Surveillance: No End in Sight for Slowdown, Zingales Says

entrenched and does it spread? I'm pleased to say that joining us here in New York City is Luigi San Gala's University of Chicago Booth School Finance professor. Good morning to professor, good morning. Help me answer that question or those questions. Does it become more entrenched and does it spread beyond manufacturing? I think that the good news is that the west of the economy seems to be pretty strong, and so I don't think it will spread as as

of today. But I think it's important to keep an eye on what's happening on the trade front, because if the things were to deteriorate there, then I think that would be more of a problem for the U. S economy. At the epicenter of all of this was a week I sam an Ugly I sand beneath the surface as well. The weakest we've seen in around about ten years. And when you look at the complaints from sector to sector, it's not about the cost of capital, it is about trade.

With that in mind, what can the federal reserve? What can central banks actually do to insulate these economies from the trade headwinds. So there's not a lot of the FAT can do, but clearly by making a very reducing rates might make the dollar less strong and in a sense can expand export. That's certainly what the president would like. I don't know whether this was j. Powell do, but I think that's the only channel the FAT as. I think that this problem should be solved at the political level,

not at the monetary level. We've had multiple growth as in the last ten years through the cycle, we've had to which trying to understand where the twenty eight nineteen going into it is different? Professor? Is it different compared to what we have seen in this cycle already? I think it's a bit different because it is more global and we see that Germany has lowed down significantly and uh and that my twigger has low down in the entire Europe. I think that the Germany is low slowdown

is a direct repercussion of slowdown in China. In fact, I believe that the German numbers are much more reliable than the Chinese numbers, so this is an indication that in China there is a slowdown. So this is more at the global level, and I don't see a lot of space for maneuver. This is who has the space to maneuver is the German government, but it doesn't seem to be willing to do it. So I think we

need more physical expansion at the ward level. The United States has done a lot in the past, even when maybe it was not needed to physically expand. So we're left with you ap taking its uh responsibility. And I don't see this coming within all your books, and particularly your book on American Capitalism, which was so illuminating as a foreigner talking about, you know, how we do things in America. So much like what John Farrell was just

asking about, is where the gains go to. If we have a manufacturing slowdown that is a certain effect on people. If we have a service sector in financial expansion from all this, are those gains all going to the elite? Unfold the left to say yes. I think that so far trade has benefited mostly as more elite and as pedalized Midwest America. And we have seen the reaction of this in the last election. And I don't think that anything major has been done to to fix this problem.

And I don't think it's unique of the United States. Look at the United Kingdom. You have the same problem there. You have a London that is very much poor. You open in favor of trade and benefiting from the trade, and the rest of England or the rest of the UK that don't benefit as well. This is the populist backlash. Let's talk about the economy right in front of us at the moment. The European economy has been weak now for I would say eighteen months. Likewise, for China, this

started in spring eighteen. In fact, some of this weakness predates the tariffs going on, It predates the ramping up of the trade war. With that in mind, it's not the United States leading the downturn here. The United States is lagging behind the rest of the world. So if we're going to look for a recovery, we need to see the rest of the world lead us out of that it's not the US that's going to lead us out of this. The US is langgic. Do you see

any leading indicators in the global economy right now? XU ways that suggests that this story has started to bottom out. Um, not really, I think unfortunately. I wish I could give you some hope, but no, I think that there's low down in in China is probably going to continue, and this will every percussion in Europe. And I don't see you up uh we're starting because the natural way will we start would be some major fiscal package originating in Germany.

And I don't see the political will of that. You laugh When I say major phiscal package in originating from Germany, you laugh, And that's an indication of how unlikely this is anytime soon. Eventually they am I going to do it? But eventually when there's a major recession in Germany. This

laugh is not just reserved for you, Luigi. I should express myself quite clearly that I laugh for everyone that brings out the possibility of fiscal stimulus in Germany, because I'm through still trying to understand what the bite point is for the German government to change Christmas. You know how this works in Europe better than anyone. You have chaos, you have a crisis, then you finally have some kind of suboptimal solution. In Germany, quite clearly a recession amount

recession is not enough to deliver fiscal stimulus. What is I think that when the recession will buy Germany serusually and this will create a political demand for intervention, Eventually they will intervene. But so far Germany has benefited from this austerity policy because they have exported their way out of all the cycles, and the cost of adjustment has been imposed on the rest of Europe. And and so I think that is as if in uh in the

United States you only look at Massachusetts. Massachusetts is benefiting from a more steady package because the cast are born in Texas and in in Lenai and Ilenoia and Texas don voud in Massachusetts. I think that's what united is about. I mean, the headlines in the last two hours out of Germany are just stunning. As you point out, John, there's no framework within those headlines of any fiscal adjustment. It's the weakest link. I wonder how the God reads

those headlines. I have no idea. I just think it's the weakest link in Europe right now, Luigi, Never mind, Legard, let's talk about Chancellor Merkell. So many people sung the praises of Chancellor Merkel for so long, and I don't think economic historians are going to be too kind to her. In ten twenty thirty years time, there was a once in a lifetime opportunity to restructure the German economy, to take advantage of record low borrowing raids, to change the

export driven model that is the German economy. They haven't taken that opportunity. They haven't taken that opportunity at all. No, that they have not in fact, and then kind of the opposite, and I think that to understand the German spirit, you have to realize that the first Kensian in history was actually Hitler, because Hitler used massively fiscal expansion to start Germany, and so in Germany the idea of using

the fiscal stimulus is anathema because of this historical president. Um, we're just we're out of time and we would do this later, but I've got to bring it up right now. Is Barcelona going to do a Tottenham? I mean, is that where we're enjoy that game? Yes? So that was just fabulous seven to what happened to you? I don't know, but today's Barcelona Inter Malon against Inter But Luigi supports my c Milan, I know, but it's come on as Milan as Milan. On one side is blue and black,

the other side is red and black. In the studio, the red and black half of Milan. Yeah, well, the losing side, but we're very committed to lose it. It's like the Chicago cab they always lose, but you love them. This is the Sylvia Balasconi side of Milan. Ce Milan actually to support that way before it was going to the unforely dates me, but I supported Milan a c back in the time where it was a great team before before Belisky took over in the mid eighties. Do

they have a derby? A derby? Derby is derby. We played stadium and it took place a couple of weekends. Have you been to the but I have been to Juventus Milan and it was a great game and we also lost. Can you buy the team with your next book royalties? I mean Milan. I think we can probably put some money together around this table. Although I have heard that the French billion misr ar know might be interested in a slice, will have the best jersey of

all the teams. We gotta go Luigians and Gallas thank you right now. Buffeted against all of this mark market angst are the distractions of politics. Rosalind Matheson is with us right now and the problem with her title, John, And she's International Government Executive Editor, which means she is focused with her team on China, focused on impeachment and all that's going on in Washington, many other issues as well, John, Why don't you bring in Rosalind on the Prime Minister

speaking to the North. Is the speech different John, if it's given in Manchester the London, Now it shouldn't be. It shouldn't make a difference. Let's bring in Roslyn, shall we? Good morning to Roslyn. Let's just start with the Prime Minister. The rule book for how this usually works is that they come up with the proposal, starting rallies. Then the Irish throw a cold glass of water over the proposal.

Then Stirling sounds off again. Walk me through what the proposal is this time and where ultimately the EU and the Irish stand on it. Well, yeah, so he's just actually finishing his speech. We can see him on television now to rapturous scenes in Manchester to the party faithful um where he talked about brexfit Brexit, but mostly about everything else. His proposal is really quite different from what

the Europeans have been putting forward. He's saying that he wants to keep Northern Ireland, which is the key question here and all of the Brexit negotiations in a customs union with the UK, therefore creating a border with here, a through through which goods would have to move. European objective is obviously to prevent hard border on Ireland and preserve a single market for things to move through easily. So his proposal is quite different. The Europeans are saying

they're going to look at it objectively. He's going to speak with the European Commission President tonight on the phone. Has already been hitting the phones to the leaders around Europe trying to sell this thing to them. The Irish have come out very quickly as you can imagine, and said they're extremely concerned about it. So he's going to have a hard job ahead of him trying to get any traction on this one. What a relations like between

the Irish and the UK government right now. There were reports that the British government actually briefed the Irish today. In fact, the Irish were the only EU nation that were briefed on the proposal from the Prime Minister before today's address, and that the Irish leaked it. That's the accusation from some quarters in Britain right now. What do you make of that and what does it mean for

relations between the two countries. Well, at least there's certainly been an appetite for dialogue between the Irish and between the British government. We've seen Boris Johnson go to meetings there repeatedly, stand up together on podiums and have press conferences afterward, where the rhetoric has been quite warm. The problem is that neither side will want to move on this,

and Boris Johnson is animate. But if he doesn't get the deal, if he doesn't get the deal he wants in nine days from now October eleven, and he's going to move forward and crash out. And he's just said that he's not going to budge on that. So what we've got is too polite but sort of immovable forces staring at each other right now. And no one willing to give in the ground, Rosalind, Can I ask the dumb foreign question, does he want this to fail on purpose?

There's certainly a narrative around those lines. What he's doing is he's saying this is it or nothing. He's hoping perhaps that his strong approach and they're running down of the clock will just force a deal to happen. There's also a school of thought that what he really wants to be able to go out to the British people and say, look, I tried everything to give you brexit. Parliament got my way, the Europeans got my way, the Irish got my way. Therefore I need to have an election.

The need to give me a big, big mandate so I can come back and deliver for you. So the mandate that the narrative would be that I tried everything, but I was stopped at every turn. Can baby Charley vote? Can baby Charley? Baby Charlie's gotta wait until he's a little bit older. We gotta wait for that. Were with Uncle John here in New York, continued Rosslyn. Just to wrap things up with you, how is this planing go out in the court of public opinion? With the electorate

at the moment. This has quite clearly been a strategy of Mr Cummings and Prime Minister Johnson to make out that everyone else is the reason that Brexit isn't going through the institutions, the Court, Parliament, the EU, the Irish. How successful are they pushing that agenda. Well, certainly we've just seen very rapturous scenes in Manchester, loud applause, backslapping, all that kind of stuff. That is the party faithful.

The thing for us is to not to presume to know how people outside London, for example, feeling there's a strong basis support in rural areas for Boris Johnson, a strong basis support for making the Tories great again. There, I say, that's the manager he's been pushing and people out there who really want to see Brexit done. Um. So it's quite possible that his tactics here have quite a lot of support. UM. And we'd be careful not to presume to know how an election might play out.

UM in London, Rose and we got to leave it there to you in our government team worldwide. Thank you so much, thank you for reporting there's a little bit going on, John Stolphus with us without this is an important update because we've been John and I've really been focused on the bond market and the dynamics there, and it's good to talk to John Stolphus about equities. For John, let's begin with your decades of experience with the absolute

mystery of October revenue and earning seasons. Do you have a clue what we're gonna see? Well, we'd have to We'd have to think we're going to get a repetition of what we have seen in the last few quarters, and that we think that estimates are low enough at this point, have been brought down enough, and there's been enough guidance from corporate chieftains that things are are are decidedly challenged in many uh ways by the trade war

that expectations are likely to be beat once again. How long this can land second year of the trade war with the potential for acceleration. If we've seen a re rating in the last twenty four hours towards rate cut and the way this curve is deepening and all that, how much weight do you put in the flip reciprocal of the yield market out to higher equity valuations? Do

is there any weight to that? Or do you ignore that right now, we've we've we've got to think that you know where interest grates are today from a historical perspective,

would indicate that equities are not overpriced. The The other thing is the demand for equities is just likely to increase as the baby boomer generation begins to actually retire and recognize that they they need vehicles that offer more than a very slight coupon and need to at least have if they can if they when when they can find good companies, the potential for capital appreciation, the total return dividend growth story might make sense. Equities have support

moving forward. From what we can tell, John, I want to stay out there in and work through the growth scares of the past with you. Twelve back into the year after a growth scare has been pretty good, pretty kind to invest us in this cycle. So after the eleven twelve growth scare, stocks up almost after the fifteen sixteen growth scare, stocks up in more than nine percent. We're working our way through this eighteen nineteen growth scare.

Every year, of course, is different, John. We had our moments in seventeen which were largely about anticipating in a rate cut, but looking out to twenty. How much harder is it to make the call buy stocks off the back of the growth scare when we're already up nineteen percent this year. Well, I've got to say this. I think what we're the wonderful thing is that we really are only up zero point three from the high that we've reached on September twentieth of last year. So so

far this year. It doesn't take into account if you just look at where the year to day is. The devastation that are in the fourth quarter, which we thought was fairly unreasonable. It was like a muggy there there was. It was an overreaction and negative projection that we saw. They brought the markets down as sharp music in the fourth quarter last year. That haven't been realized yet. Yeah, John, one of your charms at up COD as you can really talk easily about the big banks because you're not

with a big bank. Give us your thoughts about the big banks. John Ferrell's noted their movement this year. Is it done? We wouldn't think so. We think that the big banks, and we think the big banks are in alpha call. So it's it's on an individual stock picking basis rather than on a on a beta or a or you know an index called a sector index, call for that. But within the big banks, the reality is these guys don't pay. They pay next to nothing on deposits.

They have credit cards. Uh, interest rates that that looked like it's the late seventies or early eighties when they charge on on on on balances. So we have to say and and and evidences from earnings that or they may not get it from trading. Uh. The the lending business is in good shape. The wages are still rising, so we'd have to think we like that. It's our contrarian pick among the cyclical sectors that we like, john

Why is it so disliked still? Even though we've had some pretty solid performance from that sector this year, just looking at some of the big names, the likes of City, they've delivered some really strong gains through nineteen and yet when you ask people about financials, they pull a face as if they have performed terribly over the last six to nine months. You know, Jonathan, It's it's just it

really shows human nature, I think in many ways. And it's just it's one of those sectors we would think that is you you buy when they're not popular so that you don't have to chase them later when finally the realization comes in that these things are what makes everything move. Everything floats on credit. As long as the bond market is in real trouble, these these are are likely to essentially fund the system. Yeah, the real bug of who here is the trade war. That's that's the

problems the tariffs. Otherwise we were in economic recovery globally before March of John, very quick clear, this came up yesterday. If the trade war is cleared, who benefits emerging market, international stocks or US large caps? We think all do because we think with if we've got to deal with with China, the dollar moves, lower, currencies outside of the US rise on expectations and increased growth of negative over

the trade war removed. We think it's emerging, we think it's developed international, and the US would would would participate in that. Very good, John Stolphine, thank you so much. With OpCo, there's some enthusiasm on the equity Marcus. Right now, Andrew Holland Hohorst with this US A City group. These are chief US economists. What is the distinctive feature for

you right now? In the classic US equation. Why will see plus I plus G plus n X. What matters to Andrew holland Horst, Well, I think they all matter, Tom. But what we have been looking at in terms of the strength of this economy is see, we've seen consumption that's really held up very very well, um, despite the weakness that we're seeing in manufacturing, the weakness that we're seeing in investment. So I think that's what we're watching tables for. Does the strong labor market continue to drive

that consumption that that can't be permanent? I mean, if you know consumption six eight or sixty nine, once in a while, it's seventy of the American economy. You know there's dynamics here, folks. Is there a permanence to consumption alone? So I think you have to put in the bottom on some of the weakness that we've seen in the industrial sector. Um, when you see I S M manufacturing at forty seven point eight, that's a concerning number, and that confirms you about is this going to spill over

into the broader economy? Is this going to cause consumptions to slow as well? Um? If this can kind of stabilize here, thenteen can look like twenty sixteen, we got down to on the manufacturing index, and then we kind of bottomed out and turned back around and we continued with this story of strong consumptions. I think that can happen again, but I would agree that we need to see at least some bottom here in terms of what's

going on in the industrial side. It's the theme and two that's come up again and again and again on this program over the last couple of weeks. The three growth scares that we've had, the current one, the fifteen sixteen one, and the one back in twelve. And do every growth scare is different. All three have been led by manufacturing. Just how different is this one? Though? I think this one is different? Um in some ways it's

harder to attribute. This is something that's transitory. Sixteen. I think you could see what had happened with oil prices. You've seen a US economy that was very oriented towards investment in oil and energy related industries um and this slowdown an investment has been more broad based and it's more a symptom of the global slowdown. So I think that's what's a little bit more concerning here. If the global growth story continues to worse it. It does sm

with each data print, it does worsen. Um. Then you know, it's harder and harder to see how the US goes it alone. And we are saying that there's been these times in the recent tumultuous months where the weather vein changes and maybe that happened yesterday off US data, and today the German forecast is well and it's it's it's exposed shown in curve steepening. And then in this case

it's where the two year yield comes in. And I don't want you to be bond guy from City Group, but are we going to revisit a whole new round of guessing the number of rate cuts by this Fed Central Bank? Yeah? I think after the number yesterday, we're back in that mode. We're back in that mode, thank you. Yeah, you can see that the pricing of October going up again. Um. And so you know, let's see what happens with iyets'm

non manufacturing. Let's see, let's see what happens with payrolls for the said it really is going to defend one. Do you see this building over more broadly and still it's pretty isolated in manufacturing as of today, Um, well, we'll see what the numbers bring well. And the other question is whether you should wait if you're on the federal reserve, if you wait for it to show up in claims, if you wait for it to show up in ours worked in the payrolls report, and that starts

to break down. You're a little light on't you. If you want to be early, you want to be aggressive. I think that they've tried to do that with the rate cuts they've delivered so far, since arguably we hadn't seen that much weakness in the domestic data. Now you're really running into the problem of you want to be

early and aggressive, but you have limited policy room. There's only so much room to cut, so you know, you're kind of walking that fine line between delivering enough or over delivering and then maybe ending up with fewer bullets when you wish you had them. And then they face a ton of questions about the efficacy of the policy they are deploying, Andrew whether rate cuts in this environment actually how day that? Yeah, So we're seeing some effect

in the housing market. I think you've seen the most recent data a little bit firmer, and that's an effect of lower rates. But you know where you'd really like to see this as stronger business investment. And I think there's very little evidence right now that lower rates are actually causing any kind of you know, pick up in that activity. Nice Prett. Andre Hollander's thank you so much with City Group today and it is an extraordinary set of interviews. Mr Rubinstein with a gentle lady who is

polarizing across America. Here's David Rubinstein with a subtle question for Ruth Bader Ginsburg. How does it feel to get up in the morning and know that three million Americans want to know the state of your health that day? Does it feel encouraging? As Kansas survivors know that dread disease is a challenge, and it helps to know that people are rooting for you. Now, it's not universal. When I had Peggy had a cancer in two thousand nine, there was a senator whose name I don't recall, but

he said I would be dead within six months. That senator is now no longer alive. But you can't remember his name. No, I don't remember you, um, but your current view is that as long as you're healthy and able to do the job, you intend to stay on the Court. Is that correct, as long as I'm healthy

and mentally agile. Right, And the tone there of a gentle lady of a certain vintage joining us now with his peer to peer and again doing it wonderfully with Ruth Bader Ginsburg, David Rubinstein, David, congratulations on a wonderful interview. Let me start with the other side and some of the humor there. Why should conservatives, why should originalists? Why should those of a camp of Justice Scalia? Why should

they listen to this conversation with RBG? Well, first of all, HERBG was a very good friend of Justice Scalia and Uh. And there's a conversation that I had with her about how they became such good friends, sharing their interests in opera even though they disagreed a great deal on legal matters. I think she's a historic figure. She is the second woman on the Supreme Court of the United States, and we'll have served longer on the Supreme Court than any

other woman. She's serving longer than uh, than Sandra Day O'Connor, and she's become a rock star, as you may have seen it. To Day's New York Times, Tom Freeman's column basically talks about my introducing her at a recent Kennedy Center event, and she got a standing ovation over the weekend because of the things she stands for. A woman who really led the charge for equality and gender equality and the leal in the law, a woman who's battled three bouts of cancer and still survived and living on

the Supreme Court doing quite well. So I think people admire her in many ways. And she's obviously a very very smart person, top of her class at Harvard Law School and Columbia Law School. Uh, successful marriage for more than fifty years to a great tax lawyer who's unfortunately passed away, and h a person had that many women really admire for, and and and men as well. Meyer for her her intellect, her gumption, her um overcoming physical problems.

I think she's, you know, the notorious RBG, as she's been called. David. How does Justice Ginsburg feel about the perhaps politiciz politicization of a court given some of the recent appointments to the court. Well, she's not going to comment on that directly, and did not. I mean she just you know, when you were um a Supreme Court justice, people don't usually ask you questions that you have to answer she can deflect them, and and she deflected things

like that. But I think you know, generally her view is that the court. I'm speaking by my senses that she that the Court has been probably been somewhat more politicized than she would prefer, not for for anything that the justice have done, but just the way that the confirmation processes work. Her confirmation process was not as um

confrontational as something we've seen recently. Yes, Sunstein in his wonderful book Impeachment, takes an interlude David Rubinstein in the middle of the book, and the Harvard law professor says, Okay, here's the originalists, and here's the few shades of originalist, the conservatives, and here's the many shades of a more liberal, more modern Supreme Court justice Buyer and in RBG in the rest of them, define exactly her liberality is. She

contributes to American law? What what is the school of RBG. Well, remember, she was criticized, as was Justice O'Connor by some for say that they're incrementalists. In other words, there were some women's groups that were not in favor of uh of RBG getting onto Supreme Court because they said, not not all but some women's groups said she wasn't strong enough in supporting Roe v. Wade, and that's because she had

a different way to analyze that particular case. I think that she's basically a very fastidious um student of the law, a great law school student, and she believes in incremental change, I believe, and therefore she may not be um, you know, everybody's favorite justice in terms of doing all the things that some of her support as would like her to do. But I think she's well respected by other justices because of the way she really analyzes the log and she

writes her opinions with great, great care. Um. She doesn't have other people writing them. She writes the opinions and she is They're very meticulous, and she's obviously writes a lot of the sense. So, David, I know that Justice Ginsburg has said that she plans on remaining on the court as her health allows. But did she give you a sense of kind of how she views her legacy.

She's had such a long tenure on the court. Um, many people don't like to talk about their legacy while they're still in a particular job, and she doesn't really want to talk about it in quite that way, but I think she will be she recognized that she'll be seen as the second woman on the Supreme Court, as I said, probably the longest serving woman to have served on the Court. Uh, and she's seen as somebody that

rises above the view of most justice. Most justices are not known by the public, but she is known by the public and such a stent that she gets standing ovations or where she goes. At the National Book Festival this year, there were about twelve thousand people lined up just to hear her talk about um, you know, her life. And there are she does speaking events around the country now and one in Kansas recently. I think she had

eighteen thousand people show up. So it's very unusual for justice of the Supreme Court, many of whom are unrecognizable to the public, they get that kind of attention. Harkens back to Oliver Wendell Holmes. David Rubenstein again, congratulations, appear to be your conversation. We're gonna do this across two weeks with Ruth Vader Ginsburg. Thank you so much, David Rubinstein.

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 Keane Before the podcast. You can always catch us worldwide. I'm Bloomberg Radio