While You Were Working - April 30
Everything is awesome … except for the things that aren’t
The very first panel on the main stage of the 2018 Milken Institute Global Conference presented very different views on the state of global markets. As the US economy reaches its 106 month of continued expansion, what lies ahead depends on who you ask.
Mary Callahan Erdoes, the CEO of JPMorgan Asset and Wealth Management, was very upbeat about the economy, noting, “There is no rule that states economic expansions must end.”
Callahan Erdoes downplayed things like geopolitcal risk and tariffs and urged the audience to see the details behind the headlines. For example, Callahan Erdoes headlines about policies that would spike tariffs to 50-year highs should be taken in the context that existing tariffs were at 100-year lows.
Joshua Friedman form Canyon Partners pushed back against notion that geopolitics can’t harm markets and pointed specifically to growth.“If you embrace policies that aren’t pro-growth, you aren’t going to see continued growth,” Friedman said.
Scott Minerd, the chairman and Global Chief Investment Officer at Guggenheim Partners, is concerned about the market outlook. Big picture: Minerd is worried the US stands to lose its position atop the world if its policies are not well-conceived and well-executed.
Specifically, Minerd highlighted concerns about the corporate debt and labor shortages in the US. Minerd also made and interesting point about the possible threat passive investing poses to certain companies. Looking at the case of Toys R’ Us, Minerd explained how the company’s debt was trading within 2% of PAR just six weeks before the company went bankrupt. What happened? Minerd’s theory is that passive investment managers removed the Toys R’ Us from their indices.
CreditEase founder and CEO Ning Tang said China is dealing with different kinds of challenges than the US. Whereas in the US, there is concern that people will not have enough money in retirement, the Chinese people are having to cope with the newfound problem of having to transfer wealth between generations.
So there are those who think everything is awesome … and those who think we’ve got problems. Perhaps Citigroup CEO Michael Corbat, sporting a dope pair of sneakers was the closest to the truth. “The glass if half-full. We’re OK.”
Mnuchin stuck to the script … for the most part.
Unlike his appearances at other high-profile events, Treasury Secretary Steven Mnuchin pretty much stuck to the Trump administration script during his lunchtime interview with Maria Bartiromo. Mnuchin touted tax reforms that have helped businesses and individuals and put bonuses in the hands of American workers. He also said the White House would like to push through a Phase 2 of tax reform that would make the middle-class tax reforms permanent.
One of the hot topics here at the Milken Institute Global Conference has been the tariff exemptions for certain countries that are set to expire at one minute past midnight tonight. Mnuchin revealed he participated in a secure teleconference with President Donald Trump and his economic policy team earlier today and implied a decision has already been made on whether to extend the exemptions or let them expire. However, Mnuchin declined to “broadcast” what that decision was. (The Wall Street Journal reported later in the day that Trump had punted and extended the exemptions until June 1).
Of course it wouldn’t be a Mnuchin live performance without at least a few messaging hiccups:
- When Bartiromo mentioned CBO concerns that the Trump administration’s economic policies would lead to trillion-dollar deficits by 2020, Mnuchin countered with, "I hope we don't have trillion dollar deficits for several years out." Kinda funny he didn't say he hopes the US never has trillion dollar deficits.
- When asked if the collaboration with UK and France on missile strikes in Syria created goodwill on trade policy matters: "Yes."
- Mnuchin claims the companies he talks to have not complained about not being able to find workers with the skills needed to fill current openings. Such concerns by employers have been widely reported and much talked about over the years at this very conference. How has he never heard it?
I like to poke fun at Mnuchin’s lack of media savvy, but at the end of the day he is doing a heckuva a job. Now that he has more than a year under his belt atop Treasury, I often think back on what one high-profile attendee told me at last year's Milken Global.
“A lot of us know Steve from his LA days. We trust he isn’t going to do anything stupid.”
The Milken Global crowd is a discerning crowd; and Mnuchin still has their trust.
“Balance” became the new “revise” when it comes to Dodd-Frank
During a panel of distinguished financial services policymakers, CFTC Chairman J. Christopher Giancarlo pushed back strongly on the notion that the current roster of financial regulators is embarking on de-regulation. Giancarlo said he and the CFTC are instead trying to “balance” regulations after a period of time when there was regulatory overreach that harmed the overall economy.
This panel also featured one of my favorite quotes of the day. After House Financial Services Committee Chairman Jeb Hensarling (R-Texas) made a point about how unfair it is to banks to stress test them without telling them what will be included on the test. Politico’s Ben White, who moderated the panel, quipped, “I showed up to class in college and didn’t know what was going to be on a test and I did just fine. I am not sure why banks need to know what is on the test in advance.” Zinger!
Fintech kept growing up
For the last few years, Jackson Mueller from the Milken Institute has moderated a panel on the future of fintech. This year was no different and the panel featured such luminaries as Sallie Krawcheck and Thomas Curry. It was refreshing to hear how the conversation has evolved from how fintech can change B2B and B2C commerce in a broad sense to how fintech firms are now leveraging technology to target specific audiences, like women or the unbanked, to address their needs.
In a bit of news, Mueller announced the Milken Institute is creating the US Fintech Advisory Committee. The committee will be headed by Curry, who is the former Comptroller of the Currency.
Shots were fired at GSO’s swaps deal
For those of you not up-to-speed on the controversial deal GSO orchestrated with Hovanian, the upshot is that GSO required Hovanian to default on certain slices of its debt in order to receive new financing from GSO. GSO did so because it held cedit default swaps on that particular slice and wanted to get paid.
I happen to think it was a crafty piece of financial engineering by both GSO and Hovanian, but Canyon Partners boss Josh Friedman apparently disagrees. During a TV interview here at Milken Global, Friedman labeled the deal “unseemly” and went so far as to call on the CFTC to squash the trade.
Tom Brady made massive news!
During a cozy interview with Jim Gray, New England Patriots Living Legend Tom Brady announced he would not be playing quarterback in the NFL by the time he is 56 years old. So all you Jets, Bills and Dolphins fans have got that going for you … which is nice.
More from the Milken Institute Global Conference
- Tax cuts are great … even if not everyone feels them yet.
- Public markets are nice, but private markets are better.
- Goldman Sachs used to have 500 people making markets for stocks. Now it has 3.
- Asset managers said artificial intelligence is paramount.
- Sam Zell said warehouse market enjoying e-commerce bump is overheated.
- It wouldn’t be Milken Global without Tony Blair.
Beyond Milken Global
- The Bank for International Settlements analyzed changes in financial sector oversight.
- Banks in Mexico continued to cope with a hack.