Michael Darda Expects Three Fed Rate Hikes This Year

of course on the Bloomberg. Let's turn our eye now to foreign affairs. I want to bring in our first guest, Micah Zenko. He is a senior fellow at the Council on Foreign Relations. Mica, thanks for joining us here here in this beautiful morning Pierre Power Breakfast. We've got the place all to ourselves. A lovely view across the park, Central Park with the snowfalling. What do you think the

view is from China of the new Trump administration. We learned that the President Donald Trump sent a letter rather than a tweet, or rather than an actual phone call to Chinese President Jijing Ping, and I believe the President has spoken with a variety of foreign leaders. Why is this the way he's communicating with China? But most importantly, he's spoken by phone with the Taiwanese president before he spoke by phone with the leader recognized political leader of China.

So it's hard to read the mindset of the individuals in Beijing. But the contrasting messages from senior officials from a president who makes the consistent claims of currency manipulation and trade wars to a Secretary of State and a White House spokesperson who has said that the United States will prevent China from building on islands which it claims

it's there's essentially placing a naval blockade around them. So if I'm the Chinese government, I still know what Trump is serious about and what he means when he wants to have a constructive quote relationship. Well, maybe they'll be checking their Twitter account in order to get that information. And I just want to give you information about Twitter.

Twitter coming in uh fourth a quarter adjusted earnings per share of sixteen cents versus the estimate of twelve cents, so a four cent beat and monthly users match estimates, So a lot of people still using Twitter, but perhaps not moving ahead I'm wondering if you could tell me, Mica, is there a strategy that you can divine from the actions of the Trump administration, because we know that China is in the cross hairs when it comes to trade but also when it comes to currency values. Sure. Well,

my my assessment is this administration is still very young. Uh. Campaigns are consequence free events. You can say whatever you want, but once you become the running the running the actual country, you have to actually develop an implement policies. Right now,

we haven't seen any. We've seen a series of BLUs there's to Iran that you're very non specific, telling them their unnoticed uh, seemingly giving a pass about some of russians aggressive actions in the Baltics, as well as its inability to resolve it's military dispute in Crimea, and then taking a hard line with China, but again not making

any specific demands on Chinese behavior. So, uh, the sense that there's a strategy, which means a clear vision and prioritized efforts to do so, there's nothing like that yet, but that doesn't mean there won't be. This is early stages now, the early stages also with the President and the administration's relationship with the Russia and Europe. And I'm wondering if you could just describe what is Vladimir Putin's intention and how does that fit into what's going on

with the European Union. It seems as though he's being successful at least in stirring the pot with Europe. Well, if you were a chriminologist and you could read Vladimir Putin's mind, you would do really well UH in the currency markets, and you should have a job doing risk analysis,

because nobody's really quite known what Latim Reputin wants. The one thing we do know from his behavior and statements is he cares about the political outcomes in which Russia has an interest, as lots of great powers do, as the United States does in the Middle East, as China does in East Asia. And it's his willingness to use information influence UH, using military force at below the threshold of actual conflict to have to influence outcomes in those states.

That's what's most destabilize them, to destabilize them, but also to bring into bear political outcomes that are advantageous to him. There are certain parties that the Russian government favors over others, and they're very explicit about that. They're willing to funnel money to resources to provide messaging through the Internet and

social media on behalf of them. And that has destabilized a lot of European Union because it's doing it faster and more successfully than any great power has done in the past. Um, we're speaking with Micah Zenko. He is a senior fellow at the Council on Foreign Relations. Were coming to from the p Year Hotel, the Power Breakfast at Perne and you know, Mica, as we look at the future of policy, it's going to be a different Europe, right.

I mean, you have the UK leaving the European Union, you have elections that are coming up in the Netherlands and France and in Germany. Has Vladimir Putin, with the maybe unintended help of President Trump, has he been able to drive a wedge? And really, is it possible that the European Union could fracture as a result of these pressures? Well, any great power wants to fracture combined forces a rate against them, or believes that there are a raid against

and well certainly perceives the rate against them. And as stated that if you read Russian military doctrine, if you read the statements of the Foreign Ministry, they believe the European Union is actively looking to suppress and contain Russia. That is their narrative. Okay, But having said see that's interesting because having said that, you ask yourself if the President Trump, throughout the campaign, it's one has disparaged the

defense spending of European nation. And if we take for fact that maybe the European military coordination is not as great as others the United States, then what is Vladiman Putin really worried about? Is it's psychological and political to deal with his own domestic issues or is there really something? What kind of threat really does the European Union militarily pose? Zero at the time being. But this is an old debate. As you remember, President Eisenhower used to say, the Europeans

are playing Uncle Sam for Uncle Sucker. This is not something new that President Defense and bring umber our defense umbrella not spending adequate money. The difference is that under a NATO informal agreement that Russia the European defensemanners spent two of their GDP on defense, so only a handful of them do the United States States spends about two and a half to three pc. But what Trump is

saying is differently. He is claiming that he wants the Europeans to reimburse the U S. Treasury for the U S forces in Europe and for the mutual defense treaty that we have with them. That's a significantly different thing. And nobody in Europe is going to hand money to the U S. Treasury on behalf of the U S serving as a Heshian mercenary army for the Europeans. So what Trump is worried about is the perceived efforts of Western forces to destabilize the political outcomes in Georgia and Ukraine.

And there were what Western interests trying to have different outcomes, and in Georgian Ukraine, he believes those are within his sphere of influence, those are his orbit and Russia should determine the political outcomes there. So that is the primary difference, and he worries that coming across the border into Russian territory. We have yet to even discuss trade policy when it comes to Mexico and the United States. Is this a political fight that the president is after or is there

really some substantive economic goal that can be achieved. The underlying issue is based on fear, which is the fear of what emerges from Mexico. I mean, he famously kicked off his campaign and June mischaracterizing the threat of rapists and ref gs and diseases, etcetera. I think trade practices are one that is just UH, the latest of an

array of foreign fears if you open up NAFTA. As people who know about this much greater than I do say, it's unclear to me that the United States are going to cut a greater deal that is predictable, that is time bound, that provides the the assurances for US businesses and traders along the along the border, that will allow the US to do long term capital investments in Mexico and Mexico businesses to do trade with the United States.

So I think once you start hearing from senior business leaders about the actual implications of opening up NAFTA, this administration will become much more reticent than how active they do that. I'm pim fox in for David go Our guest is Micah Zenko. He is a senior fellow at the Council on Foreign Relations UH, joining me now is uh my co host or actually I'm your co host, Tom Keen. Great to have you here at the Pierre.

It's like real snow out there. It is. Michael Dart and I were going to walk over to can leisurely walk over the hold handle. Our taxicabs got us here in style. I gotta say, I thought the snow plowers were all out. Everything is good. You know the system is working. Does that work? Okay? That gives me my segue because I want to talk. I want to bring Micah Zenko. You know we talked about the system is working from your perception and your experience, and I know

that you've also written a lot about drones. You've written about about military policy. Can you say that the system is working when the Press Secretary of the of the President of the United States has asked a question having to do with whether the government of Yemen has asked the United States to suspend drone strikes and you can't seem to get a specific yes or no answer. Why

is that difficult? What? What is that message? Well, to be fair to the white spokesperson, he may want to be protecting whether or not the government you haven't approves these operations, there is domestic sense, it's there's domestic political sensitivities within Yemen. These are deeply unpopular operations, but the United States provides hundreds of millions of dollars over the

years too. But who doesn't know that? I mean, that's like out in the media, online, social I mean, that's everywhere. Everybody knows it. And when an air strike, for example, the military even uh speaks directly to it. Well, the question is whether or not Well, when they're done by the U. S. Military, yes, we do. When they're done by the CIA, we pretend they don't. So that's and in Yemen, the CIA and the military run parallel drone programs, which is part of the confusion. So we cannot say

which ones we actually do. That's the tripe. But I was going to say that the people on the ground don't care. No, they don't care who drops a bomb, including if it's the Saudi government, the American government, the CIA, or the military. You're correct, But they want to be able to maintain some distance, some degree of dissent when civilian casualties occur, as they did on the January with

this raid in central Yemen. Uh So the bigger question was the spokesperson said phenomenally said, anyone who questions the success of this raid puts at risk the Navy seal who had been killed, which is quite remarkable because if you spend time with the military, they're the most critical and self honest to have their own operations. Well, I want to go back to what you wrote six years ago.

This was very important at the time between threats and ward US discrete military operations in the post corld world. Your next essay in the post Trump world will be the discrete military operations of the Secretary of Defense. What are you watching for from General Maddis is he tries to bring normality to our defense and offense dialogue. Right. Well, Secretary Maddis now has a very different vision than when he was the commander of Central Command, which is the

geographic area in the Middle East. The primary things that he wants to do is a share one. The homeland is secure, a shared defense systems are being protected and secure, US nuclear turrent works, and our Mutual Defense treaty allies feel comfortable. The problem is those four core missions of the U. S military are put at risk when President Trump says flipping things about nuclear weapons when he tells

our tree allies, you better pay. Let me ask the question for all of our listeners worldwide, and particularly the people stuck in a snow bank on the East coast this morning, when do the adults enter the room? Well, the question is when do the adults and the presidents starts speaking on the same level. When do they start

saying the same things? Because what Secretary Mattis says is calm, consistent in the US history and reassuring what has been said ince on the confirmation hearing is by Secretary Tillerson. What the White House says, uh is very different. So the question is when is the president and his candid going to speak consistently about core foreign policy messages Because they aren't yet. Well, let's just as student that they're not.

Let's just assume that this is the new normal. To paraphrase Muhammad al Arian, it's the new normal in foreign policy. Take us through what you believe to be the biggest flashpoints that could erupt in the next six months. The single biggest flash point day to day is the Korean Peninsula, because that's where US and South Korean forces are prepared, as they say, to fight tonight because there could be a skirmish on the DMZ. There could be an exchange

of fire which escalates to a full scale war. The U S forces have to be prepared to deter that sort of outcome. The second big one, and the most worrisome now is in the Persian Gulf because US and Iranian forces in the maritime domain there are raged so closely it's like they're in a phone booth together. They encounter each other within yards meters of each other consistently, and our National Security Advisor Michael Flynn has said that we are putting Iran on notice. They're trying to scare

Iran to change its behavior. What Iran is supposed to change this behavior is unclear, and what the U S will do in responses uncertain. We need to you have a home more extundon conversation. I just put your book out on Twitter, folks, making Zenko's important book on discreet war from a number of years ago. A lot of work as well, Yeah, a lot of newer work as

well with the Council on Foreign Relations. Mika Zinko, thank you, really, thank you, thank you for coming in through the snow glad to hopefully here the Pure Hotel always beautiful, but now it's your reindeers parked outside. The reindeers outside non coming down here. For all of you, drive careful on the Eastern seaboard. Bloomberg twelve hundred, Boston, Bloomberg eleven three oh in New York. We say good morning to the rest of you. Check your plane flights. Even if you're

Dallas to Denver. Things could get messed up today. There's a lot of delays here, a lot of flight cancelations. Flight aware of saying that I think there were more than flight cancelations already. Michael Darda took the surveillance Sikorski to get here from Connecticut and he joins us now and then Kim, we've been talking through the morning with Mr Darta. Let's let's start with the animal spirit. Can we get nominal g d P out of a four percent? Can we get real growth plus inflation to a point

where the confidence really gets restored? Well, Um, I think the answer is uh plus four percent on nominal temporarily yes, But from a longer term perspective that will really depend on whether productivity growth picks up in a meaningful way. And that's a much bigger question mark. So think of the sustainable nominal growth rate is growth potential productivity plus labor force growth. You know that's been running it just about one percent per annum over the last five or

six years, plus the FEDS two percent inflation target. So we've been using a figure of three to four percent in terms of sustainable long term nominal GDP growth. Four percent being on the optimistic end, three percent more of the pessimistic side. But for figures that are well beyond that, I think we're gonna need to see a pretty hefty pickup in productivity. Hope springs eternal, but you know we'll see.

Hope's not a strategy either, you know, Michael, he mentioned the two key elements, right, productivity and labor force growth. Let's take each one of the If we can labor force growth, this is a demographic change exactly based on the actual numbers that you have looked at. Does it make sense to limit or make more difficult the entry to the United States of more people who are willing to work? Great question. The answer is no, it does not.

So there's a lot of optimism about whether certain reforms to you know, regulation or taxation will lift productivity. But the other part of productive potential is these low working age population growth figures just point point five pc per and I'm expected over the next few decades about a third of the post war average growth rate in a much more restrictive posture. And immigration will only and I

ramplify the headwinds, you know. And I raised this not not to really bring up necessarily immigration issue, but the worker issue, because if you don't have enough workers contributing to things like social security and paying taxes, you're gonna blow a whole even a bigger hole through the federal budget exactly. And you know, one issue that we have, and it makes sense to put this in the context

of what kind of tax changes can we expect. There's about a four percentage point you know of GDP increase in spending on the back of an aging population in medicare. So where is the room to move to dramatic and draconian tax cuts that you know, at least on a static basis, lose a lot of revenue. There just isn't room for that. So if you know, going for more efficiency in the code, yes, but huge unfunded tax reductions,

I don't think so. Let's come back and talk about this sort of the the word that's not being set through all this is austerity, and what is the state of austerity in Europe? What is the state of austerity? Particularly within the majority Republicans on Capitol Hill. We're talking to Michael Dart about the austerity that isn't or maybe it is. Is this an austere Congress? There is? Mrs Reagan said years ago, We'll just say no, that's the mystery,

isn't it. Well, that's really the pressing question, Tom. What I will say is there are a handful of Republican senators now who have expressed reservations about going down the George W. Bush path of shoehorning a tax cuts through a reconciliation process, which is essentially a stick of dynamite that blows up on a future Congress with no spending

restraint in rising debt levels. But but to be clear here at the Pierre Hotel, are we not talking Reagan, but we're really talking in ethos of the governor uh and former Vice President Nelson Rockefeller. Is that really what we're reducing? Well, well, we'll have to see about that. I guess from a broader perspective, I would just say

sixty vote hurdle for permanent tax changes. If we want changes in regulatory or tax policy to have an impact on sentives in productivity, they need to be permanent, not temporary. The demand side effects will end up offset by the federal reserve, So that really needs to be the focus. Is it permanent or temporary? Does it have the ability to lift incentives and productivity? And then we can move

on from there. But I think at least in terms of the proposals that are out there, we'd have to expect that they'd be pretty watered down and may not even happen in some cases. We'll see what can get through the U. S. Senate. Uh, Michael Darta, you're an economist,

so you get to have two opinions about this. And I want to focus on dot frank for just a moment, because this is a very important industry and you know, it has gone through the financial business has gone through a revolution in you know, the space of seven years. Let's say, is there anything that can be done that

would not create huge delays from opposition and confrontation. Is there anything that can be done and let's say the next three months that would make people who are experts at making decisions on credit, uh feel like they're not being watched twenty four hours a day, seven days a week by a regulator or or someone who might uh

be a right might want to be a regulator. Right. Well, perhaps I would just say, and if we're talking about Dodd Frank the Vocal Rule financial regulatory reform, the banks have put together this big wish list which looks more like roll it all back and nothing that replaces it in essence, as my friend Scott Sumner says, a return to the regulatory structure that led to the banking crises of the eighties and then the subprime meltdown. So that's

probably not a viable option. Uh So we'll see what happens. Fed Chair Yelling recently said, take a look at making you know, some of the reforms more efficient and effective. That's quite different than a wholesale roll back with nothing to replace it. And you could actually go down the same path of reasoning for the A. C. A. Obama here, you know, repeal and replace, what replaces it? What are the effects if you end up with millions of people

losing coverage? At least you end up with a political bomb exploding, and so you know, both with regulatory reform and the A C. A. I'm waiting with bated breath, bated waiting with bated breath on the on the Fed, how many interest rate increases this year and when market expects to dot plot is looking for three? My guests would be three in the last three quarters of the years. You get there with your nominal GDP call, well, I

get there this way. That was just under four, right, He was saying, what was the point, I think we're going to be over for this year, But he said on the trend, Yeah, the trend is going to be three to four. In my opinion, if growth potential is running between one and two and you are being generous there,

four's jet four sustained for is generous. So I think with the recovery and credit markets that's taken place over the course of the last year, and the bump up and inflation expectations in the improvement in the labor market, the FED will be able to to lift rates gradually this year without throwing the business cycle off of a cliff.

So two to three I think is reasonable. Um, And you know, we know that the futures markets aren't looking you know, probabilities very low for March, so it would have to be more back end loaded if they're going to do three. But I thought everybody who I thought, I think all the labor reports have been saying that labor markets are tight that you know, in fact, it was a mismatch, right, something like five point five million openings for four point six million unemployed, So wage pressure,

I mean, really only three. Is there anybody out there who you think who says four rate increases this year? Uh, it's uh, I'm sure that there's somebody calling for that. But the issue is the FED would already have to be guiding markets to a March rate. Rice is going to do one per quarter, and they didn't take the occasion of the last meeting to do that at all.

In the state. Given the guilded age that we're living or that is personified by our new president, Janet Yellen as protector in her mind of a lot of other Americans, is going to continue to focus on slack in the economy in a bimodal America to America's She's got to pay attention to the part of America that's not enjoying full employment right and she has. You know, I think will she continue though that's the question. As long as she's there, um, you know, you'll have a federal reserve

that cares about the dual mandate. And we've essentially, at least according to the FED, reached the full employment part of the mandate, or are very close. Unemployment rate has fallen, essentially to the Fed's calculation of the natural rate, the

rate that sustainable over the long haul. The broader measures of under employment, like the U six rate, not quite there, but pretty much as close as we've been since the recovery started, almost so we're much closer in The wage growth figures are modest, but you know, two and a half percent hourly earnings growth up from about a two percent trend or just above two and a half is also consistent with a labor market that is closer to

full health. Keep in mind that the nominal wage figures add or above four percent towards the tail end of the last two business cycles. Probably that's out of reach. We really shouldn't expect nominal wage growth much above the sum of productivity, and the FEDS inflation target. Productivity has been sub one the FEDS inflation target is too, so two and a half to three, you know, might not be outside the orbit of what we can expect. And

we're pretty close to that now on on wages. So from the perspective of normalization, we might be getting closer. You have an outlook if this is the peak. If I was to say this is as good as it gets right now, well if you just look at the unemployment rate, you know, and and to bring this into uh well it last quarter it was it was better. We'll have to see. I mean, you want to smooth out the jumping numbers. The average of the last five or six years has been seven tenths of a percent

per annum. Hopefully we move up to the ten year average, which is just over one. Even if that's the case, you know, my range in terms of long run nominal growth of three to four is still where we are. Michael, I hope you enjoy the presidential suite here at the Pier Hotel. Anybody coming out today's so don't you think, pim, why not get you know what, or maybe he gets a shovel two. You don't need to go to the gym. You just need to, you know, put a little backbone

into it right. Good workout, Michael d Thank you so much for coming out. Brought you by Bank of America, Mary Lynch. Dedicated to bringing our clients insights and solutions to meet the challenges of a transforming world. That's the power of global connections. Mary Lynch, Pierce Feerin Smith Incorporated, Member s I p C One, Dennis Gartment Dennis, good morning,

Good morning Tom. Within the struggle in the cacophony of uncertainties plural that we have right now, how do you distill all this when you were there at four am, three am writing your acclaimed morning letter, where is your focal point? What is the uncertainty you choose to look at? You know that? What a great question and and the answer is, I really don't know. The answer is there's always something to talk about, there's always something to write about.

And perhaps it's just because I've been at it for forty years, the things that really are important seem to you, seem to make their way to de sive that is my my mind and say this is the thing this morning that I want to talk about. This is what's important. I start by writing, first of all, the first thing I look at when I arise at one am, is what has the foreign exchange market done overseas? I'll always

look at the forex market first. Then I'll go around to various pages on the net or newspapers that come in or a news wires that I have, and see what what small piece of information UH politically has has developed that has made its way from page thirty two two weeks ago two is making its way to page two or three, and eventually shall make its way to page one. So it's a matter of sifting through the minutia and saying, this to me looks to be important.

And here I hold it out to you. Take a look and see if you think this is important also, And this is what I think it means. So, Dennis, what's on page thirty two right now? We want two steps ahead? What's on page thirty two right? And then I guess something that has been that used to be back on page thirty two and every once in a while makes it to page one recently and then goes back to page two or three. Is those circumstances prevailing

between China and the United States in the South China. See, I can remember when I started writing about that a decade ago that no one paid attention. Now everybody does. But I don't think enough attention is really being paid to what has transpired. Secondly, what's on page five. There's not that many things on page thirty two anymore. Now it's on page five and making its way to page one.

Is the concern everywhere about the United States and trade protection, and I don't think enough people are paying enough attention or giving that enough importance. Well, let me propose a page thirty two if if I might um. One of the big issues that China has no matter what is the availability of potable water. And this is something that has not garnered a lot of attention, but the Chinese government knows very well that you must have potable water

available to a growing population. That water typically exists that they can have access to. In Russia, uh, we've seen in the West has always reacted to any combination of Russia and China. But given a new Trump administration, I'm wondering if you could comment on is it possible that though that relationship between the three countries changes over the

next four years. Oh, I don't think there's any question that that the relationship between the United States, Russia and China changes over the course of the next two weeks, over the course of the next two hours. That relationship is always changing, and clearly it's the most important relationship and relationships in the world today, the important. What's interesting is you bring up the concept of water. Water is at the basis of almost all political dissension in the world.

In in the Middle East, it's really a water problem. Where does the water come from? Does it flow down the various rivers, doesn't make it to the ocean? Can it be used? Can it be changed? Can it be forced bed? Yeah? I mean it's it's a very water is central and U your your point about water between China and Russia is something quite honestly, I have not considered. I shall now spend some time thinking about that. That's a fascinating topic. Dennis. Let me get some advice on

this equity market. It has been brutal. Hedge funds really struggling every one time. Keen struggling, Dennis, carbon struggling. You were in about chapter eight of Reminiscence of a Stock Operator from a few years ago, and we're great in cardinal rules of that classic book. Think folks, the thirties. Is the idea when there's no trend, just stop doing this and get out of the way. When do you know in a listless trend to act, Uh, The first thing I'll look at is what are the charts telling me?

Many of your listeners are going to find this amusing and stupid, but I think there's wisdom here. Is the market moving from the lower left to the upper right. Is the market moving from the upper left to the lower right. Are the highs higher, are the lows higher? Or are the high is lower and the lows lower? Can can trend lines be drawn? Sometimes it's not simple.

Sometimes you need to put the chart on the wall, stand twenty five ft away from it, and ask your four year old nephew Tommy, which way is this moving? Sometimes looking at a market through the eyes of a four year old makes more sense. As as the Great Turkey said in in Reminiscences of a Stock Operator, after all it is still a bull market. And after all, in the case today, it is still a bull market. The markets still move from the lower left to the

upper right. I find myself fighting at many times, and almost every time I do, it's proven to be wrong. It's still a bull market. When does it end? Write this down. It shall end. When it ends, it will end in a moment before then. That's what I've learned. Well, you've learned a lot, and we always appreciate your sharing it with us. So let me pose to let me

pose this. Do you given that that you know money can be sticky depending upon how liquid it is, of course, and disruption of markets and all those great things, build that into a program for what to do. If you believe that history might not repeat itself, but that it rhymes, what do you do well in this case? I mean, first of all, that's I've always liked that line, because history does repeat itself, and more often than not, when

it doesn't, it does indeed rhyme. The similarities between today and what happened forty years ago and what happened a hundred years ago are startling, startlingly the same. What's what's going on right now? Well, I think fundamentally we have to understand that the monetary authorities in Japan and in Europe are are still expansionary, while the monetary authorities here in the United States, if not already contractionary, are certainly

leading in that direction. What does that mean. It means on balance, stock prices in Japan and Europe may well do better than stock prices here in the United States. It certainly means that the dollar will do better because less of them are being created, and that the row and the yen will probably weaken on balance, And it probably means that in terms of the euro, in the end, gold will probably rise. That's probably what all. That's probably what I can put my arms around and believe, Dennis,

I'm gonna put a fancy chart out here. Haven't had a time to make it up yet. On Twitter of Dennis Gartment owning golden dollars or euros or some other beleaguered currency, you look like a genius hedging gold in foreign exchange. Should we hedge our equity holdings like we hedge gold in other currencies? Well, a very good question. First of all, let's talk about the gold in US dollar terms, in the nonsense terms, we'll get to the idea of hedging UH equity exposure. You have to understand it.

When you own gold in dollar terms, you have effectively taken a short position in the US dollar. And I don't think in the current environment that one wants to be short of the dollar. We are by death of mission. If you believe that the adjusted monetary basis the stock from which all soups of the broad monetary aggregates are derived. If you believe that, and I do well, Actually, the supply of dollars in the world is declining rather dramatically

over the course the past fifteen months. On the other hand, the monetary authorities in Europe and in Japan are continuing their experiment with quantitative easing. In that environment, you would much rather own gold in the terms of the currencies that are being created, rather than in terms of the currency that is that is disappearing in dollars are in

fact disappearing. If that holds true, then perhaps it is wise if you own for if you are long of equities elsewhere and you are a dollar buyer, when you have bought Japanese securities, for example, you have effectively sold short the dollar. Perhaps you should head to that dollar exposure. There are times when it is wise to do so. There are times when when it is pat tacitly unwise to do so. And right now I think if you are effectively taking a position short of the US dollar,

you're on the wrong side. You want to head to that risk away. So the answer to your question is yes, yes, they're okay. Well that was an answer. I like that then, as because I was going to challenge a little bit on the bull gold because uh, I just don't understand I mean, I understand the thesis, but it has no value other than the value that people place on it. I mean, it has no connections him. I won't argue that the gold is clearly a psychological circumstance under most events.

Under most and I see because well, that's this th thing is that under those events the government closes the gold window and makes it impossible for you to actually access your gold anyway, or whatever, or some kind of scenario like that. What is the scenario? What what is the state of the world in which that gold call ends up being correct? Uh, the state of the world in which that gold call being correct is the same state of the world that has existed for the past

two years or so. As I said, dollars are being diminished, euros and yen are being created in that environment, which is probably going to be at least I think we are now in the post deflation era. I'm not sure we're in the inflationary era, but I think we're certainly in the post deflationary era. In those circumstances, with the monetary authorities being expansive in Europe and end, why would you not wish to own at least some gold? And clearly the market has told you that's the right thing

to do. That's perhaps the most important circumstance of all. The market has said by its vote, you're right in doing so, and I'll continue to do it until the market tells me that I'm wrong. At twelve announce, well at twelve forty announced. In US dollar terms, I'm ambivalent to gold given, but again, I really don't care about golden dollars in dollar terms. I care about gold in yen and Euro terms, and in both of those terms, gold has been an unprotracted bull market for four years

and continues to be so. Dennis, I thank you so much. I just want to tell you, Dennis, I've come up with a great chart that shows the Gartman euro gold trade. And the only reason I'm putting this out on Twitter, Dennis, is not so you can see it or Doug cast can see it. The one time a day he goes out on Twitter but I want the President of the United States to see golden euro terms. Maybe he'll subscribe

to the Gartment letter. You know he won't because he gets taken the task too often in my news letter. Well that would be true too, Dennis Gartman, thank you so much for perspectives. Oh it's just amazing the outperformance of golden euro terms from the financial crisis in particularly in the last three years. I just could not be better at time. Oliver Channon writes piercing notes for Cowen on the state of fashion. He will write on Macy's

and the huge challenge that Fortress Londren is having. He will write on some of the specialty retailers. Oliver, I thought the New York Times hit the ball out of the park today with their kickoff New York Fashion Week piece the challenges of the business, the challenges of celebrity. But all of this is the challenges of the consumer. It's a new consumer. Help Vanessa Friedman and all the other people wired into this in New York City, in London,

around the world. Who's getting it right right now? Who is meeting the customer challenge best right now? Well, the customer challenges are quite eclectic so who's getting it right? I would say deep value. You think about ros stores, t j X, mixing and matching, the customer is no longer loyal or once a specific headset toe look of a brand. That's trouble for Macy's. I'm going to suggest that the luxury crew don't darken the door of t j X. That, you know, let's let's let's start with

that assumption. Is anybody getting it right up scale or is it such a free for all? Is Vanessa and the good people at the Times captured today that you don't know. Vanessa doesn't know, Robert Burke doesn't know. No one knows really where where luxury is going. Well, there are certain aspects of luxury that are working. We're recommending Southby's,

we are recommending Tiffany and Company as well. I would say luxury apparel is where there's been more problems, and I think the rise of Amazon, the rise of mobile price comparison, as well as great alternatives and apparel is really negatively impacting that business. Merchandise, margins and apparels under a deflationary pressure, you know all One of the things that happens at breakfast is where you like really reveal the details secrets of what goes on in an industry.

And we're not that far from the flagship store of Ralph lauren which just lost its chief executive. Um. Also, I believe that just across the street that Tiffany losing its chief executive. Could you explain what is going on at that higher ranks of these companies. Yeah, there's a revolution going on in retail, end of transformation. So what's happening here is there's a real problem malls are over developed. Also,

No, no no, no, I know that. I know that, but do you can for example with Ralph Laurence, right, can you do you know why? Uh that did not work out? I think when you think about what's happening here is a struggle in terms of thinking about creative versus business and how to maximize profits in the context of this stress. But the department store problems are very relevant because a

lot of these companies that's their most significant customers. No, no no, I know that, but I just meant like, why this, you know, why the CEO left or why the CEO of Tiffany, Because it's all about the people. It is about the people, and there's different philosophies on the management execution in terms of stars versus process versus heritage. So we're in a time of stress with pressure, and I think creative direction um can be quite controversial as brands

need to reinvent themselves. The biggest issue is speed and supply chain. So a lot of these companies have to be totally transformed in terms of really rethinking how quickly they get products to market. And what you do is you look great today, by the way, you got the whole He's got the whole New York Fashion Week. Look going, folks. It's not made for TV. You can only take it

in on radio. But but Oliver, when when I look at the state of fashion, it's still about Meryl Street, the double Wares, product aspiration or have our aspirations changed? And everybody that may put's clothes on is has to adapt to them. They have changed because the consumer has more power. Now you think about Instagram, you think about social media, trends come from the bottom, not the top. Now it's basically there's more power. There's more democratization of

fashion as well. I mean, you give an idea Javan, She's guy is gone, He's at Versace you mentioned Tiffany's gone, Ralph Lauren gone. I mean it was just Oliver quickly here and we'll come back just more of this. Probably given the rise of Amazon, given the problems of stores, given profits under pressure, there's a lot of pressure to change in demand and reinvent. So it retails about reinvention, surprise and delight. Out with the old and with the new.

Everybody's trying out retail now. There's a lot of common themes, the death of them all, etcetera, etcetera. Are you so underweight your world that essentially it's a cash investment or can there be opportunity? We do think there's some great long term opportunities such as Costco. We like Walmart as well. We do like the off price sex or t j X and rob and luxury goods, luxury goods at the

high end. Think about Southebys and Tiffany. We think they're long term defensible and Tiffany are financially how can they be good? Is there? I mean can they even do but can they do even new level revenue growth? That is an opportunity. So we see an inflection happening over time. What they really need to think about is or traffic. Also continued product assortment and innovation, So they need to bring people back in the store, not just you buying

a gift. They need to bring the woman really desiring product there. So as they balanced the two in terms of self purchasing and gifting, that's an opportunity. The first lady help, she was carrying the light Blue Box. I mean, it's an iconic brand, The Blue Box matters. Well, I just let me just give you the most recent background, right, which is that the CEO basically got fired. Right, Michael

Kowalski has taken over as the UH. The interim chief executive Frederick Kuminal had been there I think since April of and UH sales declines in Europe. They also talked about the sales declines in the United States, but also stepped up security for their very you know, for their flagship store. But they mentioned very specifically that Tiffany has been cutting costs, rolling out new products, and increasing it's marketing, but that the company needs to move faster. So what

what do they need to do faster? They need to move faster in line with what consumers really want. So consumers are shopping in all places for jewelry and the younger customer, the middle customer really needs to desire products, so it's product, it's marketing, its stores moving faster. A lot of the stores look like they did at Breakfast and Tiffany's the movie, so you really think about wonderful

store experience that's not just cabinets. It doesn't need to look like a bank, but it needs to look sexy, a more modern store. Uh footprint, it's part of the formula. But customers are about I want what I want when I want it, So think about online, think about gift thing, think about buy online, pickup in store, think about ship from store, and then the renovation of the assortments. So Tiffany t Tiffany Atlas returned to Tiffany. They really need to be sexy, so it's got to be about desire.

But Tiffany sells plenty of bridal jewelry so people will always get married. They own a polishing facility in Botswana. They have off Tick Diamond agreement. So as you think about the world of investing, you want to own stocks that have this kind of base safety as well. And there's not a lot of combs that are well known that was The reason I brought that up is the stock got hit because the CEO left. Turn I want to go the other direction. Sally Beauty dent in Texas.

What's happening? Are issues happening Sally Beauty? Her hair is not so beautiful right now? I think what's happening There is a lot of increased competition. Tell Tom about the company for Sally Beauty, It's not exactly the tech Relief. It's a lot different. It's it's a lot of employees. They do and they have leading market share and hair care um. It's it's a great destination if you need to enhance your hair, and it's also had very loyal customers.

Off of all just to go local here, Good morning, Bloomberg, eleventh three in New York. What's your prescription to resurrect New York Fashion Week? New York Fashion Week will continue to evolve, So I think it's, you know, fashion has to continue to get fun. It's very somber, but a lot of the designers are really speaking to the reality of culture and what we're seeing now. But but you know, it's you know, I don't. I think it's it's great that it exists and there's a lot of excitement, but

it will continue to evolve. You know, New York as a as a cultural destination at you know, you think about Europe, there's a lot more sutorial heritage. However, men are the new women. We've been wearing. We've been wearing clothes for a long time. Yeah, I don't know. I you know, my basic tickets. Rebecca Minkoff went to Los Angeles, right, I mean the l a lifestyle. Help me, Rebecca Minkoff. Simon's is showing here in New York. That's a big show, right,

Kelvin Klan is a big show. Yeah. I've lapped myself. I've laughed myself. That's exactly what Mr Simmons has to do, is right, exactly. We got to talk about track suits because track suits are really end now as well as bomber jackets. There's a lot of flowiness we should be. This is the Oliver chenn we know in thet folks. Tomorrow I'll be wearing a track suit with David Girl. Oliver chen Thank you so much with cowed greatly greatly

appreciate it. Thanks for listening to the Bloomberg Surveillance Podcast. Subscribe and listen to interviews on iTunes, SoundCloud, or whichever podcast platform you prefer. I'm out on Twitter at Tom Keene. David Gura is at David Gura. Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio, brought you by Bank of America Mary Lynch. Dedicated to bringing our clients insights and solutions to meet the challenges of a

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