What Happens to Economic Growth if Trumponomics Is Trampled?

the US economy. We have Carl rick O donaghy is our chief US economist for Bloomberg Intelligence and he joins us here in our eleven three oh studio. Carl, always a pleasure downgrading the US economy. Give us some details. Yes, So, we are just this morning published our updated mid year projections, and we're not changing our outlook for We see the economy growing at about two point or present. However, we did mark down our forecasts. Now, ordinarily that would be

more troubling as it would have broader implications. Uh. You know, clearly you would say, while you're seeing a weaker economy, but really the reason for our downgrade of eighteen was basically erasing Trump and omics from the landscape. Uh. And so we've now assessed that given the prioritization of non economic measures, let's say healthcare repeal UH, and certainly these have economic consequences, but not direct economic policy. So the

focus on healthcare, border security, travel bands, etcetera. Is squandering political capital and also valuable days on the legislative calendar, which means that we now are seeing less likelihood of things like comprehensive tax reform at both the household and corporate levels, massive infrastructure spending. Those economic pillars of our main pillars of trumponomics, I think are in serious jeopardy.

So I would love to see them come back on the table and we would mark our growth forecast up accordingly. But it just doesn't look like that's going to be the reality, you know, Carl, I'm struck by the fact that you had priced in some of those uh legislative advances earlier in the year, and I'm wondering, as an economist, how difficult is it to come up with some kind of projection when clearly these proposals apparently would have had

a very significant impact on how much the country would grow. Absolutely, so there was tremendous uncertainty as to whether or not they would be issues that they were clearly major themes on the campaign trail, and it looked like initially there was going to be a lot of motivation to pursue

those agenda items. However, the administration pivoted and uh, and certainly we knew that healthcare and border security were going to be priorities as well, but you know, there was a chance that a businessman president would pursue uh, the economic priorities first. Uh, there's reasons for them to go after healthcare because if there are budget savings through healthcare reform, they could incorporate that into their adjustments to budget measures

and tax policy. But you know, for whatever reason, they went went the direction they did. And now the discord uh seems to be increasing it certainly among Democrats but also among Republicans. Uh. And so what we had to reassess the likelihood of those measures being incorporated and and you revise of the outlook accordingly. And UH, you know we are not alone in doing this. The FED has continued to grapple with the degree to which they would

incorporate the changes to fiscal policy into their forecast. Some some FED members did, some didn't. But now they seem to, at least based on the minutes of the May FOMC meeting, UH, they are shifting back towards UH, anticipating less of a change to fiscal policy. Well, Carl, I just want maybe just pick up on something that that Lisa mentioned and maybe just go one step further, which is the details, the actual numerical details of many of these things that

you described, rather than the broad brush strokes. Have we seen any details that would allow an economist or any kind of analytical work done on what this would all mean for the economy? Things were presented with broadbrush strokes, as you note, so why it becomes a best guess type of scenario. We knew the objective for the infrastructure package would be about one trillion dollars spread over ten years, so you can kind of calculate how long it would

take for that to get underway. Obviously it doesn't happen with a flip of a switch, so that is something you could at least to some rudimentary level UH model for GDP purposes. And then there were also some parameters laid out in terms of what tax policy would like look like, in what the implications would be just quickly give you twenty seconds PPI producer, Uh inflation, what do

we get? P p I is telling us that there's still only moderate price pressures in the inflation pipeline, and this is something policymakers are going to be considering at the meeting as a core inflation. Consumer inflation has disappointed in the last two months, and now it looks like that two percent target maybe a little harder to achieve than they thought earlier this year. All right, I want

to thank you very much, Carl Rickadona. Of course, our chief US economist for Bloomberg Intelligence, a downgrade to US economic performance in twenty eighteen because of well, the disappearance of the Trump Economic Agenda from the possibility of having that passed in Congress. Sears Canada suffered its worst stock decline ever after acknowledging significant doubt about its ability to keep operating, leading the troubled department store chain to consider

a sale or restructuring. Also today, Sears is cutting four hundred jobs at its Hoffman Estates headquarters. Here to tell us more about retail and also Sears is Mark Cohen. He is a director of Retail Studies, adjunct Professor of Business at Columbia University School of Business, and he is also the former chief executive of Sears Canada. Mark Cohen,

thank you very much for being with us. I wonder if you could just give people a little of your background, because if if you don't know what's going on in retail, nobody does. Because you've been doing this quite a while. Okay, I've been in the retail business most of my adult life. I started to day and s in the early nineteen seventies, UH.

Getting a little closer to date, I was the chief marketing officer and president of soft lines for several years at Sears Roebuck in Chicago, and then the chairman and CEO is Canada from two thousand and one through mid two thousand and four. The companies have been in serial decline.

In the case of Sears Roebuck, that decline started in two thousand UH when Alan Lacey became CEO, and after five years of failing, he turned the company more or less over to Eddie Lampert, the well known hedge fund operator who has been hollowing both companies out ever since. And so the the ongoing bad news both in the United States and Canada is no surprise retail businesses. Frankly, no business can operate with consecutive losses of enormous consequence

with cash flow that only um comes from asset sales. Well, you know, I just want to get a sense when you left Series who were fired right in two thousand and four, was the departure over? Was it because you just didn't see a future anymore? Or is it because they just weren't going to take some of the steps that they needed to in order to make it a

viable business. Well, you know, this is obviously my view, but I thought the Sears Roebuck CEO was incompetent, and he was reasonably convinced that I was trying to take away his job. I had no ability to do that, but certainly someone should have taken away his job. And so there in lies the conflict that occurred. In the summer of two thousand and four, he had spent six d and five million dollars in cash buying fifty one

kmarts from Lampert's newly acquired kmart. And this was the support of strategy which was called Sears Brand, which was a catastrophe and which he was trying to get me to support. In Canada more or less to help legitimize it. So I thought the acquisition of this real estate was nesperious, if you will. And as it turned out, in a matter of speaking, Lampert turned around and used that six five million dollars along with the inflated valuation of his

own kmart portfolio, and took possession of Sears Roebuck. So you know, this is a This is a bad ending to a series of really bad events. UM businesses can get into trouble for relatively brief periods of time and extract themselves, but both of these businesses have done nothing on their own behalf to be able to do that. Mark, can you describe whether this in your view, has this been a strategy to build the wealth of any lamport or has it been a strategy to build the health

and wealth of Sears. I really can't comment about Lampert's underlying motivation. Maybe for some period of time he did have a view that he could run these businesses in an unconventional way and be successful in his own right. I think early on he discovered that that wasn't viable and has been propping these businesses up for his own benefit and for the benefit of his um investment cohorts.

Ever since it has benefit, hasn't it? It remains to be seen, when all is said and done, what his net net investment proceeds will be for all of this effort and for for over all of this time. I really don't know whether he's going to quote unquote come out ahead or not. But it's clear that both businesses are are in terrible shape, continue to be struggling, with no possibility of remediation anytime in the future. You know, I'm struck by the fact that people have been saying

Series is going to die for about a decade. Why isn't it just going to die? Do you think that there will be anything that will kind of force it to some kind of denu mall? Or well, are we to see it strung along for another decade? And well, it might very well string along. The US business might very well string along for some period of time. I don't know that Canada has that capacity, because the US business still does have some substantial UM assets that can

yet be sold off. I mean, the US does still possess a reasonably large portfolio of real estate. The best stores of long ago been um sold off. Cash has long ago been given, ended into Lampard's pockets or used to prop up the company. Um Uh, at some point you do run out of fuel and uh that may be soon or it may be somewhere in the future, but it's clear that both of these business is that completely lost their viability. Thank you so much for joining us.

It's good to get a good inside look at what's going on there. Marko and as director of Retail Studies and a Magic Professor of Business at Columbia University Business School, also former Sears Marketing Chief and head of Sears Canada. We hear a lot from investors who are turning their attention more to Europe than the U S, at least when it comes to equity markets. But CEO is clearly have their views set on the US. I want to bring in John V. Meyer. He's Global Chairman of KPMG

International based in New York. UH and KPMG just released CEO Outlook report and wow, John, a lot of optimism and a lot of focus on the U S. Can you sort of start by spelling out what you think

are the main takeaways from this survey? Sure? Thanks for having me on, Lisa, And you know, I think we start with confidence levels, and one thing that's interesting about our survey we intentionally try and focus on the next three years, so it's intended to be a longer term view on the part of the CEO, since we think that mirrors their investment cycle, hiring cycle, and everything else.

UM confidence levels, I would say are a little more subdued from the survey last year, but still relatively high. And frankly, the US is the one market in the world where confidence levels are higher than what was reflected in our survey last year, UH, which is a very positive sign, you know from a US standpoint, But frankly, as you look around Asia, some real um drops frankly in confidence levels of c e o s as they look out over the next two years in some places

like Japan, Australia, other places in Asia Pacific. So real mixed bag, depending upon UH where you're based. Well, you mentioned mixed bag, and I want to follow up at that having to do with globalization and the ability of companies to compete around the world, and one if you could speak to that topic and do you believe that the current political climate in the United States will thwart

that ongoing trend? Well, you know, it's interesting we ask in our survey a fair number of questions that get you down a geopolitical path, and that is still viewed, I think as a key risk as c e O s look out into the marketplace. UH. And some of the specific feedback we got about geopolitical risk were number one sentiment that over half the CEO is believed that the impact of geopolitical risks on their business are higher

today than they ever remember. UH. Secondly, this UM a question about protectionism that we tried to get a sense of given how much you know, discussion there is in the marketplace around and discussion on things like Twitter where

you have elected officials using a public platform to name companies. Yeah, there's a high percentage over of the c e O s UH indicated that they believe protection ism will be increasing in the near term and over the next three years, which is again concerning given the levels where it already is today, and that's having an impact on decisions CEO s UM say they're evaluating in terms of where to locate operations, and all of these geopolitical factors I think

are weighing into investment decisions more now today than they have been at any time that many of these CEOs can remember. Yeah, although one thing that I thought was really notable was on the micro level, and CEOs looked at their businesses, their own businesses, they saw the need to hire more people. And you say that in the survey, it showed that U S CEOs expect had contill grow over the next three years, with eighty percent reporting their

investing in recruitment. Uh. This to me is fascinating and speaks to this tight labor market that we keep talking about. Does this, in your opinion, point to salary increases which

people have been waiting for. You know, that's a complicated question, I think frankly, Lisa Um, I think the good news is that, again mirroring the confidence levels when we compare the CEOs responses this year till last year, a little less optimism about employment level growth over the next three years, but still I think a pretty good degree of confidence on the part of CEOs that they will be hiring. Uh, and that and that significant levels over six percent growth

in their employee levels. The reason that your question is a little complicated is I think it really gets to what kind of skills are we talking about? There is clearly a shortage in the statistic use cited around actively recruiting. That's true, but they're actively recruiting for very specific skills, technology based skills, things like that, where UM like coding or is it something? Is it? Is it pretty broad

within the tech anology space. I think it's broader. It gets to ability to analyze data, utilize data and analytics UM take advantage of some of the cognitive UH technologies that companies are now deploying in their organization data scientists to help them synthesize and think through all of this. And uh so, what I'm hearing you saying, it's almost like a split between people with higher education and people not.

In other words, people who have have some training with respect to you know, things that are usually taught in college or later in high school. Not necessarily the blue

collar jobs, although you know. One of the things that's interesting and frankly surprised me in the survey results is when we asked a specific question about do you believe cognitive technology is going to increase or decrease you're hiring over the next three years, it was overwhelmingly an increase, which I think is counterintuitive to what a lot of people are thinking, and and that was across a fairly wide range of job skills, a lot of traditional finance, marketing, sales.

And I think what that talks to is companies looking today to see how am I going to deploy some of these disruptive technologies most effectively to benefit my customer And that's going to take people, uh, helping them figure that out and do that. So I think in the near term this may not be a long term kind of dynamic, but certainly in the near term it appears that some of these disruptive technologies are actually um leading

companies to believe they will be increasing headcount. John V. Mar, thank you very much for being with US Global Chairman KPMG speaking about kpmg CEO Outlook report. It was a survey of four d US and global A chief executives for their views on their top priorities over the next three years. Turn our attention now to what's going on with markets, and we have James Paulson. He is a

former chief investment strategist and economist Wells Capital Management. No, he is you still are three fifty billion dollars previous under management MINT based in Minneapolis, Jim Paulson, You've written that there's a whole lot of consensus opinion, what we might term conventional wisdom, and then you debunk it. I'm

wondering if you could just go through some of those topics. Well, yeah, I think it's always sort of important to keep an eye on, uh any kind of thoughts that are really strongly and widely held, because it's often they're right, but if they're ever wrong, as you know, you create quite a market change, and so always sort of stay focused in some of those Um overall, I think, um one of them that I find interesting is the idea that's been prevalent throughout this recovery Kim that that wage wage

games have been so uh tepid um and that this implies that boy labor is not doing very well and that the consumer must be weak and vulnerable, leaving the leaving the recovery itself in question. And it is true that while nominal wage games have been very low in this recovery, real wage games, what's really important, the purchasing

power of labor has really done quite well. It's gone up one point seven percent per annum since the end of the last recovery, and that's been one of the stronger games from real purchasing power that we've had since the nineteen sixties. So I think that that explains a lot better to me why the consumer has done fairly well in this recovery. It's been leading the recovery, the consumer discretionary stocks that lead the stock market. Overall, consumer

confidence is high. The dovetails, I think, with a much better uh, real wage growth than what recognized. You know, Jim, I'm struck by the complacency in the market, paired with this idea of the perceived complacency, paired with this idea expressed in the Bank of America Merrill lynch Uh survey of fund managers showing that nearly half of fund managers think that there is bubble like condition. There is a

bubble like condition in text stocks. And Jim, over your decades of work at Wells Capital Management, which you left earlier this year, have you ever seen another period of time similar to this one, and which one would you identify? Well, I think I think there's been some similar but not quite like this. You know, Certainly a concentrated move in one section of the market does occur in different times.

I mean that's certainly in nifty fifty and the early seventies, the dot com move, other times in the late seventies, early asianal move and energy stocks, a small cap stocks

sometimes in the sixties. I mean, there's there's been concentrated movements like we've had in this but I think this stands out is unique and that I don't remember something being it's not even so much concentrate to a sector lease as it is concentrated to just a handful of names, uh that make up a very large portion of the marketplace. Outsize portion by just a handful of stocks is something

that's kind of unique. So if you do have I think the overall market is not in that bad of shape from evaluation perspective, but if it's being dominated by you know, five or six stocks that make up a really sizeable portion that are extended, then it can become a market event in a way that it really hasn't in the past. Certainly when we had the nifty fifty that was somewhat like that, but a lot of other stocks are also I think extended words day, it's really

concentrated just among a few. There's not a real precedent to have so much valuation risk concentrated amongst so few. Can you speak a little bit, Jim about the historic levels of valuation for let's say the SMP. Yeah, I think that's great pointing another survey way that caught my eye this morning. So there was another Bank American survey that said some record setting proportion of of investors think the market is overvalued by you know, extensively overvalued today,

And I think that's interesting. Um uh, if you will. But what I've seen one of the most popular long term valuation methodologies is put out by Robert Schiller. The cape price earnings multiple goes back to eighteen seventy, I believe, And what I find interesting is that in the last quarter century, going back to last twenty five years, based on that really popular cape P motible, that thing has been above it's long term average like percent of the time.

It's actually been above the nine percentile evaluation in the last year, uh about half the time. So this has been It is a highly valued market today, and people perceive it that way. But I'm really starting to question it because if something has been overvalued accessively for twenty five years, at what point do you suggest that this this isn't just a one off. It's going to correct,

but maybe we're in a new evaluation situation. Jim. I'm struck by how bullish you are, because this is all basically casting some doubts on the pessimism that we're seeing in these surveys and by the increasing amount of cash and people's portfolios. Yeah, it is. I get the valuation risk. I think there's this real valuation risk, but that won't be realized until probably the next recession, and I don't think that's close. I think it's a ways off. So

I think this valuation risk could get more extreme. And I love the fact that we've got a record number of people saying that the markets over valued, that we've got record cash holdings on the sidelines out there, that we have this perpetual there's one tagline for this bowl, it's that it's forever climb the perpetual wall of worry that is still there today. I think there's more upside yet, in part because we don't have enough people playing it

in this part. Jim, thank you so much for joining us. It's always wonderful to hear your insights. Jim Paulson is the former chief investments tragist and economist at Wells Capital Management. He left earlier this year at Wells Capital Management overseas about three billion dollars in Minneapolis, Minnesota. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever

podcast platform you prefer. I'm Pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio