. >> rose: welcome to the program, we begin this evening with a look at today's press conference in washington. joining me phil rucker, damian paletta, margaret brennan and jonathan karl. >> this has been an interesting day, for all the talk of shutting down the briefing room, there has been a buzz of activity at the white house for the first full weekday for president trump. the white house poll you mentioned, we've been brought in and the pool has gone in to more than a half dozen events here at the white house. almost everything the president has done, they have been running and calling sometimes at the last minute, bring the cameras in. the meeting is with-- it's been something else. >> rose: we continue with bob gates, fompler defense secretary for both barack obama and george bush. and talking about now the national security profile of the trump administration. >> i told him the same thing that i said in the senate hearing in reducing rex

tillerson for his nomination hearing. i said your administration is going to have to thread the needle, and figure out how on the one hand to push back against putin's aggressiveness and meddling and interventionism. and at the same time stop a continuing downward spiral in the u.s. --an relationship, that is potentially quite dangerous. but they've got to do both sides of it. >> rose: and we conclude with a look at the global economy with sharmin moose aver rahmani of goldman sachs. >> you look at equity valuation, we actually have now just turned over into the tenth-- meaning markets. if people had gone out of equities in july of 1995, when

equities were in the tenth decile, they would have never gotten a chance to get back in and would have left 500% returns on the table since 1995. so our key message is valuation alone is not a reason to go out of u.s. equities, especially if you don't expect a recession. >> rose: politics, national security and the global economy when we continue. >> funding for charlie rose is provided by the >> rose: funding for "charlie rose" has been provided by the following: >> and by bloomberg, a provider of multimedia news and information services worldwide. captioning sponsored by rose communications from our studios in new york city, this is charlie rose. >> rose: today was a much

anticipated meeting between the trump administration and the working press, white house press secretary sean spicer held his first official briefing this afternoon. he addressed a range of policy issues as well as new administration's relationship with the press and the intelligence community. the press conference comes two days after spicer's widely criticized statement. on saturday in which he disparaged some media outlets on what he described as deliberately false reporting. joining me now from washington, philip rucker us white house bureau chief and damian paletta for "the wall street journal" and joining us later from the white house, margaret brennan, foreign affairs and white house correspondent for cbs news and jonathan karl chief white house correspondent for abc news. i'm pleased to have all of them here it fill rucker, tell me about t how it played. >> there are basically two sean spicers. the sean spicer who gave that statement a couple of days ago on saturday was defiant and angry and basically yelling at the press and using falsehoods, telling things that were not

true. sean today was much more comfortable. he was taking questions left and right, stayed up there for well over an hour, talked fluently about a range of policy matters. an when he was asked about the mistruths he stated over the weekend about the inauguration crowd size, he effectively apologized. he said i always try to come here with truthful information and i will endeavor to do that in the future. and talked a little bit about how donald trump is really cheafing at what he sees as an unfair media narrative out to undermine his presidency. >> rose: damian, how did you see it? >> i thought the same way. we all sort of dealt with the good cop, bad cop situation as reporters. but it is rare to have it from the same person within three days. and so i think there was a lot of-- there is kind of a group exhale from the press. >> rose: but if, in fact, things were turned upside down over the weekend, they've been turned back up in terms of at least an understanding that the press secretary and the press

have a job to do and if you are not truthful with each other, then you have something significant to lose. >> that's exactly right. and i remember in journalism school, we learned the saying you never pick a fight with people that-- by the barrel it is obviously different in this day and age but they realize that narrative will be hard to keep up for four years where they will putacts out there, what they see as facts and the media will quickly shoot tell down. what sean tried to do today was answer as many questions as he could, be as conciliatory as he could, and sort of, you know, io judgement every time. >> that is right. >> he did. he talked about president trump watching the television and just becoming enrajed with what he sees as unfair punditry and

commentary and a sense of people doubting his abilities to forge a consensus, people doubting whether his cabinet nominees are going to make it through senate confirmation and just feeling like there is always a hurdle. that the media is always counting him out. and trump wants everybody to really acknowledge his victory. but it's important to point out, charlie, the victory is not that commanding. he won the electoral college, obviously, but he lost the popular vote by nearly three million votes to hillary clinton. a majority of people in this country disapprove of his performance as of today, according to the latest polls. and that's a challenge for trump. he wants to claim a mandate and have the authority of a big electoral victory, and it's just not quite there. >> rose: margaret brennan joins now, my colleague at cbs. so margaret, what is your impression of what happened today, and is everything back on an even keel? >> well, charlie, i think this is going to be an ongoing tus it el with the press. this is something that donald trump and his campaign have

really said is one of their perceptions, that they show believe that they are treated unfairly and that the trump white house continues to be treated unfairly. so that impression still hasn't been dispelled on their end. but today in the white house press briefing room sean spicer, the white house spokesman definitely tried to hit the reset button, tried to hold it like a normal briefing in terms of allowing reporters to ask questions, allowing some reporters to have followup questions. but you know, included a broader group. "the new york post" for instance got the first question rather than the associated press, which has long been tradition. so they're trying to engage a bit more. >> rose: there have been a couple of questions have been raised in the past. one is about pool coverage and always allowing it. if the president decides to slip away in new york, or anywhere else or go do something for dinner. secondly, the question as to where these press conferences will be held. is there any coming to a meeting of the minds on those two things? >> that seems to be an ongoing

negotiation. today like i said there were small changes, moving around quickly, not allowing a lot of followup questions but allowing more reporters to act. as for when the next press conference could be. friday we have theresa may, the new prime minister of the u.k. coming. we don't know if we're going to get a joint press conference as you often see with another head of state. and if so, where that would be held. that is an open question. a lot of this, charlie, we have to give room to run in terms of a new white house setting up and figuring out how they want to handle things staffing up, figuring that out. but the concern, the strong concern among white house reporters is that this public die tribe at times against the press and the media will hurt transparency. and particularly in regard to things that the white house is actually doing that affect americans. >> rose: jonathan karl from abc news joins us. jonathan, i want you to listen to this exchange and just tell me how you approach this and how

they responded. here is an exchange between jonathan karl and sean spicer at this aforementioned briefing this afternoon. here it is. >> is it your intention to always tell the truth from that podium and will you pledge never to knowingly say something that is not factual. >> it is. it's an honor to do this. and yes, i believe that we have to be honest with the american people. i think sometimes we can disagree with the facts. there are certain things that we may-- we may not fully understand when we come out. but our intention is never to lie to you, jonathan. >> rose: john thank karl, do you call that a meeting of the minds. >> to a degree, it was really a rough start for the white house and sean spicer in particular, when he came out on saturday and held that, well, it wasn't really a briefing because he didn't take any questions. but when he came out and basically lambasted the press and you know, accused media organization of lying about the size of donald trump's inaugural

crowd. relatively tril-- trivial issue in a lot of this historic weekend that we've just witnessed. so he needed a bit of a reset. sean on saturday did say several things that were wrong. these weren't huge facts but he, you know, he misstated things like the metro ridership at the president's inauguration compared to obamas. he came in, and i thought it was a pretty good reset. i thought that was a pretty good answer. and i think that this has been an interesting day, charlie, for all of talk of shutting down the briefing room, there has been a buzz of activity here at the white house for the first full weekday for president trump. the white house poll you mentioned, we've been brought in and the poll has gone into more than a half dozen events here at the white house. almost everything the president has done, they've been running and calling sometimes at the last minute, bring the cameras in, then meetings in-- it's been something else. >> rose: let me ask this of

all four of you, you are all very good reporters. which means you have good sources within whatever beat you are covering, whatever administration you are covering. do you have the same thing with the trump administration or does the fact that the president feels like the press has been unfair to him, which he has expressed in every forum that he has had opportunity to talk about the press, cast any kind of resistance to getting the kind of sources you need? >> well, charlie, i will take a first stab at that. i actually find that you can-- you can get ahold of the-- you can get ahold of the senior advisors. they will talk to you even during moments of warfare between the-- you know, at the candidate trump, president-elect trump, now president trump, that they are willing to talk to you. some of them and the biggest challenge though is that so much is directed by trump himself. and often with decisions made at

the very last minute, it's sometimes hard to get at actual, you know, real ground truth of what is going on because it can change so quickly, you know, with the president himself. but i don't find that they shut us out. they do engage the press. >> rose: damian. >> i would say one of the more challenging things here is that he has built this team that doesn't have a lot of history together, right. so if we're giving signals from one part of the team t might not be consistent with signals from the rest of the team so the challenge as a report certificate to present readers with the most accurate, you know, complete package of information. so i think it takes a little more legwork on our end to try to uneverything down. but we're more than happy to do it. the challenge is to get used to a team that doesn't have a tremendous amount of history together and figure out who has what agenda and kind of go from there. >> rose: phil, where do you think the relationship with the intelligence community stands today? >> you know, i don't know that it is great.

president trump was over at the cia on saturday with his first visit, at president. and he spoke in front of that honor wall, that honors so many of the intelligence officers who i had do in the line of duty. he got loud applause from the assembled intelligence officers. but it was sort of a self-selected group. these were people who signed up to see him speak. i think in the broader intelligence community there was a great deal of unease with his visit here. there was a feeling that he used that kind of sacred back drop to give basically a political speech, to attack the media, to talk about himself. he talked about defending his intellect and talking about him as a vigorous young man. it was sort of disjointed and not the kind of presentation that they're used to seeing at the cia. he has reached out and said look, i'm 100 percent behind you guys. i am going to back you more than any other president has ever backed the intelligence community. but the proof is really in the pudding and we're just going to have to see where it goes from here. >> rose: margaret what did you learn about policy today.

>> well, there is a lot of politics, not a lot of policy that is being explained just yet for all the reasons you just heard in terms of things being closely held. what i did think was really interesting in terms of a policy a etch proach was sean spicer saying we're not going to renegotiate any multilateral trade deals with the exception of nafta. this transpacific trade deal, we are not going to spieses it up and put the trump deal, everything will be one-on-one country to country, i think that strategically, charlie, is maybe interesting on an economic front in terms of u.s. trade and advantages. but it could more strategically complicate at least some would argue complicate policy making in a way that could as a bloc challenge china's dominance rticularly in the asia-pacific region. and we haven't heard the trump administration really articulate how they plan to confront china. you heard a few things here and there in terms of rex tillerson's views of potential secretary of states he has

confirmed versus the white house views on south china sea and territorial disputes in international waterways. you've also heard candidate trump say he was really going to have almost a trade war with china. that language hasn't been articulated into a single-- singular view to explain how the united states is going to be positioning itself with arguably its biggest competitor economyically and militarily. >> jonathan bharks about the intelligence community and some how who created what understanding about the riff between the intelligence community and this president. >> well, we heard from the president that it was all a media creation, of course it was then president-elect trump that want quite aggressively at the intelligence community, accused them of leaking that dossier that had all those unconfirmed reports about his alleged activities in moscow. he was the one that brought up the explosive kind of nazi comparison.

but i think that that trip to the cia clearly there was controversy over how he handled what he said in front of that wall. but that was very deliberate move by president trump, a very deliberate move to make his very first trip to an agency, any agency to be the central intelligence agency. the whole point of that was a message, was-- i don't want to see a rif here, i-- rift here, i am going to support the intelligence community, i will rely on the intelligence community. if you talk to the white house, they will say trump has very serious problems with the leadership. clearly with now former cia director john brennan, perhaps also with dni clapper. these, this is the leaders of the intelligence community, politically appointed, appointed by barack obama. he's going to have his own leadership in place. i think there will be still some mistrust but the message from this white house is i may have had problems with your leaders, i didn't have problems with you.

>> yeah. >> finally, phil, is there going to be a daily briefing? is that long tradition will continue to be. >> adhered to? ness with yeah, so it appears that there will be for now, but one of the things that sean spicer had been talking about during the transition phase as he got ready for the job was alternating between a daily on camera briefing, maybe doing a gagel which would be off camera. but still on the record with reporters, having different kinds of interaction. but one thing that he announced today was that they are going to actually have four seats in the briefing room assigned for skype which basically is any reporter out in the country who doesn't have a bureau in washington who represents like the local newspaper or a local television station or radio, would be able to pose questions to the white house press secretary through skype. so there is clearly an effort to try to die lawsuit the influence of sort of the mainstream tv networks, newspapers and wires and go out to this broader media audience for the questioning. >> rose: guys, thank you so

much. >> thanks, charlie. >> we'll be right back. we'll talk to bob gates. stay with us. robert gaitle is here. he's has had a long and distinguished career in national security. he has served eight presidents as secretary of defense and director of the national intelligence agency. the paperback book of his job called a passion for leadership, lessons on change and reform from 50 years of public service, i am pleased to have him back at this table. welcome. >> thanks, charlie. >> rose: we have much to talk about. >> oh yeah. >> rose: let's start with the inaugural speech. >> i think that-- . >> rose: let me tell you what i said, as it came to me afterwards. i said it seemed to me nor, and a call to action than an appeal for unity. >> i think that is a fair statement. and i think that-- i think

people need to sort of get accustomed to this, the fact that this president is going to do things differently. and he km pained on being a disruptive force. and there is no doubt in my mind that he intends to fulfill that. >> rose: you probably had 1078 republican and democrat friends sitting behind him saying oh my god, he's talking about me. >> i'm sure that's the case in fact, he was talking about them. >> rose: he really was. >> probably everybody. >> rose: it was a head on attack on people in washington who have been in power. republicans and democrats. >> that's right. >> rose: he didn't say just democrats or republicans. >> that's absolutely right. i think, what has been interesting to me, charlie, is that i finished this book, a passion for leadership a year and a half ago. and the whole first cham ter was on-- is on how angry and frustratedded americans are with

government at every level and with big institutions. that are so hard to make work for them. and that just create every day challenges, whether you're trying to remodel your house, or file your taxes or get a driver's license. and on-- and my belief that these institutions need change and reform. and that's essentially what president trump ran on. >> but he said-- okay, there are a whole series of things. what's your role with him? >> does he call you often. >> very limited. >> no, i've had the one meeting. >> he's giving you credit for suggestioning the likely secretary of state. >> i did do that. i had a-- i had one meeting with him. i will say a number of his-- . rose: must have been a good meeting. he hasn't invited you back. >> well, he was-- i must say, after some of the things that i wrote, he was very gracious in the meeting. and actually moved past that, and kind of-- .

>> rose: what does he say, does he say how could you say those awful things about me. >> pretty much. he said you were really rough on me. and i said well, some things were said during the campaign that troubled me a great deal on national security. but now you are-- . >> rose: now you're saying are you all for him because he says he's going to do all those things, shake up things. >> no, i'm just saying. on national security i was frank with him. i said you're going to be the president and it is in all of our interest that you be successful on national security issues, so if there is anything i can do to help, i'm happy to help. >> rose: he went out to see the cia people, stood in front of the wall there which is sacred, as you know, as director of the cia, stars of people like robert aamees and people like that, who are heroes, and talked about failures there. talked about crowd size. but at the same time said i love the cia. you've got a big supporter in

me. you know, these reports of division between us simply blame the press. >> well, it was an interesting talk at cia. >> rose: what did you think. >> first of all, i thought the gesture in going out there was important. his nominee mike pompeo has been one of those appointees who have reached out to me on several occasions. we've had some very good conversation about leading the agency, and about reform at the agency. >> rose: does the agency need to be reformed? >> these institutions, charlie, always need to be reformed. bureaucracies have this tendency always to revert back to the mean which is inertia, and falling back on old ways of doing things instead of looking to the future. and i think the agency always is trying to figure out how do we do this better. how do we move forward. how do we reduce, just like a defense, how do we reduce bureaucracy and put more people

doing the real work out there in the field and so on. so i think-- i think the gesture of him going out there was very important. >> so give me your assessment of what happened during the transition and what you heard in the inaugural and where you think the president is. clearly that speech said i'm serious about what i campaigned on. it was the sort of populist message that he had been articulating. >> i think first of all on national security, i have been very encouraged by the people he has named to the cabinet jobs. by tillerson, by john kelley at homeland security, by general mattis at defense. i mean mattis and kelley both worked for me. they're extremely thoughtful. independent, strong minded people. i know tillerson from the boy scouts. and i've worked with rex for a long time. we've talked about international affairs. he's going to be an independent minded figure.

so i take some encouragement from the fact that the president-elect has chosen to surround himself at least in these cabinet positions with very strong independent minded people. and my hope is that, my expectation is that they will give him advice and council straight from the shoulder whether he pays attention or not remains to be seen. >> rose: and then that's russia. you and i have talked about it before. i expect the president and you have a different view of putin. there is a real question about what is russia, where whra is the relationship between putin and the president. >> i am concerned about the president's apparent unwillingness to criticize the russians. he's acknowledged that the russians are behind the hacking. but in terms of russia's aggressiveness, it is meddling t is interventionism t is general bullying and thuggery. those are real. that's a real behavior.

>> rose: are you a russian expert. >> well, i told him-- . >> rose: what does he say when somebody with your credibility says to him you got it wrong about russia. >> i told him the same thing that i said in the senate hearing in reducing rex tillerson for his nomination hearing. i said your administration is going to have to thread the needle and figure out how on the one hand to push back against putin's aggressiveness, meddling and interventionism. and at the same time stop a continuing downward spiral in the u.s. russian relationship that is potentially quite dangerous. but they've got to do both sides of it. they've got to thread the needle and there has to be some pushback. >> you have to figure out a policy that does both. you can't just be accommodating to russia and look for deals with russia. you also have to be willing to pushback against putin because he is a guy who-- he has the old

line used about premier crush ef what is mine, mine and what is yours is neshes rnl. an that's putin's approach. if you don't push back on this guy, he will take advantage. so they have to figure out how to do both of those things. >> rose: look in that syria today. is that a victory for vladimir putin? >> i think so. i think that you know, what president obama referred to as russian quagmire turned out to be-- the russians have kept their man in power. will probably remain, assad will probably remain in power. but you know, it hasn't gotten much attention but just within the last couple of days the russians and the syrians have signed a deal where the russians are going to keep, not only keep their naval base, it will be more than double.

they will have the capacity to put more, something like 11 warships in there, including nuclear warships. and they will get access long-term access on to an airfield in syria for russian airplanes. for 49 years with an extension, another 25 years. >> rose: but they get none of the years-- it seems to me for supporting a sad so that they could use barrel bombs and all the destruction they did in aleppo to all those people, and creating all those my grants, all those refugees. >> absolutely. >> rose: who flooded europe and have changed the politics of europe. >> i think that's absolutely true. and you have several countries in europe that are, what be eager to see those sanctions removed. and truth is, the eu sanctions

require consensus. and there are several members of the eu that could potentially be won over by putin through what ever means. >> rose: and here they are, and i'm not asking this, but making an observation. russia and turkey are now cooperating to talk about how we look at the future effort against isis. and now the russians and turks are attacking ices at long last now that assad is seemingly much safer than he was at an earlier time. and having meetings and the united states is not included, they're in d. >> charlie, the u.s. withdrawal from iraq and afghanistan was always going to be complicated in terms of how do you do that without also signaling that the u.s. is withdrawing from broader

involvement in the middle east. and the reality is some of the decisions that president obama made i think particularly in terms of across red lines in syria and in terms of not providing more assistance early to the syrian opposition to assad, allowing iran to be so open in their support of assad and sending weapons and so on and be more aggressive and medelson in the middle east, i think sent a signal to everybody out there to begin reevaluating where they stand. and quite honestly, everybody-- let me fin esch the point. and quite honestly, president trump's rhetoric i think reinforces that notion among a lot of these countries. let's begin to recalibrate our relationship with the united states.

they may be here, they may not be. so maybe we ought to think about a different kind of relationship with russia or with china or with iran or with others lz let me just talk a moment about a legacy of the obama administration that you served. and how do you evaluate his legacy in the foreign policy, national security area? >> well, i think that you have to look at president obama's foreign policy, mainly in the context of the experience with the wars in iraq and afghanistan, his determination to get out of iraq. his disillusionment in afghanistan whether we cold accomplish our objectives. and then the lesson learned from the intervention in libya, where the result was chaos. and i think that that as much as anything made him extremely cautious in syria. but i think that you are seeing

a recalibration by countries all over the world in terms of their relationship with the united states, and unfortunately, in this respect, some of the statements made by the new administration by the president, i think reinforce some of that. as i was just saying, with respect to the middle east. so you know, if we-- if we pull back that vacuum will be filled by somebody. it won't just stay the way it is. and whether it's russia, whether it's russia or china, or iran or somebody else, is going to be there if we're not. and when i say be there, i'm not talking about a lot of troops and things like that. i'm talking about engagement and involvement. >> if seems to me in a series of exit interviews, with the national security director and advisor, with secretary of state, with the secretary of defense, it is very sense toif the idea that america is retrenching. >> and i think they point to-- .

>> rose: they push back on that very hard. >> i know. and i think that most of them point to the pivot to asia. >> rose: they do. it's hardly stopping. >> dot asians believe anything has changed? >> exactly. >> and you know, just as an example, it's one thing to say you are pivoting. and it's one thing to say you're going to deploy more forces out there. but if you say you're going to protect freedom of navigation, but then you won't do real freedom of navigation exercises, and instead you use innocent passage which is what the chinese navy did when they went through the allu tian islands that basically you turn off your radars and whistle past the grave yard. >> and they perceive it as a sign of weakness. >> i think so. >> and then there is north korea. how troubling is that that they,

what may very well have a nuclear weapon, that they can, an an ecbm that they can put on top of an icbm, and lay it into san francisco. >> well, the reality is that the trump administration inherits a problem that goes back through at least three presidential administrations. >> so the question is what do you do now that they have gotten closer and closer and closers within we tried negotiations. and the north koreans would, sort of put the wallet out there with the string tied to it and every time we get close to something they pull it back. and they did take down some of their capabilities but then have rebuilt them. i think that, you know, there is only one peaceful way to resolve the north korean clal eng. and that is with china. and-- . >> rose: but the chinese are none too happy with us right now because of the possibility change in the one china policy. >> that's why the world is a complicated place. and you have to understand that you know, if you push on one

side, you're going to get a result on the other side. and so these things, i'm hoping, that as the administration settles in, and approaches these policy issues thoughtfully and consider them in the national security council, that they will come up, not only with new policies but policies that take these various linked problems into account. >> rose: let me just repeat your words in september 16th, 2016, in domestic affair there are many checks on what a president can do in national security there are few constraints. they tempermentally shoot from the hip and lip uninformed commander in chief, too great a risk for america. at least on national security, i believe mr. trump is beyond repair. he is stubbornly uninformed about the world and how to lead our country and government and tempermentally unsuited to lead our men and women in uniform. is he unqualified and unfit to be commander in chief.

i read that back to you not to embarrass you. but to believe you have changed your mind about that? >> i-- this is what he-- this is what, when we met, he said you were really rough on me. >> rose: yeah, why did you think that then and don't think that now. >> the answer to your question is exactly what i told him. i said that is because things were said in the campaign about national security that troubled me very deeply. you have been elected. you are going to be the president. and it is important for all of us now that you be successful. and if i can be helpful in that regard, i am prepared to do so. >> rose: and what why your book. >> and i believe others who are in a position to help should do so. and every one of the candidates who reached out to me, those who he is talking to, who he was talking to about being secretary of state, various other positions, every single one of them, i said if the president-elect asks to you serve, you need to serve.

>> rose: your book on leadership quotes napoleon and lots of other people. what should he learn from your book on leadership. that is my last question. >> it is that-- it's one thing to acknowledge that reform and change and disruptsive change is essential. figuring out how to do it that doesn't throw the baby out with the bath water and that leads to enduring and workable change, that's the real challenge. it's not-- it's not just the assertion of the need for change. it's how you go about it that determines whether it will endure beyond your presidency or your time in leadership, whatever the institution. and that involves getting the people in those institutions involved in the process, and lessening to their ideas about how to improve the performance of that organization.

how to change the way it does business in a way that is productive. >> thank you for coming. it's great to see you as always. >> always goods to sigh you. >> bob gates, back in a moment, stay with us. >> chief investment officer of the private web management group at goldman sachs. every january her team publishes an expensive outlook on the global economy and financial markets. this area's report is titled half full it urges investors to maintain conviction in u.s. stocks despite potential significant headwinds in o political tension and thet challenges posed by the presidency of donald trump. i am pleased to have her back at this table. welcome. >> thank you very much. >> so why do you call it half full? >> for a couple of reasons. first we want clients to think about are are u.s. preeminence theme t is a theme we have had

now for eight years and we're actually going on to our ninth year. that u.s. is preeminent. >> rose: in the global economy or how do you mean that? >> every perspective, every aspect. so if we're talking about u.s. economy, in terms of labor productivity, in terms of u.s. competitive, relative to other major exporters, if we're talking about earnings per share growth, so whatever the factors are that one could think about that matter in terms of long-term economic prosperity, in terms of military strength, in terms of rate of innovation, on all those factors, u.s. is preeminent and in fact the gap between the u.s. and other developed economies as well as emerging market economies is actually widening. >> rose: so you are still betting on preeminent. >> yes. >> rose: so what worries you the most? >> the area that we worry about the most is actually china. we've been thinking that china is a source of risk. last year when i was here i said we would probably have at least

two more years before a significant issue in china. our view is that we still have a little bit more time left. so 2017 should be fine. but as time goes on, we have two big categories of concerns about china. one is the immense amount of debt. and we say that china is at risk of sub merging under its debt burden. >> you suggest they spend more time on creating more debt than they do on structural reforms. >> exactly. they have definitely put structural reform on the back burner. the bank for international settlements has a great measure looking at credits to gdp gap. so how fast is credit growing in china relative to trend growth. and it is now at about 30%, anything over 10, 10% is considered a danger zone. elevated risk. and when the u.s. got to its peak levels before the financial crisis, was at 12.4, china is at

30. so that's a very alarming number. and when we look at the pace of growth and debt t has been very rapid. and this is not a sustainable growth model. so that's one factor. and then we think about the geo political issues and trade issues with the u.s. and at the end. day things are not going to continue as they have. >> rose: in other words, so then let me just bring in the donald trump factor. president trump is now in office. how do you weigh what impact he'll have on global markets and global economy and the american economy. >> when we think of the trump administration the first and most important factor from our per spek sif actually fiscal policy. >> rose: right. >> so at the margin fiscal policy will be good for the u.s. economy and fiscal policy whether it is a combination of infrastructure, tax cuts, individual as well as corporate tax cut, some type of combination will be good for the u.s. economy it it will boost the u.s. economy. our best estimate is about .3% in 2017, and .five percent or so

in 2018. so that's one clear benefit in temples of a boost to the economy. >> rose: do you assume that the republicans control congress, is prepared to engage in that kind of fiscal spending. >> we don't think that present frump will-- trump will get all the infrastructure spent and all the tax cuts that he had campaigned on. but he will get some of it and that is why our estimates of about $200 billion is moderately conservative. because of looking at the senate and the house of representatives, that they will not allow that. >> rose: he also made a promise to look at and lower, eliminate, reduce the amount of regulations. that's a positive impact, do you think? for the growth of the economy? >> if one believes that the financial sector is key to the u.s. economy, that is the oil that lets the engine run very well, anything that lets that engine work very effectively is important. and pulling back on some of the regulation, we think we'll be very good. and you can see how some of the

sectors have rallied and done better because they think the regulation is actually pulling back. >> depends on which regulations, doesn't it, because jay mee diamon, c.e.o. of jpmorgan said not all of dodd-frank is bad, we support some of those regulations. so we would not be in favor of pulling back from all of that. >> and goldman sachs. so the question becomes what regulation is too much, and what is too little. so finding the right balance is important. but one thing the trump administration has said is we need to revisit all these regulations and see what's appropriate and what's not. and so that as a margin would be good for the economy. when we look at this recovery from the trough of the crisis, it has grown the half the pace of other recoveries in the post world war ii period. >> rose: why is that? >> so there are actually a couple very good reasons but one of them to your point about regulation. >> just the fact in 2008 and forward. >> yes, the trough in 2009, let's say after the financial crisis, why is it it has grown at half the rate.

one of the reasons has been that the policies have not been as effective as they have been in past recoveries. one of the main reasons is looking at fiscal stimulus, in past crises, there has been more fiscal stimulus in the recovery period. >> rose: the reason for that is that dead lock in congress. >> and the. >> no grand design, no grand bargain was possible. >> exactly. and so the fact is we have had a lot more trimming of the deficit while typically you have had a boost to gdp. we've had the exact reverse here over the last several years. and that's probably reduced gdp by at least a percent. some of the other factors that have been important is the various shocks, external shocks of the sovereign wealth crisis as europe, foark, as an exterrible shock. the big drop in energy prices. that is some of the reasons why the growth has been lower. demographics haven't been great. e hangover after such a deepto

financial and economic crisis. but that is dissipating. >> this was a financial crisis, generally takes longer to recovery from a financial crieses than it does another kinds of economic crisis, correct? or not. >> there have been some-- . >> rose: or is it faster. >> there has been some interesting research on that. obviously there is carmen reinhart's book, this time is different. but actually if one looks at the extensive data t is not clear that always a deep recession or a deep financial crisis has to result in a faster recovery. what really has to look at the specifics of each individual case to actually come to that conclusion. >> rose: but primarily are you saying that this recovery has been slower than we might have expected because we did not have any fiscal policy in place. >> actually to go into-- to a little bit more details, there are actually six reasons. fiscal -- fiscals policy is one

of them, households have saved significantly so their balance sheets are actually in much better place. usually in a recession like, this in a slow recovery, te.gs and reduce the savings and in this recovery, the savings rate has actually been substantially higher than normal. so people haven't spent as much so the recovery has been slower. >> what else? >> the other big theme is productivity. productivity has been loafer over the last ten years and that has prompted a lot of nay sayers to say productivity in the u.s. is dwing to stay low as far as the i can see people have published books. the result is the savings rate is very cyclical. so one can have a ten year, 15 year window of low productivity, that can be followed by an unexpected surge in productivity. so in the '70s, '80s and early '90s, everybody was saying we are no longer going to have productivity in the u.s. productivity growth rate was about 1.5, compared to what we have now at 1.3%. and yet after 1995 productivity surged to over 3%. >> rose: you notice that some

were worried that technology and productivity is going to mean the elimination of jobs. >> so some jobs are going to be created and some jobs will be lost it is a balance. we're going to have more of a service economy, productivity improvements in technology could mean as you know, the uber cars, gps,. >> rose: what does that do? >> there are all kinds of benefiteds and there will be some negatives. but i think to assume it will all be negative is a forecast. it's a bitd of a speculation. in general productivity and higher productivity and growth rates have been great for the economy. so other jobs will be created. jobs we don't even know about. >> rose: what do you worry about in terms of geo political tension? >> our view is that some of the geo political tensions that we currently have will continue. so if we're talking about, for example, north korea, and some of the-- our view is that that will continue. we saw that on december 30th where generally the north koreans have had a strategy of

doing something. some what we lige rant around the arrival of a new president, in the united states and in south korea. and true to form, on december 30th they announced that they are going to be testing interballistic missiles so they will do those types of things but we don't think it is a significant threat. we think tensions in the middle east will continue. that is not an easy solution any time soon. the issues with china in the south china sea will be significant. and we think the u.s. will take a harder stance if we think about the various recommendations that the u.s. does need to do a reset button it is not a republican or a democrat view it is a view that lots of thoughtful academics have said that we need to reevaluate and reassess the relationship with china from an economic perspective, from a military perspective and from cybersecurity perfect-- per spiskt. so that reset. >> security is a big concern, i would assume. >> if we look at all the

cybersecurity attacks, the list is very, very long. none of them have been significantly threatening to the u.s. economy or to the financial markets. the key question will be whether there will be a significant threat that would affect, for example, the infrastructure. that is unpredictable. our base case is that it it wouldn't happen but it is unpredictable. >> what about monetary policy. >> monetary policy has been very favorable. all over the world, whether we're talking about the united states, whether we're talking about japan, the euro zone, and our view is that generally that favorable monetary policy will continue. so even if we have the fed raising rates, let's say two to three times in 2017, and maybe three or four in 2018, we still will have negative real rates in the u.s. and in other parts of the world like the eureau zone or the u.k. or japan, in fact, they will be even more negative. so real negative rates, interest rates are very stim latif an

their balance sheets will be expanding relative to gdp. so there will be continuing to make purchases on a global basis, the one exception is the u.s. where they are just going to reinvent the process. >> when you look at u.s. economic growth rates there are those in the trump administration talk wistfully about a four percent growth rate. when do you think we might have a four percent economic growth rate? >> specifically this that report we refer to the numbers touted 3 to 4% gross targeteds. >> when is that possible. >> given everything that is going on in the u.s., we have had eight years of an expansion. we don't think we're going into recession any time soonment but to have three to four percent on a sustainable basis given demographics and given even an improvement in product tift, we think would be a stretch. we could have a one quarter or two quarters of some type of number that approaches four, but to have growth rates on an annual basis for several years at four percent in our view is

not really realistic. >> what do you think some of the theers on secretary lar stagnation. >> secretary lar stagnation came from alvin hanson in the 1930s. and he was proven wrong. he was proven wrong on product tift, he was proven wrong on. >> if you think about the product tift question, we've addressed it quite extensively. we actually don't think that one can say productivity is going to stay at these levels it lookings like there could be tremendous upside so that is one component. on the demographic side, demographics today are not as favorable in 2er78s of the labor force as it was in the '50s and '60s. but there are actually policies that one can do, and larry summers talks about some of these policies that could actually improve labor force participation. especially with white males. >> can they bring manufacturing backed to the united states, whoever they is. >> boston consulting group has done an incredible study on the competitiveness of the u.s. from an export perspective.

>> from manufacturing. >> from a manufacturing perspective and they look at the top 25. we actually said let's just focus on the top ten major countries. and the u.s. was among the more competitive in 2004. now it's the most competitive on par with south korea and china. so in fact, as u.s. competitiveness has improved, and it in its ability to export has improved, the ability to become to have more manufacturing has improved, to your point earlier about productivity and technology, if one is using technology and innovation and you're not relying on a lot of labor, then the u.s. is not at a competitive disadvantage at all. so some of it can clearly be brought back. and in fact, these made in america studies from the boston consulting group showed how much manufacturing is coming back to the u.s. for a number of reasons. one is cost competitiveness. one is they don't want property

theft, the other is they don't want supply chain dis-- disruption. they want to be closer to the customer, the client base because they can adapt and adjust more readily. they think they can actually be more competitive and do more invasion with some of the manufacturing is actually here. so for a whole host of reasons it's pretty realistic to assume some manufacture canning come back. and it has for the last several years it has nothing to do again with any particular administration. >> trade, what if trade is damaged because of how the administration seems to feel about trade, when they ask they are talk being fair trade and negotiated deals that are fair, they say. but negotiations are a very difficult thing and they are going to dismantle some of the deals that we had begun to believe in. >> so referring back to the china example, where very objective third petter think tanks and observers have said we do need to reassessing the

relationship with a country like china, which say major training partner, if you look at the trade surplus that china has. >> what would happen if we put a 45% tariff on goods from china coming too the united states. what would be the impact on the economy. >> that would clearly be disruptive and certainly the chain ease would reval yait. they are not going to sit there and allow that the question is at the increment, are there things that one can do. so the headline might be inflammatory but at the end of the day, if one believes that he does care about the bottomline, he is a good negotiator, he likes to make deals, the question is, should one actually reassess the relationship with china and let it be a little bit more even keeled. >> and then there is high valuation, as a risk factor. >> yes. >> so how do you factor that in, i mean stocks have done very well, the s&p has done very well. >> you look at equity valuation. we actual leigh have now just

turned over into the tenth decile meaning equities have been cheaper 90% of the time so clarily based on a whole host of valuation metrics, we are more expensive. but valuation alone is not a reason to go out of the equity markets f people had gone out of equities in july of 1995, when equities were in the tenth decile, they would have never gotten a chance to get back in. and would have left 500% returns on the table since 1995. so our key message is valuation alone, is not a reason to go out of the u.s. equities, especially if you don't expect a recession. >> you may have told me. this the u.s. economy will grow at what rate in 2017? >> our expectation is about 2.3% with a little bit more upside. if the momentum that we are seeing now with indicators pefer sis we're probably be closer to two and a half. >> and break record levels within on the s&p you mean? >> question. >> our base case is there is more upside than downside so we

have a modest appreciation of about three%, but 25% probability that we will make new highs. >> rose: thank you for coming. >> thank you very much for having me. >> rose: gold man sacts investment management division outlook reporter, i assume on their website, titled path forward. thank you for joining us. see you next time. >> for more about there program and earlier episodes visit us online at pbs.org and charlie rose.com. captioning sponsored by rose communications captioned by media access group at wgbh access.wgbh.org

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