1 00:00:00,120 --> 00:00:02,920 Speaker 1: Brought you by Bank of America, Mary Lynch. Investing in 2 00:00:03,000 --> 00:00:07,840 Speaker 1: local communities, economies and a sustainable future. That's the power 3 00:00:08,080 --> 00:00:12,360 Speaker 1: of global connections, Mary Lynch, Pierce Fenner and Smith Incorporated 4 00:00:12,760 --> 00:00:27,400 Speaker 1: Member s I p C. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:27,800 --> 00:00:31,520 Speaker 1: I'm Tom Keene with David Gura. Daily we bring you 6 00:00:31,560 --> 00:00:36,600 Speaker 1: insight from the best in economics, finance, investment, and international relations. 7 00:00:37,000 --> 00:00:41,600 Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and 8 00:00:41,680 --> 00:00:49,160 Speaker 1: of course on the Bloomberg David Guray in New York 9 00:00:49,200 --> 00:00:51,839 Speaker 1: with Pim Fox Today. Tom Keene is off this week. 10 00:00:51,960 --> 00:00:54,560 Speaker 1: George Concovas joins us now in our Bloomberg eleven three 11 00:00:54,600 --> 00:00:56,920 Speaker 1: oh studios. Great to have you with us, and let's 12 00:00:56,920 --> 00:00:59,320 Speaker 1: start with the with the news yesterday Janet Yellen speaking 13 00:00:59,320 --> 00:01:01,880 Speaker 1: in the afternoon at the University of Michian help us 14 00:01:01,880 --> 00:01:03,800 Speaker 1: with the substance of that that speech, what she had 15 00:01:03,840 --> 00:01:05,760 Speaker 1: to say about the U s economy. I mean, I 16 00:01:05,760 --> 00:01:07,800 Speaker 1: think it's interesting that, you know, obviously if you compare 17 00:01:07,880 --> 00:01:11,360 Speaker 1: to how the communication has evolved in the last six months, 18 00:01:11,400 --> 00:01:13,600 Speaker 1: you know, pre election, pre election, there was that one 19 00:01:13,640 --> 00:01:15,800 Speaker 1: speech about you know, let's let's let's let's let the 20 00:01:15,840 --> 00:01:18,120 Speaker 1: economy run hot, because let's just let it go and 21 00:01:18,160 --> 00:01:20,480 Speaker 1: let's see how far it goes. Let's get inflation boiling 22 00:01:20,480 --> 00:01:22,759 Speaker 1: in the background, you know, to this kind of this 23 00:01:22,760 --> 00:01:25,000 Speaker 1: this you know, this evolution to where we heard yesterday 24 00:01:25,400 --> 00:01:27,880 Speaker 1: about you know, we're obviously on track, and and and 25 00:01:27,920 --> 00:01:30,000 Speaker 1: there's still you know, there's still you know, a little 26 00:01:30,000 --> 00:01:31,600 Speaker 1: bit cautious because they want to they want to ensure 27 00:01:31,640 --> 00:01:33,920 Speaker 1: that the recovery is sustainable. But they're now you know, 28 00:01:34,120 --> 00:01:37,120 Speaker 1: it feels like confidence is building and they want to 29 00:01:37,120 --> 00:01:38,679 Speaker 1: get a little bit out ahead. I mean, is that 30 00:01:38,800 --> 00:01:41,080 Speaker 1: viewed as hawk ish or is that more neutral? You 31 00:01:41,120 --> 00:01:43,400 Speaker 1: know what we'll see. But I do think that they've 32 00:01:43,400 --> 00:01:46,560 Speaker 1: been slowly pivoting. I mean, they did hike too, you know, 33 00:01:46,600 --> 00:01:48,520 Speaker 1: press meetings back to back, if you want to consider 34 00:01:48,560 --> 00:01:50,360 Speaker 1: that back to back. So I mean they are getting 35 00:01:50,360 --> 00:01:52,600 Speaker 1: a little bit faster on on the tightening agenda. So 36 00:01:52,920 --> 00:01:55,560 Speaker 1: it is I think consistent with what we've what they've done, 37 00:01:55,600 --> 00:01:57,200 Speaker 1: and what they've said, or do you follow in this 38 00:01:57,320 --> 00:02:00,560 Speaker 1: debate over how well or how easily the Fed could 39 00:02:00,560 --> 00:02:02,760 Speaker 1: both wind down this balance sheet and continue to to 40 00:02:02,920 --> 00:02:04,800 Speaker 1: race rights, how difficult and undertaking is not going to 41 00:02:04,840 --> 00:02:06,880 Speaker 1: be for the central bank, right. Look, I think it 42 00:02:06,920 --> 00:02:08,799 Speaker 1: could be a challenge because look, at the end of 43 00:02:08,800 --> 00:02:11,040 Speaker 1: the day, the way their raising rates. Again, I'm not 44 00:02:11,040 --> 00:02:13,960 Speaker 1: gonna bore your your listeners to this thing. In the 45 00:02:13,960 --> 00:02:16,120 Speaker 1: past of markets used to set the price of money, 46 00:02:16,200 --> 00:02:18,160 Speaker 1: and the Fed now is targeting the level of rates, 47 00:02:18,160 --> 00:02:21,440 Speaker 1: but paying the banks and paying money markets a level 48 00:02:21,440 --> 00:02:23,880 Speaker 1: of interest rates in order to nudge them higher. Well, 49 00:02:23,960 --> 00:02:26,280 Speaker 1: it's easy to pay someone to push up rates. It's 50 00:02:26,360 --> 00:02:29,120 Speaker 1: much more difficult to force them to buy securities that 51 00:02:29,240 --> 00:02:32,600 Speaker 1: they were once warehousing. So that distinction, I think is 52 00:02:32,960 --> 00:02:35,600 Speaker 1: not fully appreciated by markets. I do believe that, you know, 53 00:02:35,800 --> 00:02:38,360 Speaker 1: if the balance sheet is much more challenging than just 54 00:02:38,480 --> 00:02:43,440 Speaker 1: raising rates, George, why is the debate almost mute when 55 00:02:43,440 --> 00:02:47,880 Speaker 1: it comes to rationalizing the balance sheet or reducing the 56 00:02:47,919 --> 00:02:49,760 Speaker 1: balance sheet to the Federal Reserve? What's wrong with just 57 00:02:49,880 --> 00:02:53,480 Speaker 1: keeping it the way it is? I think, you know, 58 00:02:53,560 --> 00:02:57,160 Speaker 1: part of this could be that you look up as 59 00:02:57,160 --> 00:02:59,239 Speaker 1: you raise rates. I'm not gonna say it's gonna become 60 00:02:59,320 --> 00:03:01,840 Speaker 1: untenable to to hold the level of rates. Let's say 61 00:03:01,840 --> 00:03:04,640 Speaker 1: they get to two and rates and their balance sheet 62 00:03:05,000 --> 00:03:07,760 Speaker 1: is paying three not that they're going to go upside 63 00:03:07,800 --> 00:03:10,240 Speaker 1: down on their level of interest because they have currency 64 00:03:10,240 --> 00:03:14,000 Speaker 1: in circulation, but the concept of they're paying their numeerrating 65 00:03:14,000 --> 00:03:16,280 Speaker 1: money back to the US government number one. At this point, 66 00:03:16,320 --> 00:03:19,040 Speaker 1: they will be only paying the banks. So this idea 67 00:03:19,120 --> 00:03:22,080 Speaker 1: that them paying the banks to keep rates elevated is 68 00:03:22,240 --> 00:03:24,480 Speaker 1: really an artifact of having too much reserves in the 69 00:03:24,520 --> 00:03:27,000 Speaker 1: system and the only way you can extinguish reserves is 70 00:03:27,000 --> 00:03:29,079 Speaker 1: to shrink the balance sheet. But won't that increase the 71 00:03:29,160 --> 00:03:32,600 Speaker 1: value of the dollar. No, Actually, this is the interesting part, 72 00:03:32,600 --> 00:03:34,760 Speaker 1: And this is the interesting part that I think the 73 00:03:34,880 --> 00:03:37,280 Speaker 1: nuance of this, in my view is that, you know, 74 00:03:37,480 --> 00:03:40,119 Speaker 1: the dollar has been super focused on short term rates, 75 00:03:40,160 --> 00:03:42,480 Speaker 1: and typically you know, the interest rate parity and just 76 00:03:42,560 --> 00:03:45,000 Speaker 1: kind of the relative level of rates across the world 77 00:03:45,440 --> 00:03:48,360 Speaker 1: is what guides capital to different banking systems. So US 78 00:03:48,480 --> 00:03:50,560 Speaker 1: rates are the highest, and so capital has been coming 79 00:03:50,560 --> 00:03:52,920 Speaker 1: to the US but largely sitting in the front end 80 00:03:52,960 --> 00:03:55,280 Speaker 1: of the curve. If you can get the you know, 81 00:03:55,360 --> 00:03:59,280 Speaker 1: the balance sheet to shrink and not use short term rates, 82 00:03:59,440 --> 00:04:01,839 Speaker 1: which I know, you know, it's a huge debate out there. 83 00:04:02,120 --> 00:04:04,880 Speaker 1: Will they be doing it in tandem? You know, I'm 84 00:04:05,000 --> 00:04:06,760 Speaker 1: of the view that and have been of the view 85 00:04:06,800 --> 00:04:09,480 Speaker 1: that this idea of we've had unconventional easing, so why 86 00:04:09,520 --> 00:04:12,119 Speaker 1: can't we have unconventional tightening. Why can't they just raise 87 00:04:12,200 --> 00:04:14,640 Speaker 1: rates to like a you know, one or two percent 88 00:04:15,000 --> 00:04:16,479 Speaker 1: and go on, hold let the balance you do the 89 00:04:16,480 --> 00:04:18,600 Speaker 1: rest of it. I always characterize it as like a 90 00:04:18,920 --> 00:04:21,440 Speaker 1: Saturn five rocket launcher. You gotta geta you gotta get 91 00:04:21,480 --> 00:04:23,400 Speaker 1: rates high enough, because if rates are too low and 92 00:04:23,440 --> 00:04:25,640 Speaker 1: they flatten the yield curve by raising rates from the 93 00:04:25,640 --> 00:04:27,719 Speaker 1: front end, it actually does more damage than good. So 94 00:04:27,760 --> 00:04:30,200 Speaker 1: I do think that, you know, bringing it back to 95 00:04:30,200 --> 00:04:32,760 Speaker 1: the dollar, that the dollar is less sensitive to long 96 00:04:32,880 --> 00:04:34,719 Speaker 1: term rates, and so if long term rates can do 97 00:04:34,720 --> 00:04:37,680 Speaker 1: the heavy lifting and actually tighten financial conditions, then then 98 00:04:37,720 --> 00:04:39,800 Speaker 1: we'll rely listen to the front end. But that's gonna 99 00:04:39,839 --> 00:04:41,600 Speaker 1: be the debate that we're going to have with this 100 00:04:41,680 --> 00:04:44,000 Speaker 1: current FED as well as the next FED, whoever Trump 101 00:04:44,040 --> 00:04:47,680 Speaker 1: appoints is of a numbered joining us here on Bloomberg Surveillance. 102 00:04:47,680 --> 00:04:51,240 Speaker 1: How important is the macro debate about when and how 103 00:04:51,560 --> 00:04:54,480 Speaker 1: the FED winds down this balance sheet versus UH at 104 00:04:54,480 --> 00:04:57,040 Speaker 1: a more granular level, which securities the FED is going 105 00:04:57,080 --> 00:05:00,919 Speaker 1: to sound? I mean I think the macro's still drives 106 00:05:00,960 --> 00:05:04,000 Speaker 1: the decision process. I mean, on the micro level, Uh, 107 00:05:04,240 --> 00:05:08,479 Speaker 1: they will be aware of market conditions. I mean there's 108 00:05:08,480 --> 00:05:10,080 Speaker 1: still a huge I mean, at the end of the day, 109 00:05:10,080 --> 00:05:12,040 Speaker 1: there's a clearing price for every security, right. I mean, 110 00:05:12,160 --> 00:05:14,120 Speaker 1: of course, you don't want to become disruptive while you're 111 00:05:14,160 --> 00:05:17,640 Speaker 1: trying to uh scale back. But we do think that 112 00:05:17,680 --> 00:05:20,480 Speaker 1: you know that spreads have been too tight, yield curves 113 00:05:20,520 --> 00:05:22,720 Speaker 1: have been too flat, and long termmates are not offering 114 00:05:22,880 --> 00:05:26,760 Speaker 1: enough compensation, and so as those things adjust, investors which 115 00:05:26,839 --> 00:05:29,479 Speaker 1: will take the other side gladly. So I mean I 116 00:05:29,480 --> 00:05:32,640 Speaker 1: think that you know, the micro will will will drive 117 00:05:32,680 --> 00:05:35,680 Speaker 1: the execution part of it, but the macro is what's 118 00:05:35,680 --> 00:05:37,560 Speaker 1: going to launch it, because if if the outlook does 119 00:05:37,560 --> 00:05:39,440 Speaker 1: not look good, they're not gonna let the balance you shrink. 120 00:05:39,760 --> 00:05:41,279 Speaker 1: I mean, if anything were to happen, or if growth 121 00:05:41,320 --> 00:05:42,839 Speaker 1: word and falter in the second half of the year, 122 00:05:42,920 --> 00:05:45,919 Speaker 1: who cares? This discussion is really a moot. One speak 123 00:05:45,960 --> 00:05:48,279 Speaker 1: to the novelty of of this situation. A lot of 124 00:05:48,320 --> 00:05:50,800 Speaker 1: people are drawing a parallel to the so called taper 125 00:05:51,160 --> 00:05:53,240 Speaker 1: tantrum from a few years back. Are there lessons to 126 00:05:53,240 --> 00:05:55,600 Speaker 1: be learned from what happened there, or is this situation 127 00:05:56,120 --> 00:06:00,479 Speaker 1: entirely different. I think the taper um experience is actually 128 00:06:01,200 --> 00:06:06,000 Speaker 1: probably what's driving their cautiousness and how they engage the 129 00:06:06,040 --> 00:06:08,520 Speaker 1: markets and how they like if indeed they're gonna let 130 00:06:08,520 --> 00:06:10,599 Speaker 1: the balance sheet roll off, and that's a huge debate. 131 00:06:11,080 --> 00:06:12,400 Speaker 1: But at the end of the year, at the start 132 00:06:12,400 --> 00:06:14,760 Speaker 1: of next year, they're telling us one year in advance, 133 00:06:15,120 --> 00:06:16,800 Speaker 1: so they're really trying to get out ahead there and 134 00:06:17,080 --> 00:06:19,520 Speaker 1: create as much lead time as possible. So I think 135 00:06:19,560 --> 00:06:22,880 Speaker 1: that that's an artifact also of the Taper tantrum really 136 00:06:22,960 --> 00:06:25,559 Speaker 1: leaving a scar on the FED did not want rates 137 00:06:25,560 --> 00:06:28,400 Speaker 1: to double and basically one year which ended up hurting 138 00:06:28,400 --> 00:06:30,920 Speaker 1: housing market for six to nine months afterwards and late 139 00:06:30,960 --> 00:06:33,880 Speaker 1: thirteen in early fourteen, so that they want to be gradual. 140 00:06:33,920 --> 00:06:37,560 Speaker 1: It's part of their their their their approach um. And well, 141 00:06:37,760 --> 00:06:39,880 Speaker 1: I think from there we'll see what happens. I want 142 00:06:39,880 --> 00:06:42,000 Speaker 1: you to tell us what you believe will happen with 143 00:06:42,080 --> 00:06:46,200 Speaker 1: a Trump federal Reserve. So this is a that's a 144 00:06:46,200 --> 00:06:49,039 Speaker 1: great question. I mean, we don't know quite yet quite 145 00:06:49,160 --> 00:06:53,919 Speaker 1: who's going to be the the so called m chair 146 00:06:54,040 --> 00:06:55,920 Speaker 1: of of of the FED, and but someone who may 147 00:06:55,920 --> 00:06:59,480 Speaker 1: be business friendly. True, and so the question then really becomes, 148 00:07:00,040 --> 00:07:02,280 Speaker 1: you know, do you want higher rates or do you 149 00:07:02,320 --> 00:07:05,479 Speaker 1: want to create an environment that's conducive for growth. And 150 00:07:05,520 --> 00:07:08,640 Speaker 1: if you listen to just the the overall platform that 151 00:07:08,680 --> 00:07:12,160 Speaker 1: President Trump ran on as well as just the you know, 152 00:07:12,200 --> 00:07:15,080 Speaker 1: the people that are in his cabinet their pro growth, 153 00:07:15,120 --> 00:07:17,920 Speaker 1: pro business folks as you as you allude to. So, 154 00:07:18,040 --> 00:07:20,280 Speaker 1: I mean, the FED is an independent organization and the 155 00:07:20,360 --> 00:07:23,040 Speaker 1: independent body I do think that you know, at the 156 00:07:23,120 --> 00:07:24,800 Speaker 1: end of the day, whoever goes in there is going 157 00:07:24,840 --> 00:07:27,600 Speaker 1: to be looking at what's right for the economy without 158 00:07:28,040 --> 00:07:30,680 Speaker 1: you know, discounting all of the hard work that the 159 00:07:30,760 --> 00:07:33,520 Speaker 1: FED has done and maintaining credibility, so they're not gonna 160 00:07:33,720 --> 00:07:36,240 Speaker 1: let inflation just run them up. But I do think 161 00:07:36,280 --> 00:07:39,600 Speaker 1: this idea of you know, getting out of the balance, 162 00:07:39,640 --> 00:07:42,440 Speaker 1: she could be tied to a Trump FED more so. 163 00:07:42,600 --> 00:07:44,360 Speaker 1: I mean, if you listen to some of the comments 164 00:07:44,400 --> 00:07:48,080 Speaker 1: of some of the economic advisors, know pre election, the 165 00:07:48,120 --> 00:07:50,160 Speaker 1: idea of having mortgages on the FED balanty was something 166 00:07:50,240 --> 00:07:53,200 Speaker 1: that that felt feign and alien to them. So having 167 00:07:53,240 --> 00:07:56,120 Speaker 1: treasuries makes sense, it's used government, but having agencies of 168 00:07:56,200 --> 00:07:59,840 Speaker 1: mortgages less. How about the issue of rules basicness? Week 169 00:07:59,840 --> 00:08:01,840 Speaker 1: heard the FED You're talking about this yesterday at the 170 00:08:01,880 --> 00:08:05,520 Speaker 1: University of Michigan, saying that the FED is under some threat. 171 00:08:05,600 --> 00:08:07,400 Speaker 1: You have a lot of people in this administration, a 172 00:08:07,400 --> 00:08:09,720 Speaker 1: lot of people on Capitol Hill Republicans who would like 173 00:08:09,760 --> 00:08:11,640 Speaker 1: to to see this happen. How does that sort of 174 00:08:11,640 --> 00:08:15,600 Speaker 1: threatened to to reorient your world. I'm not convinced that 175 00:08:15,680 --> 00:08:19,200 Speaker 1: we're gonna get a rules based system. I still think that, um, 176 00:08:19,240 --> 00:08:22,520 Speaker 1: you know, having the flexibility to to really you know, 177 00:08:22,600 --> 00:08:25,720 Speaker 1: call out what's going to happen and and having an 178 00:08:25,720 --> 00:08:29,120 Speaker 1: opinion on the outlook is critical and and just being 179 00:08:29,160 --> 00:08:32,360 Speaker 1: too rigid could be also disruptive. So I'm not really 180 00:08:32,360 --> 00:08:34,920 Speaker 1: a buyer the rules based but I do think that, 181 00:08:34,960 --> 00:08:37,560 Speaker 1: you know, there's gonna be a preference based and they're 182 00:08:37,559 --> 00:08:41,320 Speaker 1: gonna be thinking about what makes sense again for achieving 183 00:08:41,320 --> 00:08:43,920 Speaker 1: their growth targets. I think growth will again, you know, 184 00:08:43,960 --> 00:08:46,160 Speaker 1: trump everything else we've got about a minute left will 185 00:08:46,160 --> 00:08:48,880 Speaker 1: come back with you. But on that note, how much 186 00:08:48,920 --> 00:08:51,440 Speaker 1: is personnel driving the eagerness that this VET has to 187 00:08:51,440 --> 00:08:55,200 Speaker 1: to do something with the balance inga UM. I think 188 00:08:55,280 --> 00:08:57,959 Speaker 1: at the end of the day everyone cares about their legacy. 189 00:08:58,320 --> 00:09:00,360 Speaker 1: And I think just as we saw the trans position 190 00:09:00,440 --> 00:09:03,520 Speaker 1: from green Span to Bernanke and Bernanke to to to Yelling, 191 00:09:04,600 --> 00:09:06,400 Speaker 1: I mean, as long as the conditions are met and 192 00:09:06,440 --> 00:09:09,880 Speaker 1: the out and there the outlook looks like it's in 193 00:09:09,920 --> 00:09:12,840 Speaker 1: line with what the FED was envisioning, then it probably 194 00:09:12,880 --> 00:09:16,160 Speaker 1: makes sense for Chairy Yelling to at least set the 195 00:09:16,240 --> 00:09:19,280 Speaker 1: you know, the ground floor and the basic building blocks 196 00:09:19,320 --> 00:09:22,800 Speaker 1: for the balancy evolution, then actually pulling the trigger that 197 00:09:22,920 --> 00:09:26,120 Speaker 1: might might be the actual next of next. George Concavas numerous, 198 00:09:26,160 --> 00:09:28,280 Speaker 1: head of US Rate Strategy for Fixed Income, and we 199 00:09:28,280 --> 00:09:30,439 Speaker 1: were swapping travel stories here a few minutes ago. We'll 200 00:09:30,440 --> 00:09:33,480 Speaker 1: spare you the details about our travel horror stories. But George, 201 00:09:33,520 --> 00:09:35,240 Speaker 1: you've been on the road a lot. You've been to 202 00:09:35,280 --> 00:09:38,079 Speaker 1: Japan recently in Mexico as well, and let's let's use 203 00:09:38,080 --> 00:09:39,960 Speaker 1: those trips to talk a bit about central banking in 204 00:09:39,960 --> 00:09:43,920 Speaker 1: those those regions if we could. Starting with Japan, what 205 00:09:44,000 --> 00:09:45,959 Speaker 1: do we know about what the Bank of Japan is 206 00:09:46,000 --> 00:09:48,040 Speaker 1: going to do when it doesn't faccy the economy hits 207 00:09:48,080 --> 00:09:51,520 Speaker 1: two percent inflation target? I mean, at this point, I think, uh, 208 00:09:53,120 --> 00:09:54,960 Speaker 1: I think I've used the analogy before and I'll use 209 00:09:54,960 --> 00:09:56,920 Speaker 1: it again. I think, you know, just you know, think 210 00:09:56,960 --> 00:09:59,320 Speaker 1: about it. Even the FED, who has been the most prepared, 211 00:09:59,760 --> 00:10:02,600 Speaker 1: has not had a well defined exit strategy on their 212 00:10:02,640 --> 00:10:05,839 Speaker 1: balance sheet. I mean, I think if boj gets what 213 00:10:05,880 --> 00:10:08,200 Speaker 1: it ultimately wants, and if if Japan ends up being 214 00:10:08,280 --> 00:10:11,800 Speaker 1: much more of a properous, prosperous place and growth is increasing, 215 00:10:11,840 --> 00:10:14,520 Speaker 1: inflation is increasing, they'll deal with that problem when they 216 00:10:14,600 --> 00:10:17,360 Speaker 1: get there. I really don't don't see, you know, I 217 00:10:17,400 --> 00:10:19,640 Speaker 1: don't see it being an issue in the very short run. 218 00:10:19,720 --> 00:10:22,880 Speaker 1: But over you know, months and years, if if inflation 219 00:10:22,920 --> 00:10:25,200 Speaker 1: were to continue to run out of control, they then 220 00:10:25,280 --> 00:10:27,280 Speaker 1: do they themselves would have to start tightening to which 221 00:10:27,320 --> 00:10:29,800 Speaker 1: would be a complete, you know, change in policy for 222 00:10:29,840 --> 00:10:32,559 Speaker 1: the last twenty thirty years. And in their eyes it 223 00:10:32,600 --> 00:10:34,840 Speaker 1: probably you has a good problem to have. But I 224 00:10:34,840 --> 00:10:36,560 Speaker 1: think at this point is probably too early help us. 225 00:10:36,600 --> 00:10:38,959 Speaker 1: I understand that the role of the Japanese Central Bank 226 00:10:39,000 --> 00:10:42,600 Speaker 1: in the everyday lives of the Japanese. Is this something 227 00:10:42,600 --> 00:10:44,520 Speaker 1: they care a great deal about. How is it influencing 228 00:10:44,559 --> 00:10:47,600 Speaker 1: their common in a direct way day in and day down? Um? 229 00:10:47,840 --> 00:10:49,880 Speaker 1: I think it? Look at me, central banks don't like 230 00:10:49,960 --> 00:10:52,560 Speaker 1: to be in the in the in the limelight if 231 00:10:52,559 --> 00:10:55,679 Speaker 1: they don't have to. I think that it's not necessarily 232 00:10:55,720 --> 00:10:58,920 Speaker 1: something that's really driving, you know, uh, the kind of 233 00:10:58,960 --> 00:11:03,120 Speaker 1: social fabric which changes within the Japanese um economy, or 234 00:11:03,240 --> 00:11:06,040 Speaker 1: or the way people change their their investment decisions. But 235 00:11:06,120 --> 00:11:08,880 Speaker 1: I mean, I do think it's kind of that, um 236 00:11:08,920 --> 00:11:12,080 Speaker 1: that that the hand that's kind of pushing things along. 237 00:11:12,120 --> 00:11:15,120 Speaker 1: And so I think investors as well as the overall 238 00:11:15,120 --> 00:11:17,880 Speaker 1: population know that there's a lot of interventions that are happening. 239 00:11:18,080 --> 00:11:20,319 Speaker 1: I don't think it's necessarily altering things because if it did, 240 00:11:20,320 --> 00:11:23,280 Speaker 1: to be quite honest, you know, animal spirits will be 241 00:11:23,360 --> 00:11:25,559 Speaker 1: much stronger because if you thought that, hey, one day 242 00:11:25,559 --> 00:11:28,040 Speaker 1: you're purchasing power is gonna be eroded, wouldn't you be 243 00:11:28,040 --> 00:11:30,959 Speaker 1: speeding up your purchases. But yet there's still a healthy 244 00:11:31,040 --> 00:11:33,720 Speaker 1: level of skepticism that this is gonna work or not. George. 245 00:11:33,920 --> 00:11:36,640 Speaker 1: Are the central banks, for example, Bank of Japan and 246 00:11:36,679 --> 00:11:39,160 Speaker 1: also as you, as David said, you went to Mexico, 247 00:11:39,360 --> 00:11:42,560 Speaker 1: are they add a sync with each other? Um? I 248 00:11:42,559 --> 00:11:46,200 Speaker 1: think that, you know, uh, there's clearly developed markets are 249 00:11:46,280 --> 00:11:49,920 Speaker 1: much more in sync um uh. And it's again it's 250 00:11:49,920 --> 00:11:52,280 Speaker 1: healthy to see the FED kind of be the first 251 00:11:52,280 --> 00:11:54,960 Speaker 1: mover into easy and in the first mover out and tightening, 252 00:11:55,400 --> 00:11:57,520 Speaker 1: and slowly that's going to result in a tapering of 253 00:11:57,559 --> 00:12:00,240 Speaker 1: ECB and eventually, you know, back of Japan at some 254 00:12:00,280 --> 00:12:03,360 Speaker 1: points and have to shift from this really heavy handed approach. 255 00:12:03,440 --> 00:12:06,199 Speaker 1: And in the markets, will they be selling US treasuries? 256 00:12:06,240 --> 00:12:07,880 Speaker 1: I mean they're going to have about They have a 257 00:12:07,920 --> 00:12:09,960 Speaker 1: balance sheet as well, and a lot of that is 258 00:12:10,040 --> 00:12:12,600 Speaker 1: filled up with US paper. Yeah. So I think one 259 00:12:12,600 --> 00:12:14,360 Speaker 1: of the one of the things that we've benefited for 260 00:12:14,400 --> 00:12:17,240 Speaker 1: the last you know, really three to five years has 261 00:12:17,240 --> 00:12:19,360 Speaker 1: been that as global rates have been low everywhere else, 262 00:12:19,720 --> 00:12:22,520 Speaker 1: and our yields have been generally higher, although low, we've 263 00:12:22,559 --> 00:12:24,960 Speaker 1: benefited from all that capital. And that's another thing at 264 00:12:25,000 --> 00:12:27,200 Speaker 1: the fedtest to calibrate, and policymakers in general have to 265 00:12:27,200 --> 00:12:31,599 Speaker 1: calibrate if rates are rising because we have less foreign sponsorship. 266 00:12:32,120 --> 00:12:35,400 Speaker 1: That's also a big consideration. Looking at dollar Mexico right 267 00:12:35,400 --> 00:12:37,920 Speaker 1: now at eighteen sixty nine, sixty nine, you were down 268 00:12:37,920 --> 00:12:41,800 Speaker 1: in Mexico, Mexico City. What's the mood they're like. And 269 00:12:42,080 --> 00:12:44,280 Speaker 1: when you look at at what's driving currency, say, or 270 00:12:44,320 --> 00:12:46,680 Speaker 1: what's what's driving the bond market in Mexico. Is it 271 00:12:46,720 --> 00:12:49,360 Speaker 1: apprehension about what might happen with the trading relationship with 272 00:12:49,400 --> 00:12:51,280 Speaker 1: the US where there are other sort of structural issues 273 00:12:51,280 --> 00:12:52,840 Speaker 1: that are that are weighing on that economy. I mean, 274 00:12:52,880 --> 00:12:54,400 Speaker 1: I think, you know, you know, if we have this 275 00:12:54,440 --> 00:12:57,040 Speaker 1: conversation two months ago, we would be you know, much 276 00:12:57,080 --> 00:12:59,280 Speaker 1: more worried about, you know, the negotiations are on NAFTA 277 00:12:59,679 --> 00:13:02,040 Speaker 1: and just to you know, the change in US US leadership. 278 00:13:02,440 --> 00:13:04,720 Speaker 1: But you know, just kind of going down there and 279 00:13:04,760 --> 00:13:06,719 Speaker 1: it's it's kind of you know, really having my own 280 00:13:06,760 --> 00:13:09,280 Speaker 1: personal view of what's what I see and feel. Uh 281 00:13:09,320 --> 00:13:10,959 Speaker 1: And it did felt like you know, I had been 282 00:13:11,320 --> 00:13:13,680 Speaker 1: to the UK right after the Brexit vote and and 283 00:13:13,760 --> 00:13:15,920 Speaker 1: just very similar feeling and feeling that Okay, these things 284 00:13:15,960 --> 00:13:18,520 Speaker 1: take long time to work through and it's not You're 285 00:13:18,520 --> 00:13:20,720 Speaker 1: not going to change your your decision process now just 286 00:13:20,760 --> 00:13:22,959 Speaker 1: because you've had a new piece of information. You get 287 00:13:23,000 --> 00:13:25,120 Speaker 1: to see how things unfold. So I mean, I do 288 00:13:25,200 --> 00:13:27,760 Speaker 1: I do think that you know, Vikiko has you know, 289 00:13:27,840 --> 00:13:29,960 Speaker 1: raised rates a lot, and and if the FED is 290 00:13:30,040 --> 00:13:31,800 Speaker 1: raising rates, you know, our view from our e M 291 00:13:31,880 --> 00:13:34,600 Speaker 1: team is that the the you know, the Mexican Central 292 00:13:34,600 --> 00:13:36,640 Speaker 1: Bank would raise rates at the same speed as the 293 00:13:36,640 --> 00:13:39,200 Speaker 1: FED just to kind of keep things level. But at 294 00:13:39,240 --> 00:13:41,480 Speaker 1: some point the real question will become, you know, if 295 00:13:42,360 --> 00:13:44,920 Speaker 1: you know, if if these if these central banks, especially 296 00:13:44,960 --> 00:13:47,680 Speaker 1: in the emerging markets which got more defensive around you know, 297 00:13:47,760 --> 00:13:49,959 Speaker 1: the trade issues that could have happened. Yeah, we don't 298 00:13:49,960 --> 00:13:51,920 Speaker 1: know yet what's gonna happen. But if if it's not 299 00:13:52,000 --> 00:13:54,240 Speaker 1: as worst case scenario, do they have to at least 300 00:13:54,480 --> 00:13:57,040 Speaker 1: uh stay behind the curve and and maybe even ease. 301 00:13:57,120 --> 00:14:00,000 Speaker 1: We don't know. I mean, there's been a huge differentially 302 00:14:00,000 --> 00:14:02,640 Speaker 1: ation between E, M and D and developed market central banks, 303 00:14:03,000 --> 00:14:06,480 Speaker 1: you know, really focused on local factors. If you know, 304 00:14:06,559 --> 00:14:08,800 Speaker 1: if for example, Mexico is in a much much better place, 305 00:14:09,040 --> 00:14:10,920 Speaker 1: do they have to tighten as much? If not, maybe 306 00:14:10,920 --> 00:14:13,160 Speaker 1: just go flat or even ease. One day, it's thirty 307 00:14:13,160 --> 00:14:15,280 Speaker 1: seconds left here, We're looking at to another ECB meeting 308 00:14:15,440 --> 00:14:17,120 Speaker 1: in a couple of weeks and the seventh time. I 309 00:14:17,120 --> 00:14:20,720 Speaker 1: believe the concerns the same scarcity tapering. What are we 310 00:14:20,760 --> 00:14:22,680 Speaker 1: gonna hear do you think from the president of the ECB? 311 00:14:23,440 --> 00:14:25,320 Speaker 1: Um So this is the first month of the the 312 00:14:25,400 --> 00:14:28,160 Speaker 1: official start of the taper process. Um, I think that 313 00:14:28,200 --> 00:14:30,240 Speaker 1: they're gonna, you know, give an update on how that's going. 314 00:14:31,200 --> 00:14:33,600 Speaker 1: I think that, you know, they need to be you know, 315 00:14:33,840 --> 00:14:36,880 Speaker 1: still remain on the cautious side, considering that inflation is 316 00:14:36,880 --> 00:14:38,640 Speaker 1: not going vertical like it felt like, you know, a 317 00:14:38,640 --> 00:14:40,640 Speaker 1: month and a half ago. You know this, you know, 318 00:14:40,680 --> 00:14:43,000 Speaker 1: a lot of it is linked back to the oil markets, 319 00:14:43,040 --> 00:14:45,840 Speaker 1: and of course, if geopolitical issues were to flare up again, 320 00:14:46,320 --> 00:14:48,040 Speaker 1: you know, we'll see how the reaction function is then. 321 00:14:48,080 --> 00:14:51,280 Speaker 1: But for this month alone, we're not expecting much change. Um, 322 00:14:51,280 --> 00:14:52,760 Speaker 1: we don't. We think that, you know, any sort of 323 00:14:52,840 --> 00:14:55,080 Speaker 1: drastic change from the ECB is more at the end 324 00:14:55,120 --> 00:14:57,320 Speaker 1: of the year, early part of next year. Thanks very 325 00:14:57,400 --> 00:15:00,440 Speaker 1: much for joining us. Much appreciated. Georgia kN called us. 326 00:15:00,480 --> 00:15:03,440 Speaker 1: He is the nomor ahead of US rate strategy for 327 00:15:03,560 --> 00:15:07,120 Speaker 1: fixed income, but obviously spending time also in Japan and 328 00:15:07,320 --> 00:15:23,080 Speaker 1: in Mexico. Well, on a morning when haven assets are 329 00:15:23,160 --> 00:15:25,240 Speaker 1: all the rage, here bringing our next guest if you 330 00:15:25,280 --> 00:15:28,440 Speaker 1: haven assets indeed, all right, well let's bring in Bob Michael. 331 00:15:28,480 --> 00:15:32,160 Speaker 1: He is the JP Morgan Asset Management Global Chief Investment Officer. 332 00:15:32,160 --> 00:15:36,760 Speaker 1: Are also ahead of Global fixed income FX and commodities. 333 00:15:36,760 --> 00:15:38,960 Speaker 1: Bobby got a lot on your plate there. I want 334 00:15:38,960 --> 00:15:41,920 Speaker 1: to throw you a lot of saving right, yeah, good 335 00:15:41,920 --> 00:15:43,960 Speaker 1: for you, a lot of safe haven. I want you 336 00:15:44,000 --> 00:15:45,880 Speaker 1: to just put all of what you're doing in the 337 00:15:45,960 --> 00:15:51,920 Speaker 1: context of the Trump administration's stimulus slash, infrastructure project or 338 00:15:51,960 --> 00:15:55,480 Speaker 1: a plan, and also tell us about the tax reform 339 00:15:55,480 --> 00:15:58,440 Speaker 1: and how that may already be baked into Well an 340 00:15:58,560 --> 00:16:02,640 Speaker 1: SMP's twenty seven right now, and you know rates, you 341 00:16:02,680 --> 00:16:06,320 Speaker 1: know what they are. Well, the market's all about probability, 342 00:16:06,480 --> 00:16:10,320 Speaker 1: So there is some probability priced in that Trump will 343 00:16:10,360 --> 00:16:14,200 Speaker 1: get his policies through, whether it's some form of infrastructure 344 00:16:14,240 --> 00:16:17,440 Speaker 1: spend or tax reform. But I think we have to 345 00:16:17,560 --> 00:16:21,320 Speaker 1: go back pre election and recognize that there was a 346 00:16:21,320 --> 00:16:26,720 Speaker 1: pretty broad based recovery underway. Anyway. You were seeing wage gains, 347 00:16:27,000 --> 00:16:29,280 Speaker 1: which a couple of years ago had been year over 348 00:16:29,400 --> 00:16:32,440 Speaker 1: year one point seven percent. They were moving up towards 349 00:16:32,440 --> 00:16:34,720 Speaker 1: two and a half percent now they're two point seven 350 00:16:35,000 --> 00:16:38,080 Speaker 1: two point eight percent year every year. And the Fed 351 00:16:38,160 --> 00:16:41,960 Speaker 1: had already raised one rates once and was debating a 352 00:16:42,080 --> 00:16:46,760 Speaker 1: second time. So there was some underlying strength in the economy. Uh, 353 00:16:46,800 --> 00:16:49,720 Speaker 1: there was a recovery that was underway, and the central 354 00:16:49,720 --> 00:16:53,520 Speaker 1: banks were looking to normalize. I think if Trump can 355 00:16:53,560 --> 00:16:57,080 Speaker 1: get through some of the stimulus he's talking about, that's 356 00:16:57,320 --> 00:16:59,880 Speaker 1: icing on the cake, and then that changes the metric 357 00:17:00,040 --> 00:17:02,600 Speaker 1: us on what the feder will have to do. What 358 00:17:02,680 --> 00:17:05,359 Speaker 1: would that metric be, for example, let's say tax reform. 359 00:17:05,440 --> 00:17:07,440 Speaker 1: Let's say that that is the program that they're able 360 00:17:07,480 --> 00:17:10,240 Speaker 1: to get through some time maybe before the end of 361 00:17:10,240 --> 00:17:16,400 Speaker 1: the fiscal year. Well, tax reform obviously makes company pees 362 00:17:16,560 --> 00:17:21,160 Speaker 1: look more attractive immediately. One of the things that we've 363 00:17:21,200 --> 00:17:24,880 Speaker 1: been struck by is that companies have spent the last 364 00:17:24,920 --> 00:17:29,960 Speaker 1: seven eight years since the crisis taking cost out. I've 365 00:17:30,000 --> 00:17:32,360 Speaker 1: been doing this for thirty six years. I don't remember 366 00:17:32,440 --> 00:17:36,320 Speaker 1: a time where corporate America has been this lean and 367 00:17:36,440 --> 00:17:40,040 Speaker 1: this efficient, and they actually don't really know what to 368 00:17:40,119 --> 00:17:42,760 Speaker 1: do with their profitability. So a lot of them the 369 00:17:42,800 --> 00:17:46,040 Speaker 1: last couple of quarters have been raising debt, buying back shares, 370 00:17:46,160 --> 00:17:49,879 Speaker 1: raising dividends, are buying each other. If there's some incentive 371 00:17:50,280 --> 00:17:54,560 Speaker 1: for them to invest, if tax reform can push through 372 00:17:54,640 --> 00:17:58,000 Speaker 1: broader consumption, then I think they'll be in a position 373 00:17:58,040 --> 00:18:02,119 Speaker 1: to make those investments in backs because they'll see aggregate 374 00:18:02,160 --> 00:18:06,679 Speaker 1: final demand pick up, and then earnings will drive stocks higher, 375 00:18:06,960 --> 00:18:10,480 Speaker 1: not simply pe expansion. If if none of that happens, 376 00:18:10,480 --> 00:18:13,159 Speaker 1: where there's a delay before that happens, how long can 377 00:18:13,200 --> 00:18:15,600 Speaker 1: the squeeze that you've described to continue. How long can 378 00:18:15,640 --> 00:18:18,280 Speaker 1: companies continue to sort of ring costs out of their 379 00:18:18,320 --> 00:18:22,040 Speaker 1: their balance sheets. I think we've pretty much gotten to 380 00:18:22,119 --> 00:18:25,760 Speaker 1: the point where where that's largely been done. And I 381 00:18:25,800 --> 00:18:29,719 Speaker 1: think when you see the amount of corporate debt issuance 382 00:18:29,880 --> 00:18:33,400 Speaker 1: over the last eighteen months and what it's been used for, 383 00:18:33,840 --> 00:18:37,200 Speaker 1: it tells you that companies were just looking for other 384 00:18:37,320 --> 00:18:40,600 Speaker 1: things to do rather than take out costs and grow 385 00:18:40,640 --> 00:18:46,240 Speaker 1: their businesses, maybe returning some of that capital to shareholders 386 00:18:46,680 --> 00:18:50,600 Speaker 1: or buying back shares, raising dividends. Those were the kinds 387 00:18:50,600 --> 00:18:53,320 Speaker 1: of things that that they were doing. But in the 388 00:18:53,359 --> 00:18:58,040 Speaker 1: absence of aggregate final demand and with the cost base 389 00:18:58,160 --> 00:19:01,919 Speaker 1: that they've already have in place, they're simply plodding along 390 00:19:02,000 --> 00:19:05,720 Speaker 1: here waiting for a bigger stimulus to hit. Our investors 391 00:19:05,760 --> 00:19:07,760 Speaker 1: just plotting along what are they looking for? Where in 392 00:19:07,800 --> 00:19:11,679 Speaker 1: the capital structure do you see value? There's there's a 393 00:19:11,760 --> 00:19:16,640 Speaker 1: lot of consolidation that's been occurring this year, and if 394 00:19:16,680 --> 00:19:20,919 Speaker 1: you think about the repricing immediately after the election and 395 00:19:21,000 --> 00:19:24,120 Speaker 1: what you need to drive that higher. You do need 396 00:19:24,520 --> 00:19:27,439 Speaker 1: some of these Trump policies to come through, or you 397 00:19:27,520 --> 00:19:30,640 Speaker 1: need the central banks to move, and both of those 398 00:19:31,000 --> 00:19:35,160 Speaker 1: things seem frozen in time. So I think the consolidation continues. 399 00:19:35,320 --> 00:19:37,720 Speaker 1: David Garrett and Pim Fox. This is Bloomy Surveillance on 400 00:19:37,760 --> 00:19:41,320 Speaker 1: Bloomberg Radio with Bob Michael JP Morgan Asset Managements Global CEIO, 401 00:19:41,440 --> 00:19:44,080 Speaker 1: the head of Global Fixed Income FFFX and Commodities Group. 402 00:19:44,080 --> 00:19:45,600 Speaker 1: And let me pick up from something that Bob Moon 403 00:19:45,680 --> 00:19:48,320 Speaker 1: just mentioned there. Bob, if if I could uh that 404 00:19:48,480 --> 00:19:50,760 Speaker 1: read on small business optimism, we had the n f 405 00:19:50,800 --> 00:19:53,600 Speaker 1: i B Small Business Optimism Report out this morning. The 406 00:19:53,640 --> 00:19:55,840 Speaker 1: servey called for one oh four point seven. Indeed, it 407 00:19:55,920 --> 00:19:58,720 Speaker 1: was in line with expectations at one oh four point seven. 408 00:19:58,720 --> 00:20:00,840 Speaker 1: This this read has been good for many months now, 409 00:20:00,880 --> 00:20:03,600 Speaker 1: going back to to the election. Help us with this 410 00:20:03,720 --> 00:20:07,040 Speaker 1: ongoing debate about soft data and hard data, the degree 411 00:20:07,040 --> 00:20:09,480 Speaker 1: to which soft data portends or predicts what the hard 412 00:20:09,560 --> 00:20:14,119 Speaker 1: data is going to show. What's your read on on that, Well, 413 00:20:14,119 --> 00:20:17,679 Speaker 1: our read is is certainly the soft data. Uh. The 414 00:20:17,760 --> 00:20:22,200 Speaker 1: sentiment has been moving up very nicely, and there's been 415 00:20:22,240 --> 00:20:26,400 Speaker 1: some anxiety that you haven't seen it in the hard data, 416 00:20:26,600 --> 00:20:29,000 Speaker 1: but you have seen it in some places. When we 417 00:20:29,040 --> 00:20:31,960 Speaker 1: look at capital good shipments, if we go back to 418 00:20:32,000 --> 00:20:34,920 Speaker 1: the middle of last year, they were down year over 419 00:20:35,080 --> 00:20:38,600 Speaker 1: year about five and a half percent. Currently they're up 420 00:20:38,640 --> 00:20:41,480 Speaker 1: about two and a half to three percent year over year. 421 00:20:41,800 --> 00:20:46,000 Speaker 1: And I think that's reflected in small business confidence. And 422 00:20:46,040 --> 00:20:50,359 Speaker 1: it's not surprising that the small and midsized enterprise companies 423 00:20:50,840 --> 00:20:54,000 Speaker 1: um in Middle America are are doing well. We've been 424 00:20:54,040 --> 00:20:59,080 Speaker 1: hearing that from our different analysts for the past year. Well, 425 00:20:59,080 --> 00:21:00,639 Speaker 1: there's a you know, we're gonna talk about this in 426 00:21:00,640 --> 00:21:03,240 Speaker 1: great detail in the next hour. So much political risk, 427 00:21:03,320 --> 00:21:07,040 Speaker 1: so much foreign policy risk right now. When you couple 428 00:21:07,119 --> 00:21:09,640 Speaker 1: that with the uncertainty out out of Washington, how difficult, 429 00:21:09,640 --> 00:21:12,320 Speaker 1: how noisy and environment is that for an investor, it 430 00:21:12,400 --> 00:21:17,240 Speaker 1: should be noisier than what we're actually seeing in the markets. 431 00:21:17,280 --> 00:21:21,720 Speaker 1: And that's what's confusing a lot of investors when they 432 00:21:21,760 --> 00:21:26,640 Speaker 1: look at volatility, they see that volatility hasn't picked up 433 00:21:26,880 --> 00:21:30,119 Speaker 1: with what they feel the anxiety level of the market 434 00:21:30,160 --> 00:21:33,640 Speaker 1: should be. I have to remind our clients that there 435 00:21:33,720 --> 00:21:37,840 Speaker 1: is still this vast pool of central bank liquidity that 436 00:21:38,000 --> 00:21:41,760 Speaker 1: has flooded the market. Central bank balance sheets have expanded 437 00:21:41,800 --> 00:21:46,320 Speaker 1: from four trillion pre crisis to sixteen trillion dollar equivalents. 438 00:21:46,400 --> 00:21:50,480 Speaker 1: And by the way, the FED maybe talking about tapering 439 00:21:50,560 --> 00:21:53,760 Speaker 1: and selling and reducing its balance sheet, but other central 440 00:21:53,760 --> 00:21:56,960 Speaker 1: banks are still printing money on a monthly basis and 441 00:21:57,040 --> 00:22:01,400 Speaker 1: buying securities. In the most recent blue Berg economic brief 442 00:22:01,440 --> 00:22:05,840 Speaker 1: I was reading this morning demonstrated that foreign central banks 443 00:22:06,200 --> 00:22:09,480 Speaker 1: have been selling US treasuries. They use the Central Bank 444 00:22:09,520 --> 00:22:12,920 Speaker 1: of Belgium as a proxy. That is, in a sense 445 00:22:12,920 --> 00:22:16,960 Speaker 1: on winding a balance sheet, does that pose a risk 446 00:22:17,240 --> 00:22:19,320 Speaker 1: if it's not done in concert with whatever the Federal 447 00:22:19,359 --> 00:22:24,080 Speaker 1: Reserve does? It does, And I think this is where 448 00:22:24,119 --> 00:22:28,600 Speaker 1: the FED may have an unsolvable riddle ahead for them. 449 00:22:28,920 --> 00:22:32,760 Speaker 1: How they try to manage the yield curve, control and 450 00:22:32,800 --> 00:22:36,159 Speaker 1: optimize it, so whether they're lifting front end rates or 451 00:22:36,200 --> 00:22:39,160 Speaker 1: they're selling down their own balance sheet, which could put 452 00:22:39,240 --> 00:22:43,480 Speaker 1: pressure on longer term rates. If you're a foreign official institution, 453 00:22:43,960 --> 00:22:47,840 Speaker 1: and it's not just foreign central banks, it's been monetary 454 00:22:47,840 --> 00:22:52,359 Speaker 1: authorities and sovereign wealth funds, they've been big buyers of 455 00:22:52,560 --> 00:22:56,640 Speaker 1: US government securities. If they feel that the FED will 456 00:22:56,680 --> 00:23:00,159 Speaker 1: abandon support of the long end of the market in 457 00:23:00,280 --> 00:23:03,280 Speaker 1: somewhat reckless fashion. I'm not suggesting the FED would. I 458 00:23:03,320 --> 00:23:05,840 Speaker 1: think they're going to be very thoughtful. Then they'd rather 459 00:23:05,920 --> 00:23:08,680 Speaker 1: get out ahead of that. You mentioned this volatility, and 460 00:23:08,680 --> 00:23:10,200 Speaker 1: I want to see if you can apply this on 461 00:23:10,320 --> 00:23:13,520 Speaker 1: a on a larger scale, because you know oil markets 462 00:23:13,560 --> 00:23:16,639 Speaker 1: trading between fifty three and forty six. This is just 463 00:23:16,720 --> 00:23:19,320 Speaker 1: in one month, right, So you've got some volatility and 464 00:23:19,359 --> 00:23:23,280 Speaker 1: oil markets that seems to actually take into account what 465 00:23:23,400 --> 00:23:27,159 Speaker 1: goes on geopolitically, But when you look at stocks, it doesn't. 466 00:23:27,240 --> 00:23:29,200 Speaker 1: Nothing seems to phase it. You talk about a North 467 00:23:29,280 --> 00:23:34,280 Speaker 1: Korean missile launch, nothing happens. What what is it that 468 00:23:34,280 --> 00:23:37,040 Speaker 1: that you think stock investors are seeing that maybe bond 469 00:23:37,080 --> 00:23:41,560 Speaker 1: investors aren't. There is a vast pool of liquidity out there. 470 00:23:41,600 --> 00:23:44,280 Speaker 1: I can't tell you how many clients I talked to 471 00:23:44,480 --> 00:23:47,879 Speaker 1: that are pleading for a pullback to put money to 472 00:23:47,960 --> 00:23:52,440 Speaker 1: work in the equity market. What kind of pullback? Everyone 473 00:23:52,520 --> 00:23:55,920 Speaker 1: would love to see a seven to ten percent pull back, 474 00:23:56,400 --> 00:24:00,440 Speaker 1: but they get impatient to three five would be enough. 475 00:24:00,480 --> 00:24:03,320 Speaker 1: I think there's so much money out there that any 476 00:24:03,440 --> 00:24:06,639 Speaker 1: kind of pullback they put it to work. Assuming that 477 00:24:06,720 --> 00:24:10,040 Speaker 1: the FED is as transparent as and as gradual as 478 00:24:10,080 --> 00:24:13,320 Speaker 1: they have been, and there is some progress that comes 479 00:24:13,359 --> 00:24:16,200 Speaker 1: out of Trump policies in Washington. I think there are 480 00:24:16,200 --> 00:24:19,240 Speaker 1: buyers on every pullback. Conversely, when I look at the 481 00:24:19,280 --> 00:24:21,719 Speaker 1: bond market and I talked to some of our investors, 482 00:24:21,720 --> 00:24:26,320 Speaker 1: there their buyers on every backup in yields. So they 483 00:24:26,400 --> 00:24:29,960 Speaker 1: look at where long yields are. They understand the FED 484 00:24:30,119 --> 00:24:34,080 Speaker 1: is trying to normalize and seek a higher level that's 485 00:24:34,119 --> 00:24:37,760 Speaker 1: more neutral. But in their view, they've heard that many 486 00:24:37,840 --> 00:24:41,040 Speaker 1: times before. They have liabilities that they have to defease. 487 00:24:41,440 --> 00:24:45,840 Speaker 1: So every basis point pullback you're going to see more buying. 488 00:24:46,040 --> 00:24:48,520 Speaker 1: That's the power of the cash that's out there. Let's 489 00:24:48,520 --> 00:24:50,399 Speaker 1: look ahead, if we could to to bank runing is 490 00:24:50,440 --> 00:24:52,040 Speaker 1: coming out a little later this week on threes day, 491 00:24:52,080 --> 00:24:54,600 Speaker 1: we get the first three big banks, and maybe I 492 00:24:54,720 --> 00:24:56,200 Speaker 1: just ask you about the sector and the degree to 493 00:24:56,240 --> 00:24:58,640 Speaker 1: which it's preparing for a change to the regulatory structure 494 00:24:58,680 --> 00:25:00,840 Speaker 1: here in the US. And let me fold into that 495 00:25:00,840 --> 00:25:02,840 Speaker 1: the news out of yesterday you had just Staily getting 496 00:25:02,880 --> 00:25:04,680 Speaker 1: a bit of a claw back and pay in light 497 00:25:04,720 --> 00:25:07,639 Speaker 1: of what he did with regard to it to whistle 498 00:25:07,640 --> 00:25:11,840 Speaker 1: blower at Barkleys. You had John stuffs a salary getting diplomatic. David, 499 00:25:11,920 --> 00:25:14,440 Speaker 1: I like the way you did that. Yeah, yeah, John 500 00:25:14,440 --> 00:25:16,480 Speaker 1: Stuff getting some some money taken away from his pay 501 00:25:16,480 --> 00:25:19,320 Speaker 1: package as well. Are we seeing a cultural shift at 502 00:25:19,320 --> 00:25:21,680 Speaker 1: all in light of those those those two instances from 503 00:25:21,720 --> 00:25:25,920 Speaker 1: this week, Um, you are you're, you're. You have definitely 504 00:25:26,040 --> 00:25:29,639 Speaker 1: seen an evolution of banking over the last several years. 505 00:25:30,119 --> 00:25:33,640 Speaker 1: And if you look at the degree to which regulation 506 00:25:33,840 --> 00:25:36,960 Speaker 1: has pervaded the market, it's been a mixed bat Some 507 00:25:37,080 --> 00:25:40,520 Speaker 1: of it has been excellent. It's put banking on more 508 00:25:40,560 --> 00:25:45,440 Speaker 1: stable footing. It's given the consumer confidence to put deposits 509 00:25:45,480 --> 00:25:48,359 Speaker 1: into banks. All of those things are good, But is 510 00:25:48,400 --> 00:25:52,440 Speaker 1: there a point in time where some deregulation could create 511 00:25:52,480 --> 00:25:55,080 Speaker 1: an expansion of credit? And when I look at some 512 00:25:55,160 --> 00:25:57,919 Speaker 1: of the US banks and a lot of the European banks, 513 00:25:58,240 --> 00:26:00,760 Speaker 1: you wonder if they didn't have to old such high 514 00:26:00,880 --> 00:26:04,640 Speaker 1: levels of capital, would you see them extending credit through 515 00:26:04,680 --> 00:26:07,920 Speaker 1: the system and then helping to accelerate the recovery. But 516 00:26:08,080 --> 00:26:09,560 Speaker 1: I'm sorry to say this, but you've been in the 517 00:26:09,560 --> 00:26:12,399 Speaker 1: business for thirty five years, so that's not that I 518 00:26:12,400 --> 00:26:14,640 Speaker 1: wanted to just set that at least thirty five years. 519 00:26:14,680 --> 00:26:17,600 Speaker 1: I wanted to set that straight. The reason being I'm 520 00:26:17,600 --> 00:26:19,560 Speaker 1: wanting and I know that you studied classics at the 521 00:26:19,640 --> 00:26:23,119 Speaker 1: University of Pennsylvania. Is there a Greek myth that you 522 00:26:23,119 --> 00:26:26,040 Speaker 1: would use to describe what's going on in the United 523 00:26:26,119 --> 00:26:29,320 Speaker 1: Kingdom and Brexit? Because you've spent time in London, what 524 00:26:29,440 --> 00:26:31,159 Speaker 1: do you think is gonna happen? So a feature of 525 00:26:31,359 --> 00:26:36,760 Speaker 1: many media reports today about what's going to happen to London? Well, 526 00:26:36,800 --> 00:26:41,720 Speaker 1: it it is concerning because self inflicted. Well, and I 527 00:26:41,840 --> 00:26:44,840 Speaker 1: moved to London in two thousand and one. I spent 528 00:26:44,960 --> 00:26:48,520 Speaker 1: close to ten years there. I saw the build up 529 00:26:48,600 --> 00:26:52,560 Speaker 1: of the UK in London around banking um. And now 530 00:26:52,640 --> 00:26:56,359 Speaker 1: that that they're exiting the EU, you have to wonder 531 00:26:56,840 --> 00:27:01,800 Speaker 1: will the EU allow European banking to be domiciled outside 532 00:27:01,800 --> 00:27:05,520 Speaker 1: of it in London? I'm not so sure. I think 533 00:27:05,720 --> 00:27:10,040 Speaker 1: it's a tricky time for for the UK, and certainly 534 00:27:10,080 --> 00:27:13,919 Speaker 1: if you're a European economy, you should be bidding for 535 00:27:14,080 --> 00:27:19,280 Speaker 1: components of banking which reside in London because it's attractive. 536 00:27:19,680 --> 00:27:24,240 Speaker 1: You have a population of very well educated, well paid 537 00:27:24,960 --> 00:27:29,240 Speaker 1: consumers um, and it's going to be inviting where do 538 00:27:29,280 --> 00:27:30,720 Speaker 1: we go from here? We have this with this this 539 00:27:30,800 --> 00:27:34,679 Speaker 1: two year negotiating period, is it suffused with uncertainty? Are 540 00:27:34,680 --> 00:27:36,680 Speaker 1: you pretty confident here we're gonna stick to the timetable 541 00:27:36,720 --> 00:27:40,040 Speaker 1: laid out by by Theresa May and and being discussed. 542 00:27:40,040 --> 00:27:43,600 Speaker 1: I guess we should say by Donald Tuisk I think so. 543 00:27:44,119 --> 00:27:48,400 Speaker 1: I think I think both realized that UM, there has 544 00:27:48,480 --> 00:27:51,479 Speaker 1: been a fracture and it's time to move on. I 545 00:27:51,520 --> 00:27:55,880 Speaker 1: think the EU has to look within the remaining members 546 00:27:55,960 --> 00:27:59,679 Speaker 1: and think about how to create stability there. And there 547 00:27:59,720 --> 00:28:02,680 Speaker 1: are elections certainly that are are coming up later this 548 00:28:02,760 --> 00:28:05,879 Speaker 1: month UM in France, and there's an election later in 549 00:28:05,920 --> 00:28:08,879 Speaker 1: Germany and possibly one in Italy, and that's what the 550 00:28:08,920 --> 00:28:12,400 Speaker 1: EU has to focus on, how to create a favorable 551 00:28:12,400 --> 00:28:17,080 Speaker 1: and cohesive environment so that the remaining members stay well. 552 00:28:17,119 --> 00:28:19,760 Speaker 1: Thanks very much for joining us. Bob Michael he is 553 00:28:19,880 --> 00:28:25,399 Speaker 1: JP Morgan's Chief investment Officer, also Global head of Fixed Income, 554 00:28:25,680 --> 00:28:30,359 Speaker 1: FX and Commodities. Brought a lot of shoutely great to 555 00:28:30,359 --> 00:28:41,360 Speaker 1: have you here with us. Brought you by Bank of 556 00:28:41,360 --> 00:28:45,400 Speaker 1: America Mary Lynch, dedicated to bringing our clients insights and 557 00:28:45,480 --> 00:28:49,640 Speaker 1: solutions to meet the challenges of a transforming world. That's 558 00:28:49,680 --> 00:28:54,959 Speaker 1: the power of global connections. Mary Lynch Pierce federin Smith Incorporated, 559 00:28:55,120 --> 00:29:01,320 Speaker 1: Member s I p C. George Freedman, he's the founder 560 00:29:01,320 --> 00:29:04,160 Speaker 1: of Geopolitical Futures with us here to talk about all 561 00:29:04,200 --> 00:29:06,760 Speaker 1: that is happening all around the world. So much to 562 00:29:06,800 --> 00:29:09,960 Speaker 1: talk about, George, Let's begin with that G seven meetings. 563 00:29:09,960 --> 00:29:12,320 Speaker 1: Safe to say the agenda talking about ripping up the 564 00:29:12,320 --> 00:29:14,560 Speaker 1: script and true surveillance fashion here. The agenda for that 565 00:29:14,600 --> 00:29:17,720 Speaker 1: gess Haven't meeting changed radically last week after that gas 566 00:29:17,720 --> 00:29:21,480 Speaker 1: attack in Syria and then the response by the US afterwards. 567 00:29:21,520 --> 00:29:23,120 Speaker 1: What was discussed at the G seven? What do you 568 00:29:23,120 --> 00:29:26,040 Speaker 1: expect to come out of the meeting? Well, first le 569 00:29:26,160 --> 00:29:28,920 Speaker 1: Jim had changed, but the outcome didn't. Nothing was done 570 00:29:29,960 --> 00:29:33,640 Speaker 1: that Students of Jesus have been meetings these days. Basically, 571 00:29:33,680 --> 00:29:37,640 Speaker 1: the Europeans refused to really think about more sanctions on 572 00:29:37,680 --> 00:29:41,360 Speaker 1: the Russians, and the Americans demanded it just proformer that 573 00:29:41,440 --> 00:29:44,400 Speaker 1: and expected the US sanctions. So we come out of 574 00:29:44,400 --> 00:29:48,480 Speaker 1: that meeting with the West kind of split and in 575 00:29:48,480 --> 00:29:51,960 Speaker 1: a weak position. Uh. You look at at at sort 576 00:29:51,960 --> 00:29:53,720 Speaker 1: of the degree to which the White House has been 577 00:29:53,720 --> 00:29:58,160 Speaker 1: consolidating power and favor from other other places around the world. 578 00:29:58,160 --> 00:29:59,760 Speaker 1: I mentioned the phone called that Theresa May had with 579 00:29:59,760 --> 00:30:02,040 Speaker 1: pre Trump last night. He also spoke with German Chancellor 580 00:30:02,000 --> 00:30:04,960 Speaker 1: Angela Merco. We've seen people from all over the world weighing, 581 00:30:04,960 --> 00:30:06,960 Speaker 1: and leaders small over the world weighing, and what's the 582 00:30:07,000 --> 00:30:09,560 Speaker 1: White Houses objective here? After those strikes? We hear them 583 00:30:09,600 --> 00:30:11,960 Speaker 1: adamant about the fact that this was a one off. 584 00:30:12,000 --> 00:30:15,200 Speaker 1: They don't intend this to change their serial policy radically. 585 00:30:15,680 --> 00:30:17,959 Speaker 1: How difficult is it to maintain that position in light 586 00:30:17,960 --> 00:30:21,560 Speaker 1: of what happened last week. Well, in the case of Syria, 587 00:30:21,640 --> 00:30:24,440 Speaker 1: they probably can even if they want to. But the 588 00:30:24,480 --> 00:30:26,560 Speaker 1: real thing they're doing right now is trying to figure 589 00:30:26,560 --> 00:30:29,600 Speaker 1: out what their Middle East strategy is and what their 590 00:30:29,640 --> 00:30:33,120 Speaker 1: strategy toward Russia is going to be. They're also looking 591 00:30:33,120 --> 00:30:36,040 Speaker 1: back at the Alliance and seeing how it holds together. 592 00:30:36,520 --> 00:30:38,840 Speaker 1: In other words, all the things they said during the 593 00:30:38,880 --> 00:30:44,240 Speaker 1: campaign is falling away and they're becoming a pretty conventional president. 594 00:30:44,680 --> 00:30:48,640 Speaker 1: This is absolutely normal. Presidents run on one set of 595 00:30:48,680 --> 00:30:51,920 Speaker 1: promises and they governed another. George, I wondering if you 596 00:30:51,960 --> 00:30:55,080 Speaker 1: could comment about the U. S Military presence in countries 597 00:30:55,080 --> 00:30:57,920 Speaker 1: such as Jordan's and also the role of the United 598 00:30:57,960 --> 00:31:00,840 Speaker 1: States and the conflict that's taking place in Yemen, because 599 00:31:00,880 --> 00:31:05,640 Speaker 1: this seems to pit Iran and Saudi Arabia almost using 600 00:31:05,680 --> 00:31:10,480 Speaker 1: the US and Russia as proxies. Well, that's certainly happening, 601 00:31:10,960 --> 00:31:14,200 Speaker 1: uh in terms of the presence there. Uh, it's enough 602 00:31:14,240 --> 00:31:16,760 Speaker 1: to get us into trouble, not enough to get us 603 00:31:16,760 --> 00:31:18,600 Speaker 1: out of trouble. And I think this is one of 604 00:31:18,720 --> 00:31:21,480 Speaker 1: the things that Mattis is looking at our Secretary Defense. 605 00:31:22,080 --> 00:31:25,840 Speaker 1: He's looking at the question of we've exposed troops in 606 00:31:26,200 --> 00:31:29,560 Speaker 1: a whole number of countries without a sufficient number to 607 00:31:29,640 --> 00:31:33,200 Speaker 1: really fight a major battle if it's imposed on them. 608 00:31:33,240 --> 00:31:35,160 Speaker 1: And this is really the question we have. I mean, 609 00:31:35,280 --> 00:31:37,920 Speaker 1: we're all over the place with a light number of troops. 610 00:31:38,320 --> 00:31:40,480 Speaker 1: Are we going to make another major commitment to the 611 00:31:40,480 --> 00:31:43,480 Speaker 1: Middle East or are we going to cut back? One 612 00:31:43,520 --> 00:31:45,760 Speaker 1: of the things that Mattis wants is to make certain 613 00:31:45,800 --> 00:31:50,040 Speaker 1: that every deployment UH is viable. And right now we 614 00:31:50,160 --> 00:31:53,600 Speaker 1: have like a thousand troops in Syria, which is enough 615 00:31:53,640 --> 00:31:55,400 Speaker 1: to get us into trouble, as I said, but not 616 00:31:55,520 --> 00:31:57,400 Speaker 1: enough to get us out of it. Well, it's already 617 00:31:57,400 --> 00:32:00,520 Speaker 1: been reported that, for example, troops from the eighty two 618 00:32:00,600 --> 00:32:03,760 Speaker 1: Airborne are going to Kuwait and then they all await 619 00:32:03,800 --> 00:32:09,600 Speaker 1: obviously further orders there. In that context, George, is there 620 00:32:09,720 --> 00:32:12,760 Speaker 1: a strategy that the United States can implement that would 621 00:32:12,760 --> 00:32:16,520 Speaker 1: connect with President Donald Trump's pledge to rid the world 622 00:32:16,600 --> 00:32:21,880 Speaker 1: of Isis? Well, not troops when you consider that we 623 00:32:21,960 --> 00:32:24,920 Speaker 1: had a hundred and fifty thou troops interact and they 624 00:32:25,000 --> 00:32:29,320 Speaker 1: failed to carry out the mission. Troops really isn't going 625 00:32:29,360 --> 00:32:32,760 Speaker 1: to do it. They may be able to take, for example, 626 00:32:33,080 --> 00:32:37,000 Speaker 1: troops around Muscle and add them there and break ISIS there, 627 00:32:37,520 --> 00:32:39,400 Speaker 1: But the issue is an ISIS. The issue is the 628 00:32:39,680 --> 00:32:42,720 Speaker 1: dhest tendency in the Islamic world. So you break out 629 00:32:42,760 --> 00:32:46,720 Speaker 1: kaa ISIS rises, you break ISIS and other group rises. 630 00:32:47,120 --> 00:32:50,440 Speaker 1: The real strategic question is not to break a particular group, 631 00:32:50,880 --> 00:32:53,320 Speaker 1: but how do we break this tendency in the Islamic 632 00:32:53,320 --> 00:32:56,240 Speaker 1: world so it doesn't function? And that is a difficult problem, 633 00:32:56,280 --> 00:32:58,280 Speaker 1: probably not a military one, George. We'll come back in 634 00:32:58,280 --> 00:32:59,880 Speaker 1: a little bit talk about what's going on in the 635 00:33:00,000 --> 00:33:02,200 Speaker 1: re In Peninsula and maybe talk about the NATO Secretary 636 00:33:02,240 --> 00:33:04,320 Speaker 1: General's visit to Washington tomorrow. But let me ask you 637 00:33:04,400 --> 00:33:07,280 Speaker 1: lastly here just about how different the situation with Syria 638 00:33:07,480 --> 00:33:09,680 Speaker 1: is than it was in two thousand and thirteen when 639 00:33:09,680 --> 00:33:13,720 Speaker 1: President Obama made the now infamous Redline remark. As you 640 00:33:13,800 --> 00:33:15,720 Speaker 1: just said a moment ago, we have US troops on 641 00:33:15,760 --> 00:33:18,240 Speaker 1: the ground in Syria, and suffice to say, Russia's involvement 642 00:33:18,240 --> 00:33:21,960 Speaker 1: in the conflict is bigger than it was before. Well, 643 00:33:22,040 --> 00:33:25,120 Speaker 1: Russia's conflict appears bigger, but it really isn't a very 644 00:33:25,120 --> 00:33:27,840 Speaker 1: decisive one. They have a few a little over a 645 00:33:27,880 --> 00:33:31,800 Speaker 1: hundred aircraft and some special forces on the ground. Uh, 646 00:33:31,840 --> 00:33:34,560 Speaker 1: they're not a position to control of the situation. The 647 00:33:34,600 --> 00:33:36,960 Speaker 1: Americans aren't in the deosition to control of the situation. 648 00:33:37,160 --> 00:33:39,200 Speaker 1: I think we all have to understand is that the 649 00:33:39,280 --> 00:33:43,200 Speaker 1: mere presence of troops doesn't guarantee success. Let's all look 650 00:33:43,240 --> 00:33:47,160 Speaker 1: at Iraq, Let's look at Afghanistan and realize that either 651 00:33:47,320 --> 00:33:50,720 Speaker 1: far more troops than we defloy they're necessary, or we're 652 00:33:50,760 --> 00:33:54,120 Speaker 1: simply nibbling around the ages. Let's talk about what's going 653 00:33:54,160 --> 00:33:57,000 Speaker 1: on in Asia. We can talk about the president's summit 654 00:33:57,080 --> 00:33:59,440 Speaker 1: with she should pay the President of China. Let's start there. 655 00:33:59,440 --> 00:34:02,040 Speaker 1: As a matter of fact, give us your sense of 656 00:34:02,080 --> 00:34:04,240 Speaker 1: the outcome of that. Was the news here that there 657 00:34:04,280 --> 00:34:08,160 Speaker 1: wasn't much news. The news was that there wasn't much used. 658 00:34:08,160 --> 00:34:11,040 Speaker 1: And that's a lot of news because rather than a 659 00:34:11,080 --> 00:34:14,719 Speaker 1: confrontation between the two countries, Uh, it seems there's been 660 00:34:14,800 --> 00:34:17,560 Speaker 1: a pretty low key When we go back to the 661 00:34:17,560 --> 00:34:22,520 Speaker 1: campaign and see what Trump was saying about his relationship China, 662 00:34:23,000 --> 00:34:26,040 Speaker 1: that also has materialized, and that's what we're generally seeing. 663 00:34:26,680 --> 00:34:29,400 Speaker 1: The things he said during the campaign, the things that 664 00:34:29,440 --> 00:34:32,520 Speaker 1: he's doing are very different, which makes him a very 665 00:34:32,520 --> 00:34:35,919 Speaker 1: normal president. What's the what's the president of the US 666 00:34:36,040 --> 00:34:38,480 Speaker 1: looking at China to do when it comes to North Korea. 667 00:34:38,520 --> 00:34:40,200 Speaker 1: There's been a push for a long time to get 668 00:34:40,520 --> 00:34:42,839 Speaker 1: China to do more to enforce sanctions they're in place 669 00:34:42,920 --> 00:34:45,960 Speaker 1: by the international community. Do you see indications that China 670 00:34:46,040 --> 00:34:49,640 Speaker 1: is going to do that. Well, Chinese have done that regularly, 671 00:34:49,800 --> 00:34:52,120 Speaker 1: and in fact, I'm going to argue that they use 672 00:34:52,239 --> 00:34:56,520 Speaker 1: crises that Korea generates to pick up points with the 673 00:34:56,600 --> 00:35:01,719 Speaker 1: United States. First, the Koreans do something outrageous, then the 674 00:35:01,800 --> 00:35:03,760 Speaker 1: US goes to the Chinese and asked them to help. 675 00:35:04,120 --> 00:35:06,239 Speaker 1: Then when the US wants to have trade talks, it 676 00:35:06,480 --> 00:35:08,640 Speaker 1: kind of is churlish on the part of the United States. 677 00:35:08,680 --> 00:35:11,880 Speaker 1: The raised US after the Chinese bailed us out. But 678 00:35:11,920 --> 00:35:14,800 Speaker 1: we're in a different place now because the North Koreans 679 00:35:14,880 --> 00:35:18,960 Speaker 1: appeared to be close to having a nuclear weapon. The 680 00:35:19,040 --> 00:35:21,240 Speaker 1: United States is not going to be allowed that able 681 00:35:21,520 --> 00:35:25,719 Speaker 1: that happened. That means the potential of military action, and 682 00:35:25,760 --> 00:35:29,440 Speaker 1: therefore the arrival of the aircraft carrier should be taken 683 00:35:29,520 --> 00:35:32,560 Speaker 1: very seriously. We just can't allow them to get to 684 00:35:32,640 --> 00:35:35,200 Speaker 1: the point where they have nuclear weapons, and our allies 685 00:35:35,239 --> 00:35:38,400 Speaker 1: in the region of demanding that George speak to the 686 00:35:39,239 --> 00:35:44,080 Speaker 1: detail of US military presence in Asia, the US presence 687 00:35:44,120 --> 00:35:47,200 Speaker 1: in Okinawa in South Korea, and now as you just 688 00:35:47,239 --> 00:35:50,239 Speaker 1: say the carrier force, maybe you could just give us 689 00:35:50,239 --> 00:35:53,719 Speaker 1: some detail there. Well. The detail is that we have 690 00:35:54,320 --> 00:35:57,520 Speaker 1: a large number of Marines there and in Guam. We 691 00:35:57,600 --> 00:36:01,839 Speaker 1: have smaller deployments in other countries. He's basically support them. 692 00:36:01,960 --> 00:36:04,319 Speaker 1: But the major function that's going to have to be 693 00:36:04,400 --> 00:36:07,279 Speaker 1: used to take out North Korea's capability, if we choose 694 00:36:07,320 --> 00:36:10,440 Speaker 1: to do so, will be in a carrier battle group 695 00:36:11,000 --> 00:36:14,320 Speaker 1: and possibly strategic bombers like B one B two bombers 696 00:36:14,360 --> 00:36:18,000 Speaker 1: that can go intocognentally. The question we have about North 697 00:36:18,080 --> 00:36:21,080 Speaker 1: Korea is can we take them out with conventional west weapons. 698 00:36:21,520 --> 00:36:26,399 Speaker 1: Their facilities are buried deep on the ground. We think, uh, 699 00:36:26,600 --> 00:36:30,560 Speaker 1: they may not be reachable by conventional weapons, and we're 700 00:36:30,600 --> 00:36:34,160 Speaker 1: facing the nightmare of having to use nuclear weapons to 701 00:36:34,200 --> 00:36:37,760 Speaker 1: stop them. That's why Trump demanded that the Japanese developed 702 00:36:37,760 --> 00:36:40,279 Speaker 1: their own nuclear weapons. We don't want to be the 703 00:36:40,320 --> 00:36:43,440 Speaker 1: only ones to use nuclear weapons, and we certainly dread 704 00:36:43,480 --> 00:36:46,120 Speaker 1: the idea of using them again, But we also dread 705 00:36:46,520 --> 00:36:50,360 Speaker 1: a Korean capability secondary defense. James Mattis has made a 706 00:36:50,360 --> 00:36:53,239 Speaker 1: trip to East Asia. He visited a South Korea. On 707 00:36:53,280 --> 00:36:55,960 Speaker 1: the heels of that, the Secretary State Rex Tillerson did 708 00:36:55,960 --> 00:36:58,759 Speaker 1: the same, and Secretary Tillerson talked about a change in 709 00:36:58,920 --> 00:37:02,600 Speaker 1: policy toward North Korea. What have you heard about the 710 00:37:02,840 --> 00:37:05,040 Speaker 1: contours of that policy. How is this policy going to 711 00:37:05,040 --> 00:37:06,080 Speaker 1: be different than the one that we had in the 712 00:37:06,080 --> 00:37:10,359 Speaker 1: previous administration. Well, in the previous administration, all administrations, our 713 00:37:10,560 --> 00:37:14,680 Speaker 1: position has been that they have a nuclear program, They're 714 00:37:14,719 --> 00:37:17,040 Speaker 1: probably not going to get nuclear weapons. They certainly don't 715 00:37:17,040 --> 00:37:19,920 Speaker 1: have nuclear weapons now. So we have time. We can 716 00:37:20,000 --> 00:37:23,479 Speaker 1: make public statements, we can try sanctions, but we don't 717 00:37:23,480 --> 00:37:26,360 Speaker 1: have to do anything decisive. We see him through the 718 00:37:26,360 --> 00:37:28,919 Speaker 1: approaching the point where something decisive has to be done, 719 00:37:29,400 --> 00:37:30,880 Speaker 1: and that means we want to do it in the 720 00:37:30,920 --> 00:37:34,279 Speaker 1: context of the coalition. So we want all the rest 721 00:37:34,280 --> 00:37:37,520 Speaker 1: of Asia, especially China, to be of the opinion that 722 00:37:37,840 --> 00:37:40,600 Speaker 1: what North Korea is doing is intolerable. And that's one 723 00:37:40,640 --> 00:37:42,680 Speaker 1: of the reasons why I think the President backed off 724 00:37:43,160 --> 00:37:46,600 Speaker 1: a confrontation on trade issues. Uh. They want the Chinese 725 00:37:46,640 --> 00:37:49,680 Speaker 1: to join the coalition, and the Chinese are in that sense, 726 00:37:49,719 --> 00:37:52,680 Speaker 1: is delighted by the North Korean actions because it removes 727 00:37:52,840 --> 00:37:56,120 Speaker 1: pressure on them. George, can you speak to the issue 728 00:37:56,280 --> 00:37:59,680 Speaker 1: of managing power and balance. I know that this is 729 00:37:59,719 --> 00:38:02,560 Speaker 1: the topic of your book the next decade. Maybe just 730 00:38:02,560 --> 00:38:05,919 Speaker 1: give us an idea of how that would actually work. Well, 731 00:38:06,600 --> 00:38:10,759 Speaker 1: we are an extremely powerful country, we're not omnipotent. We 732 00:38:10,840 --> 00:38:15,080 Speaker 1: cannot simultaneously manage the entire world. We have to decide 733 00:38:15,120 --> 00:38:17,719 Speaker 1: what parts of the world matter most to us and 734 00:38:17,800 --> 00:38:20,839 Speaker 1: let them go. So, for example, we may want to 735 00:38:21,200 --> 00:38:24,480 Speaker 1: pacify in the least, but it's not clear that all 736 00:38:24,520 --> 00:38:26,680 Speaker 1: the military power we have is going to do that. 737 00:38:27,120 --> 00:38:31,880 Speaker 1: So we have to live with a lesser, less satisfactory situation. 738 00:38:32,440 --> 00:38:35,520 Speaker 1: We have to decide what matters and what doesn't. Now 739 00:38:35,560 --> 00:38:39,000 Speaker 1: there's people who argue that nothing overseas matters. That I 740 00:38:39,040 --> 00:38:41,440 Speaker 1: think is nonsense. There are those who are prepared to 741 00:38:41,480 --> 00:38:45,919 Speaker 1: go to war simultaneousy everybody. Uh, that's also nonsense. There 742 00:38:45,920 --> 00:38:48,800 Speaker 1: are some bad situations or just have to tolerate because 743 00:38:48,840 --> 00:38:51,040 Speaker 1: we don't have the ability to do anything about it, 744 00:38:51,600 --> 00:38:54,600 Speaker 1: and that means a very different foreign policy. During the 745 00:38:54,640 --> 00:38:58,320 Speaker 1: Cold War, we could focus on one country, the Soviet Union. 746 00:38:59,239 --> 00:39:03,240 Speaker 1: We can focus during much of the Jahadist Wars on 747 00:39:03,239 --> 00:39:06,200 Speaker 1: one or two threats. But as the Chinese urges, the 748 00:39:06,239 --> 00:39:09,600 Speaker 1: Russians emerge, as we convenion have the Middle least, we 749 00:39:09,680 --> 00:39:12,560 Speaker 1: do not have the force capable of coping with all 750 00:39:12,560 --> 00:39:15,439 Speaker 1: of them. So we have to prioritize, and we've never 751 00:39:15,480 --> 00:39:18,600 Speaker 1: done that before. Really, let me ask you here to 752 00:39:18,640 --> 00:39:21,680 Speaker 1: preview the visit by Yan Stoltenberg, the NATO Secretary General 753 00:39:21,719 --> 00:39:23,279 Speaker 1: to Washington, d C. He's going to meet with the 754 00:39:23,280 --> 00:39:24,960 Speaker 1: President to mar Of course, he met at the Secretary 755 00:39:24,960 --> 00:39:27,919 Speaker 1: of State a couple of weeks back in Brussels. I'm 756 00:39:27,920 --> 00:39:30,600 Speaker 1: reminded of the joint news conference that President Trump gave 757 00:39:30,640 --> 00:39:33,759 Speaker 1: with the German Chancellor Angela Merkel. There he did what 758 00:39:33,840 --> 00:39:36,640 Speaker 1: many hoped he would do. He reaffirmed the US commitment 759 00:39:36,640 --> 00:39:40,360 Speaker 1: to the alliance, but then quickly pivoted to talk about funding. 760 00:39:40,920 --> 00:39:43,120 Speaker 1: What's your sense of how this alliance, the integrity of 761 00:39:43,160 --> 00:39:46,400 Speaker 1: this the alliance at this point, and how fulsomely the 762 00:39:46,480 --> 00:39:49,839 Speaker 1: U S President embraces it well. The way I would 763 00:39:49,840 --> 00:39:51,960 Speaker 1: put it is, the question is not whether the United 764 00:39:52,000 --> 00:39:55,960 Speaker 1: States will remain loyal to NATO. It's whether the Europeans 765 00:39:56,040 --> 00:40:00,359 Speaker 1: want to join NATO. This is a military alliance, systs 766 00:40:00,400 --> 00:40:04,080 Speaker 1: of military forces. The Europeans allowed their military forces to 767 00:40:04,120 --> 00:40:07,920 Speaker 1: deteriorate to almost nothing. Uh So, what is the point 768 00:40:07,920 --> 00:40:11,880 Speaker 1: of the alliance? I think Trump's view is basically that 769 00:40:12,000 --> 00:40:16,440 Speaker 1: either we have a full alliance that they agree to 770 00:40:16,600 --> 00:40:20,400 Speaker 1: spend two of their GDP on defense, or there's no 771 00:40:20,520 --> 00:40:23,439 Speaker 1: point going voward. The Germans have made it absolutely clear 772 00:40:23,440 --> 00:40:26,480 Speaker 1: they're not going to Stoltenberg, by the way, sides with 773 00:40:26,520 --> 00:40:29,239 Speaker 1: the United States. He made a very strong speech saying 774 00:40:29,280 --> 00:40:32,520 Speaker 1: that the American demand is not only reasonable, but something 775 00:40:32,520 --> 00:40:36,000 Speaker 1: that Europeans agreed to a few years ago. So I 776 00:40:36,000 --> 00:40:38,640 Speaker 1: think the Stoltenberg visit will go well, but from the 777 00:40:38,680 --> 00:40:41,239 Speaker 1: American point of view. From my point of view, what 778 00:40:41,560 --> 00:40:45,400 Speaker 1: uses a military alliance that obligates US to support nations, 779 00:40:46,200 --> 00:40:49,359 Speaker 1: but the other nations don't have the ability to support us. 780 00:40:50,600 --> 00:40:53,960 Speaker 1: Thank very much, Georgia Friedman. Interesting conversation. He is the 781 00:40:53,960 --> 00:40:58,279 Speaker 1: founder and chairman of Geopolitical Futures, giving us really a 782 00:40:58,320 --> 00:41:01,320 Speaker 1: window into the challenge us that the United States faces 783 00:41:01,320 --> 00:41:13,080 Speaker 1: with foreign policy. Thanks for listening to the Bloomberg Surveillance podcast. 784 00:41:13,440 --> 00:41:18,560 Speaker 1: Subscribe and listen to interviews on iTunes, SoundCloud, or whichever 785 00:41:18,719 --> 00:41:23,120 Speaker 1: podcast platform you prefer. I'm out on Twitter at Tom Keene. 786 00:41:23,200 --> 00:41:27,000 Speaker 1: David Gura is at David Gura. Before the podcast, you 787 00:41:27,040 --> 00:41:43,319 Speaker 1: can always catch us worldwide. I'm Bloomberg Radio, brought you 788 00:41:43,400 --> 00:41:47,000 Speaker 1: by Bank of America. Mary Lynch. Dedicated to bringing our 789 00:41:47,080 --> 00:41:50,680 Speaker 1: clients insights and solutions to meet the challenges of a 790 00:41:50,719 --> 00:41:55,120 Speaker 1: transforming world. That's the power of global connections. Mary Lynch, 791 00:41:55,280 --> 00:41:59,560 Speaker 1: Pierce Federan Smith Incorporated, Member s I p C.