Washington Turmoil May Slow Economic Growth, Bill Gross Says

Bloomberg dot Com, and of course, on the Bloomberg. Joining us now from the Bloomberg Investorm in New York, Brian Belski, Chief investment strategy of Demo Capital Market's great to see here amid the hustle and bustle of the link as we call at the pantry, here's the real people do. Right, run around outside the camp of the cortemins of our radio studio. Right. Let me ask you about how you're regarding what's going to happen tomorrow. It's not a risk event,

I suppose it's it's three big risk events. How much how much attention you paining to what's happened with the ECB with Capitol Hill and indeed, with the election in the UK tomorrow, I probably say that the e CBS number one with respect to what happens fundamentally because we've had um, you know, kind of growth, um, let's say, volatility in terms of Europe. What's happened from not only an economic earnings but demographic side of things, and things

have changed in Europe the last twelve months. So from a from an investment standpoint, David, I mean, how are we going to position there? And then what does what does that mean for emerging markets? Because I remember Europe and emerging markets are very tightly correlated. Europe's I'm sorry, emerging markets number one client in Europe, So you know, I think it's important, especially considering that the US and in the UK led the revive goal inequities in the

fourth quarter at the beginning of this year. Then you're played along and now emerging markets have cotten some cotton a bid, so to speak, and so a lot of people are getting getting excited about emerging markets. What that means. So I think the big thing tomorrow is gonna be ECP. With respect to the noise out of Washington, noise just it's a noise, how libretting will it be to get through the UK election when you look at political risk, does that does that stand as a marker to you

that you're gonna get past it? Yeah? I think so. You can take a look at it's a it's a it's a great question. You see what happened in France and how the volatility Actually we did not see the big volatility spike post the French election. Prey the French election. You know, we had the pre election and then the real election. So you know it's a foregone conclusion that May is gonna win. But but at the end of the day, again, how many seats to do do the

Conservatives win and retain and things like that. So, and what's the direction with respect of Brexon and what does that mean for the total eurosone gdp so, and then go back to the e c B. I think that's gonna be the key thing to morrow. You've you've written that over these last six months or so, what we've seen in terms of price returns has been dreamed bymentum and rhetoric, not by fundamentals in process. How does that complicate things for you as in as an investor. It's

horrible it's horrible. I mean no, I mean it's it's literally impossible to be writing about the market every week and try to provide this great, grandiose value add that everybody thinks they're doing because nothing's really happening. The market has been in this tight training range the last couple of months, and everybody wants to try to make this big call about what's going to happen in the market.

But at the end of the day, we still think it's about buying stocks and being in the right industries and sectors. And I think there's a there's a big contingent of what people that do what we do and investors that just don't get that. Within this is the mode of investors. Do they feel like they've missed the market? Do they feel like they're in the market? Is there an irrational Zuberance team and I were talking about this yesterday.

I I we're getting the sense that more and more investors that we talked to, more and more clients feel like they need to be in the market, then want to be in the market, especially considering the kind of move that we've seen, and there I hate to use this word complacency, Tom that I just think that people are kind of boring themselves to death in terms of owning the same stocks. There's no original thought. And again I think the I think there's so many binary opinions

out there. It's either either or there's nothing in between. What we say is on Friday, David, all the gloom comes out right. I mean, you're I know you're looking at you know, Kale sales in Brooklyn. Brian and I are looking at the gloom reports coming out on Friday and four pm. World's gonna end and it makes a great weekend reading Brian Belsky with us. We are within our world headquarters. We're not in our studios were there's people in Bloomingdale's often the distance. Good morning to all

of Bloomingdale's. Of course we're here are special coverage. Are Bloomberg invest Conference. Take us through your your portfolio right now? What's what's been doing well? Even you've had a lot of success with technology. Are you overweight financials as well? What's detractive about the financials right now? You know we're

over eight financials and we're wrong right now. And I'm not ashamed to say we're wrong because you know, the bond markets and control everything, and and what we've seen with short rates, you know, the twos and tens we've talked about on on the television program here just recently are in the last few minutes. So you know, we're positioned for the next to all day, t months minimum

and over the next three to five years. We think financials are are the best place to be because everyone is so negative, David, and they're not positioned there and they're under their underweight. We think financials in the way to be. But I think our best call so far this year is is to be overweight healthcare. It's been our contrarian call heading into this year, and in our theme for healthcare as we buy stocks that keep us alive, you know. So we like the biotechs and the drugs

and some in certain um big h mos um. But you know, I think what's gonna end up happening is I think the biggest call right now is everybody thinks that growth is scarce and growth outperforms, and we're gonna buy the fangs. It's say the same old crap and for lack of a better way, I mean, let's have some original thought, man, I mean, let's go out and buy some stocks and and own a portfolio and manage

a portfolio. So what we've been doing in the real live money that we that we run for our Canadian investors for the bank up in Canada, is that, you know, we run portfolio stocks. All four of our products are all performing our mandate, just principally, because Marcot goes down a little bit, we buy more of our favorite names, Margret goes up a little bit. We've been peeling back.

So we actually this past month peeled back a little bit in some of those fang names, uh, principally because they've had big runs and and we don't think that type of price momentum can continue over the next three to six months eighteen months, yes, three or six months. Probably not strikes me that that's so workman like. That's

so old school to an old soul. I mean, so many of people that do what I do are so focused on the macro macro macro and quant quant quan, and nobody knows how to talk about stocks or themes or invest anymore. There's a public one talk about stocks. Are they all bundled up in passive funds? I think they're all bundled up in passive funds. I think, uh again, more E T F questions from taxi cab drivers and

car drivers and we do stocks. Yeah, I mean, you know, I go back to the nineties when cab drivers are given a stock picks here in this town. And yeah, I think we will get back to that point. But I think still we're we're more focused on I mean that the public is more focused on the headlines and the big picture stuff, and that's what's causing all the noise financials. And I just wonder what you see there?

There is all the negativity that you describe. What do you see that others others down't well in the financial side of things. We want to be in those companies what we call the big box retailers that have the complete menu. Right. So, what has been the crown jewel of the financial services industry the big box retailers the last two to three quarters, it's been it's been the capital markets business. Right, So we had big trading volumes last year, we had M and A activity COASI. Capital

markets done right well. So why have they done very well? Because two years ago we cut cut, cut, cut cut costs. So if you look at the big box retailers now where they've been cutting costs wealth management, So where's the flow is going to come the next several years gonna be into the wealth manager channel. Okay, Brian Bellski with this pimo very quickly here. And of course, our coverage of Bloomberg invest conference on Bloomberg Radio brought you by

s CI which means we get celebrities. That is, they come in at seven oh five a m. Joining us out Scarlett Food in its seven oh five. Do you have a question for Mr Belski? Are we talking are retailers? Are we talking banks? I just walked in and Tom waves me over while meeting my banana. That's a good idea. Scarlett used to get up early in the morning. Now she's a big shot. She just comes in later. And what about the retailers. Dana Telsey Dana Chelsea out with

a really jepid note on Macy's after their meeting. So we just published a piece on consumer discretionary as you know that consumer discretionary is the most e collectic sector in the US market, right, most eclectic sector in the US market. And we mentioned we had no mention of retailers in that in that secretory in sector. No, because we're really worried from a secular basis longer term, what's

structurally what's happening in retail? I mean clearly Amazon. If you take a look at consumer discretionary sector so far this year, Amazon's four hundred basis points, meaning four percentage points of the full full UH performance of the second If you take a consumers underperforming, we gotta go, Brian Belski,

thank you so much. If we lose the lun chust Jersey where a natural predators Jersey, David gurl, We're gonna come back with Brian Belski, David Cura and Tom Keane are Bloomberg invest Summit For those of you that just got through the CFA exam. We're gonna talk not seemed TALEB a little bit and Gaussian and plus on distributions, which is a good way to get to Brian Belski a bemo. Capital markets talb, of course, is the mathematics of rare events. By definition, you don't see the rare

event coming. What are the set of rare events you're worried about in the equity markets? Well, I think so many people are laser focused Tom on what's happened in Washington, and so that's not a rare event. No, it's not a rare Where where are they? Well the other thing too, is we just hate this whole notion of black swans.

I mean, corrections happen when you least expect them. It seems to us like everyone is still looking for the correction, of looking for the correctional we stopped talking about the correction. That's when the correction is gonna happen. It's super incident. It's not there. Is it's not there? Do you see? I don't see, they don't know. And so it's gonna be something that we least expect. I mean, you know, it's not gonna be North Korea, it's not going to

be something out of Europe's not gonna be Washington. It's gonna be something else. That's all I know. To attacks in Iran today, Maybe maybe no. But seriously, the you and I have these recollections, I would respectfully suggest Brian Belski, it starts in the bond market, where there's a bonb transaction that gets left on a wall street desk. There's some form of short could be short five year convertible zero coupon bond. Something doesn't work in the savvy bond market,

and then that comes over to the equity market. Savvy bond market has been right for thirty five years now, and so it's something probably in the bond market. But I have not fear, but just trepidation. Tom, that's going to be a liquidity event, right, some sort of a liquidity event. Is it private equity not happening? I'm something not connecting there so much. So many assets since two thousand and eight two thousand nine have moved out of the hedge fund world with respect to UM derivatives into

private equity. Is it's something in private equity that occurs? I mean again, I'm just speculating. We're not talking enough about that. So it's either something that we've become so dependent on, Tom, meaning bonds, bonds, bonds, bonds, or something that we're not expecting because of our Bloomberg invest conference. I'm going to rip up the script here buying bells. The basic idea of the passive active debate. You're getting

paid to say active. I get that where to pass the funds fit in and I'm getting paid to be right, Tom, And so ask them about the Viking's where passive funds fitting. Where does buying the index fitted well? I think buying the index fits in when when creating credibility and feeling better about buying buying equities. Again, it's it's a process, or as we like to say in Canada, it's a process.

So we're gonna we're gonna buy index funds first, We're gonna feel comfortable buying equities, and then we're gonna move into something a little bit more quote unquote sexy that we are interested in. I think investors in general are still worried about stocks. They still think we're the bad guys.

They're still worried about corporate America. So if they make a little money in an e t F, whether or not it's a spider or a diamond or whatever, and then they slowly kind of transigate back into part like a gateway. It's a gateway. You're going to use the second round of that, but it's a gateway. You've got you've got these forties stocks in the port place. How are you how are you picking them? What are you

looking at principally to decide what you're gonna invest in this? Well, we start and stop with what we think with respect to the overall market, what our sectors are, and then build it from the bottoms up. So I mean, you know, we have the very good fortune of going a lot of analysts around the streets, so we look at how these stocks fen into sectors and we rush out. We we touch base with some of these annis, but we also use some of our own models and looking at stocks.

I have one final question, if I can you are Canadian, Bemo, Capital Markets, Bank of Montreal and all that. I mean, you've got to look at the fact, once again there's no Canadian team in the Stanley Cups. This is a national embarrassment. But you gotta find solace that Mike Fisher of Peterborough, Ontario is a Nashville Predator and he's Mr carry Underwood. That's sort of a good thing, you know what.

It's a really good thing on several accounts. But last year was the embarrassment because no Canadian team made me Yeah, well, very good. We'll leave it at that. Brian Bellski, thank you for the hockey update with Mr carry Underwood. I'm I gotta be honest, Folks like you gotta root for the predators. They don't even know. They don't even know. In the arena, they're going absolutely mental, like it's football or NASCAR, and some of them are like, you gotta go, okay, offside?

That was offside. It's not like a big deal. Somebody just stepped over the blue leg. I mean, it's a whole day. It's great. I love it. I love what NBC is doing with with my camera. Can don't you care about this day? Following it? We're Scarlett, get Scarlett, We'll get back, We'll talk, you know, hockey. What are we doing? Can we go from the Stanley Cup finals to the super Bowl tomorrow? Washington d C Greguar yesterday, noting that the sense of weariness settling, and he says,

we're sick of this. You're sick of this and most voters are as well. But a big data Washington this note talking about the Vice President Da Milby Washington past today. Yeah, I think watching Mr Pence will be good sport. Yeah, David Garr The President tries to get out front of the festivities tomorrow. Yeah, Tom, you and I stay on

top of the President's Twitter feed. Here's a tweet of relevance to our audience this morning President Trump tweeting I will be in nominating Christopher A. Ray w R. A y A man of impeccable credentials, to be the new director of the FBI, the President deciding on him after meeting with him and John Pistol, the former head of the the t S. A. Let's take a look at some of those impeccable credentials, as the President calls him, He's a graduate of Yale and Yale Law School as well,

and perhaps most important for the job he is being nominated for, he was the head of the Criminal Division at the Federal Bureau of Investigation. So this gets that process underway, something the President was keen to do a couple of weeks ago. We then a quick read of a lengthy, accomplished biography. I don't see political service. That was Senator Lieberman and others of Connecticut. That was one of the issues is do we want someone with a political heritage, and I believe we see less of that,

if not none of that with Mr Ray. He's now a partner at King and Spalding, the big law firm. As I said, head to the criminal Division, and in that capacity, according to his official bio, he led investigations, prosecutions, and policy development in nearly all areas of federal criminal laws.

So we will continue to follow this news throughout the morning, UH, and we'll watch as the White House formerly tender as that nomination, and again our coverage tomorrow David gurd David Weston, and Kevin SURRELLI will be tomorrow UH in Washington for the ten o'clock ten a m. Comy coverage. Right now, after all that, we try to get back to what we do each and every day with economics, Finance investment

with Charles Duma of T. S. Lombard. Charles, you are a qualified as anyone in the world for the important question of where is our nominal GDP? Where is that combination of economic growth in price elevation. Have you brought down your nominal GDP belief in the last number of days? Yeah, The wage state and you had in the United States yesterday morning for um for total compensation were extraordinarily changed

from the same number months before and months ago. They said the first quarter was up three point nine per cent in terms of le pay um, and yesterday morning they said, actually know the first quarter was only up to the event, which is like a luge reduction, and so we have to assume here that nominal GDP will be a weaker. But we don't think that real GDP is going to be any this. We just think that information will be less. This is a really important dynamic, folks.

And again there's four ways to go. He're both up, both down, or a mixture either way. Do the central banks in any way think nominal GDP even if they won't admit it. Um Well, To be quite honest, I'm not probably the right person to talk to about how

central banks think. We try to figure out what they're going to have to think ahead of time, and in this case, um, you know, we we think that probably m Mrs Yellen will want to get the funds rate up to something that's roughly matches inflation, which means, you know, about two more hikes this year and be ready in case there is an inflation we pick up next year,

which I'm dancy looks more likely than not. Charles, you've been advocating for a long time here for a plan B when it comes to to Brexit for the UK exiting the European Union. I don't know if we're any closer to getting that or if we will be after the election results tomorrow. But what would you want to see in that? What would a Plan B look like?

What's your ideal Plan B? Well, I mean I don't think anything's ideal here, neither Plan A nor Plan B. The main point about Plan B is visit it should exist because at the moment the British being told by the EU people, the EU negotias that actually they have no option but to pay last sums of money and in order to get free trade. Now it may well be that we should pay substantial sums of money to

get free trade. Um. And it may well be that's how it ends up, but the bargaining position is substantially weaker until such time as it's clear that we can survive and do okay if there isn't is no agreement. What's what's this economy look like that the next Prime Minister is going to inherit be that and mis maybe that, Mr Corbyn? What what's the UK economy look like? What

are the biggest deficits in that economy as you see them? Well, there's the biggest risk by far, it seems to me, is that if we don't have a well conducted negotiating process about breakshit. Then you're going to see suddenly a confidence problem in the financial markets and in the business sector, and people starting to say, well, look, this really doesn't look like a well managed to exit, and so we're

going to get out first. At the moment, people are assuming the worst in making their business plans, but they don't actually have to fix their plans all the end of the year. So the government's got about six months to particulately first of all, what it's really looking for, and obviously that's a negotiating positions visit the the EU, but also what happens if the negotiations don't work or breakdown, in which case we've got to get by on our own.

And it's a perfectly feasible thing to do, but there needs to be a details and convincing plan. Charles, you have a number of books on China. They have been remarkably pression about. Everybody, get over the doom and gloom and fear. Is China is resilient? Is when you wrote

those books a few years ago. Well, we were fairly negative about China when we wrote those books, and I think it's fair to say that some of that negative feeling has become the consensus um at this stage, I would say that China is going to be fine at least until the other side of the big Congress is autumn um and in fact, in all probabilities, they are going to modify their target growth rates from the six and a half percent they have at the moment to

something much for achievable, like four or five percent, and thereby giving themselves a decent chance of curbing the rapid increase of depth's been going on until recently. So that's that's really a crucial issue, is how they plan to the trade off because they can't at the same time have fast growth and a relatively high exchange rate and

curb the depth growth. So they want to curb the depth croaks, They've either got to have floating growth or a big evaluation, and we know they don't want a big devaluation, so chances are they're going to have to go for a simply lower growth target. Now that doesn't mean that they're in trouble. It just means that they've they've got face up to reality. Charles Dumont, thank you so much for the briefing. Here is with ts lomboard in London Branch. You by Bank of America Mary Lynch

with virtual reality, virtually everything will change. Discover opportunities in a transforming world via a mL dot Com slash VR, Mary Lynch, Pierced Fenner and Smith Incorporated. William Gross is with us, which is often, and he's been generous at Jannis Henderson of of being with us for Jobs Day and such. But it is wonderful to have Bill Gross in our New York headquarters today. He's here for the Bloomberg invest conference and that's brought you by s E I.

But we thank Bill Gross for being with it. Did you come by grayhound bus? You don't like to fly, do you? Well? Um, I don't like to fly. My white and Nuckleric actually was an early Navy pilot that bailed out, so speak and I took the gray hund Bus. I didn't go as far as yeah, famous football commentator that takes the bush the time. But I okay, I creep slowly over. We should say. Bloomberg Surveillance today brought you by Janice Henderson and Greyhound Bus. They see each

other often. Phil. When the last time I saw you in New York, I believe it was a long time ago, we met at the Waldorf story in the middle of an ugly bond bear market. I believe that's where prices go down and yields go higher. You and the rest of the world wait and wait and wait for a bond bear market. When will we see that? Well, um, that's the question of the day, in the year, in the last several years. Actually, um, well, we'll see it.

I think when central banks start to ease up in terms of their current policies, not only quantity of easing, but ec being but bank in Japan. But you know, more tightening by the FED and and less reinvestment of treasury. So that's the key question. Hots Yes, at Goldman Sachs is now linked tightly those two, as does Robert Kaplan at the Dallas FED. How do you link yield changes by the Federal Open Market Committee with the balance sheet adjustments to come? How do you put those two disparate

flows together. It's very hard to do that. And of course for the Fed as well, I know that uh FED research since they instigated quantitative easing, suggested that basis points on the tenure was the ultimate result. Now, the the exit or the potential exit which I've always been um, you know, disparaging of the possibility that they really reduced their balance sheet. But if they begin to exit later

in the year, um, they'll do it slowly. And so we're talking about five fifteen basis points on the curve and the tenure perhaps over the next year or two. You know. The important central banks and I consider are the again the Bank of Japan and UH, the e c B and to the extent that they're pumping in a trillion dollars plus a year into the global economy

and global equidity. It's been critical in terms of tread rerates, and I've been critical in terms of stock prices and critical in terms of all assets because UH liquidity seeks to haven and and prices move higher as it does. We have Bloomberg News reporting this morning the ECB is going to cut its inflation out and look at the meeting this week, we're talking about what I'm wanting. The balance sheet is gonna gonna look like. What's your timetable

for that happening? Do you think? What do you think we're gonna get to a more normal role for central banks? Well, I hope later in the year for the ECB, and it's true that the ECB is primary focus is opposed to a duel or try focus on the part of the FED is inflation, and inflation is not really picked up in the last few months, certainly in Euroland, and so you can imagine the drug is simply not concerned

and wants to air on the side of caution. Um. Yeah, perhaps later this year, I know, or I don't know, but I think, as you know, I've been quite negative in terms of the effects of central bank policies, not simply because they've raised asset prices in some cases to bull whole territory, but also because it degrades business models such as insurance companies and pension funds and the like, because they can't earn what disposed earn in terms of

their liabilities. And we begin to see that with Puerto Rico and Illinois and Detroit and ongoing problems with pension funds. But it's the same situation where the insurance companies, it's sort of masked. As we move on in the future, get the sense to three percent growth. The is this administration's white whale, and they talk about it so much. Maybe they're willing it willing it to happen here when you look at the tools at their disposal and what

they're doing. Aren't they using the right ones? Are they? Are they going down the right path to get to that level of growth? Do you think? Well? Not yet. Among the proposals I suppose in fiscal policy, which is something that I've been asking for and others UH for several years, even with Obama. UM heard certainly of the works. UM, I'm suspicious of tax policy, but trillion dollar UH infrastructure

policy may help. But I think ultimately the growth is a functional, productive and productivit as a function of investment, and we simply haven't had that. You know, my thesis this month in terms of the investment outlook, I said, Um, you know, money is making money with money, but money doesn't lead to investment in the real economy. And I think that's the problem that Trump and the U. S. Economy will face the next several years. And Bill Gross

with Janis Anderson. He's with us now at our Bloomberg invest conference on Bloomberg Radio, of course, brought you by s C I. Bill, I just looked up if you really booked now two hundred and thirty five dollars greyhound l A to New York. You can get it back if you delay a little bit with Bloomberg Television. It

may cost you two hundred and seventy one dollar. When you came here, you went out north Platts or Des Moines, and then you got up to I eight and you take it over east when you when you do this bill, you get a sense of the nation. And you've been dead right about the nation's financial repression. Don't talk to the fancy people in Newport. Don't talk to the fancy people like us in New York. Talk to the rest of America about financial repri Well, you're right, and and

Des Moines has been my favorite metaphorical use the location. Well, because it's in Iowa, and because it's Midwest, and because there's corn there and then and because restaurants to because becames. People depend on savings ultimately, not not just in the moin but the rest of the country. And why do people depend on savings? Well, for education, for retirement, for health.

And when you can't earn more than fifty basis points on your savings in a bank account or with a six month c D, then there are problems of plenty in terms of the ability of des Moines and other, um, you know, middle class Americans to reach their goals. I mean, I look at this bill, and what you and I have been talking about since that meeting at the water for story and certainly since August of oh seven, is it's not in fibosi, it's not in the books that

you when I studied on bond dynamics. How do you do Janie Henderson, day after day after day realizing none of where we are now has a fury or a foundation. Well, you know, it's sort of a it's sort of a brail like a type of process where, um, you feel your way along in Central Banks are trying to do

that too. But you're right when you talk about demographics and debt and uh leveraging up and when you talk about the displacement of workers by robots and robotizations, and these are non measurable factors historically, and so you sort of have to touch and feel and know that over time these factors will work their way into a slower economy in the US and even globally. You were talking about infrastructure just a moment ago. The President wants to

get more private investment in infrastructure. What are the challenges to doing that? How does he make that successful? Getting more public private partnership, getting more private investors to invest in American infrastructure. Well, there's a political problem. That's not my area of expertise, but you're right, um, Trump's eymphasis has been on public private and uh, I think there are a lot of willing private partners, a lot of private equity firms of geared up to take advantage to

make money from infrastructure problems. And so you know, if you combine that with the congressional action, then I think you have something to go with. But the twillion dollars is over a long period of time. It takes time to put these into effect, and so it may take a long very quickly build. Does the drama of Washington diminished g d P and damp in the animal sphere of the nation? Yeah, I think so, to the extent

that risk is a factor in terms of forward looking investment. Hope, is that really the essence of capitalism into the extent that you have turned one on Washington and turmoil on a global basis, I think that's a problem. Gross, Thank you so much. I've got it from Thank you Grahound for email with the two days, seventeen hours, thirty minutes is your fastest trip back? Bill Gross is with Janice

Anderson from our Bloomberg invest conference. This is Bloomberg. David gerin to Keener Bloomberg invest Conference and after the c f A exam and the level of mathewness of it, it's a good time to speak with Jim McCahon of the Principal Group. I want to talk a little bit of math here, and then if you've got a curve on a chart, you go to logs to make the curve a straight line, and then all years of my radar go up when the log chart becomes curved as well.

Is this when I hear you yell slope matters, slope matters, and then all of a sudden, instead of a straight log rhythmic line, you've got a curve line. I've got that now in the two tents spread, I've got curve flattening and I have accelerating curve flattening. What does that mean the Principle Group? What does it mean to equity

investors when they see an acceleration occur flattening? Curve flattening is a sign that you're getting towards the end of a good spell for the economy, You're getting to the end of a recovery. It means it's a straw in the wind that there may be a recession out there. I don't think the other indicators point to a recession within the next two to three years, but it's one of the reasons you have to watch if the vectors going to zero to an inverted yield curve. We don't

need to do it on radio. People drive off the Garden State Parkway. But where's the tip point where all of a sudden, you say to yourself, I'm at eighty five basis points. It's like a countdown, folks. The Rangers satellite to the moon five seventy five sixty five. When do you start sweating or are you gonna get to go to an inversion. I think you start sweating when it gets totally flat and yeah, and I think that that's when you really have the the the imminent signs

of recession. Now, the most likely outturn on the Fed funds rate right now is maybe two bases point increases this year and maybe two more next year. That would get you to somewhere about one on the on the FED funds, right, I don't see that that means that the tenure would be nothing very different from two ten to two twenty, which is what it is now. I think what you're seeing is late stage growth in the economy which gets accommodated and interest rate terms by yield

curve flattening. So I think this is actually pretty normal at this stage of the economy. We need to be a bit on recession watch as we go into twenty eighteen. I don't think it's imminent. However, we have a two day FED meeting next week and it's it's likely, or one would hope we'd get some more indication here of how the balance sheet unwind is going to go. What are you most worried about in the context of that,

what's the riskiest facet of that to you? Yeah, David, I'm not at all worried about the balance sheet unwind. You know, the build up of the FED balance sheet was you know, two thousand, eight, nine ten, and it was done by maximum of ten year bombs. Those are going to start rolling off next year, naturally, just naturally. I don't think they need to sell much in the market,

so the unwind doesn't really bother me. I think we're at a point where the economy has self sustaining growth, though not particularly vibrant, and that's an okay position to be in because it's when the economy over heats that you bring about capacity constraints and a recession. So I feel fairly positive about the next year or so for equities.

The o e c D was out today with its new economic outlook, and it was a fairly rosy picture that rose within one might have thought, perhaps, but one of the things the o c D flags is the need for more global participation. And I wonder in light of what we've seen here over the last week two weeks with the President strip to Europe, with the US with drawing from from the parisupporting, what that portends were

the kind of participatory global economy we've become accustomed to. Well, there's no question that this administration in the US wants to see bilateral, not multilateral deals. Let's hope they get the bilaterals done because to your point about participation, it would still happen in a bilateral world. So I'm not yet in any kind of panic about that. On the O E C D numbers. The two things I would take. I would question Europe. Is Europe as self sustaining a

recovery as it looks? The positive signs from Germany I think are largely a result of last year's weakness in the Euro. I think it remains to be seen whether the core Eurozone can carry on growing in spite of getting to a point where the euro is a bit stronger. So that'll be one of my questions. The other is China. Will China continue growing at the rate they expect? Is there exuberance out there? Is there institutional exuberance? Is there

retail exuberance? Not really, Tom, I think this is the bullmarket nobody loves, and it just it just can't end because there's not a blow off there's there isn't And you know, if I look at equities, what will end the BULLMARKT Well, I think you have to get to a point where everybody is in or most people are in. And to me, that feels like twenty five times earnings, not eighteen if you know to and change is the time you're yield eighteen times earnings feels fairly cheap to me.

I think US equities remain a buy on setbacks, Jim, just because you're going to show up. I had an extra hat trick of walkers short for you. In Scotland. We be rude if we did not ask you how snap this snappy election is going to be. We can't talk about it tomorrow, so we're doing now. What does it mean for Scotland? Please um for Scotland. I think it's an interesting question. I'm hoping that the Scots don't

go for another independence referendum. I think Theresa May, if she's reasonably powerful after tomorrow, will probably try to postpone and deny that because I think once you've got a big change like Brexit going on to have the disentangling of Scotland would be very, very disruptive. I'd also point out Brexit one in a referendum by about three percent remain in the case of Scotland one by over ten a ten percent win looks pretty decisive. It seems very

early to go re examining it. So I I think for Scotland this probably plays out as a bit of a non event, but a rather ill natured one. How heavinly does this interregnum, this two year waiting period for action on Brexit way on the UK economy, well, I think it's not weighed very much because it's been saved by the weakness of Sterling. The weakness of Sterling is what's meant that the economic impact has not yet been negative.

I think there is the likelihood if there is a serious impairment of trade relations with the Eurozone, which you know looks likely. All the talk is of a hard breaxit no deal or a difficult deal. If that's the case, then you either need further weakness in Sterling or you will see a pretty seriously impaired UK economy two years out. I think this is one of the tail risks in the world economy right now. Jim mccov thanks so much,

greatly appreciated principal group today from our Bloomberg Investment. Thank you so much. I love how he shows up every time as a UK Actually, yeah, that's coincidence. Toney's working here with Julia Chatterley, our colleague, on populace and policy and positioning the macro view. So we look forward to that on Bloomberg Television Bloombergradio. It is a Bloomberg invest converence from our world Headquarters on Bloomberg Radio. Thanks for

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