Wage Growth is a Complicated Story, Shiller Says

in this that in about fourteen other things as well. John, I thought we'd wander into the land of tariffs, and now that folds over into a national agony on wage growth. What's actually quite interesting as the President has actually scored his first win without much media coverage on on trade, a revamped trade deal with South Korea. Maybe small at the marching, but you do wonder whether this approach of

this administration can generate results. Professor Schiller Cannon, Well, he's got people intimidated, and I think that it has an effect on the negotiations. I mean, it may have a positive effect in other area like North Korea. The you know, he comes across as a kind of unpredictable, aggressive guy,

and I think he does know something about negotiating. Isn't that a really good point that professor should have that maybe some people are missing that the approach towards China over the last twenty years hasn't resulted in any significant opening up of the Chinese economy under pressure just through talks that this is probably the way to do it, using a stick rather than a carrot. Well, I don't know.

It's not my personality. I feel unfamiliar territory to me, but I I think that a good relationship with these countries is also very important, and we're suffering from that right now. I was just in China last week. In the sense that I got was these these aggressive measures are are generating some anger and hostility. The anger and hostility, Professors, you've written in Finance and the Good Society and any of your other efforts is a societal scream in America.

All of our listeners know this. The haves and they have nuts. Paul Krugman yesterday dropped on us that concept of your classes. Monopsony, which is a dominant coal mine minor in a coal mining town is the only employer, or maybe a rubber plantation in Malaysia where there's one rubber plantation in a lot of workers, is America's agony here on trade actually about the monopsony of American business where they almost can't raise wages because of the dominance

of select businesses and industries. I thought you were going to refer to our trade policy as exploiting monopson moment. We may be exploiting it in other countries. But is the agony that brings us to this trade debate because of a lack of wage growth in America partly from monopsimistic tendencies. Uh, there has definitely been a lack of wage growth. Is it because monopximistic power has increased? Uh?

I don't I tend to that. It's undoubtedly a complicated story, but I think of important reasons why wage growth hasn't been inspiring. Is a technological replacement, labor saving devices and be globalization which continues. Do they dwarf the trade debate? I mean, when the president's trade deficits are bad, is that discussion, whether it's constructive or not overwhelmed like technology? Yeah, you know, the general notion that trade deficits are bad

is just not supported by economic theory trade. You know, trade deficits A lot of people want to invest in the US, so they that that helps finance the trade deficit. I don't. I don't think it seems like President Trump, in focusing so much on that measure is is misguided, just as he is in not not respecting the World Trade Organization, which is a outgrowth of the General Agreement on Tariffs and Trade in that was a post World

War two, post depression, post World War two active enlightenment. Uh, and now we're losing sight of that, Professor um trite deficits can be a problem with that persistent drawn out of over a long period of time. And if there are a consequence of subsidies and protectionism, which which China front and center, right right right, that's a problem. Well, I think there are problems. I think Peter Navarro, who is Trump's advisor, makes it into more of a war

type problem than uh. You know, there's there's there's there's something to be said for respect for other nations. I think we want China. I know it's it can be played as a cheat on American business, but on the other hand, we we do want China to prosper. That ultimately helps international accord. And uh, we we're talking about another massive nuclear power here. I think there could be more balance in our relations. Thank you for the time.

To the Robert should University, We're housing free there. Next time we'll beat him to death about the housing market. One of the great engineering programs of America is the University of Illinois Urbanish Champaign, and that is where she was minted out of or she studied her thermodynamics and also a little bit she probably quoted Python when she

was there. Eilean Bourbage uh joins us. She is a course definitive within the United Kingdom tech space, with a lot of experience with some of the tech giants over the years. We now speak with engineer Eileen Bourbage. Um, if you were to speak today II lean to the leadership of a beleaguered American tech industry, what would you say to them? Great question? Um. First of all, I probably asked him if I could get any sort of

tips on on their future roadmaps. But I would then probably try and advise them that now is a really good sort of opportunity for them to really step up and to really demonstrate that they've got mindfulness and consumer sort of responsibility at the heart of what they do. I think that's what people are wanting to see. I think the markets are worried about you know, regulation or overstepping from the regulators, and I really think the tech

leadership can actually thwart that. I think they can preempt it if they sort of demonstrate and communicate that they're thinking about these issues and that they're not taking them too lightly. Do you look at them, is publicly traded shareholder responsible managements or is there fiction of public ownership so great that they're basically private venture capitalists using the

system while they do their tech stuff. I do think not to be led too much by your great question, but I do think they've probably been given a bit of a path, and I think, you know, with these sort of voting rights than the extraordinary sort of setups that a lot of them have, they've benefited from not having quite as much scrutiny from the markets and from other shareholders as come on, they're not John crying over at Deutsche Bank. I mean, that's what it comes, not

John cry at Deutsche Bank. Is Facebook delivered a return of fifty on the I imagine it would be a bit different from Mark Zuckerberg, and if he hadn't, Eileen, the news coming from from Facebook is that they're going to make it more straightforward for users to change their their settings and delete data that they've already shared with with the company. How big a move is that? And

if that's the ultimate business model? Now, if if you're allowed to delete the data as an end user, how do they monetize the platform as efficiently as they have over the last couple of years for the next couple of years with that a new policy setting. Yeah, so I think it's a great step on their part, by the way, And that's the kind of reaction that I was sort of alluding to, where they've got an opportunity to do these things right and make meaningful interventions to

demonstrate that they're leading from the front. I think that the business model is not going to change because it's all on a scale, it's all spectrum and all very relative. Should some users choose to delete all their data, Facebook as an example, will still have more data on more people than any other platform in the world, And even should one delete their entire profile, they still will have the greatest ability to sort of target and offer insights

to specific groups of people based on other behavior. Um. So it's a it's a bet worth taking in it's actually a sort of a feature and an option for users which they probably should have had all along. There is an overarching concern amongst some analysts out there, Eileen on Facebook specifically, that maybe we're meeting this point of saturation for add growth. Are we anywhere near to that?

I don't think so. But even I've been skeptable about sort of Facebook's ability to keep the stating the growth that they've seen over recent years, and obviously I've been proven wrong time and time again. So I don't think what's happening now is a reason to think that they're going to be at saturation point. I think this is a minor stepback and actually has much more to do

with communications and use a responsibility. There's Silicon fen in the United Kingdom, or I guess Cambridge Cluster is one way to do they have the same arrogance over there, or is it discreet to Silicon Valley the mess that we've Silicon Valley. Well, I think there's no other place in the world that's quite like Silicon Valley, and I think the culture is different in Silicon Valley, having been

there a number of years. We've got silicon roundabout, but we also have a number of great huts across the UK, and I do think it's it's a different culture for sure, but there's lots to learn from both sides. So well, that was diplomatic. I come on, how can within the competitive landscape, whether it's an island in the East River of New York, Good morning, Cornell University, or it's what's going on over in the United Kingdom, how do you

people take advantage of the chaos? Mr Zuckerberg is rot Oh, it's fantastic. I mean, there are great advantages even if you weren't to think about data privacy and data protection. We've got great policymakers who think about things like this an event so DPR that's going to be coming out in Europe, but even specific subsectors, so if you look at fintech or financial services, you know, policymakers here have been really helpful for innovation and have been working sort

of in steps with the industry. That helps a lot. See that John Ferrell, that was just a wind And how vicious Eileen Burbage can be. Do you see how says it was just fantastic. I mean it's the nicest person in the world of tech eyes. When are we going to talk about cricket? Well, don't don't encourage him, Eileen, Please please don't encourage him. Apparently the captain has been

banned for the Australian team for for twelve months. Under yes, I know we're not going We're not going down the road, Eileen, looking forward, thinking about someone that might get shredded and have their eyes pulled out. Could be Zuckerberg, and it could be in front of Congress. The reports the last twenty four hours leading us to believe that the CEO

of Facebook will have his day on the hill. And I just wonder, Eileen, as an investor, how nervous investors should be about that, given that we know this is a man that's incredibly uncomfortable under pressure in those kind of situations, you know, I actually, I mean, I don't know how investors would feel. I would actually caution them that there's not too much concerned here. I think he will be extremely well briefed, really well prepped. He'll be

sort of trained in condition to answer appropriately. And I actually think it's a good chance for sort of the air to be cleared in that there's not going to be anything that's going to come out that's going to be hugely detrimental. I think it's going to be a very straightforward you know, here's when our tea sency is always allowed for this is what happened. Yes, we will now take greater responsibility to make sure it's easier to understand.

And we have taken these steps from A to Z already and so I actually think it's going to be a pretty strong opportunity for Facebook to say we did things correctly. We probably should have communicated even better about those things, and we will do our best to sort of help audit, monitor and verify that these things are

being abided by even more so in the future. I mean, one final question, if we could give us an update on how you see the continent of Europe's tone of regulation of technology, a reticence about the dominance of technology. Is that a trend that's growing, Is it's stable or is it just a moment for them. I think it's relatively stable, and to be honest, just sort of being on this side of the pond, I think it's been pretty consistent. So I haven't seen, you know, as Princeton, say,

a spike up or anything like that. I think it's been relatively consistent. Whether they're looking at tax treatment or they're looking at data rights and data protection, they've been consistent. And it just does happen that the largest tech companies are the ones that are squarely in the sites of where they might want to set examples or try and use for case study. It's going to be the American companies,

you know. I think what will be interesting is if they start to take a look at, you know, maybe what companies from Asia are starting to do as they become more influential, or they start to increase their user basis sort of over here in Europe as well. But I think they would do the same, by the way, for a company that's coming out of Europe as well.

I think thank you so much, Ellien Bourbage, a great, great, great briefing there with Passion Capital, of course, with their perspective Transatlantic perspective on that technology for Global Wall Street. This is a great interview. Features up six down, features up Mark Conners and the Credit Suites team. You know, I love this title, Prime Services, Risk and Portfolio Advisory market color and we're going to protect the copyright. We

don't send it out. It is a spectacular detailed report on what hedge funds are actually doing doing And Mark, I love what you summarize puzzling positions. I mean, it's it's a mess right now, right, yeah, it is. And you know, we always like to have one theme because that you know, not many people are can take on

three different ideas at once. But um, when you look at the rates position in which now we see funds net long to tenure, why would that be when we're stairs stepping up to you know, seven in or eight moves over the next two years. And people are selling base medals when we have you know, inflation, and they are selling banks, and we're expecting your characterize you've got all these esoteric things, mastery index, long short market blah blah blah. The trend guys and the commodity futures guys.

They're getting hammered. Why is that? So? They January was one of the best months they had, right, but January is years ago in the world of markets, and then they got hammered to your point in February. But one reason why we are little, we're pretty constructive, is that they got washed out. So these folks are trend followers and they can really ramp up the equity positioning, and they took it down in feb They went down to

a bottom desc style positioning. So we don't think that we're gonna have much follow through beyond where we are today on the equity market. What's the mood in raising money right now? I don't want to go into the you know, the nintet gritte of credit suite and what you're doing in prime brokerage. But can people start a hedge fund now or is it just brutal up there because people have to see fourteen years of track record for you to get you know, X million of dollars going.

That's always going to be the case about track record. That's great, we love your system, we love your setup, in your pedigree, uh, your space that you're in, but give me a call in eighteen to thirty six months when you you know, and that's when your heart sinks. So what we're seeing is a lot of platforms are seeding uh folks and having them in house. So they're letting the hedge fund keep their name, keep the track record if they do well, but they're gonna share in

the economics. So so the bigger getting bigger is what we see, and Mark the active guys must be loving this. I mean the last couple of months, they must be in a better place with a vix's north at twenty. So yeah, so what we saw was the reason why people couldn't make money was the great compression of two thousand, sort of post Q one sixteen, where it was all

a monolithic move higher. Everything went higher. So now you have dispersion, but it would be careful what you wish for, because not everyone's of the monetized the vol right, and so it's yeah, let's talk about that because I want volatility. I want volatility, and then all of a sudden that so I don't want this kind of volatility. It is this good vall so to speak, is it bad vault? It is. So let's just look at returns right to

what Tom is talking about. With returns earlier in the Master index UM hedge funds only caught about downside of feb So market was down, hedge funds were down only it March is going to be the test. So we're gonna find out, you know, week chaff, who the adults are in the room about how they didn't March. How do you respond, is a grizzled prime brokerage, strategist and analyst.

When you see the media frenzy over a few select ginormous hedge fund players, whether they're up x per cent or down wide percent, when you see them, you know, I want to pick up Mr Ackman right now. When you see that focus on a few guys, how does a grizzled pro like you respond to that? You you step back and you say, definitely a segment of the market, an individual high profile. But you know, we don't speak

about specific managers in case their clients. We look at the hedge funds space still three point one three point two trillion. That doesn't even speak to the alternative beta spaces that are derivative that some of these managers are also rolling in. They're becoming businesses. So a lot of these clients are no longer single strats, but they are

multiple strategies down the margin. I would suggest in the real world of hedge funds, people are more diversified than the headline grabbing bets that the media is fixated on. Do I have that right? You did? You got too quicker than I did, so that's why. And you're exactly right, People are no longer saying, you know what I'm gonna bet against, you know, going back decades, I'm gonna bet against a certain currency pair, or I'm going to bet on a certain that is out the way I mean, John,

let me translate this for you. When you're at bill Bok having the Cajun Chicken, I don't know what you're talking about. A week when you're at the bill Bokay, you know, they introduce you to a hed treat guy. He's way more diversified typically and way more managing his risk than all the headline grabbing alternative investment. Just I've only ever been to that restaurant three times, and those three times you took me. Okay, I have took myself.

You took me good morning to Rhado, keeper of the continue. Did you expense that? Did your trouble? Mark Connors? How important was it that the treasury market actually took a bit yesterday in a risk off move in a significant way. We had a bit of one last week, but actually finally the treasury market acted as a shock absorber in the traditional way. How important was that? So that's that's very important because as you know, Tom was talking about

the diversified hedge fund world. Not everyone is in equally long short. Some folks are playing that cross asset, and so when those brakes hit UM, it is constructive and acts as a breaker in the market. So one reason why a note we went out today to some clients was we don't we think the market acting well. We're not seeing a Q one sixteen de leveraging which was massively UM destructive to the alternative space, worst months in

five years. Something that I think a lot of people will pick up on from listening to you was something you said about the positioning of some of these hedge funds. There is a narrative out there that the market in its entirety is net short treasuries and net short the U s, though in quite a significant way. But I heard you say something very different about the funds that you cover and about the positioning of those funds in those markets. Just walk me through it and what's driving it. Yeah,

it's a time frame. We think it's a tactical move. And whether it's the you know, a longer lower for longer narrative UM over the outs, you know, for a period of time of one, two, three months, But it is absolutely opposite. What the narrative is of rate higher? Who wants to be long a tenure when three percent is a given? We went out with this when it was to and we're two seventy five, so they got it right. So c t A s are making money on rates now and that's why people like a c

t A sleeve in their long equities. The counterbalance for those of you c tas are trend based. Uh, good morning, Monroe Trout if you're listening and John Henry of the Red Sox trend base people. That seems where my head is as well. How are the quants doing? How are the math the studs out of kurant n Yu are out of Carnegie Mel and how are the quants doing? Uh? There it's a wide dispersion. Some having a tough year.

Again back to the volatility. They're not monetizing it. Uh And whether it because they had a tilt to the longside in the you know, given what's happening in seventeen with it being a so where are they flat to either side of the one question? We're gonna come back with you and keep this going. What is the short everybody wants? Now? They all up that go. Well, we're gonna give you our prime brokerage, but we gotta get shares. And what's that It's not Krispy Kreme, right, I mean

we're past Crispy Creme, thank god? Right, because what's the short? No, I got gotta I gotta get I gotta get four million shares short? Go right, So we can't talk single names. Come on, no one's listening. My phone is already buzzing, So thank you on that one. Um so the I'll speak a little broader. The shorts are working. So for for two and a half years, you saw short underperformance eat away at alpha. I mean hedge funds weren't producing

alpha a lot because of shorts. That changed mid seventeen and whether it was the advent of fiscal policy, tax initiatives, what have you um or rates, we did see shorts start to add to the bottom line. So whatever names you want to say, there there is more interest in have a Krispykreme donut. We'll come back. Mark Connors with us with credit sweeze. As we look at prime broker we now get brighter and smarter. With Michael Mayo at

Wells Fargo, and he's dragged along at least Greenberg. We're gonna talk about b B and T, which his own twisted story here, but Mike, I gotta rip up the script and spent a good amount of time here on you don't follow Deutsche Bank, but you could certainly talk about European banking and your BB and T research. Note you talk about how they had to go out and quote reduced expenses by six percent year over year. European

banks really can't do that, can they. Well, the U S banks took their medicine after the financial crisis and much of this decade, uh, you know, slim down the infrastructure or raised capital, just managed better for profitability. And that's a big contrast to the European banks which are less efficient, lower return less capital and just but did

not take their medicine with your decades of experience. Are they that way because of the cultural realities of those nations and those people's in society or are they just afraid to be like BBNT, your Bank of America or JP. Morgan, Well, there are cultural and political differences that make it more difficult.

But I also think that uh, the U S regulators did a better job at forcing the issue with the US banks, and as strong as the European regulators have been, it's not like one central regulator that's forcing the European banks to get into where they need to be at least wants to jump in here. But I got one more question here on Deutsche Bank. The the idea here that something radical is going to happen. The easiest way

to change things is the geographical change. Do you predict that any of the troubled banks, whether it's Deutsche Bank or the other list of European banks, that they're gonna make geographical choices to get out of certain things in certain geographies. Well, you've seen that with the US banks. You know, I've been here talking about City group stock that we recommend um. But the US is the place to be right now, and especially with some deregulation, US

looks a lot more favorable than your Europe. And so the European banks need to pick their spots to improve that efficiency, to improve their returns, to get closer to where the U. S banks are right now. But right in the U S banks have extended the lead in capital markets at leasta they should build a skyscraper in

like you know, one question that I have. I'm watching the perpetual bonds of Deutsche Bank, and they had kind of a freak out in the past couple of years as people started to worry that this could become a capital issue. It certainly is a profitability issue with Deutsche Bank. When does it become a capital issue? Look, the US banks have the strongest balance sheets in a generation. Uh, certainly that the global banking system is stronger, and that

includes the europe Pian banks. So the idea of the next financial crisis, financial crisis is financial crisis that it's been ten decades for past that stage. The foundation solid. The issue when we compare the European banks the US banks is really a profitability and efficiency one. You know. I do want to just get your thoughts on the two tens yield curve spread, which is the narrowest that it's been since two thousand seven. This is usually a

key indicator for profitability of US banks. How worried are you about this? Well, I know a lot of investors look at, you know, the flat, flatter yield curve and say, oh, look out for the banks. But that's one of many factors driving banks, and that's kind of the typical way of looking at it. But we're seeing for the U S banks, it's a twenty five year structural breakout for the benefits of scale. A lot of people care there.

So in terms of you know your national banking for the first time in n this is the first time in twenty five years when you can be a national bank without the distractions of big system integrations or financial racist or new regulations. So we're looking at the structural changes as opposed to the technical factor of flatter yolker. But some people care about that. No, No, I was kidding as a joke that I have with my producer Rich Trueman, we're going back and forth on the huge

headline flow DOW up a hundred and five points. Let us migrate to something. And I give you great credit for this, both Mike Mayo and Elie Greenberg here of not looking at the top six banks. Where does BB and T fit in their regional bank? Is that a good place to start? So BB and T is a different animal. They are the tenth largest bank. They're a regional bank. They're mostly in the Southeast mid Atlantic in Texas.

But what's unique about this bank is that they own the fifth largest insurance broker in the world, and it's a little less than one fifth of their revenues. So, as a bank analyst, bank aallics don't know a whole lot about the insurance So we collaborate with Elise green Span UM and you know, so I talked to my colleague Elie green Span and said, what do you think of this insurance business? What's happened in the insurance world?

And that's where she came in. By the way, time yesterday we upgraded BB and T for the first time in many years to market out perform where buyers now. BB and what's it like working with Mike Mayo? Do they have to medicate you before you work with Michael Mayo? I mean, it's a it's an experience, right, They do not. He's very experienced and he's a pleasure to work with. UM. You know, we collaborate a lot across Wells Fargo Security.

What's the distinction of their insurance company? So the distinction is they're they're an insurance broker, so essentially they're they're not taking on any underwriting risks. They're not doing the Bermuda thing. They're not doing the Bermuda thing. That's the host of companies in Bermuda are companies that underwrite risk. So when there's losses, like all the losses we had last year, there's exposure and they're going to take a

big loss. A broker is essentially placing the business. That's what they're that's their role, and so they can benefit like BB and T is positioned to benefit from a firmer pricer pricing environment means rates are going up. So if we take a step back here, last year was the highest cat loss year ever for the industry. That's catastrophe, bond or catastrophe generally catastrophe, so anything that caused a big event. You at earthquakes, you had um you had hurricanes,

who had fires. It was essentially the triple wammy for the industry, three events that hit in one year and so essentially so the largest level of losses. Pricing power has come back to the sector and it's really to the benefit of insurance brokers like BB and T as well as some other some other you know, large insurance brokers. Is this a way of saying that they can charge people a lot more to to get covered. Yes, So essentially, I mean you need losses to push for higher prices

in the absence of losses. It had been many years before we actually suck a very large, significant hurricane, and so there is no pricing power if there's no losses. Is your interest here of the regional bank with the insurance brokerage that they would spin it off or sell it out to someone or is it really part Is it a corpus of BB No. I think it's it's something that's unique to B B and T. It's a capital light business that's different than the rest of their

bank business. And so essentially, I think they like the diversification that they have here, and they're looking at this as an opportunity to grow their revenue, to expand their margins, and essentially to increase the earnings they're seeing from this business as opposed to looking to sell it. So I would not expect the sale of their insurance. And what these shares with me, Tom is that these companies, the pure plays that she covers in the insurance area, are

often valued about one fourth higher and the banks. So this is a premium business that B B and T as, and again it's unique among you know, all the banks. Michael Mayo with us with Wells Fargoing the Street Spend as well. 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 Winter at Tom Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio