Surveillance: U.K. Court Ruling Suggests Brexit Will Help Pound

of course, on the Bloomberg News. This morning, out of London judges ruling there that there has to be a vote in Parliament before the UK government can begin the two day countdown to your countdown to bregsit. The country's Supreme Court has already made room for a December appeal on its doc at. Stephanie Flanders of JP Morgan Asset Management will join us in just a moment as we wait the results of a monetary policy review and new

inflation projections from the Bank and England. We expect that at eight o'clock Wall Street time will bring you bo E Governor Mark Carney's comments. Shortly thereafter. In Washington, it was as expected, a dead meeting yesterday. The Federal Open Market Committee left rates unchanged, hinting they could rise in December. Let's get to the latest done Brexit. I want to bring in Stephanie Flander's chief market strategist for the UK

and Europe at JP Morgan Asset Management. Good morning, Stephanie. Morning, good to him. Let's let's start with the ruling itself here, a panel of judges designing there has to be a vote. How big a blow is this to the UK government. Well, I think it's it's a blow to the Prime Minister Theresa May, who had said very clearly and loudly that she didn't want to have this vote. So in that sense it's obviously a jolt to her standing and her authority.

But I would caution those who are sort of seeing this as a sign that somehow the UK is not going to have not going to leave the EU or something that that Article fifty is not going to get triggered for member. This is a vote of members of Parliament, many of whom have constituencies that voted to leave the EU um and certainly even if they didn't, they will not want to be seen to be kind of not

respecting the people's will. We had a majority vote to leave, so I think we should be cautious of suggesting that this is somehow a sign that we're going to have a softer form of Brexit, or that maybe even that the UK won't leave the European Union. I think if there is a vote, it will be a vote in favor of triggering Article fifty, so we may get a bit more debate about what, what you know, life outside the EU will actually look like for the UK, and

that would be good perhaps for transparency. Put this in some context for us if you would a few days ago at a Northern Irish judge rejecting a pair of challenges to to the to the Brexit process, how does this fit into the panoply of legal challenges we've had. Well, as you say we've had, there are lots of different challenges. I think this was always the strongest one because there was a feeling even among some people who voted for Brexit.

I think even one of the lawyers involved in this challenge of the government that has one today had voted for Brexit and just had quite a strong feeling that parliament sovereignty should be respected. I think some of the other ones that question whether or not the referendum has any binding power any of those things. I think they're

less likely to go anywhere. But this is this is always a serious one because many people when they voted for to leave that you were actually voting to put Parliament back in charge and to give British institutions power that some say that they had lost to European institution. So it was always a bit odd to say, well, we're going to do this, but we're not going to let parliament have a say. Remind us who who brought

this case here? An investor in a hairdresser. Yes, although actually it ended up having quite a collection of people attached to as I say, because it was considered to be quite a good have quite a strong case. Um. But as the judges themselves said, it was you know, they were very specifically saying, this is not a judgment about the rights and wrongs of Brexit or a particular

model of brexit. This is about the legal process. And what they judged was, once you trigger Article fifty, because Article fifty says that you have two years then to leave the EU and that's going to happen, come what may. The view was that that was overriding Parliament's power, because even if you had a parliamentary vote somewhere down the way, if you were definitely going to leave, you'd never given Parliament a choice to say whether they wanted that to happen.

Theresa made the Prime Minister saying she will appeal this decision, and the Supreme Court already has carved out some time on the December darket. Yes, and that's obviously an accelerated timetable, both you know here and in the US, there's usually takes a lot longer for these kind of appeals to

work through the courts. But they're clearly understand that this is something that has to be resolved and they would certainly the lawyers involved in the case have said they expect this to be resolved one way or another by the beginning of the year, So that would clear the way for or the Prime Minister to stick to the schedule that she suggested, which is to trigger this Article fifty process notify the European Union that the UK wants

to leave formally by February or March. Looking at sterling here against the dollar, it's at one forty one a three week a three week hi against the dollar. How is the market reacted to this, the legal maneuvering that this waiting game here to get some clearly on the process well to this. This decision obviously was was genuine news, and there was a big bounce to sterling that came from that, which is largely continued the The equity market initially had a positive bounce and then has come back.

But of course we've seen over the last few months that often the pound and the equity market have moved in opposite directions because the equity market is so dominated by companies with foreign earnings that are that are helped by a falling pound. So I wouldn't read too much into that. I think the pound move is the most

significant one. Whether it will last, though, I think it's a question mark because, as I say, there's this kind of initial a jeep knee jerk reaction to this, which is if it's anti treason May and if it's anti government, it must be kind of anti Brexit. Um. I'm not sure that it does put into into question, you know, that fundamental direction of the UK, and if that's that leaving of Brexit that's brought the pound down, I think the pan could go back down quite easily. Yeah, I am.

I wonder sort of here in the US, when there's a Supreme Court challenge like this, often there will be other parties who will sign on. What do we know of who might join this case and what it might look like. Give us such a sense of how this will play out here in December, Yeah, I mean there's not. It is a slightly different process, uh, and a lot more wigs involved than in the US, So it doesn't end up doesn't tend to be the same kind of bandwagon that you might see in this kind of very

politically charged case in in the US. Now that the government has actually said they will appeal this decision, there was some question about whether they would, but they are now going to appeal. Um, it'll be a fairly I think the actual legal process will be quite orderly. Of course, what you will have and you're already seeing I'm looking at my Twitter feed and just the order of the comments and the reactions by politicians coming into this vote.

You will have a battle over the interpretation of this ruling and what kind of what that vote would look like once we do, if we do indeed have a vote in parliament, So all that. There'll be a lot of political debate around this, but it won't largely be in the in the sort of hallowed courtroom. It will be on the airwaves of Bloomberg and everywhere else. What did the focus has a lot of other news today and out of the United Kingdom a good p M number.

Stephanie Flair is, what does it signal this resiliency post Brexit. Well, I'd be inclined to say partly its signals that we haven't left the European Union yet. So all the things that one might be worried about in terms of the impact of the economy, you know, nothing has actually changed. So any effect that you were ever going to see was to do with expectations and uncertainty. That hasn't flat translated into a falling tumor confidence, which you might have

thought it might have done. So that's that's showing strength. But we've certainly seen it translate into weaker investment intentions and concerns around what the trade outlook in the next few years is going to be. So, you know, the resilience tells us that we haven't had the short term hit the confidence we might have had, but we are going to have a big hit to consumers coming down the track from higher inflation, from the fall in the pound.

That matters in the economy that is completely dependent at the moment for its growth on consumer spending. So watch this space. I really don't think that this this the impact is going to play out over a long time, Stephanie. Thank you so much, Stephanie. Playing as a GP more going to set management and most beneficial they've ever run. As we got to Charles dooma TSL Research, United Kingdom ten year guilts that's their note yield rises six basis points to a one point to level. Charles Duma. The

inflation jump by the BOE. Are you surprised at a two point seven percent statistic? Well, I mean, you know they have no they have totally poor forecasting record, but there's nothing wrong with that number. The latest quarterly, I mean just the latest three months, I've seen an annual rate of inflation around two and there's very little doubt that the target, which is to percent, will be exceeded significantly by next year. If you're not by the end of this year. So um so that you know they've

done the right thing. I mean, we're looking at a country with a growth rate that's been about potential for a while, with full employment, and with a huge devaluation and inflation at or above targets. I mean, the only thing they can do sooner or later is tighten, not loosen. The b he's saying it has a limited tolerance of above target inflation. A shift in tone here, saying monetary policy can respond quote in either direction to changes in

the economic outlock. What does that What does that response look like? That response looks like softening people up for the fact the next move is going to be tightening, not not easing. The weight of this court decision, of course not not felt in the minutes directly, but it's certainly the backdrop to them. The BOE saying there is still persistent uncertainty about that EU deal that's going to

weigh on on the UK economy. I know you've just been pouring over the minutes as we are, as we have been here, but talk about that weight, how heavy that weight is, and how much how long that's going to continue to drag on the UK economy. Well, the real question is how seriously people choose to take it, Because you know, the external carriers as the EU. I've seen some people say it's averages sleeps in others that

is average six whichever that is. The devaluation of vastly exceeds at an so that the access have written to the to the main markets in the Arizone will will be better than it was before Brexit, before the Brexit votes. So in that sense, um, it's it's it's not a major material factor. But of course as people think it's a major material factor, then um, then people will be sensitive to the progressive negotiations which are going to take years.

Well that's the key phrase here, Charles, and this is something you've been so good at in your research, is the phrase it will take years. The media and David and I are is guilty of anybody is trying to get to Friday and the US jobs report. You get to look you get to look out longer. What is the linkage of these market actions to a statistic is simple? Is real GDP in the United Kingdom? Are they linked

or is it over over overweight? Well, I frankly no, I think they linked to a view about about Brexit which is wrong, name that it's going to be a disaster for the British economy um. In fact, my main concern is that the British economy actually needs a significantly low exchange which is now got um. But of course that could easily get unwound if if people reach a conclusion that actually things aren't about Yeah, well let's get back in. Let's have you be the first one to comment.

Then Robert sind Jammer's Pierpont completely goes the other way from consensus and says, look, I since says I don't see bad data, and he doesn't single point forecast, but he models a vector to a one thirties sterling. You don't think that's outlandish, do you? No, not at all? No, no, no, I mean it was one thirty a month ago or so.

And I'm not sure that they were so wrong. Then So, if if we are overestimating here the effects of of the brexits, is it because we's because the trading relationship is relatively small. And if that is the case, if we're Overstan, how long until we get past the psychological weight of the vote? Well, I think the trading relationship

actually is big. It's just that the change in the pricing of British goods as a result of that being outside rather than inside the EU is relatively small and therefore a large quantity of people will be exactly where they were before, and in fact some people are better off because of the devaluation, which is so it's not so much that the training relationship isn't important, it's just that the effect on his odd Brexit is being exaggerated.

To answer your question, how long it will take people, you know, I don't think it'll take all that much longer of the lack of disastrous numbers for people to start saying We'll wait a second. You know, that's unwind some of this over excitement. Stephanie Flanders from JP JP Morgan asked management at the top of the show, was saying the reason the numbers have been good is because the UK is still in the European Union. You don't you don't buy that argument that that, you know, I

think things will change once the trigger is pulled. No, I don't. I don't think that's relevant at all. I think that the relevant point is that is that the pound has gone down by much more than the external European tariff and so um, you know, in trading terms of it not seriously disadvantaged Charles, I want to get this and we'll come back and talk about a greater US economics in Europe as well, Charles Duma. When you look at the current account deficit, that's certainly where everybody

circles back to. Is the question the level of the current account in a hope for a lesser deficit, or is the issue the length of time of a substantial deficit? I think I think the size is the most important thing, and and also the direction, which has been upward. Of course, the current account deficit and current account deficits have been

coming into their own as determinants of foreign exchange. I mean, the the end for the last year has been very strong, at least partly because the current accounts in large scepters and people have lost conviction in RODA in the Bank of Japan. Similarly, the Eurozone has a huge current account surplus UM and as a result, the hero has failed to go down when Mr Drag eases yet more and

yet more um, contrary to popular expectations. Because the capital account is important, but it's no longer quite as important as it used to be, because you know, it's entirely based on on one's belief in central banks and that is weakening. Charles Duma with optimism on the United Kingdom economic and I might say political economic experiment with to yourself, Charles, do you share the same enthusiasm for the United States

And is this a fair that is grievously behind? Yes, I think so in a way the fits further behind than the UK UM and I mean you've got you've got an economy. I mean it's not as far behind in a way as as the Eurozone, where where they've got an economy growing acts and above trend, and it's on trend. The inflation rates is very fun it's not very far from the target. And they've got massive negative interest rates UM, you know, and q E. In the US you've got interest rated half percent UM in core

inflation rate of two percent. The actual inflation rate early next year is going to be over two percent because the oil price is up from early and you know, the economy is going at sort of about two two and a half percent, when unfortunately is the trend growth rags only one and a half percent. The trouble is that that trend growth is so much lower because productivity growth is much less than it was and we'll be

hearing a little bit this afternoon about that. But and that this afternoon our time, that is spawning your time. What do you make of the growth forecast the revisions there again the two se GDP forecasts one point four percent versus point eight percent and the cut to one point five percent from one in in Britain, yes exactly, I mean, yeah, yeah, well, I mean, frankly, these forecasts are almost impossible to make. But one the sort the sort of numbers are in fact probably at or above

potential in Britain um. You know, the the labor force, certainly if we're going to restrict immigration, is not going to be going up as much as in the past, and the and and productivity growth has been very small. So so I've got to say, you know, it means there's more if anything, whatever degree of overheating there is increases. And on top of that you get you've got the inflation effect of the devaluation. So it all heads towards tightening in Britain um. And you know in the US,

I think the same is true. What's the effect ben thus far of of of lower Stirling Again, we've we've seen the uptick today, but to what extent is currency playing on all of this, Well, I mean it is, it is important. The pound is. Sorry, the the inflation rate reached one percent in September from much lower levels earlier.

I slightly exaggerated earlier on when I said it could be above the tooth cent target by the end of this year, but it should be much closer to that too cent target, and it'll be above the top cent target pretty early on next year. But you see, until until June we were looking at inflation rates about a

quarter to a half percent. So it's it's it's way out. Well, let me circle back then, and to finish up here, Charles Duma with what we see from bo E today, which is a two two point seven run rate on inflation twenty four months. What's where will that inf Asian statistic for the United Kingdom? Is it above three percent? No,

I think that it'll go. It'll go about two on an impact effect of the devaluation and that and once that moves out of the data, which will be sometime late this year, the twelve months data, that is the the the growth data, prices will probably start to ease back quite quickly because there probably won't be a complete follow through in wages, unless, of course they carry on

staying easy. But it seems more likely than not that certainly if the government goes towards an easier fiscal policy we talk about that that that the bank thing is going to be tightening quite soon. This has been wonderful, Charles, I thank you so much. Just the news flaw this morning extraordinary and it's great to get his perspective. And again, folks, what we try to do on surveillance, David, We've heard this all morning. Two starkly different views to star in

the future of the United Kingdom. Just stunning. Yeah, and great to to contrast them with each other. And again the new Slat of London in particular today particularly strong with that court decision out just before the show kicked off this morning that the Parliament would have to vote on whether the Government could trigger Article fifty and and the reactions subject yes, subject to appeal headed to the Supreme Court in the UK in early December. Who you

put your trust in matters. Investors have put their trust in independent registered investment advisors to the two and of four trillion dollars. Why they see their roles to serve not sell, that's right. Charles Schwab is committed to the success over seven thousand independent financial advisors who passionately dedicate themselves to helping people achieve their financial goals. Learn more and find your independent advisor dot com. David blanche Flower

joins us now. He was kind enough to be with us yesterday for the FED and joins us today with the most British perspective as well. David, what you are so good at and this goes back to your wage curve. Classic is the idea of a nation in the partition of its labor. Is London so buoyant, so unique, so world class, that the buoyancy of London can support all of the United Kingdom towards a lesser inflation, better economic

growth compared to the gloom, and to a better, stronger sterling. Well, obviously it's a big positive and a big help, but it can't compensate for what's going on outside London. And you only have to look at that house prices. So the answer is it clearly helps, but it doesn't help enough. And what we've seen this morning are forecasts from the MPC which are better in the in two thousands sixteen

and somewhat worse later. But actually what we're seeing is very slow growth, arise in unemployment um and actually quite a big pick up in inflation. So the story is despite the strength and the resilience of London, it's not being able to really kind of deal with the the oncoming shock of Brexit. And I always want people to keep in their minds that the business cycle rolls, and

it rolls eight to ten years. We went into recession in two thousand and eight, where you canna add eight to two thousand and eight, So presumably there's a Brexit shock, but also there's a there's a presumably a recession shot coming at economies around the world, especially to the UK. So these are very tough times. And in some sense the ruling in the court this morning, which suggests that perhaps the Brexit shop will be less than have been suggested,

had very positive impact on the pound. So this, I think this is big uncertainty. But London ain't enough. Okay, David, would you inform the good professor from the Dartmouth bubble that I cannot add two thousand eight and just understands where you're watching that basic you got that rat baseball that baseball game. You know, I don't come on, I don't give you grief about Premier Football. Don't give me grief about Indians clubs. Danny, you mentioned that court case.

Mark Karney was just asked about it. He said he can't comment on it, but he said it's an example of the uncertainty that will characterize this process. What happens in this vacuum, the short term vacuum now between now and when the Supreme Court takes up this case. The bigger vacuum between now and March, when Thereason May says she's going to pull the trigger on Brexitt. What happens politically and what happens in the monetary policy space. Well, obviously the big deal I wrote about it in the

Guardian this week. The big deal was with the attack acts on the independence of the Bank of England this week eventually resolved itself by Mark Carney saying yes he'd extended by one year, not three. Um. Now what happens is the pressure turns to the fiscal authorities and the Brexiteers actually started to attack um Hammond. So that's a big part of it. UM a great uncertainty. The central

banks are trying to stand and be stabilizing. I think the vote today actually your commentators earlier talked about what the decision to day did. I think actually it does one thing. It forces the government to actually make much more clear what their position is actually going to be, what their bargaining position is. They sort of said they're not going to tell anybody because that would make it

be a mistake. I think that was a huge mistake, and I think Parliament's going to force them to say, well, what is it that you want? So maybe maybe this decision will actually force some clarity. But I think the really big word is uncertainty. Mark carn clearly would not have known the decision because they made the decision in the last few days and did their format. So this so this move perhaps slows Breaxit perhaps makes the move to hard breaksit less, which the markets will like. But

I don't think it really resolves anything. I just think this is a self inflicted wound, an economic tsunami. We're looking at the biggest three year overshoot this bank has ever predicted when it comes to inflation. Mark Carne acknowledging that a few moments ago, what does his acknowledgement of that say about Mark Arney, about the Mark Carni bo Well. I think what it says is that they've been trying

to do their job. They've been trying to ride the political storm that's been coming at them um and they don't have an easy task. I mean, the big thing that I look at is that in two thousand and seventeen, three months ago, they were forecasting CPI have two. Today they're forecasting two point seven. And there's an overshoot in two thousand and eighteen as well. So these are tough day. These long memories of the great moderation. This is a

great moderation disappeared. This is a great confusion, I think, Danny, I've had the privilege of being in your lectures at Dartmouth to watch a room silent as you go on. Villain Bowder gave us the great privilege yesterday of a dissertation on I S. L M. Hicksie and economics. I put the chart out on Twitter. Let me have you way in here. Bowder is adamant that we have a near horizontal LM curve, which means it's non responsive to

interest rates. That's not good for chair yelling, and we have a vertical near vertical I S curve, which means the best we do with our monetary policy, we can't goose output and make GDP better. Do you agree with Professor Bowder that fiscal is the only solution to slam the I S curve to the right? Is that the

only outlet we have? Well, it's probably not the only one, and he's not saying there is nothing that can be done, but I I certainly took the view that the greatest macro era we've met that was made since two thousands nine was actually this dreadful, reckless thing called austerity. And I think the reality now is with the interest rates so low, with such high levels of asset purchases, and shocks coming along, the reality is that the fiscal authority

is going to have to do something. And it's certainly clear in the U in the UK because the next three weeks the chance is going to have to move. But it's a reality in the United States as well, because remember there's a shock coming, you're going to have to deal with that. So I do think that the

fiscal authorities have learned their lesson. Hopefully, I mean I hopefully today William and I can clear austerity is dead and it's now time for the fiscal folks to take over because the central banks have been the only show in town and they can't do much anymore. And William's right very quickly here, Professor. The critics of David blanche Flower will say, we don't trust the government to pull

back on the fiscal excess when needed. Do you have a confidence that, with all we've learned in the last eight years, we can be responsible with our fiscal excess if we need to provide immediate fiscal stimulus. Well, I think that. Obviously the concern would be do you take the punch bowl away the appropriate time? But the problem has been the punch bowl should have had stuff in it, So I think that's really rather the wrong question. Now the question is how quickly can they act? Where does

this go? What's the best way to do? So? Um, that's the way to think, and we will we will think about what to do to take it away, But taking it away with that problems in the first place. David, thank you so much for being with us on short notice. I promise the next time you and I get together we will discuss Ernie Banks Professor Blanche Flower from England. From Hanover, this is Bloomberg. David Durry here with Tom Keene.

A great pleasure to have with us. The pioneer of index investing, Jack Bogel, founder of the Vanguard Group, a former CEO of Van Guards. Thanks so much for being here. Is Mr Bogel old enough to remember the last time I'll let you ask that questions? I'll let you ask remember like it was yesterday. Good morning, sir. We hope you are healthy and proper David to begin to begin to chat with I watched the whole Dorn thing last night.

This morning, there you go. Let me ask you. First of all, we we've we've just heard from the Bank of England, we heard from the Fed yesterday. As you're investing, as you're thinking about investment today, to what degree are you weighing what central banks are doing? Well? You have to take that obviously, have to take it into account as a background for what you're doing. But those, some of those, the market is very much to me, the financial markets at least are very much on their own.

The central bank is only part of it. They're a good indicator of inter national policy in both cases, Um but small changes. I think we should just ignore it. To be honest with you, what what to what degree do you think they're cognizant what's happening in the in the financial markets. Are they paying attention? Are they making decisions based on the fear or awareness of reactions in

the markets. Well, certainly of the Greenspan FED was very sensitive to market fluctuations, and I would say that the new FED Federal Reserve Board and chairman are somewhat sensitive to that. But you almost have to be because the stock market, for all its fool foolishness, and the Lord knows that there's plenty of That is a one way of taking the temperature of how investors feel about the future. Jack, We all know the trends of passive verse of active.

It is. There's no other thing discussed, frankly that I can tell the mutual fund business and what it means for our listeners and their retirement accounts. Where is the world that you invented? Where is it in ten years? Where is it in twenty years when the Cubs win again? What is the what is the what is the impact of what you wrought? Not now, sir, but two decades out well, you know, it's it's hard to look ahead, but it seems to me that this is a very

enduring trend. And when people say that that the indexing a phenomenon, and the phenomenon, indeed it is is just a passing fancy, I say, it's just I think we can be certainly using your number, Tom, the twenty years from now that we have more cell phones than youth around the world than there are today, there will be more indexing and youth around the world than twenty years

from now. It's a very powerful trend. It's built on, as you know, and sound economics, and we all have finally come to recognize that the market total stock market, the value of the market is a is a finite number. And the key thing, the returns are generated by businesses who earn money, pay dividends, reinvest the rest for growth and efficiency. They're competitive and they're efficient, they're innovative, their technology oriented, and we we accepted we access that those

returns through the stock market. It then becomes a question of how are the stock market return shared among investors and among Wall Wall Street itself, or or maybe how are those in return shared between Wall Street and Main Street so getting a larger share for the investor is clearly good for investors. There's no way around that. And it's equally clearly going to make some dramatic changes in Wall Street because because the revenues look at down, relative

revenues are certain to get down. David I just put out on Twitter a Bloomberg chart that I'd recalled from a year ago, and it is stunning post crisis, the shift. It's just just no one would have predicted it, except maybe Mr Bold. Jack. Let me ask you about risks I've I've read that you like, you like risks that you're able to understand when you're looking at the world today. What's a risk or what are some risks that you

have trouble getting your head around? Well, the risk that I just don't know how they're going to come out, I mean I can understand them pretty well. And tremendous uncertainty about the coming administration in in the United States, about our coming election. You know, it's pretty clear um that there may well be, depending on who wins, greater uncertainty about the federal government's role in our economy and policies that are out there, that that are proposed to

impede fair trade, of free trade among nations. That's a big negative. Um tax policies that increase through the inequality we have in our society, and you know, the lack of diminution or a word of NATO and the European economic policies increase racial tensions. We can see all that in one of the candidates, and every one of these major negatives, our major negatives for our society, for our economy, and for our financial markets. Sort of sensitive time now.

That said, and my fellow Princetonian Donald rumset Fell was noted for saying, and you know, how how are those known unknown is going to be resolved? But what about the unknown unknown? And that's a very wise statement. There's always something going on that you don't know about out there nobody's thinking about. But I I think the markets

are highly valued, and I don't think substantially so. And these things that I just talked about, trade, role of the government, income in inequality, racial distentions and those kind of things will just make those uncertainties into into real

problems for our economy and our financial markets. David Grey here with Tom King, Jack Bogel joining us, the founder of the Vanguard Group former CEO of the Vanguard Group, and and Jack bring some comfort to a dad of two young kids who's trying so hard not to think about college more than more than a decade out here, looking at returns, looking at this uh long search for

yield wherever it may be. What's it gonna look like for folks like me ten years out well, you know, looking at ten years and and probably beyond, returns will be lower than they had on a historical basis and not very complicated. You know, the dividend yield in the last sixty five years I've been in this business has been around four and a half percent. Today it's two, and that's a two and a half percent deadweight loss. Earnings growth in that period was pretty close to five.

And with GDP growing at the rate you mentioned earlier, something like one or two percent this year, earnings growth is not going to be as high. And the market is robably highly valued at making a twenty three times earnings compared to a norm of seventeen. So I think if you're lucky in an equity program, you might be able to get five in a balanced program, maybe because bondi eiels are also low, so you just have to plan for that, and you're saving and not to commercialize.

You're wonderfully independent program. But by far when you look at those returns, you really want to kick across the heck out of the equation because those are gross returns at the market delivers and investment don't get those gross. I would like I would like Mr Gourd to continue this naive, serious discussion, and Mr Bogel, you're gonna say for not. Look, David, the way you do college planning

is to go to Blair Academy oh S five. And the way you do it you do the college spending beforehand, so that you arrive at college broke and Blair Academy, where Mr Bogel went a few years ago. It was a good place to start for the baseball that's that's an even better place to start now. But I should say I had scholarships and jobs there we knew not student loans, and my family had no money, so I got a long way on all I could do together myself,

but the generosity of others. But seriously, Jack, those days are over the idea of working your way through school today? Has that become a fiction? No? I don't think sell mean, I meet a lot of children, young young men and women, but I have done I think a hundred and three hundred scholarships and Blair and at Princeton, and they are

terrific people. I mean, they're very hard working, very international in their focus, very unselfish in their focus, very anxious to contributes to the community, as smart as all get out. And there are hope for the future. And and and your kids are the hard hope for the future too, David, I appreciate that. Let let me ask you that it's getting worried. It may not seem like it now makes a while to grow even took me a while to grow out. For me. We've seen changes in the in

the fee structures at hedge funds. Are we going to begin to see changes with mutual funds as well? As the is the appetite is the acceptance of of fees

going to start to erode across the board? Well, you know the typical active fund manager, and that's what dominates the only mutual company in this business, of the course, of Vanguard and the rest of them are run for their inside shareholders or their public shareholders, or the financial conglomerates that own them, and they're gonna they're going to hold the line on fees as long as they can.

You know, when you can operate this place, it maybe twelve basis points in the industry is operating at a hundred and thirteen. Uh. You know, if if they were to cut it their fees in half, take it from a hundred and thirteen to say sixty, they'd still be five times as expensive. See, you wonder what the utility is that so that they're and they're they're they're leaking, they're losing money. Active funds lost and in the last twelve months over a hundred billion dollars twenty billion dollars,

and it got even worse in September. Apparently that was those last twelve months were Sue, August, and September was about apparently a terrible months for them, and I should say October was apparently a terrible month for them. And so you know, they bet they're enjoying what they've got. Now it's gonna be unlikely for the mutual funds to

cut costs. They couldn't sell a new fund at the old cost, so that if they bring out a new one, that will be maybe a little a little lower cost, Jack, would you look at investing as David said, with those serious questions on you know, the actual assumption that were add a lot of this is predicated on corporate officers

behaving in the same way. Do you just assume out one year, five years, again, twenty years, as we spoke of before, that there will be this religion of deploying cash to shareholders and that buybacks and dividend growth will still be the backbone of of return. I think of the buy back thing is kind of mysterious. Number one which people I don't think understand very well come up

is a large number of those buybacks. We don't have good data on this, but a large number is because they issue all these options to their executives which dilute their earnings, and they buy back to balance the books. It's so that so that doesn't do it, That doesn't that doesn't improve the earnings per share at all. Just hold your word otherwise would have been so. I I guess the buy back is kind of a passing fancy

and there ought to be times. One wonders why these companies don't have can't find better opportunities to use their cash than buying back their own stuff. But your experience a Time Warner and Telephone is a kind of merger that can work out. I think bigness is one of the curses of our society. And you know, companies lose their traditional roots, they lose their interests in human beings and go to bureaucracy. They get bigger and bigger, grander and grander, and in a cynical way that is, and

more and more self important. The chief executives are and I I don't see much I like in the East griant mergers. And the government has traditionally been much more kind to what we call horizontal mergers companies entering new businesses. Um, sorry, vertical mergers, companies entering new businesses that horizontal buying up

your competitors. So I think that the Time Warner thing may go through with a T and T getting us right back to where we are in about nineteen and I guess the year A T and T spun off originally with maybe um nineteen eighty something like that, and we've we've all those telephone companies are now back as One's an amazing story. It is an amazing story. Thank you so much for being at this wisdom from Jack

Bold and someone. Whether you are with Van Guard or not of Van Guard, he has touched every life within the investment community. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on iTunes, SoundCloud, or whichever podcast platform you prefer. I'm out on Twitter at Tom Keene. David Gura is at David Gura. Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio. Who you

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