Surveillance: Elevated Risks with Wilson

at Morgan Stanley. Of course, many of you are in Global Wall Street hang on every word if you agree or disagree. Mike, I see a massive polarity in the equity markets right now. It's a select group of halves in everybody else dragging along looking for the next narrative. Am I right on that polarity? Yeah, that's right to the Tom. I mean, you know, you guys are talking about the bondom markets volatility here recently, we've been focused

on that too. We think that, you know, the bottom market is sort of jumping ahead of what the FED is saying, and that's the first time we've really seen that in quite a while meaning that the bottom market is somewhat you know, dismissing the feed stop plot, which I find interesting because I think the equity market may

start to do that too. And it's already happening under the circus as you alluded to, meaning small cap stocks and anything that's sort of viewed as lower quality or will have challenging it needs capital availability is being punished, and then we're left with the twenty stocks kind of carrying today. I mean the twenty stocks carrying today screams the roll up I've been talking about for six seven, eight months with the interest rate regime that you studied

at Michigan a few years back. With that said, is it a return to what you and I knew years ago or is this a new higher interest rate regime for the stock market? Well, I think it's a little bit of both. I think what it really is it's just a much less predictable world. And this has been our theme for the last couple of years, is that

we're entering a period of higher economic volatility. Right. The last twenty years has been a world of repression where you know, all of these metrics were somewhat predictable, and that's you know, that's for companies, that's for the FED itself,

that's for investors. And now we're entering a world where it's just not as predictable, and that means higher risk premiums, whether we're talking about credit, whether we're talking about term premium in the bomb market, or we're talking about equity risk premium. In our view, you know, I think people are operating as if we're going to go back to

that predictable world, and that's I think misplaced. A lot of people have been reading your prognostications of lower earning multiples for week after week after week, the latest from you. Given the events of the past few weeks, we think guidence is looking more and more unrealistic, and equity markets are at greater risk of pricing in much lower estimates

ahead of any hard data changes. Mike, given that you've been saying this for a while, and given the fact that we have content I need to see resilience in equities that refuse to go down, how do you push back and say you guys are going to wake up.

It might not be yet even if we get disappointing earnings, but you will, well, look, we try to navigate that inside the equity market, right, So, I mean last year we saw a pretty big degradation and multiples, but as we pointed out again today, all that was due to higher interest rates. None of it was due to higher risk premium, which is the part of the multiple that is, you know, pricing in what growth is going to be. Now, I would push back on the pushback, which is that

the market is starting to revalue or devalue. What I would say the companies that are most at risk of missing estimates, as I mentioned earlier, you know, lower quality companies, more cyclical companies, smaller cap companies that are going to have a hard time with you know, what's going on

in the regional banking system. So it is happening, it's just you know, it takes a little bit longer, and everybody, you know, kind of focuses on the SMP five hundred or maybe NASHDAC one hundred as these kind of you know, ashons of safety. And that's true until it's not. Well, Okay, so let's talk about the repricing. Last year we were talking about big tech, and this year the repricing has been in the opposite direction. I'm looking right now at meta.

Facebook shares up more than seventy one percent so far year to date, Apple shares up more than twenty percent. I mean, basically, pick your pick your poison, and it's up dramatically. How do you push back against this, against the recoveries of the names that supposedly we're going to come out to pressure in a higher rate world. Well,

I think you said it right. I mean, these companies took their punishment last year because they were, you know, part of the tip of the spear in terms of you know, valu wishes out of bounds when when rates went up, they took it first. And you could argue that a lot of those groups are you know, stocks and sectors that they're in our intercession already right there. That's the area we are seeing layoffs. That's the area

we are seeing retrenchment on costs. And I think the I think the debate now, Lisa, is have those companies cut costs and got and in front of it enough where they can now see earnings growth again. I think there's some appetite for that view. That's not argue. Argue is that there's going to be probably be more cost cutting in that space because the malinvestment was just so egregious, and the over earning was even worse. So I think it's just going to be kind of a drip, drip drip.

You know. My suspicion is markets tend to figure this out ahead of the actual numbers coming down. And because the bomb market just repriced itself overnight, we think that risk pretty equity market is elevated now more than it's been for the last six or twelve months. Mike, You've been labeled to bear, and I know what it is to be labeled to bear. Then people think that everything they say is barish, no matter what I'm just saying,

even when potentially you do get constructive. Are there any areas that you think have sufficiently repriced where you're starting to see opportunity? Well, look, I mean financials have started to reprice in a meaningful way, you know, and now all of these companies are going to have problems, you know that we're seeing in some of these So yeah,

I think it's happening. I Mean, the other thing I would just point out is that, you know, financials tend to lead the overall market, but that's one area for sure. Some of the retail and some of the consumer areas of repriced. It's been repricing for years. You know, we just added a name to our fresh money by listening as a retailer. So you know, I think these there are definitely areas and markets go through these periods with

it's called a rolling bear market, rolling reception. We've we've kind of I think came out with that view a few years ago and now people have used it. But yeah, that's the way it works. And you know, we're looking for opportunities now at the stock level, but at the index level, it just does not look attracted to us. Mike Wilson. The thing that's different this time around is the pile of money and what's called private equity. Private markets.

Can they be a catalyst for not like Milken years ago, but can they be a catalyst for a roll up of all these troubled companies. Well, look, I mean, first of all, I don't think there's that many, you know, troubled companies. I think we have a situation where evaluations are out of bounds and we need to correct that. I absolutely think there's ton of cash out there where there's private or public money, public money, the meeting asset owners, it can come in at the right price, and it will.

So whatever we're going to get here in the next three to six months in terms of finally resetting evaluation appropriately getting estimates down, I don't think we're going to stay at very very low price levels for a very long time. We're not in the camp that we're in a secular structural bearer market. This is a cyclical bearer market. It has some completion to it. And your question is really around is there enough cash and investable funds out

there to kind of, you know, stabilize things. And I think the answer is absolutely yes. Okay, Mike Wilson, thank you for the brief this morning, hugely valuable. He is, of course, with Morgan Stanley Lisa Hornby ahead of US multisector fixed income at shoulders joining us now. Lisa, I want to get your sense of what's changed. Have we gotten enough stability in the lack of news over the weekend to go risk on today? I think possibly temporarily.

I think there's a bit of a sigh of relief that you know, Deutsche Bank amongst others are still standing this Monday morning. I don't think we're quite out of the woods. Yet you know, I guess part of it is there's a bit of a sentiment swing. Everybody has gotten super bearish, and you know, rates rallied really really aggressively, and everything seems to be a little bit calmer right now. So there's probably a bit of a technical now pointing

towards the positive direction. That being said, I mean, our position has always been that when the FED tightens aggressively, it exposes the excess leverage the risk in the system, and that is going to cause things to break, and we've certainly had an element of that. It feels like

people are having a sort of this polar experience. It's either a bipolar experience where it's either the banks are collapsing, We're all going straight back to zero and everyone's going to just basically hide under their mattresses, or else the banks are going to be fine, and then the FED eases and then everything's also going to be amazing. It seems like both narratives are kind of coming to a four right now at a time when by necessity, the FED is going to tighten credit conditions in a way

that we'll have to hurt. So at what point have we priced that into the credit spreads, it still are below traditional recessionary levels. I think the point you make is just highlights how much uncertainty there is in the market and how much potential volatility there is to come.

I mean, we could look at what's discounted for the end of the year in terms of FED rate hikes and say the markets pricing in give or take a hundred basis points excuse me of rate cuts by the end of the year, or we could say, well, that's actually fifty percent of the market. I thinks there's two hundred basis points of rate cuts and the rest who

think things are unchanged. You know, there's a huge gap you'ge spread in the views out there, and I think ultimately what that means is you need to be compensated more to take risk. You need more risk premium embedded in markets, not less. Lisa and SEFA level one, there's a point where you passed and I didn't. Accounting asset liabil of our bonds are accounted for, and the heart of the matter to me, and the magnitude of the

rate move we've had is held to maturity accounting. Do you atroeders have any transparency or vision of the true state of held to maturity debt in this crisis or is it unknown on a Monday. Well, you're asking me to drawback on a few years here at CFA level one. But you know, are the big banks certainly are are regulated to a different degree than some of the smaller regionals that have become known in the headlines more recently.

And certainly the size of those books were larger in our view than those of the major the USG SIPs and even some of the larger US regionals. There's there's a threshold for when those books need to actually be marked to marketed and when they don't on what needs to be reported in terms of unrealized losses. So you know, I guess the bottom line for US is you have to know what you own, and you have to know what those on the books of those types of issuers.

And this is where credit analysts really come into the four because this is the type of environment where things like that are exposed, and we've certainly seen that over the last three weeks. I look, Lisa at the opportunity for issues here. We saw genormous healthcare issuance last week. Do you and Schroeder's think we'll see a lot of issues out there. I mean there's certainly the last couple of weeks there's been almost there's been a very very light um, So we do think that there's a lot

of pent up issuance waiting to come. Markets stay like this, I think we'll see a good deal of issuance. It's interesting some of the healthcare issues that you mentioned actually have performed quite well despite all of the volatility, So it does show that there's still a bid for for

defensive healthcare pharma type names. I think that that does tell you something about how the market's going to respond to future issuance as well, which dislocation over the past couple of weeks, were you taking advantage of Lisa, I know that you think that perhaps you need to have a greater risk premium, But are there any areas where there's enough baked in that you think this is an

attractive moment? Oh? Absolutely. I mean we were fairly defensive coming into this, and so there has been opportunity in our view and agency mortgages, there's some opportunity, and I think in the banking sector, you know, some of the higher rated senior us G sibs, I think that we've seen some opportunity there over the last couple of weeks, particularly in the more fraught moments, some of the higher quality industrials, the more defensive names as I as I

alluded to with healthcare, there's you know, the whole market has cheapened. The whole market isn't worse worth less, there's certainly diamonds in the rough, if you will, and so it's about spotting those for in our view right now, you still want to air on the more defensive side. Generally speaking, we still think there's more volatility to come in, probably in credit spreads. You know, we might be in

for a little bit of a tactical bounce. As we said here, more market feels a little bit firmer today and certainly people have gotten off sides and whipside with these moves. But there's absolutely opportunity emerging. Harby, thank you so much. Now we go to the Atlantic, to the northern climbs of Maine and Gerard Cassidy, he's been such an advantage to us with RBC capital markets on the banks. Is it all quiet on the Cassidy front today, Girard? I mean, are we beyond the crisis. I don't buy

it for a minute, Tom. I think the quiet the crisis has really quieted down, and I think as the deposit flight has pretty much I think we're going to find by the end of this week and slowed down to a trickle. You know, the numbers came out as you probably saw it late last week, and the deposit outflow from the smaller banks was not that material. That was less than two percent. It was far less than I think some of the folks were thinking. And therefore

it is calming down. And you saw, of course that Silicon Valley. The FDAC was able to sell that over the weekend to First Citizens. So both of the failed banks have now been sold to private banks or banks that are publicly traded. So we're moving in the right direction. Isn't the all clear signal? Tom? Probably not, but we're getting darn close. Do you think Tar, that the calls for deposit insurance at a more generalized scale were overblown over the past few weeks, that the need for that

kind of backstop and certainty was overstated. Lisa, thank you for saying that. I couldn't agree with you more. I think what people are finding out is that most depositors have confidence in their banks. And that being said, when you break down the size of our banks less than one hundred million in assets or less than ten billion in assets, the majority of those deposits in those banks are already insured by the government because they're less than

two d and fifty thousand dollars. That doesn't mean they may not look at a revision of lifting up the deposit insurance levels at some point. But I think it was to your point, overblown over and that was part of this whole problem was Unfortunately it's spread like wildfire on social media, and I think that's one of the biggest issues that has to be addressed as we go forward. So there's a conflation here. On one hand, you have the potential for bank runs, right, and that was something

that really spurred the immediate kind of concern. But then there's this question of just deposit flight that a lot of people are withdrawing their money from banking accounts just generally in order to go into money market funds and other higher interest paying rates. And this is the issue because you're seeing small banks, according to the data, loose deposit. It's a much faster clip than larger banks. So at

what point is that the real problem. It's a profitability problem, and it's a competition problem as well as a lending one. I would say that the mix is changing to your point, When you look at the data from the Federal Reserve, you'll notice that something what they referred to as other deposits, which are generally the non interest bearing or low interest bearing deposits, have falling more aggressively. Both of the large banks and small banks since Race have started to go higher.

What they've replaced that with, though, is time deposits, So CDs that you know, Tom might remember back in the eighty you could get a CD for you know, thirteen percent twelve months. Those those types of instruments are coming back, and believe it or not, at least back in the nineteen eighties, fifty percent of bank funding was with CDs. As at the fourth quarter it was less than ten percent.

So the mix is changing. What I remember about the nineteen eighties Gerard Cassidy is you had a haircut and a beard like Bob seeger. That's what I really remember there, you know. Well, the smartest tweet this weekend was from the Giant or Chicago Jim Bianco where he said, look, it's a five percent world. Everybody get over it. How does the profitability of the RBC capital market stocks you follow, how does the profitability change in Bianco's five percent world?

Tommy really comes down to, once again, the mix of deposits. And for the banks who've been working very hard and diligently, you know, for the last twenty years and growing those cheap core consumer deposits, the five percent world is very profitable. What investors they know now but six months ago people who weren't looking at the right side of a bank's balance sheet that was fifteen years ago when rates will higher.

But when you have checking account deposits of consumers and they're basically the consumers operating account, banks don't need to paint the interest on it because the benefits they're giving to the consumer are obviously the ease of use and as well as making payments, et cetera. So the point is, in a five percent world, if you have the right deposit mix, like a Brain Morning and over a Bank America, this is very positible for a company like that. Let's

get a window here into the world. The Cuts wrote world a securities analysis in banking. Keith Horowitz is City Group Gerrid. I mean, you know Keith works suspect. We all know that he goes out and he puts a bye today on M and T a Buffalo the best run bank in America. I'm not out of tooralizing there, Girard. You've got a moonshot on MTB. What will be the catalyst for Horowitz is strong By and you're strong By on MTB to work out how do you get the

moonshot on a Buffalo bank? Exactly for that reason time you want the slow growth, steady eddies are that are funded by these cheap cored deposits. Mnt IS probably has one of the best deposit bases. They have the Grandma and Grandpa deposit up in Watertown, New York that has five thousand dollars in it. That money's not moving to Marcus and as a result, they don't need to pay

up for it. But second, you also have a company that never extended its duration like its peers in its securities portfolio, and therefore they're earning far more in that portfolio. And then third you might remember Tom they close on the People's acquisition just over a year ago and the cost savings from that acquisition will also drive earnings, so they have three drivers. And then lastly, they have one

of the few banks that has excess capital. They've been a great steward of shareholders capital and then going to return the access capital through buybacks. We got to leave it. They're hugely beneficial. Lisa's right now to buy ticket on Fortress. Wilmer's right now. Gerard Cassidy with RBC Capital marks right now joining us Torsten Slack, chief economist Apollo Global Management.

I really want to emphasize that Torston, with his work at Deutsche Bank over the years and of course at OECD in Paris, gives a global view to the US trauma. Right now. You are known for one paragraph, one chart. What's the one paragraph, the one chart that matters for

Tuesday morning? Well, what matters the most really at the moment is, as Lisa was just saying, the uncertainty about what is the behavioral reaction going to be in the regional banks and the banking sects are more broadly as a result of what we're seeing at the moment, Because everything we're seeing on our Bloomberg screens tells you that, oh maybe this is just the modest tightening in financial conditions. Maybe the f OS bank funding car spread is out

about forty fifty basis points. But what we don't know is the second order effect, name what is the behavioral change going to be in terms of lending standards. Is it going to be harder to get a loan, to buy a car, to buy a house, to buy commercary estate, to buy anything for consumers and for corporates. And as a result of that, it is really still a bit

unknown exactly how deep this is going to be. Well, okay, I get the idea there's unknowns here, But to me what we may end up is not only maybe not a worry about concentration of banking, but you know what, We're going to clear the market, remove the people that couldn't make it from zero to five percent, and we'll

be stronger after the fact. Is that the Apollo view, No, so they of course outlook here is mainly driven by the uncertainty about what is the response going to be in terms of how much title lending consistent conditions will be. So if you look at the quantitative response in terms of pricing, I can see that on my Bluemberg screen, and that clearly shows that financial conditions are tighter and

borrowing cost and funding costs for banks are higher. But if you then start to do small regressions and think about, well, what does the tightening in lending standards that we saw in twenty twenty, which is where the frayes spread is, if that corresponds to what we're seeing today, then you might have more coming in terms of effectively be a higher fait funds rate relative to what we have seen in the data. He's the only guy I know that

actually understands the BTMM screen. I mean, that's what he's talking there with fr aois the sofur s o fr which Iris says is the new library. It's all Greek to me, but there it is. This is the issue

though for central bankers. They don't know how much additional tightening is being sort of implied into the market through a tightening and landing standards, And so if they're in the dark as well, if they don't have a clear sense of this, and the actual data that we're getting keeps on being strong, what's to stop them from continuing to hike in spite of all of the naysayers in the market that's screaming for rate cuts. You're absolutely right. I mean, the whole situation here is a function of

data dependency. The data dependency if you say I only look at the incoming data, then you are by definition backward looking. So if, of course there's a lot of uncertainty about what's coming in the future, and you don't know how to quantify that, and no one knows that at this point we all have to guess what are the implications of this, then the risks are motilded to the downside. But what they're fit and the ECB and all central banks around the world are not waiting for.

Is this going to slow down the data? Jobless claims going to go up every Thursday for the coming weeks. Will we also see nonfun payrolls begin to slow down. We've already seen durable goods and capics begin to slow down. But the bottom line is that we already had a slow downcoming because of the lack defects of fit hikes. Now we're adding onto that a banking crisis, and that of course increases the risks that this lowdown is going

to be fastest. Is it fair to call what we have experienced a banking crisis, and this is really a question that people are trying to wrestle with. Or a time when we seem to see stability and there are certain specific banks that had specific risks that blew up and now we see ongoing sense of resilience. Is it fair to call it a banking crisis it's going to

materially tighten lending conditions. Well, it's fair in the sense that we have seen bank runs, and a bank run is normally the number one characteristic of a banking crisis. But what is very unusual is that this banking crisis is not like normal banking crisis. A normal banking crisis, it's because of credit lasses on the a liquid part of books. Now we're actually seeing lasses not on the credit side, but on the most liquid side of banks books,

namely and treasuries. So in that sense, we have basically never before had a banking crisis in a strong economy, and that's really unusual. So what's the distinction between a liquidity crisis where it's just to posits being withdrawn and a credit crisis? When is a liquidity crisis become a credit crisis? So that's exactly why. What matters now is how the bank's going to respond to this liquidity crisis.

Are they going to say it doesn't matter, We're just going to lend more, or are the three head winds they're facing from higher funding costs, also more regulatory scrutiny, and also ultimately and look at assets in a different way. Is that going to make them hold back? And if they do begin to hold back, the risk of causes that this could magnify this low downa is already. Let's not forget we were even debating a few months ago, Oh, this will be a hot landing even without a banking situation.

It's completely inappropriate for me to ask you about Deutsche Bank. But there I wasn't Davos standing with you and mister saving long ago and far away as he was coming in to salvage the bank away from Deutsche Bank. Explain to our American audience why European financial banking dynamics are so different and original from the American model. Well, there's a lot of academic studies that show you that the deposit BEZA in other words, how sensitive deposits are to

interest rates, has tended to be lower in Europe. So that means also therefore that the propensity to move money quickly in and out of your accounts, like we're seeing in the weekly data from the FIT last Friday in the US, where money was moved from small banks about one hundred and twenty billion outflow to sixty billion in flows to last banks. That has basically a most significant, more pronounced effect in the US restive to what we

see in Europe. Over the weekend, the Financial Times did a full treatment of the Swiss culture in their banking and again it was seventy eight percent or whatever. The Swiss people are dead set against this mating of these two banks, not on those two banks. But do the people of Europe have a voice in this or is it the elites, the elites above high they get to fix EU banking well. One very important difference between the US and the European banking sector is that the European

banking sector is much more dominant. In other words, we have a bank driven finance. Last night stunning and at least stunning the first thing I joined with at the IMF in the early at nineteen nineties. But the conclusion is that it is very important conclusion that US has a market based financial system. Europe has a bank based financial system. And when you have a more bank based financial system, the banks just play a more important role.

And whereas in the US. Remember in the US, the vast majority of credit in the US to the private sector comes from outside the banks, and that's very important because that of course means that the markets play a much more significant role. US financial system is much more diversified. If you want financing as a company, you could basically go to many more sources in the US than you can in Europe. So there are two different things here.

There's less deposit data in Europe than there is in the US, but there is of greater dependency on banks, So that's more susceptible. It's an economy, it's more susceptible to issues in the banking system. So if there is no issue in the banking system, if Credit Suite was a troubled bank that had been troubled for a long time that came to a head on a number of different issues, then is lending going to remain stronger and thus foster a stronger economy in Europe than the US,

which is more susceptible to market pricing it's moving quick. Well, that's correct, But the issue here is also what is the behavioral change going to be not only in US regional banks, but in banks globally. And that's why if you do have a behavioral change where banks globally do begin to pull a bit back, then in a more bank based economy you would expect a more negative effect simply because the banks are playing a pio role. That's why the diversification of the US financial system that you

have so many more different places to go. If we were a company we wanted to forget financing, we could go to a bank. If that said no, well then we could go to bank markets, to venture capital, to private capital, to private credit, to private equity. There's so many more places to raise funds in US financial markets, which is really the beauty of US capital markets that they are so much more diversified and therefore more able

to provide the financing. It is very important that Bloomberg Surveillance to spend our tradition for decades that we try to capture the zeitgeist among the adults in the room this week, and Jason Furman, who has to speak to act ten in the room at Harvard said shut up and read it, and basically shut up and read it is the new to quote Furman. Professor Furman phenomenal and hard hitting essay by Adam Posen of the Peterson Institute. Doctor Posen is definitive on German culture. Doctor Posen is

definitive of synthesizing together American policy in our economics. Adam Posen, I want to begin, first of all with buried in your wonderful paragraph by paragraph article, is that Trump Biden trade policy gives us the risk of losing American jobs. I thought we were gaining jobs by Intel factories from sea to shining sea. Fraid not, Tom, Initially you might gain a few. Thank you so much for the intro

for having me today on surveillance. The issue is, first, we've only got a finite number of skilled workers people from these companies Intel, Qualcom, TSMC, Tokyo, Electron. They don't have the American workers here who can do the job, and if they do, they have to hire them away from someplace else. It's not like skilled engineers are unemployed in the US right now. We need an immigration to

get that up. Second, if you put all this stuff and you force it to be built here at higher expense, then what you get is less competitiveness for the rest of the country. They're going to be paying more for semiconductors, they're going to be paying more for equipment, and that's fine if you think it serves some goal, but it's certainly gonna hurt jobs. And third, you're never going to export any of this, because what you're doing is you're bringing stuff home, so to speak, in order to make

it uncompetitive. We've sort of done this with turning NAFTA into USMCA. We've increased the rules of origin, meaning more domestic content and as a result, fewer exports. So on that this is not a job's creation program. Someone who was definitive on this strength of the Peterson Institute was William Klein. All of our debate, including GOP and Democrats,

is simplistic bilateral tension. And William Klein had the courage to say, you've got to think multilateral and differential bilateral of Singapore in China, Singapore in Mexico, Mexico and South Korea. How naive are we in a simplistic China US study. Well, Bill is right, and I'm trying to make the same kind of case that there's what hemon is called general equilibrium, but in international relations that the US cannot simply say we do this. You have to play along and no

one's going to react. Other countries you mentioned Singapore, South Korea, Mexico, Australia, India, they have agency, they do not just have to passively deal with whatever the US does. And if the US decides to play hardwall to make them play along, then we become a police force, make enemies. So it's not a viable strategy. I wouldn't ascribe it to naivete. I describe it to overconfidence and ideological blinders and mc gunpoint.

Years ago, I was forced to read Ricardo eighteen seventeen cover to cover and to be honest, folks, David Ricardo, who is so much of this based off of in eighteen seventeen? You know it's a tough read. It's there's some distance to it centuries ago and imposing our trade policy is based from a distance and maybe Bretton Woods, maybe the middle twentieth century. Do we need a new trade policy for a more open technological world. We need a new trade policy in the US because we haven't

been open. The rest of the world's continue to open up, continue to do more trade, more investment, and as I argued in a Foreign affairs piece a couple of years ago, US has been deglobalizing basically since NAFTA, certainly since two thousand and So all this blaming everything on the China shock doesn't make any sense, because every other country was exposed to the China Shock and they continued to grow or they had the same decline in manufacturing jobs. You

mentioned Germany. We did a look at North Rhine Westfallen, the Ohio of Germany compared it directly with Ohio. They lost more manufacturing jobs than we did, despite their trade surplus, despite all these things that the Americans claimed the Germans did.

And so our trade policy isn't the problem. It's our politics that is the problem, that refuses to recognize that America can't have everything it wants and that some people in rural manufacturing jobs have to adjust, like the people who've been in services in cities have adjusted through the years. Can there be a middle ground in Washington on trade or do we just need to live to the polarity that we've seen for the last eight, nine, ten years.

I'm not sure. This is one of the few issues taught where I don't think it's an issue of polarity. I think it's large part of the Democratic Republican Party have come together. It's no, no, it's fine. But I mean just to say the extremism is the majority position, and just as on other issues like communism in the fifties at home, like environmental issues before the seventies, like civil rights. I don't mean to say this is on a par with those, but just to say, congress and

popular views sometimes are wrong. We have to confront that these views, even if popular and widespread, are wrong. Adam, you lead with America's zero sum economics. I mean this is like Chad Jones out on the West Coast talking to a solo one oh one. I mean, how do we get away from what we all intuitively understand it's not a good thing, zero sum economics? How do we get back to something constructive off of Solo nineteen fifty seven?

Great question. I think there's two tracks. One is we have to be more aggressive about confronting China and others in the diplomatic and military space. This a whole part of the whole trade issue. Is people in foreign policy security not wanting to do the dangerous and hard work on the security side and hoping they can sub economics for it. But it doesn't work. It's not that economics is more important, it's just it doesn't work. So beef

up the security side, pick up few technologies. Really cram on that. The second side, as you said, is solo esque or Robert Gordon or anything like that. Huge public investment, yes, not industrial policy to exclude other countries, not industrial policy to maximize production at home, but made by America instead of made in America. Money towards R and D, money towards education, money towards supporting standards that let us get

innovation from the free world. Those are the two tracks I would go on for buy Americans that have made in America. And I'm posing wonderful to get started here on our IMF coverage here, And of course it's article folks, I really can't say enough about. Don't listen to me, listen to Professor ferman up At However, to America, zero

sum economics doesn't add up. It is without question the read of the weekend from Adam Posen of the Peterson Institute Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify, and anywhere else you get your podcasts. Listen live every weekday, starting at seven am Eastern. I'm Bloomberg dot Com, the iHeartRadio app, tune In, and the Bloomberg Business app. You can watch us live. I'm Bloomberg Television and always I'm

the Bloomberg Terminal. Thanks for listening. I'm Tom Keane, and this is Bloomberg