Coal is Going to Zero, Straszheim Says

go through the numbers for me. What are we looking at? UM? Well, I think the first number everyone likes to look at his fixed income trading, and that was a little bit of a miss. They came in at eight eight million. Analysts were thinking it would be closer to one point two billion UM, and so you know, that's been the case across Wall Street. You know, yesterday Goldman also reported a miss UM. Now this has been like an ongoing competition.

We'regan Stanley really gay eating some ground on Goldman UM and it seems like maybe they slipped a little bit

this quarter. Uh, but they're up in early trading, and so I'm thinking that people have kind of shifted their focus a little bit UM and looked at their wealth management unit, which posted both record income and record revenues UM that you know, James Gorman made this huge back back in two thousand nine when he bought Smith Barney, and it seems like maybe that's starting to show the results.

And Jennifer Morgan Stanley of course less dependent on Fick trading revenue than say a Goldman Sacks, much more dependent on the equity side of the bank, and equity sales and trading revenue coming in at one ninety two the estimate at one point eight nine billions, So looking solid there and looking solid out swhere. James Gorman is doing a terrific job here. And we spend a lot of time talking about Jamie Diamond at JP Morgan Lloyd Blank find at Gorman Sacks. But Gorman's like the quiet man

on Wall Street delivering some pretty solid results for Morgan Stanley. Yeah, he has a strong bench, you know. He um he promoted Ted pick there Um he's now their global head of sales and trading after Ted pick Uh turned around the equities business. And it seems like he just knows who to surround himself with. Maybe and so uh that unit has actually um, like I said, gained ground on Goldman in the last couple of years. And Um is it's really starting to show the results that the bank

had promised. Is it fair to say, Jennifer that Morgan Stanley is more of a UBS than it is a Goldman Sax? Are we not there yet? I don't think we're quite there yet. I mean, I still think, um, I think it's still a trading shop. I think, I mean, obviously wealth management has become increasingly important to the bank, UM, but I think that they are still um, still thought of as a trading shop, at least by investors. Bloom Bug's very young Jennifer surrounded by investors this morning some

confidence after the numbers. The stock up by around about one four percentage point in the pre market. I'm Jonathan Farao in New York City for Bloomberg Surveillance over in the city of London all week. Bloomberg's Tom kink and morning Mr king A. You're morning, John Farrell. Interesting to see Morgan Stanley there off of Goldmen Sex yesterday. It'll

be sliced and dice to the day. But really what this is about, whether you are part of global Wall Street, whether you're just an informed investor, or we think all of you listening across a bite body of age groups. Uh. And I've run into a lot of people John in London who you know, they're not really in the game, but they just love listening to us and we say

good morning. And we do that with Bill Blaine of Mint Partners, and we can go right to the heart of the matter, Bill Blaine, which is whether it's Morgan Stanley or somebody listening on the street seventy miles north of London, it's about volatility. There's no volve there, there's no alpha, there's no dampening, there's no opportunity. The economists would say it comes down to lower potential g d P. Is this something we need to get used to? Well,

that's fair. And you mentioned volatility because just the last few days, in the beginning of last week and into this week, we are actually beginning to see volatility slightly taking up and that's going to present all kinds of opportunities, but also leaves people with an awful lot of work to do to make sure them the right side of that volatility. If it's going to continue increasing, I think we're in to something of a new market. Well, we're you know, in something of a new market. And I

guess there's a quiet tour. How does Global Wall Street? How does the city? How does New York? How does Hong Kong? How do they adapt to this? Do you say to Jim Gorman, James Gorman over at Morgan Stanley or Lloyd Blank find this is a one off, it's a cyclical thing. You keep the game going, or do you start to really make structural structural changes in institutional Wall Street, institutional Wall Street of courses or as you call it, we would call it the city of London.

Of course. Um, it's always changing, it's always adapting. Here in Europe, we're coping with the effects of the imposition and new trading rules. Method to market makers and investment banks all around the world are going to have to change when it comes to dealing with European clients in terms of the way they structure of their own business. Though, they are going to be preparing for this usual cyclicality

we see in in trading fixed income, in commodities. Um results, We're going to see banks re establish themselves in different areas to try and take advantage of where they perceive that market going at the moment. You're absolutely right. The numbers have been very poor right across the board, but they will improve. Bill, who's getting this right right now, whether they're in Europe or on Wall Street in the United States? Which bank, which CEO has got this right?

Given the current regime we're working our way through. I don't think anyone really has it perfect yet. And it's very interesting to see that, John, because we are in this period that Tom's just described where zero ball has created this massive downturn and thick incomes. It's the person who can anticipate best and be positioned for the uptick when it comes. Now, when that up case tick comes is the absolute question. Is it going to be a

result of the inflation we were talking about earlier? Is it going to be a result of the of a suddenly discovering that far from global aligned macro growth, we actually roll into some kind of recession which would trigger all kinds of market events. These are all vole creating events, and that's when the smarter trading desks are going to be able to contribute substantial profits to the right investment bank.

And of course that has ever thus been the problem. Well, so arguably Bill that's Goldment Sex ready to go leverage to a pickup involved when that story comes around Goldment Sex just deliver. But many people are questioning the firm strategy. Bill, do you question the firm strategy or are you saying that Lloyd's doing this right quite patiently in the coming

chord as things will change. Good good opera. Good call to try and get me to comment on any of the banks individually, But I don't think it would be fair for me to comment at any one bank in particular. But it is fair to say that the shall we say, the benches on all the investment banks have changed in

recent years. I certainly pick up from the class bants we speak to in my company is a large brokerage, but from the client's way speak to, they are finding that the service that they're getting from the investment banks over the last few years has changed. And that's because the investment banks don't want the high costs of having older, very expensive managers in place. They want to have younger,

cheaper graduates doing the calls. They also want to cut down on the risk that they are willing to cover or to carry, and that's also been reinforced by the trading rules that have been put on them by the central banks and regulatory authorities, and as a result, the banks are far less responsive to change and many of them look tired. As one of my clients said recently, that opens up loads of new opportunities for people to look at alternative ways of trading very quickly. Here and Sterling,

do you ever call? We had a huge variation on the shows, Right and Sterling. One of the very interesting things is despite all the negativity in the UK out Brexit and the Karelian event this week, Starling is strong. Why is that? I think it's because people are looking past the immediate news and are looking forward to the UK reversing the current decline that's apparent and a stronger and more productive economy and marriaging despite Brexit. Fascinating, Bill Blane,

thank you so much. We've been partners for the briefing this morning on Bloomberg Radio Bloomberg Television as well. How could it possibly be that one of the most acute, sharpest, at persistent critics of modern American politics is in England? John Farrell would understand that. Of course, I'm talking about John Farrell. I'm also talking about Brian Class. He's at the London School of Economics. He made a modest splash

a number of years ago. The Despot's accomplice followed it up with Donald Trump's attack on democracy, uh aging eight weeks ago. It seems forever when you're publishing on the political milieu of the day, Doctor Class. It's just extraordinary how quickly it all blurs by. If you were to rewrite the Desperates Despot's Apprenticed right now, what would the next chapter be? Uh, probably about the politicization of rule

of law and the recklessness with North Korea. UM. You know, I think it is truly remarkable this moment we're in where things seem like an an eternity ago. And you know, the tweet that Trump sent out about how his button was bigger than Kim Jongon's was like nine days ago, you know, I mean, it seems like ancient history, and yet these things are political moment is moving so quickly

that people can't keep up. And and what's interesting here John Farrow's ambassador Gardner was with us, the former US ambassador to the EU, and he went right to where doctor Class went to. He went right to Korea. Is the issue of the moment and R Class, so think you bring up a really good point. Not only does nine days ago feel like a distant memory, I think we've become obsessed around very specific things that maybe aren't

too significant. So we become obsessed by a book called called Far and Fury and the relationship between the President of the United States and Mr Bannon. In the meantime, things are happening behind the scenes that don't get attention. So my question to you, Brian, it's quite simple, what are we missing whilst we're distracted by things that might not mean too much. So I think what we're missing is the fact that there is a huge risk of

an unpredictable crisis emerging. So every US president in modern history is dealt with one shortly after taking office. President H. W. Bush dealt with the fall of the Berlin Wall. Clinton dealt with the Rwanan genocide and the black Hawk Down incident in Somalia. Then you have George W. Bush with September eleven, and Obama had to deal with the financial meltdown. Trump has amazingly made it about a year without any major severe international crisis that just dropped in his lap.

And I think, you know, the world is a tumultuous and dangerous play and that's where the stories like Fire and Fury actually come into play as relevant. Is they show that, Okay, what happens when this person who is clearly reckless, impulsive, and has serious questions about their fitness for office swirling around them even within their own party, has to deal with a major, serious, consequential international crisis.

And that's where I think we are sort of just deluding ourselves to believe that there will be no consequences

to this presidency. So, Brian, I was listening to Gillian Tett at the Financial Time Speak a couple of nights ago, and she compared the current situation to an Agaca Thristy novel, whereby there's a big noise in the kitchen and everyone rushes towards the kitchen, but the murder takes place in the library, and we're constantly distracted by what's handing in the kitchen, but ultimately what is handling in the library is much more significant. Does that resonate with you too, Brian?

So yes, and no. I mean I think that absolutely we are distracted by small things, but I think that the small things captivate us because they speak to this larger truth, which is that the person in charge of the United States is both out of step with democratic values in the United States and is clearly unfit to be president. I mean, it's it's something where there's an it's an open secret in Washington, and I don't even

think it's that shocking of a claim to say that. Privately, most Republicans would agree with that sentiment, and then they would publicly say something different. But it's a democracy, and you're really, you know, we're buying everybody says he Isn't he like forty years older than he is. I mean, you're the young turk of democratic analysis. To the supporters of the president, the guy won, he did, And I think it's important that the message he used resonated with people, right.

I think there's absolutely legitimate grievances that Trump tapped into about the state of the economy and all of the aspects of his presidency that resonate with those people are important. But I think there's also a factor of democracy where you have to also, once you're in power, respect the norms of the system, which he does not do um And so I think, you know, over the long term, this recklessness, this abuse of democratic norms, basic checks and

balances that he's engaging in are meaningful. When does the third book come out? Actually, I have another book coming out and that that I co wrote with Professor Nick Cheeseman in Birmingham called How To Rigging Election about election rigging around the world. So it's a it's it's excuse we saved the punchline. Did we rigged the election in the United States? Looking back? So there wasn't election rigging in the United States, but I think that there was.

There's a chapter on international election medaling and hacking, which is going to become the new normal. I mean, I just saw jerry mandering folks in the southern part of the United States where the congressman put his summer home into the new district. He did a little that's positively British.

So jerry mannering is a huge problem. And one of the things that I think is the hidden story about how polarization has taken root in American politics and going to have consequences related to it for a long time, is that the average margin of victory in two sen was mostly uncompetitive elections. We're so happy to have you

into our London offices. Professor Class Brian Class look for him, particularly out on Twitter, with whether you agree or disagree with them doesn't matter, It's just an intelligent newsflow of debate and dialogue on these too much was times in China. The big story the economy ceiling its first full year acceleration since twenty ten. There's one man I always like to go to to talk China and his name is Don stress Sign. He was for twelve years the former

Merrill Lynch Global Chief Economists. Then Mike milk and called and he became the president of the Milken Institute. He has now the ever core I s I Senior Managing Director for China. Specifically, don't great to have you with us on the program to get your insight into numbers that a lot of people are always confused by, or what do you make of Chinese GDP figures at the moment? Well, first thing I'd say, Jonathan is they've been roughly flat now for six years in a row. We go up

and down in that tenth or two. This is implausible given all the things that have happened in China and happened around the world in markets that they serve. So we read these numbers quite frankly with a sense of obligation more than a sense of to learn that we're going to learn anything. It doesn't make sense just looking in from thirty five feet that you can have the prospect of a real heart landing and growth. So o, kate in real concerns about how they're going to sort

out the debt pile and then growth. So Kate, what's happening Tom? What leave is they pulling that makes things okay? Well, it is a command and control economy. Chinese economy was terrible in two thousand and fifteen, much worse than they ever reported. Uh. They did a lot of stimulus in their own political interest anticipating the party congress and the handover in the end of seventeen, so that lifted the economy a lot. In Uheen. A lot of that was

infrastructure spending. You can't build a subway in a year. There are five year projects. So there's still some of that going. But the longer term prospects are for China's growth rate to slow year after year after year. So don't we have these dead issues kind of bubbling underneath the economy. But at the same time, I was told that they would shift from the old economy dependent on exports to the world, to an economy the new economy,

domestic consumption, et cetera. I still see a pronounced move in the old economy and export based growth through Is that what you see? Two exports contributed more in seventeen than they did in in China. That part is true. But they also are making big changes within the industrial sector. Coal is going to zero, not just in China, worldwide.

That's important. The steel industry is going to migrate ninety percent out of China over the next two or three decades to lower wage countries India, Bangladesh, India all the way to Africa. So they're going to have issues with what are we gonna do with these people? The fifty five year old guy that's been working at Wuhan Steel for twenty years is not going to get hired by Okay,

we've gotta rip up the script here. I mean what you always do with When do I ever talked to down strats Im, folks were having ripped up the script. But we're doing it right now. You just said China is gonna lose steel jobs. Professor Navarro out of Irvine, Secretary Ross down in Washington on his way to Dabas with the President all just set up as they listened to surveillance and said, yeah, because those jobs are coming back to the United States. But that's not what you

said down strats. I'm critique the naivete of a bipartisan labor dynamic and manufacture ring between the United States and China, given all of the multilateral realities of global labor um I think what's going to happen, Tom, is you're going to see this big push in China to the high end uh high value added manufacturing. They call it made in China. So the irony of this is the US, Northern Europe, Japan to some extent Korea have made their money in the last forty years at the top end

of manufacturing all the high tech stuff. Now China says, okay, look, these are the industries that we, China want to become globally dominant in and have an oligopoli staten enterprises that are globally efficient. I find that that difficult. But they're setting up this competition that's going to make the US and Japan and Northern Europe very angry. So okay, let me translate that into time. King talk. China wants to do a little Switzerland. Can you do that within a

totalitarian regime? UM, the the the the the great question, do the obvious it's the only good one of the day. Jonathan doesn't say that anyway, it's the only um Uh. They will use a lot of subsidies, a lot of UM special favors to lift those companies that they want to become globally dominant UM as a replacement quite frankly for the innovation and the entrepreneurship UM that you would find in a modern market economy. And they have quite frankly,

I think no interest. So don't we have a situation set up? And Thomas Rudi and pulled question, we have a situation where the United States wants their jobs back in the old world, the old manufacturing world, and the Chinese are sank Okay, well, we've got a problem with that, but maybe you can take them because actually we'd like your value added manufacturing jobs. Anyway. That to me just spoused tension for years and years to come. How is

this going to play out? Because the big fit coming into was trade protection is m more specifically from the U S side. But does the US have a case here that it needs to protect itself from an overreach from China. That's sank. We're coming after your jobs, the big ones, the wow paid jobs. I don't think Washington realizes yet that it is the jobs that the us

UH favors that China once and they're all upset. We're gonna bring callback, We're gonna ring back, go steal jobs in Erie, Pennsylvania wherever, um, China is gonna say on those baker and the jobs that we think are going to be favored that we want are the ones that China wants to. This is a This is going to be a big tension builder. Washington says, only America first. She's in pink, says party first. So we have this situation now in which nobody is really thinking market economy.

She's been pink. Surely is not okay. Don't you hung on every word at Davos last year when President she spoke review for US. Now is a great Chinese authority? What did the president of China say that President Trump has to bounce off of this year? Um. What he said was we China are prepared and ready to take over the global economic leadership. That Washington seems to no longer want Now this was before as you know this, you go there before the inauguration and before the only

America first UH speech. My my feeling is, uh, Washington doesn't want to be the global leader and China is incapable of it. You can't be a leader unless you have followers. And I know of few countries that matter that I think that economic leadership, uh, that's being the economic behavior in China is something that they want to emulate. This has been hugely valuable, Down Stress, I'm thank you so much. Um. It will really focus us some. I feel we'll be talking to Dr Stress sim more in

the coming weeks as well. It is an important survey from a conference word Bart van arc Worth, that's right now on the mood of CEOs. It's something they routinely trot out, except this year. It goes to the heart of the great American debate. Bart van ark Is decades of experience, not only a parsing economics of America, but linking that into what the conference board does, which is the behavioral mood, if you will, of what's going on. Bart, let me get right to the chase. We all know

labor is tight. Why don't they just raise the wages? Good morning told me. Yeah, I think that's that's one of the big questions. Why don't we do move faster in wage increases. Look, I think the issue was there were still enough people on the sidelines too to be able to continue without wage increases. But frankly this is going to change. What we see in this year survey on CEO and CC challenges is that shortage of talent in particular, so the higher end of the skill range

is now the top concern for CEO. Why don't they raise pay Is Is it they addicted to the tenure, economic slowdown, labor supply access and they just can't change the habit. Is there something different this time? You know, we've come out of every other slowdown. Yeah, you know, I think there's still Another thing that we find in this survey is that there's an incredible hope that new

technology and disruptive technology. It's the second important most concern that CEOs have that that is going to sort of manage some of this. So instead of you know, rapidly ramping up wages, there was a hope that actually technology might help to resolve part of these problems. But it's clearly not good enough. That's clear, and I think wages are going to go up. That's certainly in our projections at the conference. Wore too the tightness of the labor market.

We suggest they should at some point, but that has been the case for a long long time now. But my question is related to the tax built on wages. A lot of companies are choosing to play bonuses instead of raising wayses. We saw this with Apple in the last twenty four hours, a bonus of I think two and a half thousand dollar. It's time to stock. We're saying it with other companies as well. A slight lift to the minimum wage maybe, but a big one thousand,

two thousand, two thousand dollar bonus. Why are they choosing to pay a one off bonus instead of a wage increase, you know, John, I think it's partly reflective of also the changes in the composition of the labor market. One of the things that we find in this survey also when we look at sort of the challenges in human capital, is that there is a very sharp move towards making

use of you know, the contingent workforce. So you know those are part timers, but also outsourced and managed surfaces, and you know, taking independence and self employed on board. So I think you know CEOs and c h R o s in particular, who we also survey it here are beginning to look at all sorts of alternative ways of making use of a combination of people and talent. To be clear, by offering the bonus, you get the corporate pr in the nation's capital, but it doesn't cost

you because you're still going to use contingent labor. Is that what this is about. I think there's a part, there's a part of this, but look, you know we're also One other reason why I think companies are reluctant to rage wages very rapidly is that we're sort of in this very expended phase of the business cycle. The raging wages now it's not easily to let them fall again if the economy is going to slow some time

down the road. So I think I think there's a much more broader thinking about how you can make use of good talents than just by raising wages. But again, as I said, I mean the conference, what we definitely believe that wages are going to increase, particularly the higher end of the talant scale. Well you can you can

you give me a percentage? I mean, is it going to be one or two percent squeezing out wage gains or is it you know, back to the sixties and seventies, where you know, things got a little while, a little effervescence, exuberant, say at least you know, if you look at the last year or so, you know, depending on what wage indicator you're looking at. In the United States, but wage increases have been between two and three percent, which is not huge, but you know it's not it's not insignificant,

aren't they spread out? Bart over people going up zero or negative one and other people earnering real tangible gains. Absolutely, tom totally, And that's why that's why you're seeing this much broader approach, that that companies are taking towards the labor market at a higher end that you have to pay skill premiums, and companies are going to do this. You can just solve this by not seeing your wage

bill increasing. But I do think that there is so much broader thinking about how you can combine the needs for talent with what you have to pay as a company to bring that talent. In Part finner, thank you so much for the more important news survey really quite timely. Uh and and really Johnny should say timely as well into all the surveys that we see before the meetings of the World Economic Forum. Thanks for listening to the

Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Mean before the podcast. You can always catch us worldwide. I'm Bloomberg Radio.