1 00:00:02,520 --> 00:00:07,040 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:07,760 --> 00:00:10,000 Speaker 2: There's no one better to talk to than Michael Roberts, 3 00:00:10,039 --> 00:00:13,840 Speaker 2: CEO of HSBC, a bank and CEO of the Corporate 4 00:00:13,880 --> 00:00:17,639 Speaker 2: and Institutional Bank at the Region. I'm just curious, given 5 00:00:17,640 --> 00:00:20,599 Speaker 2: the fact that HSBC and welcome is such a central 6 00:00:20,600 --> 00:00:23,720 Speaker 2: bank in both trade as well as in both China 7 00:00:23,880 --> 00:00:26,920 Speaker 2: and in the West, how significant do you see this 8 00:00:27,080 --> 00:00:29,640 Speaker 2: latest eruption of trade tensions between the US and China. 9 00:00:29,680 --> 00:00:30,480 Speaker 2: Does this feel different? 10 00:00:30,640 --> 00:00:33,280 Speaker 1: Yeah? No, First of all, thank you for having me today. Look, 11 00:00:33,320 --> 00:00:36,920 Speaker 1: I think the world has got used to a lot 12 00:00:36,920 --> 00:00:40,320 Speaker 1: of these tariff changes, although certainly this newest round is 13 00:00:40,400 --> 00:00:44,839 Speaker 1: yet another bit of unpredictability. I think companies have been 14 00:00:44,880 --> 00:00:48,239 Speaker 1: now looking for different ways to manage their supply chains. 15 00:00:48,560 --> 00:00:51,640 Speaker 1: We have a survey that we did right after Liberation 16 00:00:51,720 --> 00:00:55,120 Speaker 1: Day which I think still hold trues today. We surveyed 17 00:00:55,160 --> 00:00:59,120 Speaker 1: five thousand clients, so big survey, and they all said 18 00:00:59,720 --> 00:01:01,360 Speaker 1: why and all of these tariffs are going to cause 19 00:01:01,360 --> 00:01:04,080 Speaker 1: a lot of issues. Prices will go up to Most 20 00:01:04,120 --> 00:01:06,160 Speaker 1: of now are looking at their supply chains. In the word, 21 00:01:06,200 --> 00:01:08,200 Speaker 1: I think supply chain has now come to be one 22 00:01:08,240 --> 00:01:11,040 Speaker 1: of the probably the most discussed terms in e C 23 00:01:11,200 --> 00:01:14,080 Speaker 1: suite today. And thirdly, they're going to change and they 24 00:01:14,080 --> 00:01:17,039 Speaker 1: may even change business models. So this next round, this 25 00:01:17,160 --> 00:01:20,040 Speaker 1: current round, I think, just tells you that they're going 26 00:01:20,120 --> 00:01:22,480 Speaker 1: to have to significantly change what that is because one 27 00:01:22,520 --> 00:01:26,240 Speaker 1: hundred percent tariffs, you can't absorb one hundred percent tariffs, 28 00:01:26,319 --> 00:01:29,280 Speaker 1: So that means there'll be a greater acceleration to where 29 00:01:29,280 --> 00:01:32,240 Speaker 1: those new supply chains will be. However, it is been 30 00:01:32,280 --> 00:01:33,960 Speaker 1: a bit of a whack a mole because you have 31 00:01:34,000 --> 00:01:37,039 Speaker 1: to constantly look at where the next tariffs will come from, 32 00:01:37,240 --> 00:01:39,120 Speaker 1: and that's been a challenge to many companies. They really 33 00:01:39,160 --> 00:01:43,280 Speaker 1: have to figure out what is the least vulnerable place 34 00:01:43,360 --> 00:01:45,440 Speaker 1: they can be or the most tariff proof place they 35 00:01:45,440 --> 00:01:48,800 Speaker 1: can be, and how do they then export into the 36 00:01:48,960 --> 00:01:52,200 Speaker 1: US or freightly anywhere to make sure that they can 37 00:01:52,480 --> 00:01:53,840 Speaker 1: do so as effectively as possible. 38 00:01:53,880 --> 00:01:56,160 Speaker 2: How much of the extra costs from tariff's been realized, 39 00:01:56,320 --> 00:01:58,880 Speaker 2: not just tariffs but also the rejiggering of supply chains. 40 00:01:58,960 --> 00:02:02,840 Speaker 1: Yeah, so rule of thumb, when I've talked to most people, 41 00:02:04,560 --> 00:02:09,040 Speaker 1: probably seventy eighty percent is born by some the producer 42 00:02:09,120 --> 00:02:12,720 Speaker 1: versus the importer. The last twenty percent analysis starting to 43 00:02:12,760 --> 00:02:16,560 Speaker 1: seep into in buyer, the customer. I think most are saying, 44 00:02:16,639 --> 00:02:20,880 Speaker 1: we can't continue to absorb that much additional costs as 45 00:02:20,919 --> 00:02:24,040 Speaker 1: the importer or the distributor. Therefore it will start shifting 46 00:02:24,120 --> 00:02:27,040 Speaker 1: more and more to the end buyer, the client, or 47 00:02:27,080 --> 00:02:30,200 Speaker 1: the customer. So that there's been a I think it's 48 00:02:30,240 --> 00:02:33,440 Speaker 1: strong effort, however, to try to absorb as much as possible. 49 00:02:33,680 --> 00:02:36,120 Speaker 1: So I talked to a retailer, high fashion retailer saying, 50 00:02:36,520 --> 00:02:40,320 Speaker 1: me and distributor or the producer out of the Asia, 51 00:02:40,480 --> 00:02:43,200 Speaker 1: and me as the distributor, are absorbing as much as 52 00:02:43,200 --> 00:02:45,720 Speaker 1: we possibly can. We understand we could do that, but 53 00:02:45,840 --> 00:02:46,640 Speaker 1: it will come to an end. 54 00:02:46,639 --> 00:02:49,240 Speaker 2: So John and Amory we're talking to FED Governor Chris 55 00:02:49,240 --> 00:02:53,400 Speaker 2: Waller and about the balance between inflation and the labor market, 56 00:02:53,480 --> 00:02:55,520 Speaker 2: and there's this feeling that any kind of inflation is 57 00:02:55,520 --> 00:02:58,480 Speaker 2: going to be short lived and the effect on the 58 00:02:58,520 --> 00:03:01,040 Speaker 2: labor market could potentially be initi Are you seeing that 59 00:03:01,120 --> 00:03:05,000 Speaker 2: companies instead of raising prices, laying off workers or trying 60 00:03:05,040 --> 00:03:07,639 Speaker 2: to revert to artificial intelligence to bridge the gaps. 61 00:03:08,480 --> 00:03:11,280 Speaker 1: Not yet, However, there is a lot of cost pressures. 62 00:03:11,560 --> 00:03:13,799 Speaker 1: I think there's a delay, a lot of investments. I mean, 63 00:03:13,800 --> 00:03:16,280 Speaker 1: that's the flip side of that, because I do think 64 00:03:16,320 --> 00:03:20,119 Speaker 1: people want predictability. The companies need to understand where they're 65 00:03:20,120 --> 00:03:21,680 Speaker 1: going to put down a lot of capital, that that 66 00:03:21,720 --> 00:03:24,320 Speaker 1: capital is going to produce good returns because more predictability. 67 00:03:25,160 --> 00:03:29,240 Speaker 1: I've seen slowing of hiring, but not real firing today, 68 00:03:29,440 --> 00:03:31,280 Speaker 1: and so that's kind of again the flip side of 69 00:03:31,280 --> 00:03:34,480 Speaker 1: that coin. But really it's the capital and the investments 70 00:03:34,480 --> 00:03:36,040 Speaker 1: that you're starting to see slow down quite a lot. 71 00:03:36,280 --> 00:03:40,040 Speaker 2: Meanwhile, we've heard a lot here at the meetings in Washington, 72 00:03:40,120 --> 00:03:42,280 Speaker 2: d C. At a number of themes AI, which we'll 73 00:03:42,280 --> 00:03:45,160 Speaker 2: get to any second, but also this question around credit 74 00:03:45,200 --> 00:03:47,960 Speaker 2: froth and an AI related bubble. How much are you 75 00:03:47,960 --> 00:03:50,880 Speaker 2: getting concerned akin to what JP Morgan's been talking about, 76 00:03:50,920 --> 00:03:53,480 Speaker 2: of a real turn in the credit cycle or some 77 00:03:53,520 --> 00:03:55,920 Speaker 2: sort of later innings that give you pause and make 78 00:03:55,960 --> 00:03:56,640 Speaker 2: you more cautious. 79 00:03:56,760 --> 00:03:58,760 Speaker 1: Yeah. Look, I do think this is not the first 80 00:03:58,840 --> 00:04:02,200 Speaker 1: instance of what is inventory financing fraud, which is essentially 81 00:04:02,240 --> 00:04:04,760 Speaker 1: selling you know, or using the same bit of inventory 82 00:04:04,760 --> 00:04:07,320 Speaker 1: to finance multiple times. We've seen that in Europe a 83 00:04:07,360 --> 00:04:09,880 Speaker 1: couple of times as well in the last say nine months. 84 00:04:10,080 --> 00:04:12,600 Speaker 1: So I am more concerned and something that we're very 85 00:04:12,640 --> 00:04:15,760 Speaker 1: focused on. So in fact, we're using technology we developed 86 00:04:15,760 --> 00:04:18,560 Speaker 1: in our trade business and using it throughout all of 87 00:04:18,600 --> 00:04:21,200 Speaker 1: our lending platforms now to try to go through and 88 00:04:21,240 --> 00:04:25,440 Speaker 1: be very specific that everything we finance is good collateral, 89 00:04:25,720 --> 00:04:27,800 Speaker 1: it doesn't have multiple leans on top of it, which 90 00:04:27,839 --> 00:04:30,520 Speaker 1: is really what happened to First Brands. It's tough to do, 91 00:04:30,800 --> 00:04:32,800 Speaker 1: and I think, you know, the fraustaters are getting better 92 00:04:32,800 --> 00:04:35,880 Speaker 1: at it, so we're going to have to respond to 93 00:04:35,960 --> 00:04:39,039 Speaker 1: being much better on due diligence. You know, we were 94 00:04:39,040 --> 00:04:42,200 Speaker 1: not involved obviously directly in First Brands, so don't know 95 00:04:42,640 --> 00:04:45,200 Speaker 1: how much due diligence was done, but I think these 96 00:04:45,240 --> 00:04:48,080 Speaker 1: type of financing arrangements are going to require much more 97 00:04:48,240 --> 00:04:52,880 Speaker 1: due diligence, much greater technology, much more specific understanding exactly 98 00:04:52,920 --> 00:04:53,680 Speaker 1: what you're financing. 99 00:04:53,760 --> 00:04:55,880 Speaker 2: The other aspect has been just sort of how much 100 00:04:56,040 --> 00:05:00,600 Speaker 2: AI has actually boosted productivity, boosted profitability versus been a 101 00:05:00,600 --> 00:05:03,000 Speaker 2: real call center for the most part. Ken Griffin came 102 00:05:03,040 --> 00:05:05,760 Speaker 2: out of Citadel saying that he's not seeing evidence that 103 00:05:05,880 --> 00:05:09,680 Speaker 2: AI programs can really make an edge in financial markets. 104 00:05:09,680 --> 00:05:11,960 Speaker 2: I know that HSBC has been big and quantum computing 105 00:05:11,960 --> 00:05:14,520 Speaker 2: and has this test. Are you seeing real gains? Are 106 00:05:14,520 --> 00:05:20,640 Speaker 2: you actually deploying quantitative strategies from quantitative computing on your 107 00:05:20,680 --> 00:05:21,279 Speaker 2: trading floors. 108 00:05:21,360 --> 00:05:23,800 Speaker 1: Yeah. So, just for those who don't know, we had 109 00:05:23,839 --> 00:05:27,400 Speaker 1: a partnership still do with IBM. We developed quantum computing 110 00:05:27,440 --> 00:05:30,719 Speaker 1: really for financial markets, focusing on the bond market, and 111 00:05:30,800 --> 00:05:34,640 Speaker 1: we use both quantum computing and more traditional computing, brought 112 00:05:34,680 --> 00:05:37,640 Speaker 1: them together, changed the way we look at data. There's 113 00:05:37,640 --> 00:05:41,040 Speaker 1: a thing called representation data that we actually flipped into 114 00:05:41,040 --> 00:05:45,000 Speaker 1: a more of a quantum computing type of mode. That 115 00:05:45,120 --> 00:05:48,400 Speaker 1: led to a thirty four percent improvement in our ability 116 00:05:48,440 --> 00:05:50,440 Speaker 1: to predict a trade. So if you were going to 117 00:05:50,480 --> 00:05:53,040 Speaker 1: make a trade, we get to understand that trade thirty 118 00:05:53,080 --> 00:05:55,680 Speaker 1: four percent better. To see the matching between buyer and 119 00:05:55,720 --> 00:05:57,680 Speaker 1: seller is really what it comes down to. So that 120 00:05:57,800 --> 00:06:01,600 Speaker 1: was very effective. It's an initial study. We did how 121 00:06:01,600 --> 00:06:05,720 Speaker 1: we we're tested on multiple comtmcuting machines, we did all 122 00:06:05,720 --> 00:06:08,920 Speaker 1: the statistical analysis, so we really do think there's something there. 123 00:06:09,440 --> 00:06:13,039 Speaker 1: It can be used for any traded asset, So any 124 00:06:13,080 --> 00:06:17,080 Speaker 1: asset class. I think the power that that brings is 125 00:06:17,080 --> 00:06:18,520 Speaker 1: going to give an edge. I don't know how it 126 00:06:18,560 --> 00:06:21,159 Speaker 1: wouldn't give it edge, but I think it'll be once 127 00:06:21,240 --> 00:06:22,880 Speaker 1: we roll it out, another's roll it out, they'll be 128 00:06:22,920 --> 00:06:25,760 Speaker 1: quick adoption by I think the industry. I mean, it's 129 00:06:25,760 --> 00:06:28,200 Speaker 1: is the same industry that tries to reduce latency to 130 00:06:28,240 --> 00:06:32,960 Speaker 1: its smallest possible amount. So I do think technology does 131 00:06:33,000 --> 00:06:34,000 Speaker 1: bring a substantial edge. 132 00:06:34,000 --> 00:06:36,159 Speaker 2: Do you think it's going to replace traders that? 133 00:06:36,279 --> 00:06:37,560 Speaker 1: I don't know. I mean, I think they always be 134 00:06:37,600 --> 00:06:40,080 Speaker 1: humans involved, But I think it'll help traders quite a lot. 135 00:06:40,240 --> 00:06:42,600 Speaker 1: And I think it'll change really the way traders think 136 00:06:42,640 --> 00:06:45,000 Speaker 1: about it because when you have that much compute power 137 00:06:45,040 --> 00:06:48,120 Speaker 1: and you could really use it. I think today, you know, 138 00:06:48,120 --> 00:06:50,479 Speaker 1: we use a lot ai as you said, through algo 139 00:06:50,600 --> 00:06:54,760 Speaker 1: rhythmic trading. This will just be one more substantial boost 140 00:06:55,120 --> 00:06:57,800 Speaker 1: to the power of a rhythmic trading that we see today. 141 00:06:58,200 --> 00:07:00,320 Speaker 1: So will it be less traders? Don't know? But are 142 00:07:00,320 --> 00:07:02,320 Speaker 1: they going to have powerful machines? Definitely. 143 00:07:02,360 --> 00:07:04,599 Speaker 2: So the other theme here, and this is something that 144 00:07:04,839 --> 00:07:07,360 Speaker 2: comes up in pretty much every conversation, is the debasement 145 00:07:07,400 --> 00:07:10,560 Speaker 2: of the dollar and this question of how much the 146 00:07:10,640 --> 00:07:14,280 Speaker 2: dollar is losing its heft as a reserve currency internationally. 147 00:07:14,280 --> 00:07:16,800 Speaker 2: Do you see any signs that people truly are moving 148 00:07:16,840 --> 00:07:18,520 Speaker 2: away from the green back. 149 00:07:18,600 --> 00:07:21,040 Speaker 1: Yeah, that's great question. So I happen to be traveling 150 00:07:21,080 --> 00:07:23,880 Speaker 1: to Asia right after Liberation Day, and I would say 151 00:07:24,040 --> 00:07:26,880 Speaker 1: that was probably the number one conversation that I was 152 00:07:26,920 --> 00:07:31,120 Speaker 1: having by very big, very sophisticated large holders of dollars, 153 00:07:31,640 --> 00:07:34,800 Speaker 1: and they were quite focused on this idea of dedollarization 154 00:07:34,920 --> 00:07:38,080 Speaker 1: or debasement of the dollars of reserve currency. And the 155 00:07:38,120 --> 00:07:40,000 Speaker 1: mere fact that they're talking about it and the terms 156 00:07:40,000 --> 00:07:42,800 Speaker 1: they were tells you something is different. Now. If you 157 00:07:42,880 --> 00:07:46,120 Speaker 1: look at where the dollar is today, trade flows reserves 158 00:07:47,280 --> 00:07:51,880 Speaker 1: the primary currency of invoicing for most commercial flows, the 159 00:07:51,920 --> 00:07:55,000 Speaker 1: markets flows, it's all well more than fifty percent, it's 160 00:07:55,000 --> 00:07:57,760 Speaker 1: you know, sixty seventy eighty percent in all those various metrics. 161 00:07:58,080 --> 00:08:01,480 Speaker 1: It will take a long time to find another reserve currency. 162 00:08:01,840 --> 00:08:04,600 Speaker 1: And the other biggest question is if you're going to 163 00:08:04,600 --> 00:08:06,680 Speaker 1: go away from dollars, what are you going to do? 164 00:08:06,720 --> 00:08:09,280 Speaker 1: And you know what will be that reserve currency that 165 00:08:09,360 --> 00:08:12,840 Speaker 1: replaces it? There is no other alternative today. And so 166 00:08:12,920 --> 00:08:16,320 Speaker 1: that's the twin issues that you have. The conundrum, maybe 167 00:08:16,320 --> 00:08:18,120 Speaker 1: go away from dollars, but what are we going to 168 00:08:18,120 --> 00:08:19,239 Speaker 1: go to instead? 169 00:08:19,520 --> 00:08:21,440 Speaker 2: To wrap it all up, there is this feeling that 170 00:08:21,480 --> 00:08:24,840 Speaker 2: the center of finance has shifted, and it's not so 171 00:08:24,960 --> 00:08:27,360 Speaker 2: clearly in the United States, and something that you've been 172 00:08:27,360 --> 00:08:29,800 Speaker 2: focusing a lot. How do you see the sort of 173 00:08:29,840 --> 00:08:32,680 Speaker 2: tentacles of finance in terms of where they are flowing 174 00:08:32,760 --> 00:08:35,000 Speaker 2: from transforming really over the past. 175 00:08:34,840 --> 00:08:37,520 Speaker 1: Couple of years. Yeah, No, I think there's significant transformation 176 00:08:37,600 --> 00:08:39,760 Speaker 1: going on. And if you think there was a unipolar 177 00:08:39,800 --> 00:08:42,199 Speaker 1: world with the US right in the middle of it, 178 00:08:42,240 --> 00:08:44,559 Speaker 1: still is. And you know, the US capital market is 179 00:08:44,600 --> 00:08:46,960 Speaker 1: the most liquid of the world, still the dominant place 180 00:08:47,000 --> 00:08:49,720 Speaker 1: to trade. However, you need to look at where trade 181 00:08:49,760 --> 00:08:52,960 Speaker 1: and commercial flows are going, where financial flows are going. 182 00:08:53,240 --> 00:08:55,520 Speaker 1: I would look between the Middle East and Asia as example, 183 00:08:56,080 --> 00:08:59,800 Speaker 1: substantial increase of flows between those two regions. And they're 184 00:08:59,800 --> 00:09:02,600 Speaker 1: not flows that are necessarily coming from the West just 185 00:09:02,640 --> 00:09:06,840 Speaker 1: being transhipped through those reasons. They're actually wealth and that 186 00:09:06,960 --> 00:09:10,439 Speaker 1: is being rechanneled in that region assel. I think you'll 187 00:09:10,480 --> 00:09:12,640 Speaker 1: see that more and more. I think you'll see Asia 188 00:09:12,840 --> 00:09:15,080 Speaker 1: Middle East coming together more and more, and I think 189 00:09:15,080 --> 00:09:17,600 Speaker 1: you'll have a much more balanced equation. I don't think 190 00:09:17,640 --> 00:09:21,040 Speaker 1: there'll be as a dominant source of financial flows that 191 00:09:21,080 --> 00:09:23,520 Speaker 1: you've seen before, and you know, great for us because 192 00:09:23,520 --> 00:09:25,520 Speaker 1: we have to be very strong in those two regions. 193 00:09:26,080 --> 00:09:28,000 Speaker 1: But I do think people need to understand that there's 194 00:09:28,040 --> 00:09:31,280 Speaker 1: a significant change going on and those flows will not 195 00:09:31,480 --> 00:09:33,480 Speaker 1: just go through New York as they used to in 196 00:09:33,520 --> 00:09:33,880 Speaker 1: the past. 197 00:09:34,120 --> 00:09:36,240 Speaker 2: Michael Roberts, thank you so much for taking the time. 198 00:09:36,320 --> 00:09:38,400 Speaker 2: Really wonderful to speak with you and John. That was 199 00:09:38,440 --> 00:09:40,920 Speaker 2: Michael Roberts of HSBC, and some of the key topics 200 00:09:40,920 --> 00:09:43,520 Speaker 2: here in the idea of how much that financial center 201 00:09:43,640 --> 00:09:44,199 Speaker 2: has shifted