WEBVTT - Bloomberg Surveillance: Underweight Treasuries 0:00:05.120 --> 0:00:07.119 This is the Bloomberg Surveillance Podcast. 0:00:07.160 --> 0:00:11.000 I'm Tom Keane, along with Jonathan Farrow and Lisa Abramowitz. 0:00:11.280 --> 0:00:15.760 Join us each day for insight from the best and economics, geopolitics, 0:00:15.760 --> 0:00:20.720 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:20.960 --> 0:00:25.400 Spotify and anywhere you get your podcasts, and always on 0:00:25.520 --> 0:00:29.840 Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App. 0:00:30.040 --> 0:00:34.520 Peter Sheer talking about similarly November as an incredible year 0:00:34.720 --> 0:00:37.680 head of macrostrategy at Academy Security, is an incredible year 0:00:37.720 --> 0:00:40.319 that may or may not be repeatable in the coming year, 0:00:40.440 --> 0:00:43.239 that is December. How much do you lean against some 0:00:43.280 --> 0:00:45.760 of the moves that we saw last week, Pete so one. 0:00:45.800 --> 0:00:47.519 I'm starting to lean against tragedies a little bit. I 0:00:47.560 --> 0:00:49.360 think four twenty is a little bit too low given 0:00:49.400 --> 0:00:51.720 the data. I don't like the fact that either ten 0:00:51.800 --> 0:00:54.120 year real yields are right around two percent or five 0:00:54.200 --> 0:00:57.000 year five year break evens are back to right around 0:00:57.040 --> 0:00:59.600 two percent and its Last month's FED meeting was really 0:00:59.640 --> 0:01:02.440 about marketed done the work for the FAD. This month's 0:01:02.440 --> 0:01:04.679 meeting is going to be about well the market undid 0:01:04.720 --> 0:01:06.720 all that work, so I think rates have got ahead 0:01:06.720 --> 0:01:09.240 of themselves. On the equity side of things, I think 0:01:09.319 --> 0:01:11.600 we've seen for the last couple of weeks this move 0:01:11.640 --> 0:01:14.800 where the Russell two thousand disruptive stocks have outperformed from 0:01:14.800 --> 0:01:17.399 the broad indices, and I think that actually continues into 0:01:17.480 --> 0:01:18.040 you're at. 0:01:18.240 --> 0:01:20.319 Peter, you're so good at use of cash, and I 0:01:20.360 --> 0:01:22.200 want to go to the use of cash right now 0:01:22.240 --> 0:01:26.320 of one mister and missus Zuckerberg Bloomberg reporting on the 0:01:26.400 --> 0:01:30.399 sale of the Zuckerbergs of a very large amount of 0:01:30.440 --> 0:01:33.600 Facebook shares. It's a little bit smaller than what Peter 0:01:33.680 --> 0:01:36.760 share has in Meta if you will, but they are 0:01:36.800 --> 0:01:41.840 out right now with some news on that, and Peter, 0:01:41.959 --> 0:01:43.960 I think this does get the use of cash. It 0:01:43.959 --> 0:01:46.720 gets to dive, it an increase, it gets to share 0:01:46.760 --> 0:01:51.360 buyback and maybe executives unloading their stock after in this 0:01:51.440 --> 0:01:54.480 case one hundred and seventy two percent surge. 0:01:54.600 --> 0:01:57.960 Peter helped me here with where we are in use 0:01:58.000 --> 0:01:58.480 of cash. 0:01:58.520 --> 0:02:02.240 If we see people like the zucker Berg's selling shares. 0:02:02.680 --> 0:02:04.960 Listen, I think we've had this phenomenal run in the 0:02:04.960 --> 0:02:07.760 Magnificent seven. The leadership has been very narrow all year. 0:02:07.800 --> 0:02:10.519 People have been talking about that and since November ninth, 0:02:10.520 --> 0:02:12.640 and we brought up I think last week and video 0:02:12.720 --> 0:02:15.120 earnings were very telling as well, and video earnings were 0:02:15.520 --> 0:02:19.000 probably five. Stock went down, but markets rallied and I'm 0:02:19.040 --> 0:02:21.239 really looking the disruptive stocks are doing well. You see 0:02:21.280 --> 0:02:25.000 Spotify up there today for various reasons. I think you're 0:02:25.040 --> 0:02:27.240 going to see regional banks continue to do well, commercial 0:02:27.280 --> 0:02:30.200 real estate Russell two thousand, all the small caps, all 0:02:30.200 --> 0:02:32.280 the things that people have left behind. Is people are 0:02:32.320 --> 0:02:33.840 trying to think out where do I put my cash 0:02:33.919 --> 0:02:36.000 right now, especially if you missed five percent on the 0:02:36.040 --> 0:02:38.400 ten uere. Those kind of look interesting. I think have 0:02:38.480 --> 0:02:39.840 some momentum coming at a year end. 0:02:40.400 --> 0:02:43.680 I'm absolutely fascinating, Peter, let's meld the two together. I mean, 0:02:43.720 --> 0:02:48.600 are we going to see bond issuance to support equity ownership. 0:02:48.639 --> 0:02:52.040 I mean, whether it's the miracle of Zuckerberg's and Facebook up, 0:02:52.080 --> 0:02:55.160 Meta up is well, I mean, I think it's almost 0:02:55.160 --> 0:02:56.920 a jumble into next year. 0:02:57.480 --> 0:02:59.880 Yeah, I think we are going to see more bond issuance. 0:03:00.040 --> 0:03:01.760 If you know, we've been certainly talking to some of 0:03:01.760 --> 0:03:04.200 our corporate issuers recommending that they get out ahead of 0:03:04.200 --> 0:03:06.360 this right we are at ten percent or sorry, five percent. 0:03:06.400 --> 0:03:08.320 On ten years, we're at four point two percent. You 0:03:08.360 --> 0:03:10.799 can save some money there. Credit spreads have actually done 0:03:10.880 --> 0:03:12.960 very well. We're at the lowest spreads all year. So 0:03:13.120 --> 0:03:16.400 issue some bonds support your equity. Also, I think we 0:03:16.400 --> 0:03:18.680 could see some M and A activity finally start picking up. 0:03:18.720 --> 0:03:21.040 It's been look at. At the end of the summer, 0:03:21.080 --> 0:03:22.639 you might get a bit of that. But now you've 0:03:22.680 --> 0:03:25.799 had this stability reasonably long enough, I think you get 0:03:25.840 --> 0:03:28.280 some interesting transactions done coming into the new year. 0:03:28.360 --> 0:03:30.919 The phrase from twelve months ago and Lisa, I give 0:03:30.960 --> 0:03:34.760 you you coined this. It's almost a toxic brew of 0:03:34.920 --> 0:03:37.240 risk on is where we are. 0:03:37.160 --> 0:03:39.320 Which is the reason why a lot of people might 0:03:39.400 --> 0:03:41.680 say it might have gone too fast. But it's hard 0:03:41.680 --> 0:03:44.840 to lean against Peter. Just to Tom's point, the news 0:03:44.920 --> 0:03:47.119 is that Mark Zuckerberg is selling MetaStock for the first 0:03:47.160 --> 0:03:50.240 time in two years, and this comes after the incredible 0:03:50.320 --> 0:03:52.400 run up, and you're seeing the shares in pre market 0:03:52.400 --> 0:03:54.680 trading down about one and a half percent on Meta. 0:03:54.760 --> 0:03:57.960 It raises this larger question of what do you lean against. 0:03:57.960 --> 0:03:59.880 You said you think treasury is at rates have gone 0:04:00.080 --> 0:04:02.880 too far. A lot of people, I think are starting 0:04:02.880 --> 0:04:04.640 to pick that up, which is maybe why you're seeing 0:04:04.640 --> 0:04:07.600 a bit of a retracement today on the equity side. 0:04:07.640 --> 0:04:10.560 Are you hearing anyone lean against some of the tech 0:04:10.680 --> 0:04:13.280 names that have gone incredibly far so far this year 0:04:13.320 --> 0:04:15.240 and frankly the year that was November. 0:04:14.960 --> 0:04:17.039 I'm not sure if many people are actually leaning against them. 0:04:17.080 --> 0:04:18.760 I think it's still a fairly crowded trade to be 0:04:18.839 --> 0:04:21.799 long those, but I would be very comfortable being short QQQ, 0:04:22.200 --> 0:04:25.080 so the Nasdaq one hundred versus long IWM, the Russell 0:04:25.120 --> 0:04:27.520 two thousand. I think trades like that are actually well 0:04:27.560 --> 0:04:29.800 positioned for the next few weeks, and at some point 0:04:29.839 --> 0:04:32.159 I do think we probably want to turn barish on 0:04:32.200 --> 0:04:34.120 this market. Maybe we get to forty six fifty on 0:04:34.160 --> 0:04:37.600 the S and P, maybe the Russell two thousand can 0:04:37.640 --> 0:04:40.760 run another five percent. But if the economic date it 0:04:40.800 --> 0:04:42.680 starts coming in as week as probably needs to be 0:04:42.800 --> 0:04:45.800 to support for twenty ten years, then I think equities 0:04:45.800 --> 0:04:47.280 are going to roll over a little bit. But that's 0:04:47.320 --> 0:04:49.800 probably not this week, next week. That's probably closer to 0:04:49.839 --> 0:04:51.320 the end of year, early January. 0:04:51.480 --> 0:04:55.440 So how would Russell two thousand outperform Nasdaq in that scenario, right, 0:04:55.520 --> 0:04:57.840 because at this point, if you start thinking about weaker 0:04:57.920 --> 0:05:01.880 economic growth that supports the on call Why then with 0:05:02.000 --> 0:05:04.919 some of the most leveraged to the economy companies, the 0:05:04.960 --> 0:05:06.839 smaller companies do the best. 0:05:07.400 --> 0:05:09.600 Because I think people have been avoiding those stocks all 0:05:09.680 --> 0:05:12.360 year long and crowded into the other stocks. So it's 0:05:12.440 --> 0:05:14.400 all going to be about what's crowded, right, And if 0:05:14.440 --> 0:05:16.280 you start getting nervous about the economy, people are going 0:05:16.320 --> 0:05:17.560 to turn around and say, oh, we've got to cut 0:05:17.600 --> 0:05:19.480 our wrist. Well, guess what if you don't own a 0:05:19.520 --> 0:05:21.479 lot of Rustle two thousand, you can't sell the Russell 0:05:21.520 --> 0:05:23.640 two thousand, So you're gonna wind up selling what you have. 0:05:24.040 --> 0:05:25.960 And I think that's just the nature of this market 0:05:26.000 --> 0:05:28.680 right now. That's the crowded trade. That's where people piled into. 0:05:29.160 --> 0:05:31.559 So if we get nervous about the economy, that's actually 0:05:31.600 --> 0:05:34.560 going to sell off harder because that's where people are overweight. 0:05:34.720 --> 0:05:38.320 Peter, we're's sixty forty twelve months from now. 0:05:38.520 --> 0:05:41.320 No, probably where it's always been. That's kind of has 0:05:41.320 --> 0:05:43.680 this attraction. That's one of the things that kind of 0:05:43.800 --> 0:05:46.960 just keeps on going along with covered call writing people 0:05:47.000 --> 0:05:50.679 like those strategies. I think you want to be probably 0:05:52.320 --> 0:05:54.720 underweight treasuries right now in that sixty forty. You want 0:05:54.720 --> 0:05:56.080 to be more towards the front end because I think 0:05:56.080 --> 0:05:58.360 the next move should be slightly higher and yields back 0:05:58.360 --> 0:06:01.120 to four forty maybe on tenure, but you still want 0:06:01.120 --> 0:06:03.160 to play around that. You want these balanced portfolios, and 0:06:03.200 --> 0:06:05.360 you want to also see what can we do outside. 0:06:05.480 --> 0:06:07.800 Actually for the first time in multiple years, for the 0:06:07.839 --> 0:06:09.720 last two weeks and hasn't been working yet. I like 0:06:09.800 --> 0:06:12.440 Chinese stocks more on a trade. I think long term 0:06:12.480 --> 0:06:14.080 I don't want to invest in China, but for a 0:06:14.120 --> 0:06:14.800 trade they're fair. 0:06:15.240 --> 0:06:17.520 Peter, thank you so much for the comments, particularly they're 0:06:17.560 --> 0:06:21.520 on Meta as a Zuckerberg's unload stock as well. 0:06:25.920 --> 0:06:27.400 We're in good company right now. 0:06:27.720 --> 0:06:31.159 An FX George, Sarah Bellos's global head of FX research 0:06:31.600 --> 0:06:34.960 at Deutsche Bank. George, throughout your note, there's this speed 0:06:35.880 --> 0:06:41.800 towards very weak inflation, in abrupt disinflation. How do we 0:06:41.880 --> 0:06:45.200 play that in foreign exchange? 0:06:46.000 --> 0:06:48.320 So I think tom next year is still going to 0:06:48.360 --> 0:06:51.760 be about these policy gaps. Which central bank is going 0:06:51.800 --> 0:06:54.120 to cut first and which one is going to lag 0:06:54.200 --> 0:06:56.000 or is it all going to be symmetric. 0:06:56.240 --> 0:06:58.080 And the way I think we're being. 0:06:57.960 --> 0:07:00.599 Set up for next year is that the DC is 0:07:00.640 --> 0:07:03.560 most likely to go first. If we look at the 0:07:03.560 --> 0:07:08.200 most recent inflation data, I would argue that ECB should 0:07:08.240 --> 0:07:09.600 actually be cutting next week. 0:07:10.280 --> 0:07:13.080 Inflation. Core inflation over the last three. 0:07:12.960 --> 0:07:16.680 Months is running below one percent, so we're not that 0:07:16.800 --> 0:07:19.920 far away from having to start thinking about deflation risks 0:07:20.560 --> 0:07:23.680 when we're discussing Europe, and of course the economy is 0:07:23.760 --> 0:07:27.160 also at best instagnation, so I would argue the market 0:07:27.280 --> 0:07:31.520 is right to price more ECB easing, but perhaps versus 0:07:31.800 --> 0:07:33.760 the US is getting quite ahead of itself. 0:07:33.880 --> 0:07:36.440 It's George, you've got some aggressive calls on both central banks. Now, 0:07:36.480 --> 0:07:38.880 then you've got a call on the Federal Reserve. You 0:07:39.000 --> 0:07:41.280 and a team I think one hundred and seventy basis 0:07:41.280 --> 0:07:43.520 points one hundred and seventy five basis points of cuts 0:07:43.960 --> 0:07:46.960 starting in June next year. Now, George, is a range 0:07:46.960 --> 0:07:48.840 of forecasts, as you know, for next year, but that's 0:07:48.840 --> 0:07:51.360 certainly not consensus. Can you explain to us all why 0:07:51.400 --> 0:07:53.400 you think we start in June but go a whole 0:07:53.440 --> 0:07:55.520 lot deeper than a lot of people think. 0:07:56.560 --> 0:07:58.720 Well, I think John Back goes back to the recession 0:07:58.800 --> 0:08:02.240 versus as a soft landing debate. And now, if you 0:08:02.240 --> 0:08:04.760 look at what the market's pricing at the moment, we 0:08:04.800 --> 0:08:08.160 have FET funds going to around reasonable elements of neutral, 0:08:08.200 --> 0:08:12.160 slightly above three percent. So the market is perfectly priced for. 0:08:12.120 --> 0:08:13.400 A soft landing, so to speak. 0:08:13.440 --> 0:08:16.120 So I think if we're looking at next year, the 0:08:16.160 --> 0:08:19.520 strongest wee I'd probably have is this bond equity correlation, 0:08:19.760 --> 0:08:22.600 which has been very positive. So you've had higher bond 0:08:22.680 --> 0:08:26.000 prices and higher equities at the same time. That's very 0:08:26.160 --> 0:08:30.400 unlikely to last because you're either into a soft. 0:08:30.200 --> 0:08:33.280 Landing and therefore you can't price lower FET funds anymore 0:08:33.520 --> 0:08:34.600 risk and continue going well. 0:08:34.600 --> 0:08:37.200 But if you do go into recession, then you'll you 0:08:37.240 --> 0:08:40.400 can most certainly price more cuts, but it's not. 0:08:40.360 --> 0:08:43.280 Going to be possible for equities to still value. 0:08:43.320 --> 0:08:46.760 So the last three four months have been great from 0:08:46.760 --> 0:08:50.160 an masset perspective because you've had this bond and equities. 0:08:49.760 --> 0:08:50.720 Going up at the same time. 0:08:50.840 --> 0:08:52.880 I think that's going to be very difficult to repeat 0:08:52.920 --> 0:08:54.360 itself for next year. 0:08:54.720 --> 0:08:57.160 That's on the US side. I want to just get 0:08:57.160 --> 0:08:59.199 you to elaborate a little bit when you're talking about 0:08:59.480 --> 0:09:02.000 your belief that the ECB should cut next week. You 0:09:02.040 --> 0:09:05.400 think that the Eurozone is facing deflation and that that 0:09:05.559 --> 0:09:08.440 risk is rising. What do you think will be the 0:09:08.480 --> 0:09:11.200 follow on response if the ECB goes ahead and does that. 0:09:11.400 --> 0:09:13.120 Do you think that they could then engineer a soft 0:09:13.200 --> 0:09:14.800 landing or do you think that they could just avoid 0:09:14.840 --> 0:09:17.120 the depths of a pretty significant downturn that you think 0:09:17.160 --> 0:09:18.440 hasn't been fully recognized. 0:09:19.520 --> 0:09:22.360 So I think it's important to distinguish between growth and inflation, 0:09:22.559 --> 0:09:24.120 and in fact, if I look at Europe, I would 0:09:24.120 --> 0:09:26.839 say it's the perfect definition of a soft landing, because 0:09:26.840 --> 0:09:29.320 what you have is growth are slow down and at 0:09:29.360 --> 0:09:31.959 the moment it's around zero. So we're debating maybe we 0:09:32.040 --> 0:09:34.320 get one or two quarters of neck to GDP. But 0:09:34.480 --> 0:09:37.640 as long as the ECB cuts, and I need to 0:09:37.640 --> 0:09:39.800 be careful of what I say, I think they should 0:09:39.800 --> 0:09:41.960 be cutting next week, I don't think they will. I 0:09:41.960 --> 0:09:44.480 think it's more likely precisely because they were late on 0:09:44.520 --> 0:09:46.280 the way in, so to speak, they'll be late on 0:09:46.320 --> 0:09:46.880 the way out. 0:09:47.040 --> 0:09:48.640 But as long as the ECB say. 0:09:48.440 --> 0:09:51.040 Cuts by March April, I think actually Europe's going to 0:09:51.080 --> 0:09:53.760 be in a relatively okay place where the economy soft 0:09:53.840 --> 0:09:57.319 lands and inflation comes back down to two percent or 0:09:57.360 --> 0:10:01.959 potentially below, But that's actually pretty good outcome. It's also 0:10:02.040 --> 0:10:04.640 quite a negative outcome for the exchange rate, but given 0:10:04.640 --> 0:10:06.400 how quick inflation is coming down. 0:10:06.800 --> 0:10:08.440 Probably a week of euro is not a bad thing 0:10:08.760 --> 0:10:09.720 for Europe at the moment. 0:10:10.000 --> 0:10:13.040 Cheorge over the weekend was a lot of zeitgeist hope 0:10:13.040 --> 0:10:18.040 in prayer of a strong yen, off of some form 0:10:18.080 --> 0:10:21.880 of policy change in Japan, a way for people to 0:10:21.920 --> 0:10:25.360 make big, big, big figures fast Do you buy it? 0:10:26.880 --> 0:10:28.880 So there's two ways to get a strong yen. 0:10:29.440 --> 0:10:32.280 One is that the back of Japan finally starts a 0:10:32.280 --> 0:10:35.000 proper hiking cycle. And what I mean by that is 0:10:35.040 --> 0:10:38.439 they say they're going to start hiking every meeting. That 0:10:38.520 --> 0:10:41.920 looks pretty unlikely, especially as the rest of the world 0:10:42.040 --> 0:10:43.679 is moving into an easing cycle. 0:10:43.760 --> 0:10:47.080 So I'd probably say that's the least likely outcome. But 0:10:47.160 --> 0:10:48.679 if you are in an environment where the. 0:10:48.640 --> 0:10:52.160 Other central banks are starting to come because inflation has 0:10:52.200 --> 0:10:54.840 come down, then you can get yen strength because it 0:10:54.840 --> 0:10:57.520 will be the outlier, so to speak, on the way 0:10:57.520 --> 0:10:59.800 out as it was on the way in. So I've 0:10:59.840 --> 0:11:02.400 been much more inclined to think about your strength from 0:11:02.440 --> 0:11:06.079 the global perspective rather than the domestic Japanese perspective. 0:11:06.480 --> 0:11:09.600 Dear Christaine, George thinks you will count next week. What 0:11:09.640 --> 0:11:11.280 do you think, George? And I don't worry it's not 0:11:11.440 --> 0:11:13.760 being the headline. George sara Velos at Deutsche Bank. George, 0:11:13.760 --> 0:11:14.240 thank you. 0:11:24.120 --> 0:11:26.400 Right now we are going to look at the climate 0:11:26.440 --> 0:11:29.480 affairs of Dubai and this was the World Bank in 0:11:29.520 --> 0:11:32.359 transition from David malpass over. 0:11:32.280 --> 0:11:33.199 To mister Rogan. 0:11:33.280 --> 0:11:36.439 What's so important here is his corporate work with Neslie 0:11:36.920 --> 0:11:40.679 And I'm Domestercard and the general elector with a conversation 0:11:40.800 --> 0:11:44.360 with a president of the World Bank, are Jen Zabajaja 0:11:44.559 --> 0:11:45.120 in Dubai? 0:11:45.240 --> 0:11:45.480 Jen? 0:11:48.480 --> 0:11:51.320 Yeah, thanks so much, Tom a Jay. They were just 0:11:51.440 --> 0:11:53.280 Tom was just giving you a really great intro there 0:11:53.360 --> 0:11:56.280 about how your previous career. Now you're at the World Bank, 0:11:56.280 --> 0:11:58.000 and let's just talk. In the first few months of 0:11:58.120 --> 0:12:01.280 your role, you've made climate finance a priority. I mean, 0:12:01.320 --> 0:12:03.880 can you talk to us about where you've seen progress 0:12:03.880 --> 0:12:05.679 and whether you think this is really a turning point 0:12:05.800 --> 0:12:06.679 for this discussion. 0:12:06.800 --> 0:12:09.160 You know, I think it's very important because the reality 0:12:09.320 --> 0:12:11.800 is that you've had the hottest year on record, we're 0:12:11.840 --> 0:12:13.000 aiming for another hot year. 0:12:13.240 --> 0:12:14.680 Clearly this has to change. 0:12:14.840 --> 0:12:17.760 And you can't make climate and fight the climate issue 0:12:17.880 --> 0:12:19.600 without money coming to work on it. 0:12:19.920 --> 0:12:21.280 So it's one of the most important things. 0:12:21.320 --> 0:12:23.400 When I traveled around the world, I picked up the 0:12:23.440 --> 0:12:27.800 impression that dealing with poverty cannot be by itself. You 0:12:27.880 --> 0:12:30.720 have to deal with climate, pandemics, fragility. These are all 0:12:30.760 --> 0:12:34.120 intertwining crisis. That's why we change our mission to include 0:12:34.320 --> 0:12:37.640 livable planet in addition to eradicating poverty. So this is 0:12:37.640 --> 0:12:39.880 what we're on and what I'm trying to do here 0:12:40.000 --> 0:12:42.600 to show you the progress, is to make a commitment 0:12:42.880 --> 0:12:45.280 that we will get to forty five percent of our 0:12:45.320 --> 0:12:48.480 financing annually. We'll go to climate by twenty twenty five, 0:12:48.840 --> 0:12:51.640 two years from now, not ten years from today. That's 0:12:51.679 --> 0:12:54.120 forty billion dollars a year working on climate finance. 0:12:54.160 --> 0:12:55.400 How do you do that? How do you adjust your 0:12:55.400 --> 0:12:56.520 balance sheet to ensure that? 0:12:56.600 --> 0:12:59.600 Yeah, the good news is there's also raising capital along 0:12:59.640 --> 0:13:02.640 the way thanks to this whole capital adequacy framework with 0:13:02.720 --> 0:13:05.680 the G twenty Goddess going with and we're also doing 0:13:05.760 --> 0:13:08.600 things like looking at whether we can securitize parts of 0:13:08.600 --> 0:13:11.800 our baran sheet, existing balance sheet, free up some capital, 0:13:11.960 --> 0:13:14.760 and then partnerships so you don't really do all that 0:13:14.800 --> 0:13:17.880 financing yourself. You can also get partnerships going. You know, 0:13:17.920 --> 0:13:20.720 I have great partners with the other multilateral banks, AI, 0:13:21.280 --> 0:13:24.800 eib EBRD, these are all people who work with us. 0:13:24.840 --> 0:13:27.600 So there's multiple ways to go at this. But at 0:13:27.600 --> 0:13:29.800 the end of the day, the much bigger issue here is, 0:13:30.360 --> 0:13:32.280 even if I do all that, even if the other 0:13:32.360 --> 0:13:35.160 multilateral banks do what they can, even if governments do 0:13:35.200 --> 0:13:36.000 all they can. 0:13:36.080 --> 0:13:37.520 You do need the private sector. 0:13:37.720 --> 0:13:41.520 You're going to need their ingenuity and technology and numbers, right. 0:13:41.440 --> 0:13:43.720 And that's what you've been spending the past few days 0:13:44.120 --> 0:13:45.920 talking a lot with the private sector. This is your 0:13:45.960 --> 0:13:48.959 first Cough, can you talk to us about I mean, 0:13:49.040 --> 0:13:50.400 give us a sense of what it's like in the 0:13:50.480 --> 0:13:53.920 room where there's consensus and where there's still gaps within 0:13:53.960 --> 0:13:55.319 the private sector in the collaboration. 0:13:55.600 --> 0:13:56.400 That's a great question. 0:13:56.480 --> 0:13:59.440 So the private sector issue is the private sector now 0:13:59.480 --> 0:14:02.880 knows that's solar and wind power per unit is cheaper 0:14:02.920 --> 0:14:07.400 than fossil fuel. That's proven with scale and technology. They 0:14:07.440 --> 0:14:10.640 know that it takes longer sometimes as a gestation period, 0:14:10.640 --> 0:14:13.000 and they know, they may have some higher capexet front 0:14:13.040 --> 0:14:15.000 because they've got to build grids and you can't just 0:14:15.000 --> 0:14:19.080 build the installed capacity, right, So they understand that. So 0:14:19.160 --> 0:14:21.800 why is it then that they aren't burning down the 0:14:21.800 --> 0:14:23.720 doors of countries to go do this? 0:14:23.880 --> 0:14:25.080 For two or three reasons. 0:14:25.320 --> 0:14:27.560 One is does the country have the capacity to absorb 0:14:27.640 --> 0:14:29.240 this kind of projects coming in? 0:14:29.400 --> 0:14:31.240 Can they connect the grids up? Can they do all that? 0:14:31.720 --> 0:14:34.680 But second, much more critical is the two kinds of 0:14:34.760 --> 0:14:38.560 risks that private sector investors don't like because they don't understand. 0:14:38.840 --> 0:14:42.360 They don't understand political risk and they don't understand foreign 0:14:42.400 --> 0:14:44.240 exchange risk in the emerging markets. 0:14:44.960 --> 0:14:46.480 Now, political risk we can help it. 0:14:46.600 --> 0:14:49.880 We have this this institution called MEGA our Interviews or 0:14:49.960 --> 0:14:53.120 our Guarantee Agency. We've now got approval to use that 0:14:53.200 --> 0:14:56.480 for every multilateral development bank. They can use our back 0:14:56.520 --> 0:15:00.360 office to issue guarantees. This does political risk guarantees and 0:15:00.400 --> 0:15:02.640 then lays them off in the reinsurance market. 0:15:03.000 --> 0:15:05.920 We need to scale them. It's the FX risk that's 0:15:05.960 --> 0:15:06.440 the much harder. 0:15:06.560 --> 0:15:08.000 Well, how do you get around that? I mean, because 0:15:08.000 --> 0:15:09.600 that's not going away in a lot of them right now. 0:15:09.600 --> 0:15:12.480 So in fact, people keep talking about local currency markets 0:15:12.560 --> 0:15:15.080 is the way to do it. The reality is developing 0:15:15.080 --> 0:15:17.680 a local currency market. The right depth and width to 0:15:17.720 --> 0:15:20.520 be able to do this well can take five ten years. 0:15:20.720 --> 0:15:22.200 We don't really have five or ten years. 0:15:22.480 --> 0:15:24.800 So I think we have to find instruments like could 0:15:24.800 --> 0:15:28.000 we do some local currency bond issuance that we subsidize 0:15:28.000 --> 0:15:30.400 the difference in costs through our balance sheet or our 0:15:30.600 --> 0:15:34.080 concessual financing. Can we do things with others where there's 0:15:34.120 --> 0:15:37.320 an institution called TCX which is created to help take 0:15:37.520 --> 0:15:39.840 some of the FX risk in these markets. Can we 0:15:40.160 --> 0:15:42.400 scale them up and so on and so forth. Can 0:15:42.440 --> 0:15:45.600 we do creative swaps where using our rating we are 0:15:45.640 --> 0:15:47.600 at a lower price and of the country world. 0:15:48.880 --> 0:15:51.480 Hard FX risk is the hardest one. Yeah. 0:15:51.520 --> 0:15:53.880 I mean, so then a Jay, when we talk about 0:15:53.880 --> 0:15:56.000 the progress, then at the end of COP twenty eight, 0:15:56.120 --> 0:15:58.200 your first COP, I mean, what does that look like 0:15:58.320 --> 0:16:00.000 for you? What is it that you're shooting for? Because 0:16:00.160 --> 0:16:02.640 there have been a number of initiatives and pledges, of 0:16:02.640 --> 0:16:04.200 course the World Bank has been a part of some 0:16:04.240 --> 0:16:06.400 of those. I mean, what then does progress look like 0:16:06.400 --> 0:16:07.240 in the next few days. 0:16:07.280 --> 0:16:10.000 So I've got five very clear things I'm measuring on 0:16:10.120 --> 0:16:12.080 what we are doing. And the first one was getting 0:16:12.120 --> 0:16:14.840 that forty five percent of financing that we talked about 0:16:15.760 --> 0:16:19.080 in that fifty percent for mitigation, fifty percent for adaptation, 0:16:19.520 --> 0:16:22.240 So we don't only do emission avoidance. We also care 0:16:22.280 --> 0:16:26.080 about adapting and resilient infrastructure in the global cyll thing 0:16:26.120 --> 0:16:26.920 that's very important. 0:16:27.280 --> 0:16:29.200 The second big one is methane. 0:16:29.560 --> 0:16:33.200 Methane is eighty times more toxic than carbon dioxide, but 0:16:33.280 --> 0:16:36.160 it only gets two percent of climate financing. So what 0:16:36.200 --> 0:16:37.880 we are doing is we've got actual projects on the 0:16:37.880 --> 0:16:42.160 ground on rice tidy cultivation, livestock management and waste management. 0:16:42.480 --> 0:16:44.480 Is scaling those, is saying we're going to get to 0:16:44.520 --> 0:16:47.120 fifteen countries in eighteen months and over the course of 0:16:47.160 --> 0:16:51.080 these projects take out ten million tons of methane from 0:16:51.080 --> 0:16:51.840 the system. 0:16:52.160 --> 0:16:54.760 Third one is Africa. Six hundred million. 0:16:54.560 --> 0:16:57.520 People in Africa don't have access to electricity. We've got 0:16:57.560 --> 0:16:59.920 a project approved by our board five billion of finance 0:17:00.400 --> 0:17:04.440 from IDA, our lowest price guarantee kind of the cheapest 0:17:04.560 --> 0:17:08.520 fund location, ten billion through governments in private sector. We're 0:17:08.520 --> 0:17:11.840 going to connect one hundred million people in seven years. 0:17:12.280 --> 0:17:15.879 Two power solar power, including the grids that need to 0:17:15.880 --> 0:17:19.080 be existing to make this happen at scale. The fourth 0:17:19.119 --> 0:17:22.120 one is voluntary carbon markets. So I think the only 0:17:22.160 --> 0:17:25.639 way you transfer resources at scale from the developed world 0:17:25.640 --> 0:17:28.560 to the developing world for what the developing world deserves 0:17:28.560 --> 0:17:31.600 to be paid for, which is forests and natural resources, 0:17:31.720 --> 0:17:32.800 is voluntary carbon markets. 0:17:32.800 --> 0:17:34.880 So there's a lot of criticism about carbon market. 0:17:34.840 --> 0:17:37.800 Yes, there is, because people felt that the credits were 0:17:37.800 --> 0:17:40.840 coming weren't genuine credits. So you just picked on exactly 0:17:40.880 --> 0:17:46.520 the topic that's really important, verifiable genuine credits of integrity. 0:17:47.200 --> 0:17:50.119 How what determine whether these markets will work. So what 0:17:50.160 --> 0:17:52.400 I'm doing is I'm not doing a carbon market where 0:17:52.400 --> 0:17:55.399 I'm not involved. I'm doing carbon markets with projects for 0:17:55.520 --> 0:17:58.240 the World Bank is doing a forestry project in a country. 0:17:58.600 --> 0:18:01.359 So we're starting with four to fifteen by the end 0:18:01.440 --> 0:18:04.440 of next year. We think these countries will generate twenty 0:18:04.440 --> 0:18:07.320 four million credits next year itself, in one hundred and 0:18:07.359 --> 0:18:10.159 twenty five over five or six years. I'm certifying the 0:18:10.240 --> 0:18:14.320 environmental integrity through a jurisdictional loudic and I'm also certifying 0:18:14.320 --> 0:18:17.200 the social integrity that most of the money they earn 0:18:17.440 --> 0:18:20.440 will go to the communities and the indigenous. 0:18:19.840 --> 0:18:22.760 People in that area. I think if you do things 0:18:22.840 --> 0:18:24.800 like that, and you. 0:18:24.400 --> 0:18:27.440