaker 2 (19:19):
What is the marginal appetite for equity ETFs right now?

Speaker 4 (19:23):
Is every day like OMG, the money's coming in? Or
are people scared stiff?

Speaker 5 (19:27):
No?

Speaker 7 (19:28):
I think people are still very much allocating to the
equity markets. It's been an incredible year for fixed income
as well, so that's been certainly breaking records. But one
thing that was so interesting to us is that even
in a twenty five percent positive year for equity markets
last year, we saw three times more money allocated to
cash funds money markets. So we still think there's a
lot of money on the sidelines. We're still talking to

(19:50):
investors about putting money to work. And interestingly, even though
we saw growth underperform value in January we saw one
of the largest spreads in terms of allocation to growth
ETFs relative to value. So people are still convicted in
this market. They're still convicted in the AI theme. Again,
we just think that it's important to do so in
a high quality way. So something like qua L has

(20:11):
been what kind of our top ticker? What is qua
L is our our quality ETF. So it's it's an
equity market sector neutral. You get the top quality coming
from it's eighty.

Speaker 4 (20:21):
Percent of triple leverage dot cash fund. That's how you
do it. I talked to Larry about its registration.

Speaker 6 (20:28):
Jean Martin Adams a moment ago was talking about this
different environment that you know, what we've seen here in
terms of an idyllic environment for corporates is changing, and
I saw you nodding out of the corner of my eye.
How do you see that challenge manifesting itself here in
the months ahead.

Speaker 7 (20:42):
Yeah, absolutely, and certainly it is an environment where we
see and expect to see a lot of uncertainty, and uncertainty,
as we know, is bad for markets, it can be
bad for consumers, it can be bad for companies. But
we're still really grounded in what we're seeing in terms
of earning. So you know, broadly, I think the macro
picture still looks positive and that growth is still really strong.
Corporate earnings have come back stronger than expected, so we're

(21:04):
really focused on those fundamentals.

Speaker 4 (21:06):
Tell me about leverage. I keep bringing this up and
I make jokes about it, folks, but it's not funny.
Leverage kills you. And the answer is it's all the.

Speaker 2 (21:13):
Rage right now, double leverage, triple leverage, mag seven whatever.
What do you actually see from people buying or selling leverage?
And also what do you see in your research.

Speaker 7 (21:26):
Yeah, it's not a space that we play, so you know,
we are not in the runt director.

Speaker 4 (21:30):
Play triple leverage.

Speaker 7 (21:32):
We like to, you know, we think about the appropriate
nature of funds for all types of investors. So we
like to launch institutional quality funds that can be used
by end investors and direct investors as well. So again
we're focusing on portfolio building blocks, not necessarily trade.

Speaker 10 (21:47):
So that's that's just not our space.

Speaker 6 (21:48):
Trying to get his triple leverage, don't Cashlio trying to.

Speaker 2 (21:53):
Talk about quality of what I said, it would be
a perfect blackrock product.

Speaker 6 (21:58):
He's thinking of going to think about that one. I
do hear still a chorus among managers and advisors talking
about small caps. This is a moment for small caps.
Are you singing from that him mill? Are you in
that chorus as well? Or are you steering clear?

Speaker 7 (22:16):
We have been pushing back against that for a while,
and I think the modal question we get from investors
that we speak to is now finally the moment for
small caps. We saw and sort of anticipated we were
going to get a short, sharp rally after the election,
but it wasn't something that we wanted to chase, and
specifically we didn't want to chase it because we think
the fundamentals are still against that trade. So small caps

(22:37):
are more exposed to higher interest rates, and also they
tend to need accelerating growth, and even though we think
growth is going to stay positive, we do think it's
going to decelerate this year. So the sad answer for
a lot of the folks that we see a lot
of the positioning data that we look at, investors are
very overweight small caps. We still don't think that it's
the moment for that just now.

Speaker 4 (22:56):
This is brilliant. We got to have you back here.

Speaker 2 (22:58):
I want to sign absolutely not yeah, absolutely, Really David
Kelly with this year in a bit Christy as simple
as I can the MAG seven in the loveer. Are
people buying at the margin or is there a new
test here to the MAG seven.

Speaker 7 (23:13):
I think investors are looking for the broadening out trade,
but they're still looking for large cap growth. So you know,
again we're not seeing as many flows into small caps,
not into index value at least, I think there's opportunity
in the active space. But you know, when we look
at the composition of returns last year from twenty to
twenty four, you know we saw about half of the

(23:34):
S and P five hundred returns were due to earnings
per share growth to fundamentals, and half was due to
valuation expansion. If you look at large cap growth, eighty
percent of that was driven by fundamentals. If you look
at at value, it was less than half driven by fundamentals,
and small cap zero of it driven by fundamentals. So again,
people are following the earnings, people are following the growth.

(23:55):
We like the corporate profitability story and where we're saying
of it away from small guts are you basing I'm
based in San Francisco.

Speaker 5 (24:02):
It's better there's a time.

Speaker 4 (24:08):
Can you get us good Giants tickets? Take care of you.

Speaker 6 (24:12):
He's going to go over just a little rock to
French Shields minor league stadium and then hop.

Speaker 2 (24:17):
On over goes back friend Carl did. He went to
every major league stadium. That's so cool for a summer.
I think it was several summers.

Speaker 7 (24:25):
You know, you don't want to come in the summer,
September sometime.

Speaker 2 (24:29):
Early, Christie, thank you, don't be a stranger. Christian with
Blackrock is well right now. The sixteen point eight three
and a lot more red on the screen.

Speaker 4 (24:39):
It's like, you nailed that. I mean, my.

Speaker 2 (24:42):
Word, g what he sponds currencies come on and he's
just absolutely nailing it here. But yields are higher. Seriously,
the tenure yield out nine basis points. I'm going to
get right to it now. We're what we're going to
do here, This is so important. We're going to blow
out the show open and the song ending here. Nickelback
to David Kelly or Nickelback.

Speaker 6 (25:04):
Succeeded in getting us to scuttle.

Speaker 4 (25:06):
That's you know, and David knows where I'm going on this.

Speaker 2 (25:09):
When David Kelly and I met, we were younger, to
say the least. And one of the great moments of
this bullmarket and the oddities of equities, bonds, currencies, commodities
is there's not a lot of people with bull market
experience when it ends. David Kelly joins us now with
JP Morgan. I just can't say enough about the team

(25:32):
he's put together there of thinking responsibly about investment. And
you were weaned on this in Boston at Putnam. You
and I have tattooed to our soul the collapse of
the Putnam Voyager Fund.

Speaker 4 (25:46):
It was the go Go fund.

Speaker 2 (25:48):
Now I'm going to suggest, David, we don't have that
exuberance right now that I don't see it.

Speaker 4 (25:53):
But what's the radar you and your team use so
that we.

Speaker 2 (25:58):
Can avoid the the Voyagers of this decade.

Speaker 11 (26:02):
You know, there's a there's a very old saying that
that you don't make the same mistake twice. The problem
about the family mistakes is a very broad family, and
there's always some cousin or relative of the mistake you made.
That's actually, that's actually, that's actually a quote from from
the book Reminiscences of a Stock Operator, which means which
everyone should read every five years actually, But if you

(26:24):
look at the megacap tech companies, it's not the same
thing as a dot com bubble, of course, but you
still have very high valuations and you still got and
you've got more concentration in the S and P five
found it now than you had back in the dot
com bubble. So there are bubbly aspects to this market.
And the market is price for perfection. And then if

(26:44):
you have an imperfect number like the CPI number today,
then you take a shillacking. And the thing that the
thing that gets hit the most at the end of
a bubble of a bull market, your build markets end
up being bubble markets is the thing that is the
area that the bubble is concentrated. And that's the thing
that's most important different people to think about it. Doesn't
you know, markets will come, bear markets, building markets will

(27:06):
come and go, but you don't want to be overweighted
the overhyped at the peak of a bull market. And
that's what I think investors need to think about.

Speaker 6 (27:13):
I keep coming back to this, and we've talked a
lot about the FED being data dependent versus data point dependent.
How do you view the data that we got today
in kind of a wider, more holistic lens. We see
the reaction in the markets thus far, but what does
it tell us that we didn't know yesterday or a
week ago.

Speaker 11 (27:28):
Actually not as much as you think that. The thing
about when you have a surprise on CPI, people forecast
CPI pretty well because all the core things are pretty
easy to forecast. What causes a problem is the usual suspects,
and the usual suspects are auto insurance, airline fares.

Speaker 4 (27:46):
Hotel rates.

Speaker 11 (27:47):
So tail rates were up one point two percentine airline
fares were up one point four percent, and auto insurance
is up two percent.

Speaker 5 (27:54):
All things that Thomas been complaining about at length in.

Speaker 2 (27:56):
Recent christ Paris last night versus twelve months ago, I'm
spending two thousand more dollars.

Speaker 4 (28:04):
Yep, that's a fact from X to X plus two thousand.

Speaker 11 (28:08):
I mean that's the Hampton in Well, yeah, you know,
that's that's.

Speaker 5 (28:15):
A wealth effect.

Speaker 11 (28:15):
We've both been doing this long enough that you know
it used to be a wealth effects and consumption weren't
that important. But there is so much wealth right now
relative to twenty years ago, thirty years, forty years ago,
that when you have a wealth surge like we did
last year. Well, rich people spend money and what to
rich people spend money taking trips to Paris?

Speaker 2 (28:32):
Joining us here at at the our top. David Kelly
of JP Morgan, this is so important. We're going to
forego the festivities of the market open. We forego nickelback.
You know that was my pictures and Catchers thing you
should have.

Speaker 5 (28:45):
Seen years ago.

Speaker 2 (28:50):
Kelly would be down to Peter Lynch would be backed
up twelve rowers back and Kelly's down.

Speaker 4 (28:54):
By the third base. Doug guy, you know rock star seats.

Speaker 2 (28:58):
David, I want you to talk about the moment we're
in and how people scared participate in the equity markets.
JP market is this huge platform of measured of a
measured approach within a new media frenzy you and I
did live years ago, and.

Speaker 11 (29:18):
Yes, absolutely, and you've just got to watch valuations. There
are plenty of things in global equity markets who took
up perfectly reasonable price tax. There's just a few things
which dominate US markets who don't have reasonable price tags.

Speaker 5 (29:30):
And you've just.

Speaker 11 (29:31):
Got to be determined to focus on I'm going to
buy stuff at reasonable valuations. This makes sense both US
stocks and international stocks and I'm going to try to
do everything I can underweight the stuff that is carrying
pe ratos of thirty times or thirty five times or
one there and twenty times.

Speaker 5 (29:50):
You just need to do that.

Speaker 10 (29:52):
We don't.

Speaker 11 (29:53):
You never know the hour or the day that a
bull market breaks and you end up in a bear market.
You just don't know how to time that. But you
do know what you know, how you position yourself before that.
He determines how you're going to go through it. So
you know, overall the economy looks good, but we've got
a lot of a lot of policy uncertainty. The problem
is the equity marketers price for perfection, and or part

(30:15):
of the equity marketers price for more than perfection. You
just need to be underwaigh that.

Speaker 6 (30:18):
I'll show my age here. But does a bull market
end with a bang or a whimper? Customarily? You said
you'd know the nearly hour.

Speaker 4 (30:24):
That's a really sophisticated question.

Speaker 5 (30:26):
Seriously, No, it ends, it ends with the bank.

Speaker 9 (30:30):
I'm sorry.

Speaker 5 (30:31):
It's not going to just win bad.

Speaker 11 (30:33):
That's we're past the point where the market can simply
slide back into a bad year or two. We're going
to have We're gonna have a significant bear market at
some stage. We don't know when it's going to start,
and you don't want to not participate. There's just just
don't participate in the stuff that looks obviously crazy in
terms of valuations.

Speaker 2 (30:51):
David kellyers with a JP market, how do you fold
in Casman and Feroli's work? Michael Feroley making history. I'm
going to say, a decade eight years ago, with a
shot wucking potential GDP number under two percent?

Speaker 4 (31:03):
Do you work off of JP?

Speaker 2 (31:05):
Morgan economics modeling still a disinflationary tendency. John Williams yesterday
reaffirming a path back to two percent? Is that a
foundational call?

Speaker 4 (31:16):
Still? I agree with them on that.

Speaker 11 (31:19):
You know, I look at their stuff very very very closely.
We work independently, but I agree with them that because
if you look yes, we've got a surprising number today,
but if you look at shelter, shelter was four point
six percent year over year last month, it's four point
four percent right now, and it is still too high
based on what we know is going on in the
rental market. Auto insurance you know, saw two percent increase,

(31:40):
but it's a double digit year over year it's not
going to be double digit year over year by the
end of the year, so it will that part will
go away. But what I am concerned about, and I
think the FED is concerned about, is what happens if
we have more tariffs, what happens if immigration gets much
tougher you've got higher wages, And what happens if we
have physical cinemas in twenty twenty six. And that's what's
keeping the FED more nervous.

Speaker 2 (32:00):
Thirty seconds, every single parent I know wants their kids
to go to school in Europe.

Speaker 4 (32:04):
It's the new rage here sell Trinity right now.

Speaker 2 (32:07):
Everybody's looking at Saint Andrew's this and go down to
Paris and you know the Rome and all that.

Speaker 4 (32:14):
The real academics is at Dublin, isn't it.

Speaker 11 (32:17):
Well it's you actually have a pretty good time there too,
but you know it, what's a college education?

Speaker 5 (32:22):
Media guys, and you about life in Dublin.

Speaker 2 (32:25):
David Kelly, there were wisdom on his Dublin. Thank you
so much for JP Morgan. This was a real treat
to have him in here.

Speaker 1 (32:36):
You're listening to the Bloomberg Surveillance podcast Catch us Live
weekday afternoons from seven to ten am Eastern. Listen on
Applecarplay and Android Otto with the Bloomberg Business app, or
watch us live on YouTube.

Speaker 4 (32:50):
I got a.

Speaker 2 (32:51):
Script with Hugh von Stein is like a plan, Like
if he and Iron Davos we have a plan, We
go see Barry at the piano bar and life goes on.
The President is just got the way of my script,
President Trump putting out moments ago a tweet interest rates
should be lowered, something which would go hand in hand
with upcoming tariffs.

Speaker 4 (33:09):
Let's rack and roll America. So I got to start
with that.

Speaker 2 (33:14):
Yeah, joining us now the king of British rock and roll,
steins encyclopedic and banking and of course at however, whyman
it is?

Speaker 4 (33:22):
Well?

Speaker 2 (33:24):
Can a president force rates lower? Or Chairman Powells speaking
this morning?

Speaker 10 (33:29):
Gosh, that's a great question to start.

Speaker 9 (33:31):
I was.

Speaker 12 (33:31):
I was happy on the skiing than this.

Speaker 9 (33:35):
Look.

Speaker 12 (33:35):
I think I think central bankers like to move at
their own speed, don't they, And they ought to like
to move incrementally where possible. So I think it's going
to be tough.

Speaker 10 (33:44):
Look taffs it taffs.

Speaker 12 (33:46):
I think the market's still pricing in that they're going
to be small and surgical rather than broad based.

Speaker 10 (33:51):
If that's right, they're not.

Speaker 12 (33:52):
As inflationary, so that you can see as inflation comes
down there's an opportunity to cut rates further. Look, you know,
if I think about it from the bank CEO's and
see if I as I talked to, they're actually having
a really good moment.

Speaker 10 (34:02):
They're in a purple patch.

Speaker 2 (34:03):
Why are they in a good moment if the rest
of us are in chaos?

Speaker 12 (34:07):
Well, so it's a really great question. So look, we've
got a steeper your curve, so they love that. Deposits
are building up, so they got grit better funding. The
credit environment is still really benign. You know, there's very
few bankruptcies and actually with bars with the bars and
rules being kicked either into touch or certainly being what

(34:28):
I think of as a bureaucratic fudge. If there's mere
bank capital neutral whan it's BKX is up forty three
percent in the last year. That beats fangs. In fact,
you would love this. The European bankshop forty seven. The
European banks are being rehabilitated. You have to come back
to Europe to talk about them.

Speaker 2 (34:43):
Sometimes in a hero these off life support out and
get a question, get a question.

Speaker 6 (34:49):
As we get our popcorn and watch the second of
these two days of hearings, No doubt there will be
some questions about bars or three in Capital And as J.
Powell persists without Michael Barr, the other mic bar by
his side, what does the future look like when it
comes to sort of the regulatory remit of the Fed Reserve?
What sense do we have the contours of that post
Michael Barr.

Speaker 12 (35:08):
It's a great question to look so, so Tom and
I've discussed before. If we look back in two years
ago what went wrong, it was a failure of supervision.
It wasn't actually my failure of the rules. It was
just they weren't being implemented California. Out in California. That
the four banks which went, but certainly the first three
there were just people looking somewhere else rather than looking
at proper one, good old fashioned risk management and rekignetars.

(35:29):
So the supervision really needs to be improved, and I
think there's some work ongoing, and you could say Flick
needs to be.

Speaker 9 (35:34):
Part of that.

Speaker 10 (35:35):
I think two.

Speaker 12 (35:36):
I think the thing I learned was that the big
banks were in great shape. And so actually you don't
need to have bolster them with copper, gold plated, platinum plated,
you know, cryptoplated, you know.

Speaker 10 (35:46):
Regulation.

Speaker 12 (35:47):
But maybe there's a little bit tightness around the central
about the smaller banks. Maybe the regional banks do need
a little bit more supervision. So I think it's quite incremental,
and I think we're getting back to sanity after this
nineteen percent proposed increase.

Speaker 6 (35:58):
I had a question for friendship the Congress been in
chair of the Financial Services Commante didn't have time for it.

Speaker 5 (36:02):
I'll put it to you.

Speaker 6 (36:02):
He talks a lot about how regulation is preventing de
novo banks from coming under the scene, that he doesn't
think there were enough kind of smaller community banks. Are
there too many banks in this country? Where is the
need for even more banks in the US banking system.

Speaker 12 (36:16):
So I think it's true stateside, but the world over,
heavy duty regulations have for smaller bank it makes it
much much tougher to start up. That said, in the state,
if you think about the banking system, we got your
top eighteen twenty four banks who are in pretty good shape.
Then you've got sort of close to three thousand community banks.
They sit on one of three computer systems they're actually

(36:37):
have scale because they're drag and drop on a really
high quality platform. It's the belly in the middle, and
so in fact the two years ago it was the
belly which the four banks got in trouble. That's where
we need to memonade.

Speaker 4 (36:49):
But let me frame this like for.

Speaker 5 (36:53):
Script.

Speaker 2 (36:53):
Why no, Gert, your question was brilliant. Why do we
need to lean forward here? Hugh von Stein has came
out of turn Need Oxford, PP and E and he
had to get a day job, so he went to
Morgan Stanley where he was definitive on banks in Europe
but worldwide as well, and took down trophies like twelve
years in a row or something. They had to force
him out just so somebody else could win the damn trophy.

(37:16):
He's herd of Mark Kearney at the Bank of England
as well. But to your question, is definitive Trump loves
Andrew Jackson.

Speaker 6 (37:23):
Yes, I mean is that where we're going? Portrait is
back up on the wall. I know in the Oval office,
but I don't know if you want to talk about
Andrew Jackson.

Speaker 5 (37:30):
You should feel free if you.

Speaker 12 (37:31):
Want, well we get we can if you want, but
you should get Neil Ferguson On. I mean, I think, well,
Neil always taught me and she had dinner with Dick
Burner last night, who you may remember, the chief economist
and Bog and Sandy.

Speaker 9 (37:41):
Back the day.

Speaker 10 (37:42):
I think I owe her money or Dick some great
form and I'm sure take this.

Speaker 12 (37:48):
But so he said, like, you know, the key lesson
is that these clever PhDs, they haven't done economic history.
And actually we learned that in the financial crisis. So actually,
whether it's Jackson or whether Actu, you got back to
the nineteenth century and actually, you know, think about the
impact of Tariff's about counter counters, president deficits history really matters.

(38:08):
I think Neil's a better guess key on that.

Speaker 4 (38:10):
No, this is really important.

Speaker 2 (38:11):
And to Richard Berner, folks at Morgan Stanley and with
Stephen Roach changed American economics. I think Dick Berner and
Iron this forward guidance things.

Speaker 4 (38:20):
Folks.

Speaker 2 (38:20):
You hear me talk about the dot plots McKee and
I are like, you know, are you kidding me? And
the answer is maybe they'll go away. A lot of
that came.

Speaker 4 (38:27):
From the excellence of Richard Berner. Hugh, I got to
rip up the script.

Speaker 2 (38:31):
Here we have a glorious person at Bloomberg Intelligence, Robert Schiffman,
who writes on debt and credit and MAGA.

Speaker 4 (38:40):
He has just put out a.

Speaker 2 (38:41):
Brilliant note suggesting that all this angst about capital raised
there could be done with.

Speaker 4 (38:48):
Debt issue Ince because they don't have any debt and
they make more money than God and free Kishlow.

Speaker 2 (38:55):
Do you think the bankers like you used to be
will convince MAGA raising their capital is an easy process
because of the wonderful financial position they're in, and they
can raise billions in debt.

Speaker 10 (39:11):
It's a great question.

Speaker 12 (39:11):
So look, let's stick on the bits which I have confidence,
and let's move to the tricky a bit.

Speaker 4 (39:15):
Please.

Speaker 12 (39:16):
It's raining fixed income up moment. The inflows to fixed income.
I think this year will Last year was a record
in the States. I think it's gonna be a new
record based on what I've seen in January and early February.
So it's raining fixed income. The demand for yield is huge,
and I think the way to put it is after
twenty years where people didn't look at their fixeding come portfolios,
the last three years, it's come back. So the demand

(39:36):
side there. But as You've debated tons of times. The
structure of markets has changed a lot, and so it's
going to be ETFs or it's private credit, and so
there's there's a following out. So I think the demand.
I think you could issue plenty more debts.

Speaker 2 (39:50):
Okay, So like take a round number one hundred billion
dollars sixty seven companies. In the old days, you'd sit
at Morgan Stanley and there'd be like four phone calls, right,
that's right. Can they do one hundred billion in debt
with seven phone calls?

Speaker 4 (40:03):
And the answers, yes, they could do.

Speaker 12 (40:05):
But it's not necessarily the banks taking it down in
it ogre, it's actually the investor side which is taking
it down because the banks don't have that kind of capacity.

Speaker 10 (40:13):
Fair or Lord just sit on it.

Speaker 4 (40:15):
At least come out sovereign.

Speaker 10 (40:17):
But I think let's go back to his street.

Speaker 12 (40:18):
So when Neil, in fact, when Nail and I chatting,
this is a recycling of Petro dollars. Why is it
that everyone's in the Middle East? Is because those dollars
need to find a home and actually they are funding
the states and actually that could be one of the
windfalls over the next four years is actually the recycling
of these petro dollars.

Speaker 6 (40:34):
As Tom Venmo's doctor, Bernard, let me ask you about
how what we've heard from Mark Rowan and his cohort
lately is resonating in the c suites of the big
banks on Wall Street. His ambition to grow private credit
and to sort of present himself as this not even
alternative but sort of driving forward for financing. What are
banks doing in the face of that to compensate or
compete with with what he's saying.

Speaker 12 (40:54):
Look, so it's fascinating how many banks now talk about
are prepared to accept there is a partnership model rather
than just a counterpart. But I think there's two ways
slice it. The traditional private credit business is higher yielding,
it's leverage finance, mid market finance. And the way I
think about it is that there's a retranching or reslicing
of the banking system. The senior risk is being taken
by the banks and the junior risk is being sold.

(41:16):
And I think, I said to Tom, I almost think
that private credit is the a zen pic to the
banking industry. It's helping them shad weight. But and here's
a big butt. The risk now is the private credit
firms are raising so much insurance money. Over half of
all inflows to private credit last year I think came
from insurers. Well, let's we find they need investment grade.

(41:36):
So there you're now getting into the territory of the banks.
Private credit only has about five six percent share of
that asset back lending, right, that's where they're going next,
and that will put them into more confrontations chilling.

Speaker 2 (41:48):
It's like talking to David Goldman when he was at
Bank of America in like two thousand and six or
two thousand and seven to translate this, folks, and he
will help me out here.

Speaker 4 (41:57):
If private credit.

Speaker 2 (41:59):
Is going to pick up the pieces from the major
banks and lesser quality what are called junior tranches, is
there an implied leverage within those tranches?

Speaker 4 (42:09):
I mean, are they pure and clean or is there
a shadow leverage within the new system.

Speaker 2 (42:17):
Of private credit and frankly private equity that we don't see.

Speaker 12 (42:21):
Look, this is what the number one question from regulators've
always been having dealing with a lot of central bank governors.

Speaker 1 (42:27):
This is.

Speaker 12 (42:32):
Surveillance dire so but no, that's a great question. Actually
the banking is doing work on exactly that issue. What's
interesting though, is if you think about the insurers who
are putting money to work, they need investment grade assets, right,
and that's about forty three.

Speaker 10 (42:47):
Percentage pure clean They don't.

Speaker 12 (42:50):
Do let's say nad finance, so fun finance. The insurers
do none of that. That's all being done by more
than other parts of the ecosystem. So even if there
is leverage, it's in sort of hands which are prepared
to accept risky beds rather than the low risk beds.

Speaker 10 (43:05):
So there is it.

Speaker 12 (43:06):
Kind of It's okay in a way what the good
always thinking life. We need the right holders the right risk,
you know, in a way what we learn from let's
say G capital they had long dated loans, but with
short deposits, we want long data exactly, so we need
to pass out loans to pass out the risk.

Speaker 2 (43:23):
So go to the axis with your expert on in
at private equity. They have not been able to liquidize
previous investments. Are you optimistic private equity can monetize their
successes this year and in the next year twenty twenty six,
and does private credit will? They have the same challenges

(43:43):
of getting out of the stuff once they get into it.

Speaker 10 (43:46):
It's two great questions.

Speaker 4 (43:48):
So that's a hat trick.

Speaker 5 (43:52):
You guys work this out before.

Speaker 10 (43:54):
This is my script obviously, isn't it.

Speaker 4 (43:55):
I got to rehearse.

Speaker 10 (43:57):
It's tough.

Speaker 12 (43:59):
So all of the bankers that I talked to start,
we're in November, we're jumping for joy about a huge
IPO calendar for this year.

Speaker 5 (44:07):
I haven't seen it though.

Speaker 12 (44:07):
Maybe they did it just in time for bonuses and
they were talking it out.

Speaker 4 (44:11):
Yeah, except there yesterday and said exact so.

Speaker 10 (44:15):
Sorry, okay, your credittionally with that.

Speaker 12 (44:18):
But obviously now they're saying in February it's it's okay,
but it's a bit slow, and it's that indigestion in
the sponsor community. In fact, if you got some great data,
if you look at M and A strategic m and
A so like company buying company, it's sort of more
average levels the last fifteen years. It's A it's bouncing.
It should be a little bit higher mid market M
and A. Again in line, it's this sponsor M and
A which is weak, and that's why the private credit

(44:40):
side are having to strike out for fresh pasture. So
I think, look, you know, markets are here to embarrass
and confront us at the moment, it looks like it's
going to be a reasonable but sluggish year.

Speaker 4 (44:53):
David, give one more in here with Hugh von steinas.

Speaker 6 (44:55):
Just ask you lastly about the kind of relationship between
public and private and partnerships that might come out of
this new administration. So we saw the scene in the
Oval Office with Larry Ellison and Sam Altman and talk
of financing a big data center project in Texas and elsewhere. Obviously,
as we talked about in Lampoon a little bit a
moment ago, there is the speculation about a sovereign wealth
fund here in the US. How do seasoned private sector

(45:16):
professionals look at that and navigate these proposals that you know,
admittedly don't have a lot of meat on the bone
at this point. But does the notion of a public
private partnership change under this administration?

Speaker 12 (45:25):
Oh gosh, it's a great question. Well, in some ways
you do already have a several wealth fund. If I
might be so bold with Freddie and Fanny, I mean,
they effectively are for now cheap fantasy moment, So I think.

Speaker 10 (45:35):
You can do that.

Speaker 12 (45:36):
I mean, obviously it depends whether it's through tax credits,
through structures. How stable are the structures, what's the longevity
the partnership? But I think everyone's looking at this minute
they have you have an obligation to look at this seriously.

Speaker 2 (45:50):
Thirty seconds you came up with the phrase asset management.

Speaker 4 (45:54):
Barbell. Hugh von Stein is on the ETF.

Speaker 12 (45:57):
Boom oh, look the fixing committee off the charts. They
infloced last year in the States, tripled.

Speaker 10 (46:03):
On the free lunch.

Speaker 12 (46:07):
So the bit which is growing is like, let's call
it active ETF. And it's the same discussion we had
twenty years ago. Let's say the PIMCO Total Return fun
They're saying, I'll do the index and a little bit
of Tabasco too, and the extra Tabasco gets you there.
And there are Last year there were two I'm not
doing company names this morning, but two funds who did
really well in that space. I'm I think that active

(46:28):
ETF space for fixed income remains really interesting.

Speaker 4 (46:31):
Michael Burr wants to know use Tabasco on your full.

Speaker 12 (46:34):
English right, try not.

Speaker 5 (46:41):
Missus Venstein, thank you so.

Speaker 4 (46:47):
Really.

Speaker 2 (46:47):
With Oliver Wyman and Dante, I should mention the brilliant
and banks and there they are researching European banks.

Speaker 1 (47:00):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on Applecarplay and Android Auto
with the Bloomberg Business app. You can also listen live
on Amazon Alexa from our flagship New York station, Just
Say Alexa Play Bloomberg eleven thirty.

Speaker 2 (47:17):
Tina Fordham has provided phenomenal transatlantic perspective over the recent years,
and she's just continually delivered to us on international relations
and how it folds into the markets. She becomes ever stronger,
joined by Ibra Mubari who was at City Group and

(47:40):
legendary and Fordham and Robari together today is really what
Bloomberg Surveillance is all about. Tina, the moment that we're
in right now, I assume your five page report has
become a twenty page report. Distill it into one observation
of how, whatever our political persuasion, how we survive this

(48:02):
testing of an executive branch versus a legislative branch in
a judicial branch.

Speaker 13 (48:09):
Thank you for the introduction and the low pressure question.
How do we think about these unprecedented times? We keep
an open mind and we check our priors because we've
never been here before.

Speaker 4 (48:24):
We've never been here before, So how do you check
your priors.

Speaker 13 (48:28):
It's really important to constantly test your expectations, your confirmation bias,
to seek a wide range of opinions, which is why
I love working with Ibraham because he keeps me intellectually honest.

Speaker 2 (48:41):
Well, this is a great thank you for selling Ibram
to us. I'm going to cut to the chase. The
dollar is the prior. Is the great shock of what
is to come with this Trump to administration, a fragility
or super strength to the US dollar.

Speaker 14 (48:57):
I think eventually it'd be a frigidity, actually, and we've
got a first taste of that over the last couple
of weeks. So in the currency world, I actually think
it points to that handing over to the end as
maybe the place to hide in difficult times. But is
it's it And as Tina mentioned, many many moving parts.
So I keep it with Chapale, who we'll hear from
later today. Be humble and nimble, check your priors and

(49:19):
try to work out what are the preferences and what
are the constraints of policymakers along the.

Speaker 5 (49:23):
Way A question for both of you.

Speaker 6 (49:24):
I'll start with you first over him, and that is
during the campaign, we heard a lot from Scott Besson
among others about the prospects that they're being a shadow
fed share, who kind of telegraph what the next fed
shair would think or do. And I guess we're getting
a taste of that this morning from the President. He's
opining on X and Truth Social about these inflation numbers.
Biden inflation up, he tweeted this morning. He suggested the
interest rates should be lower before this testimony that you

(49:46):
just mentioned, perhaps he is the shadow fed share. There
was so teas during the campaign trail. But in terms
of what's on precedent, and I go back to a
question I asked Tom a few minutes ago, and that
is how much more difficult does it get for Jerome
Palell to weather the commentary, the critique, the criticism, the
politics of this moment. He's indicated over and over again
that he's up for it, but this is going to

(50:07):
become increasingly difficult for him.

Speaker 14 (50:10):
So form my vantage point, it actually is getting significantly
more difficult. And we've seen that in J. Powell in
his last few press conferences. And he used to be
very effective in communicating and he's become much less effective
and clearly the new administration is a big reason, but
I also think it's because he holds a lot less
effective sway over his committee. The committee seems to be

(50:33):
a lot more politicized. There's a lot of talk about
Powell being politicized, but I actually think it's other people
in the committee and on both sides. So you see
some unnamed governors being significantly more dubbish, and some people
speculative they're aiming to be his successor. But maybe more relevantly,
there are a number of people who have tilted from
being very dubbish to much less dubbish when we have

(50:56):
had very little data to speak of so far. So
I think it is a it's a much more difficult environment.
He is much less effective as a leader. Some people
will speak of.

Speaker 6 (51:04):
Lame duck Christ to that point. I mean he's dealing
with the same uncertainty that we are. He's going to
field as many questions today as yesterday, perhaps more just
about the tariff's policy, how that might affect the economy.
He's going to try to bat that down, but there's
going to be increasing demand for him to indicate how
he's thinking through these issues.

Speaker 13 (51:22):
There's a lot of pressure for anybody in a leadership
rule to both demonstrate their integrity but also not be
perceived as sending the wrong signal to this administration. I
think it's important that we don't normalize this, however, because
what we are talking about as we think about lower
trust and institutions that includes the FED, that includes the

(51:44):
courts that in Congress was always low on that list.
And for investors, that means that the nonlinearities that are
present in the system make it a lot harder to
do what market participants like to do, which is say
signal versus noise.

Speaker 4 (52:01):
In our studios, we are thrilled to bring you this hour.

Speaker 2 (52:04):
Even Rabari and Tina Fordham of for Fordham Global Foresight,
I can't say enough usually in London, and to have
them in our studios. Treat it is really really a treat.
I'm gonna can I do an audible Yeah, you are
the one I want to talk to on this, and
that we have a president going through a routine visit
with the Hashemi King of Jordan, Abdullah the second folks,

(52:28):
this yes, it takes you back to the movie Lawrence
of Arabia The Ignorance of America, of where Jordan fits
in to the matrix of the levant is there's there's
no measurement of how dumb I am in everybody else.
I had a very well reported interview with Elcci at

(52:48):
Davos years ago. Elceci of Egypt said enough, I'm not
even going explain to Republicans now in support of Trump
the delicacy of how the president is treating Jordan, Egypt,
in the rest of the broader Middle East.

Speaker 13 (53:06):
Well, it's consistent with a kind of an American approach
to the world, which is get them in a room,
knock heads, and you know, make a deal. And so
Trump's logic is very, very appealing. But other countries have
politics too. King Abdullah of Jordan has fifty percent of
his population is Palestinian. He can't simply roll over and

(53:28):
expect to stay in power, and his presence in the
region is very important for his stability.

Speaker 2 (53:33):
And he's been holistic for America from his time at
Eglebrooke and Deerfield years ago in Western at Massachusetts. I mean,
this is a guy that's always been on the American team.
Is he the buffer to Iran? I mean, on the map,
it tells me that Jordan is the buffer to Persia.
Am I right on that.

Speaker 13 (53:52):
I think Syria as a wild card and the kind
of power vacuum there may be more relevant for Iran
itself in a weak position. And what we don't know
is what kind of discussion Natan Yahoo of Israel is
having with the president and this move toward maximum pressure
what that means, because making it harder for Abdullah to

(54:15):
sit on that throne, pressuring Cisi in Egypt could cause
what US political scientists called unintended consequences and make a
difficult situation worse.

Speaker 4 (54:28):
You were sitting at Ebrahm's going top. Don't ask me
about the Egyptian David save us.

Speaker 6 (54:34):
Please see presparent in mind what we were talking about
a moment ago, that there is so much here that's
unprecedented and not normal. How useful is it for you
to go back and look at the first term to
sort of divine what might be happening here? Is this
Trump two point zero? Is it a revision of the
manual that we had that first time around, or is
it simply a very different guidebook.

Speaker 5 (54:54):
I think it's still very useful.

Speaker 14 (54:55):
Yeah, And in fact, the way to approach it is
to think about what is similar to the first term
and what is different, And I've continued to highlight that
there are big macroeconomic differences.

Speaker 4 (55:05):
We are now in the.

Speaker 14 (55:05):
World where the economy is robust, stock markets are at
all time highs, and inflation is a major concern. So
that shakes how this administration will respond. It doesn't need
to stimulate the economy. It will worry about inflation and
net net that means the less fiscally expansionary than many
people would have thought. But we've had a number of
developments that are very much in line with how this

(55:26):
administration worked the first time around, and I think the
most relevant of them is it loves to experiment. It
loves to take risks, it loves to send trial balloons,
and it's very keen.

Speaker 5 (55:35):
To reverse course.

Speaker 10 (55:36):
It likes to act first.

Speaker 14 (55:37):
See what the response is and then judicate.

Speaker 4 (55:39):
In addition to that.

Speaker 14 (55:40):
It likes to as Tina likes to call it, flood
the zone, distract and maybe divide potential opposition. So there's
a number of and confused. So there's a number of
lessons in the first turn that I think investors in
the general public would be in a good position to.

Speaker 6 (55:56):
Heat Tina we're seeing that now there's this big confact
that's going to happen in in the coming days the
Munich Security Conference, and the Vice President has gone from
Paris to there. He'll speak there. I look at the
bloomberg and see a headline this morning. Ukraine NATO membership
is not a realistic goal, according to Pete Hegseth, the
new Defense Secretary. From where you sit, what is the
next chapter of.

Speaker 13 (56:20):
I mean, Ukraine joining NATO, I don't think has been
a realistic goal. But Ukraine with having a European perspective,
as the EU likes to say, is a realistic goal,
and that is an anchor for the European Union. I think,
you know, the military strategists like to quote the old
saying that no plan survives first contact with the enemy.

(56:42):
When Vice President Vance gets to Munich, he'll get an
earfull and be confronted with the European reality because Russia's.

Speaker 5 (56:52):
On our doorstep.

Speaker 13 (56:53):
We've got several NATAL member states that are very concerned.
This isn't just about creating a d military rised zone
in the occupied territories. If it were that simple land
for peace, it would already have been done.

Speaker 6 (57:08):
What is your counsel to someone like me, someone listening
who watched what unfolded yesterday in the Oval Office, Donald
Trump talking about Gaza as a place that's not worth anything.
It's his to buy, indicating their's, but no thought into
sort of where people there would go if this essentially
ethnic cleansing were to happen, people were to be moved out,

(57:29):
not thinking through all of these steps. How do you
how much weight do you give to what seemed like
not thought out, perhaps offhand comments like that versus a
broader kind of strategic bent when it comes to the
Middle East or other places.

Speaker 13 (57:39):
Well, first of all, I think he's serious. I think
he I think he is a real estate developer. He
made similar comments about North Korea right.

Speaker 5 (57:46):
About you could be the next he sees.

Speaker 13 (57:50):
You know, waterfront, ocean front.

Speaker 4 (57:54):
Ter Putin responded that.

Speaker 13 (57:56):
Mister Putin, President Putin can watch and and wait, just
like President She right. Remember during We've talked about this,
during COVID, they thought America was in decline and they're
just watching to see the chaos ensue.

Speaker 2 (58:13):
I can't say enough about Angela's stent, whether she was
on fire her book Putin's World, she was really forceful
about we underestimate putin at this Trump moment, Ibra Mubari,
Tina Fordham with his foreigner of global foresighted generous amount
of time and we're going to continue.

Speaker 4 (58:29):
We welcome all of you across the nation and worldwide
on YouTube subscribe to Bloomberg Podcast.

Speaker 2 (58:35):
I can tell you this is what the show's about.
Catherine Mann nailed it. She went to the bank. She
got sick of you guys. She got sick, said Saya
and Catherine Mann, who folks came up with a whole
dysfunction of China, us etc.

Speaker 4 (58:53):
Doctor Mann went to the Bank of England and she
has been a resilient, cautious hawk.

Speaker 2 (58:58):
There is that the new town Ibra Marbury is even
with this inflation report, even the middle ground or dare
I say the doves tilt hawkish over the next year.

Speaker 14 (59:09):
Well, I think what everybody really appreciates about Catherine is
again that she has an open mind, but at the
same time she is a very structured thinker. And what
was catching my eye recently with her is she was
an ardent hawk on the Bank of England's NPC for
the last you know, probably two years. She was on
the dubbish end of the spectrum when I worked with her,

(59:30):
and then in the very last meeting she seemed to
flip back again and highlighted that there are some points
of pressure in the UK economy that in fact pulled
her into the idea that maybe they should be cutting
by fifty basis points, cut by fifty basis points, when
previously she was in the you know, in the rear
guard that suggested that the Bank of England should be
should be very very cautious. Now the lesson in there

(59:51):
for me is for somebody like her who is not
an internal NPC member at the Bank of England, historically
they've been treated with a bit of a discount by
markets because they see is less influential.

Speaker 5 (01:00:01):
I would say, pay a lot more attention.

Speaker 14 (01:00:03):
To her than you normally would because it's it's times
of great uncertainty, it's times where people don't really have
much of an anchor, where these people have more influence.

Speaker 2 (01:00:11):
I got you just find a question in an honor
Viillam Bauder, who invented modern city research.

Speaker 4 (01:00:16):
The debt in the deficit is tangible. Americans love to
ignore the debt and the deficit.

Speaker 2 (01:00:22):
Ibra Robari Is this a time where we need to
focus on the debt, the deficit in our interest expense.

Speaker 5 (01:00:29):
I think yes and yes for two reasons.

Speaker 14 (01:00:32):
I think one is you know the need ter One one,
this administration has actually focused on it, and again I
think people have been missing how focused they are on
to some degree, managing what they see as a vulnerability
in terms of the level of debt and deficit and how.

Speaker 5 (01:00:45):
Much power they have.

Speaker 14 (01:00:46):
I mean, the standard answer you get from anybody on
US fiscal is well, the executive can't really do very much.
It's Congress's job. Congress is so dysfunctional and divided. We
are seeing them taking action. They're trying to cut spending.
They have a lot more power over over Congress than
previous administrations have had. So there's I think interesting fiscal
action going on right now, which is different from what
people expect. There's the bigger question that a lot more

(01:01:08):
people ask about, which is, you know, when are we
entering the period of physical crisis in the US. And
there I think massive topic to watch, but that timing.
You know, if anything is actually slightly pushed back relative
to what we thought a couple of months ago, then
you know what people were expecting.

Speaker 4 (01:01:22):
This is we're out of time.

Speaker 5 (01:01:24):
This is what We'll have many occasions to talk.

Speaker 4 (01:01:28):
In town.

Speaker 13 (01:01:28):
Yes, but I don't have to be in town, but yes,
I will be coming more often.

Speaker 5 (01:01:33):
Okay, wonder the German election.

Speaker 4 (01:01:34):
Can we do something to a London hotel process.

Speaker 13 (01:01:38):
I'd like to speak to you about New York hotel.

Speaker 5 (01:01:43):
Sterling's unbelievable.

Speaker 13 (01:01:45):
It's harder, it's harder than ever. But it's wonderful to
have these conversations. And I think the appetite for this
kind of open minded you know, checking your priors. It
has to be the way forward. We haven't seen this
movie before, No, we haven't.

Speaker 2 (01:02:02):
And we're working on. David and I are reading as
much as we can to stay up on this. Stephen
Levinski and the New Foreign Affairs and Jason Furman and
of course Tina Fordham writing every day. Tina Fordham, even Bumbari,
thank you so much for joining Bloomberg.

Speaker 1 (01:02:21):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on Apple Corplay and Android
Auto with the Bloomberg Business app. You can also watch
us live every weekday on YouTube and always on the
Bloomberg terminal.

Speaker 2 (01:02:36):
After decades of service to his constituents in Arkansas, has
the worst job in Washington. He has had a House
Financial Services Committee, the Republican from Arkansas, and he joins
us right now, French, I got eight ways to go here,
but I got to look to the second third week
of March, where the challenge is a government shutdown.

Speaker 4 (01:02:57):
Budget challenges. You're going to be in the heart of this.

Speaker 2 (01:03:00):
So I'm going to go to someone on your committee
like Monica de la Cruz, the Latina from Texas. Fine, Okay,
the conservative southerns that don't want to budget on the budget,
how are mainstream Republicans like you going to convince them
to keep the United States of America running.

Speaker 9 (01:03:20):
Well?

Speaker 15 (01:03:20):
Thomas, is such an important question. Great to be with
you this morning. This is something we should have done
in December, and it was a horrible mistake in my
judgment not to complete the funding for FY twenty five
in the previous Congress. Under the Biden administration, we would
have had roughly the same characteristics we would have had

(01:03:42):
an incoming Trump administration and incoming Senate. I think we
would have gotten substantially the same deal. And now we're
on trying to do budget reconciliation, which is a much
more important task, and yet we face, as you point out,
a government shutdown.

Speaker 9 (01:03:57):
Republicans have to stick together.

Speaker 15 (01:03:59):
We should use the Fiscal Responsibility Act numbers from last
year and negotiate with the Senate now a Republican Senate
who wants to spend a little bit more on defense,
and get this behind us so that we could go
to the main event of focus on reforming regulation, reforming
productivity in the federal government, reforming spending, extending pro growth

(01:04:20):
tax cuts.

Speaker 6 (01:04:21):
Give us your sense of how much optimism you have
that's going to happen here. I know there's a lot
of nervousness and apprehension that time is running short. There
are different views on this. We were spending the last
few weeks talking about will be one bill or two biller?

Speaker 4 (01:04:34):
Three bit three bills.

Speaker 6 (01:04:35):
I know you've been involved in the same game there
on the hill. Do you see a path forward here?
How much clarity do you have at this point?

Speaker 9 (01:04:42):
Yeah?

Speaker 15 (01:04:42):
Well, first, on Tom's question about FYY twenty five finishing
FYY twenty five before March fourteenth, I have medium confidence
the worst case scenario would be to continue a CR
till like September thirtieth. First of all, once you hit
April first, you'll have a one percent across the board
cut twenty five spending, and crs are terrible for government management.

(01:05:06):
We'll end up spending billions more because we operate under
a CR.

Speaker 9 (01:05:10):
We won't be able to start.

Speaker 15 (01:05:11):
Any new programs at the Defense Department, which is a
priority for the administration. So that makes me lean to yes,
we'll get something done on March fourteenth, on fiscal twenty five,
as the budget reconciliation the big game. I do support
one bill here in the House because I think that's
how we hold the Republican coalition together best here. And

(01:05:33):
as you know, Senator Graham and the Senate's taking a
different approach.

Speaker 6 (01:05:37):
Congressman Hill, what is the view from the Longworth House
Office building of what we're seeing the White House do?
Of course, the historical precedent has been that Congress controls
the purse, makes decisions about funding. We are seeing this
administration take a more active role, shall we say, in
determining what gets funded and what doesn't. How much comfort
do you have with seeding some of that power to

(01:05:57):
your friends and colleagues in the other brands, the executive
brand of Pennsylvania Avenue.

Speaker 15 (01:06:02):
Well, think you found on money that's appropriated. Congress does
control those purse strings and they direct that spending.

Speaker 9 (01:06:08):
But in the broad swaths of federal.

Speaker 15 (01:06:10):
Spending, you have directions to agencies spend this money on
these general topics, and that's what the appropriated money says.
And then you have article to authority with a lot
of discretion about how to spend it. And I think
that's what President Trump's attempting to look at. Is the
spending done at the end of the Biden administration and
proposed to be spent here in the first few weeks

(01:06:33):
of his administration.

Speaker 9 (01:06:34):
Is it in alignment with his goals that he.

Speaker 15 (01:06:38):
Has in foreign policy, for example, at USAID, And that's
a classic Article to authority to take a look at that,
make sure it's in alignment with their policies. With that said,
you can't do these things without both the legislative branch
and the executive branch ultimately working together.

Speaker 2 (01:06:54):
Then, Frenchchill, you know, you and I have known each
other since time began, and I've never seen a private
citizen in the Oval office standing there with his arms
crossed like.

Speaker 4 (01:07:03):
He owned the high ground. You are one of the
rare beasts that came.

Speaker 2 (01:07:07):
To Congress actually running a business in Little Rock. What's
your advice to your fellow moderate brethren of the Democratic
and Republican persuasion?

Speaker 4 (01:07:19):
What do they need to do in the coming days?

Speaker 15 (01:07:24):
Well, first, let's look at doje Tom. It's a good
idea to go in and look at for efficiency and
government in the executive branch and make recommendations to the
legislative branch when you want to spend money differently or
have a different number of full time equivalent positions in
an agency. That's perfectly a good suggestion, and we haven't
done it in years. I'd say since nine to eleven.

(01:07:46):
The government's been focused on growing, not remotely focused on
productivity or realigning or investing in technology or doing anything
in a different way. We've been completely distracted by the
war on terrorism, THEA crisis, and then recovery from that,
and then the pandemic. So I think it's over time
to scrape the barnacles from the ship of state when

(01:08:07):
it comes to regulatory policy, personnel policy. But there's a
right way and a wrong way to do it. And
I would encourage the administration to plan, communicate, and consult
with Congress on how the best way to do that is.

Speaker 6 (01:08:19):
As for the right way to do it, I think
of you as a young man serving as a deputy
Assistant Secretary of the Treasury departmentunder Nicholas Brady, and I
wonder if you could have imagined you would have non appointed,
non confirmed private sector individuals going in and looking at
the payment system there in the Treasury Department. Does that
make you uncomfortable having the history that you have with
the Treasury Department to see the way that Doge has

(01:08:40):
been approaching the sort of fiscal health the books, for
lack of a better word, of the federal government.

Speaker 15 (01:08:47):
Well, when I heard about that story over the weekend
last week, called Secretary of Assent. We talked about it
last Monday, and he assured me that anything that Doge
was doing was in the control of the Treasury Department,
and that some people were working there for it review purposes.
But he implied to me that he's got that under control.

(01:09:09):
For making those recommendations, We're going to hold him accountable.
He's the Treasury Secretary. So anything that Doge is doing
in a Cabinet agency. We just need to remind the
American people, Members of Congress, the Trump administration, we're holding
the Cabinet Secretary accountable for, as I say, planning, efficiency changes,
budget changes, personnel changes. We're holding them accountable here in Congress.

Speaker 6 (01:09:33):
We got some news overnight that Jonathan mccurnan, formerly the FDIC,
has been picked to head the CFPB. And this has
been an agency that's been in the crosshairs. I think
it's safe to say you've had your criticisms with that
agency over these last few years. And I want to
ask you about some comments that the general lady from Cambridge,
Massachusetts made on our heir last night, the senior Senator
from Massachusetts, Elizabeth Warren, and she said, look, it's not

(01:09:53):
up to the executive branch to decide whether or not
an agency like the CFPB exists or what form it takes.
That's up to Congress. The point that she's making is
you and other lawmakers, if you don't like what this bureau,
this agency is doing, you could take action yourselves. Lawmakers
could decide whether or not it should continue to exist.
Do you agree with the argument that she's making there
that fundamentally it's not up to the executive branch, not

(01:10:15):
up to this administration to decide what agencies, what parts
of this government should stick around or be disappeared.

Speaker 15 (01:10:23):
Well, as a general matter, you'd have to look at
statute by statute, agent by agency by that. But as
a general statement, sure, I mean Congress creates agencies, Congress
can end agencies. There's nothing so permanent though, as a
temporary government program, as President Reagan reminded us. But let's
talk about Elizabeth Warren. She's the founding mother of the CFPB.

(01:10:45):
She created it to be insulated from oversighted, insulated from appropriations,
and insulated from any meddling by Congress. And that's what
irritated Congress, and that's why I support changing the agency dramatically.

Speaker 2 (01:10:58):
But Frinchell, I had a couple final questions. This is important,
as you mentioned the senator from the Commonwealth.

Speaker 4 (01:11:05):
Where do we find a middle ground? You are one
of the leaders of the middle ground in Washington. How
does Senator Warren and someone over on the MAGA write
find a common feature around people like french Hill.

Speaker 15 (01:11:21):
Well, it's a great question, and I've hearded Senator Warren
to consider that exactly she's concerned about the big banks
taking over the world. Well, she's created that with Dodd Frank,
who concentrates more power into those big banks. I've encouraged
her to consider tailoring policies for all the rest of
the banking system, and also considering compromise on the CFPB

(01:11:42):
but putting it under congressional appropriations and having a bipartisan
commission right overseas its work.

Speaker 9 (01:11:47):
Those are middle ground points.

Speaker 4 (01:11:49):
French, I don't care. Here's what I care about.

Speaker 2 (01:11:52):
My father worshiped Bill Dickie of Little Rock, Arkansas, the
x Yankees.

Speaker 4 (01:11:58):
Million years ago.

Speaker 2 (01:12:00):
Your minor league ball team, the Arkansas Travelers Texas League.
They play in the Dickey Stadium. How's a state of
minor league baseball in Little Rock? Is we have pitchers
and catchers today.

Speaker 15 (01:12:12):
Boy Strong, there's no better place to be on an
early summer night. The price is right, the fun is great,
and it's fun to beat the teams in the Texas League.
And it's something I love doing with not only my
family but all my friends.

Speaker 2 (01:12:25):
There were the Seattle Mariners. You think I could see
the Red Sox, you know, down in Arkansas?

Speaker 6 (01:12:30):
Kind of maybe every time I feel in on this show.
We have like three trips we need to take on
the heels of each show. Do that little baseball sounds
like it's a plan to me.

Speaker 9 (01:12:38):
We'll touch you right, We'll put you right behind home plate.

Speaker 4 (01:12:43):
Of the beloved Barney Frank. I hope you do as
well as Barney Frank. He's having the Financial Services Committee
in Washington. The Republican Little Rock Friendshill joining us.

Speaker 1 (01:12:54):
This is the Bloomberg Surveillance Podcast, available on Apple, Spotify,
and anywhere where else you get your podcasts. Listen live
each weekday, seven to ten am Eastern on Bloomberg dot Com,
the iHeartRadio app, tune In, and the Bloomberg Business app.
You can also watch us live every weekday on YouTube

(01:13:14):
and always on the Bloomberg terminal.

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