The Dollar Should Be Strengthening, Weinberg Says

I understand Tom Keane was literally up all night looking for arbitrage opportunities, and he'll bring you the latest price for our bitcoin futures in just a moment for more to get you up to spin. What's sounding in d C, though, is Carl Weinberg, the high Frequency Economics founder, charged with divorcing his political biases from his economic analysis. Dr Weinberg, great to have you with us on a program, Thanks for joining us, Thanks for having me talk to me

about how tough that challenge has been this year. Well, you know, the high Frequency Economics were divided. Jimo Sullivan is the House Republican and I'm the House Democrat. And it's amazing, though this year, how many things we've agreed upon, which is unusual, but it's been a very difficult time to separate politic politics from economics, that's for sure. Talk to me about how you've parked your politics to one side of the room and just focused on the economics.

What are you agreeing on? Well, what we agree on is we have some skepticism about stimulating the economy right now, with unemployment so low, with the risk of inflation so high, and our house view at High Frequency Economics, and it's in Jimo Sullivan's notes this morning, is that any stimulus to the economy at this point is probably going to move the FED to high rates a little bit faster

than it otherwise would have. And that is an implication of this policy that's not being talked about in Washington, but one that we talked about in High Frequency. So do I think of next year is just the Federal Reserve kind of offsetting any of a hating and the potential for a matt up, at least in the U. S economy is limited. I don't think offsetting is a fair way to talk about either their intention, you know, or what they're actually going to be able to do.

I think the FED and Jim writes about this in his daily notes today. Um the Fed's job is to keep the economy at full employment and to keep inflation under control, and anything that threatens that mandate is going to cause them to retract stimulus from the economy sooner. I just want to bring this up. These are two headlines that nobody cares about. But guess what they're coming out back to back, and I think, John, it really speaks to the tax legislation right on top of each other.

Hers she confirms packed by amplifies Snack Brands for one point six billion, Tiny Penn National or by Las Vegas Pinnacle Entertainment for about two point eight billion. But the news is that came out at the same moment here in the seven or two hour I mean it just it really speaks to John, the whole frenzy that we might get into here coming off text legislation. Is that what we're gonna say? Count more m and a more days of sitting here at seven a m. Eastern time

and just reading out headlines of another acquisition. You know, we just had a very interesting conversation on television where I asked this question, what are the yes? Well, I asked the question, you know, well, what is the implication of the tax code for M and A, And what he said really got my attention, and I know you're gonna be talking to him again in a few minutes. He said, you know, well, what happened was that nothing

stupid happened. So therefore a lot of deals that were on hold and anticipation that's something stupid would happen suddenly now are coming into play, are are being realized. So you know, maybe that's what the implication this is going to be the absence of something bad. We start strong in the monday, Karl Weinberg with us with high frequency Economics, and of course Mr fry Sack, we'll join us a bit on Fox Disney, CDs at UH and the rest

of ramifications for Global Wall Street, Bloomberg Surveillance. This morning has always brought you by Investco. Learn how invest gooes. Pure focus on investing, diversity of thought, and passion to exceed can help you get more out of life. Visit investco dot com slash more out of life again. The futures up nine. Uh, you know, John, I'm sorry, I'm on the watch twenty four eight zero nine on futures and the vix crushing down. I mean, we're not to

an eight handle, but nine point three six. Get your bullmarket attention. I thought you were on watch today. Yeah, I am, sort of. I had to quote up the Dow up twelve months a year to date. Excuse me, let me do twelve months trailing. Forget about year to date, let's do um uh one one year. There it is the Dow up twelve months trailing. I think yeah, and uh spu twelve months trailing? Bitcoin up again? You pushed it higher, John with your discourse nineteen thousand to sixteen

on bitcoin. I understand on the c m A you're buying five bitcoins per contract. I just said the size of the contract is a lot bigger on the CMA than the Sea bow. Yeah. I don't really understand it. I don't, you know. I defer to Matt Miller in Berlin. Does Carl Weinberg understand it? Does it make sense to your Carl? You know, I'm old enough to remember dot com stocks, and I'm thinking that what we're seeing in bitcoin is a lot like what we saw in the

dot com bubble and in other bubbles. I mean, people used to think that tulips had a lot of value. Also, Uh, I just don't get it with bitcoin at this point. It's certainly it's a very small part of the economy. It's a very small part of the market. It's a lot of excitement for the last week of the year when there's not a lot of news going on, but at the end of the day, I just don't see

the fundamentals behind it. As it becomes institutionalized though, and lands on exchanges like the Sea Bow and the cm A. Is there a risk that this bleeds if something goes wrong and bleeds out into other asset classes, or is it just still too small count Well, first of all, we have no history to look back on to to see where this is going to go, so we're all just kind of speculating about where it's going. And it

might get very, very, very big. But it seems to me that it has to be embraced by the big financial institutions for the banking system to be useful. I think what I hear more talk about these days is talk about central banks starting to deal with digital currency rather than going adopting bitcoin as their digital currency and going to digital versions of settlement and transactions in their

own currencies. Now we've heard two central bank governors say that that's not going to happen in the last couple of days Australia and Canada. But I don't think that that's such a far fetched idea. I think that's a much more likely possibility to gain traction than bitcoin, which is not backed by anything coming out. Is something that we've tried to question this program is where the regional

activity for bitcoin trating is really taking place. It seems to be really really concentrated in Asia, in Japan, in South Korea. What's behind that count I have no idea, and I honestly don't know how anyone has any hard statistics on any of this at this point. And certainly we can't look back at the trends of the last ten or fifteen years and say, well, you know, this is how it went for this particular reason, were completely unexplored territory right now, and again, my view is is

pretty firm about this. It's a very speculative currency, it's a very speculative commodity. And tell him that something you've noted as well, just the activity in Japan and South Korea that's dominated us. Right. If somebody said to me, right now, what's your major focus, I would say Korea.

I'm trying to read it everything I can and I can't say enough about Tim Coulpen writing for Bloomberg View, who has a fabulous, almost visceral understanding of non Japan, non China, Asian, but Korea and falling in the Gaia politics. So you're looking at I'm looking to Korea in the market forenzy. It's cultural, as Carl mentioned, its cultural, it's behavioral.

I'm curious about not only China, Japan, Korea, but the nuances but between the three and on this Monday morning with nineteen thousand two to two on bitcoin, and let me tell you, folks on a log chart, it's a moon shot and most focused on Korea. Could be wrong on that, but that's where I am right now. Let me do a data check here with Carl Weinberg, excuse me. Futures up ten deal futures up a hundred and fifty two UH tenure yield UH two point three seven up

to basis points, so lifted yields here as well. We did that within sharp curve steepening on Friday. Right now the curve fifty two basis points is recovered. Nice. I'm gonna call it a churn into the market really here with gold up four dollars twelve sixty one. Uh, the ounce as well, John, what are you looking at? What's sterling doing? Nothing? Right? It's a little bit stronger against more broadly a week dollar in J ten. Today the dollar weaker against nine out of the ten major currencies

in J ten space. And that's the story of the year as well. Can I ask you a question, all right? If this tax thing is so good for the US economy and everybody is so excited about it and so surprised about it, why isn't the dollars stronger this morning? I don't know, Kyl. I think we seem to be trading on twin deficits. It feels like a very E M type story to me, and I keep hearing that over the last couple of weeks as well. I just I just don't get the weakness of the dollar right now.

It seems like the dollars should generally be strengthening and everything is against it, and I don't see why. Carl Weinberg, thank you so much for being with a season with high frequency economics. I'm being incredibly rude here. You'd think John Farrell would bring in the United Kingdom Council General to New York with, without question, the most important British shure besides John apologizing to me, that's me apologizing to you. But I'm gonna ask one quick question here before John

gets two important issues. Uh, Anthony Phillipson with us you just finished as high aishion or to Singapore for the United Kingdom government. There is a primal wish of many British Ers to get the empire back. We're going to be global trade, We're going to do the empire back. What's it like to hear that talk when you visit the Shaney Cemetery near the Singapore airport, or the cemetery to the north where so many Britishers dined. How do you respond when you hear Brexitters say are going to

bring the umpire back? Well, thank you very much. Indeed, it's a great pleasure to be with you this morning. And that's not quite what the Brexits are saying, and it certainly know what the British government is saying. What we're saying is we're going to deliver a smooth, constructive

exit from the European Union. We're going to deliver the the will of the British people is expressed in the referendum in June last year, and then we're going to go and create a new free trading Yes, buccaneering in the way in the words of some yes, but this is going to be based on partnerships. This is going to be based on forward looking the economy of the future. We're not looking back because we're very proud of our history,

but lots of countries very proud of their history. We're very proud of our old relationships, including especially with the United States. This is about looking forward, not looking back. So naturally, Anthony, I have an English accent, so people always ask me in New York what's going on with Brexit? And I should probably just say call Anthony, because you're the guy that's got to turn around to people and

tell them here what is actually happening with Brexit. So you tell us what is going on because from the New York looking into Europe it looks like a total mess. Well, we're engaged in the process. The Primister kicked off when she sent her article fifty letters we call it in March this year. Last week, on Friday, in Brussels. The stage moved on to a really significant moment where we we concluded phase one, as we've called it, the withdrawal process. Um it's going to be a long process from here,

but we've made good progress. And the reason why this is significant is there are lots of people commenting on Brexit. We haven't given a running commentary on the negotiations quite deliberately, but Friday was a significant moment and I think that was recognized in statements from the Prime Minister was recognized and statements from Donald Tusk, the President of the Council, and from John clude Younger the President's Commission, and indeed

other other European leaders. Now we move on to the next phase of discussion, starting crucially with the question about how we start talking about the future trade partnership and then we start talking about how we implement that agreement between us moving forward. It looks like the UK is just going to be told what they're going to get rather than ask and receive that. The feeling you get through phase one is that the UK didn't really achieve

any concessions from the European side whatsoever. What concessions do you think the UK did get from the European Union and what do you think they're going to get in phase two. Well, I think if we look at phase one, this is we've always said it's going to be negotiation. I would say that we achieved some very significant moments. We achieved a first settlement on the issue of citizens rights, both for EU citizens in the UK, UK citizens in

the EU. We have always said that in terms of the financial settlement, we would honor our commitments, and what we did was we worked through in great detail with European partners what those what those commitments are going to be, and in the context of Ireland, which of course crucial for the people of Northern Ireland, we agreed that we would move forward in a way that would not return to the borders of the past. I don't think it's particually helpful to look at concessions or wins or losses.

This is about a negotiation and agreed way forward and that's what we are doing. So there's a lot of banks here on Wall Street that I'm sure asking you have a lot of questions. What is going to happen with the relationship with the e U twenty seven and the United Kingdom Post and how are they going to continue to operate Can they operate after in the same

way they operated before? So I think what I would say is that what they will be able to do is to operate in the city of London as one of the great financial centers of the world, along of course with New York. They will continue to be operating in a in a climate that will be a wonderful location for doing business with With the European Union. Then at seven UM, one of the former German finance minister himself said the other day that what Europe needs is

a strong London. They don't need to see London moving to other places. So the banks will be there, The banks will be there, There won't go anywhere. And we all love London because London is fantastic. I love London, but I'd like to know if they're going to continue

to have passporting. Are they're going to continue to have passporting, Will they get that concession from Europe, Because when we talk about concessions, I think it is important to know whether you get that concession from the EU for the city. What the negotiation will deliver is a new set of arrangements between London and the Eurozone in London and the seven That is exactly what we're about to work out.

The Chancellor himself gave a speech in the city the other day where he made clear that there is an absolute priority of the British government to deliver that new relationship. What exactly it looks like, we don't know. That's what the negotiation will deliver. You've got a hard job, Anthony Phillipson. They knew UK. A Council General to New York and Director General of International Trade North America, Tom Kane, you're forgiven. Thank one of all. We'd love to have you back

for a longer time. I would love to come back. There's so much, so much to talk about here, Council General, thank you so much. Without further ado, we're gonna continue with Robert Profuseck of Jones Day and I'm going to rip up the stript script because Bob, since just emailed in, Bob Sinch is an FX dollar guy. Is one of the outcomes of tax reform that foreign investment looks to come into the United States for complete acquisition or even

for some kind of minority interest in American assets. That's quite possible that a short term impact has gotta be stimulative. There's gonna be money coming back by US companies. It's there's there's gonna be But if I'm a European multinational, I mean, John, there's Unilever and they're doing spreads business,

which I you know, don't understand. If I'm a foreign company, do I want to bring money back into the United States and by minority or majority interests, Yes, you can, because it's just the rate differential is going to be different and you don't have to go to this structure. I mean, if you look at the structure of many non U S comp you know, we're we're real critical

US companies with inversions and stuff. You look at the other side, you look at their corporate structure looks like you open the back of an old time TV set. It was so complicated to try to deal with this high US tax rate. The dollar has had an awful year, Bob, and we often ask us sounds whether that really moves the donald for the C suite. Did they sit there and say other in Europe or an Asia and say, look at the performance of the dollar. Things got cheaper.

America's on sale for sure because and that's a financing arbitrage. If they're you know, financing it from what sure they can do it. And one of the things about again looking out from the US perspective of the European bring more money back in. There'll be more money here. There's been a lot of I mean, when you're the average CEO says I got two M and A possibilities in

the old days. If when we're off shore, you did it because you wanted to use up that off shore catch um Bob, I want you to define right now why a hundred jillion dollars at private equity is different than a hundred jillion dollars anywhere you look at pots of money. How do you treat private equity pots of money different? Well, there is that's about the right number for private equity. There's an amazing amount of capital that's been committed when you look at the fundraising this year,

but as cash cash it's been astonishing. The difference is they have to put that money or they want to put that money to work. Now that doesn't mean it is burning a hole in their pocket they're gonna do dumb deal, but it does mean they're in the deal business. Companies are in their business and deals that maybe a part of it, whereas a private equity guy that is hit his business is putting that capital. Am I right? You know? Pick on KKR, there's a general partner, there's

lots of limited partners whatever that put money in. They've got a big, big pot of money. And then do they pick an industry category and say, go review a hundred companies and let's see which five are gonna bid for the Absolutely there's some funds that are industry specific. The KKR is the Blackstones, the big ones. They're more generic. What they do very often look at where things are going, and you know, they're just like everybody else. There are

things that are hot for a reason. Now right now, I know this sounds it's kind of dumb, but it's hard to find an industry that's not hot. In M and A, it really well, again and again John Ferroll three headlines in the last hour, profuse driving the conversation. Penn National to buy Pinnacle, David Wilson will have more and it's Hershey confirms they're gonna buy Amplify snack brains. I don't even know what that is. Campbell's to buy Snyder's Lands. Shout out to Mario Gabelli who nailed that.

As always, I'm struggling to see why these companies need private equity financing at this point when the debt markets wide open. When you think about when these companies were formed Bob the car Loves of this world KKR, the opportunity set in front of them at the time is very, very different to the opportunity said in front of them now. You've talked about them needing to put the cash to work. They're struggling to find places to put a cash to work,

aren't they. Yeah, they are. And one of the things they're doing many of in fact, almost all of them, they're they're not just looking at traditional LBO transactions. A lot of them are doing financing. Um. While the debt markers are fabulous, if you're below a triple B, not so good. It's hard to get money because of the pressure on the banks. So guess who shows up in

that private equity there. Almost every private equity firm now is doing alternative financings, so called special situations, which usually means either distress or at least below investment grade. So they're doing everything else they've got a lot of money to allocate. Even though a lot of the major um PE investors, like the public pension funds and and and the like, have said they're dialing back, but they really haven't.

In the real world, they say it, but they this is an asset class you can't pass up, and it's huge. I haven't I don't know the specifics, but I'm certain there are four or five fundraising efforts where they raised over ten billion dollars. The problems when when KKR started out, if they could get to five hundred million dollars, that was a big thing. The problem, though, is it starts

from the top. Investors are looking cross asset right now, and they're looking at opportunities and they're struggling to find strong returns even in high yield where you get what five percent now historically incredibly low. So they're sitting there and they say, where can I put my money. Let's give it to someone else, and let's give it a private equity and hopefully they can come up with a better idea. So their access to cash is absolutely fine. They've got loads of it. They just done what to

do with it? Do they? And you raise the point about alternative financing is the future for PE in a much bigger way. Just an alternative financing bank, it could be. It's it's like almost everything in today's world of world of transparency and instant information. It means so many things are converging. I mean, think about think about Golden and Sacks. Yeah, it isn't everything today, right, I mean twenty years ago it was an investment bank. It's everything is converging. Now.

Does that mean we're all doing the same things? No, not really, Um, it's different. It's very difficult to get below investment grade credit from a traditional it's not very difficult to get it from private equity. From the investor standpoint, is this also an opportunity to get exposure to a market that typically it is difficult for you to get. And what I mean by that is many of these new technology companies aren't going public. The opportunities aren't in

public markets at the moment. They're in private markets. And they kind of stand there, Bob, they're not going public. Is that the way he is thinking about the situation now? From the investor standpoint, give the money to them and they can get me exposure to these and that's and that's the convergence. Believe it. I'm not. That's I guess the only word I have. But that's the convergence between VC and private equity investing. There is a convergence of

everything on that score. I look at this and I look again at the Frenzy, and a lot of our listeners are viewers on TV. I got a couple of emails on this. It seems almost like it's just all for the corporate class. How does labor end up within

the broader sense of transactions in America? Well, labor is very often um because synergies in labor's view, and I'm not sure it's all that incorrect synergies labor, I mean labor popping a hundred year a year, and all of a sudden it's like oops, yeah, because synergies is a different word for a nicer word for job cuts. Very often, rationalization is another word for job cuts. On the other hand, you know, if your business isn't performing even without him

and A, they're going to be job cuts. We see that every time there's a market a market break break. I saw that. You know, think about publishing, the actual publishing business today, Well, they've been deals here Tom Warner. Obviously it's huge, but time inc being acquired by Meredith. But if you don't do that, what are you gonna do? You're quickly Were you involved in the Alston General Electric transaction? Yes, you were in comment on that. You cannot comment on

that one. John, would you like to comment? Michael Barr, would you like to comment on ge Alston? I would love to. Okay, thank you so much, greatly appreciate it. With John's day, I was going to ask about a challenging transaction. It appears from General Electric. We greatly appreciate him with this. Am I getting out of this as smoothly as I can. You know you've done a good job.

And just say that the politics in Europe has changed so much in the last couple of years, whereby the European politicians are now willing to allow a big player in Germany to get together with a big player in France in a way that maybe they wouldn't have done in the past, because they know that the future is not competing France against Germany, It's competing Europe against China

in a much, much bigger way. And I think that's the change for me this year in Europe whilst we've seen some of these deals come through, is that the Germans and the French are allowing these big companies where they had a state interest to special interest to actually get together. Okay, well, very bad, profuser, Thank you so much. I've been really looking forward to this interview. Jared Bernstein

is a wonderful economist. I'm gonna say, with a tilt to the Democrats to the left, work for Vice President Biden, but he has such respect that all Republicans, all Conservatives at each at any time listen to Mr Bernstein with the Center on Budget and Policy Priorities, Jared Um, I looked at your website and you go where any good lefty kind of center on budget and policy priorities? Will you talk about the child tax credit? And this one, Jared of the conversation I had this weekend was on

state and local taxes. Do you people yet have anywhere in the vicinity of how low of income level married where the state and local tax disadvantage is tangible? Is it obviously it's like six hundred thousand five as an household income, I'll bet it's a lot lower number. Do we have any clue where it is yet I don't know that number. It's different for every state, but it is true. Somebody showed me some numbers for West Virginia that showed that that did the loss of that exemption

does cut for some. UH does hit some lower income families, especially those who by the way, end up paying more sales tax than income tax, which happens sometimes. That said, the bulk of those UH exemptions UH typically benefited those

in the top part of the income scale. You know, there's another concern there, which is UH that's Germane to folks like us at the Center on Budget, which is that we we believe that one of the reasons states are able to raise revenues in order to do the things that they want to do, which in some of these blue states tend to be sort of anti poverty kinds of things, has to do with the ability to

engage those taxes. So so the loss of that could impact state's ability sustain That's right where I wanted to go. Is a what what folks economists like uh Dr Bernstein called a second rounder second order effect. The massive second order effect is Governor Cuomo, Governor Christier, whoever follows on Governor brown Out in California in twenty other states. They're gonna have to change their actual intrinsic budgets, aren't they. They probably will, because not only will it be a

challenge for them to sustain their tax systems. Now people are going to look at their twenty nineteen filings in April and recognize that they can no longer exempt some of their state and local payments from their federal liabilities. But if they decide they wanted to raise revenues to engage in maybe expand their earned income credit or even do uh an infrastructure build out. Uh, that's that that

constraint is going to be a new one for them. Jared, there was a story a number of months ago where a well known hedge fund manager a very rich individual New Jersey and left a hole in the budget the affluent are bound to leave? To what extent do the affluent leave these states? Well, I'm glad you asked me that, because there's a very good article on page eight two of the Wall Street Journal which purports to answer that question. And the answer is it's not zero, but it's not large.

I think one study suggested that New York City could lose two to four percent of its most affluent folks. There are so many amenities in these cities, New York, San Francisco. The taxes are just one of the variables that keep you there, and it depends on your age and where you are in your career. Uh. To the extent that there will be some out migration, I think

it will be small. I had a conversation for the first time just last week about what would happen to municipal bonds from these states and whether actually we could face a serious problem in the coming years. You send Jared that actually you don't foresee that happening. The affluent will not go There will not be a budget problem in the coming years for some of these states. I don't think you're going to see anything like that happen

in the next few years. As I said a second ago, though, there is the possibility that you start to see some pressure from more affluent taxpayers because they can no longer uh, they can no longer exempt their state and local payments against their federal liabilities. And you know, three or four or five years that could that could start to pressure state budgets. No question, what are the Jared state and

local taxes actually get cut in some of these states. Well, I think that the odds are more that they don't get raised than they get than they get cut. Uh. You know, state budgets aren't in in great shape. They're still looking at rainy day funds, and and remember there's a recession out there somewhere, and I think, especially given the fiscal conditions at the federal level, a lot of anti processionary kinds of spending is going to fall on

the state level. So I think they want to build up their rainy day funds and and keep their tax structure and in as as an intact as they can for the near term. Now, let's come back with Jared Bernstein against Center and Budget and Policy parties. The analysis of this tax legislation now unsigned, will be just extraordinary. And you know, my amateur take is, John, it's a

complete mystery for every single American. As we go into the end of the year, we'll try to get some clarity with Dr At Bernstein, Senior Fellow the Center on Budget and Policy Priorities. 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