Surveillance: Progressive Capitalism With Joseph Stiglitz

much money in cash. It's been going into cash the last three years waiting for the Fed to finish hiking rates. They were supposed to finish hiking at the end of this year, not last year. That money has yet to come back into this market. I want to bring in from London Marcus Ashworth Bloomberg Opinion columnists. So Marcus, has that cash moved from the sidelines and into equities? It sounds so cliche. Just walk me through it. Well, I think it has. I think there's there's more to come. Really,

I mean, I appreciate what Tom is saying about. You know, why would you want to buy the high here? But and we are close to that selling May. We've got another week or two, it's come out the month. Then there's a little bit of moving around, going probably out of equities today into bonds, which we've seen in the price action. But the simple point is the dollar is is very very strong. Why because US equities are very high and strong and going stronger. And why is that?

Because the US GDP is going to be a better print in quarter one than the market had initially expected. The cold snap, the government shutdown that's past. Now, compared to everyhe else in the rest of the world, US economy, US equities are better than Marcus. You are an expert at this, and you wrote an extremely important essay last year and asset flows. I don't have it in front of me, but I remember it was a jewel. The bottom line is the Central Bank of the United States

reverse course. They've gone all dove essentially with price with rate cut stability forever, and that's moved all money to all assets at all times. How does that end. What's the history of how a central bank driven move ends? Well? I don't think The point is is that if you listen to Clarita that FED is absolutely on hold. That means that the big risk has gone. As you quite clearly staid there, the Federal Reserve hiking has been removed,

and quantitative tightening is also about to be removed. Brexit isn't happening for a bit. Oil is going better at the moment. There is enough momentum behind the market that with nothing else to do, you want to put market money to work in the market. And that's what's happening. The Fed is not going to hike rates for this year and possibly next year, and the next move may well be an ease, so that is an incentive to get on board. And that's simply the lack of any

better do. Yes, there's always risks out there, but money needs to be put to work, and that's what it's what's happening. Well, that's the message coming from a lot of people over the last few weeks. And let's be clear, it's been the right message because the price action has proved to prove that out to to oh higher on the equity market for spreads, the grind tighter on high yield as well. But Marcus, the cool on the dollar is a little bit more interesting for me. Strong dollar

short over the last couple of days. But the truth is we've been stuck in a really narrow training range over much of the last six months, we can't seemingly sustainably break one twelve on euro dollar zero nine as I speak. What's your call there? Well, I'm afraid I'm gonna have to say that the euro, you know, try to bounce above one thirteen, it's failed. It heads back down towards lower levels. Because the European economy is woeful and it's continued to be worthful. There is no bounce

in sight. There's a little bit of a dust production jump, but reality, look at orders and forward looking things. The European economy has got no good news at Germany, bit Itaally, Bick, etcetera. So if you look at what's happening for the euro, it's weakning same time so sterling and it's all really down to dollar strength. Why is that? Because the quarter one GDP number on Friday is going to be strong. Marcus As, thank you so much greatly perspective your SMPR

to record high and a few other industries. Joseph Stiglets of Columbia University, the Nobel laureate. He is the liberal that conservatives love to hate. Of course, he changed the language of economics of no no, they no, no, no, no, can't tie Stiglets. Krugman can't tie Stiglets. Shoels is the liberal the conservatives love to hate. We like Professor Sticklets. We do, okay, thank you. Anyways, Joe Stiglets out with the new book, People Power and Profits. And there's like

thinner Stiglet books and there's thicker one. This is a major effort by you. Clearly you're doing it because of the time of Trump. But what was the catalyst for you to write People Power and Profits? What the catalysts were two things. One, Uh, we have these festering problems growing inequality. I'd written about that, and after I wrote about it, uh night back in twelve, the problems got worse and worse, and now they've risen to the top

of the national agenda. But what worries me is we don't have a deep enough diagnosis of well that's well said, well said, and what to do about it. And if we don't do something about it, it's gonna really tear apart our country. And the book with a hundred pages of footnotes is that diagnosis type of book? I should point out. John Ferrell Krugman of CCN Why the Laureate as Well, says Joseph Stigletz is an insanely great economist. Krugman is as well. I want you to speak to

part of our audience that's conservative. They don't like liberals like you, but they're miserable. Their kids are miserable, they're grand maybe it's their their their parents are misible with medications or whatever. Speak to conservatives right now about why they need to read your book and start to think like liberals of another time and place. Well, if we go back, say to the years after World War two, America was in that at that moment, creating the first

middle class society. Everybody thought of themselves as middle class, and we were investing a lot in our roads. We were investing in education. Uh. Spook Nick motivated us to uh government to invest in R and D, and that put us on the way to becoming the undisputed to global champion in so many areas. Uh. Beginning around I think we lost our course. Uh. We adopted a doctrine

that the market will solve all our problems. Uh it didn't. Uh. What it did is lead to actually slower economic growth at all of the benefits of the growth went to the top one and that has meant that that middle class lifestyle that I talked about before has fallen outer reach of an increasing fraction of American So professors, is a critique of capitalism or a critique of monopolistic behavior

and abuses of markets. Uh, it's a critique of late twentieth century capitalism as critique of early twenty one century capitalism. But that's why I called my book Progressive Capitalism for an Age of Discontent, because I think the market is the only way that you're going to deliver long term economic growth. But it doesn't work with unfettered markets markets alone. You need government, their collective action, people working together for

at least two things. One, you have to curb some of the excesses, the excesses that we saw in the run up to the Great Recession two thousand eight, the financial sector, but also uh, the environment. You know, if we didn't have good regulations for the environment, New York City, Los Angeles would be as unbreathable as Delhi and Embajing is today. But the second thing is unique government investment, investment for infrastructure, for education, for R and D basic research,

not all the research, but the basic research. The discovery of DNA the discovery of the kinds of things on which everything builds. You mean, like fixing terminal five at JFK, something like that. Joe Stiglets with a major book. This is a thicker one, a deeper one. The subtitle Progressive Capitalism for an Age of Discontent. The book is People Power and Profits. Joseph Stigletts of Columbia University. It is now time to speak with a famed investments for energist

and equity analyst of higher stock prices. The economist Julia Cornado joins us with macro policy perspectives. Julia in any level you know, Abel bernanke MANQ whatever the beg, which is the British one volume folks on economics in every beginning economics book include including Paul Krugman's wonderful two volumes. There's one chapter buried in the back which nobody ever reads about linking economics into the stock market. Are they

linked right now? Very much? Though? I mean, I think we've been in a financialized world for the last couple of decades, and it's something that the FED has been catching up to. But clearly the rally we've seen has its foundations. The recovery, the rally back in the pivots by the FED and other central banks. That provides some insurance against what I been a slowing global backdrop. Let me ask you the same question answer Michael McKee, and both of you informed in your unique way, is what

happens when the message changes? What's the experience of what happens. It will be a speech in Dallas, It'll be cap It'll be Caplet's fault, or Powell's fault, or that guy up in Boston's fault. What happens when they get that one sentence out there? Right particularly when as we watch the earning season proceed, it's not all sunshine in roses in corporate earnings, so it's not a disaster. But we have SMP earnings tracking around four percent right now for

this year, which is a pretty subdued performance. So um, if you don't have the Fed sort of endlessly devish, then there may be some disappointment. So it is sort of shaky foundations, I think. Um, the real backdrop is that growth is slowing and earnings are harder to come by in a late cycle with rising labor costs in a slower global backdrop. So um, it makes next week

said in meeting that much more interesting. I don't expect the FED to change its tone, but you've had some people even get a little excited about the possibility that FED could cut right, and I don't think that the

backdrop we're seeing conducive of that. And as Michael can make, you mentioned the spread in opinions now, Julia is shocking the the If you take a bell curve, folks of forecasts, the tails are dominant right now, with people looking for a better economy and rate rises and people looking for real stagnation and sluggishness. And even as you say, Dr Cornado, speculation of a rate cut, what's your all? I mean,

I'm kind of in the middle. I think I actually do believe in a sort of soft landing, if you if you want to use that phrase. I think growth is gonna slow this year. I think inflation is going to stay subdued, so there's no reason for the FED to hike necessarily. But I also think that the FED is done enough through pivot, and you've got Chinese stimulus now that some of the worst case scenarios are likely

to be avoided. Uh So, I think that you know that that's going to maybe disappoint markets at times, but I think it's an open scenario for the Fed. On hold, do American executives trying to prop up earnings and margins and get decent organic revenue growth, are they going to get help with a fiscal up of fiscal stimulus or the advantages of the tax bill continuing. I mean, we still have a little bit of a tail wind from the tax bill, but I don't think we should expect

fiscal stimulus in this political environment. Um. In fact, we have a fiscal cliff coming up in the fall, and it will take all the political will in d C just to you know, eliminate that fiscal cliff, which would be a decline. Describe that. Describe the fiscal cliff. Describe that for us. So they passed a two year increase in government spending and it is scheduled to expire next fiscal year, which would mean government spending would fall back down to the prior level and that would be, uh,

you know, a decline in government spending. So the Congress needs to agree to at least at a minimum, raised spending back up to where it's been in the last two years. So that's going to require bi partisanship in an agreement. That's easy. That's that's a heavy lift. So I expect I'll get there because nobody wants, uh, you know, a headwind like that. But to expect some kind of infrastructure package in this political climate, I think that's just

not going to materialize new things for the optimists. I haven't talked about this in Asias, folks. It's good to talk with Juliet Cornato macropolicy perspectives about his confidence has really held up pretty well. I haven't looked at Michigan confidence in a while. I'm going to take the Bloomberg chart back to two thousand six and we exceed the confidence of two thousand and six seven. That that that that provides us with FED stability or even down the road,

a great rise. Right. Yeah, that's that's the very foundation of our expectation that the economy is gonna hold up, is that the virtuous cycle between the strong labor market and consumer spending. And it doesn't have to be a three percent performance that can can but that can pretty easily deliver a two percent performance. So you do have that virtuous cycle pretty well established and with the labor markets, so strong. Consumers are feeling better than they felt in

a long time. It's been a long time coming when consumers actually had a little bargaining power in the labor market. You see that in the equity markets as well. Dr coronetto things so much, Julia cornetto mecro policies perspective right now, the hydro Carbon Interview of the day, Paul Sanky missoo O, Paul, it always is fun to see a bidding war and grizzled guys like you know, egos getting the way. Who's got the bigger ego right now? Well, yeah, he said it.

I mean it's great. It's historic times here, Tom, and we've, as you know, he's had a tough three four five years waiting for some of this value to be realized that we've seen in these deeply discounted our stocks. So who's got the bigger ego? There's no question right here. It's oxy CEO of Vicky Hollob who says of this morning on her call that she is about to speak to shareholders, but on the reggae FD hasn't spoken to any I can tell you she's going to have some

pretty toughations. Well, you and your research note and this is really important folks. Thank you writing from a lot of experience on what kind of oil, what kind of day to day tactical business is it. Oxie really doesn't overlap with the anti Darko technological skill olds do that well, you know, the former CEO of Boxy, Steve Chas and really designed the company not to be offshore, um not

to be in Africa. If you remember during MRCONDO, the stock was a big outperformer during the big oil spill because Oxy was very much on shore US, on shore Middle East and to the extent that Anadarko is a very well known explorer, which Oxy didn't do, but also in a massive MOZAMBIICAMERNG project and West Africa in Gulf of Mexico. There really isn't a good fit here at all, and people don't like the fit at all, whereas with with Chevron, you you do have an excellent fit. So

it's a, to say the least, a brave move by Oxy. So, Paul, if I'm a Anadarko shareholder and price aside, let's assume the price, you know, the kind of trianglates we get to each bid is fairly comparable, Which one do I prefer? Do I prefer Chevron or Oxy? Well, I think you certainly prefer Chevrons stock here because obviously you've got a bigger, more credible bid from a bigger, more credible company in terms of, you know, the overlap as we mentioned with

Anna Darker. I think in regards to the higher bid for Oxy from Oxy, we've got to watch what happens to Oxy's share price. That's actually holding up now, I think partly because people think maybe Oxy did this to fight off Exxon. I'm less certain that that's the case. In fact, I doubt it, but that's certainly one market story as the Oxy went after an a Darker rather than lose itself to Exxon. Um. You know. So essentially there's some tactical issues here as to why Oxy is

doing this. But secondly, the chances are that the credibility of this bid is so damaging to the current Oxy management that the company now becomes in play itself, and therefore you Buyoxy on the basis and thinking over subsequent to this bid. As a former banker myself, I'm thinking about picking up the phone and making the cause and trying to shake the tree. What other deals do you think are possible in this space, you know, given we

have a bitting war here for a pretty attractive asset. Well, it's known that we've had man change at Pioneer, which is a shift back to to the previous CEO, Scott Sheffield. You know, he's pretty much seen to be dressing the company up for sale. We know in general that the Permian needs to be consolidated by the biggest players. So you have a number of players in the Permian who

are relatively smaller but have very good acreage. We're talking about the con shows perhaps less willing to sell themselves to diamondbacks, but then a whole raft is smaller companies, and people question why Oxy didn't just do a you know, for the less less risk arguably the same amount of money they could have brought three Permian players and being consistent with existing strategy. So but Permian is obviously the

hot area. Paulk you one final question within this hydrocarbon roll up that you just described as maybe a what if for the reality that we see right now, how much of it is oil priced off the memory of a hundred and ten to twenty nine back to the glory of seventy four brand. How much is the price

of oil link into the action were from executives. Actually, I don't think a whole lot, Tom, It's more the scale of the opportunity because this morning, for example, Oxy is talking all about the Permian and the attractions of the Permian as the primary driver of the deal. The other stuff is sort of, you know, an add on that they feel they can do well with. There's a synergy element here on both sides. So essentially, you know, Anadarka has a famously lavish headquarters, the famous double sized

dancing stag statue outside. You know, there's there's definitely a cost savings that can be known across the board here from managements that have wildly overpaid themselves. I mean these managements they're hated by shareholders for the amount and they've paid themselves for not performing very well. So essentially it's an industry that needs to be consolidated and cleaned up.

And the driver here is cost savings and you know, synergy improvements really very much late what we saw in the late nineties, Tom, when you had you know, struggling managements that had high costs and poor performance, and eventually the market takes them out, and that's essentially what's happening here. Paul, Just real quickly, what does Chevron do here? Did they

come back? Yeah? I think that the deal has been so well received that I can see them atting a bit that the Oxy bit is not a knockout blow. I mean, there's clearly a fiduciary duty. It's also hostile, which is, you know, again, historically a very bad idea. I mean, the last hostile might be of this scale might be Texico spaghetti, which ended in the bankruptcy of Texica. UM, but it's very unusual to go hostile. That's what makes

this bit of all the more remarkable. But you know, I think that they can take a look at Oxy's share price at Chevron see how the shareholders uh don't like this deal or KNOXI standpoint and then and then maybe bump a little bit and get the deal done. Welcome bit from Anadarka's point of view, either, I don't think, Paul, that was fantastic. Thanks so much for your context and color about this transaction. Is probably not the last we're

going to hear about this deal. Paul Sanky from Miszoo's Securities We love having them on talking all things energy and we have got an old fashioned a deal at war going on here. This is Bloomberg. We'll digress right now. For earnings. It's an annual visit and very important always for Bloomberg surveillance. They have always supported Bloomberg surveillance right from the beginning. The c f A Institute. I'm a member of the clan, the Chartered Financial and Analysts program.

It is three exams. It's a little hard, to say the least. And we are honored that Paul Smith UH, their president and chief executive officer, joins us UH today. Paul the cf A Institute, and I want to get right to the heart of so many younger people listening. The question I get as a c f A all the time is m B A or cf A. You get this ten times a day. Yeah, I do. And it's a great question. And and the answer, the owners answer is it depends depends where you are in your

career and what you know you want to do. If you know you want to be an investment management b A c f A, if you're still at the point of your career where you're not that sure and you want to keep yourself general, and you want more of a broader based financial education or a business education allied to a financial education than NBA probably enjoys. The gentleman from Yeah, so I went to Fucal School of Business, that duke from a NBA, like most Like a lot

of people in my generation, that was the route. Now I think there's I'm sensing that there is a lot more demand for or attraction. I guess on a part of young people for the CFA would have been the numbers in terms of people sitting for the test over the last five or ten years, well the last five years, it's gone from about two hundred twenty thousand people sitting the exams in any one twelve month period to about

three hundred and sixty thousand today. Most of that is driven out of Asia, out of China and India, primarily Here in the US, we have had growth, but it's it's pretty anemic. It's sort of you know, alongside of the economy really wants to percent pranum, that sort of thing um. But I think, you know, I think for

young people the payback is just quicker. Obviously, cf A costume maybe five grand if you fail one level let's say which most people do on average, an NBA is going to cost you multiples of that, and so um, there's that angle to it. I think the other thing which the NBA should sort of kind of think about, is you can fail the cf A. No one's ever met anyone who's failed the NBA. So from a perspective of of what does it do for you as an individual,

I think it says. It says in a way a little bit more about you than perhaps the average NBA. I don't want to, you know, delay the program here, rip up the script, but can we talk about that question on level two? That was a tough one. I won't waste their time on the hilarious of the hilarity of that moment. Paul Smith, you are here for the research Challenge. Full disclosure. I have had the honor and I mean honor of judging the cf A Research Challenge.

And what this comes down to, folks, and this is really important. Tom Keene has never written a twelve page report on Disney. Paul Sweeney as in the real world, and Paul Smith, this is people that really, really really want to be like Paul Sweeney, right absolutely that that's

for them and it's just wonderful, Tom. I mean, as you know, firstly to be surrounded by all these kids who are nineteen twenty two years of age, who still believe in our world, in our profession, haven't become old and cynical, and that in itself is a real buzz for me to be with these kids. And and they are super smart. As you know as an ex judge, UM, really focused on on what they can bring to our profession and there our futures. And this is really a

global story. I know you do this, so talk about the non US aspect. Yeah, well, it's it's nine schools from around the world, um, and I think about half of those are outside of the US. The final that takes place tomorrow will be two schools from America Moscow State University, UM, Lausanne University, Attano from Manila, and then as I say too, from the US who are fighting out the too from the America's to be precise, we're fighting out today in New York, so we'll know tonight

who those will be. So it's a wonderful. It's a wonderful way of bringing the world together. The final is going to be going forward always here in New York City. So for the non American universities and for those those students, is wonderful opportunity for them to come here, to meet guys like you and to be part of the world's biggest financial system. We'll explain this is in level four, Level five cf A Community Adjusted It. But Die Well,

I think you know, I was. I was listening. You had you had Joe Stieglitz on earlier on and he was talking, Yeah, but he was talking about he was talking about the fact that UH and and many others have done this over the last twelve months, how we need to reattach finance to a sense of purpose. And I think that's really what we try and do at the c f A. That's our mission is to say that there's a point to what we do, and it's to help grow the societies and the communities that we

live in. It's not just to enrich ourselves. It's important here. And I mentioned community adjusted because which is past suiting from we work and all the fancy new unicorn and metrics as well. Paul. To be fair here, the cf A did a lot of naval gazing in two thousand, two thou two thousand ten about how the cf A Institute and others got us into this mess, Alice Stiglets, we learned then, how better are we protected now in terms of transparency of what everybody's doing in the world

of being counting? Um, I think the accounting profession has um a lot of challenges going forward. I'm gonna I'm an account and the CFA so like a lot of charter holders where sympathy, yes, thank you, I'm a reformed or recovering accountant. And I think the accounting profession has a real challenge because so much of what the analyst

looks at today is non gap financial measures. And um, there you are making the point earlier on about financial technology and Netflix and all these companies that now have balance sheets and value that is non substantive, and how do we measure that as a profession? I actually, for financial analysts, Tom, I sort of turn that into a positive that I think that means that the human judgment is back, that data is no longer king. What you

need to do is to use your head. And but but I think the financial accounting profession needs to catch up a little bit with the way the world works. Well, Tom and I spent a lot of time looking at the asset management business, and we know that the just the head count in our set management is flattered down at least in the US UM. You know, they move towards a passive investing index and things like that. What I'm surprised to still see or hear about the rise

in the c f A exam folks. Where they going right, Well, well, that's a great question. I mean, obviously the developing world into traditional jobs, so portfolio management, stock analysis. You know, in the emerging market world, alpha can still be found for all sorts of reasons that we don't have time

to go into. But but that's for sure. So traditional jobs are growing in the developing world, in the in the developing world, in the in America and in Western Europe, people are moving much more into wealth management, private wealth advisory business. That's a boom area clearly that involves our members hugely, because if you're an individual, wealthy individual, you deserve someone who has a fiduciary standard and the technical and ethical ability to look after your money. So wealth

advisory in the West is a big business. What time for one more question, which which I think is important. I was mentioning in a meeting yesterday in Folks, the cf A Institute I use every single day in some kind of conversation, and I was waxing on philosophical putting people to sleep about the value of the Financial Analyst Journal and the academics that you're doing out of Charlottesville. Tell us the state of that right now, right well?

Very healthy. Um new editor was appointed, Heidi Rabishama, about eighteen months ago. She's trying to continue to improve the f A J and making it much more insightful to practitioners. I think there was a period maybe four or five years ago tom ware it had it got a little at Greek, was awful, lot of Greek in it, and people were, as you say, we're using it as a sleep aid rather than as a professional development tool. Hide this done a fabulous job bringing that back to the practitioner.

Wonderful posts revisited. I gotta leave it there, postmid thank you so much. He's the chief executive off for the president of the cf A Institute. And a major shout out to William Gross and Abby Joseph Cohen who wrote there a few years ago. 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.

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