Radical Technological Transformation is Embedded in This Cycle, Fisher Says

Just a sort of a foggy day here in New York. Barry ridholets with me this morning. He was so good was it two days ago? Bury Tuesday? It seems like it's lifetime and lifetime ago. He's written like successes for Bloombergview since then caused the high yield tobacco yesterday came back. We'll talk to Barry Riddles about the at how you

should respond when you see the new volatility. We've got a guest to lead this hour off whose expert in the perspective of what to do UH when there's um when there is UH a renewed volatility um our guests this morning to get us started is Canthy Fisher, She's will they be Bernstein providing wisdom and council in wealth management? Barry, why don't you bring in Cathy because I've beaten her to death on television on volatility, high yield and arrest.

I think, sure you can do better, Berry, Sure, absolutely so. I've been hearing now for five years, Gee, we better get out of US equities because there's so much complacency, as evidenced by this low fix. And yet every year the market since the bear market lows in oh nine has grinded higher and volatility has continued to go lower. So two questions, A, is this a flashing red light? Everybody out of the pool? And be If not, why have we seen volatility come down as much as it

has so on the flashing red light? I would say absolutely not. Um. The you know, the market has gone up, as we all know, incredibly calmly for the past several years. Um. This tiny pickup in volatility we've had recently is quite modest and UM, and I really think reflects just the fact that people are looking for bad news wherever they can, and whatever small signs we see, you see a little

bit of a market reaction. But when we look broadly all the things we've been talking about for a while, I e. You know, good good, not exciting, but good growth around the world, no part of the no major economies and recession earnings continuing to plow ahead at very respectable rates. See even better than respectable. Earnings have been outstanding, haven't,

especially overseas. And that's why this question with a overseas yeah, And I mean I think when you look the whole angle about why UH, diversifying outside the US is so powerful is that the non US markets are younger in their recovery, younger in there perhaps shareholder focus, particularly in places like Japan, but even Europe, and therefore, you know, I think a little more momentum there in in the potential trends in earnings growth and therefore stock price appreciation.

So so let's stay with the US versus overseas um question. When we look at long periods of time, it seems like market leadership goes back and forth. Domestic does really well for a couple of years while overseas are soft, and then that reverses. Overseas catch up and domestic sort of legs. Is that a fair description and and what does that mean for a diversified portfolio. That is a fair description. And obviously part of it has been currency.

Um and oftentimes the falling dollar means that you want to have non US stocks because when translated back to dollars, of course they're worth more. Um. So the currency can have an impact, but more in this cycle. In particular, if you look at the returns of non U s docks x the dollar impact, they are still better. And therefore we do think that's much more due to the fundamentals, not just the currency moves. Well, weent out to a record high, a true record high through too, through the

peak that we saw in two thousand fourteen. They were all going to die and go away, and they're doing better than than good right now. Um, Kathy. What people don't know about you, as you were in the trenches of acquisition and m and A for years at JP Morgan, is not just wealth management that you've done defined for our audience a creative in delutive Emerson first line of their new effort to go after Rockwell, We've got to get Rockwell automation. It's an a creative deal. What does

that exactly mean? It means that after all the acquisition costs are factored in, the company does expect that the opportunity from the acquisition will indeed add to their earnings per share growth going forward, as it should. You shouldn't do a deal unless it is. But obviously, in many cases deals can be temporarily dilutive to earnings per share if the acquisitions costs are high and the premium paid

is high for the acquired company. Does that calculation have the same mystery of plugins is guessing our federal budget deficit? Or that I mean when when the dealmakers like you are sitting down with Company A, they're already by b. Let's go, let's go, let's go. Are the plugins of mystery one year out, three years out, five years out.

They are a mystery, but nowhere near as much as mysterious as the dad obviously, because the biggest the biggest opportunity is usually in cost synergies, and those are fairly straightforward. Revenue synergies are often harder to determine, but on the cost side usually it's pretty clear cut. And what's interesting to me about the revenue I hate this phrase revenue synergies that John Tucker, they're great band. The revenue revenue, Yeah,

they did revenue synergies. So revenue synergies often reflect the opportunity to cross sell to existing customers or to lever a product or service in a way that can be enhanced by the combination. That's yeah. So so you know, every every business is different. It depends. So they but that's why they're harder to estimate because they are a little bit on the come and they and therefore, you know, very people look at them with more skepticism than they

do the cost control numbers. We are, I would argue, we're in a we're going to be in probably the longest recovery for both the economy and the markets we've probably ever seen in modern history because and I think it makes sense given how tepid the economic recovery has been, that it has longer to go, and they're the way companies are adapting to change also gives earnings longer to

go as well, and therefore stock prices. So if this is a long, slow recovery, what does it tell us about what this secular cycle might look at look like eighty two to two thousand, Hey, that was almost two decades. You can you can date this market to where everybody broke out to new highs. Are we looking potentially at another ten plus years from here? It's hard, hard to know the time, but I think that I think you're hitting on something really important, which is that embedded in

this cycle is a radical technological transformation. Right. We're all talking about the recovery from OH eight, and we're talking about geography, but but really more important is the opportunity for companies in every industry to transform their business with technology, and that will have a many, long long time to go, and how companies adapt is going to be quite interesting.

Were talking business intelligent? Are we talking hardware? What? What is the focus of technology across you're describing across every field? All of the above, right, because just think of what what people can do now with any kind of handheld device for efficiencies, but then bringing an artificial intelligence, machine learning, all the things that we know are possible and can

indeed enhance efficiency across the board. There's there's going to be lots of change as companies figure out what's right for them. Kathy, Thank you so much. Kathy Fisher with a beautiful premier, particularly valuable in today's calm futures. Up eight down, futures up fifty seven after uh, some of the uproar that we saw yesterday. Barry I really did try to do Barry ridholes one on one yesterday and that you know, the markets were moving and it was

O MG, this that and the other thing. And yet in perspective, there was no breakage of support across any number of assets. It was just uh, somewhat normous, Kathy said earlier, somewhat normal volatility. You know, we're so used to a hundred point day on the DAW being a big deal. What we were down down yesterday almost a hundred and it's barely half a percent move, So you can't think of these market moves from your context of It's a lot to talk about with Barry Rid. Hilts

will continue and do that. Gregg Val just publishes with the Horizon Investments. It's a simple headline. The tax bill is in trouble. We'll do much more on that through the morning as well. Every state is different. We have the advantage of Libby Cantrill of PIMCO that she understands in her Colorado, the Democrats have been ascended since time began, but they've never really done it. Called Rondo's election to election always a fractious state. You really never know what's

gonna happen. You don't know it now, you don't. It's it's but it's good. It's actually because then folks who are sent to Washington actually are incentivized compromise. What does it mean within your policy area in Washington that it's a senior senator from Wisconsin, because Wisconsin is sort of to me, almost like Georgia or Virginia. It's a nuts every election, there is a battle. Yeah, it's all fifty stuff. Yeah, it's actually a little bit like Colorado. Different dynamics, but

but but similar in that it's it's unpredictable. Um so so, Senator Johnson actually has been expressing concern about the small business issue, about this pass through rate issue actually for several months and even a couple of weeks ago, basically said this was going to be his red line. I think that the fact that he so vociferously came out against it yesterday, I mean today he's walking back a little bit, saying that he wants to get to yes.

But as we know, any fundamental changes to this a bill might violate the Bird rule and might not be able to be passed. I've given up calling this tax reform. Do you disagree with me? Isn't it just blatant tax cut? It's it's so we've actually been sort of saying from the very beginning, this is probably gonna be tax reform light at best, and I think that's what you're getting.

You're getting kind of tax cuts with a little bit of reform, so they can call it reform, but effectively this is a pretty big corporate tax cut with some individual tax relief that obviously will expire. Has anything to do with it. So let me push back on me, this isn't tax reform, just just to just to argue the of the side. So changes to the mortgage interest

deduction have been floated and negotiated. This LLC passed through is a big deal, especially after the n f I B n f IB initially came out and said, hey, this exempts too many small businesses, we can't support it. Accelerated appreciation of capital spending is huge change. That's a very very significant change. Um. And there are other things in this tax code, certainly getting rid of the estate tax that are deep philosophical shifts from how the tax

code uh was previously. Are those fair? Yeah? I think those are all, Um, you know, some elements of reform. However, if you really had true fundamental tax reform, this would be revenue neutral, right, I mean, this would not be adding anything to the deficit. And oyeah, what's what's the trillion and a half dollars? Um so? So sure, yeah, does this maybe move maybe a step in that direction, possibly, but this is not the sort of the big, comprehensive

once in a generation. This is the literally cantral wheelhouse. Have you had a recent or new calculation of what that deficit ad will be like in the last twelve hours? Yeah? So, um you know this, well, we'll all it's obviously changing, um there is. So our view is that this will probably add around a trillion dollars to the deficit over ten years. Um the score is one point five trillion dollars.

There's a baseline issue. This is getting very wonky between the current policy and current law base sign So basically that one and a half that's been scored includes art tax breaksets are that are already in the economy, that are I've already been factored in. Um So about a trillion dollars over over ten years. Um, but you know that we're still, you know, relatively early in terms of I mean kind of the fifth sixth inning of a

nine inning game here. Um, there is still quite a long way to go, and I think Senator Johnson's opposition just shows that this thing is not fully baked yet and we may not, um, you know, we may not see anything. I think that that that there there, there is the potential for that even though there is extreme political will to get something done. So explain the thought process to me behind throwing a live bomb in the middle of this In terms of the appeal of the

Obamacare mandate. I know that generates a little bit of revenue, but why would you want to waver red flag in front of all the pro A c A people on a political fight you just had and lost three times? That makes no sense, right, It's a It's a great point, and it's one of the reasons why. Um, you know, I think we thought that it would not be included. However,

there's a real revenue issue here. Um. It's it raises three billion dollars and because they're going to be using something called reconciliation, which allows bills to be past the fifty votes, not sixty. They have to comply with what's called the Bird rule. The Bird war requires that that the bill does not add to the deficit in your eleven and beyond. So we'll just unset it like the

Bush count. Well no, but so so. The Senate bill before the Obamacare repeal, before the individual mandate repeal, did add to the depths and out years, so would would not have complied reconciliation. Now it does. The revenue, it's a whole. It's revenue. You guys are in that side of the studio, Tucker and I are over here going to we'll get that. Wait, wait, wait, are my Texas going up? In the answers, yes, yeah, right for you and for me, yes, they absolutely are. If you're in

New York, taxes aren't going up. My taxes are going down because I own an LLCRE and to me, this is just an enormous giveaway gifts, right, it's a toll giveaway. Yeah, that's get our wallets out now, in hand them. No, we should go to we should go to our accountants and say we'll make us into passed away. Well, that's

the risk, isn't that the risk? With this LLC passed through that companies that are legitimately established as partnerships or limited liability companies, You're now gonna invite every other small business to becoming an ll Yes, and you're going to be inviting anybody who's in New York and New Jersey and Okay, then California. You've seen their songs for plum Wait wait wait, were gonna do a billboard here? We gotta do a message from our wonderful sponsors, Bloomberg Surveillance.

Let me cantrol this morning. It's brought to you by those who will make you an LLC. We thank for their supports if you want to be an LLC, and we thank eisener Emperor, we think. So let me ask you this other question about what has just come up from some of the secretaries of Defense who are concerned that this huge deficit and and a trillion is fairly optimistic. Some of that's dynamically scored. But the numbers we've been looking at before us some anywhere from fifty higher. Is

this potentially going to pull money away from the Defense Department. Yeah, I think that's what they're concerned about. Right. So, um, some former Secretary Secretaries of Defense came out overnight expressing opposition to this tax bill for fear that invariably Congress will be forced to cut, um make pretty deep cuts to to defense spending. And I think this is a really important development, especially as it relates to Senator McCain.

You have to remember, first of all, the vote margin and Senate is very narrow, right, so they can only lose two votes and still pass this bill uh in the in the Senate, assuming no Democrats will support it. And Senator McCain voted against both two thousand one and the two thousand three Bush tax cuts for sort of similar reasons, right, he was concerned that this could have a deltarious impact on defense spending. And so I think this is a big development as it relates to his vote,

and they can't afford to lose more votes. What does Ron Johnson and what he's the accountant from Wisconsin. How

does Susan Collins is one example, react to that. Yeah, I think she, well, she's already expressed some real concern about the individual mandate being but I get they haven't committed and they're trying, right, I mean, this is that this is the thing about this is tricky because they're trying to go along kind of to get along, um to a point, but then your force a vote on something that's politically ski and you know, people are members

of Congress are politically expedient. They're not gonna necessarily take about especially in the Senate, that's going to harm their re election. Brilliant. Let's come back with Libby Cantrall of Pimco and very ridholds it. It's a really good discussion here. We're really getting into the you know, the soup of it. It's not what's the today's day, November six, so we're

like getting there. I haven't even begun my Thanksgiving shopping. Yeah, I gotta, I gotta, I gotta, you know, I gotta go get the turnips out of the ground in the garden in Central Park and the designer bird. Yeah no, no, we're not We're not ducking from Pimco. Um uh, we'll come back and talk about this. We're having A gentleman of Pimco recommended that I go to Greenberg's of Tyler,

Texas really smoked turkey. That's interesting talking about this. My Thanksgiving planning is I buy tickets to Chicago, and I just eat my way across the city. That's brilliant. Can I can I come to the ridhole side? It's a ten pound weekend. I just have to warn you. Okay, we're gonna get to the Fed in the discussion of that with Mr Levy, Dr Levy, with barrenburg Bank, but make you leave it. I've got to ask about nine fifteen this morning, why did guys like you look at

industrial production and capacity utilization if we're a service sector economy. Well, Tom, we the US does rely on services, but also relies on manufacturing, and industrial production is very important. We still produce a lot of things for domestic production and and and consumption and and for exports, so it's important. I tend to put more weight on the industrial production numbers than the capacity utilization numbers. UM. I find the ladder um um. The way they count reulate, the way the

FED calculates them, I find a little questionable. Okay, let's go to our FED changer that Barry was talking about. We're gonna get Chairman Powell and all that. People have said that the concern of inflation has been overwrought and overdone. What's different now? How will a conservative economists, How will the shadow economists watching a more liberal, more devish FED, how will they react to the new Fed? Well, I don't. I do not think the concern about inflation is overstated. Um.

We all benefit from stable low prices UM. And I would emphasize that the reason why inflation has been so low is nominal GDP growth has been growing very, very slowly, so there's very little excess demand in the economy relatives to productive capacity. Tom stated differently, if the FEDS policies had actually stimulated growth as they were UH forecasts to do,

we would have had a much bigger inflation problem. And the final point I would make about inflation is even though it's below the FEDS two long run target, UM, it's very it shouldn't. It is not a concern. And the recent declines and inflation so far this year have been favorable for the economy, not unfavorable. So let's stick with the inflation issue for a minute. I have I have not quite a pushback, but two points to throw your way and get a response on. The first is

we are still in a post credit crisis recovery. Those those tend to be primarily characterized by low growth, low inflation, and very UH low wage pressure. So so that's point one. Question one. How significant is this particular cycle to to the low inflation question? And as part of that we have seen almost no wage pressure for a decade. How significant is that to the inflation question? Very those are

close are very valid points, UM. But here we are now UM in the ninth year of economic expansion and it's no longer recovery stage UM and and the economy is behaving very normally, even though, as you point out, wages are low despite the extremely low unemployment, right, and I think that the low wages have a lot to

do with the disappointing growth in labor productivity. And in addition, UM, we really have a we call it a challenge or a structural problem in the United States in that, unfortunately we have tens of millions of semi skilled workers who are who are working in low productivity jobs and and UM, and their wages are not higher going up very much. So this is this is way beyond the scope of monetary policy. To correct it needs to be addressed through

other UH policies like education policy and skills training. So so I agree with you. I'd love to have um accelerating wages here and I'd like to see them being regal wages to reflect improving productivity, but we just haven't had that. So I agree with your assessment. The issue is how to address it, and my unch, my read is that the FED over the last three or four years has extended the scope of monetary paul see to try to drive up wages, but it's just not the

right policy tool to leave it there. Mickey Leavie, thank you so much. With baronburg Bank as we see a new FED into the next year, we are thrilled to bring you now across all of Bloomberg Radio, and I might point out our Apple podcasts as well. One of the great leaders of the art world, she's out of Harvard and of course he acclaimed Masters in Art program at Yale University, Brook Lampy. Lampley has had a storied career in art, including at Christie's working in their evening

sales division. She has risen UH very much so in the art world, and we'll be vice chairman at Sotheby's beginning of the year, and we're thrilled at southobs Is allowed UH us to speak with her today. Brook there's an no other conversation, not an investment but in art, in the aesthetic than this. Leonardo to painting at four hundred and fifty million. You told me today that you were not in the room last night. It's your former employer. Just describe what's going on in the room. Is proxies

bid four people, five people bid by telephone? Is it like the movies? It's spectacular it is. There were four people on the phone to by understanding and one in the room. The Christie's video is UM, and I'm familiar with both sides. Of course, UM a bit limiting and that is quite focused on the staff. So you can see the phone bitter is quite clearly, but not the room bitter. But even if you were there, you probably couldn't.

Given the depth of space in the room and how many people there are, it's very difficult to see the

room bitter unless you're close to them. What was fascinating about the bidding last night was the participatation of an unusually determined bidder who not only was persistent in raising their bids, but would raise them at um infleeted bid increments, so, particularly in the latter portion of the bidding, between three hundred and four hundred million dollars, where it was really between two bidders and one on the phone with Francois de portare On and the other one on the phone

with Alex Rotter Um. You would see Francois would always take the bid two million and the other bidder would usually go another eight million UM, so it would go from day three two to thirty. You toss it around like you're an aisle number seven at Whole Foods, like colleague Barry Ridholtz wants to get in here. But I've got to ask the news question. Does Brook Lampley know

who those two bidders were? I don't, And in all aglihood, if I were still at Christie's UM, I would have the same view probably that I do Now, I would have a good I'd have an informed idea, but likely that's very restricted information until maybe one person, until hopefully the whole world would like to know who the buyer is and perhaps will confirm it, but that's of their own initiative. Hey Brooke, Barry rid Hilts, I have so many questions for you. I'm going to keep it short

and sweet. First, this is just a huge leap above the previous hug it's more than double. What does that tell you about the current state of the art market. I think it's validictory and appropriate in a sense that da Vinci should be the highest value or highest ranking artist in the art world. There are only sixteen roughly known paintings by the artist. They are all in public collections, so this is the epitome of scarcity and brand name recognition.

Um these are the marquee qualities that drive the art market. So it's fitting that this work should have triumphed in the way it did. But what's I think most important for everyone is we've been talking about the spectrum and potential number of buyers who had bid a hundred million dollars for a work of art, maybe even two hundred million dollars for a work of art, and now we

have a completely new benchmark. So so the follow up question is we know that da Vinci's are exceedingly rare, but there were lots of questions raised about the provenance and state of this and subsequent I think the last time this went off at auction it was forty five pounds, some silly, silly number. A lot of the work on this has been questionable. Tell us about the providence of

this piece. So this everyone will have read about the Russian billionaire Dedmitru Robolia, of whom famously purchased a collection through these Bouvier um and there's been a lawsuit um about how he was defrauded in commissions. So this is

this sale is a direct product of that situation. This is a work that, after it was re canonized as a da Vinci by the two thousand eleven to two thousand twelve National Gallery Exhibition in London, was sold privately to the me Tree for seven point five million dollars. Prior to that, it had been discovered by the old Master dealer Robert Sinan in two thousand five, who purchased it at I believe purchased it at an American um

smaller regional auction house right sale. For I've said if it was very okay, it was it was at antiques road show or somewhere out in the Midwest. I'm kidding Brook Lampley with this vice chairman of South of Basis. We look at this historic for hundred and fifty million dollar auction yesterday, Brooke. If I do my research on the mona Lisa, which I've seen was deeply moved by Boy, does it have a providence? We know that it's on

white poplar. Would we know that King Francis, the first of France bought it and it sits in the louver? Can there be science now it really looks at this thing in a claim and certifies the authenticity of it. Is there forensic stuff that you expect to see in the next year or two on this important piece. I don't expect the status of its attribution to change. The fact that it was attributed to da Vinci so um wholeheartedly in two thousand twelve by very reputable you know,

internationally renowned scholars Um is definitive. It would be very unlikely for that to be challenged in our lifetimes. I think for the scholarship on this artist to change so radically in the course of our lifetime. UM, it is quite um an authoritative stance. I mean, for example, UM, the there are other artists for him. Scholarship is um in question, and there aren't scholars who are internationally regarded, so it is impossible to make attributions like this today.

Medigliani is a good example. UM. So it is quite a statement for on the academic community to come forward and say this is a da vinci Um, and I don't think that's likely to change. There is a history associated with the painting. It is just that for a long time it was believed to be this work was believed to be a copy of that known work, as opposed to in fact the original. This has been a

great briefing in brook Lampley. Thank you so much with south A Bees as we look forward to UH, I guess Barry you'd called an alternative investment For some people, for sure, for most people not so much. Very riddles. Thank you so much for joining us today. 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 Keene, David Gura, is that

David Europe? Before the podcast? You can always catch us worldwide. I'm Bloomberg Radio.